10-K

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

FORM 10-K

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

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
or
o	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 0-19119

Cephalon, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of incorporation or organization)	23-2484489 (I.R.S. Employer Identification No.)
41 Moores Rd. P.O. Box 4011 Frazer, Pennsylvania (Address of Principal Executive Offices)	19355 (Zip Code)

Registrant's telephone number, including area code: (610) 344-0200

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

Title of each class	Name of each exchange on which registered
None	None

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

Common Stock, par value $.01 per share

(Title of Class)

        Indicate by check mark whether the registrant (1) has filed all reports 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 ý    No o.

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Act of 1933). Yes ý    No o.

        The aggregate market value of the voting stock held by non-affiliates of the registrant, as of June 30, 2004, was approximately $1.6 billion. Such aggregate market value was computed by reference to the closing price of the Common Stock as reported on the Nasdaq National Market on June 30, 2004. For purposes of making this calculation only, the registrant has defined affiliates as including only directors and executive officers and shareholders holding greater than 10% of the voting stock of the registrant as of June 30, 2004.

        The number of shares of the registrant's Common Stock outstanding as of March 7, 2005 was 58,030,839.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the registrant's definitive proxy statement for its 2005 annual meeting of stockholders are incorporated by reference into Items 10, 11, 12, 13, and 14 of Part III of this Form 10-K.

TABLE OF CONTENTS

		Page
Cautionary Note Regarding Forward-Looking Statements		ii
PART I
Item 1.	Business	1
Item 2.	Properties	22
Item 3.	Legal Proceedings	22
Item 4.	Submission of Matters to a Vote of Security Holders	23
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	28
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	68
Item 8.	Financial Statements and Supplementary Data	69
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	111
Item 9A.	Controls and Procedures	111
Item 9B.	Other Information	111
PART III
Item 10.	Directors and Executive Officers of the Registrant	112
Item 11.	Executive Compensation	112
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	112
Item 13.	Certain Relationships and Related Transactions	112
Item 14.	Principal Accountant Fees and Services	112
PART IV
Item 15.	Exhibits and Financial Statement Schedules	113
SIGNATURES		122

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        In addition to historical facts or statements of current condition, this report and the documents into which this report is and will be incorporated contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements contained in this report constitute our expectations or forecasts of future events as of the date this report was filed with the SEC and are not statements of historical fact. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Such statements may include words such as "anticipate," "will," "estimate," "expect," "project," "intend," "should," "plan," "believe," "hope," and other words and terms of similar meaning in connection with any discussion of, among other things, future operating or financial performance, strategic initiatives and business strategies, regulatory or competitive environments, our intellectual property and product development. In particular, these forward-looking statements include, among others, statements about:

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our dependence on sales of PROVIGIL® (modafinil) tablets [C-IV], ACTIQ® (oral transmucosal fentanyl citrate) [C-II] and GABITRIL® (tiagabine hydrochloride) in the United States and the market prospects and future marketing efforts for these products, including with respect to any new formulations or indications for such products;



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any potential expansion of the authorized uses of our existing products;



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our anticipated scientific progress in our research programs and our development of potential pharmaceutical products including our ongoing or planned clinical trials, the timing and costs of such trials and the likelihood or timing of revenues from these products, if any;



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the timing and predictability of regulatory approvals for our product candidates;



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our ability to adequately protect our technology and enforce our intellectual property rights and the future expiration of patent and/or regulatory exclusivity on certain of our products;



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our ability to realize the anticipated benefits of our acquisition of CIMA LABS INC.;



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our future cash flow, our ability to service or repay our existing debt and our ability to raise additional funds, if needed, in light of our current and projected level of operations; and



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other statements regarding matters that are not historical facts or statements of current condition.

        Any or all of our forward-looking statements in this report and in the documents we have referred you to may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Therefore, you should not place undue reliance on any such forward-looking statements. The factors that could cause actual results to differ from those expressed or implied by our forward-looking statements include, among others:

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the acceptance of our products by physicians and patients in our current markets and new markets;



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our ability to obtain regulatory approvals of our product candidates or of expanded indications for certain of our existing products;



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scientific, regulatory or other setbacks in our research programs, clinical trials, or manufacturing activities with respect to our product candidates, particularly ATTENACE™, NUVIGIL™, ORAVESCENT® fentanyl, GABITRIL for use in generalized anxiety disorder and CEP-1347, or our existing products;



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unanticipated cash requirements to support current operations, expand our business or incur capital expenditures;

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the inability to adequately protect our key intellectual property rights, including as a result of an adverse adjudication in connection with the PROVIGIL or ACTIQ patent litigation;



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the loss of key management or scientific personnel;



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the activities of our competitors in the industry, including the filing of Abbreviated New Drug Applications (ANDAs) with a Paragraph IV certification for any product containing modafinil or the entry of a generic competitor to ACTIQ;



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the loss of one or more key customers of CIMA LABS;



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market conditions in the biopharmaceutical industry that make raising capital or consummating acquisitions difficult, expensive or both; and



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enactment of new government laws, regulations, court decisions, regulatory interpretations or other initiatives that are adverse to us or our interests.

        We do not intend to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. We discuss in more detail the risks that we anticipate in the section included in Part II, Item 7 hereof and entitled "Certain Risks Related to our Business." This discussion is permitted by the Private Securities Litigation Reform Act of 1995.

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PART I

ITEM 1.    BUSINESS

Overview

        Cephalon is an international biopharmaceutical company dedicated to the discovery, development and marketing of innovative products to treat sleep and neurological disorders, cancer and pain. In addition to conducting an active research and development program, we market three products in the United States and numerous products in various countries throughout Europe. Through our wholly-owned subsidiary, CIMA LABS INC., we develop and manufacture orally disintegrating tablets using proprietary technologies that allow an active drug ingredient to be formulated into a new dosage form that quickly disintegrates in the mouth without chewing or the need for water.

        Our three most important products PROVIGIL® (modafinil) Tablets [C-IV], ACTIQ® (oral transmucosal fentanyl citrate) [C-II] and GABITRIL® (tiagabine hydrochloride), comprised approximately 90% of our worldwide net sales. Approximately 95% of PROVIGIL, ACTIQ and GABITRIL sales for the year ended December 31, 2004 were in the U.S. market. We market our U.S. products through a nearly 500-person field sales and sales management team that calls on primary care physicians (e.g., internists, general practitioners and family practitioners), neurologists, psychiatrists, oncologists and pain and sleep specialists. Outside of the United States, we have a sales organization in France numbering approximately 140 persons detailing our products to office-based and hospital-based physicians, and sales and marketing organizations with approximately 70 persons in the aggregate that support our presence in other European countries, including the United Kingdom, Germany, the Republic of Ireland, Switzerland and Austria. In territories where we have not established our own sales and marketing groups, we market our products through a select group of distribution companies with expertise in the development, marketing and sale of pharmaceuticals in those territories. In most cases, we have granted rights to our distribution partners to market, sell and distribute our products in their respective territories, and we supply finished product for resale in such territories.

        During 2004, we advanced our efforts to broaden the range of clinical uses that are approved by regulatory authorities, seek new and improved formulations of our currently marketed products and license or acquire new product candidates. Some notable achievements include:

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we received final approval from the U.S. Food and Drug Administration to expand the label for PROVIGIL to include improving wakefulness in patients with excessive sleepiness associated with shift work sleep disorder (SWSD) and in patients with obstructive sleep apnea/hypopnea syndrome (OSA/HS);



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we submitted a supplemental new drug application (sNDA) to the FDA seeking marketing approval of ATTENACE™ (modafinil), a new proprietary once-daily dosage form of modafinil for the treatment of attention deficit/hyperactivity disorder (ADHD) in children and adolescents between the ages of six and 17. We are targeting launch of ATTENACE by early 2006;



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we recently reported positive Phase 3 clinical trials results with NUVIGIL™ (armodafinil), a single-isomer of PROVIGIL, in narcolepsy, OSA/HS and SWSD and expect to submit an NDA for NUVIGIL to the FDA in March 2005;



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we initiated a Phase 3 clinical program evaluating GABITRIL for the treatment of generalized anxiety disorder (GAD) and, if the results of these studies are positive, expect to submit an NDA to the FDA in early 2006;



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we submitted to the FDA an sNDA seeking regulatory approval of a sugar-free formulation of ACTIQ and anticipate approval by mid-2005; and

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through our acquisition of CIMA LABS, we acquired the ORAVESCENT® fentanyl product candidate. ORAVESCENT fentanyl is in Phase 3 clinical trials for the treatment of breakthrough cancer pain in opioid-tolerant patients, and we are targeting submission of an NDA to the FDA later this year and approval of this product by the FDA in late 2006.

        We also have significant discovery research programs focused on developing therapeutics to treat neurological and oncological disorders. Our technology principally focuses on an understanding of kinases and the role they play in cellular survival and proliferation. We have coupled this knowledge with a library of novel, small, synthetic molecules that are orally-active and inhibit the activities of specific kinases and currently have three molecules in clinical development. One such molecule, CEP-1347, is being evaluated by us and our partner, H. Lundbeck A/S, in an 800-patient, randomized, double-blind, placebo-controlled, Phase 2/3 clinical trial for the treatment of patients with early stage Parkinson's disease.

        Our future success is highly dependent on obtaining and maintaining patent protection for our products and technology. With respect to PROVIGIL, we have filed patent infringement lawsuits against six generic companies based upon the abbreviated new drug applications (ANDAs) filed by these companies seeking FDA approval to market a generic version of modafinil. The first five lawsuits are currently in the discovery phase; we anticipate that the first trial will begin no earlier than late 2005. We filed the sixth lawsuit in February 2005. See "Management's Discussion and Analysis of Financial Condition—Certain Risks Related to Our Business." For ACTIQ, the patents covering the previous and current formulations of the product are set to expire as early as May 2005 and September 2006, respectively. As a result of the License and Supply Agreement we entered into with Barr Laboratories, Inc. in July 2004, we could face generic competition from Barr prior to September 2006 if we receive FDA approval of ORAVESCENT® fentanyl before this date. See "Acquisition of CIMA LABS INC." below. In December 2004, we announced that FDA had acknowledged receipt of an ANDA filed by Barr seeking approval for a generic form of ACTIQ. In January 2005, we filed a patent infringement lawsuit against Barr to defend our patents until the license effective date. Neither the ANDA filing nor the lawsuit modifies the existing license grant to Barr, and we do not expect any change in the anticipated date of Barr's entry to the market (absent resolution of the lawsuit). We intend to vigorously defend the validity, and prevent infringement of, our patents. The loss of patent protection on any of our existing products, whether by third-party challenge, invalidation, circumvention, license or patent expiration, would materially impact our results of operations.

        As a biopharmaceutical company, our activities and operations are subject to significant government regulations and oversight. In September 2004, we announced that we had received subpoenas from the U.S. Attorney's Office in Philadelphia with respect to PROVIGIL, ACTIQ and GABITRIL. This investigation is ongoing and appears to be focused on our sales and promotional practices. We are cooperating with the investigation and are providing documents to the government. In addition, we have engaged in ongoing discussions with the Attorney General in Pennsylvania regarding recent media reports of instances of abuse and diversion of ACTIQ. We have had similar discussions with the Office of the Connecticut Attorney General; in September 2004, we received a voluntary request for information from the Office of the Connecticut Attorney General asking us to provide information generally relating to our sales and promotional practices for our U.S. products. We have agreed to comply with this voluntary request. Each of these matters may involve the bringing of criminal charges and fines, and/or civil penalties. We cannot predict or determine the outcome of these matters or reasonably estimate the amount or range of amounts of any fines or penalties that might result from an adverse outcome. However, an adverse outcome could have a material adverse effect on our financial position, liquidity and results of operations.

        For the year ended December 31, 2004, our total revenues and net loss were $1.0 billion and $73.8 million, respectively. Our revenues from U.S. and European operations are detailed in Note 18 to

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our consolidated financial statements included in Item 8 of this Form 10-K. The third quarter of 2001 was our first profitable quarter from commercial operations since inception. Our accumulated deficit at December 31, 2004 was $395.1 million. These accumulated losses have resulted principally from costs incurred in research and development, including clinical trials, and from selling, general and administrative costs associated with our pre-commercial and commercial activities. Prior to 2001, we funded our operations principally from the proceeds of private and public sales of our equity and debt securities. While we seek to increase profitability and cash flow from operations, we will need to continue to achieve growth of product sales and other revenues sufficient for us to attain these objectives. The rate of our future growth will depend, in part, upon our ability to obtain and maintain adequate intellectual property protection for our currently marketed products, or to successfully develop or acquire and commercialize new product candidates.

        We are a Delaware corporation with our principal executive offices located at 41 Moores Rd., P.O. Box 4011, Frazer, Pennsylvania, 19355. Our telephone number is (610) 344-0200 and our web site address is www.cephalon.com. Our research and development headquarters are located in West Chester, Pennsylvania and we also have offices in Salt Lake City, Utah, suburban Minneapolis-St. Paul, Minnesota, France, the United Kingdom, Germany and Switzerland. We operate manufacturing facilities in France for the production of modafinil, which is the active drug substance in PROVIGIL, ATTENACE and NUVIGIL. We also have manufacturing facilities in Salt Lake City, Utah, for the production of ACTIQ for worldwide distribution and sale, and Eden Prairie and Brooklyn Park, Minnesota, for the production of orally disintegrating versions of drugs for pharmaceutical company partners.

        Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are available free of charge through the Investor Relations section of our web site as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. We include our web site address in this Annual Report on Form 10-K only as an inactive textual reference and do not intend it to be an active link to our web site.

ACQUISITION OF CIMA LABS INC.

        On August 12, 2004, we completed our acquisition of CIMA LABS INC. Under the Agreement and Plan of Merger dated November 3, 2003, we acquired each outstanding share of CIMA LABS common stock for $34.00 per share in cash. The total cash paid to CIMA LABS stockholders in the transaction was approximately $482.5 million, net of CIMA LABS' existing cash on hand, or $409.4 million, net of its cash, cash equivalents and investments. As a result of the acquisition, we obtained the rights to CIMA LABS' ORAVESCENT fentanyl product candidate, which is currently in Phase 3 clinical trials for the treatment of breakthrough cancer pain in opioid-tolerant patients. ORAVESCENT fentanyl utilizes an enhanced absorption transmucosal drug delivery technology that we believe may facilitate the rapid onset of pain relief in such patients. We are targeting approval of this product by the FDA in late 2006.

        CIMA LABS also develops and manufactures orally disintegrating tablets using its proprietary technologies, OraSolv® and DuraSolv®, that allow an active drug ingredient to be formulated into a new dosage form that quickly disintegrates in the mouth without chewing or the need for water. CIMA LABS enters into collaborative agreements with pharmaceutical companies to develop products based on its oral drug delivery technologies. It currently manufactures for its partners, including AstraZeneca, N.V. Organon and Wyeth, five prescriptions and three over-the-counter pharmaceutical brands incorporating either the OraSolv or DuraSolv technologies. Revenues from these arrangements consist of net sales of manufactured product to partners, product development and licensing fees and royalties.

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For the period August 13, 2004 to December 31, 2004, revenues attributable to CIMA LABS totaled $28.4 million. CIMA LABS has facilities in Eden Prairie and Brooklyn Park, Minnesota, which house its executive offices, manufacturing facility, research and product development center and warehouse space.

        To secure FTC clearance of the CIMA LABS acquisition, we entered into a license and supply agreement with Barr whereby we agreed to license to Barr our U.S. rights to any intellectual property related to ACTIQ. The license to ACTIQ will become effective upon the earliest to occur of (i) final FDA approval of ORAVESCENT fentanyl, (ii) September 5, 2006, if we have not received either (A) an approvable letter from FDA for the sugar free formulation of ACTIQ by July 1, 2005 (or final FDA approval within 180 days of such approvable letter) or (B) a pediatric extension for ACTIQ or (iii) February 3, 2007, if we have received a pediatric extension for ACTIQ. As we currently expect to receive both a pediatric extension for ACTIQ prior to September 2006 and FDA approval for the sugar-free formulation of ACTIQ within the timeframe agreed upon with the FTC, we anticipate that the Barr license will be effective upon ORAVESCENT fentanyl approval. Under the agreement, Barr also may receive a license to the sugar-free formulation of ACTIQ under development; this license would become effective upon ORAVESCENT fentanyl approval by the FDA or if the sugar-free approval timelines described above are not achieved. We have filed an sNDA with the FDA requesting approval for the sugar-free formulation of ACTIQ, and we anticipate final FDA approval of this formulation by mid-2005.

        Under the license and supply agreement, we also agreed to transfer to Barr our technological know-how and intellectual property related to ACTIQ and to sell to Barr, for period of up to three years, a generic form of ACTIQ for resale in the United States if Barr is unable to manufacture an FDA-approved generic version of ACTIQ by the date the license takes effect. In addition, we have agreed to forbear from asserting any remaining patent rights in ACTIQ against other parties beginning on the earlier of August 3, 2007 or six months following the effective date of Barr's license.

PROVIGIL

Overview

        Modafinil, the active ingredient in PROVIGIL, is the first in a new class of wakefulness-promoting agents. While its exact mechanism of action remains to be fully elucidated, modafinil appears to act selectively in regions of the brain believed to regulate normal sleep and wakefulness. In December 1998, the FDA approved PROVIGIL to improve wakefulness in patients with excessive daytime sleepiness associated with narcolepsy and we launched the product in the United States in February 1999. In January 2004, we received FDA approval to expand the label for PROVIGIL to include improving wakefulness in patients with excessive sleepiness associated with OSA/HS and SWSD. For patients with OSA/HS, PROVIGIL is indicated as an adjunct to standard treatments for the underlying condition. In clinical studies, PROVIGIL was found to be generally well-tolerated, with a low incidence of adverse events relative to placebo. The most commonly observed adverse events were headache, infection, nausea, nervousness, anxiety and insomnia.

        Outside of the U.S., modafinil currently is approved in more than 30 countries, including France, the United Kingdom, Ireland, Italy and Germany, for the treatment of excessive daytime sleepiness associated with narcolepsy. In certain of these countries, including the United Kingdom, France, the Republic of Ireland and Germany, we also have approval to market modafinil to treat excessive daytime sleepiness in patients with OSA/HS. In the United Kingdom, PROVIGIL also is indicated for excessive sleepiness associated with SWSD.

Narcolepsy

        Narcolepsy is a debilitating, lifelong sleep disorder whose symptoms often first arise in late childhood. Its most common symptom is an uncontrollable propensity to fall asleep during the day.

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This sleep disorder impairs a person's ability to perform basic daily activities, significantly impacting their quality of life. There is no known cure for narcolepsy, which is estimated by the National Institutes of Health (NIH) to affect approximately 200,000 people in the United States of which many remain undiagnosed and untreated. PROVIGIL has been recognized by the American Academy of Sleep Medicine as a standard of therapy for the treatment of excessive daytime sleepiness associated with narcolepsy.

Obstructive Sleep Apnea/Hypopnea Syndrome

        Individuals with OSA/HS experience frequent awakenings, sometimes occurring hundreds of times during the night as a result of blockage of the airway passage, usually the relaxation and collapse of the soft tissue in the back of the throat during sleep. Symptoms of OSA/HS may include restless sleep, loud, heavy snoring (often interrupted by silence and then gasps), falling asleep during the day, morning headaches, loss of energy, trouble concentrating, irritability, forgetfulness, mood or behavior changes, anxiety or depression, and obesity. According to the National Center on Sleep Disorders Research, OSA is estimated to afflict at least 15 million Americans. Continuous positive airway pressure, or CPAP, a medical device that blows air through the nasal passage, is the primary treatment for OSA/HS. However, approximately 30 percent of patients that use CPAP continue to experience excessive sleepiness, for which PROVIGIL may be an appropriate adjunctive treatment.

Shift Work Sleep Disorder

        SWSD is defined as a persistent or recurrent pattern of sleep disruption that leads to excessive sleepiness or insomnia due to a mismatch between the natural circadian sleep-wake pattern and the sleep-wake schedule required by a person's environment. Characterized by extreme sleepiness, insomnia, headaches and difficulty concentrating, SWSD particularly affects those who frequently rotate shifts or work at night, which is contrary to the body's natural circadian rhythms. According to the National Institutes of Health, about 20 million U.S. adults, or 20 to 25 percent of the national labor force, perform shift work. Excessive sleepiness is a major problem for shift workers, with several million experiencing this disorder.

Market expansion strategies

        While applicable laws and regulations prevent us from promoting our products for uses beyond those contained in the approved label, our analysis of prescription data for PROVIGIL in the United States indicates that many physicians have elected to prescribe the product to treat conditions outside its currently labeled indications, including for excessive sleepiness associated with depression, fatigue associated with multiple sclerosis and for ADHD.

        Our ongoing clinical programs have been focused on the exploration of the potential use of modafinil in treating other clinical conditions. To that end, in December 2004 we submitted an sNDA to the FDA seeking marketing approval of ATTENACE, a new proprietary once-daily dosage form of modafinil for the treatment of ADHD in children and adolescents between the ages of six and 17. The sNDA was based on the results of three multi-center clinical trials that show that new proprietary once-daily dosage forms of ATTENACE significantly improve symptoms of ADHD in children and adolescents. In three nine-week, double-blind, placebo-controlled studies, 600 children and adolescents between the ages of six and 17 with ADHD were randomized to either placebo or ATTENACE. The primary endpoint in all studies was the teacher-completed school version of the ADHD Rating Scale IV. All of the ATTENACE-treated groups showed a highly statistically significant improvement on the primary endpoint compared to placebo. ATTENACE was generally well tolerated, and the most common side effects observed in these studies were consistent with those observed in other studies of this compound and included insomnia, headache and loss of appetite. We are targeting launch of ATTENACE by early 2006.

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        Finally, an important focus of our PROVIGIL strategy is the development of follow-on compounds. In early 2005, we announced that Phase 3 clinical trials of 150- and 250-milligram daily doses of NUVIGIL in patients suffering from either excessive sleepiness associated with narcolepsy, SWSD or OSA/HS show that NUVIGIL significantly improves wakefulness and the overall clinical condition of patients as compared to placebo. The 12-week, double-blind, randomized, placebo-controlled Phase 3 studies of approximately 1,000 patients included one study of excessive sleepiness in narcolepsy, one study in SWSD and two studies in OSA/HS. The primary endpoints in all studies were measures of objective sleep latency (Maintenance of Wakefulness Test or Multiple Sleep Latency Test) and the physician rating of Clinical Global Impression-Change. These primary endpoints are identical to those studied for the currently approved indications for PROVIGIL. In each study, patients treated with NUVIGIL showed a highly statistically significant improvement on both primary endpoints compared to placebo. In these studies, NUVIGIL was generally well tolerated. The most common adverse effects observed included headache, nausea, dizziness, insomnia and anxiety. Based on the results of the Phase 3 trials, we expect to file an NDA for NUVIGIL in March 2005 and launch this new compound in the first quarter of 2006.

Intellectual Property Position

        We own U.S. and foreign patent rights that expire between 2014 and 2015 and cover pharmaceutical compositions and uses of modafinil, specifically, certain particle sizes of modafinil contained in the pharmaceutical composition. Ultimately, these patents might be found invalid if challenged by a third party, or a potential competitor could develop a competing product or product formulation that avoids infringement of these patents. To date, the FDA has accepted six ANDAs for pharmaceutical products containing modafinil. Each of these ANDAs for modafinil filed with the FDA contain a Paragraph IV certification in which the ANDA applicant certified that the U.S. particle-size modafinil patent covering PROVIGIL is invalid or will not be infringed by the ANDA product. We have filed patent infringement lawsuits in U.S. District Court in New Jersey against Teva Pharmaceuticals USA, Inc., Mylan Pharmaceuticals Inc., Ranbaxy Pharmaceuticals Inc., Barr Laboratories, Inc., and Sandoz Inc. based upon the ANDAs filed by each of these companies with the FDA. The lawsuits claim infringement of our U.S. Patent No. RE37,516, which covers pharmaceutical compositions and methods of treatment with the form of modafinil contained in PROVIGIL. Each of the defendants has asserted defenses and/or counterclaims for non-infringement and patent invalidity, and defendants Teva, Ranbaxy and Mylan have moved to amend their answers and counterclaims to state inequitable conduct as a defense to our claims (we have opposed the motions and a decision is pending). These lawsuits are currently in the discovery phase; we expect a trial to begin no earlier than late 2005. We also recently filed suit against Carlsbad Technology, Inc. with respect to the ANDA they have filed with the FDA, and discovery in this action has not yet commenced. While we intend to vigorously defend the validity of this patent and prevent infringement, these efforts will be both expensive and time consuming and, ultimately, may not be successful.

        Barr, Mylan and Ranbaxy have each announced the receipt of tentative FDA approval for their respective generic versions of PROVIGIL. Under the provisions of the Hatch-Waxman Act, we are entitled to a 30-month stay of final FDA approval of these generic versions of PROVIGIL. This stay precludes these companies from selling a modafinil-based product until the earlier to occur of the conclusion of the lawsuit or June 2006. However, if the court finds the particle-size patent is invalid or not infringed, these companies could begin selling their modafinil-based products upon the expiration of our FDA orphan drug exclusivity, currently in December 2005, which would significantly and negatively impact revenues from PROVIGIL. We do not know whether the ANDAs filed by Teva, Sandoz or Carlsbad have been, or will be, tentatively approved by the FDA.

        If we complete clinical studies of PROVIGIL in pediatric patients that are acceptable to the FDA, the FDA could grant us a six-month extension of our orphan drug exclusivity (to June 2006) and six months of exclusivity beyond the 2014 expiration of the particle-size patent term.

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        We own composition of matter patents directed to NUVIGIL that are set to expire in May 2007 in the United States and in January 2007 outside the United States. Assuming success in attaining FDA approval for this compound in early 2006, we would expect to receive a three year period of marketing exclusivity (until early 2009). In addition, assuming this same timetable for approval, we would anticipate that the term of this patent would be extended under the Hatch-Waxman Act until approximately early 2009. If we perform an additional clinical study of this product in pediatric patients, the FDA could grant us six months of exclusivity beyond the expiration of the patent and the three-year period of marketing exclusivity (until mid-2009). We intend to perform such a study once a mutually agreed upon clinical protocol is reached with the FDA. We hold a patent covering a method of treating ADHD with modafinil, and patent applications covering the ATTENACE formulation, that currently are set to expire in 2020 and 2022, respectively. Assuming FDA approval, we would expect to receive a three year period of marketing exclusivity for the use of ATTENACE in ADHD (until early 2009). We also hold rights to other patents and patent applications directed to manufacturing processes, formulations, and uses of modafinil and to next generation modafinil products. We also own rights to various trademarks for our pharmaceutical products containing the active drug substance modafinil.

Manufacturing and Product Supply

        At our manufacturing facility in Mitry-Mory, France, we produce the active drug substance modafinil. In 2004, we continued a $30 million modernization and expansion project at this facility. We have two qualified manufacturers of finished commercial supplies of PROVIGIL, DSM Pharmaceuticals, Inc. and Patheon, Inc. Any future change in manufacturers or manufacturing processes requires regulatory approval. We seek to maintain inventories of active drug substance and finished products to protect against supply disruptions. We are in the process of qualifying manufacturers for finished commercial supplies of ATTENACE. We expect to qualify two suppliers of the active pharmaceutical ingredient and two manufacturers of finished commercial supplies for NUVIGIL.

Competition

        With respect to PROVIGIL, and, if approved, NUVIGIL, there are several other products used for the treatment of excessive sleepiness or narcolepsy in the United States. Many of these products, including methylphenidate products such as RITALIN® by Novartis, have been available for a number of years and are available in inexpensive generic forms. Moreover, as described above, we could face generic competition to PROVIGIL as early as December 2005, which would significantly and negatively impact our future sales of PROVIGIL and potentially NUVIGIL, if approved. If we are successful in obtaining FDA approval of ATTENACE for the treatment of ADHD in children and adolescents, we will face significant competition from established stimulants such as RITALIN® by Novartis, STRATERRA® by Eli Lilly, and CONCERTA® by McNeil Consumer, as well as from amphetamines such as DEXEDRINE® by GlaxoSmithKline and ADDERALL® by Shire.

ACTIQ

Overview

        ACTIQ is approved in the United States for the management of breakthrough cancer pain in opioid tolerant patients. It was approved by the FDA in November 1998 and was launched in the United States in March 1999. Following our acquisition of Anesta Corp. in October 2000, we relaunched ACTIQ in February 2001. In October 2002, we reacquired rights to ACTIQ in twelve countries, principally in Europe, from Elan Pharma International Limited. While applicable laws and regulations prevent us from promoting our product for uses beyond those contained in the approved label, our analysis of prescription data for ACTIQ in the United States indicated that many physicians have elected to prescribe the product to treat conditions outside its labeled indication.

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        ACTIQ uses our proprietary oral transmucosal delivery system (OTS®) to deliver fentanyl citrate, a powerful, Schedule II opioid analgesic. The OTS delivery system consists of a drug matrix that is mounted on a handle. It is designed to achieve rapid absorption of fentanyl through the oral mucosa (the lining of the mouth) and into the bloodstream. With ACTIQ, a patient places the product between his or her cheek and gum and moves it from side to side. A portion of the fentanyl citrate is rapidly absorbed through the mucosal tissues into the blood stream, while the remaining dose is swallowed and absorbed more slowly through the gastro-intestinal tract. Pain relief may begin within 15 minutes. ACTIQ is available in six dosage strengths to allow individualization of dosing. Side effects of ACTIQ are typical of opioid products and include somnolence, nausea, vomiting and dizziness. The greatest risk from improper use of ACTIQ, as with all opioid-based products, is the potential for respiratory depression, which can be life-threatening. We market ACTIQ under a comprehensive risk management program of educational and safe use messages that inform health care professionals, patients and their families of proper use, storage, handling and disposal of the product.

Breakthrough Cancer Pain

        One of the most challenging components of cancer pain is breakthrough pain. Breakthrough pain is a flare of moderate to severe pain that "breaks through" the medication patients use to control their persistent pain. Breakthrough pain may be related to a specific activity, or may occur spontaneously and unpredictably. Breakthrough cancer pain typically develops rapidly and often reaches maximum intensity in three to five minutes. It has a duration that varies from minutes to several hours and can be extremely painful and debilitating. Cancer patients who suffer from breakthrough pain may suffer a number of episodes every day. The ideal management of breakthrough pain requires medication that has a rapid onset of action and the ability for dosing to be tailored to the individual characteristics of the breakthrough pain episodes, such as intensity and duration.

License to Barr Laboratories, Inc.

        To secure FTC clearance of the CIMA LABS acquisition, we entered into a license and supply agreement with Barr Laboratories, Inc. whereby we agreed to license to Barr our U.S. rights to any intellectual property related to ACTIQ. The license to ACTIQ will become effective upon the earliest to occur of (i) final FDA approval of ORAVESCENT fentanyl, (ii) September 5, 2006, if we have not received either (A) an approvable letter from FDA for the sugar free formulation of ACTIQ by July 1, 2005 (or final FDA approval within 180 days of such approvable letter) or (B) a pediatric extension for ACTIQ or (iii) February 3, 2007, if we have received a pediatric extension for ACTIQ. As we currently expect approval of ORAVESCENT fentanyl in the late 2006 and FDA approval for the sugar-free formulation of ACTIQ within the timeframe agreed upon with the FTC, we anticipate that the Barr license will be effective upon approval of ORAVESCENT fentanyl by the FDA. Under the agreement, Barr also may receive a license to the sugar-free formulation of ACTIQ under development; this license would become effective upon ORAVESCENT fentanyl approval by the FDA or if the sugar-free approval timelines described above are not achieved. We have filed an sNDA with the FDA requesting approval for the sugar-free formulation of ACTIQ, and we anticipate final FDA approval of this formulation by mid-2005.

        Under the license and supply agreement, we also agreed to transfer to Barr our technological know-how and intellectual property related to ACTIQ and to sell to Barr, for period of up to three years, a generic form of ACTIQ for resale in the United States if Barr is unable to manufacture an FDA-approved generic version of ACTIQ by the date the license takes effect. In addition, we have agreed to forbear from asserting any remaining patent rights in ACTIQ against other parties beginning on the earlier of August 3, 2007 or six months following the effective date of Barr's license.

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Intellectual Property Position

        We hold an exclusive license to the U.S. patents covering the currently approved compressed powder pharmaceutical composition and the method for administering fentanyl via this composition that are set to expire in September 2006. If we complete a clinical study of ACTIQ in pediatric patients prior to September 2006, the FDA could grant us six months of exclusivity beyond the September 2006 patent expiration. As described above, we have agreed to license to Barr our U.S. rights to any intellectual property related to ACTIQ. Corresponding patents covering the current formulation of ACTIQ in foreign countries expire between 2009 and 2010.

        Our patent protection with respect to the ACTIQ formulation we sold in the United States prior to June 2003 expires in May 2005. The entry of a generic competitor with this formulation as a result of the loss of patent protection on ACTIQ beginning in May 2005 could significantly and negatively impact our revenues from the sale of ACTIQ.

        Other issued patents and pending patent applications in the United States and foreign countries that are owned or licensed by us are directed to various formulations (including a sugar free formulation), processes for manufacturing the product, methods of using the product and disposable containers required by the FDA to be provided as part of the product. We also hold the rights to the ACTIQ trademark covering pharmaceuticals for oral transmucosal delivery containing fentanyl as the active drug substance.

Manufacturing and Product Supply

        At our facility in Salt Lake City, Utah, we manufacture ACTIQ for sale in the United States and international markets. In 2004, we began a nearly $70 million, two-year capital expansion project at our Salt Lake City facility that will increase our ACTIQ manufacturing and packaging capacity and provide us with flexibility to manufacture other products at this facility.

        Fentanyl, the active ingredient in ACTIQ, is a Schedule II controlled substance under the Controlled Substances Act. Our purchases of fentanyl for use in the production of ACTIQ are subject to quota that is approved by the U.S. Drug Enforcement Administration. Supply disruption could result from delays in obtaining DEA approvals or the receipt of approvals for quantities of fentanyl that are insufficient to meet current or projected product demand. The quota system also limits our ability to build inventories as a method of insuring against possible supply disruptions.

Competition

        Both long-acting and short-acting formulations are prescribed to treat cancer pain. Persistent pain is typically treated by around-the-clock administration of long- or short-acting opioids. Breakthrough cancer pain is usually treated with short-acting product, such as ACTIQ, that is used in conjunction with an around-the-clock formulation. ACTIQ is intended for treatment of breakthrough cancer pain in patients already taking opioids for persistent pain.

        Long-acting products, which have a slower onset and longer duration of action relative to ACTIQ, are commonly prescribed to treat persistent pain. Three long-acting opioid analgesics currently marketed for chronic pain dominate this market: Johnson & Johnson's DURAGESIC® and Purdue Pharmaceuticals' OXYCONTIN® and MS-CONTIN®. Persistent cancer pain also is treated with short-acting opioid tablets, capsules and elixirs, as well as quick-acting invasive opioid delivery systems (i.e., intravenous, intramuscular and subcutaneous), many of which have been available for many years and are available in inexpensive generic form.

        The overwhelming majority of prescriptions written to treat breakthrough cancer pain are for short-acting opioids other than ACTIQ, such as morphine and combination products (with acetaminophen and oxycodone or hydrocodone), as well as quick-acting opioids delivered via invasive

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delivery systems. In some cases, physicians also may attempt to manage breakthrough pain by increasing the dose of a long-acting opioid.

        We are aware of numerous companies developing other technologies for rapidly delivery opioids to treat breakthrough pain, including transmucosal, transdermal, nasal spray, inhaled delivery systems, among others. If these technologies are successfully developed and approved over the next few years, they could represent significant competition for ACTIQ and, if approved, ORAVESCENT fentanyl. Even without new competitive products, we will face at least one generic competitor to ACTIQ in late 2006 to early 2007 as a result of the license to Barr, which will have a significant and negative impact on ACTIQ sales thereafter. The availability of inexpensive generic forms of ACTIQ could potentially have a negative impact on sales of ORAVESCENT fentanyl, if approved.

GABITRIL

Overview

        GABITRIL is a selective GABA (gamma-aminobutyric acid) reuptake inhibitor approved for use as adjunctive therapy in the treatment of partial seizures in epileptic patients. GABA is an important inhibitory transmitter in the central nervous system and is widely distributed in all regions of the brain. The FDA approved GABITRIL in September 1997 and it was launched in the United States in 1998 by Abbott. In late 2000, we acquired all U.S. rights to GABITRIL from Abbott in exchange for payments totaling $100 million over five years. We made an additional $10 million payment to Abbott upon the extension to 2011 of the composition patent covering the active drug substance contained in GABITRIL. In December 2001, we acquired product rights to GABITRIL worldwide, excluding Canada, Latin America and Japan, from Sanofi-Synthelabo and the product inventor, Novo Nordisk A/S. We also market GABITRIL in France, the United Kingdom, Germany, Austria and Switzerland through Cephalon affiliates and in numerous other countries throughout the world through third-party distributors.

        While applicable laws and regulations prevent us from promoting our products for uses beyond those contained in the approved label, our analysis of prescription data in the United States for GABITRIL indicates that many physicians have elected to prescribe the product to treat conditions outside of its currently labeled indication, including generalized anxiety disorder and neuropathic pain. In February 2005, working with the FDA, we updated our prescribing information for GABITRIL to include a bolded warning describing the risk of new onset seizures in non-induced patients without epilepsy.

Epilepsy

        Epilepsy is a chronic disorder characterized by seizures that cause sudden, involuntary, time-limited alteration in behavior, including changes in motor activities, autonomic functions, consciousness or sensations, and accompanied by an abnormal electrical discharge in the brain. A partial seizure arises from a disorder emanating from a distinct, identifiable region of the brain and produces a given set of symptoms depending on the area of onset. A general seizure arises from a general dysfunction of biochemical mechanisms throughout the brain and may produce different types of convulsions. Epilepsy usually begins in early childhood, but can appear at any time during an individual's lifespan. It is estimated that more than one million adult Americans suffer from epilepsy.

Market expansion strategies

        Because GABITRIL works selectively to increase the amount of available GABA in the brain, it may be useful in treating conditions where additional GABA may prove effective. One such condition is generalized anxiety disorder. According to the National Institute of Mental Health, GAD is characterized by chronic, exaggerated worry and tension that is unfounded or much more severe than

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the normal anxiety most people experience. Many people with GAD also have physical symptoms, such as fatigue, trembling, muscle tension, headaches, irritability or hot flashes. According to NIMH, about 2.8 percent of U.S. adults have been diagnosed with GAD.

        In the third quarter of 2004, we initiated a Phase 3 clinical program evaluating GABITRIL for the treatment of GAD. We expect to enroll at least 1,600 patients in multiple studies and are targeting a product launch in 2007. Our decision to move forward with a Phase 3 clinical program was based on data from an eight-week, double-blind, randomized, multi-center, placebo-controlled Phase 2 study with a flexible-dose design. The study included 260 adult patients with GAD and was designed to determine the dose, time of onset and magnitude of GABITRIL's effect in GAD. Statistically significant improvements were seen at weeks one and eight of the study in patients receiving GABITRIL, versus those receiving placebo, as measured by the Hamilton Anxiety Scale.

Intellectual Property Position

        GABITRIL is our trademark that is used in connection with pharmaceuticals containing tiagabine as the active drug substance. This product is covered by U.S. and foreign patents that are held by Novo-Nordisk A/S. The U.S. patents have been licensed in the United States exclusively to Abbott Laboratories. We have an exclusive sublicense from Abbott to these patents in the United States and exclusive licenses from Novo-Nordisk to corresponding foreign patents.

        There are four U.S. composition-of-matter patents covering the currently approved product: a patent claiming tiagabine, the active drug substance in GABITRIL; a patent claiming crystalline tiagabine hydrochloride monohydrate and its use as an anti-epileptic agent; a patent claiming the pharmaceutical formulation and a patent claiming anhydrous crystalline tiagabine hydrochloride and processes for its preparation. These patents currently are set to expire in 2011, 2012, 2016 and 2017, respectively. Supplemental Protection Certificates based upon corresponding foreign patents covering this product are set to expire in 2011.

Manufacturing and Product Supply

        Abbott is required to supply us with finished commercial supplies of GABITRIL for the U.S. market until at least December 2008. Outside of the United States, our agreement with Sanofi-Synthelabo to supply GABITRIL expired in January 2005, although Sanofi has agreed to continue to produce GABITRIL through the end of the second quarter of 2005. We have identified a third party manufacturer for the future production of the active drug substance tiagabine and finished commercial supplies of GABITRIL outside the United States and are in the process of qualifying this manufacturer with appropriate U.S. and European regulatory authorities. We seek to maintain inventories of finished commercial supplies of GABITRIL to protect against supply disruptions. For non-U.S. markets, we have on hand approximately 12 months supply of GABITRIL and expect to have 24 months supply by the expiration of the Sanofi-Synthelabo extension.

Competition

        The pharmaceutical market for the treatment of partial seizures in epileptic patients generally is well served with a number of available therapeutics, several of which are recent entrants to the market. The market is dominated by Pfizer's NEURONTIN® (gabapentin). In addition, several treatments for partial seizures are available in inexpensive generic forms. Growth of pharmaceutical products in this market tends to be slow both because of the number of therapies available and also because physicians are unlikely to change the medication of a patient whose condition is well controlled.

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OTHER PRODUCTS

International Products

        In addition to PROVIGIL, ACTIQ and GABITRIL, we are engaged in the sale and marketing of our products and certain third party products in various international markets, principally in France, the United Kingdom and Germany. For the year ended December 31, 2004, aggregate worldwide net sales of these other products accounted for approximately 10% of our total net sales, with the majority of this revenue derived from sales of our products in France. The following is a summary of certain other products we market and sell.

Product		Country	Indication	Third Party	Contract Expiration
Cephalon Products:
	SPASFON® (phloroglucinol)	France	Biliary/urinary tract spasm and irritable bowel syndrome	n/a	n/a
	FONZYLANE® (buflomedil)	France	Cerebral vascular disorders	n/a	n/a
	PROXALYOC® (piroxicam)	France	Non-steroid anti-inflammatory	n/a	n/a
	PARALYOC® (paracetamol)	France	Analgesic	n/a	n/a
	LOPERAMIDE LYOC® (loperamide)	France	Acute and chronic diarrhea	n/a	n/a
Third Party Products:
	APOKINON® (apomorphine hydrochloride)	France	Levadopa therapy fluctuations in Parkinson's Disease	Laboratoire Aguettant S.A.	2007
	NAXY® and MONO- NAXY® (clarithromycin)	France	Antibiotic	Abbott France	2018
	OTRASEL® (selegeline hydrochloride)	France	Parkinson's Disease	Zeneus Pharma Ltd.	2015
	TEGRETOL® (carbamezipine)	U.K.	Epilepsy	Novartis Pharma AG	2010
	RITALIN® (methylphenidate)	U.K.	ADHD	Novartis Pharma AG	2010
	LIORESAL® (baclofen)	U.K.	Spasticity	Novartis Pharma AG	2010
	ANAFRANIL® (clomipramine hydrochloride)	U.K.	Depression and obsessive compulsive disorder	Novartis Pharma AG	2010
	XILOPAR® (selegeline hydrochloride)	Germany	Parkinson's Disease	Zeneus Pharma Ltd.	2015
	APO-GO® (apomorphine hydrochloride)	Germany	Levadopa therapy fluctuations in Parkinson's Disease	Britannia Pharmaceuticals, Ltd.	2010
	QUILONUM® (lithium)	Germany	Bipolar disorder	GlaxoSmithKline GmbH	2007

        We manufacture certain of the Cephalon products above at our manufacturing facilities in Mitry-Mory and Nevers, France. We perform warehousing, packaging and distribution activities for France and other export territories from our facilities in Maisons-Alfort, France. We have a sales organization in France numbering approximately 140 persons detailing our products to office-based and hospital-based physicians. Outside of France, we have sales and marketing organizations with approximately 70 persons in the aggregate that support sales of our products and third-party products in other European countries, including the United Kingdom, Germany, the Republic of Ireland, Switzerland and Austria.

        Our largest product in terms of product sales in France is SPASFON. SPASFON is an antimuscarinic, antispasmodic muscle relaxant indicated for biliary tract spasms, irritable bowel syndrome, urinary tract spasm and the treatment of certain gynecological-related spasms. The product

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is sold in a variety of formats, including solid oral tablets, fast-dissolve tablets (LYOC) and suppositories. French government efforts to control healthcare costs may result in the rapid growth of generic competition to our proprietary products in France.

        In December 2004, Cephalon France purchased Sanofi-Synthelabo France's rights to promote, distribute and sell NAXY and MONO-NAXY in France and French overseas territories. The purchase price for these product rights was approximately $44.3 million. Abbott France holds the underlying rights to the product. Abbott France manufactures clarithromycin and also promotes, distributes and sells clarithromycin under the trademark ZECLAR® in the French market.

        Under an exclusive collaboration arrangement with Novartis Pharma AG established in November 2000, we market PROVIGIL, TEGRETOL, RITALIN, ANAFRANIL and LIORESAL in the United Kingdom. We share with Novartis the earnings from sales of the four Novartis neurology products and PROVIGIL in the United Kingdom. We now face competition from generic versions of many of the branded products included in the collaboration. European Union pricing laws also allow the parallel importation of branded drugs between member countries. Due to pricing variations within the European Union, it is possible that our overall margins on our branded drugs could be impacted negatively as a result of the importation of product from relatively lower-margin member countries to relatively higher-margin member countries.

Collaborations with Pharmaceutical Company Partners

        Through our wholly-owned subsidiary, CIMA LABS INC., we pursue collaborative relationships with pharmaceutical companies that leverage the capabilities of these partners with our drug delivery and manufacturing capabilities to deliver new products incorporating our OraSolv® or DuraSolv® orally disintegrating drug delivery technologies. Revenues from these arrangements consist of net sales of manufactured products to partners, product development and licensing fees and royalties. For the period August 13, 2004 to December 31, 2004, revenues earned by CIMA LABS totaled $28.4 million, or 2.8% of our total revenue for the year ended December 31, 2004. The following table summarizes our major collaborative relationships:

Partner	Product	Indication	Technology	Current Status
Alamo Pharmaceuticals, LLC	FazaClo (clozapine)	Antipsychotic	OraSolv	Commercially available in U.S.
AstraZeneca	Zomig ZMT (zolmitriptan)	Anti-migraine	DuraSolv	Commercially available in U.S., Europe, Canada, South America and Japan
Novartis	Triaminic Soft-chews	Non-prescription pediatric cold, cough and allergy remedy	OraSolv	Commercially available in U.S. and Canada
N.V. Organon	Remeron SolTab (mirtazapine)	Antidepressant	OraSolv	Commercially available in U.S., Canada, Europe, Mexico and South America
Schwarz Pharma, Inc.	NuLev	Irritable bowel syndrome	DuraSolv	Commercially available in U.S.
Schwarz Pharma, Inc.	Parcopa	Parkinson's disease	DuraSolv	Commercially available in U.S.
Wyeth	Alavert (loratadine)	Non-sedating anti-histamine	DuraSolv	Commercially available in U.S.
Wyeth	Dimetapp ND	Non-sedating anti-histaminic	DuraSolv	Commercially available in U.S.
Aventis Pharmaceuticals	Allegra (fexofenadine)	Non-sedating antihistamine	OraSolv	In development
Schering-Plough	Undisclosed	Undisclosed	OraSolv	In development
Schwarz Pharma, Inc.	Six undisclosed products	Undisclosed	DuraSolv	In development

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        We currently have three manufacturing lines at our Eden Prairie, Minnesota facility for product requiring blister packaging and a manufacturing line at our Brooklyn Park, Minnesota facility for bottled product. We also have granulation and taste masking capabilities at our Eden Prairie facility. We believe that our production capacity will be adequate to meet our partners' needs for the foreseeable future.

RESEARCH AND DEVELOPMENT

        In addition to our clinical programs focused on our marketed products, our research and development efforts focus primarily on two therapeutic areas: neurodegenerative disorders and cancers. Neurodegenerative disorders are characterized by the death of neurons (i.e., the specialized conducting cells of the nervous system) which, in turn, results in the loss of certain functions such as memory and motor coordination. Cancers are characterized by the uncontrolled proliferation of cells that may form tumors. Our research has focused on an understanding of kinases and the role they play in cellular survival and proliferation. We have coupled this knowledge with a library of novel, small, orally-active synthetic molecule inhibitors of kinases that allows us to intervene in these processes. This technology base has resulted in three molecules that are currently in clinical development: CEP-1347, CEP-701 and CEP-7055.

Neurology

        A growing body of evidence, substantiated by our own research findings, suggests that neuronal death is caused by a series of biochemical events that are themselves precipitated by the activation of intracellular signaling pathways. Our research, and that of others, has demonstrated that one of the initial events involved in the cell death process is the activation of the stress-activated protein kinase pathway. Thus, we believe inhibition of this pathway should lead to neuronal survival and result clinically in the inhibition of the progression of neurodegenerative diseases. We have identified targets within this pathway known as mixed lineage kinases (MLK); inhibition of MLK in preclinical models results in inactivation of the cell death process. We are pursuing the development of certain potent inhibitors of the MLK for the treatment of Parkinson's disease, as described below.

Parkinson's disease

        We have discovered several proprietary compounds that are potent MLK inhibitors and that are also efficacious in preclinical models in preventing neuronal death. We are developing one such MLK inhibitor, CEP-1347, for use as a potential treatment for Parkinson's disease. Parkinson's disease is a progressive disorder of the central nervous system affecting over one million Americans. The primary pathology of the disease is the degeneration of the dopamine neurons in the substantial nigra region of the brain, which results in a slowing of spontaneous movements, gait difficulty, postural instability, rigidity and tremor. In a variety of preclinical models of Parkinson's disease, CEP-1347 demonstrated therapeutic potential in inhibiting the characteristic neuronal cell death associated with Parkinson's disease. Specifically, in non-human primate models, CEP-1347 protected against loss of dopamine neurons in the regions of the brain affected by Parkinson's disease and prevented the appearance of the associated behavioral symptoms. Our rights to develop and market CEP-1347 in the United States are derived from our 1992 collaboration with Kyowa Hakko Kogyo Co., Ltd. In 1999, we entered into a collaborative agreement with H. Lundbeck A/S, a Danish pharmaceutical company, to discover and develop products to treat neurodegenerative disorders, such as Parkinson's and Alzheimer's diseases. This collaboration covers the development and marketing of CEP-1347 and other proprietary small molecules that may inhibit the MLK family of kinases.

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        In 2002, Cephalon and Lundbeck initiated an 800-patient randomized, double-blind, placebo-controlled, multi-dose, sixty-five center Phase 2/3 clinical trial of CEP-1347 in patients with early stage Parkinson's disease. The objective of the study is to determine whether or not CEP-1347 may be effective in delaying disability due to progression of Parkinson's disease. Patients enrolled into the study are expected to be treated for two years and will receive either placebo or CEP-1347. The study is fully enrolled. In mid-2005, an independent third party will conduct an interim analysis of the data to determine whether treatment with CEP-1347 has the potential to demonstrate statistical significance compared to placebo. So long as the results of this analysis do not indicate futility, we anticipate complete study results will be available in 2006. We have a supply agreement with Abbott under which it supplies the key chemical intermediate used for the manufacture of CEP-1347. Lundbeck then uses that intermediate for the manufacture of CEP-1347 for use in clinical trials.

Oncology

        In normal tissues, cellular proliferation is balanced by cellular death, and these processes are governed in part by a class of soluble protein molecules (commonly referred to as growth factors) that serve as communication signals between cells. The uncontrolled proliferation of cells associated with cancer may be linked to inappropriate signaling from growth factors. Many of these growth factors bind to cell surface receptors (many of which are kinases) and trigger intracellular signals that maintain cell survival or direct the cell to proliferate. Inhibition of these kinases provides a novel therapeutic strategy for treating a variety of oncological disorders without the undesirable side effects associated with traditional chemotherapeutics.

Receptor Tyrosine Kinase Inhibitors

        We have synthesized a class of small, orally active molecules that are selective inhibitors of the nerve growth factor receptor tyrosine kinase (trk). Trk may play an important role in the development and propagation of prostate and pancreatic cancers; inhibiting trk antagonizes the "survival" signal elicited by this receptor in such tumors. Our lead compound in this area, CEP-701, is administered orally. We have licensed our rights to develop and market CEP-701 from Kyowa Hakko. We have a supply agreement with Abbott under which it supplies the key chemical intermediate for CEP-701.

        Our scientists have discovered that CEP-701, in addition to its trk activity, is also a potent inhibitor of the flt-3 kinase. Flt-3 kinase has been shown to be mutated in a subset of patients suffering from Acute Myeloid Leukemia (AML) who are treatment resistant, which results in a poor prognosis. Thus, inhibition of this kinase may lead to a novel treatment for AML. We have completed Phase 2 studies with CEP-701 to study its effect in patients refractory to other therapies and suffering from AML. In early studies in AML, we observed positive signals from the use of CEP-701, although the treatment effect seen was not sufficient to justify continued studies as monotherapy in refractory patients. We initiated additional Phase 2 studies with CEP-701 in this area utilizing higher doses of CEP-701 in combination with other therapies. Our Phase 2 studies are enrolling earlier stage patients than were included in our previous Phase 2 study with CEP-701, and are utilizing a combination of other therapies.

Angiogenesis Inhibitors

        As cancer cells aggregate and form solid tumors, they secrete growth factors that promote the formation of new blood vessels necessary for providing nutrients to the growing tumor; this process is called angiogenesis. Angiogenesis is promoted by a number of these growth factors but appears to be particularly dependent upon the vascular endothelial growth factor (VEGF). VEGF acts at its receptor kinase to initiate blood vessel growth into the tumor. We believe that inhibition of the receptor kinase for VEGF will result in inhibition of the angiogenesis process thus starving the tumor of needed nutrients. We believe that this approach has potential utility in the treatment of solid tumors.

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        We have synthesized a number of proprietary, orally active molecules that are potent and selective inhibitors of the VEGF receptor kinase. These molecules have been shown to slow the growth of a variety of tumors in preclinical models. Our lead compound in this area is CEP-7055. We have filed an Investigational New Drug application (IND) and are conducting Phase 1 clinical trials with CEP-7055. In December 2001, we entered into a collaborative agreement with Sanofi-Synthelabo to discover, develop and market worldwide products that inhibit angiogenesis, excluding nervous system and opthalmic disorders. The collaboration covers the development and marketing of CEP-7055 and other proprietary small molecules.

Neurotrophic Factors

        Under a collaboration with Chiron Corporation that was terminated in February 2001, we conducted clinical trials using IGF-I, also known as MYOTROPHIN® (mecasermin) Injection, in patients in North America and Europe suffering from amyotrophic lateral sclerosis (ALS). ALS is a fatal disorder of the nervous system characterized by the chronic, progressive degeneration of motor neurons, which leads to muscle weakness, muscle atrophy and, eventually, to the patient's death. In February 1997, we submitted an NDA to the FDA for approval to market MYOTROPHIN in the United States for the treatment of ALS. In May 1998, the FDA issued a letter stating that the NDA was "potentially approvable," under certain conditions. We do not believe those conditions can be met without conducting an additional Phase 3 clinical study, and we have no plans to conduct such a study at this time. However, certain physicians have obtained governmental and non-governmental funding to be used to conduct such a study. We have agreed with these physicians to allow reference to our IND and have agreed to supply MYOTROPHIN in quantities sufficient for them to conduct the study in exchange for the right to use any clinical data generated by such study in support of FDA approval of our pending NDA. These physicians commenced the study in mid-2003 and expect to complete study enrollment by the third quarter of 2005; if the study is not fully enrolled by early 2006, we may be unable to provide quantities of MYOTROPHIN sufficient to complete the study. Even if this additional study is concluded, the results will not be available for several years and may not be sufficient to obtain regulatory approval to market the product. Furthermore, we do not have a source for finished commercial supply of MYOTROPHIN in the event regulatory approval is obtained.

Other Discovery Research Efforts

        Since our inception, we have been engaged in research to discover innovative medicines. To date, we have focused our efforts on neurodegenerative diseases and cancer. This research has resulted in the discovery of compounds that could potentially be useful in treating important clinical conditions beyond those for which we have active development programs. In these and other cases, we often seek to establish collaborative partnerships with companies whose clinical development and marketing capabilities will maximize the value of these discoveries.

        In addition to our research programs discussed above, we are pursuing a variety of other innovative discovery research efforts. For example, we have a multi-year research collaboration with TransTech Pharma, Inc. The collaboration is utilizing TransTech's Translational Technology™, a highly automated and fully integrated proprietary drug discovery process, to discover and develop small molecules for up to three therapeutic targets. We also have collaboration with Euroscreen s.a. to discover and develop small molecule therapeutics targeting G-Protein Coupled Receptors, or GPCR, a family of receptors that play a major role in cell signaling. This collaboration strengthens our internal efforts to provide a more diverse therapeutic breadth and depth to our research efforts.

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DRUG DELIVERY TECHNOLOGIES

Overview

        Drug delivery technologies have been developed for a variety of therapeutic compounds, improving safety, efficacy, ease of patient use and patient compliance. In addition, drug delivery technologies can be used to expand markets for existing products, as well as to develop new products.

        We have focused our research and development efforts on developing new product applications using two primary drug delivery technologies: Orally Disintegrating Tablet (ODT) technologies and Oral Transmucosal technologies (OTM). Orally disintegrating tablet technology has emerged as an important drug delivery technology that enables tablets to disintegrate quickly in the mouth without the use of water or chewing. ODT may improve compliance with a prescribed drug regimen, as orally disintegrating medications are easier to swallow and may taste better than non-taste masked alternatives. In addition, ODT technology may improve dosing accuracy relative to liquid formulations. Finally, and most importantly, ODT technology may provide a significant commercial benefit, as studies we have conducted indicate that patients often prefer it to conventional tablets and other formulations. OTM technologies are designed to increase the absorption of active drug ingredients across the mucosal membranes lining the oral cavity, gastrointestinal tract and colon.

        We believe that pharmaceutical companies are attracted to our technologies because of the advantages such as rapid development timelines, excellent taste masking, proven commercial manufacturing capabilities, and applicability to a wide range of pharmaceutical compounds, enhanced convenience and other patient benefits.

ODT Technologies

        Our two primary ODT drug delivery technologies are OraSolv® and DuraSolv®. Our OraSolv technology incorporates taste masked active drug ingredients in orally disintegrating tablets. The low level of compaction pressure applied to OraSolv tablets allows higher porosity, faster disintegration time and larger amounts of taste masked active drug ingredients to be compressed into the tablets. The core U.S. patent for our OraSolv technology expires in 2010. We have developed and manufacture several important OraSolv formulations, which include Triaminic Soft-chews for Novartis, FazaClo for Alamo Pharmaceuticals and Remeron SolTab and its equivalent for markets outside the U.S. for Organon. In addition, we are developing OraSolv formulations of Allegra for Aventis and three other products for other partners.

        Our DuraSolv technology uses higher compaction forces than OraSolv to produce orally disintegrating tablets incorporating active drug ingredients in a more durable orally disintegrating tablet. Due to their greater durability, DuraSolv tablets are easier to handle and package, and may cost less to produce and package. The core U.S. patent for our DuraSolv technology expires in 2018. We have developed and currently manufacture several important DuraSolv formulations, which include Alavert and Dimetapp ND for Wyeth, Zomig-ZMT and its equivalents marketed outside the U.S. for AstraZeneca, and NuLev and Parcopa for Schwarz. In addition, we are developing several new prescription products based on our DuraSolv technology.

        In addition to our OraSolv and DuraSolv technologies, we continue to develop our LYOC technology to create ODT using freeze drying methods to manufacture tablets. We have a fully dedicated LYOC manufacturing site in Nevers, France, which we expect to expand to increase capacity. Once complete, we will have additional capacity for both in-house and third party manufacturing. In late 2004, we signed an agreement with Schwarz Pharma to manufacture two of their products at this facility. We currently manufacture and sell several drugs in France using our LYOC technology, including SPASFON LYOC, PARALYOC, PROXALYOC, and LOPERAMIDE LYOC, and we are considering other compounds that may be suitable for formulation using this technology.

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OTM Technologies

        In the area of OTM technologies, we are investing in research and development of our proprietary ORAVESCENT technologies. Our ORAVESCENT drug delivery technologies include ORAVESCENT SL for drug delivery under the tongue ("sublingual") and ORAVESCENT BL for drug delivery between the gum and the cheek ("buccal"). An additional ORAVESCENT technology, ORAVESCENT SS, is designed for site-specific administration, which may allow an active drug ingredient to be transported to a specific part of the gastrointestinal tract where it is released for absorption. We originally designed and continue to design our ORAVESCENT technologies to improve the transport of active drug ingredients across mucosal membranes in the oral cavity or the gastrointestinal tract. The core U.S. patents for our ORAVESCENT technology expire in 2019. In addition to our ORAVESCENT technologies, we continue to assess the potential uses of certain other proprietary buccal delivery systems in several therapeutic areas in which we focus.

OTHER INTELLECTUAL PROPERTY

        We own issued and pending U.S. patents and applications claiming compositions and/or uses of certain kinase inhibitors, including two novel classes of small molecules referred to as "indolocarbazoles" and "fused pyrrolocarbazoles." We have filed foreign counterparts of these patents, as appropriate. We also have licensed U.S. and foreign composition-of-matter and use patents and applications for novel compositions under our collaborative agreement with Kyowa Hakko, including compositions and uses of certain indolocarbazoles for the treatment of pathological conditions of the prostate (including prostate cancer) and for the treatment of neurological disorders. We own issued and pending U.S. and foreign patents and applications claiming compositions and/or uses of inhibitors of certain proteases, including novel classes of small molecules for inhibition of calpain, and novel classes of small molecules for inhibition of the multicatalytic protease.

        Through collaborative agreements with researchers at several academic institutions, we have licenses to or the right to license, generally on an exclusive basis, patents and patent applications issued or filed in the United States and certain other countries arising under or related to such collaborations.

CUSTOMERS

        Our principal customers are wholesale drug distributors. These customers comprise a significant part of the distribution network for all pharmaceutical products sold in the United States. Three large wholesale distributors, Cardinal Health, Inc., McKesson Corporation and AmerisourceBergen Corporation, control a significant share of this network. These three wholesaler customers, in the aggregate, accounted for 87% of our worldwide net sales for the year ended December 31, 2004. Fluctuations in the buying patterns of these customers, which may result from seasonality, wholesaler buying decision or other factors outside of our control, could significantly affect the level of our net sales on a period to period basis. Because of this, the amounts purchased by these customers during any quarterly or annual period may not correlate to the level of underlying demand evidenced by the number of prescriptions written for such products, as reported by IMS Health Incorporated. Furthermore, the loss or bankruptcy of any of these customers could materially and adversely affect our results of operations and financial condition.

COMPETITION

        We face intense competition and rapid technological change in the pharmaceutical marketplace. Large and small companies, academic institutions, governmental agencies, and other public and private research organizations conduct research, seek patent protection and establish collaborative arrangements for product development in competition with us. Products developed by any of these entities may compete directly with those we develop or sell. In addition, many of the companies and institutions that compete against us have substantially greater capital resources, research and

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development staffs and facilities than we have, and substantially greater experience in conducting clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products. These entities represent significant competition for us. Our products also face potential competition from companies seeking to develop and sell generic formulations of our products at a substantial price discount to the current price of our products. In addition, competitors who are developing products for the treatment of neurological or oncological disorders might succeed in developing technologies and products that are more effective than any that we develop or sell or that would render our technology and products obsolete or noncompetitive. Competition and innovation from these or other sources potentially could negatively affect sales of our products or make them obsolete. Advances in current treatment methods also may adversely affect the market for such products. In addition, we may be at a competitive marketing disadvantage against companies that have broader product lines and whose sales personnel are able to offer more complementary products than we can. Any failure to maintain our competitive position could adversely affect our business and results of operations.

        As discussed in more detail above, our products face competition in the marketplace. We cannot be sure that we will be able to demonstrate the potential advantages of our products to prescribing physicians and their patients on an absolute basis and/or in comparison to other presently marketed products. We also need to demonstrate to physicians, patients and third party payors that the cost of our products is reasonable and appropriate in the light of their safety and efficacy, the price of competing products and the related health care benefits to the patient.

GOVERNMENT REGULATION

        The manufacture and sale of therapeutics are subject to extensive regulation by U.S. and foreign governmental authorities. In particular, pharmaceutical products are subject to rigorous preclinical and clinical trials and other approval requirements as well as other post-approval requirements by the FDA under the Federal Food, Drug, and Cosmetic Act and by analogous agencies in countries outside the United States.

        As an initial step in the FDA regulatory approval process, preclinical studies are typically conducted in animals to identify potential safety problems and, in some cases, to evaluate potential efficacy. The results of the preclinical studies are submitted to regulatory authorities as a part of an IND that is filed with regulatory agencies prior to beginning studies in humans. However, for several of our drug candidates, no animal model exists that is potentially predictive of results in humans. As a result, no in vivo indication of efficacy is available until these drug candidates progress to human clinical trials.

        Clinical trials are typically conducted in three sequential phases, although the phases may overlap. Phase 1 typically begins with the initial introduction of the drug into human subjects prior to introduction into patients. In Phase 1, the compound is tested for safety, dosage tolerance, absorption, biodistribution, metabolism, excretion and clinical pharmacology, as well as, if possible, to gain early information on effectiveness. Phase 2 typically involves studies in a small sample of the intended patient population to assess the efficacy of the drug for a specific indication, determine dose tolerance and the optimal dose range, and to gather additional information relating to safety and potential adverse effects. Phase 3 trials are undertaken to further evaluate clinical safety and efficacy in an expanded patient population, generally at multiple study sites, to determine the overall risk-benefit ratio of the drug and to provide an adequate basis for product labeling. Each trial is conducted in accordance with certain standards under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. In the United States, each protocol must be submitted to the FDA as part of the IND. Further, one or more independent Institutional Review Boards must evaluate each clinical study. The Institutional Review Board considers, among other things, ethical factors, the safety of the study, the adequacy of informed consent

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by human subjects and the possible liability of the institution. Similar procedures and requirements must be fulfilled to conduct studies in other countries. The process of completing clinical trials for a new drug is likely to take a number of years and require the expenditure of substantial resources.

        Promising data from preclinical and clinical trials are submitted to the FDA in an NDA for marketing approval and to foreign regulatory authorities under applicable requirements. Preparing an NDA or foreign application involves considerable data collection, verification, analyses and expense, and there can be no assurance that the applicable regulatory authority will accept the application or grant an approval on a timely basis, if at all. The marketing or sale of pharmaceuticals in the United States may not begin without FDA approval. The approval process is affected by a number of factors, including primarily the safety and efficacy demonstrated in clinical trials and the severity of the disease. Regulatory authorities may deny an application if, in their sole discretion, they determine that applicable regulatory criteria have not been satisfied or if, in their judgment, additional testing or information is required to ensure the efficacy and safety of the product. One of the conditions for initial marketing approval, as well as continued post-approval marketing, is that a prospective manufacturer's quality control and manufacturing procedures conform to the current Good Manufacturing Practice regulations of the regulatory authority. In complying with these regulations, a manufacturer must continue to expend time, money and effort in the area of production, quality control and quality assurance to ensure full compliance. Manufacturing establishments, both foreign and domestic, also are subject to inspections by or under the authority of the FDA and by other federal, state, local or foreign agencies. Discovery of previously unknown problems with a product or manufacturer may result in restrictions on such product or manufacturer, including withdrawal of the product from the market.

        After regulatory approval has been obtained, further studies, including Phase 4 post-marketing studies, may be required to provide additional data on safety, to validate surrogate efficacy endpoints, or for other reasons, and the failure of such studies can result in a range of regulatory actions, including withdrawal of the product from the market. Further studies will be required to gain approval for the use of a product as a treatment for clinical indications other than those for which the product was initially approved. Results of post-marketing programs may limit or expand the further marketing of the products. Further, if there are any modifications to the drug, including any change in indication, manufacturing process, labeling or manufacturing facility, it may be necessary to submit an application seeking approval of such changes to the FDA or foreign regulatory authority. Finally, the FDA can place restrictions on approval and marketing utilizing its authority under applicable regulations. For example, ACTIQ was approved under subpart H of FDA approval regulations, which gives the FDA the authority to pre-approve promotional materials and permits an expedited market withdrawal procedure if issues arise regarding the safe use of ACTIQ. Moreover, marketed products are subject to continued regulatory oversight by the Office of Medical Policy Division of Drug Marketing, Advertising, and Communications, and the failure to comply with applicable regulations could result in marketing restrictions, financial penalties and/or other sanctions.

        Whether or not FDA approval has been obtained, approval of a product by regulatory authorities in foreign countries must be obtained prior to the commencement of commercial sales of the product in such countries. The requirements governing the conduct of clinical trials and product approvals vary widely from country to country, and the time required for approval may be longer or shorter than that required for FDA approval. Although there are procedures for unified filings for most European countries, in general, each country also has its own additional procedures and requirements, especially related to pricing of new pharmaceuticals. Further, the FDA and other federal agencies regulate the export of products produced in the United States and, in some circumstances, may prohibit or restrict the export even if such products are approved for sale in other countries.

        In the United States, the Orphan Drug Act provides incentives to drug manufacturers to develop and manufacture drugs for the treatment of rare diseases, currently defined as diseases that affect

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fewer than 200,000 individuals in the United States, or for a disease that affects more than 200,000 individuals in the United States, where the sponsor does not realistically anticipate its product becoming profitable. The FDA has granted PROVIGIL orphan drug status for use in treating excessive daytime sleepiness associated with narcolepsy and has designated MYOTROPHIN as an orphan drug for use in treating ALS, because each indication currently affects fewer than 200,000 individuals in the United States. Under the Orphan Drug Act, a manufacturer of a designated orphan product can seek certain tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven-year period of marketing exclusivity for that product for the orphan indication. While the marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of the same drug compound for the same indication unless the subsequent sponsors could demonstrate clinical superiority or a market shortage occurs, it would not prevent other sponsors from obtaining approval of the same compound for other indications or the use of other types of drugs for the same use as the orphan drug. Orphan drug designation generally does not confer any special or preferential treatment in the regulatory review process. The U.S. Congress has considered, and may consider in the future, legislation that would restrict the duration or scope of the market exclusivity of an orphan drug and, thus, we cannot be sure that the benefits of the existing statute will remain in effect. Additionally, we cannot be sure that other governmental regulations applicable to our products will not change.

        In addition to the market exclusivity period under the Orphan Drug Act, the U.S. Drug Price Competition and Patent Term Restoration Act of 1984 permits a sponsor to apply for a maximum five-year extension of the term of a patent for a period of time following the initial FDA approval of an NDA for a New Chemical Entity (NCE). The statute specifically allows a patent owner acting with due diligence to extend the term of the patent for a period equal to one-half the period of time elapsed between the approval of the IND and the filing of the corresponding NDA, plus the period of time between the filing of the NDA and FDA approval, up to a maximum of five years of patent term extension. Any such extension, however, cannot extend the patent term beyond a maximum term of fourteen years following FDA approval and is subject to other restrictions. Additionally, under this statute, five years of marketing exclusivity is granted for the first approval of an NCE. During this period of exclusivity, sponsors generally may not file and the FDA may not approve an ANDA or a 505(b)(2) application for a drug product equivalent or identical to the NCE. An ANDA is the application form typically used by manufacturers seeking approval of a generic version of an approved drug. There is also a possibility that Congress will revise the underlying statute in the next few years, which may affect these provisions in ways that we cannot foresee. Additionally, the FDA regulates the labeling, storage, record keeping, advertising and promotion of prescription pharmaceuticals. Drug manufacturing establishments must register with the FDA and list their products with the FDA.

        The Controlled Substances Act imposes various registration, record-keeping and reporting requirements, procurement and manufacturing quotas, labeling and packaging requirements, security controls and a restriction on prescription refills on certain pharmaceutical products. A principal factor in determining the particular requirements of this act, if any, applicable to a product is its actual or potential abuse profile. A pharmaceutical product may be listed as a Schedule II, III, IV or V substance, with Schedule II substances considered to present the highest risk of substance abuse and Schedule V substances the lowest. Modafinil, the active drug substance in PROVIGIL, has been scheduled under the Controlled Substances Act as a Schedule IV substance. Schedule IV substances are allowed no more than five prescription refills during a six-month period and are subject to special handling procedures relating to the storage, shipment, inventory control and disposal of the product. Fentanyl, the active ingredient in ACTIQ and ORAVESCENT fentanyl, is a Schedule II controlled substance. Schedule II substances are subject to even stricter handling and record keeping requirements and prescribing restrictions than Schedule III or IV products. In addition to federal scheduling, both PROVIGIL and ACTIQ are subject to state controlled substance regulation, and may be placed in more restrictive schedules than those determined by the U.S. Drug Enforcement Agency and FDA. However, to date, neither modafinil nor fentanyl has been placed in a more restrictive schedule by any state.

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        In addition to the statutes and regulations described above, we also are subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other federal, state and local regulations.

LEGAL MATTERS

        For a summary of legal matters see Part I, Item 3 "Legal Proceedings" below.

EMPLOYEES

        As of December 31, 2004, we had a total of 2,173 full-time employees, of which 1,571 were employed in the United States and 602 were located at our various facilities in Europe. We believe that we have been successful in attracting skilled and experienced personnel; however, competition for such personnel is intense.

ITEM 2.    PROPERTIES

        We lease our corporate headquarters, which is located in Frazer, Pennsylvania and consists of approximately 190,000 square feet of administrative office space. We own approximately 160,000 square feet of research and office space in West Chester, Pennsylvania, at the site of our former corporate headquarters. We also lease approximately 110,000 square feet of administrative, research and warehouse space that is near our West Chester facilities. In Salt Lake City, Utah, we house administrative, research, manufacturing and warehousing operations in approximately 123,000 square feet that we lease. In 2004, we also purchased approximately 20 acres of property adjoining our current facilities in Salt Lake City. At our CIMA LABS facilities in Eden Prairie and Brooklyn Park, Minnesota, we own approximately 200,000 square feet of space, most of which is dedicated to our manufacturing and warehousing operations.

        We lease office space for our European operations in the U.K. as well as space for our satellite offices in Switzerland and Germany. In France, we own administrative facilities, an executive and research facility, a manufacturing facility, a packaging facility and various warehouses totaling approximately 285,000 square feet. We also lease the site of our other manufacturing facility in France totaling approximately 29,000 square feet. We believe that our current facilities are adequate for our present purposes.

ITEM 3.    LEGAL PROCEEDINGS

        We have filed patent infringement lawsuits in U.S. District Court in New Jersey against Teva Pharmaceuticals USA, Inc., Mylan Pharmaceuticals Inc., Ranbaxy Pharmaceuticals Inc., Barr Laboratories, Inc. and Sandoz Inc. based upon the ANDAs filed by each of these companies with the FDA seeking approval to market a generic form of modafinil. The lawsuits claim infringement of our U.S. Patent No. RE37,516 which covers the pharmaceutical compositions and methods of treatment with the form of modafinil contained in PROVIGIL. Each of the defendants has asserted defenses and/or counterclaims for non-infringement and patent invalidity, and defendants Teva, Ranbaxy and Mylan have moved to amend their answers and counterclaims to state inequitable conduct as a defense to our claims (we have opposed these motions and a decision is pending). These lawsuits are currently in the discovery phase; we expect a trial to begin no earlier than late 2005. We also recently received notice that Carlsbad Technology, Inc. filed an ANDA seeking to market a generic form of modafinil and we have filed suit against them. Discovery in this action has not yet commenced. While we intend to vigorously defend the validity of this patent and prevent infringement, these efforts will be both expensive and time consuming and, ultimately, may not be successful.

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        In January 2005, we filed a patent infringement lawsuit in U.S. District Court in Delaware against Barr Laboratories, Inc., based on the ANDA filed by Barr seeking approval for generic form of ACTIQ. Neither the ANDA filing nor the lawsuit modifies the existing license grant to Barr, and we do not expect any change in the anticipated date of Barr's entry to the market (absent resolution of the lawsuit). At the same time we continue to comply in good faith with the FTC Decision and Order requiring us to provide Actiq manufacturing process and other information to Barr to assist its efforts to manufacture a licensed generic version of Actiq when Barr's license becomes effective. While we intend to vigorously defend the validity of the ACTIQ patents and prevent infringement by Barr until the license effective date, these efforts will be both expensive and time consuming and, ultimately, may not be successful.

        In September 2004, we announced that we had received subpoenas from the U.S. Attorney's Office in Philadelphia with respect to PROVIGIL, ACTIQ and GABITRIL. This investigation is ongoing and appears to be focused on our sales and promotional practices. We are cooperating with the investigation and are providing documents to the Government. In addition, we have engaged in ongoing discussions with the Attorney General in Pennsylvania regarding recent media reports of instances of abuse and diversion of ACTIQ. We have had similar discussions with the Office of the Connecticut Attorney General; in September 2004, we received a voluntary request for information from the Office of the Connecticut Attorney General asking us to provide information generally relating to our sales and promotional practices for our U.S. products. We have agreed to comply with this voluntary request. These matters may involve the bringing of criminal charges and fines, and/or civil penalties. We cannot predict or determine the outcome of these matters or reasonably estimate the amount or range of amounts of any fines or penalties that might result from an adverse outcome. However, an adverse outcome could have a material adverse effect on our financial position, liquidity and results of operations.

        We are a party to certain other litigation in the ordinary course of our business, including, among others, European patent oppositions, and matters alleging employment discrimination, product liability and breach of commercial contract. We are vigorously defending ourselves in all of the actions against us and do not believe these matters, even if adversely adjudicated or settled, would have a material adverse effect on our financial condition, results of operations or cash flows.

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

        We did not submit any matters to the vote of security holders during the fourth quarter of 2004.

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Executive Officers of the Registrant

        The names, ages and positions held by our executive officers as of December 31, 2004 are as follows:

Name	Age	Position
Frank Baldino, Jr., Ph.D.	51	Chairman and Chief Executive Officer
Paul Blake, F.R.C.P.	57	Senior Vice President, Clinical Research and Regulatory Affairs
J. Kevin Buchi	49	Senior Vice President and Chief Financial Officer
Peter E. Grebow, Ph.D.	58	Senior Vice President, Worldwide Technical Operations
John E. Osborn	47	Senior Vice President, General Counsel and Secretary
Robert P. Roche, Jr.	49	Senior Vice President, Pharmaceutical Operations
Carl A. Savini	55	Senior Vice President, Administration
Jeffry L. Vaught, Ph.D.	54	Senior Vice President and President, Research and Development

        All executive officers are elected by the Board of Directors to serve in their respective capacities until their successors are elected and qualified or until their earlier resignation or removal.

        Dr. Baldino founded Cephalon and has served as Chief Executive Officer and a director since its inception. He was appointed Chairman of the Board of Directors in December 1999. Dr. Baldino received his Ph.D. degree from Temple University, holds several adjunct academic appointments and is a trustee of Temple University. Dr. Baldino currently serves as a director of Pharmacopeia, Inc., a developer of proprietary technology platforms for pharmaceutical companies, ViroPharma, Inc., a biopharmaceutical company, Acusphere, Inc., a specialty pharmaceutical company, and NicOx S.A., a company engaged in the research, development and commercialization of nitric oxide therapeutics.

        Dr. Blake joined Cephalon in March 2001 as Senior Vice President, Clinical Research and Regulatory Affairs. Effective February 14, 2005, Dr. Blake's title was changed to Executive Vice President, Worldwide Clinical Research and Regulatory Affairs. From 1999 to 2001, Dr. Blake served as Chief Medical Officer for MDS Proteomics Inc., a Canadian health and life sciences company. From 1998 to 1999, Dr. Blake served as President and Chief Executive Officer of Proliance Pharmaceuticals, Inc., a drug development company. Prior to that, he spent six years with SmithKline Beecham Pharmaceuticals (currently known as GlaxoSmithKline), most recently as Senior Vice President and Medical Director. Dr. Blake received his medical degree from London University, Royal Free Hospital and completed his clinical training in Internal Medicine and Cardiology. Dr. Blake is a fellow of the Royal College of Physicians (UK), a fellow of the Faculty of Pharmaceutical Medicine and a fellow of the American College of Clinical Pharmacology. He also serves on the board of directors of Protez Pharmaceuticals, a privately-held anti-infective discovery company.

        Mr. Buchi joined Cephalon as Controller in March 1991 and held several financial positions with the Company prior to being appointed Senior Vice President and Chief Financial Officer in April 1996. Between 1985 and 1991, Mr. Buchi served in a number of financial positions with E.I. du Pont de Nemours and Company. Mr. Buchi received a master of management degree from the J.L. Kellogg

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Graduate School of Management, Northwestern University in 1982. Mr. Buchi serves as a member of the board of directors of Lorus Therapeutics Inc., a publicly-traded Canadian biotechnology company, and Encysive Pharmaceuticals Inc., a publicly-traded pharmaceutical company.

        Dr. Grebow joined Cephalon in January 1991 and served as Senior Vice President, Business Development prior to holding his current position as Senior Vice President, Worldwide Technical Operations. Effective February 14, 2005, Dr. Grebow's title was changed to Executive Vice President, Worldwide Technical Operations. From 1988 to 1990, Dr. Grebow served as Vice President of Drug Development for Rorer Central Research, a division of Rhone-Poulenc Rorer Pharmaceuticals Inc., a pharmaceutical company. Dr. Grebow received a Ph.D. in chemistry from the University of California, Santa Barbara.

        Mr. Osborn joined Cephalon in March 1997 and was appointed Senior Vice President, General Counsel and Secretary in December 1998. From 1992 to 1997, Mr. Osborn was employed by The DuPont Merck Pharmaceutical Company, last as Vice President and Associate General Counsel. Prior to that, he served in the George H.W. Bush administration with the U.S. Department of State, practiced corporate law with Hale and Dorr in Boston, and clerked for a U.S. Court of Appeals judge. Mr. Osborn earned a law degree from the University of Virginia and a master's degree from The Johns Hopkins University School of Advanced International Studies. He holds a visiting appointment in politics at Princeton University, and has been elected to membership in the American Law Institute and the Council on Foreign Relations. In 2004, he was appointed by then-U.S. Secretary of State Colin Powell to the board of governors of the East-West Center in Honolulu, an education and research organization established by the U.S. Congress to study the Asia Pacific region and its relationship with the United States.

        Mr. Roche joined Cephalon in January 1995 and has served as Senior Vice President, Pharmaceutical Operations since November 2000. Effective February 14, 2005, Mr. Roche's title was changed to Executive Vice President, Worldwide Pharmaceutical Operations. In June 1999, he was appointed to Senior Vice President of Sales and Marketing and prior to that was Vice President, Sales and Marketing. Previously, Mr. Roche served as Director and Vice President, Worldwide Strategic Product Development, for SmithKline Beecham's central nervous system and gastrointestinal products business, and held senior marketing and management positions with that company in the Philippines, Canada and Spain. Mr. Roche graduated from Colgate University and received a master of business administration degree from The Wharton School, University of Pennsylvania.

        Mr. Savini joined Cephalon in June 1993 and has served as Senior Vice President, Administration since October 2004 and was Senior Vice President, Human Resources from January 2000 to October 2004. Effective February 14, 2005, Mr. Savini's title was changed to Senior Vice President and Chief Administrative Officer. Prior to January 2000, Mr. Savini served as Director, Human Resources and was appointed Vice President, Human Resources in January 1995. From 1983 to 1993, Mr. Savini was employed by Bristol-Myers Squibb Company and from 1981 to 1983 he was employed by Johnson & Johnson's McNeil Pharmaceuticals. Mr. Savini graduated from The Pennsylvania State University and received a master of business administration degree from La Salle College.

        Dr. Vaught joined Cephalon in August 1991, and since that time has been responsible for directing Cephalon's research operations. He currently serves as Senior Vice President and President, Research and Development. Prior to joining Cephalon, Dr. Vaught was employed by the R. W. Johnson Pharmaceutical Research Institute, a subsidiary of Johnson & Johnson. Dr. Vaught received a Ph.D. in pharmacology from the University of Minnesota.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our common stock is quoted on the NASDAQ National Market under the symbol "CEPH." The following table sets forth the range of high and low sale prices for the common stock as reported on the NASDAQ National Market for the periods indicated below.

		High		Low
2003
	First Quarter	$	54.95	$	39.82
	Second Quarter		48.70		36.91
	Third Quarter		50.71		40.27
	Fourth Quarter		49.46		44.29
2004
	First Quarter	$	60.98	$	48.10
	Second Quarter		60.10		50.54
	Third Quarter		54.96		41.58
	Fourth Quarter		51.73		44.68

        As of March 7, 2005 there were 543 holders of record of our common stock. On March 7, 2005, the last reported sale price of our common stock as reported on the NASDAQ National Market was $49.56 per share.

        We have not paid any dividends on our common stock since our inception and do not anticipate paying any dividends on our common stock in the foreseeable future.

Issuer Purchases of Equity Securities

Period	Total Number of Shares of Common Stock Purchased(1)	Average Price Paid Per Share		Total Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Common Stock that May Yet Be Purchased Under the Plans or Programs
October 1–31, 2004	—		—	—	—
November 1–30, 2004	—		—	—	—
December 1–31, 2004	23,720	$	48.66	—	—
Total	23,720	$	48.66	—	—

(1)

Consists entirely of shares repurchased from employees. Under the terms of the 2004 Equity Compensation Plan, employees may elect to have shares withheld to satisfy income tax withholding obligation due upon vesting of a restricted stock award. Such repurchases are not part of a publicly announced plan or program.

Exchange of Convertible Notes

        In December 2004, we completed an exchange offer (the "Exchange Offer") in which we offered to exchange (i) Zero Coupon Convertible Subordinated Notes Due 2033, First Putable June 15, 2008 ("New 2008 Notes"), for any and all of our then outstanding Zero Coupon Convertible Subordinated Notes Due 2033, First Putable June 15, 2008 (the "Old 2008 Notes"), and (ii) Zero Coupon

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Convertible Subordinated Notes Due 2033, First Putable June 15, 2010 (the "New 2010 Notes" and together with the New 2008 Notes, the "New Notes") for any and all of our then outstanding Zero Coupon Convertible Subordinated Notes Due 2033, First Putable June 15, 2010 (the "Old 2010 Notes" and, together with the Old 2008 Notes, the "Old Notes"). The following table reflects the Old Notes exchanged in the Exchange Offer.

Period	Total Principal Amount of Notes Exchanged			Average Price Per $1,000 Principal Amount of the Notes Exchanged			Total Principal Amount of Notes Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Notes that May Yet Be Purchased Under the Plans or Programs
October 1–31, 2004		—			—		—	—
November 1–30, 2004		—			—		—	—
December 1–31, 2004	$	749,585,000	(1)	$	1,000	(2)	—	—
Total	$	749,585,000		$	1,000		—	—

(1)

Consists of $374,687,000 and $374,898,000 of principal amount of Old 2008 Notes and Old 2010 Notes, respectively. The Old 2008 Notes and Old 2010 Notes potentially were convertible into 6,297,252 and 6,635,357 shares, respectively, of our common stock as of the date of exchange.

(2)

Old Notes were exchanged for a like principal amount of the corresponding series of New Notes. Other than the issuance of New Notes for Old Notes, we did not pay or give, directly or indirectly, any consideration or other remuneration to holders for the exchange of Old Notes for New Notes. On an "as converted" basis, the average purchase price exchanged per share of common stock issuable upon conversion of the Old 2008 Notes and Old 2010 Notes were $59.50 and $56.50, respectively.

Securities Authorized for Issuance Under Equity Compensation Plans

        The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2004, including the 1987 Stock Option Plan (which expired in 1997) (the "1987 Plan"), the 2004 Equity Compensation Plan (the "2004 Plan") and the 2000 Equity Compensation Plan for Employees and Key Advisors (the "2000 Plan").

Equity Compensation Plan Information

Plan Category	(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(1)		(b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(1)		(c) Number of Securities Remaining Available for Future Issuance (Excludes Securities Reflected in Column(a))(2)
Equity compensation plans approved by stockholders	6,098,048	(3)	$	42.70	1,011,269
Equity compensation plans not approved by stockholders(4)	3,920,050		$	56.95	249,675
Total	10,018,098		$	48.27	1,260,944

(1)

The foregoing does not include options assumed under the Anesta Corp. 1993 Stock Option Plan (the "Anesta Plan") as a result of our acquisition of Anesta Corp. in 2000. As of December 31,

27

2004, there were 102,636 shares of common stock subject to outstanding options under the Anesta Plan, with a weighted average exercise price of these options of $28.54 per share. No additional shares are reserved for issuance under the Anesta Plan.

(2)

The 2004 Plan permits our Board of Directors or the Compensation Committee to award stock awards to participants. Up to 310,609 of the securities remaining available for issuance under equity compensation plans approved by stockholders may be issued as restricted stock awards. Restricted stock awards are not permitted to be made under the terms of the 2000 Plan.

(3)

Includes awards covering 456,650 shares of unvested restricted stock that are outstanding under the 2004 Plan. Also includes 45,660 shares to be issued upon exercise of outstanding options granted under the 1987 Plan. There are no securities that remain available for grant under the 1987 Plan.

(4)

Issued under the 2000 Plan, which does not require the approval of, and has not been approved by, Cephalon stockholders.

ITEM 6.    SELECTED FINANCIAL DATA

        On August 12, 2004 and December 28, 2001, we completed the acquisitions of the outstanding shares of capital stock of CIMA LABS INC. and Group Lafon, respectively. These acquisitions have been accounted for as purchases and, accordingly, the estimated fair value of assets acquired and liabilities assumed have been recorded as of the respective dates of the acquisitions.

        In October 2000, we completed a merger with Anesta Corp. under which we acquired all of the outstanding shares of Anesta in a tax-free, stock-for-stock transaction. The merger has been accounted for as pooling-of-interests and, accordingly, all of our prior period consolidated financial statements have been restated to include the results of operations, financial position, and cash flows of Anesta. Information concerning common stock and per share data has been restated on an equivalent share basis.

	Year Ended December 31,
(In thousands, except per share data) Statement of operations data:
	2004			2003			2002			2001			2000
Sales	$	980,375		$	685,250		$	465,943		$	226,132		$	91,637
Other revenues		35,050			29,557			40,954			35,863			20,153
Total revenues		1,015,425			714,807			506,897			261,995			111,790
Acquired in-process research and development		(185,700	)		—			—			(20,000	)		(22,200	)
Debt exchange expense		(28,230	)		—			—			(52,444	)		—
Impairment charge		(30,071	)		—			—			—			—
Income tax (expense) benefit, net		(45,629	)		(46,456	)		112,629			—			—
Income (loss) before cumulative effect of a change in accounting principle	$	(73,813	)	$	83,858		$	175,062		$	(55,484	)	$	(93,744	)
Cumulative effect of a change in accounting principle		—			—			(3,534	)		—			(7,434	)
Net income (loss)		(73,813	)		83,858			171,528			(55,484	)		(101,178	)
Dividends on convertible exchangeable preferred stock		—			—			—			(5,664	)		(9,063	)
Net income (loss) applicable to common shares	$	(73,813	)	$	83,858		$	171,528		$	(61,148	)	$	(110,241	)
Basic income (loss) per common share*:
Income (loss) before cumulative effect of a change in accounting principle	$	(1.31	)	$	1.49		$	3.14		$	(1.27	)	$	(2.51	)
Cumulative effect of a change in accounting principle		—			—			(.06	)		—			(.19	)
	$	(1.31	)	$	1.49		$	3.08		$	(1.27	)	$	(2.70	)
Weighted average number of shares outstanding		56,489			55,560			55,104			48,292			40,893

28

Diluted income (loss) per common share*:
Income (loss) before cumulative effect of a change in accounting principle	$	(1.31	)	$	1.42	$	2.82		$	(1.27	)	$	(2.51	)
Cumulative effect of a change in accounting principle		—			—		(.05	)		—			(.19	)
	$	(1.31	)	$	1.42	$	2.77		$	(1.27	)	$	(2.70	)
Weighted average number of shares outstanding — assuming dilution		56,489			64,076		66,856			48,292			40,893

*

Includes effect from application of EITF 03-6 for years ended December 31, 2004, 2003 and 2002 and EITF 04-8 for the years ended December 31, 2004 and 2003.

	As of December 31,
(In thousands) Balance sheet data:
	2004			2003			2002			2001			2000
Cash, cash equivalents and investments	$	791,676		$	1,155,163		$	582,688		$	603,884		$	97,384
Total assets		2,440,176			2,381,656			1,689,090			1,446,408			308,435
Long-term debt		1,284,410			1,409,417			860,897			866,589			55,138
Accumulated deficit		(395,118	)		(321,305	)		(405,163	)		(576,691	)		(515,543	)
Stockholders' equity		830,044			770,370			642,585			398,731			165,193

Pro Forma Results

        The following data represents pro forma financial results assuming a retroactive adoption of a change in accounting principle. Effective January 1, 2000, we adopted the SEC's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."

	Year Ended December 31,
(In thousands, except per share data) Statement of operations data:
	2000
Total revenues	$	111,790
Net loss	$	(93,744	)
Dividends on convertible exchangeable preferred stock		(9,063	)
Loss applicable to common shares	$	(102,807	)
Basic and diluted loss per common share	$	(2.51	)
Weighted average number of shares outstanding		40,893

29

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

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. We recommend that you read this MD&A in conjunction with our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

EXECUTIVE SUMMARY

        Cephalon is an international biopharmaceutical company dedicated to the discovery, development and marketing of innovative products to treat sleep disorders, neurological disorders, cancer and pain. In addition to conducting an active research and development program, we market three products in the United States and numerous products in various countries throughout Europe. Through our wholly-owned subsidiary, CIMA LABS INC., we develop and manufacture orally disintegrating tablets using proprietary technologies. Our three largest products in terms of product sales, PROVIGIL, ACTIQ and GABITRIL, comprised approximately 90% of our worldwide net sales for the year ended December 31, 2004. We market PROVIGIL, ACTIQ and GABITRIL in the United States through our approximately 500-person sales force.

        Our corporate headquarters are in Frazer, Pennsylvania, and our research and development headquarters are in West Chester, Pennsylvania. In addition, we have offices in Utah, Minnesota, France, the United Kingdom, Germany and Switzerland. We operate manufacturing facilities in France for the production of modafinil, which is the active drug substance in PROVIGIL, Utah, for the production of ACTIQ for worldwide distribution and sale, and Minnesota, for the production of orally disintegrating versions of drugs for our partners.

        Our future success is highly dependent on obtaining and maintaining patent protection for our products and technology. With respect to PROVIGIL, we have filed patent infringement lawsuits against six generic companies based upon the ANDAs filed by these companies seeking FDA approval to market a generic version of modafinil. We anticipate that the first trial will begin no earlier than late 2005. See "—Certain Risks Related to Our Business." For ACTIQ, the patents covering the previous and current formulations of the product are set to expire as early as May 2005 and September 2006, respectively. As a result of the License and Supply Agreement we entered into with Barr Laboratories, Inc. in July 2004, we could face generic competition from Barr prior to September 2006 if we receive FDA approval of ORAVESCENT fentanyl before this date. See "Acquisition of CIMA LABS INC." below. In December 2004, we announced that FDA had acknowledged receipt of an ANDA filed by Barr seeking approval for a generic form of ACTIQ. In January 2005, we filed a patent infringement lawsuit against Barr to defend our patents until the license effective date. Neither the ANDA filing nor the lawsuit modify the existing license grant to Barr, and we do not expect any change in the anticipated date of Barr's entry to market (absent resolution of the lawsuit). The loss of patent protection on any of our existing U.S. products, whether by third-party challenge, invalidation, circumvention, license or patent expiration, would materially impact our results of operations.

        As part of our business strategy, in the future we expect to consider and, as appropriate, consummate acquisitions of other technologies, products and businesses. Over the past few years, we also have pursued a strategy of both broadening the range of clinical uses that are approved by regulatory authorities and seeking new and improved formulations of our currently marketed products. During 2004, we made significant progress towards these goals. Some notable achievements include:

•

we received final approval from the U.S. Food and Drug Administration to expand the label for PROVIGIL to include improving wakefulness in patients with excessive sleepiness associated with SWSD and in patients with OSA/HS;

30

•

we submitted an sNDA to the FDA seeking marketing approval of ATTENACE, a new proprietary once-daily dosage form of modafinil for the treatment of ADHD in children and adolescents between the ages of six and 17. We are targeting launch of ATTENACE by early 2006;



•

we recently reported positive Phase 3 clinical trial results with NUVIGIL in narcolepsy, OSA/HS and SWSD and expect to submit an NDA for NUVIGIL to the FDA in March 2005;



•

we initiated a Phase 3 clinical program evaluating GABITRIL for the treatment of GAD and, if the results of these studies are positive, expect to submit an NDA to the FDA in early 2006;



•

we submitted to the FDA an sNDA seeking regulatory approval of a sugar-free formulation of ACTIQ and anticipate approval by mid-2005; and



•

through our acquisition of CIMA LABS, we acquired the ORAVESCENT fentanyl product candidate. ORAVESCENT fentanyl is in Phase 3 clinical trials for the treatment of breakthrough cancer pain in opioid-tolerant patients, and we are targeting submission of an NDA to the FDA later this year and approval of this product by the FDA in late 2006.

        We also have significant research programs focused on developing therapeutics to treat neurological and oncological disorders. In the neurology area, we have a program with H. Lundbeck A/S to evaluate a molecule, CEP-1347, in an 800-patient Phase 2/3 clinical trial for the treatment of patients with early stage Parkinson's disease. In the cancer area, we have a program with a molecule, CEP-701, and are currently conducting Phase 2 clinical trials in patients suffering from AML. We also are conducting a Phase 1/2 program with another molecule, CEP-7055, to evaluate safety and tolerability and to gather preliminary evidence of efficacy in patients with treatment refractory tumors. In the pharmaceutical industry, the regulatory approval for the sale of new pharmaceutical products remains highly uncertain because the majority of therapeutic candidates fail to show the human safety and efficacy necessary for regulatory approval and successful commercialization. In addition, these efforts require substantial time, effort and financial resources. Our success in developing and commercializing these product candidates, or new or improved formulations of existing products, will be a significant factor in our future success.

        We have significant levels of indebtedness outstanding, nearly all of which consists of convertible notes with stated conversion prices or restricted conversion prices higher than our stock price as of the date of this filing. Of our outstanding convertible notes, as of the filing date of this report, $521.8 million in aggregate principal amount outstanding matures in December 2006.

        The rate of our future growth and our ability to generate sufficient cash flows from operations to service and repay our indebtedness ultimately will depend, in large part, on our ability to maintain patent protection on our existing products and successfully acquire or develop new products and new indications for our existing products.

Acquisition of CIMA LABS INC.

        On August 12, 2004, we completed our acquisition of CIMA LABS INC. Under the Agreement and Plan of Merger dated November 3, 2003, we acquired each outstanding share of CIMA LABS common stock for $34.00 per share in cash. The total cash paid to CIMA LABS stockholders in the transaction was approximately $482.5 million, net of CIMA LABS' existing cash on hand, or $409.4 million, net of its cash, cash equivalents and investments. As a result of the acquisition, we obtained the rights to CIMA LABS' ORAVESCENT fentanyl product candidate, which is currently in Phase 3 clinical trials for the treatment of breakthrough cancer pain in opioid-tolerant patients. ORAVESCENT fentanyl utilizes an enhanced absorption transmucosal drug delivery technology that we believe may facilitate the rapid onset of pain relief in such patients. We are targeting approval of this product by the FDA in late 2006.

31

        CIMA LABS also develops and manufactures orally disintegrating tablets using its proprietary technologies, OraSolv® and DuraSolv®, that allow an active drug ingredient to be formulated into a new dosage form that quickly disintegrates in the mouth without chewing or the need for water. CIMA LABS enters into collaborative agreements with pharmaceutical companies to develop products based on its oral drug delivery technologies. It currently manufactures for its partners, including AstraZeneca, N.V. Organon and Wyeth, five prescriptions and three over-the-counter pharmaceutical brands incorporating either the OraSolv or DuraSolv technologies. Revenues from these arrangements consist of net sales of manufactured product to partners, product development and licensing fees and royalties. For the period August 13, 2004 to December 31, 2004, revenues attributable to CIMA LABS totaled $28.4 million. CIMA LABS has facilities in Eden Prairie and Brooklyn Park, Minnesota, which house its executive offices, manufacturing facility, research and product development center and warehouse space.

        To secure FTC clearance of the CIMA LABS acquisition, we entered into a license and supply agreement with Barr whereby we agreed to license to Barr our U.S. rights to any intellectual property related to ACTIQ. The license to ACTIQ will become effective upon the earliest to occur of (i) final FDA approval of ORAVESCENT fentanyl, (ii) September 5, 2006, if we have not received either (A) an approvable letter from FDA for the sugar free formulation of ACTIQ by July 1, 2005 (or final FDA approval within 180 days of such approvable letter) or (B) a pediatric extension for ACTIQ or (iii) February 3, 2007, if we have received a pediatric extension for ACTIQ. As we currently expect to receive both a pediatric extension for ACTIQ prior to September 2006 and FDA approval for the sugar-free formulation of ACTIQ within the timeframe agreed upon with the FTC, we anticipate that the Barr license will be effective upon ORAVESCENT fentanyl approval. Under the agreement, Barr also may receive a license to the sugar-free formulation of ACTIQ under development; this license would become effective upon ORAVESCENT fentanyl approval by the FDA or if the sugar-free approval timelines described above are not achieved. We have filed an sNDA with the FDA requesting approval for the sugar-free formulation of ACTIQ, and we anticipate final FDA approval of this formulation by mid-2005.

        Under the license and supply agreement, we also agreed to transfer to Barr our technological know-how and intellectual property related to ACTIQ and to sell to Barr, for period of up to three years, a generic form of ACTIQ for resale in the United States if Barr is unable to manufacture an FDA-approved generic version of ACTIQ by the date the license takes effect. In addition, we have agreed to forbear from asserting any remaining patent rights in ACTIQ against other parties beginning on the earlier of August 3, 2007 or six months following the effective date of Barr's license.

RESULTS OF OPERATIONS
(Dollar amounts in thousands)

Sales—In the United States, we sell our products to pharmaceutical wholesalers, the largest three of which accounted for 87% of our worldwide net sales for the year ended December 31, 2004. Decisions made by these wholesalers and their customers regarding the levels of inventory they hold (and thus the amount of product they purchase from us) are outside of our control and can materially affect the level of our sales in any particular period and thus may not necessarily correlate to the number of prescriptions written for our products as reported by IMS Health Incorporated. To the extent possible, we attempt to minimize these fluctuations, both by providing, from time to time, discounts to our customers to stock normal amounts of inventory and by canceling orders if we believe a particular customer is speculatively buying inventory in anticipation of possible price increases. However, we do not have any agreements, understandings or business practices under which we extend incentives based on levels of inventory held by wholesalers. As of December 31, 2004, we received information from our three largest U.S. wholesaler customers about the levels of inventory they held for our three products. Based on this information, which we have not independently verified, we believe

32

that inventory held at these wholesalers is within a normal range for our business of approximately one month's supply. However, we currently do not have ongoing agreements for access to the actual inventory levels of our products held by our wholesalers or their customers.

        At the beginning of 2004, we consolidated our two former U.S. sales forces into a single unit that now details all three products to a broader group of physicians, including primary care physicians (e.g. internists, general practitioners and family practitioners). In addition, we expanded this combined force to approximately 500 persons. We believe this substantially larger sales force, coupled with focused marketing efforts designed to educate physicians and communicate the benefits of our products, contributed to the increases in total sales for the year ended December 31, 2004.

Year ended December 31, 2004 compared to year ended December 31, 2003

		For the year ended
		December 31,
								% Change
		2004		2003		Change
Sales:
	PROVIGIL	$	439,667	$	290,465	$	149,202	51	%
	ACTIQ		344,997		237,467		107,530	45	%
	GABITRIL		94,164		63,699		30,465	48	%
	Other		101,547		93,619		7,928	8	%
Total sales			980,375		685,250		295,125	43	%
Total other revenues			35,050		29,557		5,493	19	%
Total revenues		$	1,015,425	$	714,807	$	300,618	42	%

Sales—In addition to our larger sales force presence and targeted sales and marketing efforts designed to educate physicians and communicated the benefits of our products, other factors which contributed to the increase in sales are summarized as follows:

•

An expanded U.S. label for PROVIGIL received from the FDA in early 2004 was a key factor in contributing to the year over year increase in PROVIGIL sales. U.S. prescriptions for PROVIGIL increased by 35%, according to IMS Health. The period-to-period change was also impacted by lower sales recorded in the first quarter of 2003 as a result of the depletion of inventory levels at certain wholesalers. Additionally, domestic price increases of approximately 8% period over period contributed to higher 2004 sales.



•

Sales of ACTIQ increased 45% as compared to last year. U.S. prescriptions for ACTIQ increased by 34%, according to IMS Health. In addition, domestic prices increased approximately 7% from period to period.



•

Sales of GABITRIL increased 48% as compared to last year. U.S. prescriptions for GABITRIL increased by 41%, according to IMS Health. An increase in domestic prices of approximately 9% period over period also contributed to higher sales recorded in 2004.



•

Other sales consist of (1) sales of other products and certain third party products in various international markets, principally in France and (2) sales of products manufactured by CIMA LABS and sold to its pharmaceutical partners. The most significant products in this other sales category are SPASFON® (phloroglucinol) with total 2004 sales of $58.3 million and FONZYLANE® (buflomedil) with total 2004 sales of $16.3 million, both of which are sold by Cephalon France.

33

Analysis of gross sales to net sales—The following table presents the adjustments deducted from gross sales to arrive at a net sales figure:

		For the year ended
		December 31,
										% Change
		2004			2003			Change
Gross sales:		$	1,080,408		$	747,060		$	333,348	45	%
Adjustments to gross sales:
	Prompt payment discounts		18,443			12,202			6,241	51	%
	Returns		11,247			7,973			3,274	41	%
	Coupons		16,521			9,349			7,172	77	%
	Medicaid discounts		41,274			25,760			15,514	60	%
	Managed care and governmental agreements		12,548			6,526			6,022	92	%
			100,033			61,810			38,223	62	%
Net sales		$	980,375		$	685,250		$	295,125	43	%
Adjustments to gross sales as a percentage of gross sales			9.3	%		8.3	%

        Increases in the dollar amount of adjustments to gross sales from 2003 to 2004 primarily reflect increases in gross sales during the period and corresponding increases in discounts, expected returns and coupon usage, and participation in managed care, Medicaid, and other governmental programs. The change in the adjustments to gross sales as a percentage of gross sales is primarily driven by higher Medicaid discounts, and managed care and governmental agreement discounts and chargebacks resulting from the impact of price increases and increased participation.

Other Revenues—The increase in other revenues of 19% from period to period is primarily due to the inclusion of product development and licensing fees and royalties of $15.1 million attributable to CIMA LABS partially offset by a decrease in partner reimbursements on both our CEP-7055 program and our CEP-1347 program and a reduction in earnings recognized under our collaboration agreement with Novartis Pharma AG. The level of other revenue recognized from period to period may continue to fluctuate based on the status and activity of each related project and terms of each collaboration agreement. Therefore, past levels of other revenues may not be indicative of future levels.

	For the year ended
	December 31,
							% Change
	2004		2003*		Change
Costs and expenses:
Cost of sales	$	119,973	$	92,375	$	27,598	30	%
Research and development		273,972		168,222		105,750	63	%
Selling, general and administrative		339,477		254,088		85,389	34	%
Depreciation and amortization		52,798		44,073		8,725	20	%
Impairment charge		30,071		—		30,071	—	%
Acquired in-progress research and development costs		185,700		—		185,700	—	%
	$	1,001,991	$	558,758	$	443,233	79	%

*

Certain reclassifications of prior year amounts have been made to conform to the presentation for the year ended December 31, 2004. In our result of operations for the year ended December 31, 2003, $2.1 million of expenditures were reclassified from the research and development category into the selling, general and administrative category.

34

Cost of Sales—The cost of sales was approximately 12% of net sales in 2004 and 13% of net sales in 2003. The decrease is primarily due to cost savings realized from our transfer of U.S. ACTIQ manufacturing from Abbott Laboratories to our Salt Lake City facility beginning in June 2003, partially offset by higher costs related to other products sold in France and to CIMA LABS cost of sales for which there are no comparable data for 2003 and for which the margin is higher than other Cephalon products.

Research and Development Expenses—Research and development expenses increased $105.8 million, or 63%, in 2004 as compared to 2003. Of this increase, $71.1 million is due to clinical research costs including expenditures associated with increased headcount necessary to support higher levels of clinical activities and expenditures associated with (1) additional clinical studies initiated in 2004 to explore the utility of GABITRIL beyond its current indication, (2) costs incurred with Phase 3 clinical programs for ATTENACE which began in late 2003, and (3) costs incurred with our Phase 3 studies of NUVIGIL which began in the fourth quarter of 2003. The increase in 2004 also was impacted by higher costs incurred during 2004 associated with supplying materials for our clinical trials in process, developing new or improved production processes for our currently marketed products and products in development, and by the inclusion of CIMA LABS.

Selling, General and Administrative Expenses—Selling, general and administrative expenses increased $85.4 million, or 34%, in 2004 as compared to 2003. The increase is predominantly the result of the expansion of our European and U.S. field sales forces, additional product promotional expenses and an increased number of educational programs. In addition, a portion of the increase is due to higher administrative expenses associated with an increase in headcount, costs associated with complying with the requirements of the Sarbanes-Oxley Act, and higher accruals for bonus expenses resulting from a shift away from a stock option-based incentive compensation plan to a cash-based incentive compensation plan. These increases were partially offset by the recognition of a gain of $4.2 million in 2004 as a result of retiree medical benefit changes for current employees at Cephalon France.

Depreciation and Amortization Expenses—Depreciation and amortization expenses increased by $8.7 million, or 20%, in 2004 as compared to 2003. Depreciation expense increased period over period primarily as a result of increased capital investments in software, building and laboratory improvements at our West Chester location, increased spending on manufacturing equipment at our Salt Lake City location and the acquisition of property, plant and equipment associated with the CIMA LABS acquisition. Amortization expense increased due to the amortization of technology, trademark and marketing rights acquired from CIMA LABS.

Impairment charge—During 2004, we recorded an impairment charge of $30.1 million for the write-off of our investment in MDS Proteomics Inc.

Acquired in-process research and development—In connection with our acquisition of CIMA LABS, we allocated approximately $185.7 million of the purchase price to in-process research and development projects. At the acquisition date, CIMA LABS' ongoing research and development initiatives were focused on the development and commencement of Phase 3 clinical trials of ORAVESCENT fentanyl, and several other minor ongoing research and development projects. These costs were charged to expense in the third quarter of 2004 since, at the date of acquisition, the development of these projects

35

had not yet reached technological feasibility, and the research and development in progress had no alternative future uses.

		For the year ended
		December 31,
											% Change
		2004			2003			Change
Other income and expense:
	Interest income	$	16,486		$	11,298			5,188		46	%
	Interest expense		(22,186	)		(28,905	)		6,719		(23	%)
	Debt exchange expense		(28,230	)		—			(28,230	)	—	%
	Charge on early extinguishment of debt		(2,313	)		(9,816	)		7,503		(76	%)
	Other income (expense), net		(5,375	)		1,688			(7,063	)	(418	%)
		$	(41,618	)	$	(25,735	)	$	(15,883	)	62	%

Other Income and Expense—The aggregate of other income and expense increased $15.9 million, or 62%, in the year ended December 31, 2004 from the year ended December 31, 2003. The increase was attributable to the following factors:

•

Interest income increased by $5.2 million in 2004 due to higher average investment balances as well as slightly higher average investment returns.



•

Interest expense decreased by $6.7 million due primarily to a decrease in interest and amortization expense resulting from the repurchases and redemptions of a portion of our convertible subordinated notes during 2003 and 2004 partially offset by an increase in amortization expense associated with debt issuance costs from the June 2003 sales of our Zero Coupon Convertible Subordinated Notes.



•

In July 2004, a holder of our 2.5% convertible subordinated notes approached us, and we agreed, to exchange $78.3 million of these outstanding notes into 1,518,169 shares of our common stock. We recognized debt exchange expense of $28.2 million in the third quarter of 2004 relating to this exchange in accordance with SFAS No. 84, "Induced Conversion of Convertible Debt."



•

In March 2004 and August 2004, we repurchased for cash $10.0 million (at a price of 109.5% of the face amount) and $33.0 million (at a price of 104% of the face amount), respectively, of the 3.875% convertible subordinated notes in private transactions. As a result, during 2004, we recognized $2.3 million in our financial statements as a charge on early extinguishment of debt. In July 2003, we redeemed for cash all of the $174.0 million outstanding 5.25% notes at a redemption price of 103.15% per $1,000 aggregate principal amount of notes and we purchased $12.0 million of the 3.875% notes from one of the holders in a private transaction at a price of 106% of the face amount of the notes. As a result, during 2003, $9.8 million was recognized in our financial statements as a charge on early extinguishment of debt.



•

Other income decreased by $7.1 million in 2004 primarily due to a $4.1 million gain on the increase in the fair value of a foreign currency derivative instrument in 2003 and losses on the disposal of fixed assets related to the renovation of our facilities in 2004.

	For the year ended
	December 31,
								% Change
	2004		2003		Change
Income tax expense	$	45,629	$	46,456	$	(827	)	(2	%)

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Income Taxes—During 2004, we recognized $45.6 million of income tax expense on a loss before income taxes of $28.2 million, generating an overall effective tax rate of 162%. This compared to 2003 tax expense of $46.5 million on income before income taxes of $130.3 million, yielding an effective tax rate of 36%. The change in effective tax rates between 2004 and 2003 is primarily due to the $185.7 million acquired in-process research and development charge that was not tax deductible and, therefore, no tax benefit was recorded for this item. In addition, we recorded a decrease in the valuation allowance account of $7.1 million and recognized a research and development tax credit of $11.9 million, both of which were partially offset by alternative minimum tax expense.

Year ended December 31, 2003 compared to year ended December 31, 2002

		For the year ended
		December 31,
									% Change
		2003		2002		Change
Sales:
	PROVIGIL	$	290,465	$	207,204	$	83,261		40	%
	ACTIQ		237,467		126,725		110,742		87	%
	GABITRIL		63,699		48,760		14,939		31	%
	Other		93,619		83,254		10,365		12	%
Total sales			685,250		465,943		219,307		47	%
Total other revenues			29,557		40,954		(11,397	)	(28	%)
Total revenues		$	714,807	$	506,897	$	207,910		41	%

Revenues—Total sales in 2003 increased 47% over total sales in 2002. The increase is attributable to a number of factors including:

•

Sales of PROVIGIL increased 40% in 2003 as compared to 2002. The increase was the net result of strong U.S. demand for PROVIGIL as indicated by a 31% increase in prescriptions, according to IMS Health, driven by an expansion of both our sales force and marketing efforts, and by weighted average domestic price increases of approximately 6.2%. While applicable laws and regulations prevent us from promoting our products for uses beyond those contained in the approved label, our analysis of prescription data for PROVIGIL in the United States indicated a considerable portion of the increase in prescriptions is due to the fact that some physicians have elected to prescribe the product to treat excessive sleepiness and fatigue outside of narcolepsy. Sales in 2003 also increased relative to 2002 as a result of the depletion in 2002 and early 2003 of inventory levels at certain wholesalers. Additionally, international sales of PROVIGIL increased during 2003 due to the impact of recording a full calendar year of sales in 2003 in certain European countries to which product rights had been acquired in 2002, and also due to the favorable translation impact resulting from a strengthening Euro and U.K. Pound versus the U.S. dollar.



•

Sales of ACTIQ increased 87% in 2003 as compared to the same period last year. This increase was due, in part, to an expansion of our sales force in 2003 and continued, focused marketing efforts to pain specialists as indicated by an 76% increase in U.S. prescriptions, according to IMS Health. Domestic weighted average price increases of approximately 5.0% also contributed to higher sales recorded in 2003.



•

Sales of GABITRIL increased 31% in 2003 as compared to the same period last year, as indicated by a 53% increase in U.S. prescriptions, according to IMS Health. While applicable laws and regulations prevent us from promoting our products for uses beyond those contained in

37

the approved label, our analysis of prescription data for GABITRIL in the United States indicated a considerable portion of the increase in prescriptions is due to the fact that some physicians have elected to explore new uses for GABITRIL including anxiety, insomnia, and neuropathic pain. Weighted average increases in domestic prices of approximately 5.8% also contributed to higher sales recorded in 2003.

•

Other sales consist primarily of sales of other products and certain third party products in various international markets, principally in France. The most significant sales in this category are SPASFON® (phloroglucinol) and FONZYLANE® (buflomedil). While other sales denominated in foreign currencies remained relatively flat from year to year, a strengthening of the Euro versus the U.S. dollar in 2003 contributed to increased equivalent sales denominated in U.S. dollars.

Analysis of gross sales to net sales—The following table presents the adjustments deducted from gross sales to arrive at a net sales figure:

		For the year ended
		December 31,
										% Change
		2003			2002			Change
Gross sales:		$	747,060		$	498,637		$	248,423	50	%
Adjustments to gross sales:
	Prompt payment discounts		12,202			7,842			4,360	56	%
	Returns		7,973			3,249			4,724	145	%
	Coupons		9,349			4,481			4,868	109	%
	Medicaid discounts		25,760			13,201			12,559	95	%
	Managed care and governmental agreements		6,526			3,921			2,605	66	%
			61,810			32,694			29,116	89	%
Net sales		$	685,250		$	465,943		$	219,307	47	%
Adjustments to gross sales as a percentage of gross sales			8.3	%		6.6	%

        Increases in the dollar amount of adjustments to gross sales from 2002 to 2003 primarily reflect increases in gross sales during the period and corresponding increases in discounts, expected returns and coupon usage, and participation in managed care, Medicaid, and other governmental programs. The change in the adjustments to gross sales as a percentage of gross sales is primarily driven by higher Medicaid discounts, and managed care and governmental agreement discounts and chargebacks resulting from the impact of price increases and increased participation.

Other Revenues—Total other revenues in 2003 and 2002 is mainly comprised of revenue recognized under collaborative agreements. The decrease of 28% from period to period is primarily due to lower clinical research-related expenditures on our CEP-7055 program combined with a decrease in the contractually stated reimbursement rate, partially offset by increased expenditures on our CEP-1347 program. The level of other revenue recognized from period to period may continue to fluctuate based

38

on the status and activity of each related project and terms of each collaboration agreement. Therefore, past levels of other revenues may not be indicative of future levels.

		For the year ended
		December 31,
								% Change
		2003 *		2002 *		Change
Costs and expenses:
	Cost of sales	$	92,375	$	74,237	$	18,138	24	%
	Research and development		168,222		122,920		45,302	37	%
	Selling, general and administrative		254,088		178,138		75,950	43	%
	Depreciation and amortization		44,073		35,457		8,616	24	%
		$	558,758	$	410,752	$	148,006	36	%

*

Certain reclassifications of prior year amounts have been made to conform to the presentation for the year ended December 31, 2004. In our result of operations for the year ended December 31, 2003 and 2002, $2.1 million and $5.4 million, respectively, of expenditures were reclassed from the research and development category into the selling, general and administrative category.

Cost of Sales—The cost of sales was approximately 13% of net sales for 2003 and 16% of net sales for 2002. The decrease is due to cost savings realized from our transfer of U.S. ACTIQ manufacturing from Abbott Laboratories to our Salt Lake City facility beginning in June 2003 and to higher than normal GABITRIL inventory costs recorded in 2002 associated with our acquisition of GABITRIL product rights in territories other than the United States.

Research and Development Expenses—Research and development expenses increased $45.3 million, or 37%, in 2003 as compared to 2002. Approximately $34.9 million of this increase is due to costs associated with (1) additional clinical studies conducted in 2003 to explore the utility of GABITRIL beyond its current indication, (2) increased expenditures associated with the ongoing Phase 2/3 study of CEP-1347 in Parkinson's Disease, and (3) costs incurred with Phase 1 and Phase 3 studies of NUVIGIL. Research and development expenses incurred by our Cephalon France subsidiary increased $3.8 million primarily as a result of the strengthening of the Euro as compared to the U.S. dollar. Additionally, in 2003, we recorded a $2.0 million charge relating to the write-off as R&D expense of the value of an investment in an unaffiliated entity. These increases were partially offset by a decrease in expenditures in 2003 primarily associated with the conclusion of clinical studies of PROVIGIL in shift work sleep disorder and adult attention deficit/hyperactivity disorder of $6.6 million and by a decrease in expenditures of $6.3 million related predominantly to producing clinical supplies in 2002 for our Phase 1 studies of CEP-7055 in collaboration with Sanofi-Synthélabo.

Selling, General and Administrative Expenses—Selling, general and administrative expenses increased $76.0 million, or 43%, in 2003 as compared to 2002. Sales and marketing costs increased $65.3 million in the U.S. as a result of the expansion of our field sales forces, additional product promotional expenses and an increased number of medical education programs.

Depreciation and Amortization Expenses—Depreciation and amortization expenses increased by $8.6 million, or 24%, in 2003 as compared to 2002, of which $3.5 million is attributable to amortization in 2003 associated with the October 2002 acquisition of ACTIQ marketing rights in certain countries. Depreciation expenses increased by $2.1 million in 2003, in part, as a result of increased capital spending on capitalized software and building improvements at our West Chester location. Additionally,

39

during 2003, the estimated useful life of certain building improvements was changed from 40 years to 15 years, resulting in an increase of $1.1 million in depreciation expense.

		For the year ended
		December 31,
											% Change
		2003			2002			Change
Other income and (expense):
	Interest income	$	11,298		$	14,095		$	(2,797	)	(20	)%
	Interest expense		(28,905	)		(38,215	)		9,310		24	%
	Charge on early extinguishment of debt		(9,816	)		(7,142	)		(2,674	)	(37	)%
	Other income (expense), net		1,688			(2,450	)		4,138		169	%
		$	(25,735	)	$	(33,712	)	$	7,977		24	%

Other Income and Expense—The aggregate of other income and expense decreased $8.0 million, or 24%, in 2003 from 2002 due to:

•

Interest income decreased by $2.8 million in 2003 due to lower investment returns partially offset by higher average investment balances.



•

Interest expense decreased by $9.3 million due to:

•

a decrease in interest expense of $3.2 million associated with the March 2002 termination of our joint venture,

•

a decrease in interest and amortization expense of $5.4 million associated with the July 2003 redemption of our 5.25% convertible subordinated notes,

•

a decrease in interest expense of $1.8 million on our 2.5% convertible subordinated notes as a result of the interest rate swap agreement in effect for $200.0 million of the outstanding $600.0 million balance,

•

partially offset by an increase in amortization expense of $2.0 million associated with debt issuance costs from our June 2003 sale of zero coupon convertible subordinated notes.

•

In 2002, we recognized a charge of $7.1 million resulting from our purchase of the Class A investors' interests in a joint venture. This charge consisted of a write-off of $4.6 million of the remaining capitalized costs associated with the formation of the joint venture and a $2.5 million loss on the early extinguishment of debt. In 2003, we recognized a charge of $9.8 million associated with the redemption of the outstanding balance of 5.25% convertible subordinated notes and the July 2003 repurchase of a portion of our 3.875% convertible subordinated notes.

•

Other income increased in 2003 by $4.1 million primarily due to the effect of foreign currency gains from the termination of the Australian dollar hedge related to our SIRTeX bid. This gain was offset by foreign currency losses recorded by our European subsidiaries related to the weakening of the U.S. dollar relative to other currencies.

		For the year ended
		December 31,
											% Change
		2003			2002			Change
Income tax (expense) benefit, net		$	(46,456	)	$	112,629		$	(159,085	)	(141	)%
	Cumulative effect of a change in accounting principle		—			(3,534	)		3,534		100	%

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Income Tax (Expense) Benefit, Net—We recognized $46.5 million of income tax expense in 2003 based on an overall estimated annual effective tax rate of approximately 36%. This includes $0.4 million of additional valuation allowance attributable to deferred tax assets that are unlikely to be realized. In 2002, we recorded a net income tax benefit of $112.6 million. This benefit was partially offset by income tax expense primarily associated with Group Lafon. In light of our expectations for continued profitability, during the fourth quarter of 2002, we concluded that it was probable that we would realize a portion of the deferred tax assets related to the benefit of accumulated international, federal and state net operating losses, and federal research and development credits. We reduced the valuation allowance against certain of these deferred tax assets accordingly. In 2003, the valuation allowance increased in total by $3.9 million. The increase is primarily attributable to an increase of $8.2 million for state net operating losses that we believe are unlikely to be realized in the future, partially offset by a decrease in the valuation allowances for federal R&D credits that we now expect will be realized due to our increasing profits.

Cumulative Effect of Changing Inventory Costing Method from FIFO to LIFO—Effective January 1, 2002, we changed our method of valuing domestic inventories from the first-in, first-out, or FIFO method, to the last-in, first-out, or LIFO method. We recognized a charge of $3.5 million in the first quarter of 2002 as the cumulative effect of adopting the LIFO inventory costing method.

LIQUIDITY AND CAPITAL RESOURCES

        Cash, cash equivalents and investments at December 31, 2004 were $791.7 million, representing 32% of total assets, down from $1.2 billion, or 49% of total assets, at December 31, 2003. In August 2004, we completed our acquisition of CIMA LABS and paid $482.5 million in cash, net of CIMA LABS' existing cash on hand, (or $409.4 million, net of CIMA LABS' cash, cash equivalents and investments) to CIMA LABS stockholders to complete the transaction.

        Working capital, which is calculated as current assets less current liabilities, was $963.7 million at December 31, 2004 compared to $1.2 billion at December 31, 2003.

Net Cash Provided by Operating Activities

        Net cash provided by operating activities was $178.6 million for the year ended December 31, 2004 as compared to $200.2 million for 2003. The decrease in 2004 is primarily a result of increases in current assets, particularly trade receivables, partially offset by increases in current liabilities. Our loss of $73.8 million in 2004 includes non-cash expenditures of $185.7 million of acquired in-process research and development expense, $30.1 million of impairment expense and $28.2 million of debt exchange expense.

Net Cash Used for Investing Activities

        Net cash used for investing activities was $685.2 million for the year ended December 31, 2004 as compared to $17.6 million for 2003. The change is primarily due to our acquisition of CIMA LABS in August 2004 for $482.5 million, net of cash acquired (or $409.4 million, net of cash, cash equivalents and investments acquired) and the increase of purchases of available-for-sale investments in order to benefit from rising interest rates on longer term investments. In addition, in the fourth quarter of 2004, we purchased the French marketing rights to NAXY and MONO-NAXY from Sanofi-Synthelabo France for $44.3 million. Net cash used for investing activities in 2003 included the purchase of non-marketable securities totaling $33.0 million, which included $30.0 million for the purchase of securities of MDS Proteomics Inc. (MDSP), a privately-held Canadian company. The carrying value of the investment in MDSP was written off as an impairment charge in the second quarter of 2004.

41

Net Cash Provided by (Used for) Financing Activities

        Net cash used for financing activities was $41.0 million for the year ended December 31, 2004, as compared to net cash provided by financing activities of $437.9 million in 2003. The change is primarily the result of net proceeds of $727.1 million received in 2003 from the sale of zero coupon convertible subordinated notes. Concurrent with the private placement of the notes, we purchased a convertible note hedge for $258.6 million and sold warrants for $178.3 million.

        During both comparable periods, convertible subordinated notes were repurchased or redeemed (amounts in thousands):

3.875% convertible subordinated notes	March 2004	Repurchase	$	10,000
3.875% convertible subordinated notes	August 2004	Repurchase		33,000
			$	43,000
5.25% convertible subordinated notes	March 2003	Repurchase	$	2,000
5.25% convertible subordinated notes	April 2003	Repurchase		7,000
5.25% convertible subordinated notes	July 2003	Redemption		174,000
3.875% convertible subordinated notes	July 2003	Repurchase		12,000
			$	195,000

        The volume of exercises of common stock options increased in 2004 as compared to 2003. The extent and timing of option exercises are primarily dependent upon the market price of our common stock and general financial market conditions, as well as the exercise prices and expiration dates of the options.

Commitments and Contingencies

        —Legal Proceedings

        For a complete description of legal proceedings, see Part I, Item 3, "Legal Proceedings."

        —Cephalon Clinical Partners, L.P.

        In August 1992, we exclusively licensed our rights to MYOTROPHIN for human therapeutic use within the United States, Canada and Europe to Cephalon Clinical Partners, L.P. (CCP). A subsidiary of Cephalon is the sole general partner of CCP. We developed MYOTROPHIN on behalf of CCP under a research and development agreement. Under this agreement, CCP granted an exclusive license to us to manufacture and market MYOTROPHIN for human therapeutic use within the United States, Canada and Europe, and we agreed to make royalty payments equal to a percentage of product sales and a milestone payment of approximately $16.0 million upon regulatory approval. We have a contractual option, but not an obligation, to purchase all of the limited partnership interests of CCP, which is exercisable upon the occurrence of certain events following the first commercial sale of MYOTROPHIN. If, and only if, we decide to exercise this purchase option, we would make an advance payment of approximately $40.3 million in cash or, at our election, approximately $42.4 million in shares of common stock or a combination thereof. If we discontinue development of MYOTROPHIN, or if we do not exercise this purchase option, our license will terminate and all rights to manufacture or market MYOTROPHIN in the United States, Canada and Europe will revert to CCP, which may then commercialize MYOTROPHIN itself or license or assign its rights to a third party. In that event, we would not receive any benefits from such commercialization, license or assignment of rights.

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        In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." Subsequently, in December 2003, the FASB issued a revised version of FIN 46 (FIN 46R). FIN 46 and FIN 46R require a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. FIN 46 and FIN 46R also require disclosures about variable interest entities that a company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46 and FIN 46R apply immediately to variable interest entities created after January 31, 2003 and to existing special purpose entities in the first fiscal year or interim period ending after December 15, 2003. For all other entities, the requirements of FIN 46 and FIN 46R apply in the first period ending after March 15, 2004. As a result of the adoption of the standards, CCP has been consolidated in our financial statements at December 31, 2003 and 2004. This consolidation did not have a material impact on our financial statements.

        —Other Commitments and Contingencies

        The following table summarizes our obligations to make future payments under current contracts (in thousands):

	Payments due by period
Contractual obligations	Total		Less than 1 year		1–3 years		4–5 years		More than 5 years
Debt obligations	$	16,276	$	3,737	$	4,435	$	5,070	$	3,034
Convertible notes		1,269,978		—		519,978		375,000		375,000
Capital lease obligations		3,270		1,377		1,638		255		—
Interest payments on debt		26,861		13,602		13,032		221		6
Operating leases		51,440		11,051		18,467		9,921		12,001
Total contractual cash obligations	$	1,367,825	$	29,767	$	557,550	$	390,467	$	390,041

        The convertible notes in the table include $374.7 million and $374.9 million of zero coupon convertible notes that are due in "4 – 5 years" and "More than 5 years," respectively. This classification is based on the date that such notes are first putable to us by holders. These notes also contain restrictions on a holder's ability to convert such notes into a mixture of cash and stock. If these restrictions on conversion are satisfied, we would classify the then-aggregate outstanding principal balance of such notes as a current liability on our balance sheet. As of December 31, 2004, these restrictions have not been met.

        In addition to the above, we have committed to make potential future "milestone" payments to third parties as part of our in-licensing and development programs primarily in the area of research and development agreements. Payments generally become due and payable only upon the achievement of certain developmental, regulatory and/or commercial milestones. Because the achievement of these milestones is neither probable nor reasonably estimable, we have not recorded a liability on our balance sheet for any such contingencies. As of December 31, 2004, the potential milestone and other contingency payments due under current contractual agreements are approximately $196 million.

Outlook

Overview

        Cash, cash equivalents and investments at December 31, 2004 were $791.7 million. In August 2004, we completed our acquisition of CIMA LABS and paid $482.5 million in cash, net of CIMA LABS' existing cash on hand, (or $409.4 million, net of its cash, cash equivalents and investments) to CIMA LABS stockholders to complete the transaction. We expect to use our remaining cash, cash equivalents and investments for working capital and general corporate purposes, including the acquisition of

43

businesses, products, product rights, or technologies, the payment of contractual obligations, including scheduled interest payments on our convertible notes, and/or the purchase, redemption or retirement of our convertible notes. At this time, we cannot accurately predict the effect of certain developments on the rate of sales growth in 2006 and beyond, such as the degree of market acceptance and exclusivity of our products, the impact of competition, the effectiveness of our sales and marketing efforts and the outcome of our current efforts to develop new products and formulations of our existing products and to demonstrate the utility of our products in indications beyond those already included in the FDA approved labels. However, we expect that sales of our three most significant marketed products, PROVIGIL, ACTIQ and GABITRIL, in combination with other revenues, should allow us to generate profits and positive cash flows from operations in the near term.

        Based on our current level of operations and projected sales of our products combined with other revenues and interest income, we also believe that we will be able to service our existing debt and meet our capital expenditure and working capital requirements in the near term. However, we cannot be sure that our anticipated revenue growth will be realized or that we will continue to generate significant positive cash flow from operations. We may need to obtain additional funding for future significant strategic transactions, to repay our outstanding indebtedness or for our future operational needs, and we cannot be certain that funding will be available on terms acceptable to us, or at all.

Products

        Analysis of prescription data for our products in the United States indicates that physicians elected to prescribe PROVIGIL, GABITRIL and ACTIQ to treat a number of indications outside of their labeled indications. Our strategy for PROVIGIL and GABITRIL has been to broaden the ranges of clinical uses that are approved by the FDA and European regulatory agencies to include many of the currently prescribed uses. In January 2004, we received approval from the FDA to expand the label for PROVIGIL to include improving wakefulness in patients with excessive sleepiness associated with SWSD and OSA/HS. We believe that new indications for PROVIGIL, coupled with a larger sales force, had a meaningful and positive impact on PROVIGIL sales in 2004.

        Continued sales growth of PROVIGIL beyond the December 2005 expiration of orphan drug exclusivity depends, in part, on our maintaining protection on the modafinil particle-size patent through its expiration beginning in 2014. See "—Commitments and Contingencies—Legal Proceedings" above. If we complete clinical studies of PROVIGIL in pediatric patients that are agreeable to the FDA, the FDA could grant us a six-month extension of our current exclusivity and of the particle-size patent. Future growth of modafinil-based product sales in 2006 and beyond also will depend on our ability to achieve FDA approval of NUVIGIL and ATTENACE.

        Our sales of ACTIQ also depend on our existing patent protection for the approved compressed powder formulation, which expires in the U.S. in September 2006, and for the previous formulation of ACTIQ, which expires in May 2005. See "Commitments and Contingencies—Legal Proceedings" above. If we complete clinical studies in pediatric patients that are agreeable to the FDA, the FDA could grant us six months of exclusivity beyond the September 2006 compressed powder patent expiration. However, even with this additional exclusivity, Barr's license to the ACTIQ patents could become effective as early as the launch of ORAVESCENT fentanyl (expected in late 2006), and in no event later than February 3, 2007. The entry of Barr with a generic form of ACTIQ beginning in late 2006 or early 2007 likely will significantly and negatively impact future ACTIQ sales and could potentially have a negative impact on sales of ORAVESCENT fentanyl, if approved.

Clinical Studies

        In 2004, we incurred significant expenditures related to conducting clinical studies to develop new pharmaceutical products and exploring the utility of our existing products in treating disorders beyond

44

those currently approved in their respective labels. In 2005 and beyond, we expect to increase the level of our research and development activities, including clinical trials, for our other product candidates, and for improved formulations for our existing products. With respect to GABITRIL, we have initiated a Phase 3 clinical program evaluating GABITRIL for the treatment of GAD. With respect to new product candidates, we are continuing Phase 3 clinical trials of ORAVESCENT fentanyl for the treatment of breakthrough cancer pain and our Phase 2/3 studies of CEP-1347 for the treatment of Parkinson's disease. We also are continuing clinical development of CEP-701 and CEP-7055 for treatment of certain malignancies. We may seek to mitigate the risk in our research and development programs by seeking sources of funding for a portion of these expenses through collaborative arrangements with third parties. However, we intend to retain a portion of the commercial rights to these programs and, as a result, we still expect to spend significant funds on our share of the cost of these programs, including the costs of research, preclinical development, clinical research and manufacturing.

Manufacturing, Selling and Marketing Efforts

        We also expect to continue to incur significant expenditures associated with manufacturing, selling and marketing our products. In 2004, we purchased approximately 20 acres of land adjacent to our current facilities in Salt Lake City for approximately $2 million and began a nearly $70 million capital expansion that will be substantially completed by late 2006 and that will increase our ACTIQ capacity and provide us with flexibility to manufacture other products.

Indebtedness

        We have significant indebtedness outstanding, consisting principally of indebtedness on convertible subordinated notes. The following table summarizes the principal terms of our most significant convertible subordinated notes outstanding as of December 31, 2004:

Security	Aggregate Principal Balance Outstanding (in millions)		Conversion Price		Other
2.5% Convertible Subordinated Notes due December 2006	$	521.8	$	81.00	•	Redeemable on or after December 20, 2004 at our option at a redemption price of 100% of the principal amount redeemed.
Zero Coupon Convertible Notes due June 2033, first putable June 15, 2008	$	374.7	$	59.50*	•	Redeemable on June 15, 2008 at either option of holder or us at a redemption price of 100.25% of the principal amount redeemed.
Zero Coupon Convertible Notes due June 2033, first putable June 15, 2010	$	374.9	$	56.50*	•	Redeemable on June 15, 2010 at either option of holder or us at a redemption price of 100.25% of the principal amount redeemed.

*

Stated conversion prices as per the terms of the notes. However, each convertible note contains certain terms restricting a holder's ability to convert the notes, including that a holder may only convert if the closing price of our stock on the day prior to conversion is higher than $71.40 or $67.80 with respect to the 2008 notes or the 2010 notes, respectively. If the restrictions on conversion are satisfied, we would classify the then-aggregate outstanding principal balance of the 2008 notes and/or the 2010 notes as a current liability on our balance sheet. For a more complete description of these notes, including the related convertible note hedge strategy, see Notes 1 and 11 to our consolidated financial statements included in Item 8 of this Form 10-K.

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        The annual interest payments on our convertible notes outstanding as of December 31, 2004 are $13.0 million, payable at various dates throughout the year. In the future, we may agree to exchanges of the notes for shares of our common stock or debt, or may determine to use a portion of our existing cash on hand to purchase, redeem or retire all or a portion of the outstanding convertible notes. In January 2003, we entered into an interest rate swap agreement with a financial institution relating to our 2.5% convertible notes in the aggregate notional amount of $200.0 million. Although we exchanged $78.3 million of these notes in July 2004 for 1,518,169 shares of our common stock, the interest rate swap remains at $200.0 million. Under the swap, we agreed to pay a variable interest rate on this $200.0 million notional amount equal to LIBOR-BBA + .29% in exchange for the financial institution's agreement to pay a fixed rate of 2.5%. The variable interest rate is re-calculated at the beginning of each quarter. Effective January 1, 2005, the interest rate is 2.85%. We also agreed to provide the financial institution with cash collateral to support our obligations under the agreement. The current collateral amount is $3.0 million and is recorded in Other Assets in our consolidated balance sheet.

Acquisition Strategy

        As part of our business strategy, we plan to consider and, as appropriate, make acquisitions of other businesses, products, product rights or technologies. Our cash reserves and other liquid assets may be inadequate to consummate these acquisitions and it may be necessary for us to raise substantial additional funds in the future to complete these transactions. In addition, as a result of our acquisition efforts, we are likely to experience significant charges to earnings for merger and related expenses (whether or not our efforts are successful) that may include transaction costs, closure costs or acquired in-process research and development charges.

        In February 2004, we filed with the SEC a $1.0 billion universal shelf registration statement covering the issuance and sale from time to time, of common and preferred stock, debt securities and warrants. While we have no current plans to access the capital markets, the shelf registration statement would allow us to expediently access capital markets periodically in the future.

Other

        We may experience significant fluctuations in quarterly results based primarily on the level and timing of:

•

product sales and cost of product sales;



•

inventory stocking or destocking practices of our three largest customers;



•

achievement and timing of research and development milestones;



•

collaboration revenues;



•

cost and timing of clinical trials;



•

marketing and other expenses; and



•

manufacturing or supply disruptions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates and

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assumptions are developed, and challenged periodically, by management based on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

        Our significant accounting policies are described in Note 1 to the consolidated financial statements for the year ended December 31, 2004 included in Item 8 of this Form 10-K. The SEC defines critical accounting policies as those that are, in management's view, most important to the portrayal of the company's financial condition and results of operations and most demanding of their judgment. Management considers the following policies to be critical to an understanding of our consolidated financial statements and the uncertainties associated with the complex judgments made by us that could impact our results of operations, financial position and cash flows.

Revenue recognition—In the United States, we sell our products to pharmaceutical wholesalers, the largest three of which account for 87% of our worldwide net sales for the year ended December 31, 2004. Decisions made by these wholesalers and their customers regarding the levels of inventory they hold (and thus the amount of product they purchase from us) are outside of our control and can materially affect the level of our sales in any particular period. To the extent possible, we attempt to minimize these fluctuations, both by providing, from time to time, discounts to our customers to stock normal amounts of inventory and by canceling orders if we believe a particular customer is speculatively buying inventory in anticipation of possible price increases. However, we do not have any agreements, understandings or business practices under which we extend incentives based on levels of inventory held by wholesalers. As of December 31, 2004, we received information from our three largest U.S. wholesaler customers about the levels of inventory they held for our three products. Based on this information, which we have not independently verified, we believe that inventory held at these wholesalers is within a normal range for our business of approximately one month's supply. However, we currently do not have ongoing agreements for access to the actual inventory levels of our products held by our wholesalers or their customers. Sales recorded for the year ended December 31, 2004 were generally representative of underlying demand for the products.

        Product sales are recognized upon the transfer of ownership and risk of loss for the product to the customer. In the United States, we sell all commercial products F.O.B. shipping point. Transfer of ownership and risk of loss for the product pass to the customer at the point that the product is picked up by a common carrier for shipment to the customer. In Europe, product sales are recognized predominantly upon customer receipt of the product, except in certain contractual arrangements where different terms may be specified.

        Other revenue, which includes revenues from collaborative agreements, consists primarily of up-front fees, ongoing research and development funding, milestone payments and payments under co-promotional or managed services agreements. Non-refundable up-front fees are deferred and amortized to revenue over the related performance period. We estimate our performance period based on the specific terms of each collaborative agreement. We adjust the performance periods, if appropriate, based upon available facts and circumstances. We recognize periodic payments over the period that we perform the related activities under the terms of the agreements. Revenue resulting from the achievement of milestone events stipulated in the agreements is recognized when the milestone is achieved. Milestones are based upon the occurrence of a substantive element specified in the contract or as a measure of substantive progress towards completion under the contract.

        Payments under co-promotional or managed services agreements are recognized over the period when the products are sold or the promotional activities are performed. The portion of the payments that represent reimbursement of our expenses is recognized as an offset to those expenses in our results of operations.

Gross to Net Sales Adjustments—We record product sales net of the following significant categories of gross to net sales adjustments: prompt payment discounts, returns, coupons, Medicaid discounts and

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managed care and governmental contracts. Calculating each of these items involves significant estimates and judgments and requires us to use information from external sources.

        1)    Prompt payment discounts—We offer our U.S. wholesaler customers a 2% prompt-pay cash discount as an incentive to remit payment within the first thirty days after the date of the invoice. Prompt-pay discount calculations are based on the gross amount of each invoice. We account for these discounts by reducing sales by the 2% discount amount when product is sold, and apply earned cash discounts at the time of payment. Since we began selling our products commercially in 1999, our customers routinely take advantage of this discount. Based on common industry practices and our customers' overall payment performance, we accrue for cash discounts on all U.S. sales recorded during the period. We adjust the accrual to reflect actual experience as necessary and, as a result, the actual amount recognized in any period may be slightly different from our accrual amount.

        2)    Returns—Customers can return short-dated or expired product that meets the guidelines set forth in our return goods policy. Product shelf life from the date of manufacture for PROVIGIL is 3 years, GABITRIL is 2 to 3 years, depending on product strength, and ACTIQ is 3 years. Returns are accepted from wholesalers and retail pharmacies. Wholesaler customers can return short dated product with six months or less shelf life remaining and expired product within twelve months following the expiration date. Retail pharmacy are not permitted to return short-dated product but can return full or partial quantities of expired product only within twelve months following the expiration date. We base our estimates of product returns for each of our products on the percentage of returns that we have experienced historically. Notwithstanding this, we may adjust our estimate of product returns if we are aware of other factors that we believe could meaningfully impact our expected return percentages. These factors could include, among others, our estimates of inventory levels of our products in the distribution channel, known sales trends and existing or anticipated competitive market forces such as product entrants and/or pricing changes.

        In 2004, we recorded a provision for returns at a weighted average rate of 1.0% of gross sales, which is consistent with our actual historical return percentages. The other factors described above did not have a significant impact in 2004 on our estimate of product returns. Actual returns could exceed historical experience and our estimates of expected future returns activity because of several factors, including, among other things, wholesaler and retailer stocking patterns and/or competition. If the returns provision percentage were to increase by 0.5% of 2004 gross sales, then an additional provision of $5.4 million would result.

        As described above, we estimate wholesaler inventory as of December 31, 2004 to equal approximately one month's supply. Based on fourth quarter sales, we believe a reasonable estimate of our maximum exposure for potential product returns as of December 31, 2004 is approximately $43.0 million for PROVIGIL, $28.0 million for ACTIQ and $7.0 million for GABITRIL.

        3)    Coupons—We offer patients the opportunity to obtain free samples of our products through a program whereby physicians provide coupons to qualified patients for redemption at retail pharmacies. We reimburse retail pharmacies for the cost of these products through a third party administrator. We recognize the estimated cost of this reimbursement as a reduction of gross sales when product is sold. In addition, we maintain an accrual for unused coupons based on inventory in the distribution channel and historical coupon usage rates and adjust this accrual whenever changes in such coupon usage rates occur.

        In 2004, we recorded a provision for coupons at a weighted average rate of 1.5% of gross sales. Actual coupon usage could exceed historical experience and our estimates of expected future coupon activity. If the coupons provision percentage were to increase by 0.5% of 2004 gross sales, then an additional provision of $5.4 million would result.

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        4)    Medicaid discounts—We record accruals for rebates to be provided through governmental rebate programs, such as the Medicaid Drug Rebate Program, as a reduction of sales when product is sold. These reductions are based on historical rebate amounts and trends of sales eligible for these governmental programs for a period, as well as any expected changes to the trends of our total product sales. In addition, we estimate the expected unit rebate amounts to be used and adjust our rebate accruals based on the expected changes in rebate pricing. Rebate amounts are generally invoiced and paid quarterly in arrears, so that our accrual consists of an estimate of the amount expected to be incurred for the current quarter's activity, plus an accrual for prior quarters' unpaid rebates and an accrual for inventory in the distribution channel.

        In 2004, we recorded a provision for Medicaid discounts at a weighted average rate of 3.8% of gross sales. Actual Medicaid discounts could exceed historical experience and our estimates of expected future Medicaid patient activity or unit rebate amounts. If the Medicaid discounts provision percentage were to increase by 0.5% of 2004 gross sales, then an additional provision of $5.4 million would result.

        5)    Managed care and governmental agreements—We have entered into agreements with certain managed care customers whereby we provide agreed-upon discounts to such entities based on sales volume. We record accruals for these discounts as a reduction of sales when product is sold based on the discount rates and expected levels of sales volume of these managed care customers during a period. We estimate eligible sales based on historical amounts and trends of sales by these entities and on any expected changes to the trends of our product sales. Discounts are generally invoiced and paid quarterly in arrears, so that our accrual consists of an estimate of the amount expected to be incurred for the current quarter's activity, plus an accrual for prior quarters' unpaid rebates and an accrual for inventory in the distribution channel.

        We have entered into agreements with certain governmental customers (other than Medicaid) whereby we provide legislatively mandated discounts and rebates to such entities. We record accruals for these discounts and rebates as a reduction of sales when product is sold based on the discount amounts and expected levels of performance of these governmental customers during a period. We estimate eligible sales based on historical sales amounts and trends of sales by these entities and on any expected changes to the trends of our product sales. Generally, discounts are granted to governmental customers by our wholesalers at time of purchase. In other cases, rebates are paid directly to governmental customers based on reported levels of patient usage. Wholesalers charge these discounts and rebates back to us generally within one to three months. We record accruals for our estimate of unprocessed chargebacks related to sales made during the period based on an estimate of the amount expected to be incurred for the current quarter's sales, plus an accrual based on the amount of inventory in the distribution channel.

        In 2004, we recorded a provision for managed care and governmental contracts at a weighted average rate of 1.2% of gross sales. Actual chargebacks and rebates could exceed historical experience and our estimates of expected future participation in these programs. If the chargebacks and rebates provision percentage were to increase by 0.5% of 2004 gross sales, then an additional provision of $5.4 million would result.

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        The following table summarizes activity in each of the above categories for the years ended December 31, 2003 and 2004 (in thousands):

	Prompt Payment Discounts			*Returns			Coupons			Medicaid Discounts			Managed Care and Governmental Agreements			Total
Balance at January 1, 2003	$	(1,010	)	$	(2,879	)	$	(688	)	$	(4,950	)	$	(1,195	)	$	(10,722	)
Provision:
Current period		(12,202	)		(7,115	)		(8,933	)		(25,699	)		(6,365	)		(60,314	)
Prior periods		—			(858	)		(416	)		(61	)		(161	)		(1,496	)
Total		(12,202	)		(7,973	)		(9,349	)		(25,760	)		(6,526	)		(61,810	)
Actual:
Current period		11,076			—			7,446			16,261			4,754			39,537
Prior periods		1,028			3,731			416			4,411			1,275			10,861
Total		12,104			3,731			7,862			20,672			6,029			50,398
Balance at December 31, 2003		(1,108	)		(7,121	)		(2,175	)		(10,038	)		(1,692	)		(22,134	)
Provision:
Current period		(18,443	)		(12,822	)		(16,521	)		(41,027	)		(12,263	)		(101,076	)
Prior periods		—			1,575			—			(247	)		(285	)		1,043
Total		(18,443	)		(11,247	)		(16,521	)		(41,274	)		(12,548	)		(100,033	)
Actual:
Current period		15,497			—			13,538			25,321			8,118			62,474
Prior periods		1,155			6,641			993			7,916			1,713			18,418
Total		16,652			6,641			14,531			33,237			9,831			80,892
Balance at December 31, 2004	$	(2,899	)	$	(11,727	)	$	(4,165	)	$	(18,075	)	$	(4,409	)	$	(41,275	)

*

Given our return goods policy, we assume that all returns in a current year relate to prior period sales.

Inventories—Our inventories are valued at the lower of cost or market, and include the cost of raw materials, labor, overhead and shipping and handling costs. Cost is computed on domestic inventories using the last-in, first-out (LIFO) method. For the majority of our foreign inventories, the first-in, first-out (FIFO) method is utilized. The majority of our inventories are subject to expiration dating. We regularly evaluate the carrying value of our inventories and when, in our opinion, factors indicate that impairment has occurred, we establish a reserve against the inventories' carrying value. Our determination that a valuation reserve might be required, in addition to the quantification of such reserve, requires us to utilize significant judgment. We base our analysis, in part, on the level of inventories on hand in relation to our estimated forecast of product demand, production requirements over the next 12 months and the expiration dates of inventories. Although we make every effort to ensure the accuracy of forecasts of future product demand, any significant unanticipated decreases in demand could have a material impact on the carrying value of our inventories and our reported operating results. To date, inventory adjustments have not been material.

        We capitalize inventory costs associated with marketed products and certain products prior to regulatory approval and product launch, based on management's judgment of probable future commercial use and net realizable value. We could be required to expense previously capitalized costs related to pre-approval or pre-launch inventory upon a change in such judgment, due to a denial or delay of approval by regulatory bodies, a delay in commercialization, or other potential factors. At December 31, 2004, we had $21.9 million of capitalized inventory costs.

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Valuation of Property and Equipment, Intangible Assets, Goodwill and Investments—Our property and equipment have been recorded at cost and are being depreciated on a straight-line basis over the estimated useful life of those assets.

        Our intangible assets (which consist primarily of developed technology, trademarks, and product and marketing rights), are amortized over estimated useful lives which are intended to approximate the estimated pattern of economic benefits generated by the asset. Determining the "estimated pattern of economic benefit" for an intangible asset is a highly subjective and difficult assessment. To the extent that the pattern cannot be reliably determined, a straight line amortization method has been used.

        In conjunction with acquisitions of businesses or product rights, we allocate the purchase price based upon the relative fair values of the assets acquired and liabilities assumed. Goodwill represents the excess of purchase price over net assets acquired. In certain circumstances, fair value may be assigned to purchased in-process research and development and, as such, expensed immediately.

        We regularly assess whether intangibles, long-lived assets and goodwill have been impaired and adjust the carrying values of these assets whenever events or changes in circumstances indicate that some or all of the carrying value of the assets may not be recoverable. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operating performances of our businesses and products. Future events could cause us to conclude that impairment indicators exist and that the carrying values of our property and equipment, intangible assets or goodwill are impaired. Any resulting impairment loss could have a material adverse impact on our financial position and results of operations. If we determine that events or changes in circumstances have occurred that could have a material adverse effect on the fair value of our company and its goodwill, we would consult with one or more valuation specialists in estimating the impact of these on our estimate of fair value. We believe the estimation methods are reasonable and reflective of common valuation practices.

        We evaluate the recoverability and measure the possible impairment of our goodwill under Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." The impairment test is a two-step process that begins with the estimation of the fair value of the reporting unit. The first step screens for potential impairment, and the second step measures the amount of the impairment, if any. Our estimate of fair value considers publicly available information regarding the market capitalization of our company, as well as (i) publicly available information regarding comparable publicly-traded companies in the pharmaceutical industry, (ii) the financial projections and future prospects of our business, including our growth opportunities and likely operational improvements, and (iii) comparable sales prices, if available. As part of the first step to assess potential impairment, we compare our estimate of fair value for the company to the book value of our consolidated net assets. If the book value of our consolidated net assets were greater than our estimate of fair value, we would then proceed to the second step to measure the impairment, if any. The second step measures the amount of impairment by comparing the implied fair value of goodwill with its carrying value. The implied fair value is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination, and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying amount of the reporting unit goodwill is greater than its implied fair value, an impairment loss will be recognized in the amount of the excess.

        We performed our annual test of impairment of goodwill as of July 1, 2004. We have only one reporting unit, a biopharmaceutical unit, that constitutes our entire business. We compared the fair value of this reporting unit with its carrying value. The quoted market value of the outstanding shares of our common stock on the NASDAQ National Market at July 1, 2004 was used as the fair value of

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the reporting unit. Since the fair value of the reporting unit exceeded its carrying value at July 1, 2004, no adjustment to our goodwill for impairment was necessary. We updated our test of impairment of goodwill as of September 30, 2004 in conjunction with our acquisition of CIMA LABS, and again concluded that no adjustment to our goodwill for impairment was necessary.

        We evaluate our investments in non-marketable securities of outside entities on a quarterly basis by reviewing key indicators of the entities' financial performance, condition and outlook. We review the entities' most recent financial statements and discuss the entities' current and future financial and operational strategies with their senior management personnel. We also discuss with our senior research and development personnel the current status of and future expectations for any collaborative agreements we have with those entities. Based on this information, we make a determination as to whether any impairment in the carrying value of our investments exists. This determination is a highly subjective process that is based on the evaluation of qualitative information and numerous assumptions as to future events. Nonetheless, we believe our evaluation process provides a reasonable basis for our determination.

        Our evaluation process led us to conclude that we should record impairment charges in 2003 and 2004. In 2003, we recorded a $2.0 million charge relating to the write-off as R&D expense of the value of an investment in an unaffiliated entity. In January 2003, we purchased from MDS Proteomics Inc. (MDSP), a privately-held Canadian company and a subsidiary of MDS Inc., a $30.0 million convertible note due 2010 and entered into a five-year research agreement focused on accelerating the clinical development of our pipeline of small chemical compounds. In 2004, MDSP determined to change its business model to focus upon the provision of services to the pharmaceutical and biotechnology industries, which it believes can lead to nearer term revenue and profitability. On July 29, 2004, MDSP completed its reorganization under Canada's Companies Creditors' Arrangement Act and changed its name to Protana Inc. As part of the reorganization, we agreed to terminate our research agreement with Protana and cancel the $30.0 million convertible note we held in return for shares of Class A Preferred Stock and Common Stock of Protana. In light of the restructuring of Protana and the uncertain business prospects for the company, we determined that the carrying value of our investment was fully impaired and we recorded an impairment charge of $30.1 million, which also included transaction costs, in our second quarter of 2004 results of operations.

        Income taxes—We provide for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax and financial reporting bases of assets and liabilities.

        Prior to 2002, we had a history of losses from our operations, which generated significant international, federal and state net operating loss carryforwards. We record a valuation allowance against deferred tax assets if we believe that we are not likely to realize future tax benefits. Based on our profitability for the year ended December 31, 2002 and projected future results, in the fourth quarter of 2002, we concluded that it was likely that we would be able to realize a significant portion of the deferred tax assets, and therefore, we reversed a significant portion of the valuation allowance. As a result, beginning in 2003, we began providing for income taxes at a rate equal to our estimated annual combined federal, state and foreign statutory effective rates. Subsequent adjustments to our estimates of our ability to recover the deferred tax assets or other changes in circumstances or estimates could cause our provision for income taxes to vary from period to period.

        At the end of 2004, we retained a valuation allowance of $49.9 million against a total deferred tax asset balance of $260.6 million. We believe that this reserve is appropriate given the significant risks which face the company related to the potential introduction of generic competition for PROVIGIL and ACTIQ before the end of 2006, and the uncertainties surrounding the development, FDA approval and successful commercialization of NUVIGIL, ATTENACE and ORAVESCENT fentanyl. We will

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continue to reassess our ability to realize the future tax benefits of our deferred tax assets and adjust our valuation allowance, if necessary. Without approval and successful commercialization of these new products, it is not likely that we will be able to utilize the deferred tax assets that currently have a valuation allowance against them.

RECENT ACCOUNTING PRONOUNCEMENTS

        In December 2003, the FASB issued a revision to SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit costs of defined benefit plans and other defined benefit postretirement plans. This Statement is effective for fiscal years ending after December 15, 2003, except for certain disclosures about foreign plans which are effective for fiscal years ending after June 15, 2004. Since all of our pension and postretirement benefit plans are foreign plans, we have adopted the additional disclosure requirements of this statement effective December 31, 2004.

        In March 2004, the FASB's Emerging Issues Task Force (EITF) reached consensus on Issue 03-6. This Issue is intended to clarify what is a participating security for purposes of applying SFAS No. 128, "Earnings Per Share." The Issue also provides further guidance on how to apply the two-class method of computing earnings per share (EPS) once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. We adopted this Issue in the second quarter of 2004 and determined that our 3.875% convertible subordinated notes were participating securities as defined by this Issue. Although none of the 3.875% convertible notes are outstanding at December 31, 2004, net income (loss) used for basic and diluted income (loss) per share is allocated to the common shares using a ratio of weighted average common shares outstanding and weighted average participating securities, using the if-converted method. Our previously reported earnings per share have been restated as required by EITF Issue 03-6. The effect on our basic EPS for the years ended December 31, 2003 and 2002 was a decrease of $0.02 and $0.03 per share, respectively. The effect on our diluted EPS for the years ended December 31, 2003 and 2002 was a decrease of $0.02 per share in each of the years. There was no effect on our basic and diluted EPS for any periods prior to December 31, 2002.

        In September 2004, the EITF reached consensus on Issue 04-8, "Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effects on Diluted Earnings per Share." This Issue requires the inclusion of convertible shares for contingently convertible debt in the calculation of diluted EPS regardless of whether the contingency has been met, if the effect is dilutive. The Issue is effective for periods ending after December 15, 2004 and requires the restatement of previously reported EPS. In December 2004, we exchanged $749.6 million of our Zero Coupon Convertible Notes for notes with substantially the same terms and conditions. However, the contingent conversion feature is no longer considered when calculating diluted earnings per share under EITF 04-8. The remaining $0.4 million of unexchanged Zero Coupon Convertible Notes have not been included in the calculation of diluted EPS for the year ended December 31, 2004 as the effect is anti-dilutive. For the year ended December 31, 2003, the inclusion of the unexchanged Zero Coupon Convertible Notes using the if-converted method had no effect on diluted EPS.

        In November 2004, the FASB issued SFAS No. 151, "Inventory Costs", which requires abnormal amounts of idle capacity and spoilage costs to be excluded from the cost of inventory and expensed when incurred. This Statement is effective for fiscal years beginning after June 15, 2005. We believe the adoption of this statement will not impact our current financial statements.

        In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment," a revision of SFAS No. 123 "Accounting for Stock-Based Compensation," that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity

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instruments or that may be settled by the issuance of such equity instruments. This Statement requires that an entity measure the cost of equity based service awards based on the grant-date fair value of the award and recognize the cost of such awards over the period during which the employee is required to provide service in exchange for the award (the vesting period). The Statement requires that an entity measure the cost of liability based service awards based on current fair value that is remeasured subsequently at each reporting date through the settlement date. This Statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. We will adopt this new standard effective July 2005, which will require us to recognize share-based compensation expense in our statement of operations. We have not yet quantified the impact this statement will have on our future results but we expect that it will be material.

        In December 2004, the FASB issued Staff Position No. FAS 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" ("FSP No. 109-1"), and Staff Position No. FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" ("FSP No. 109-2"). These staff positions provide accounting guidance on how companies should account for the effects of the American Jobs Creation Act of 2004 ("AJCA") that was signed into law on October 22, 2004. FSP No. 109-1 states that the tax relief (special tax deduction for domestic manufacturing) from this legislation should be accounted for as a "special deduction" instead of a tax rate reduction. FSP No. 109-2 gives a company additional time to evaluate the effects of the legislation on any plan for reinvestment or repatriation of foreign earnings for purposes of applying FASB Statement No. 109. We are currently assessing both provisions to determine the impact they could have on our future income tax expense. We expect to complete this evaluation within a reasonable amount of time after additional guidance from the United States Treasury is published.

CERTAIN RISKS RELATED TO OUR BUSINESS

You should carefully consider the risks described below, in addition to the other information contained in this report, before making an investment decision. Our business, financial condition or results of operations could be harmed by any of these risks. The risks and uncertainties described below are not the only ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business at this time also may impair our business operations.

A significant portion of our revenues is derived from U.S. sales of our three largest products, and our future success will depend on the continued acceptance and growth of these products.

        For the year ended December 31, 2004, approximately 90% of our worldwide net sales were derived from sales of PROVIGIL, ACTIQ and GABITRIL. We cannot be certain that these products will continue to be accepted in their markets. Specifically, the following factors, among others, could affect the level of market acceptance of PROVIGIL, ACTIQ and GABITRIL:

•

a change in the perception of the healthcare community of their safety and efficacy, both in an absolute sense and relative to that of competing products;



•

the effectiveness of our sales and marketing efforts;



•

any unfavorable publicity regarding these products or similar products;



•

the price of the product relative to other competing drugs or treatments, including potential generic forms of our products;



•

any changes in government and other third-party payer reimbursement policies and practices; and

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•

regulatory developments affecting the manufacture, marketing or use of these products.

        Any material adverse developments with respect to the sale or use of PROVIGIL, ACTIQ and GABITRIL could significantly reduce our product revenues and have a material adverse effect on our ability to generate net income and positive net cash flow from operations.

We may be unsuccessful in our efforts to obtain regulatory approval for new products or for new formulations or indications for our existing products, which would significantly hamper future sales and earnings growth.

        Our prospects, particularly with respect to the growth of our future sales and earnings, depend substantially on our ability to obtain FDA approval for our four near-term product candidates: NUVIGIL, ATTENACE, ORAVESCENT fentanyl and GABITRIL for GAD. Recently, we filed an sNDA with the FDA seeking approval for the use of ATTENACE for ADHD in children and expect to file in March 2005 an NDA seeking approval for NUVIGIL. We do not know whether we will succeed in obtaining regulatory approval to market these products or what level of market acceptance these products may achieve, particularly if we ultimately face competition in the form of a generic version of PROVIGIL. We also have not yet completed Phase 3 studies of GABITRIL for use in treating GAD. If the results of some of these additional studies are negative or adverse, this could undermine physician and patient comfort with the current product, limit its commercial success, and diminish its acceptance. Even if the results of these studies are positive, the impact on sales of GABITRIL may be minimal unless we are able to obtain regulatory approval to expand the authorized uses of this product. FDA regulations limit our ability to communicate the results of additional clinical studies to patients and physicians without first obtaining regulatory approval for any expanded uses. Finally, we are continuing Phase 3 clinical studies of ORAVESCENT fentanyl for treatment of breakthrough cancer pain. As with our GABITRIL studies, we do not know whether these studies will demonstrate safety and efficacy, or if they do, whether we will succeed in receiving regulatory approval to market this product. Even if we obtain regulatory approval for ORAVESCENT fentanyl, the availability of a generic version of ACTIQ at that time could significantly and negatively impact sales of ORAVESCENT fentanyl.

We may not be able to maintain adequate protection for our intellectual property or market exclusivity for certain of our products and, therefore, competitors may develop competing products, which could result in a decrease in sales and market share, cause us to reduce prices to compete successfully and limit our commercial success.

        We place considerable importance on obtaining patent protection for new technologies, products and processes. To that end, we file applications for patents covering the compositions or uses of our drug candidates or our proprietary processes. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal, scientific and factual questions. To date, no consistent policy has emerged regarding breadth of claims in such companies' patents. Accordingly, the patents and patent applications relating to our products, product candidates and technologies may be challenged, invalidated or circumvented by third parties and might not protect us against competitors with similar products or technology. Patent disputes in our industry are frequent and can preclude commercialization of products. If we ultimately engage in and lose any such disputes, we could be subject to competition or significant liabilities, we could be required to enter into third party licenses or we could be required to cease using technology or product in dispute. In addition, even if such licenses are available, the terms of any license requested by a third party could be unacceptable to us.

PROVIGIL

        The U.S. composition of matter patent for modafinil expired in 2001. We own U.S. and foreign patent rights that expire between 2014 and 2015 and cover pharmaceutical compositions and uses of

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modafinil, specifically, certain particle sizes of modafinil contained in the pharmaceutical composition. Ultimately, these patents might be found invalid as the result of a challenge by a third party, or a potential competitor could develop a competing product or product formulation that avoids infringement of these patents. To date, the FDA has accepted six ANDAs for pharmaceutical products containing modafinil. Each of these ANDAs contain a Paragraph IV certification in which the ANDA applicant certified that the U.S. particle-size modafinil patent covering PROVIGIL either is invalid or will not be infringed by the ANDA product. We have filed patent infringement lawsuits in U.S. District Court in New Jersey against Teva Pharmaceuticals USA, Inc., Mylan Pharmaceuticals Inc., Ranbaxy Pharmaceuticals Inc., Barr Laboratories, Inc. and Sandoz Inc. based upon the ANDAs filed by each of these companies with the FDA. The lawsuit claims infringement of our U.S. Patent No. RE37,516. Each of the defendants has asserted defenses and/or counterclaims for non-infringement and/or patent invalidity, and defendants Teva, Ranbaxy and Mylan have moved to amend their answers and counterclaims to state inequitable conduct as a defense to our claims (we have opposed the motions and a decision is pending). These lawsuits are currently in the discovery phase; we expect a trial to begin no earlier than late 2005. We also recently filed suit against Carlsbad with respect to the ANDA they have filed with the FDA and discovery in this action has not yet commenced. While we intend to vigorously defend the validity of this patent and prevent infringement, these efforts will be both expensive and time consuming and, ultimately, may not be successful.

        Barr, Mylan and Ranbaxy have each announced the receipt of tentative FDA approval for their respective generic versions of PROVIGIL. Under the provisions of the Hatch-Waxman Act, we are entitled to a 30-month stay of final FDA approval of these generic versions of PROVIGIL. This stay precludes these companies from selling a modafinil-based product until the earlier to occur of the conclusion of the lawsuit or June 2006. However, if the court finds our particle-size patent is invalid or not infringed, these companies could begin selling their modafinil-based products upon the expiration of our FDA orphan drug exclusivity, currently in December 2005, which would significantly and negatively impact revenues from PROVIGIL. We do not know whether the ANDAs filed by Teva, Sandoz and Carlsbad have been, or will be, tentatively approved by the FDA.

        If we complete clinical studies of PROVIGIL in pediatric patients that are acceptable to the FDA, the FDA could grant us a six-month extension of our orphan drug exclusivity (to June 2006) and six months of exclusivity beyond the 2014 expiration of the particle-size patent term.

ACTIQ

        With respect to ACTIQ, we hold an exclusive license to a U.S. patents covering the currently approved compressed powder pharmaceutical composition and methods for administering fentanyl via this composition that are set to expire in September 2006. Corresponding patents in foreign countries are set to expire between 2009 and 2010. Our patent protection with respect to the ACTIQ formulation we sold prior to June 2003 will expire in May 2005. If we complete an additional clinical study in pediatric patients that is agreeable to the FDA, the FDA could grant us six months of exclusivity beyond the September 2006 compressed powder patent expiration. However, even with this additional exclusivity, Barr's license to the ACTIQ patents under the license and supply agreement could become effective as early as the launch of ORAVESCENT fentanyl (expected in late 2006), and in no event later than February 3, 2007. In December 2004, we announced that FDA had acknowledged receipt of an ANDA filed by Barr seeking approval for a generic form of ACTIQ. In January 2005, we filed a patent infringement lawsuit against Barr to defend our patents until the license effective date. Neither the ANDA filing nor the lawsuit modify the existing license grant to Barr, and we do not expect any change in the anticipated date of Barr's entry to market (absent resolution of the lawsuit). The entry of Barr with a generic form of ACTIQ likely will significantly and negatively impact future ACTIQ sales.

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GABITRIL

        With respect to GABITRIL, there are four U.S. composition-of-matter patents covering the currently approved product: a patent claiming tiagabine, the active drug substance in GABITRIL; a patent claiming crystalline tiagabine hydrochloride monohydrate and its use as an anti-epileptic agent; a patent claiming the pharmaceutical formulation; and a patent claiming anhydrous crystalline tiagabine hydrochloride and processes for its preparation. These patents currently are set to expire in 2011, 2012, 2016 and 2017, respectively. Supplemental Protection Certificates based upon corresponding foreign patents covering this product are set to expire in 2011. Ultimately, these patents might be found invalid as the result of a challenge by a third party, or a potential competitor could develop a competing product or product formulation that avoids infringement of these patents.

        We also rely on trade secrets, know-how and continuing technological advancements to support our competitive position. Although we have entered into confidentiality and invention rights agreements with our employees, consultants, advisors and collaborators, these parties could fail to honor such agreements or we could be unable to effectively protect our rights to our unpatented trade secrets and know-how. Moreover, others could independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how. In addition, many of our scientific and management personnel have been recruited from other biotechnology and pharmaceutical companies where they were conducting research in areas similar to those that we now pursue. As a result, we could be subject to allegations of trade secret violations and other claims.

Our activities and products are subject to significant government regulations and approvals, which are often costly and could result in adverse consequences to our business if we fail to comply.

        We currently have a number of products that have been approved for sale in the United States, foreign countries or both. All of our approved products are subject to extensive continuing regulations relating to, among other things, testing, manufacturing, quality control, labeling, and promotion. The failure to comply with any rules and regulations of the FDA or any foreign medical authority, or the post-approval discovery of previously unknown problems relating to our products, could result in, among other things:

•

fines, recalls or seizures of products;



•

total or partial suspension of manufacturing or commercial activities;



•

non-approval of product license applications;



•

restrictions on our ability to enter into strategic relationships; and



•

criminal prosecution.

        In September 2004, we announced that we had received subpoenas from the U.S. Attorney's Office in Philadelphia with respect to PROVIGIL, ACTIQ and GABITRIL. This investigation is ongoing and appears to be focused on our sales and promotional practices. We are cooperating with the investigation and are providing documents to the government. In addition, we have engaged in ongoing discussions with the Attorney General in Pennsylvania regarding recent media reports of instances of abuse and diversion of ACTIQ. We have had similar discussions with the Office of the Connecticut Attorney General; in September 2004, we received a voluntary request for information from the Office of the Connecticut Attorney General asking us to provide information generally relating to our sales and promotional practices for our U.S. products. We have agreed to comply with this voluntary request. These matters may involve the bringing of criminal charges and fines, and/or civil penalties. We cannot predict or determine the outcome of these matters or reasonably estimate the amount or range of amounts of any fines or penalties that might result from an adverse outcome. However, an adverse

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outcome could have a material adverse effect on our financial position, liquidity and results of operations.

        It is both costly and time-consuming for us to comply with these inquiries and regulations. Additionally, incidents of adverse drug reactions, unintended side effects or misuse relating to our products could result in additional regulatory controls or restrictions, or even lead to withdrawal of a product from the market.

        With respect to our product candidates and for new therapeutic indications for our existing products, we conduct research, preclinical testing and clinical trials, each of which requires us to comply with extensive government regulations. We cannot market these product candidates or these new indications in the United States or other countries without receiving approval from the FDA or the appropriate foreign medical authority. The approval process is highly uncertain and requires substantial time, effort and financial resources. Ultimately, we may never obtain approval in a timely manner, or at all. Without these required approvals, our ability to substantially grow revenues in the future could be adversely affected.

        In addition, because PROVIGIL and ACTIQ contain active ingredients that are controlled substances, we are subject to regulation by the DEA and analogous foreign organizations relating to the manufacture, shipment, sale and use of the applicable products. These regulations also are imposed on prescribing physicians and other third parties, making the storage, transport and use of such products relatively complicated and expensive. With the increased concern for safety by the FDA and the DEA with respect to products containing controlled substances and the heightened level of media attention given to this issue, it is possible that these regulatory agencies could impose additional restrictions on marketing or even withdraw regulatory approval for such products. In addition, adverse publicity may bring about a rejection of the product by the medical community. If the DEA, FDA or a foreign medical authority withdrew the approval of, or placed additional significant restrictions on the marketing of any of our products, our product sales and ability to promote our products could be substantially affected.

        We rely on third parties for the timely supply of specified raw materials, equipment, contract manufacturing, formulation or packaging services, product distribution services, customer service activities and product returns processing. Although we actively manage these third party relationships to ensure continuity and quality, some events beyond our control could result in the complete or partial failure of these goods and services. Any such failure could have a material adverse effect on our financial condition and result of operations.

Manufacturing, supply and distribution problems may create supply disruptions that could result in a reduction of product sales revenue and an increase in costs of sales, and damage commercial prospects for our products.

        The manufacture, supply and distribution of pharmaceutical products, both inside and outside the United States, is highly regulated and complex. We, and the third parties we rely upon for the manufacturing and distribution of our products, must comply with all applicable regulatory requirements of the FDA and foreign authorities, including current Good Manufacturing Practice regulations. In addition, we must comply with all applicable regulatory requirements of the Drug Enforcement Administration and analogous foreign authorities for certain of our products that contain controlled substances. The facilities used to manufacture, store and distribute our products also are subject to inspection by regulatory authorities at any time to determine compliance with regulations. These regulations are complex, and any failure to comply with them could lead to remedial action, civil and criminal penalties and delays in production or distribution of material.

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        We predominately depend upon single sources for the manufacture of both the active drug substances contained in our products and for finished commercial supplies. For example:

•

PROVIGIL:  Our manufacturing facility in France is the sole source of the active drug substance modafinil. With respect to finished commercial supplies of PROVIGIL, we currently have two qualified manufacturers, DSM Pharmaceuticals, in Greenville, North Carolina, and Patheon, Inc., in Ontario, Canada.



•

ACTIQ:  Our U.S. facility in Salt Lake City, Utah, is the sole source for the worldwide manufacture and supply of finished commercial supplies of ACTIQ.



•

GABITRIL:  Abbott Laboratories manufactures finished commercial supplies of GABITRIL for the U.S. market (through at least December 2008) and Sanofi-Synthelabo manufactures GABITRIL for non-U.S. markets (through January 2005, although Sanofi has agreed to continue to produce GABITRIL through the end of the second quarter of 2005). We have identified a third party manufacturer for the future worldwide production of the active drug substance tiagabine and finished commercial supplies of GABITRIL. We are in the process of qualifying this manufacturer with appropriate U.S. and European regulatory authorities.



•

Other Products:  Certain of our products are manufactured at our facilities in France, with the remaining products manufactured by single source third parties. CIMA LABS also manufactures products at its Minnesota facilities for certain of its pharmaceutical company partners.

The process of changing or adding a manufacturer or changing a formulation requires prior FDA and/or European medical authority approval and is very time-consuming. If we are unable to manage this process effectively or if an unforeseen event occurs at any facility, we could face supply disruptions that would result in significant costs and delays, undermine goodwill established with physicians and patients, damage commercial prospects for our products and adversely affect operating results.

As our products are used commercially, unintended side effects, adverse reactions or incidents of misuse may occur that could result in additional regulatory controls, adverse publicity and reduced sales of our products.

        During research and development, the use of pharmaceutical products, such as ours, is limited principally to clinical trial patients under controlled conditions and under the care of expert physicians. The widespread commercial use of our products could identify undesirable or unintended side effects that have not been evident in our clinical trials or the relatively limited commercial use to date. For example, in February 2005, working with the FDA, we updated our prescribing information for GABITRIL to include a bolded warning describing the risk of new onset seizures in non-induced patients without epilepsy. In addition, in patients who take multiple medications, drug interactions could occur that can be difficult to predict. Additionally, incidents of product misuse, product diversion or theft may occur, particularly with respect to products such as ACTIQ and PROVIGIL, which contain controlled substances. These events, among others, could result in adverse publicity that harms the commercial prospects of our products or lead to additional regulatory controls that could limit the circumstances under which the product is prescribed or even lead to the withdrawal of the product from the market. In particular, ACTIQ has been approved under regulations concerning drugs with certain safety profiles, under which the FDA has established special restrictions to ensure safe use. Any violation of these special restrictions could lead to the imposition of further restrictions or withdrawal of the product from the market.

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Our product sales and related financial results will fluctuate, and these fluctuations may cause our stock price to fall, especially if investors do not anticipate them.

        A number of analysts and investors who follow our stock have developed models to attempt to forecast future product sales and expenses, and have established earnings expectations based upon those models. These models, in turn, are based in part on estimates of projected revenue and earnings that we disclose publicly. Forecasting future revenues is difficult, especially when we only have a few years of commercial history and when the level of market acceptance of our products is changing rapidly. Forecasting is further complicated by the difficulties in estimating both existing inventory levels for our products at pharmaceutical wholesalers and retail pharmacies and the timing of their purchases to replenish these stocks. As a result, it is likely that our product sales will fluctuate significantly, which may not meet with market expectations and which also may adversely affect our stock price. There are a number of other factors that could cause our financial results to fluctuate unexpectedly, including:

•

cost of product sales;



•

achievement and timing of research and development milestones;



•

collaboration revenues;



•

cost and timing of clinical trials and regulatory approvals;



•

marketing and other expenses;



•

manufacturing or supply disruptions; and



•

costs associated with the operations of recently-acquired businesses and technologies.

We face significant product liability risks, which may have a negative effect on our financial performance.

        The administration of drugs to humans, whether in clinical trials or commercially, can result in product liability claims whether or not the drugs are actually at fault for causing an injury. Furthermore, our products may cause, or may appear to have caused, adverse side effects (including death) or potentially dangerous drug interactions that we may not learn about or understand fully until the drug has been administered to patients for some time. As our products are used more widely and in patients with varying medical conditions, the likelihood of an adverse drug reaction, unintended side effect or incidence of misuse may increase. Product liability claims can be expensive to defend and may result in large judgments or settlements against us, which could have a negative effect on our financial performance. The costs of product liability insurance have increased significantly in recent years, and the availability of coverage has decreased. Nevertheless, we maintain product liability insurance in amounts we believe to be commercially reasonable. However, any claims could easily exceed our coverage limits. Even if a product liability claim is not successful, the adverse publicity and time and expense of defending such a claim may interfere with our business.

We may be unable to repay our substantial indebtedness and other obligations.

        As of December 31, 2004, we had $1,289.5 million of indebtedness outstanding, including $1,271.8 million outstanding under convertible notes with stated conversion prices or restricted conversion prices higher than our stock price as of the date of this filing. Of our convertible notes outstanding as of the filing date of this report, $521.8 million mature in 2006. There are no restrictions on our use of our existing cash, cash equivalents and investments, and we cannot be sure that these funds will be available or sufficient in the future to enable us to repay our indebtedness. In the future, these factors, among other things, could make it difficult for us to service, repay or refinance our indebtedness or to obtain additional financing, or limit our flexibility and make us more vulnerable in the event of a downturn in our business. Unless we are able to generate cash flow from operations

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that, together with our available cash on hand, is sufficient to repay our indebtedness, we will be required to raise additional funds. Because the financing markets may be unwilling to provide funding to us or may only be willing to provide funding on terms that we would consider unacceptable, we may not have cash available or be able to obtain funding to permit us to meet our repayment obligations, thus adversely affecting the market price for our securities.

Our customer base is highly concentrated.

        Our principal customers are wholesale drug distributors. These customers comprise a significant part of the distribution network for all pharmaceutical products sold in the United States. Three large wholesale distributors, Cardinal Health, Inc., McKesson Corporation and AmerisourceBergen Corporation, control a significant share of this network. These three wholesaler customers, in the aggregate, accounted for 87% of our worldwide net sales for the year ended December 31, 2004. Fluctuations in the buying patterns of these customers, which may result from seasonality, wholesaler buying decision or other factors outside of our control, could significantly affect the level of our net sales on a period to period basis. Because of this, the amounts purchased by these customers during any quarterly or annual period may not correlate to the level of underlying demand evidenced by the number of prescriptions written for such products, as reported by IMS Health Incorporated. Furthermore, the loss or bankruptcy of any of these customers could materially and adversely affect our results of operations and financial condition.

Our internal controls over financial reporting may not be considered effective, which could result in possible regulatory sanctions and a decline in our stock price.

        Section 404 of the Sarbanes-Oxley Act of 2002 requires us to furnish annually a report on our internal controls over financial reporting, beginning with this Annual Report on Form 10-K. The internal control report must contain an assessment by our management of the effectiveness of our internal control over financial reporting (including the disclosure of any material weakness) and a statement that our independent auditors have attested to and reported on management's evaluation of such internal controls. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. In order for management to evaluate our internal controls, we must regularly review and document our internal control processes and procedures and test such controls. Ultimately, we or our independent auditors could conclude that our internal control over financial reporting may not be effective if, among others things:

•

any material weakness in our internal controls over financial reporting exist; or



•

we fail to remediate assessed deficiencies.

        Due to the number of controls to be examined, the complexity of the project, and the subjectivity involved in determining the effectiveness of controls, we cannot be certain that, in the future, all of our controls will continue to be considered effective by management or, if considered effective by our management, that our auditors will agree with such assessment.

        If, in the future, we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to attest that our management's report is fairly stated or they are unable to express an opinion on our management's evaluation, we could be subject to regulatory sanctions or lose investor confidence in the accuracy and completeness of our financial reports, either of which could have an adverse effect on the market price for our securities.

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The efforts of government entities and third party payers to contain or reduce the costs of health care may adversely affect our sales and limit the commercial success of our products.

        In certain foreign markets, pricing or profitability of pharmaceutical products is subject to various forms of direct and indirect governmental control, including the control over the amount of reimbursements provided to the patient who is prescribed specific pharmaceutical products. For example, we are aware of governmental efforts in France to limit or eliminate reimbursement for some of our products, particularly FONZYLANE, which could impact revenues from our French operations.

        In the United States, there have been, and we expect there will continue to be, various proposals to implement similar controls. The commercial success of our products could be limited if federal or state governments adopt any such proposals. In addition, in the United States and elsewhere, sales of pharmaceutical products depend in part on the availability of reimbursement to the consumer from third party payers, such as government and private insurance plans. These third party payers are increasingly utilizing their significant purchasing power to challenge the prices charged for pharmaceutical products and seek to limit reimbursement levels offered to consumers for such products. Moreover, many governments and private insurance plans have instituted reimbursement schemes that favor the substitution of generic pharmaceuticals for more expensive brand-name pharmaceuticals. In the U.S. in particular, generic substitution statutes have been enacted in virtually all states and permit or require the dispensing pharmacist to substitute a less expensive generic drug instead of an original branded drug. These third party payers could focus their cost control efforts on our products, especially with respect to prices of and reimbursement levels for products prescribed outside their labeled indications. In these cases, their efforts could negatively impact our product sales and profitability.

We experience intense competition in our fields of interest, which may adversely affect our business.

        Large and small companies, academic institutions, governmental agencies and other public and private research organizations conduct research, seek patent protection and establish collaborative arrangements for product development in competition with us. Products developed by any of these entities may compete directly with those we develop or sell. In addition, our two largest products, PROVIGIL and ACTIQ, could face competition from companies seeking to market generic forms of these products if our patent infringement lawsuits against these companies are unsuccessful.

        The conditions that our products treat, and some of the other disorders for which we are conducting additional studies, are currently treated with many drugs, several of which have been available for a number of years or are available in inexpensive generic forms. With respect to PROVIGIL, and, if approved, NUVIGIL, there are several other products used for the treatment of excessive sleepiness or narcolepsy in the United States, including methylphenidate products such as RITALIN® by Novartis, and in our other territories, many of which have been available for a number of years and are available in inexpensive generic forms. If we are successful in obtaining FDA approval of modafinil for the treatment of ADHD in children and adolescents, we will face competition from stimulants such as RITALIN® by Novartis, STRATERRA® by Eli Lilly, and CONCERTA® by McNeil Consumer, as well as from amphetamines such as DEXEDRINE® by GlaxoSmithKline and ADDERALL® by Shire. With respect to ACTIQ, we face competition from numerous short- and long-acting opioid products, including three products—Johnson & Johnson's DURAGESIC®, Purdue Pharmaceutical's OXYCONTIN® and MS-CONTIN®—that dominate the market as well as Purdue's PALLADONE® which was approved in September 2004. In addition, we are aware of numerous other companies developing other technologies for rapidly delivering opioids to treat breakthrough pain, including transmucosal, transdermal, nasal spray and inhaled delivery systems, among others, that will compete against ACTIQ and, if approved, ORAVESCENT fentanyl. With respect to GABITRIL, there are several products, including NEURONTIN® (gabapentin) by Pfizer, used as adjunctive therapy for the partial seizure market. Some are well-established therapies that have been on the market for

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several years while others have recently entered the partial seizure marketplace. In addition, several treatments for partial seizures are available in inexpensive generic forms. If we are successful in our efforts to expand the label of GABITRIL to include anxiety disorders, we will face significant competition from well-established Selective Serotonin Reuptake Inhibitor (SSRI) products such as Paxil®, Effexor XR® and Lexapro®. For all of our products, we need to demonstrate to physicians, patients and third party payers that the cost of our products is reasonable and appropriate in the light of their safety and efficacy, the price of competing products and the related health care benefits to the patient.

        Many of our competitors have substantially greater capital resources, research and development staffs and facilities than we have, and substantially greater experience in conducting clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products. These entities represent significant competition for us. In addition, competitors who are developing products for the treatment of neurological or oncological disorders might succeed in developing technologies and products that are more effective than any that we develop or sell or that would render our technology and products obsolete or noncompetitive. Competition and innovation from these or other sources, including advances in current treatment methods, could potentially affect sales of our products negatively or make our products obsolete. Furthermore, we may be at a competitive marketing disadvantage against companies that have broader product lines and whose sales personnel are able to offer more complementary products than we can. Any failure to maintain our competitive position could adversely affect our business and results of operations.

We plan to consider and, as appropriate, make acquisitions of technologies, products and businesses, which may subject us to a number of risks and/or result in us experiencing significant charges to earnings that may adversely affect our stock price, operating results and financial condition.

        As part of our efforts to acquire businesses or to enter into other significant transactions, we conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, we might not realize the intended advantages of the acquisition. We also must consolidate and integrate the operations of an acquired business with our business. Integration efforts often take a significant amount of time, place a significant strain on our managerial, operational and financial resources and could prove to be more difficult and expensive than we predicted. If we fail to realize the expected benefits from acquisitions we may consummate in the future, whether as a result of unidentified risks, integration difficulties, regulatory setbacks or other events, our business, results of operations and financial condition could be adversely affected.

        In our acquisition of CIMA LABS, we secured rights to the product development candidate, ORAVESCENT fentanyl, as well as CIMA LABS' existing drug delivery business. We estimated a value for ORAVESCENT fentanyl by making certain assumptions about, among other things, the likelihood and timing of ORAVESCENT fentanyl approval and the potential market for the product. This estimated value of ORAVESCENT fentanyl comprised a significant portion of the total consideration we paid to CIMA LABS stockholders. Ultimately, our assumptions may prove to be incorrect, which could cause us to fail to realize the anticipated benefits of the CIMA LABS transaction.

        In addition, we have experienced, and will likely continue to experience, significant charges to earnings related to our efforts to consummate acquisitions. For transactions that ultimately are not consummated, these charges may include fees and expenses for investment bankers, attorneys, accountants and other advisers in connection with our efforts. Even if our efforts are successful, we may incur as part of a transaction substantial charges for closure costs associated with the elimination of duplicate operations and facilities and acquired in-process research and development charges. In either case, the incurrence of these charges could adversely affect our results of operations for particular quarterly or annual periods.

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The failure to successfully integrate CIMA LABS could negatively impact our results of operations.

        The integration of CIMA LABS following our August 2004 acquisition involves a number of risks and presents financial, managerial and operational challenges, including:

•

diversion of management attention from our existing operations;



•

difficulty with integration of personnel, and accounting, financial reporting, internal control and other systems; and



•

increased operations that may be difficult to manage, especially since we have limited experience in drug delivery technologies.

        In light of these challenges, we may not be able to successfully manage the operations and personnel of CIMA LABS. Customer dissatisfaction, manufacturing, supply or distribution problems associated with the products that utilize CIMA LABS' technology and intense competition in the filed of drug delivery technology could cause its pharmaceutical business to underperform relative to our expectations, which could have a material adverse effect on our business. We also could experience financial or other setbacks if CIMA LABS' business has problems or liabilities of which we were not aware or that are substantially greater than we anticipated based on our evaluation of the business prior to the acquisition. Currently, a significant majority of CIMA LABS' revenues are derived from only three customers. The loss of any one of these customers, or a decline in the market acceptance of the products we develop and manufacture for them, could significantly impact revenues from the CIMA LABS business.

The results and timing of our research and development activities, including future clinical trials, are difficult to predict, subject to potential future setbacks and, ultimately, may not result in viable pharmaceutical products, which may adversely affect our business.

        In order to sustain our business, we focus substantial resources on the search for new pharmaceutical products. These activities include engaging in discovery research and process development, conducting preclinical and clinical studies and seeking regulatory approval in the United States and abroad. In all of these areas, we have relatively limited resources and compete against larger, multinational pharmaceutical companies. Moreover, even if we undertake these activities in an effective and efficient manner, regulatory approval for the sale of new pharmaceutical products remains highly uncertain because the majority of compounds discovered do not enter clinical studies and the majority of therapeutic candidates fail to show the human safety and efficacy necessary for regulatory approval and successful commercialization.

        In the pharmaceutical business, the research and development process can take up to 12 years, or even longer, from discovery to commercial product launch. During each stage of this process, there is a substantial risk of failure. Preclinical testing and clinical trials must demonstrate that a product candidate is safe and efficacious. The results from preclinical testing and early clinical trials may not be predictive of results obtained in subsequent clinical trials, and these clinical trials may not demonstrate the safety and efficacy necessary to obtain regulatory approval for any product candidates. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier trials. For ethical reasons, certain clinical trials are conducted with patients having the most advanced stages of disease and who have failed treatment with alternative therapies. During the course of treatment, these patients often die or suffer other adverse medical effects for reasons that may not be related to the pharmaceutical agent being tested. Such events can have a negative impact on the statistical analysis of clinical trial results.

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        The completion of clinical trials of our product candidates may be delayed by many factors, including the rate of enrollment of patients. Neither we nor our collaborators can control the rate at which patients present themselves for enrollment, and the rate of patient enrollment may not be consistent with our expectations or sufficient to enable clinical trials of our product candidates to be completed in a timely manner or at all. In addition, we may not be permitted by regulatory authorities to undertake additional clinical trials for one or more of our product candidates. Even if such trials are conducted, our product candidates may not prove to be safe and efficacious or receive regulatory approvals. Any significant delays in, or termination of, clinical trials of our product candidates could impact our ability to generate product sales from these product candidates in the future.

Our research and development and marketing efforts are often dependent on corporate collaborators and other third parties who may not devote sufficient time, resources and attention to our programs, which may limit our efforts to develop and market potential products.

        Because we have limited resources, we have entered into a number of collaboration agreements with other pharmaceutical companies, including H. Lundbeck A/S with respect to our research efforts in Parkinson's Disease, and with a number of marketing partners for our products in certain countries outside the United States. In some cases, our collaboration agreements call for our partners to control:

•

the supply of bulk or formulated drugs for use in clinical trials or for commercial use;



•

the design and execution of clinical studies;



•

the process of obtaining regulatory approval to market the product; and/or



•

marketing and selling of an approved product.

        In each of these areas, our partners may not support fully our research and commercial interests because our program may compete for time, attention and resources with the internal programs of our corporate collaborators. As such, our program may not move forward as effectively, or advance as rapidly, as it might if we had retained complete control of all research, development, regulatory and commercialization decisions. We also rely on some of these collaborators and other third parties for the production of compounds and the manufacture and supply of pharmaceutical products. Additionally, we may find it necessary from time to time to seek new or additional partners to assist us in commercializing our products, though we might not be successful in establishing any such new or additional relationships.

The price of our common stock has been and may continue to be highly volatile, which may make it difficult for holders to sell our common stock when desired or at attractive prices.

        The market price of our common stock is highly volatile, and we expect it to continue to be volatile for the foreseeable future. For example, from January 1, 2003 through December 31, 2004 our common stock traded at a high price of $60.98 and a low price of $36.91. Negative announcements, including, among others:

•

adverse regulatory decisions;



•

disappointing clinical trial results;



•

disputes and other developments concerning patent or other proprietary rights with respect to our products; or



•

sales or operating results that fall below the market's expectations

could trigger significant declines in the price of our common stock. In addition, external events, such as news concerning economic conditions, our competitors or our customers, changes in government regulations impacting the biotechnology or pharmaceutical industries or the movement of capital into

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or out of our industry, also are likely to affect the price of our common stock, regardless of our operating performance.

A portion of our revenues and expenses is subject to exchange rate fluctuations in the normal course of business, which could adversely affect our reported results of operations.

        Historically, a portion of our revenues and expenses has been earned and incurred, respectively, in currencies other than the U.S. dollar. For the year ended December 31, 2004, approximately 14% of our revenues were denominated in currencies other than the U.S. dollar. We translate revenues earned and expenses incurred into U.S. dollars at the average exchange rate applicable during the relevant period. A weakening of the U.S. dollar would, therefore, increase both our revenues and expenses. Fluctuations in the rate of exchange between the U.S. dollar and the euro and other currencies may affect period-to-period comparisons of our operating results. Historically, we have not hedged our exposure to these fluctuations in exchange rates.

We are involved, or may become involved in the future, in legal proceedings that, if adversely adjudicated or settled, could materially impact our financial condition.

        As a biopharmaceutical company, we are or may become a party to litigation in the ordinary course of our business, including, among others, matters alleging employment discrimination, product liability, patent or other intellectual property rights infringement, patent invalidity or breach of commercial contract. In general, litigation claims can be expensive and time consuming to bring or defend against and could result in settlements or damages that could significantly impact results of operations and financial condition. We currently are vigorously defending ourselves against certain litigation matters. While we currently do not believe that the settlement or adverse adjudication of these lawsuits would materially impact our results of operations or financial condition, the final resolution of these matters and the impact, if any, on our results of operations, financial condition or cash flows could be material.

Our dependence on key executives and scientists could impact the development and management of our business.

        We are highly dependent upon our ability to attract and retain qualified scientific, technical and managerial personnel. There is intense competition for qualified personnel in the pharmaceutical and biotechnology industries, and we cannot be sure that we will be able to continue to attract and retain the qualified personnel necessary for the development and management of our business. Although we do not believe the loss of one individual would materially harm our business, our business might be harmed by the loss of the services of multiple existing personnel, as well as the failure to recruit additional key scientific, technical and managerial personnel in a timely manner. Much of the know-how we have developed resides in our scientific and technical personnel and is not readily transferable to other personnel. While we have employment agreements with our key executives, we do not ordinarily enter into employment agreements with our other key scientific, technical and managerial employees. We do not maintain "key man" life insurance on any of our employees.

We may be required to incur significant costs to comply with environmental laws and regulations, and our related compliance may limit any future profitability.

        Our research and development activities involve the controlled use of hazardous, infectious and radioactive materials that could be hazardous to human health and safety or the environment. We store these materials, and various wastes resulting from their use, at our facilities pending ultimate use and disposal. We are subject to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials and wastes, and we may be

66

required to incur significant costs to comply with related existing and future environmental laws and regulations.

        While we believe that our safety procedures for handling and disposing of these materials comply with foreign, federal, state and local laws and regulations, we cannot completely eliminate the risk of accidental injury or contamination from these materials. In the event of an accident, we could be held liable for any resulting damages, which could include fines and remedial costs. These damages could require payment by us of significant amounts over a number of years, which could adversely affect our results of operations and financial condition.

Anti-takeover provisions may delay or prevent changes in control of our management or deter a third party from acquiring us, limiting our stockholders' ability to profit from such a transaction.

        Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock, $0.01 par value, of which 1,000,000 have been reserved for issuance in connection with our stockholder rights plan, and to determine the price, rights, preferences and privileges of those shares without any further vote or action by our stockholders. Our stockholder rights plan could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock.

        We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits us from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person becomes an interested stockholder, unless the business combination is approved in a prescribed manner. The application of Section 203 could have the effect of delaying or preventing a change of control of Cephalon. Section 203, the rights plan, and certain provisions of our certificate of incorporation, our bylaws and Delaware corporate law, may have the effect of deterring hostile takeovers, or delaying or preventing changes in control of our management, including transactions in which stockholders might otherwise receive a premium for their shares over then-current market prices.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

        We are exposed to foreign currency exchange risk related to our operations in European subsidiaries that have transactions, assets, and liabilities denominated in foreign currencies that are translated into U.S. dollars for consolidated financial reporting purposes. Historically, we have not hedged any of these foreign currency exchange risks. For the year ended December 31, 2004, an average 10% weakening of the U.S. dollar relative to the currencies in which our European subsidiaries operate would have resulted in an increase of $14.3 million in reported total revenues and a corresponding increase in reported expenses. This sensitivity analysis of the effects of changes in foreign currency exchange rates does not assume any changes in the level of operations of our European subsidiaries.

        In January 2003, we entered into an interest rate swap agreement with a financial institution, relating to our $600.0 million 2.5% convertible subordinated notes, in the aggregate notional amount of $200.0 million. We pay interest under the swap based on the 3-month LIBOR-BBA rate plus 29 basis points, adjusted quarterly. At inception, we recognized a premium on the value of the bonds of $2.2 million that we will amortize and recognize as interest expense over the remaining term of the notes. We also recognize adjustments to interest expense based on changes in the fair values of the bonds and the swap agreement each quarter. If LIBOR increases or decreases by 100 basis points, our annual interest expense would change by $2.0 million. Changes in interest rates and the price and volatility of our common stock would also affect the fair values of the notes and the swap agreement, resulting in adjustments to interest expense.

        In January 2003, we entered into a foreign exchange contract to protect against fluctuations in the Australian Dollar against the U.S. Dollar related to our unsuccessful bid for SIRTeX Medical Limited. We terminated this contract in the second quarter of 2003.

        Except for the interest rate swap agreement described above, our exposure to market risk for a change in interest rates relates to our investment portfolio, since all of our outstanding debt is fixed rate. Our investments are classified as short-term and as "available for sale." We do not believe that short-term fluctuations in interest rates would materially affect the value of our securities.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF MANAGEMENT

Management's Report on Financial Statements

        Our management is responsible for the preparation, integrity and fair presentation of information in our consolidated financial statements, including estimates and judgments. The consolidated financial statements presented in this report have been prepared in accordance with accounting principles generally accepted in the United States of America. Our management believes the consolidated financial statements and other financial information included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in this report. The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

Management's Report on Internal Control Over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

        Our internal control over financial reporting includes those policies and procedures that:

•

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;



•

provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorization of our management and our directors; and



•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.

        Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of such controls in future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may deteriorate.

        Our management conducted an assessment of the effectiveness of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of December 31, 2004, our internal controls over financial reporting were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. As permitted by SEC rules and regulations, our management has excluded CIMA LABS INC. from its assessment of internal control over financial reporting as of December 31, 2004 because it was acquired in 2004. Total assets and total revenues of CIMA LABS INC., our wholly-owned subsidiary, represented 16% and 3%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2004. Refer to Note 2 of our consolidated financial statements for more information about the CIMA LABS INC. acquisition.

        Our management's assessment of the effectiveness of our internal control over financial reporting has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

69

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Cephalon, Inc.:

        We have completed an integrated audit of Cephalon, Inc.'s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedules

        In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 15(a)(1) on page 113, present fairly, in all material respects, the financial position of Cephalon, Inc. and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 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 accompanying index appearing under Item 15(a)(2) on page 113 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements 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.

        As discussed in Note 1, on January 1, 2002 the Company changed its method of valuing certain inventory.

Internal control over financial reporting

        Also, in our opinion, management's assessment, included in "Management's Report on Internal Control Over Financial Reporting" appearing under Item 8, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

70

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        As described in "Management's Report on Internal Control Over Financial Reporting", management has excluded CIMA LABS INC. from its assessment of internal control over financial reporting as of December 31, 2004 because it was acquired by the Company in a purchase business combination during 2004. We have also excluded CIMA LABS INC. from our audit of internal control over financial reporting. CIMA LABS INC. is a wholly-owned subsidiary whose total assets and total revenues represent 16% and 3%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2004.

PricewaterhouseCoopers LLP

Philadelphia, PA

March 15, 2005

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CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

			December 31, 2004			December 31, 2003
			(in thousands, except share data)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	574,244		$	1,115,699
	Investments			217,432			39,464
	Receivables, net			203,594			86,348
	Inventory, net			86,629			61,249
	Deferred tax asset			65,302			57,972
	Other current assets			32,819			9,198
		Total current assets		1,180,020			1,369,930
PROPERTY AND EQUIPMENT, net				244,834			126,442
GOODWILL				372,534			298,769
INTANGIBLE ASSETS, net				449,402			326,445
DEBT ISSUANCE COSTS, net				25,401			35,250
DEFERRED TAX ASSET, net				145,436			168,506
OTHER ASSETS				22,549			56,314
			$	2,440,176		$	2,381,656
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Current portion of long-term debt		$	5,114		$	9,637
	Accounts payable			52,488			28,591
	Accrued expenses			157,841			99,038
	Current portion of deferred revenues			868			422
		Total current liabilities		216,311			137,688
LONG-TERM DEBT				1,284,410			1,409,417
DEFERRED REVENUES				1,769			1,736
DEFERRED TAX LIABILITIES				94,100			45,665
OTHER LIABILITIES				13,542			16,780
		Total liabilities		1,610,132			1,611,286
COMMITMENTS AND CONTINGENCIES (Note 14)				—			—
STOCKHOLDERS' EQUITY:
	Preferred stock, $.01 par value, 5,000,000 shares authorized, 2,500,000 shares issued, and none outstanding			—			—
	Common stock, $.01 par value, 200,000,000 shares authorized, 57,973,050 and 55,842,510 shares issued, and 57,640,266 and 55,533,682 shares outstanding			580			558
	Additional paid-in capital			1,172,499			1,052,059
	Treasury stock, 332,784 and 308,828 shares outstanding, at cost			(14,860	)		(13,692	)
	Accumulated deficit			(395,118	)		(321,305	)
	Accumulated other comprehensive income			66,943			52,750
		Total stockholders' equity		830,044			770,370
			$	2,440,176		$	2,381,656

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

72

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31,
		2004			2003			2002
		(in thousands, except per share data)
REVENUES:
	Sales	$	980,375		$	685,250		$	465,943
	Other revenues		35,050			29,557			40,954
			1,015,425			714,807			506,897
COSTS AND EXPENSES:
	Cost of sales		119,973			92,375			74,237
	Research and development		273,972			168,222			122,920
	Selling, general and administrative		339,477			254,088			178,138
	Depreciation and amortization		52,798			44,073			35,457
	Impairment charge		30,071			—			—
	Acquired in-process research and development		185,700			—			—
			1,001,991			558,758			410,752
INCOME FROM OPERATIONS			13,434			156,049			96,145
OTHER INCOME AND EXPENSE
	Interest income		16,486			11,298			14,095
	Interest expense		(22,186	)		(28,905	)		(38,215	)
	Debt exchange expense		(28,230	)		—			—
	Charge on early extinguishment of debt		(2,313	)		(9,816	)		(7,142	)
	Other income (expense), net		(5,375	)		1,688			(2,450	)
			(41,618	)		(25,735	)		(33,712	)
INCOME (LOSS) BEFORE INCOME TAXES			(28,184	)		130,314			62,433
INCOME TAX (EXPENSE) BENEFIT, NET			(45,629	)		(46,456	)		112,629
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE			(73,813	)		83,858			175,062
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE			—			—			(3,534	)
NET INCOME (LOSS)		$	(73,813	)	$	83,858		$	171,528
*BASIC INCOME (LOSS) PER COMMON SHARE:
	Income (loss) per common share before cumulative effect of a change in accounting principle	$	(1.31	)	$	1.49		$	3.14
	Cumulative effect of a change in accounting principle		—			—			(0.06	)
		$	(1.31	)	$	1.49		$	3.08
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING			56,489			55,560			55,104
*DILUTED INCOME (LOSS) PER COMMON SHARE:
	Income (loss) per common share before cumulative effect of a change in accounting principle	$	(1.31	)	$	1.42		$	2.82
	Cumulative effect of a change in accounting principle		—			—			(0.05	)
		$	(1.31	)	$	1.42		$	2.77
*WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION			56,489			64,076			66,856

*

Prior period basic and diluted income per common share shown is restated for adoption of guidance from EITF 03-6 and EITF 04-8.

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

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CEPHALON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLERS' EQUITY

								Common Stock						Treasury Stock							Accumulated Comprehensive Other Income
		Comprehensive Income (Loss)									Additional Paid-in Capital							Accumulated Deficit
					Total			Shares	Amount					Shares	Amount
		(in thousands, except per share data)
BALANCE, JANUARY 1, 2002					$	398,731		54,909,533	$	549	$	982,123		223,741	$	(9,523	)	$	(576,691	)	$	2,273
	Income	$	171,528			171,528													171,528
	Foreign currency translation gain		20,367
	Unrealized investment gains		2,406
	Other comprehensive income		22,773			22,773																22,773
	Comprehensive income	$	194,301
	Stock options exercised					5,940		347,686		4		6,056		2,055		(120	)
	Tax benefit from the exercise of stock options					40,998						40,998
	Restricted stock award plan					2,828		129,900		1		2,827
	Employer contributions to employee benefit plan					2,133		38,722		—		2,133
	Treasury stock acquired					(2,346	)							47,061		(2,346	)
BALANCE, DECEMBER 31, 2002						642,585		55,425,841		554		1,034,137		272,857		(11,989	)		(405,163	)		25,046
	Income	$	83,858			83,858													83,858
	Foreign currency translation gain		28,995
	Unrealized investment losses		(1,291	)
	Other comprehensive income		27,704			27,704																27,704
	Comprehensive income	$	111,562
	Sale of warrants associated with convertible subordinated notes					178,315						178,315
	Purchase of Convertible Hedge associated with convertible subordinated notes					(258,584	)					(258,584	)
	Tax benefit from the purchase of Convertible Hedge					90,500						90,500
	Stock options exercised					4,528		299,056		3		4,525
	Tax benefit from the exercise of stock options					944						944
	Restricted stock award plan					1,394		99,025		1		1,393
	Employer contributions to employee benefit plan					829		18,588		—		829
	Treasury stock acquired					(1,703	)							35,971		(1,703	)
BALANCE, DECEMBER 31, 2003						770,370		55,842,510		558		1,052,059		308,828		(13,692	)		(321,305	)		52,750
	Net Loss	$	(73,813	)		(73,813	)												(73,813	)
	Foreign currency translation gain		16,071
	Unrealized investment losses		(1,878	)
	Other comprehensive gain		14,193			14,193																14,193
	Comprehensive loss	$	(59,620	)
	Issuance of common stock upon conversion of convertible notes					105,122		1,518,169		15		105,107
	Tax effect upon conversion of convertible notes					(10,100	)					(10,100	)
	Stock options exercised					12,051		535,446		6		12,045
	Tax benefit from the exercise of stock options					8,017						8,017
	Restricted stock award plan					5,372		76,925		1		5,371
	Treasury stock acquired					(1,168	)							23,956		(1,168	)
BALANCE, DECEMBER 31, 2004					$	830,044		57,973,050	$	580	$	1,172,499		332,784	$	(14,860	)	$	(395,118	)	$	66,943

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

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CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

					Year Ended December 31,
					2004			2003			2002
					(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net (loss) income				$	(73,813	)	$	83,858		$	171,528
	Adjustments to reconcile net (loss) income to net cash provided by operating activities:
		Deferred income tax expense (benefit)				40,081			32,437			(170,072	)
		Tax benefit from exercise of stock options				8,017			944			40,998
		Debt exchange expense				28,230			—			—
		Tax effect on conversion of convertible notes				(10,100	)		—			—
		Depreciation and amortization				59,016			45,135			35,457
		Amortization of debt issuance costs				8,275			7,602			11,071
		Cumulative effect of changing inventory costing method from FIFO to LIFO				—			—			3,534
		Stock-based compensation expense				5,372			2,224			4,961
		Non-cash charge on early extinguishment of debt				2,313			3,615			7,142
		Pension curtailment				(4,214	)		—			—
		Loss on disposals of property and equipment				1,423			—			—
		Impairment charge				30,071			—			—
		Acquired in-process research and development				185,700			—			—
		Increase (decrease) in cash due to changes in assets and liabilities, net of effect from acquisition:
			Receivables			(105,523	)		4,691			3,990
			Inventory			(16,699	)		(1,691	)		(5,821	)
			Other assets			(27,042	)		7,741			(16,756	)
			Accounts payable, accrued expenses and deferred revenues			47,864			17,477			18,303
			Other liabilities			(367	)		(3,792	)		(1,714	)
				Net cash provided by operating activities		178,604			200,241			102,621
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment					(50,244	)		(40,453	)		(27,328	)
	Investments in non-marketable securities					—			(32,975	)		—
	Acquisition of CIMA, net of cash acquired					(482,521	)		—			—
	Acquisition of intangible assets					(45,771	)		—			(79,409	)
	Purchases of investments					(197,651	)		(87,979	)		(220,463	)
	Sales of investments					90,973			143,815			181,436
				Net cash used for investing activities		(685,214	)		(17,592	)		(145,764	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from exercises of common stock options					12,051			4,528			5,940
	Acquisition of treasury stock					(1,168	)		(1,703	)		(2,346	)
	Principal payments on and retirements of long-term debt					(51,905	)		(211,714	)		(32,512	)
	Net proceeds from issuance of convertible subordinated notes					—			727,085			—
	Proceeds from sale of warrants					—			178,315			—
	Purchase of Convertible Hedge					—			(258,584	)		—
				Net cash (used for) provided by financing activities		(41,022	)		437,927			(28,918	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS						6,177			9,026			9,431
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS						(541,455	)		629,602			(62,630	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR						1,115,699			486,097			548,727
CASH AND CASH EQUIVALENTS, END OF YEAR					$	574,244		$	1,115,699		$	486,097
Supplemental disclosures of cash flow information:
	Cash payments for interest				$	16,588		$	25,947		$	26,593
	Cash payments for income taxes					24,182			4,018			3,509
Non-cash investing and financing activities:
	Capital lease additions					2,337			830			788
	Tax benefit from the purchase of Convertible Hedge					—			90,500			—
	Conversion of convertible notes into common stock					78,250			—			—

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

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CEPHALON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share data)
(Unaudited)

1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

        Cephalon is an international biopharmaceutical company dedicated to the discovery, development and marketing of innovative products to treat sleep and neurological disorders, cancer and pain. In addition to conducting an active research and development program, we market three products in the United States and numerous products in various countries throughout Europe. Through our wholly-owned subsidiary, CIMA LABS INC., we develop and manufacture orally disintegrating tablets using proprietary technologies that allow an active drug ingredient to be formulated into a new dosage form that quickly disintegrates in the mouth without chewing or the need for water.

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of assets and liabilities. Actual results may differ from those estimates.

Principles of Consolidation

        The consolidated financial statements include the results of our operations and our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. On August 12, 2004 and December 28, 2001, we completed the acquisitions of the outstanding shares of capital stock of CIMA LABS and Group Lafon, respectively. Both of these acquisitions have been accounted for as purchases and, accordingly, the estimated fair value of assets acquired and liabilities assumed have been recorded as of the respective dates of the acquisitions.

Foreign Currency

        For foreign operating entities with currencies other than the U.S. Dollar, the local currency is the functional currency. We translate asset and liability balances at exchange rates in effect at the end of the period and income and expense transactions at the average exchange rates in effect during the period. Resulting translation adjustments are reported as a separate component of accumulated other comprehensive income included in stockholders' equity. Gains and losses from foreign currency transactions are included in the consolidated statements of operations.

        Statement of Financial Accounting Standards (SFAS) No. 95, "Statement of Cash Flows" requires that the effect of exchange rate changes on cash held in foreign currencies be reported as a separate item in the reconciliation of beginning and ending cash and cash equivalents. All other foreign currency cash flows are reported in the applicable line of the consolidated statement of cash flows using an approximation of the exchange rate in effect at the time of the cash flows.

Cash Equivalents and Investments

        Cash equivalents include investments in liquid securities with original maturities of three months or less from the date of purchase. In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," we consider our investments to be "available for sale." We classify these investments as short-term and carry them at fair market value. Unrealized gains and losses have

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been recorded as a separate component of accumulated other comprehensive income included in stockholders' equity. All realized gains and losses on our available for sale securities are recognized in results of operations.

Major U.S. Customers and Concentration of Credit Risk

        Our three largest products in terms of product sales, PROVIGIL® (modafinil) Tablets [C-IV], ACTIQ®(oral transmucosal fentanyl citrate) [C-II] and GABITRIL® (tiagabine hydrochloride), comprised approximately 90% of our worldwide net sales. Approximately 95% of PROVIGIL, ACTIQ and GABITRIL sales for the year ended December 31, 2004 are in the U.S. market. In the United States, we sell our products primarily to a limited number of pharmaceutical wholesalers without requiring collateral. We periodically assess the financial strength of these customers and establish allowances for anticipated losses, if necessary.

			% of total trade accounts receivable						% of worldwide net product sales
			For the period ended December 31,						For the year ended December 31,
			2004		2003		2002		2004		2003		2002
Major U.S. customers:
	AmerisourceBergen Corporation		14	%	19	%	24	%	20	%	22	%	22	%
	Cardinal Health, Inc.		31		23		30		36		33		30
	McKesson Corporation		35		28		22		31		27		25
		Total	80	%	70	%	76	%	87	%	82	%	77	%

Inventory

        Inventory is stated at the lower of cost or market value. Effective January 1, 2002, we began using the last-in, first-out (LIFO) method for our domestic inventories. We use the first-in, first-out (FIFO) method for the majority of our foreign inventories. See Note 6.

        We capitalize inventory costs associated with marketed products and certain products prior to regulatory approval and product launch, based on management's judgment of probable future commercial use and net realizable value. We could be required to expense previously capitalized costs related to pre-approval or pre-launch inventory upon a change in such judgment, due to a denial or delay of approval by regulatory bodies, a delay in commercialization, or other potential factors. At December 31, 2004, we had $21.9 million of capitalized inventory costs.

Property and Equipment

        Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to forty years. Property and equipment under capital leases are depreciated or amortized over the shorter of the lease term or the expected

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useful life of the assets. Expenditures for maintenance and repairs are charged to expense as incurred, while major renewals and betterments are capitalized.

        We capitalize interest in connection with the construction of plant and equipment, if material.

Fair Value of Financial Instruments

        The carrying values of cash, cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses approximate the respective fair values. The market value of our 2.50% convertible notes was $511.3 million as compared to a carrying value of $521.8 million, and the market value of our zero coupon convertible notes was $752.8 million as compared to a carrying value of $750.0 million, at December 31, 2004, based on quoted market values. None of our other debt instruments that were outstanding as of December 31, 2004 have readily ascertainable market values; however, management believes that the carrying values approximate the respective fair values.

Goodwill, Intangible Assets and Other Long-Lived Assets

        Goodwill represents the excess of purchase price over net assets acquired. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill is not amortized; rather, goodwill is subject to a periodic assessment for impairment by applying a fair-value-based test. We have recorded goodwill related to our acquisitions of Group Lafon and CIMA LABS. We performed our annual test of impairment of goodwill as of July 1, 2004. We have only one reporting unit, a biopharmaceutical unit, that constitutes our entire business. We compared the fair value of this reporting unit with its carrying value. The quoted market value of the outstanding shares of our common stock on the NASDAQ National Market at July 1, 2004 was used as the fair value of the reporting unit. Since the fair value of the reporting unit exceeded its carrying value at July 1, 2004, no adjustment to our goodwill for impairment was necessary. We updated our test of impairment of goodwill as of September 30, 2004 in conjunction with our acquisition of CIMA LABS, and again concluded that no adjustment to our goodwill for impairment was necessary.

        In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we review amortizable assets for impairment on a quarterly basis or whenever changes in circumstances indicate the carrying value of the asset may not be recoverable. If impairment is indicated, we measure the amount of such impairment by comparing the carrying value of the assets to the present value of the expected future cash flows associated with the use of the asset.

        In 2004, we determined that the carrying value of our investment in MDS Proteomics Inc. was fully impaired and we recorded an impairment charge of $30.1 million, which included transaction costs, in our second quarter of 2004 results of operations. See Note 9. In 2003, we recorded a $2.0 million charge relating to the write-off as R&D expense of the value of an investment in an unaffiliated entity. Management believes the future cash flows to be received from all other long-lived assets will exceed the assets' carrying value.

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Revenue Recognition

        In the United States, we sell our products to pharmaceutical wholesalers, the largest three of which account for 87% of our worldwide net sales for the year ended December 31, 2004. Decisions made by these wholesalers and their customers regarding the levels of inventory they hold (and thus the amount of product they purchase) can materially affect the level of our sales in any particular period. We attempt to minimize these fluctuations, both by providing, from time to time, discounts to our customers to stock normal amounts of inventory and by canceling orders if we believe a particular customer is speculatively buying inventory in anticipation of possible price increases. However, we do not have any agreements, understandings or business practices under which we extend incentives based on levels of inventory held by wholesalers. As of December 31, 2004, we received information from our three largest U.S. wholesaler customers about the levels of inventory they held for our three products. Based on this information, which we have not independently verified, we believe that inventory held at these wholesalers is within a normal range for our business of approximately one month's supply. However, we currently do not have ongoing agreements for access to the actual inventory levels of our products held by our wholesalers or their customers. Sales recorded for the year ended December 31, 2004 were generally representative of underlying demand for the products.

        Product sales are recognized upon the transfer of ownership and risk of loss for the product to the customer. In the United States, we sell all commercial products F.O.B. shipping point. Transfer of ownership and risk of loss for the product pass to the customer at the point that the product is picked up by a common carrier for shipment to the customer. In Europe, product sales are recognized predominantly upon customer receipt of the product except in certain contractual arrangements where different terms may be specified. We record product sales net of estimated reserves for contractual allowances, discounts and returns. Contractual allowances result from sales under contracts with managed care organizations and government agencies.

        Other revenue, which includes revenues from collaborative agreements, consists primarily of up-front fees, ongoing research and development funding, milestone payments and payments under co-promotional or managed services agreements. Non-refundable up-front fees are deferred and amortized to revenue over the related performance period. We estimate our performance period based on the specific terms of each collaborative agreement. We adjust the performance periods, if appropriate, based upon available facts and circumstances. We recognize periodic payments over the period that we perform the related activities under the terms of the agreements. Revenue resulting from the achievement of milestone events stipulated in the agreements is recognized when the milestone is achieved. Milestones are based upon the occurrence of a substantive element specified in the contract or as a measure of substantive progress towards completion under the contract.

        Reimbursement rates of research and development activities under collaborative agreements vary according to the terms of the individual agreements. Costs incurred related to collaborative agreements and reflected in our operating expenses approximated $27.9 million, $46.1 million, $44.0 million for the years ended December 31, 2004, 2003, and 2002, respectively.

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        Payments under co-promotional or managed services agreements are recognized when the products are sold or the promotional activities are performed. The portion of the payments that represents reimbursement of our expenses is recognized as an offset to those expenses in our statement of income.

        As of December 31, 2004, we have recorded $2.6 million of deferred revenues of which $0.9 million is classified as current. These deferred revenues will be recognized over future periods in accordance with the revenue recognition policies described above.

Research and Development

        All research and development costs are charged to expense as incurred.

Acquired In-Process Research and Development

        Purchased in-process research and development represents the estimated fair value assigned to research and development projects acquired in a purchase business combination that have not been completed at the date of acquisition and which have no future alternative use. Accordingly, these costs are charged to expense as of the acquisition date.

Other Comprehensive Income

        We follow SFAS No. 130, "Reporting Comprehensive Income." This statement requires the classification of items of other comprehensive income by their nature and disclosure of the accumulated balance of other comprehensive income, separately within the equity section of the balance sheet. The balance in accumulated other comprehensive income due to foreign currency translation adjustments was $66.9 million and $50.9 million as of December 31, 2004 and 2003, respectively. The balance in accumulated other comprehensive income due to unrealized investment gains was negligible as of December 31, 2004 and $1.9 million as of December 31, 2003.

Stock-based Compensation

        We account for stock option plans and restricted stock award plans using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation cost for stock options, if any, is measured as the excess of the quoted market price of the stock at the date of grant over the amount an employee must pay to acquire the stock. Restricted stock awards are recorded as compensation cost over the requisite vesting periods based on the market value on the date of grant. We have opted to disclose only the provisions of Statement of Financial Accounting Standards (SFAS) 123, "Accounting for Stock-Based Compensation," and SFAS 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—An Amendment to FASB Statement No. 123," as they pertain to financial statement recognition of compensation expense attributable to option grants. As such, no compensation cost has been recognized for our stock option plans. If we had elected to recognize compensation cost based on the

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fair value of granted stock options as prescribed by SFAS 123 and SFAS 148, the pro forma income (loss) and income (loss) per share amounts would have been as follows:

		Year ended December 31,
		2004			2003			2002
Net income (loss), as reported		$	(73,813	)	$	83,858		$	171,528
Add: Stock-based compensation expense included in net income, net of related tax effects			3,187			896			1,753
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(40,035	)		(34,799	)		(36,413	)
Pro forma net income (loss)		$	(110,661	)	$	49,955		$	136,868
Earnings (loss) per share:
	*Basic income (loss) per share, as reported	$	(1.31	)	$	1.49		$	3.08
	*Basic income (loss) per share, pro forma	$	(1.96	)	$	0.89		$	2.46
	*Diluted income (loss) per share, as reported	$	(1.31	)	$	1.42		$	2.77
	*Diluted income (loss) per share, pro forma	$	(1.96	)	$	0.87		$	2.25

*

Includes effect from application of EITF 03-6 for years ended December 31, 2004, 2003 and 2002 and EITF 04-8 for the years ended December 31, 2004 and 2003.

Income Taxes

        We account for income taxes using the liability method under SFAS No. 109, "Accounting for Income Taxes." This method generally provides that deferred tax assets and liabilities be recognized for temporary differences between the financial reporting basis and the tax basis of the assets and liabilities and expected benefits of utilizing net operating loss and tax credit carryforwards. We record a valuation allowance for certain temporary differences for which it is more likely than not that we will not generate future tax benefits. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and reflected in the consolidated financial statements in the period of enactment.

Reclassifications

        Certain reclassifications of prior year amounts have been made to conform to the current year presentation. In our result of operations for the year ended December 31, 2003 and 2002, $2.1 million and $5.4 million, respectively, of expenditures were reclassed from the Research and development category into the Selling, general and administrative category to conform to the current year presentation.

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Recent Accounting Pronouncements

        In December 2003, the FASB issued a revision to SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit costs of defined benefit plans and other defined benefit postretirement plans. This Statement is effective for fiscal years ending after December 15, 2003, except for certain disclosures about foreign plans which are effective for fiscal years ending after June 15, 2004. Since all of our pension and postretirement benefit plans are foreign plans, we have adopted the additional disclosure requirements of this statement effective December 31, 2004.

        In March 2004, the FASB's Emerging Issues Task Force (EITF) reached consensus on Issue 03-6. This Issue is intended to clarify what is a participating security for purposes of applying SFAS No. 128, "Earnings Per Share." The Issue also provides further guidance on how to apply the two-class method of computing earnings per share (EPS) once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. We adopted this Issue in the second quarter of 2004 and determined that our 3.875% convertible subordinated notes were participating securities as defined by this Issue. Although none of the 3.875% convertible notes are outstanding at December 31, 2004, net income (loss) used for basic and diluted income (loss) per share is allocated to the common shares using a ratio of weighted average common shares outstanding and weighted average participating securities, using the if-converted method. Our previously reported earnings per share have been restated as required by EITF Issue 03-6. The effect on our basic EPS for the years ended December 31, 2003 and 2002 was a decrease of $0.02 and $0.03 per share, respectively. The effect on our diluted EPS for the years ended December 31, 2003 and 2002 was a decrease of $0.02 per share in each of the years. There was no effect on our basic and diluted EPS for any periods prior to December 31, 2002.

        In September 2004, the EITF reached consensus on Issue 04-8, "Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effects on Diluted Earnings per Share." This Issue requires the inclusion of convertible shares for contingently convertible debt in the calculation of diluted EPS regardless of whether the contingency has been met, if the effect is dilutive. The Issue is effective for periods ending after December 15, 2004 and requires the restatement of previously reported EPS. In December 2004, we exchanged $749.6 million of our Zero Coupon Convertible Notes for notes with substantially the same terms and conditions. However, the contingent conversion feature is no longer considered when calculating diluted earnings per share under EITF 04-8. The remaining $0.4 million of unexchanged Zero Coupon Convertible Notes have not been included in the calculation of diluted EPS for the year ended December 31, 2004 as the effect is anti-dilutive. For the year ended December 31, 2003, the inclusion of the unexchanged Zero Coupon Convertible Notes using the if-converted method had no effect on diluted EPS.

        In November 2004, the FASB issued SFAS No. 151, "Inventory Costs," which requires abnormal amounts of idle capacity and spoilage costs to be excluded from the cost of inventory and expensed when incurred. This Statement is effective for fiscal years beginning after June 15, 2005. We believe the adoption of this statement will not impact our current financial statements.

        In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment," a revision of SFAS No. 123 "Accounting for Stock-Based Compensation," that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity

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instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. This Statement requires that an entity measure the cost of equity based service awards based on the grant-date fair value of the award and recognize the cost of such awards over the period during which the employee is required to provide service in exchange for the award (the vesting period). The Statement requires that an entity measure the cost of liability-based service awards based on current fair value that is remeasured subsequently at each reporting date through the settlement date. This Statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. We will adopt this new standard effective July 2005, which will require us to recognize share-based compensation expense in our statement of operations. We have not yet quantified the impact this statement will have on our future results but we expect that it will be material.

        In December 2004, the FASB issued Staff Position No. FAS 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" ("FSP No. 109-1"), and Staff Position No. FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" ("FSP No. 109-2"). These staff positions provide accounting guidance on how companies should account for the effects of the American Jobs Creation Act of 2004 ("AJCA") that was signed into law on October 22, 2004. FSP No. 109-1 states that the tax relief (special tax deduction for domestic manufacturing) from this legislation should be accounted for as a "special deduction" instead of a tax rate reduction. FSP No. 109-2 gives a company additional time to evaluate the effects of the legislation on any plan for reinvestment or repatriation of foreign earnings for purposes of applying FASB Statement No. 109. We are currently assessing both provisions to determine the impact they could have on our future income tax expense. We expect to complete this evaluation within a reasonable amount of time after additional guidance from the United States Treasury is published.

2.    ACQUISITION OF CIMA LABS INC.

        On August 12, 2004, we completed our acquisition of CIMA LABS INC. Under the Agreement and Plan of Merger dated November 3, 2003, we acquired each outstanding share of CIMA LABS common stock for $34.00 per share in cash. The total cash paid to CIMA LABS stockholders in the transaction was approximately $482.5 million, net of CIMA LABS' existing cash on hand, or $409.4 million, net of its cash, cash equivalents and investments. As a result of the acquisition, we obtained the rights to CIMA LABS' ORAVESCENT fentanyl® product candidate, which is currently in Phase 3 clinical trials for the treatment of breakthrough cancer pain in opioid-tolerant patients. ORAVESCENT fentanyl utilizes an enhanced absorption transmucosal drug delivery technology that we believe may facilitate the rapid onset of pain relief in such patients. We are targeting approval of this product by the FDA in late 2006.

        The total purchase price of $514.1 million consists of $500.1 million for all outstanding shares of CIMA LABS at $34.00 per share and $14.0 million in direct transaction costs. The acquisition was funded from Cephalon's existing cash and short-term investments. In connection with the acquisition, CIMA LABS used $18.8 million of their own funds to purchase all outstanding employee stock options, whether or not vested or exercisable, for an amount equal to $34.00 less the exercise price for such option.

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        The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of acquisition.

			At August 12, 2004
		Cash and cash equivalents	$	31,604
		Available-for-sale investments		73,169
		Receivables		8,821
		Inventory		6,224
		Deferred tax asset, net		17,985
		Other current assets		555
		Property, plant and equipment		82,474
		Intangible assets		113,100
		Acquired in-process research and development		185,700
		Goodwill		71,843
	Total assets acquired			591,475
		Current liabilities		(32,783	)
		Deferred tax liability		(44,567	)
	Total liabilities assumed			(77,350	)
Net assets acquired			$	514,125

        Of the $113.1 million of acquired intangible assets, $70.0 million was assigned to the DuraSolv® technology with an estimated useful life of 14 years, $32.7 million was assigned to the OraSolv® technology with a weighted average estimated useful life of approximately 6 years, and $10.4 million was assigned to the developed ORAVESCENT technology with an estimated useful life of 15 years. The $71.8 million of goodwill was assigned to our single biopharmaceutical segment. In accordance with SFAS 142, goodwill is not amortized, but will be subject to a periodic assessment for impairment by applying a fair-value-based test. None of this goodwill is expected to be deductible for income tax purposes.

        We believe our purchase price allocation will be finalized during the first quarter of 2005. We allocated $185.7 million of the purchase price to in-process research and development projects. In-process research and development (IPR&D) represents the valuation of acquired, to-be-completed research projects. At the acquisition date, CIMA LABS' ongoing research and development initiatives were primarily involved with the development and commencement of Phase 3 clinical trials of ORAVESCENT fentanyl for the treatment of breakthrough cancer pain in opioid-tolerant patients, and several other minor ongoing research and development projects. At the acquisition date, CIMA LABS had spent approximately $5.6 million on the ORAVESCENT in-process research and development project. During the remainder of 2004, we spent an additional $2.5 million on the project, and we expect to spend an additional $8.0 million through 2005. We expect to complete our ORAVESCENT fentanyl Phase 3 clinical trials and submit an NDA for approval of this product in late 2005. The estimated revenues for the in-process projects are expected to be recognized from 2006 through 2019.

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        The value assigned to purchased in-process technology was determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting net cash flows from the projects, and discounting the net cash flows to their present value. The revenue projections used to value the in-process research and development were, in some cases, reduced based on the probability of developing a new drug, and considered the relevant market sizes and growth factors, expected trends in technology, and the nature and expected timing of new product introductions by us and our competitors. The resulting net cash flows from such projects are based on management's estimates of cost of sales, operating expenses, and income taxes from such projects. The rates utilized to discount the net cash flows to their present value were based on estimated cost of capital calculations. Due to the nature of the forecast and the risks associated with the projected growth and profitability of the developmental projects, discount rates of 28 percent were considered appropriate for the in-process research and development. These discount rates were commensurate with the projects' stage of development and the uncertainties in the economic estimates described above.

        If these projects are not successfully developed, the sales and profitability of the combined company may be adversely affected in future periods. Additionally, the value of other acquired intangible assets may become impaired. We believed that the foregoing assumptions used in the in-process research and development analysis were reasonable at the time of the acquisition. No assurance can be given, however, that the underlying assumptions used to estimate expected project sales, development costs or profitability, or the events associated with such projects, will transpire as estimated. At the date of acquisition, the development of these projects had not yet reached technological feasibility, and the research and development in progress had no alternative future uses. Accordingly, these costs in the amount of $185.7 million were charged to expense in the third quarter of 2004.

        The results of operations for CIMA LABS have been included in our consolidated statements since the acquisition date of August 12, 2004.

        The following unaudited pro forma information shows the results of our operations for the year ended December 31, 2004 and 2003 as though the acquisition had occurred as of the beginning of the periods presented:

		For the year ended December 31,
		2004			2003
	Total revenues	$	1,050,390		$	790,883
	Net income (loss)	$	(94,640	)	$	71,442
Basic and diluted net income (loss) per common share:
	Basic income (loss) per common share	$	(1.68	)	$	1.27
	Diluted income (loss) per common share	$	(1.68	)	$	1.23

        The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisition taken place as of the beginning of the periods presented, or the results that may occur in the future. Furthermore, the pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the acquisition.

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3.    JOINT VENTURE

        In December 2001, we formed a joint venture with unaffiliated third party investors to fund additional commercial activities in support of PROVIGIL and GABITRIL in the United States. In exchange for our transfer to the joint venture of certain intellectual property and other rights related to these two products, we received a Class B interest, representing a 50% interest in the joint venture. In exchange for a contribution of $50.0 million in cash to the joint venture, the investors received Class A interests, also representing a 50% interest in the joint venture. As of December 31, 2001, the $50.0 million investors' Class A interest was recorded on our balance sheet as long-term debt, and the joint venture's cash balance of $50.0 million was included in our balance of cash and cash equivalents.

        On March 29, 2002, we acquired the investors' Class A interests and ended the joint venture by issuing to the investors, through a private placement, $55.0 million aggregate principal amount of 3.875% convertible subordinated notes due March 2007 of which none are outstanding as of December 31, 2004.

        The purchase of the investor's Class A interests in the joint venture resulted in the recognition of a charge of $7.1 million on the early extinguishment of debt during the first quarter of 2002. The following table summarizes the calculation of this charge:

Carrying value of the debt as of December 31, 2001	$	50,000
Interest accreted during the first quarter 2002 at 20%		2,500
Carrying value of the debt as of March 29, 2002		52,500
Less: unamortized joint venture formation costs as of March 29, 2002		(4,642	)
		47,858
Fair value of subordinated notes issued on March 29, 2002		(55,000	)
Charge on early extinguishment of debt	$	(7,142	)

        In addition, our statement of operations for the year ended December 31, 2002 included certain charges related to the operations of the joint venture, as follows:

Selling, general and administrative expenses		$	3,508
Interest expense			3,163
Interest income			(190	)
	Total	$	6,481

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4.    CASH, CASH EQUIVALENTS AND INVESTMENTS

        At December 31, cash, cash equivalents and investments consisted of the following:

		2004		2003
Cash and cash equivalents:
	Demand deposits	$	80,910	$	194,480
	Repurchase agreements		196,215		388,816
	Commercial paper		244,496		407,403
	Asset-backed securities		34,973		125,000
	Bonds		17,650		—
			574,244		1,115,699
Short-term investments (at market value):
	U.S. government agency obligations		107,803		—
	Asset-backed securities		37,023		16,537
	Bonds		61,738		22,927
	Non-U.S. corporate obligations		4,063		—
	Commercial paper		6,805		—
			217,432		39,464
		$	791,676	$	1,155,163

        The contractual maturities of our investments in cash, cash equivalents, and investments at December 31, 2004 are as follows:

Less than one year	$	586,929
Greater than one year but less than two years		131,828
Greater than two years		72,919
	$	791,676

5.    RECEIVABLES

        At December 31, receivables consisted of the following:

	2004			2003
Trade receivables	$	187,375		$	75,851
Receivables from collaborations		14,099			11,281
Other receivables		17,562			7,990
		219,036			95,122
Less reserve for sales discounts, returns and allowances		(15,442	)		(8,774	)
	$	203,594		$	86,348

        Trade receivables are recorded at the invoiced amount and do not bear interest. Our allowance for doubtful accounts is our best estimate of probable credit losses in our existing accounts receivable.

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We determine the allowance based on a percentage of trade receivables past due, specific customer issues, and a reserve related to our specific historical write-off experience and general industry experience. We review and adjust our allowance for doubtful accounts quarterly. Receivable balances or specific customer issues are written off against the allowance when we feel that it is probable that the receivable amount will not be recovered. Our balances of receivables over 90 days and historical write-off experience have been immaterial. We do not have any off-balance sheet credit exposure related to our customers.

6.    INVENTORY

        At December 31, inventory consisted of the following:

	2004		2003
Raw material	$	31,511	$	23,647
Work-in-process		4,286		10,295
Finished goods		50,832		27,307
	$	86,629	$	61,249

        Effective January 1, 2002, we changed our method of valuing domestic inventories from the first-in, first-out, or FIFO method, to the last-in, first-out, or LIFO method. We recognized a charge of $3.5 million in the first quarter of 2002 as the cumulative effect of adopting the LIFO inventory costing method.

        The excess of LIFO inventory value over current or replacement cost was $0.3 million at December 31, 2004 and the excess of current or replacement cost over LIFO inventory value was $0.8 million at December 31, 2003.

        The majority of our foreign inventories are valued using the first-in, first-out (FIFO) method. Inventories valued using the FIFO method were $31.8 million and $5.3 million at December 31, 2004 and 2003, respectively.

7.    PROPERTY AND EQUIPMENT

        At December 31, property and equipment consisted of the following:

	Estimated Useful Lives	2004			2003
Land and improvements	—	$	10,632		$	5,681
Buildings and improvements	10-40 years		128,546			74,921
Laboratory, machinery and other equipment	3-15 years		120,375			68,510
Construction in progress	—		62,638			31,510
			322,191			180,622
Less accumulated depreciation and amortization			(77,357	)		(54,180	)
		$	244,834		$	126,442

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        Depreciation and amortization expense related to property and equipment was $15.0 million, $11.0 million, and $7.8 million for the years ended December 31, 2004, 2003 and 2002, respectively.

8.    OTHER INTANGIBLE ASSETS, NET

        Other intangible assets consisted of the following:

		December 31, 2004						December 31, 2003
	Estimated Useful Lives	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Developed technology acquired from Group Lafon	10-15 years	$	132,000	$	29,600	$	102,400	$	132,000	$	19,733	$	112,267
Trademarks/tradenames acquired from Group Lafon	15 years		16,000		3,200		12,800		16,000		2,133		13,867
GABITRIL product rights	9-15 years		119,352		29,859		89,493		116,585		21,055		95,530
Novartis CNS product rights	10 years		41,641		16,656		24,985		41,641		12,492		29,149
ACTIQ marketing rights	10 years		75,465		23,707		51,758		75,465		16,056		59,409
Modafinil marketing rights	10 years		10,288		2,314		7,974		9,469		1,142		8,327
DuraSolv® technology	14 years		70,000		1,826		68,174		—		—		—
OraSolv® technology	6 years		32,700		1,966		30,734		—		—		—
ORAVESCENT® technology	15 years		10,400		254		10,146		—		—		—
NAXY® and MONO-NAXY® product rights	5 years		44,343		176		44,167		—		—		—
Other product rights	5-14 years		16,356		9,585		6,771		14,341		6,445		7,896
		$	568,545	$	119,143	$	449,402	$	405,501	$	79,056	$	326,445

        In December 2004, Cephalon France purchased Sanofi-Synthelabo France's rights to promote, distribute and sell NAXY and MONO-NAXY in France and French overseas territories. The purchase price for these product rights was approximately $44.3 million. Abbott France holds the underlying rights to the product. Abbott France manufactures clarithromycin and also promotes, distributes and sells clarithromycin under the trademark ZECLAR® in the French market.

        Other intangible assets are amortized over their estimated useful economic life using the straight line method. Amortization expense was $37.8 million, $33.1 million, and $27.7 million for the years ended December 31, 2004, 2003 and 2002, respectively. Estimated amortization expense of intangible assets for each of the next five years is approximately $48.0 million.

9.    INVESTMENT IN MDS PROTEOMICS INC.

        In January 2003, we purchased from MDS Proteomics Inc. (MDSP), a privately-held Canadian company and a subsidiary of MDS Inc., a $30.0 million convertible note due 2010 and entered into a five-year research agreement focused on accelerating the clinical development of our pipeline of small chemical compounds. In 2004, MDSP decided to change its business model to focus upon the provision of services to the pharmaceutical and biotechnology industries, which it believes can lead to nearer term revenue and profitability.

        On July 29, 2004, MDSP completed its reorganization under Canada's Companies Creditors' Arrangement Act and changed its name to Protana Inc. As part of the reorganization, we agreed to

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terminate our research agreement with Protana and cancelled the $30.0 million convertible note we held in return for shares of Class A Preferred Stock and Common Stock of Protana. In light of the restructuring of Protana and the uncertain business prospects for the company, we determined that the carrying value of our investment was fully impaired and we recorded an impairment charge of $30.1 million, which included transaction costs, in our second quarter of 2004 results of operations.

10.    ACCRUED EXPENSES

        At December 31, accrued expenses consisted of the following:

	2004		2003
Accrued compensation and benefits	$	27,692	$	12,579
Accrued income taxes		15,263		22,918
Accrued professional and consulting fees		6,103		2,347
Accrued clinical trial fees		16,494		6,041
Accrued research and development		9,881		7,462
Accrued license fees and royalties		4,401		3,696
Accrued sales and marketing costs		18,065		8,771
Accrued contractual sales allowances		26,649		13,905
Accrued co-promotional fee		8,793		—
Other accrued expenses		24,500		21,319
	$	157,841	$	99,038

11.    LONG-TERM DEBT

        At December 31, long-term debt consisted of the following:

	2004			2003
2.5% convertible subordinated notes due December 2006	$	521,750		$	600,000
Change in fair value of hedged portion of 2.5% convertible subordinated notes		(1,772	)		920
3.875% convertible subordinated notes due March 2007		—			43,000
Zero Coupon convertible subordinated notes first putable June 2008 (Old)		303			375,000
Zero Coupon convertible subordinated notes first putable June 2010 (Old)		102			375,000
Zero Coupon convertible subordinated notes first putable June 2008 (New)		374,697			—
Zero Coupon convertible subordinated notes first putable June 2010 (New)		374,898			—
Due to Abbott Laboratories		531			6,725
Mortgage and building improvement loans		9,721			10,354
Capital lease obligations		3,270			2,289
Other		6,024			5,766
Total debt		1,289,524			1,419,054
Less current portion		(5,114	)		(9,637	)
Total long-term debt	$	1,284,410		$	1,409,417

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        Aggregate maturities of long-term debt are as follows:

2005	$	5,114
2006		523,549
2007		2,502
2008		378,043
2009		2,282
2010 and thereafter		378,034
	$	1,289,524

2.5% Convertible Subordinated Notes

        In December 2001, we completed a private placement of $600.0 million of 2.50% convertible subordinated notes due December 2006. Debt issuance costs of $21.3 million were capitalized in other assets and are being amortized over the term of the notes. Interest on the notes is payable each June 15 and December 15, beginning June 15, 2002. The notes are convertible into our common stock at a conversion price of $81.00 per share, subject to adjustment in certain circumstances. We may redeem the notes on or after December 20, 2004.

        In July 2004, a holder of our 2.5% convertible subordinated notes approached us, and we agreed, to exchange $78.3 million of these outstanding notes for 1,518,169 shares of our common stock. We recognized debt exchange expense of $28.2 million in the third quarter of 2004 relating to these early exchanges in accordance with SFAS No. 84, "Induced Conversion of Convertible Debt." We also recognized the tax effect of this exchange of $10.1 million as a reduction of additional paid-in capital in our statement of stockholders' equity and as a tax benefit in our statement of operations for the year ended December 31, 2004.

Interest Rate Swap

        In January 2003, we entered into an interest rate swap agreement with a financial institution relating to our 2.5% convertible notes in the aggregate notional amount of $200.0 million. Although we exchanged $78.3 million of these notes in July 2004, the interest rate swap remains at $200.0 million. Under the swap, we agreed to pay a variable interest rate on this $200.0 million notional amount equal to LIBOR-BBA + .29% in exchange for the financial institution's agreement to pay a fixed rate of 2.5%. The variable interest rate is re-calculated at the beginning of each quarter. Effective January 1, 2005, the interest rate is 2.85%. We increased the carrying value of the subordinated notes by $2.2 million at the time the agreement was made. This amount is being amortized over the four-year term of the agreement. At the end of each quarter, we record an adjustment to the carrying value of the subordinated notes and the amount due for settling the interest rate swap based on their fair values as of that date. We also agreed to provide the financial institution with cash collateral to support our obligations under the agreement. The current collateral amount is $3.0 million and is recorded in Other Assets in our consolidated balance sheets.

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Charge on Early Extinguishment of Debt

        During the third quarter of 2003, $9.8 million was recognized in our financial statements as a charge on early extinguishment of debt as follows:

	Principal Amount		Premium		Write-off of unamortized debt issuance costs		Total charge on early extinguishment of debt
5.25% Notes redeemed in July 2003	$	174,000	$	5,481	$	3,598	$	9,079
3.875% Notes purchased in July 2003		12,000		720		17		737
	$	186,000	$	6,201	$	3,615	$	9,816

        For the year ended December 31, 2004, we recognized $2.3 million in our financial statements as a charge on early extinguishment of debt, as follows:

	Principal Amount		Premium		Write-off of unamortized debt issuance costs		Total charge on early extinguishment of debt
3.875% convertible subordinated notes repurchased in March 2004	$	10,000	$	950	$	11	$	961
3.875% convertible subordinated notes repurchased in August 2004		33,000		1,320		32		1,352
	$	43,000	$	2,270	$	43	$	2,313

Zero Coupon Convertible Subordinated Notes

        In June 2003, we issued and sold in a private placement $750.0 million of Zero Coupon Convertible Notes. The interest rate on the notes is zero and the notes do not accrete interest. The notes were issued in two tranches: $375.0 million of Zero Coupon Convertible Subordinated Notes Due 2033, First Putable June 15, 2008 (the "Old 2008 Notes") and $375.0 million of Zero Coupon Convertible Subordinated Notes Due 2033, First Putable June 15, 2010 (the "Old 2010 Notes" and, together with the Old 2008 Notes, the "Old Notes").

        In November 2004, we commenced an offer to exchange our Zero Coupon Convertible Subordinated Notes Due 2033, First Putable June 15, 2008 (the "New 2008 Notes"), and our Zero Coupon Convertible Subordinated Notes Due 2033, First Putable June 15, 2010 (the "New 2010 Notes" and, together with the New 2008 Notes, the "New Notes"), for any and all of our outstanding Old 2008 Notes and Old 2010 Notes. Our offer to exchange expired on December 15, 2004 and thereafter we issued $374.7 million principal amount at maturity of New 2008 Notes in exchange for a like principal amount at maturity of our outstanding Old 2008 Notes and $374.9 million principal amount at maturity of New 2010 Notes in exchange for a like principal amount at maturity of our outstanding Old 2010 Notes. Following this transaction, there remains outstanding $0.3 million and $0.1 million of the Old 2008 and Old 2010 Notes, respectively, as of December 31, 2004.

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        The New Notes were issued solely to our existing security holders pursuant to our offer to exchange, which was made in reliance upon the exemption from the registration requirement of the Securities Act afforded by Section 3(a)(9) thereof. We did not pay or give, directly or indirectly, any commission or other remuneration for solicitation of the exchange of the Old Notes for the New Notes.

        The New Notes contain the following terms:

•

the New 2008 Notes are first putable on June 15, 2008 at a price of 100.25% of the face amount of the New 2008 Notes. The holders of the New 2008 Notes may also require us to repurchase all or a portion of the New 2008 Notes for cash on June 15, 2013, June 15, 2018, June 15, 2023 and June 15, 2028, in each case at a price equal to the face amount of the New 2008 Notes. The New 2008 Notes are convertible prior to maturity, subject to certain conditions described below, into cash and shares of our common stock at a conversion price of $59.50 per share (an equivalent conversion rate of approximately 16.8067 shares per $1,000 principal amount of notes). We may redeem any outstanding New 2008 Notes for cash on June 15, 2008 at a price equal to 100.25% of the principal amount of such notes redeemed and after June 15, 2008 at a price equal to 100% of the principal amount of such notes redeemed; and



•

the New 2010 Notes are first putable for cash on June 15, 2010 at a price of 100.25% of the face amount of the New 2010 Notes. The holders of the New 2010 Notes may also require us to repurchase all or a portion of the New 2010 Notes for cash on June 15, 2015, June 15, 2020, June 15, 2025 and June 15, 2030, in each case at a price equal to the face amount of the New 2010 Notes. The New 2010 Notes are convertible prior to maturity, subject to certain conditions described below, into cash and shares of our common stock at a conversion price of $56.50 per share (an equivalent conversion rate of approximately 17.6991 shares per $1,000 principal amount of notes). We may redeem any outstanding New 2010 Notes for cash on June 15, 2010 at a price equal to 100.25% of the principal amount of such notes redeemed and after June 15, 2010 at a price equal to 100% of the principal amount of such notes redeemed.

        The New Notes also contain restricted convertibility terms that do not affect the conversion price of the notes, but instead place restrictions on a holder's ability to convert their notes into a combination of cash and shares of our common stock, as described below. A holder may convert the New Notes only if one or more of the following conditions are satisfied:

•

if, on the trading day prior to the date of surrender, the closing sale price of our common stock is more than 120% of the applicable conversion price per share;



•

if we have called the New Notes for redemption;



•

if the average of the trading prices of the applicable New Notes for a specified period is less than 100% of the average of the conversion values of the New Notes during that period; provided, however, that no New Notes may be converted based on the satisfaction of this condition during the six-month period immediately preceding each specified date on which the holders may require us to repurchase their notes (for example, with respect to the June 15, 2008 put date for the New 2008 Notes, the New 2008 Notes may not be converted from December 15, 2007 to June 15, 2008); or

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•

if we make certain significant distributions to holders of its common stock, if we enter into specified corporate transactions or if our common stock is neither listed for trading on a U.S. national securities exchange or any similar U.S. system of automated securities price dissemination (a "Fundamental Change").

        Upon the satisfaction of any one of these conditions, we would classify the then-aggregate outstanding principal balance of New Notes as a current liability on our balance sheet.

        Each $1,000 principal amount of New Notes is convertible into cash and shares of our common stock, if any, based on an amount (the "Daily Conversion Value"), calculated for each of the ten trading days immediately following the conversion date (the "Conversion Period"). The Daily Conversion Value for each trading day during the Conversion Period for each $1,000 aggregate principal amount of New Notes is equal to one-tenth of the product of the then applicable conversion rate multiplied by the volume weighted average price of our common stock on that day.

        For each $1,000 aggregate principal amount of New Notes surrendered for conversion, we will deliver the aggregate of the following for each trading day during the Conversion Period:

        (1)   if the Daily Conversion Value for each trading day for each $1,000 aggregate principal amount of New Notes exceeds $100.00, (a) a cash payment of $100.00 and (b) the remaining Daily Conversion Value in shares of our common stock; or

        (2)   if the Daily Conversion Value for each trading day for each $1,000 aggregate principal amount of New Notes is less than or equal to $100.00, a cash payment equal to the Daily Conversion Value.

        If the New Notes are converted in connection with a Fundamental Change that occurs prior to June 15, 2008, we may also be obligated to pay an additional premium with respect to the New Notes so converted.

        The aggregate commissions and other debt issuance costs incurred with respect to the issuance of the Old Notes were $22.9 million, which have been capitalized in Debt Issuance Costs on our consolidated balance sheet and are being amortized over five and seven years. Other debt issuance costs incurred with respect to the issuance of the New Notes have been expensed as incurred.

        The New Notes are subordinate to our existing and future senior indebtedness. The outstanding principal balance of the 2008 and 2010 New Notes will be first classified as Current Portion of Long-Term Debt during the twelve months prior to the respective dates on which the Notes are first putable.

Convertible Note Hedge Strategy

        Concurrent with the private placement of the Old Notes, we purchased a Convertible Note Hedge from Credit Suisse First Boston International (CSFBI) at a cost of $258.6 million. We also sold to CSFBI warrants to purchase an aggregate of 12,939,689 shares of our common stock and received net proceeds from the sale of $178.3 million. In connection with our exchange of Old Notes for New Notes, we amended the Convertible Note Hedge to reflect the mandatory net share settlement feature

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of the New Notes. Taken together, the Convertible Note Hedge and warrants have the effect of increasing the effective conversion price of the New Notes from our perspective to $72.08, a 50% premium to the last reported NASDAQ composite bid for our common stock on the day preceding the date of the original agreements. At our option, the warrants may be settled in either net cash or net shares; the Convertible Note Hedge must be settled using net shares. Under the Convertible Note Hedge, CSFBI will deliver to us the aggregate number of shares we are required to deliver to a holder of New Notes that presents such New Notes for conversion, provided, however, that if the market price per share of our common stock is above $72.08, we will be required to deliver either shares of our common stock or cash to CSFBI representing the value of the warrants in excess of the strike price of the warrants. In accordance with Emerging Issues Task Force Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled In, a Company's Own Stock" and SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," we recorded the Convertible Note Hedge and warrants in additional paid in capital as of June 30, 2003, and do not recognize subsequent changes in fair value. We also recognized a deferred tax asset of $90.5 million in the second quarter of 2003 for the effect of the future tax benefits related to the Convertible Note Hedge.

        The warrants have a strike price of $72.08. Of the total warrants sold, 6,302,521 warrants expire on June 15, 2008, with the remaining 6,637,168 warrants expiring on June 15, 2010. The warrants are exercisable only on the respective expiration dates (European style) or upon the conversion of the notes, if earlier.

Due to Abbott Laboratories

        In March 2000, we purchased the U.S. marketing rights to ACTIQ from Abbott Laboratories for $29.2 million. At December 31, 2004, $0.5 million is outstanding and payable by May 31, 2005.

Mortgage and Building Improvement Loans

        In March 1995, we purchased the buildings housing our administrative offices and research facilities in West Chester, Pennsylvania for $11.0 million. We financed the purchase through the assumption of an existing $6.9 million first mortgage and from $11.6 million in state funding provided by the Commonwealth of Pennsylvania. The first mortgage has a 15-year term with an annual interest rate of 9.625%. The state funding has a 15-year term with an annual interest rate of 2%. The loans require annual aggregate principal and interest payments of $1.8 million. The loans are secured by the buildings and by all our equipment located in Pennsylvania that is otherwise unsecured.

        In November 2002, the Pennsylvania Industrial Development Board (PIDA) authorized the write-off of the outstanding principal balance of $5.3 million due on a loan granted by PIDA in 1995, contingent upon the commencement of construction of a new headquarters facility in the Commonwealth of Pennsylvania no later than June 30, 2004. At its meeting held June 8, 2004, the PIDA board approved the extension of the construction deadline until December 31, 2005, subject to the requirement that, effective July 1, 2004, we must commence payment of interest only on the original loan. If the PIDA Board determines not to grant an extension to the December 31, 2005

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deadline, we will be required to resume payment of principal on the original loan in addition to the payment of interest.

12.    EARNINGS PER SHARE (EPS)

        We compute income per common share in accordance with SFAS No. 128, "Earnings Per Share." Basic income per common share is computed based on the weighted average number of common shares outstanding during the period. Diluted income per common share is computed based on the weighted average shares outstanding and the dilutive impact of common stock equivalents outstanding during the period. The dilutive effect of employee stock options, restricted stock awards and the New Zero Coupon Convertible Notes is measured using the treasury stock method. The dilutive effect of all other convertible notes is measured using the "if-converted" method. Common stock equivalents are not included in periods where there is a loss, as they are anti-dilutive.

        We adopted the guidance from the EITF's Issue 03-6 in the second quarter of 2004. Under the guidance, we must apply the two-class method of computing EPS and allocate undistributed earnings to participating securities. We determined that our 3.875% convertible subordinated notes were participating securities as these notes contained a provision that stated that if we distributed cash to all or substantially all of our common stock holders, whether by dividend or otherwise, the holders were entitled to such distribution as if they had converted their notes into shares. Although as of December 31, 2004, none of the 3.875% convertible notes are outstanding, net income (loss) used for basic and diluted income (loss) per share is allocated to the common shares using a ratio of weighted average common shares and weighted average participating securities for the period outstanding, using the if-converted method. Our previously reported earnings per share have been restated as required by EITF Issue 03-6. For 2002, basic and diluted income per common share have been restated with a decrease of $0.03 and $0.02 per share, respectively; for 2003, both basic and diluted income per common share have been restated with a decrease of $0.02 per share.

        In September 2004, the EITF reached consensus on Issue 04-8, "Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effects on Diluted Earnings per Share." This Issue requires the inclusion of convertible shares for contingently convertible debt in the calculation of diluted EPS regardless of whether the contingency has been met, if the effect is dilutive. The Issue is effective for periods ending after December 15, 2004 and requires the restatement of previously reported EPS. In December 2004, we exchanged $749.6 million of the Old Notes for the New Notes with substantially the same terms and conditions. However, the contingent conversion feature is no longer considered when calculating diluted earnings per share under EITF 04-8. The remaining $0.4 million Old Notes have not been included in the calculation of diluted EPS for the year ended December 31, 2004 as the effect is anti-dilutive. For the year ended December 31, 2003, the inclusion of the Old Notes using the if-converted method had no effect on diluted EPS.

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        The following is a reconciliation of net income (loss) and weighted average common shares outstanding for purposes of calculating basic and diluted income (loss) per common share:

		Year ended December 31,
		2004			2003		2002
					Restated		Restated
Basic income (loss) per common share computation:
	Numerator:
Income (loss) before cumulative effect of a change in accounting principle per common share		$	(73,813	)	$	82,820	$	173,219
Cumulative effect of a change in accounting principle per common share			—			—		(3,497	)
Net income (loss) used for basic income (loss) per common share		$	(73,813	)	$	82,820	$	169,722
Net income used for basic income per participating security			—			1,038		1,806
	Total net income (loss)	$	(73,813	)	$	83,858	$	171,528
	Denominator:
Weighted average shares used for basic income (loss) per common share			56,489			55,560		55,104
Weighted average shares of participating securities			316			696		586
	Basic income (loss) per common share:
Income (loss) per common share before cumulative effect of a change in accounting principle		$	(1.31	)	$	1.49	$	3.14
Cumulative effect of a change in accounting principle per common share			—			—		(0.06	)
		$	(1.31	)	$	1.49	$	3.08
Diluted income (loss) per common share computation:
	Numerator:
Income (loss) before cumulative effect of a change in accounting principle per common share		$	(73,813	)	$	82,820	$	173,219
Cumulative effect of a change in accounting per common share			—			—		(3,497	)
Net income (loss) used for basic income (loss) per common share			(73,813	)		82,820		169,722
Interest on convertible notes (net of tax) per common share			—			8,361		15,096
Net income (loss) used for diluted income (loss) per common share		$	(73,813	)	$	91,181	$	184,818
	Denominator:
Weighted average shares used for basic income (loss) per common share			56,489			55,560		55,104
Effect of dilutive securities:
Convertible subordinated notes			—			7,411		9,880
Employee stock options and restricted stock awards			—			1,105		1,872
Weighted average shares used for diluted income (loss) per common share			56,489			64,076		66,856
	Diluted income (loss) per common share:
Income (loss) per common share before cumulative effect of a change in accounting principle		$	(1.31	)	$	1.42	$	2.82
Cumulative effect of a change in accounting principle			—			—		(0.05	)
		$	(1.31	)	$	1.42	$	2.77

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        The following reconciliation shows the shares excluded from the calculation of diluted income per common share as the inclusion of such shares would be anti-dilutive:

		Year ended December 31,
		2004	2003	2002
Weighted average shares excluded:
	Employee stock options	4,041	5,793	2,331
	Convertible subordinated notes including Old Notes	7,284	9,148	—
		11,325	14,941	2,331

        The New Zero Coupon Convertible Notes are considered to be Instrument C's as defined by EITF 90-19; therefore, the New Notes are included in the dilutive earnings per share calculation using the treasury stock method. Under the treasury stock method, we must calculate the number of shares issuable under the terms of the New Notes based on the average market price of the stock during the period, and include that number of shares in the total diluted shares figure for the period. For example, using the treasury stock method, if the average price of our stock during the period ended December 31, 2004 had been $65.00, $80.00 or $90.00, the shares from the New Notes to be included in diluted EPS would have been 1.4 million, 3.6 million and 4.6 million shares, respectively. The total number of shares that could potentially be included under the New Notes is 12.9 million. Since the average share price of our stock during the year ended December 31, 2004 did not exceed the conversion prices of $56.50 and $59.50, there was no impact of these New Notes on diluted shares or diluted EPS during that period.

        We purchased Convertible Note Hedges and sold Warrants which, in combination, have the effect of reducing the dilutive impact of the Zero Coupon Convertible Notes by increasing the effective conversion price for these Notes, from our perspective, to $72.08. SFAS 128, however, requires us to analyze the impact of the Convertible Note Hedges and Warrants on diluted EPS separately. As a result, the purchase of the Convertible Note Hedge is excluded because its impact will always be anti-dilutive. SFAS 128 further requires that the impact of the sale of the Warrants be computed using the treasury stock method. For example, using the treasury stock method, if the average price of our stock during the period ended December 31, 2004 had been $72.08, $80.00 or $90.00, the shares from the Warrants to be included in diluted EPS would have been zero, 1.0 million and 2.1 million shares, respectively. The total number of shares that could potentially be included under the Warrants is 12.9 million. Since the average share price of our stock during the year ended December 31, 2004 did not exceed the Conversion Price of $72.08, there was no impact of these Warrants on diluted shares or diluted EPS during that period.

13.    PENSIONS AND OTHER POSTRETIREMENT BENEFITS

        At our French subsidiaries, we have a defined benefit pension plan for current employees and a postretirement benefit plan for employees who retired prior to 2003. These plans are noncontributory and are not funded; benefit payments are funded from operations.

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        We account for these plans using actuarial models required by SFAS No. 87, "Employers' Accounting for Pensions", and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". A summary of our change in benefit obligation as of the end of the last two fiscal years, and the components of net periodic benefit costs for each of the last two fiscal years, is as follows:

		Pension Benefits						Other Benefits
		2004			2003			2004			2003
Change in benefit obligation:
	Benefit obligation at beginning of year	$	6,627		$	5,559		$	6,000		$	4,713
	Service cost		486			376			33			376
	Interest cost		351			290			89			257
	Actuarial gain		(277	)		—			(41	)		(6	)
	Amortization of prior improvements		—			—			—			(259	)
	Recognized (gain) loss due to plan curtailment		—			—			(4,214	)		—
	Benefits paid		(359	)		(695	)		(113	)		(65	)
	Foreign currency translation		593			1,097			85			984
	Benefit obligation at end of year	$	7,421		$	6,627		$	1,839		$	6,000

		Pension Benefits					Other Benefits
		2004			2003		2004			2003
Components of net periodic benefit cost:
	Service cost	$	486		$	376	$	33		$	376
	Interest cost		351			290		89			257
	Amortization of prior improvements		—			—		—			(259	)
	Recognized (gain) loss due to plan curtailment		—			—		(4,214	)		—
	Recognized actuarial (gain) loss		(277	)		—		(41	)		(6	)
	Net periodic benefit cost	$	560		$	666	$	(4,133	)	$	368

        In the first quarter of 2004, we cancelled postretirement health care benefits at Cephalon France for employees not yet retired. This resulted in a gain of $4.2 million, which has been recognized as an offset to net periodic benefits costs for the year ended December 31, 2004.

        The following table presents the significant assumptions used:

	Pension Benefits				Other Benefits
	2004		2003		2004		2003
Discount rate	4.5	%	5.0	%	4.5	%	5.0	%
Rate of compensation increase	3.0	%	3.0	%	3.0	%	3.0	%
Rate of health care cost increase	—		—		—		4.0	%

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        Contributions made by Cephalon France for postretirement health care benefits have been frozen at 2004 levels for all future periods. Participants are required to pay for any changes to the cost of this plan. Therefore, the disclosure of the effects of a 1% change in the assumed health care cost trend is not applicable as it would not impact our costs.

        The accumulated benefit obligation for the defined benefit pension plan was $5.2 million and $4.7 million at December 31, 2004 and 2003, respectively.

        The following benefits payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

	Pension Benefits		Other Benefits
2005	$	108	$	108
2006		179		112
2007		126		120
2008		228		119
2009		239		130
Years 2010-2014		3,809		639

14.    COMMITMENTS AND CONTINGENCIES

Leases

        We lease certain of our offices and automobiles under operating leases in the U.S. and Europe that expire at various times through 2018. Lease expense under all operating leases totaled $12.4 million, $6.9 million, and $4.3 million in 2004, 2003, and 2002, respectively. Estimated lease expense for each of the next five years is as follows:

2005	$	11,051
2006		10,383
2007		8,084
2008		7,021
2009		2,900
2010 and thereafter		12,001
	$	51,440

Cephalon Clinical Partners, L.P.

        In August 1992, we exclusively licensed our rights to MYOTROPHIN for human therapeutic use within the United States, Canada and Europe to Cephalon Clinical Partners, L.P. (CCP). Development and clinical testing of MYOTROPHIN is performed on behalf of CCP under a research and development agreement with CCP.

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        CCP has granted us an exclusive license to manufacture and market MYOTROPHIN for human therapeutic use within the United States, Canada and Europe in return for royalty payments equal to a percentage of product sales and a milestone payment of approximately $16.0 million that will be made if MYOTROPHIN receives regulatory approval.

        We have a contractual option, but not an obligation, to purchase all of the limited partnership interests of CCP, which is exercisable upon the occurrence of certain events following the first commercial sale of MYOTROPHIN. If, and only if, we decide to exercise this purchase option, we would make an advance payment of approximately $40.3 million in cash or, at our election, approximately $42.4 million in shares of common stock or a combination thereof. Should we discontinue development of MYOTROPHIN, or if we do not exercise this purchase option, our license will terminate and all rights to manufacture or market MYOTROPHIN in the United States, Canada and Europe will revert to CCP, which may then commercialize MYOTROPHIN itself or license or assign its rights to a third party. In that event, we would not receive any benefits from such commercialization, license or assignment of rights.

        In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." Subsequently, in December 2003, the FASB issued a revised version of FIN 46 (FIN 46R). FIN 46 and FIN 46R require a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. FIN 46 and FIN 46R also require disclosures about variable interest entities that a company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46 and FIN 46R apply immediately to variable interest entities created after January 31, 2003 and to existing special purpose entities in the first fiscal year or interim period ending after December 15, 2003. For all other entities, the requirements of FIN 46 and FIN 46R apply in the first period ending after March 15, 2004. As a result of the adoption of these standards, CCP has been consolidated in our financial statements at December 31, 2003 and 2004. This consolidation did not have a material impact on our financial statements.

Legal Proceedings

        We have filed patent infringement lawsuits in U.S. District Court in New Jersey against Teva Pharmaceuticals USA, Inc., Mylan Pharmaceuticals Inc., Ranbaxy Pharmaceuticals Inc., Barr Laboratories, Inc. and Sandoz Inc. based upon the ANDAs filed by each of these companies with the FDA seeking approval to market a generic form of modafinil. The lawsuits claim infringement of our U.S. Patent No. RE37,516 which covers the pharmaceutical compositions and methods of treatment with the form of modafinil contained in PROVIGIL. Each of the defendants has asserted defenses and/or counterclaims for non-infringement and patent invalidity, and defendants Teva, Ranbaxy and Mylan have moved to amend their answers and counterclaims to state inequitable conduct as a defense to our claims (we have opposed these motions and a decision is pending). These lawsuits are currently in the discovery phase; we expect a trial to begin no earlier than late 2005. We also recently received notice that Carlsbad Technology, Inc. filed an ANDA seeking to market a generic form of modafinil and we have filed suit against them. Discovery in this action has not yet commenced. While we intend

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to vigorously defend the validity of this patent and prevent infringement, these efforts will be both expensive and time consuming and, ultimately, may not be successful.

        In January 2005, we filed a patent infringement lawsuit in U.S. District Court in Delaware against Barr Laboratories, Inc., based on the ANDA filed by Barr seeking approval for generic form of ACTIQ. Neither the ANDA filing nor the lawsuit modifies the existing license grant to Barr, and we do not expect any change in the anticipated date of Barr's entry to the market (absent resolution of the lawsuit). At the same time we continue to comply in good faith with the FTC Decision and Order requiring us to provide Actiq manufacturing process and other information to Barr to assist its efforts to manufacture a licensed generic version of Actiq when Barr's license becomes effective. While we intend to vigorously defend the validity of the ACTIQ patents and prevent infringement by Barr until the license effective date, these efforts will be both expensive and time consuming and, ultimately, may not be successful.

        In September 2004, we announced that we had received subpoenas from the U.S. Attorney's Office in Philadelphia with respect to PROVIGIL, ACTIQ and GABITRIL. This investigation is ongoing and appears to be focused on our sales and promotional practices. We are cooperating with the investigation and are providing documents to the Government. In addition, we have engaged in ongoing discussions with the Attorney General in Pennsylvania regarding recent media reports of instances of abuse and diversion of ACTIQ. We have had similar discussions with the Office of the Connecticut Attorney General; in September 2004, we received a voluntary request for information from the Office of the Connecticut Attorney General asking us to provide information generally relating to our sales and promotional practices for our U.S. products. We have agreed to comply with this voluntary request. These matters may involve the bringing of criminal charges and fines, and/or civil penalties. We cannot predict or determine the outcome of these matters or reasonably estimate the amount or range of amounts of any fines or penalties that might result from an adverse outcome. However, an adverse outcome could have a material adverse effect on our financial position, liquidity and results of operations.

        We are a party to certain other litigation in the ordinary course of our business, including, among others, European patent oppositions, and matters alleging employment discrimination, product liability and breach of commercial contract. We are vigorously defending ourselves in all of the actions against us and do not believe these matters, even if adversely adjudicated or settled, would have a material adverse effect on our financial condition, results of operations or cash flows.

Other Commitments

        We have committed to make potential future "milestone" payments to third parties as part of our in-licensing and development programs primarily in the area of research and development agreements. Payments generally become due and payable only upon the achievement of certain developmental, regulatory and/or commercial milestones. Because the achievement of these milestones is neither probable nor reasonably estimable, we have not recorded a liability on our balance sheet for any such contingencies. As of December 31, 2004, the potential milestone and other contingency payments due under current contractual agreements are approximately $196 million.

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15.    STOCKHOLDERS' EQUITY

Equity Compensation Plans

        We have established equity compensation plans for our employees, directors and certain other individuals. All grants and terms are authorized by the Stock Option and Compensation Committee of our Board of Directors. We may grant non-qualified stock options under the Cephalon, Inc. 2004 Equity Compensation Plan "2004 Plan" (formerly, the Cephalon, Inc. 1995 Equity Compensation Plan) and the Cephalon, Inc. 2000 Equity Compensation Plan "2000 Plan," and also may grant incentive stock options and restricted stock awards under the 2004 Plan. During 2004, our 2004 Plan was amended to increase the number of shares authorized for issuance from 8.4 million shares to 9.7 million shares and to extend the term of the plan for an additional ten years so that the 2004 Plan will terminate on February 4, 2014. Options and restricted stock awards generally become exercisable or vest ratably over four years from the grant date, and options must be exercised within ten years of the grant date. At December 31, 2004, the shares available for future stock option grants and restricted stock grants were 950,335 and 310,609, respectively.

Stock Options

        The following tables summarize the aggregate option activity under the plans for the years ended December 31:

		2004				2003				2002
		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding, January 1,		9,881,100		$	49.04	7,576,941		$	48.52	5,607,595		$	45.36
	Granted	768,950			49.43	2,882,400			47.75	2,497,200			51.88
	Exercised	(535,446	)		22.51	(299,056	)		16.01	(347,686	)		17.43
	Cancelled	(450,520	)		53.29	(279,185	)		56.54	(180,168	)		50.98
Outstanding, December 31,		9,664,084		$	50.34	9,881,100		$	49.04	7,576,941		$	48.52
Exercisable at end of year		5,485,360		$	49.56	4,071,207		$	43.68	2,829,136		$	35.16
Weighted average fair value of options granted during the year				$	31.81			$	29.55			$	23.79

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        The fair value of the options granted during 2004, 2003 and 2002 were estimated on the date of grant using the Black-Scholes option-pricing model based on the following assumptions:

	2004		2003		2002
Risk free interest rate	3.91	%	3.53	%	3.30	%
Expected life	6.5 years		6 years		6 years
Expected volatility	65	%	69	%	43	%
Expected dividend yield	0	%	0	%	0	%

	Options Outstanding				Options Exercisable
Range of Exercise Price	Shares	Weighted Average Remaining Contractual Life (yrs)	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
$6.00-$14.99	467,493	3.5	$	9.47	467,493	$	9.47
$15.00-$29.99	473,551	4.2		25.02	473,551		25.02
$30.00-$50.99	3,492,690	8.7		47.31	881,165		45.66
$51.00-$59.99	3,440,625	7.2		52.00	2,327,950		52.07
$60.00-$71.96	1,789,725	6.9		70.45	1,335,201		70.51
	9,664,084	7.3	$	50.34	5,485,360	$	49.56

        During 2004, 2003, and 2002, we received net proceeds of $12.1 million, $4.5 million, and $5.9 million, respectively, from the exercise of stock options. During 2002, some stock options were exercised by tendering mature shares as consideration for the exercise price, resulting in the recording of treasury stock of $0.1 million.

Restricted Stock

        The following table summarizes restricted stock award activity for the years ended December 31:

		2004			2003			2002
Outstanding, January 1,			223,175			133,275			268,875
	Granted		309,400			195,000			—
	Vested		(76,925	)		(99,775	)		(129,900	)
	Canceled		—			(5,325	)		(5,700	)
Outstanding, December 31,			455,650			223,175			133,275
Compensation expense recognized		$	5,372		$	1,394		$	2,828

Qualified Savings and Investment Plan

        We have a profit sharing plan pursuant to section 401(k) of the Internal Revenue Code whereby eligible employees may contribute up to 20% of their annual salary to the plan, subject to statutory

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maximums. For the periods 2002 through June 30, 2003, our contribution was 100% of the first 6% of employee salaries at a ratio of 50% cash and 50% Cephalon stock. Effective July 1, 2003, our matching contribution is made solely in cash on 100% on the first 6% of employee salaries. We contributed $6.3 million, $4.1 million, and $3.6 million, in either cash or a combination of cash and common stock to the plan for the years 2004, 2003, and 2002, respectively.

Pro forma Aggregate Conversions or Exercises

        At December 31, 2004, the conversion or exercise of all outstanding options and convertible subordinated notes into shares of Cephalon common stock in accordance with their terms would increase the outstanding number of shares of common stock by approximately 29,045,000 shares, or 50%.

Preferred Share Purchase Rights

        In November 1993, our Board of Directors declared a dividend distribution of one right for each outstanding share of common stock. In addition, a right attaches to and trades with each new issue of our common stock. Each right entitles each registered holder, upon the occurrence of certain events, to purchase from us a unit consisting of one one-hundredth of a share of our Series A Junior Participating Preferred Stock, or a combination of securities and assets of equivalent value, at a purchase price of $200.00 per unit, subject to adjustment.

16.    INCOME TAXES

        The components of total income (loss) from operations before income taxes and the cumulative effect of a change in accounting principle were:

		2004			2003			2002
United States		$	(28,213	)	$	134,194		$	70,562
Foreign			29			(3,880	)		(8,129	)
	Total	$	(28,184	)	$	130,314		$	62,433

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        The components of the provision (benefit) for income taxes are as follows:

		2004			2003			2002
Current taxes:
	United States	$	4,074		$	2,170		$	19,997
	Foreign		4,675			7,379			13,041
	State		3,883			3,526			1,067
			12,632			13,075			34,105
Deferred taxes:
	United States		48,021			36,887			9,224
	Foreign		(6,681	)		(3,913	)		2,138
	State		(1,259	)		—			3,182
			40,081			32,974			14,544
Change in valuation allowance			(7,084	)		407			(161,278	)
			32,997			33,381			(146,734	)
	Total	$	45,629		$	46,456		$	(112,629	)

        A reconciliation of the United States Federal statutory rate to our effective tax rate is as follows:

	2004		2003		2002
U.S. Federal statutory rate—expense (benefit)	(35.0	)%	35.0	%	35.0	%
In-process research and development	230.6		—		—
Meals and entertainment	5.8		0.6		0.9
Executive compensation	3.8		1.3		1.4
Other deductible expenses	(6.1	)	(0.5	)	—
Revision of prior years' estimates	6.4		0.5		—
State income taxes, net of U.S. federal tax benefit	6.1		1.8		1.7
Tax rate differential on foreign income	1.8		(4.5	)	13.6
Change in valuation allowance	(25.1	)	0.3		(230.7	)
Research and development	(42.2	)	—		(5.8	)
Alternative minimum tax	13.5		—		—
Other	2.3		1.2		3.5
Consolidated effective tax rate	161.9	%	35.7	%	(180.4	)%

        The tax benefits associated with employee exercises of non-qualified stock options and disqualifying dispositions of stock acquired with incentive stock options reduce taxes payable or increase the deferred tax asset until we begin paying U.S. federal tax. Tax benefits of $8.0 million and $0.9 million associated with the exercise of employee stock options were recorded to additional paid-in capital in 2004 and 2003, respectively.

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        Net unremitted deficit of foreign subsidiaries at December 31, 2004 and December 31, 2003 amounted to approximately $46.7 million and $38.5 million, respectively. To the extent a subsidiary has unremitted earnings, such amounts have been included in the consolidated financial statements without giving effect to deferred taxes since it is our intent to reinvest such earnings in foreign operations.

        Deferred income taxes reflect the tax effects of temporary differences between the bases of assets and liabilities recognized for financial reporting purposes and tax purposes, and net operating loss and tax credit carryforwards. Significant components of net deferred tax assets and deferred tax liabilities as of December 31 are as follows:

		2004			2003			2002
Deferred tax asset:
	Net operating loss carryforwards	$	54,597		$	93,884		$	120,610
	Original issue discount		74,546			84,315			—
	Capitalized research and development expenditures		31,711			42,563			52,479
	Unrealized profit in inventory		25,950			8,714			2,783
	Research and development tax credits		37,110			21,358			17,354
	Acquired product rights and intangible assets		8,173			8,495			11,921
	Reserves and accrued expenses		8,285			3,915			2,297
	Alternative minimum tax credit carryforwards		5,524			1,693			—
	Deferred revenue		943			757			1,028
	Accounts receivable discounts and allowance		13,794			5,238			3,775
	Other, net		—			4,221			2,593
	Total deferred tax assets		260,633			275,153			214,840
	Valuation allowance		(49,895	)		(48,675	)		(44,768	)
	Net deferred tax assets	$	210,738		$	226,478		$	170,072
Deferred tax liabilities:
	Acquired intangible assets from Group Lafon acquisition	$	46,094		$	44,916		$	52,666
	Acquired intangible assets from CIMA LABS acquisition		40,895			—			—
	Deferred compensation		2,283			—			—
	Fixed assets		4,032			—			—
	Other		796			749			173
Total deferred tax liabilities		$	94,100		$	45,665		$	52,839

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        At December 31, 2004, we had gross operating loss carryforwards for U.S. federal income tax purposes of approximately $109.0 million and apportioned state gross operating losses of approximately $408.9 million that expire in varying years starting in 2005. We also have international gross operating losses of approximately $33.9 million of which $14.6 million can be carried back while $19.3 million will be carried forward with indefinite expiration dates. The net operating loss carryforwards differ from the accumulated deficit principally due to differences in the recognition of certain research and development expenses for financial and federal income tax reporting and net operating loss carryforwards acquired in business combinations. Federal research tax credits of $33.1 million are available to offset future tax liabilities and expire starting in 2005. The amount of U.S. federal net operating loss carryforwards that can be utilized in any one period will be limited by federal income tax regulations since a change in ownership as defined in Section 382 of the Internal Revenue Code occurred in the prior years. We do not believe that such limitation will have a material adverse impact on the utilization of the net operating loss carryforwards, but we do believe it will affect utilization of tax credit carryforwards.

        In the fourth quarter of 2002, we determined that all of our domestic net operating loss carryforwards, portions of international operating loss carryforwards, domestic tax credits, and certain other deferred tax assets were more likely than not to be recovered. The remaining valuation allowance of $49.9 million at December 31, 2004 relates to certain tax credits, international and state operating loss carryforwards and other temporary differences that we believe are not likely to be recovered.

17.    SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

		2004 Quarter Ended
		December 31,		September 30,			June 30,			March 31,
							*Restated
Statement of Operations Data:
	Net sales	$	281,400	$	253,594		$	234,990		$	210,391
	Gross profit		251,026		219,812			205,150			184,414
	Net income (loss) applicable to common shares	$	78,105	$	(165,246	)	$	(8,383	)	$	21,711
	Basic (loss) income per common share **	$	1.35	$	(2.94	)	$	(0.15	)	$	0.38
	Weighted average number of shares outstanding **		57,754		56,178			56,110			55,905
	Diluted income per common share **	$	1.23	$	(2.94	)	$	(0.15	)	$	0.36
	Weighted average number of shares outstanding-assuming dilution **		64,889		56,178			56,110			65,006

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		2003 Quarter Ended
		December 31,		September 30,		June 30,		March 31,
Statement of Operations Data:
	Net sales	$	202,505	$	184,877	$	160,275	$	137,593
	Gross profit		175,413		162,293		138,114		117,055
	Net income applicable to common shares	$	31,225	$	22,272	$	18,123	$	12,238
	Basic income per common share **	$	0.55	$	0.40	$	0.32	$	0.22
	Weighted average number of shares outstanding **		55,706		55,573		55,504		55,452
	Diluted income per common share **	$	0.51	$	0.37	$	0.30	$	0.21
	Weighted average number of shares outstanding-assuming dilution **		64,162		64,559		64,436		57,090

*

We restated our consolidated balance sheet at June 30, 2004, and consolidated statements of income, stockholders' equity and cash flows for the three and six months ended June 30, 2004. The restatement corrected an error within the meaning of APB Opinion No. 20, Accounting Changes, made in the application of GAAP. We incorrectly recorded an adjustment to cost of sales and inventory. The impact of the restatement on the previously reported net loss for the second quarter 2004 was a increase in the loss of $1.5 million, net of tax. The effect on our basic and diluted loss per share for the three months ended June 30, 2004, was a increase of $0.03 per share.

**

Includes effect from application of EITF 03-6 and EITF 04-8.

18.    SEGMENT AND SUBSIDIARY INFORMATION

        Although we have significant sales, manufacturing, and research operations conducted by several subsidiaries located throughout the United States and Europe, including our latest acquisition of CIMA LABS, Cephalon management makes operating decisions and assesses performance based on a single biopharmaceutical segment. CIMA LABS' operations consist of contract manufacturing and research and development of pharmaceutical products which we have included in our single operational segment for reporting purposes.

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        As required by SFAS 131, "Disclosure about Segments of an Enterprise and Related Information," revenue and long-lived asset information summarized by geographic region is provided below:

        Revenues for the year ended December 31:

		2004						2003
		United States		Europe		Total		United States		Europe		Total
PROVIGIL sales		$	406,238	$	33,429	$	439,667	$	264,324	$	26,141	$	290,465
ACTIQ sales			337,072		7,925		344,997		234,111		3,356		237,467
GABITRIL sales			87,349		6,815		94,164		57,774		5,925		63,699
Other sales			13,270		88,277		101,547		—		93,619		93,619
Other revenue			28,749		6,301		35,050		20,118		9,439		29,557
	Total	$	872,678	$	142,747	$	1,015,425	$	576,327	$	138,480	$	714,807

        Long-lived assets:

	At December 31,
	2004		2003
United States	$	677,097	$	474,112
Europe		583,059		537,614
Total	$	1,260,156	$	1,011,726

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

        None.

ITEM 9A.    CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

        Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Management's Annual Report on Internal Control over Financial Reporting

        Management's Report on Internal Control over Financial Reporting is included in Part II, Item 8 of this Annual Report on Form 10-K and incorporated into this Item 9A by reference.

(c) Attestation Report of the Registered Public Accounting Firm

        Management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included in Part II, Item 8 of this Annual Report on Form 10-K and incorporated into this Item 9A by reference.

(d) Change in Internal Control over Financial Reporting

        There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

        Not applicable.

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

        The information required by Item 10 is incorporated herein by reference to the information contained under the caption "Proposal 1—Election of Directors" in our definitive proxy statement related to the 2005 annual meeting of stockholders.

Executive Officers

        The information concerning our executive officers required by this Item 10 is provided under the caption "Executive Officers of the Registrant" in Part I hereof.

Section 16(a) Beneficial Ownership Reporting Compliance

        The information concerning Section 16(a) Beneficial Ownership Reporting Compliance by our directors and executive officers is incorporated by reference to the information contained under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive proxy statement related to the 2005 annual meeting of stockholders.

Code of Ethics

        The information concerning our Code of Ethics is incorporated by reference to the information contained under the caption "Governance of the Company—Does the Company have a 'Code of Ethics'?" in our definitive proxy statement related to the 2005 annual meeting of stockholders.

ITEM 11.    EXECUTIVE COMPENSATION

        The information required by this Item 11 is incorporated by reference to the information contained in our definitive proxy statement for the 2005 annual meeting of stockholders.

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

        The information required by Item 12 is incorporated by reference to the information contained in our definitive proxy statement for the 2005 annual meeting of stockholders.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information required by Item 13 is incorporated by reference to the information contained in our definitive proxy statement for the 2005 annual meeting of stockholders.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

        The information required by Item 14 is incorporated by reference to the information contained in our definitive proxy statement for the 2005 annual meeting of stockholders.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) DOCUMENTS FILED AS PART OF THIS REPORT

        The following is a list of our consolidated financial statements and our subsidiaries and supplementary data included in this report under Item 8 of Part II hereof:

1.    FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
	Report of Management.
	Report of Independent Registered Public Accounting Firm.
	Consolidated Balance Sheets as of December 31, 2004 and 2003.
	Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002.
	Consolidated Statements of Stockholders' Equity for the years ended December 31, 2004, 2003 and 2002.
	Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002.
	Notes to Consolidated Financial Statements.
2.    FINANCIAL STATEMENT SCHEDULES
	Schedule II—Valuation and Qualifying Accounts

        Schedules, other than those listed above, are omitted because they are not applicable or are not required, or because the required information is included in the consolidated financial statements or notes thereto.

(b) EXHIBITS

        The following is a list of exhibits filed as part of this annual report on Form 10-K. Where so indicated by footnote, exhibits that were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated.

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated July 14, 2000 by and among Cephalon, Inc., Anesta Corp. and C Merger Sub, Inc., filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed July 21, 2000.
2.2	Agreement and Plan of Merger dated as of November 3, 2003 by and between Cephalon, Inc., CIMA LABS Inc., and C MergerCo, Inc., filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated November 3, 2003.
3.1(a)	Restated Certificate of Incorporation, as amended, filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
3.1(b)	Certificate of Amendment of Restated Certificate of Incorporation, filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the period ending June 30, 2002.
3.2	Bylaws of the Registrant, as amended and restated, filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the period ending June 30, 2003.

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4.1	Specimen copy of stock certificate for shares of Common Stock of the Registrant, filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
4.2(a)	Amended and Restated Rights Agreement, dated as of January 1, 1999 between Cephalon, Inc. and StockTrans, Inc. as Rights Agent, filed as Exhibit 1 to the Company's Form 8-A/A (12G) filed January 20, 1999.
4.2(b)	First Amendment to Amended and Restated Rights Agreement, dated July 31, 2000 between Cephalon, Inc. and StockTrans, Inc. as Rights Agent, filed as Exhibit 1 to the Company's Form 8-A/12G filed on August 2, 2000.
4.2(c)	Second Amendment to Amended and Restated Rights Agreement, dated October 27, 2003 between Cephalon, Inc. and StockTrans, Inc. as Rights Agent, filed as Exhibit 1 to the Company's Form 8-A/12G on October 27, 2003.
4.3(a)	Form of Series A Warrant to purchasers of Units including a limited partnership interest in Cephalon Clinical Partners, L.P., filed as Exhibit 10.4 to the Company's Registration Statement on Form S-3 (Registration No. 333-56816) filed on January 7, 1993.
4.3(b)	Form of Series B Warrant to purchasers of Units including a limited partnership interest in Cephalon Clinical Partners, L.P., filed as Exhibit 10.5 to the Company's Registration Statement on Form S-3 (Registration No. 333-56816) filed on January 7, 1993.
4.3(c)	Incentive Warrant to purchase 115,050 shares of Common Stock of Cephalon, Inc. issues to PaineWebber Incorporated, filed as Exhibit 10.6 to the Company's Registration Statement on Form S-3 (Registration No. 333-56816) filed on January 7, 1993.
4.3(d)	Fund Warrant to purchase 19,950 shares of Common Stock of Cephalon, Inc. issued to PaineWebber R&D Partners III, L.P., filed as Exhibit 10.7 to the Company's Registration Statement on Form S-3 (Registration No. 333-56816) filed on January 7, 1993.
4.4(a)	Indenture, dated as of December 11, 2001 between Cephalon, Inc. and State Street Bank and Trust Company, as Trustee, filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (Registration No. 333-82788) filed on February 14, 2002.
4.5	Form of 37/8% Convertible Promissory Note Due March 29, 2007, filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2002.
4.6(a)	Indenture dated as of June 11, 2003 between the Registrant and U.S. Bank National Association, filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2003.
4.6(b)	Registration Rights Agreement, dated as of June 11, 2003, between Cephalon, Inc. and Credit Suisse First Boston LLC, CIBC World Markets Corp., J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, SG Cowen Securities Corporation, ABN AMRO Rothschild LLC, Citigroup Global Markets Inc. and Lehman Brothers Inc., as Initial Purchasers, filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2003.
4.7(a)	Indenture dated as of December 20, 2004 between the Registrant and U.S. Bank National Association, filed as Exhibit 4.l to the Company's Current Report on Form 8-K dated December 21, 2004.
4.7(b)	Registration Rights Agreement, dated as of December 20, 2004, between Cephalon, Inc. and U.S Bank National Association, filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated December 21, 2004.

114

†10.1(a)	Executive Severance Agreement between Frank Baldino, Jr. and Cephalon, Inc. dated July 25, 2002, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ending June 30, 2002.
†10.1(b)	Form of Executive Severance Agreement between Certain Executives and Cephalon, Inc. dated July 25, 2002, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ending June 30, 2002.
†10.2(a)	Consulting Agreement dated October 1, 2001 between Cephalon, Inc. and Martyn D. Greenacre, filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
†10.2(b)	Amendment to Consulting Agreement between Cephalon, Inc. and Martyn D. Greenacre dated April 1, 2002, filed as Exhibit 10.18(b) to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2002.
†10.2(c)	Second Amendment to Consulting Agreement between Cephalon, Inc. and Martyn D. Greenacre dated December 10, 2002, filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the period ended December 31, 2002.
†10.2(d)	Termination of Consulting Agreement between Cephalon, Inc. and Martyn D. Greenacre dated March 31, 2003, filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2003.
†10.3(a)	Cephalon, Inc. Amended and Restated 1987 Stock Option Plan, filed as Exhibit 10.7 to the Transition Report on Form 10-K for transition period January 1, 1991 to December 31, 1991, as amended by Amendment No. 1 filed on September 4, 1992.
†10.3(b)	Cephalon, Inc. 1995 Equity Compensation Plan, as amended and restated, effective as of May 15, 2002, filed as Exhibit 99.1 to the Company's Registration Statement on Form S-8 (Registration No. 333-106112) filed on June 13, 2003.
†10.3(c)	Cephalon, Inc. Amendment to Non-Qualified Deferred Compensation Plan, filed as Exhibit 10.6(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
†10.3(d)	Cephalon, Inc. 2000 Equity Compensation Plan for Employees and Key Advisors, as amended and restated, effective as of May 15, 2002, filed as Exhibit 99.1 to the Company's Registration Statement on Form S-8 (Registration No. 333-106115) filed on June 13, 2003.
†10.3(e)	Amendment No. 2004-1 to the Cephalon, Inc. 1995 Equity Compensation Plan, effective as of May 13, 2004, filed as Exhibit 99.1 to the Company's Registration Statement on Form S-8 (Registration No. 333-118611) filed on August 27, 2004.
†10.3(f)	Cephalon, Inc. 2000 Equity Compensation Plan—Form of Employee Non-Qualified Stock Option, filed as Exhibit 10.3(a) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004.
†10.3(g)	Cephalon, Inc. 2004 Equity Compensation Plan—Employee Restricted Stock Grant Term Sheet, filed as Exhibit 99.1 to the Company's Current Report on Form 8-K dated December 16, 2004.
†10.3(h)	Cephalon, Inc. 2004 Equity Compensation Plan—Form of Non-Employee Director Non-Qualified Stock Option, filed as Exhibit 10.3(c) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004.

115

†10.3(i)	Cephalon, Inc. 2004 Equity Compensation Plan—Form of Employee Non-Qualified Stock Option, filed as Exhibit 10.3(d) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004.
†10.3(j)	Cephalon, Inc. 2004 Equity Compensation Plan—Form of Employee Incentive Stock Option, filed as Exhibit 10.3(e) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004.
*†10.4	Summary of Agreement for Payment of Services between Cephalon, Inc. and its Board of Directors, as approved May 13, 2004.
10.5(a)	License Agreement, dated May 15, 1992 between Cephalon, Inc. and Kyowa Hakko Kogyo Co., Ltd., filed as Exhibit 10.6 to the Transition Report on Form 10-K for transition period January 1, 1991 to December 31, 1991, as amended by Amendment No. 1 filed on September 4, 1992 on Form 8.
10.5(b)	Letter agreement, dated March 6, 1995 amending the License Agreement between Cephalon, Inc. and Kyowa Hakko Kogyo Co., Ltd., filed as Exhibit 10.4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
10.5(c)	Letter agreement, dated May 11, 1999 amending the License Agreement between Cephalon, Inc. and Kyowa Hakko Kogyo Co., Ltd., filed as Exhibit 10.4(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.(1)
10.6(a)	Amended and Restated Agreement of Limited Partnership, dated as of June 22, 1992 by and among Cephalon Development Corporation, as general partner, and each of the limited partners of Cephalon Clinical Partners, L.P., filed as Exhibit 10.1 to the Company's Registration Statement on Form S-3 (Registration No. 33-56816) on January 7, 1993.
10.6(b)	Amended and Restated Product Development Agreement, dated as of August 11, 1992 between Cephalon, Inc. and Cephalon Clinical Partners, L.P., filed as Exhibit 10.2 to the Company's Registration Statement on Form S-3 (Registration No. 33-56816) filed on January 7, 1993.
10.6(c)	Purchase Agreement, dated as of August 11, 1992 by and between Cephalon, Inc. and each of the limited partners of Cephalon Clinical Partners, L.P., filed as Exhibit 10.3 to the Company's Registration Statement on Form S-3 (Registration No. 33-56816) filed on January 7, 1993.
10.6(d)	Pledge Agreement, dated as of August 11, 1992 by and between Cephalon, Inc. and Cephalon Clinical Partners, L.P., filed as Exhibit 10.8 to the Company's Registration Statement on Form S-3 (Registration No. 33-56816) filed on January 7, 1993.
10.6(e)	Promissory Note, dated as of August 11, 1992 issued by Cephalon Clinical Partners, L.P. to Cephalon, Inc., filed as Exhibit 10.9 to the Company's Registration Statement on Form S-3 (Registration No. 33-56816) filed on January 7, 1993.
10.6(f)	Form of Promissory Note, issued by each of the limited partners of Cephalon Clinical partners, L.P. to Cephalon Clinical Partners, L.P., filed as Exhibit 10.10 to the Company's Registration Statement on Form S-3 (Registration No. 33-56816) filed on January 7, 1993.
10.7	Supply, Distribution and License Agreement, dated as of July 27, 1993 between Kyowa Hakko Kogyo Co., Ltd. and Cephalon, Inc., filed as Exhibit 10.3 to the Company's Registration Statement on Form S-3 (Registration No. 33-73896) filed on January 10, 1994. (1)

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10.8(a)	GABITRIL Product Agreement, dated October 31, 2000 between Cephalon, Inc. and Abbott Laboratories, filed as Exhibit 10.13(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (1)
10.8(b)	Toll Manufacturing and Packaging Agreement, dated October 31, 2000 between Cephalon, Inc. and Abbott Laboratories, filed as Exhibit 10.13(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (1)
*10.8(c)	First Amendment to Toll Manufacturing and Packaging Agreement by and between Abbott Laboratories and Cephalon, Inc. dated October 1, 2004. (2)
10.9(a)	Joint Research, Development and License Agreement, dated May 28, 1999 between Cephalon, Inc. and H. Lundbeck A/S, filed as Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1999. (1)
10.9(b)	Clarification Letter dated July 1, 1999 between Cephalon, Inc. and H. Lundbeck A/S, filed as Exhibit 10.1(a) to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2004.
10.9(c)	Amendment No. 1 to the Joint Research, Development and License Agreement between Cephalon, Inc. and H. Lundbeck A/S, dated October 1999, filed as Exhibit 10.1(b) to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2004.
10.9(d)	Clarification letter dated March 16, 2000 between Cephalon, Inc. and H. Lundbeck A/S, filed as Exhibit 10.1(c) to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2004.
10.9(e)	Marketing and License Agreement between Cephalon, Inc., Kyowa Hakko Kogyo Co., Ltd., and H. Lundbeck A/S, dated April 10, 2000, filed as Exhibit 10.4(d) to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2004. (1)
10.9(f)	Amendment No. 2 to the Joint Research, Development and License Agreement between Cephalon, Inc. and H. Lundbeck A/S, dated June 13, 2001, filed as Exhibit 10.8(e) to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2004.
10.9(g)	Amendment No. 3 to the Joint Research, Development and License Agreement between Cephalon, Inc. and H. Lundbeck A/S, dated June 10, 2002, filed as Exhibit 10.8(f) to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2004.
10.10(a)	Managed Services Agreement, dated November 27, 2000 between Cephalon (UK) Limited and Novartis Pharmaceuticals UK Limited, filed as Exhibit 10.17(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (1)
10.10(b)	License Agreement, dated November 27, 2000 between Cephalon, Inc. and Novartis AG, filed as Exhibit 10.17(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (1)
10.10(c)	Collaboration Agreement, dated November 27, 2000 between Cephalon, Inc. and Novartis AG, filed as Exhibit 10.17(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (1)
10.10(d)	Distribution Agreement, dated November 27, 2000 between Cephalon, Inc. and Novartis AG, filed as Exhibit 10.17(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (1)
10.11(a)	Distribution, License and Supply Agreement, dated December 7, 1999, between Anesta Corp. and Elan Pharma International Limited, filed as Exhibit 10.18 to Anesta Corp.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1999. (1)

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10.11(b)	Intellectual Property Sale, Amendment and Termination Agreement dated October 2, 2002, amending the Distribution, License and Supply Agreement, dated as of December 7, 1999, and as amended from time to time thereafter, by and between Anesta Corp. and Elan Pharma International Limited, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ending September 30, 2002.
10.11(c)	Termination and Asset Sale and Purchase Agreement, dated March 13, 2000 between Abbott Laboratories, Inc. and Anesta Corp., filed as Exhibit 10.19 to Anesta Corp.'s Quarterly Report on Form 10-Q for the period ending March 31, 2000. (1)
10.11(d)	Technology License Agreement, dated September 16, 1985, as amended through December 3, 1993 between Anesta Corp. and the University of Utah Research Foundation, filed as Exhibit 10.6 to Anesta Corp.'s Registration Statement on Form S-1 (File No. 33-72608) filed May 31, 1996. (1)
10.12(a)	Wiley Post Plaza Lease, dated December 7, 1994 between Anesta Corp. and Asset Management Services, filed as Exhibit 10.13 to Anesta Corp.'s Annual Report on Form 10-K (File No. 0-23160) for the fiscal year ended December 31, 1994.
10.12(b)	Amendment No. 1 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated October 26, 1996, filed as Exhibit 10.11(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
10.12(c)	Amendment No. 2 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated January 7, 1997, filed as Exhibit 10.11(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
10.12(d)	Amendment No. 3 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated September 30, 1998, filed as Exhibit 10.11(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
10.12(e)	Amendment No. 4 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated February 29, 2000, filed as Exhibit 10.11(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
10.12(f)	Amendment No. 5 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated July 20, 2001, filed as Exhibit 10.11(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
10.12(g)	Amendment No. 6 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated July 20, 2001, filed as Exhibit 10.11(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
10.12(h)	Amendment No. 7 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated July 20, 2001, filed as Exhibit 10.11(h) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
10.12(i)	Amendment No. 8 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated October 14, 2002, filed as Exhibit 10.11(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
10.12(j)	Amendment No. 9 to Wiley Post Plaza Lease between Anesta Corp. and Asset Management Services dated May 15, 2003, filed as Exhibit 10.11(j) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003. (1)
10.12(k)	Amendment No.10 to Wiley Post Plaza Lease between Anesta Corp. and Wiley Post Plaza, L.C. dated June 24, 2004, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2004. (1)

118

10.13(a)	Toll Manufacturing and Packaging Agreement, dated August 24, 1999 between Cephalon, Inc. and Catalytica Pharmaceuticals, Inc. (now DSM Pharmaceuticals, Inc.), filed as Exhibit 10.16(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. (1)
10.13(b)	Amendment No. 1 to the Toll Manufacturing and Packaging Agreement, dated July 3, 2001 between Cephalon, Inc. and Catalytica Pharmaceuticals, Inc. (now DSM Pharmaceuticals, Inc.), filed as Exhibit 10.16(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. (1)
10.13(c)	Amendment No. 2 to Toll Manufacturing and Packaging Agreement, dated October 9, 2001 between Cephalon, Inc. and Catalytica Pharmaceuticals, Inc. (now DSM Pharmaceuticals, Inc.), filed as Exhibit 10.16(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. (1)
10.13(d)	Amendment No. 3 to Toll Manufacturing and Packaging Agreement, dated June 21, 2002 between Cephalon, Inc. and DSM Pharmaceuticals, Inc., filed as Exhibit 10.13(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002. (1)
10.13(e)	Amendment No. 4 to Toll Manufacturing and Packaging Agreement, dated April 28, 2003 between Cephalon, Inc. and DSM Pharmaceuticals, Inc. (1)
10.13(f)	Amendment No. 5 to Toll Manufacturing and Packaging Agreement, dated August 15, 2003 between Cephalon, Inc. and DSM Pharmaceuticals, Inc. (1)
10.14(a)	ISDA Master Agreement dated January 22, 2003, between Credit Suisse First Boston International and Cephalon, Inc., including Schedule to the Master Agreement dated as of January 22, 2003, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2003.
10.14(b)	ISDA Credit Support Annex to the Schedule to the ISDA Master Agreement dated as of January 22, 2003 between Credit Suisse First Boston International and Cephalon, Inc., including the Elections and Variables to the ISDA Credit Support Annex dated as of January 22, 2003, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2003.
10.14(c)	Letter Agreement Confirmation dated January 22, 2003, between Credit Suisse First Boston International and Cephalon, Inc, filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2003.
10.15	Manufacturing Services Agreement dated January 1, 2003 between Patheon, Inc. and Cephalon, Inc., filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (1)
10.16(a)	License and Supply Agreement dated July 7, 2004 between Barr Laboratories, Inc. and Cephalon, Inc., filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004 (1)
10.16(b)	Amendment No. 1 to the License and Supply Agreement between Barr Laboratories, Inc. and Cephalon, Inc. dated July 9, 2004, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004.
10.17	Decision and Order of the Federal Trade Commission in the matter of Cephalon, Inc. and CIMA LABS INC. dated August 9, 2004, filed as Exhibit 10.1(c) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2004.

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10.18(a)	Five Year Warrant, dated June 6, 2003, between the Company and Credit Suisse First Boston International filed as Exhibit 99.d(3) to the Company's Schedule TO-I dated November 16, 2004.
10.18(b)	Seven Year Warrant, dated June 6, 2003, between the Company and Credit Suisse First Boston International filed as Exhibit 99.d(4) to the Company's Schedule TO-I dated November 16, 2004.
10.18(c)	Five Year Convertible Note Hedge, dated December 3, 2004, between the Company and Credit Suisse First Boston International, filed as Exhibit 99.d(5) to the Company's Schedule TO-I/A dated December 14, 2004.
10.18(d)	Seven Year Convertible Note Hedge, dated December 3, 2004, between the Company and Credit Suisse First Boston International, filed as Exhibit 99.d(6) to the Company's Schedule TO-I/A dated December 14, 2004.
*10.19	Sale and Purchase Agreement dated as of December 8, 2004 by and between Sanofi-Synthelabo France and Cephalon France. (2)
*10.20(a)	Office Lease between The Multi-Employer Property Trust and Cephalon, Inc. dated January 14, 2004. (2)
*10.20(b)	Consent to Sublease between The Multi-Employer Property Trust, Systems & Computer Technology Corporation and Cephalon, Inc. dated April 2, 2004. (2)
*12.1	Statement Regarding Computation of Ratios
*21	List of Subsidiaries
*23.1	Consent of PricewaterhouseCoopers LLP.
*31.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*

Filed herewith.

†

Compensation plans and arrangements for executives and others.

(1)

Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment granted by the Securities and Exchange Commission.

(2)

Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

PROVIGIL, ACTIQ, GABITRIL, ATTENACE, NUVIGIL, ORAVESCENT, SPASFON, FONZYLANE, PROXALYOC, PARALYOC, LOPERAMIDE LYOC and MYOTROPHIN are trademarks or registered trademarks of Cephalon, Inc. or its subsidiaries. All other brands and names used herein are trademarks of their respective owners.

120

CEPHALON, INC. AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

Year Ended December 31,		Balance at Beginning of the Year		Additions (Deductions)(1)			Other Additions (Deductions)(2)			Balance at End of the Year
Reserve for sales discounts, returns and allowances:
	2004	$	8,774	$	29,958		$	(23,290	)	$	15,442
	2003	$	5,101	$	19,417		$	(15,744	)	$	8,774
	2002	$	2,331	$	12,243		$	(9,473	)	$	5,101
Reserve for inventories:
	2004	$	3,233	$	(1,758	)	$	91		$	1,566
	2003	$	3,797	$	615		$	(1,179	)	$	3,233
	2002	$	1,188	$	2,609		$	—		$	3,797

(1)

Amounts represent charges and reductions to expenses and revenue.

(2)

Amounts represent utilization and adjustments of balance sheet reserve accounts.

121

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 15, 2005

CEPHALON, INC.
By:	/s/  FRANK BALDINO, JR. Frank Baldino, Jr., Ph.D. Chairman and Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  FRANK BALDINO, JR. Frank Baldino, Jr., Ph.D.	Chairman and Chief Executive Officer (Principal executive officer)	March 15, 2005
/s/  J. KEVIN BUCHI J. Kevin Buchi	Sr. Vice President and Chief Financial Officer (Principal financial and accounting officer)	March 15, 2005
/s/  WILLIAM P. EGAN William P. Egan	Director	March 15, 2005
/s/  ROBERT J. FEENEY Robert J. Feeney, Ph.D.	Director	March 15, 2005
/s/  MARTYN D. GREENACRE Martyn D. Greenacre	Director	March 15, 2005
/s/  CHARLES A. SANDERS Charles A. Sanders, M.D.	Director	March 15, 2005
/s/  GAIL R. WILENSKY Gail R. Wilensky, Ph.D.	Director	March 15, 2005
/s/  DENNIS L. WINGER Dennis L. Winger	Director	March 15, 2005
/s/  HORST WITZEL Horst Witzel, Dr.-Ing.	Director	March 15, 2005

122

QuickLinks

TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
PART II
Equity Compensation Plan Information
REPORT OF MANAGEMENT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CEPHALON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
CEPHALON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
CEPHALON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
CEPHALON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share data) (Unaudited)
PART III
PART IV
CEPHALON, INC. AND SUBSIDIARIES SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS (In thousands)
SIGNATURES

EX-10.4

EXHIBIT 10.4

Summary of Oral Agreement for Payment of Services

between Cephalon, Inc.

and

its Board of Directors

The Stock Option and Compensation Committee of the Board of Directors reviews annually the cash compensation paid to members of the Board.  During such review, the Committee compares the cash compensation to that paid by other companies within its peer group, as determined by a third party consultant.  Prior to July 2004, non-employee members of Cephalon’s Board of Directors received an annual retainer of $30,000 and a $3,000 fee for each Board meeting attended.  Additionally, on an annual basis, the members of each of the Board’s committees received an $8,000 annual retainer for each committee membership.  While conducting the most recent compensation review in July 2004, the Stock Option and Compensaton Committee recommended an increase in the annual cash retainer for committee chairs to $12,000, and the annual cash retainer for committee members to $10,000.  The annual base cash retainer for all Board members remains at $30,000, and per meeting fees remain $3,000.  The Board of Directors will continue to be reimbursed for expenses incurred to attend board meetings.  All directors will continue to receive options to purchase 15,000 shares of common stock upon their initial election to the Board and 10,000 more upon their annual re-elections.  The initial stock option grant vests over a four-year period.  Since the annual amount is viewed as compensation, it is 100% vested when awarded.

EX-10.8(C)

Exhibit 10.8(C)

First Amendment to
Toll Manufacturing And Packaging Agreement
By and Between
Abbott Laboratories and Cephalon, Inc.

THIS AMENDMENT is entered into as of the 1 day of October 2004, by and between Abbott Laboratories (“ABBOTT”) and Cephalon, Inc. (“CEPHALON”), and amends that certain Toll Manufacturing And Packaging Agreement dated October 31, 2000 (the “Agreement”).

Whereas, CEPHALON has requested a three year extension of the Agreement; and

Whereas, ABBOTT has suitable facilities and equipment and sufficient qualified personnel to continue to manufacture the Active Drug Substance and final product dosage form and is willing to provide such services on the terms and conditions set forth below.

Now, therefore, the parties agree as follows:

1.Effective October 1, 2004, Section 2.5 shall be deleted in its entirety and replaced with   the following language:

“Unless terminated in accordance with the provisions of Article XIX, this Agreement will become effective and remain in effect for a period of eight (8) years and two (2) months from the Effective Date of October 31, 2000 and shall not expire until December 31, 2008 (the “Initial Term”), and, unless either party gives written notice of non-renewal at least one hundred eighty (180) days prior to the end of the Initial Term (or any renewal term), this Agreement shall be renewed for consecutive terms of two (2) years.”

2.Effective October 1, 2004, Section 5.1 shall be amended by adding the following language as a separate paragraph at the end of such section:

“Notwithstanding the foregoing, ABBOTT shall provide the Active Drug Substance only for so long as ABBOTT continues to self-manufacture the Active Drug Substance. Should ABBOTT elect to no longer self-manufacture the Active Drug Substance, ABBOTT shall:

a)provide Cephalon with a minimum of [**] months notice of such discontinuance

b)make all reasonable efforts to produce enough additional Active Drug Substance to cover a forecasted [**] months worth of finished product production, which when added to the [**] months normal inventory will provide Cephalon with forecast coverage for [**] months beyond the discontinuation date

c)provide reasonable support to CEPHALON to assist CEPHALON’s efforts to qualify an alternate manufacturer of the Active Drug Substance. CEPHALON will reimburse Abbott for all efforts expended at the then current costs plus [**]%.

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

Additionally, CEPHALON will reimburse Abbott for all efforts expended to complete NON’s (Notice of New Drug Substance filing in LU) registration related to intermediate production.”

3.Effective October 1, 2004, Section 5.1 shall be amended by replacing the second sentence the following sentence:

“Abbott assumes full responsibility and liability for the storage and handling of all Commodities and Components.”

4.Effective October 1, 2004, Section 5.3 shall be added as follows:

“If, during the term of this Agreement it becomes necessary for Abbott, at Cephalon’s sole discretion, to develop and manufacture a tiagabine degradation reference standard, Cephalon shall be solely responsible for any and all costs associated therewith.”

5.Effective October 1, 2004, Section 6.2 shall be amended by deleting the inadvertent reference to “Schedule E” and replacing it with the correct reference to “Schedule C,” and by adding the following paragraph at the end of such section:

“The parties agree that there will be no formal increase in the reserve capacity as reflected on Schedule C; however, CEPHALON has provided ABBOTT with a planning forecast as reflected below and ABBOTT’s current capacity planning model indicates that ABBOTT should have sufficient Active Drug Substance and finished Product capacity to meet Cephalon’s projected demand during the Term of the Agreement. The parties hereby agree that as long as CEPHALON keeps ABBOTT aware of its long range demand based on the monthly forecast update, ABBOTT will alert CEPHALON of any potential shortfall as soon as it became evident, and at that time the parties will agree on a course of action, be it implementation of a take or pay reserve capacity agreement,. transfer of production to the Abbott Park facility which is already approved in the NDA for the 4 mg, 12, mg and 16 mg Product tablets, CEPHALON’s selection of an alternate third party manufacturing facility, or another alternative arrangement as mutually agreed to by the Parties.”

Planning Forecast

		Lots			Tablets
Strength	Batch Size	2006	2007	2008	2006	2007	2008
2 mg	[**]	[**]	[**]	[**]	[**]	[**]	[**]
4 mg	[**]	[**]	[**]	[**]	[**]	[**]	[**]
12 mg	[**]	[**]	[**]	[**]	[**]	[**]	[**]
16 mg	[**]	[**]	[**]	[**]	[**]	[**]	[**]

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

6.Effective October 1, 2004, Section 6.3 shall be added as follows:

“6.3 For purposes of clarification, effective January 1, 2005, CEPHALON will provide to Abbott forecasts and orders for Active Drug Substance in a manner consistent with the terms contained in this Article 6.”

7.Effective October 1, 2004, Section 7.3 shall be amended by deleting the section in its entirety and replacing it with the following:

Price.

“7.3.12004 Pricing

ABBOTT shall be entitled to receive from CEPHALON, and CEPHALON shall pay to ABBOTT, a fee for all 100-count units of Product delivered at a price equal to:

With regard to the 2mg and 4mg: [**] percent ([**]%) of the average Net Sales from the previous calendar quarter.

With regard to the 12 mg and 16 mg: [**] percent ([**]%) of the average Net Sales from the previous calendar quarter.

For any and all other product and requested services, ABBOTT shall be entitled to receive from CEPHALON and CEPHALON shall pay to ABBOTT a fee equal to ABBOTT’s cost plus [**] percent ([**]%).

The price due to Abbott hereunder, for the 4th Quarter 2004 shall be in accordance with and as set forth in Schedule D for 2004.

7.3.22005 Pricing

Effective January 1,2005, the parties agree to further revise the above pricing procedure to establish an annual fixed price which will allow CEPHALON to purchase Active Drug Substance independent of the Product.

Any Active Drug Substance manufactured by Abbott pursuant to this Agreement shall be shipped, on consignment, FCA ABBOTT’s manufacturing plant to the location specified by CEPHALON. Title and risk of loss shall pass to CEPHALON upon delivery of Active Drug Substance to the carrier. Shipment shall be via a carrier designated by CEPHALON. Title to, and risk of loss of, Active Drug Substance shall be retained by CEPHALON for Active Drug Substance stored by ABBOTT; provided, however, ABBOTT shall be responsible for replacing any Active Drug Substance that is destroyed due to ABBOTT’s gross negligence or willful misconduct as identified through exception documentation.

The price due to Abbott hereunder, for 2005 shall be in accordance with and as set forth in Schedule D for 2005.

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

For any and all other product and requested services, ABBOTT shall be entitled to receive from CEPHALON and CEPHALON shall pay to ABBOTT a fee equal to ABBOTT’s cost plus [**] percent ([**]%).

7.3.3Price Adjustments

Effective on or about November 1, 2005 and on or about November 1 of each calendar year thereafter, Abbott will provide Cephalon with an adjusted price for the next calendar year.

Price adjustments shall be effective for deliveries beginning January 1 of each calendar year.

Such adjustment shall not exceed the annual percentage increase of the most recent twelve (12) month period for which firm figures are available in the Produce Price Index, Pharmaceutical Preparations, Series Identification 325412325412, issued by the Bureau of Labor Statistics, U.S. Department of Labor, or an equivalent and mutually agreeable index should the above referenced index be discontinued.”

8.On January 1, 2005 ABBOTT will issue to CEPHALON an Active Drug Substance inventory specifying the Abbott lot number and quantity for each lot that is in transit, in raw material inventory and/or in work-in-process inventory as of January 1, 2005. Cephalon on will promptly issue a purchase order to ABBOTT for the such inventory of Active Drug Substance existing in transit, in raw material inventory or in work in process, and title to, and risk of loss of shall become the responsibility of CEPHALON for this Active Drug Substance stored by ABBOTT; provided, however, ABBOTT shall be responsible for replacing any Active Drug Substance that is destroyed due to ABBOTT’s gross negligence or willful misconduct

9.Except as specifically amended by this Amendment, all other terms and conditions of this Agreement shall remain in full force and effect during the extended term of the Agreement.  A copy of the Agreement is attached for reference.

Agreed:				Agreed:
Abbott Laboratories				Cephalon, Inc.
By:	/s/ Michael L. McGibbon			By:	/s/ Robert J. Urban
Title:		General Manager, Pharma		Title:	Vice President, Manufacturing & Engineering
Date:			December 15, 2004	Date:	December 2, 2004

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

Schedule D
Cephalon, Inc.
Gabitril Commercial Pricing effective January 1, 2005 through December 31, 2005

Table 1

Table 1 tablet pricing is applicable if product is manufactured with Abbott Active Drug Substance

Strength	Abbott List Number	Price	Per
	List-Label-Inv-Sales-TUC
2mg	3963-04-20-17-03	[**]	bottle of 100
2mg	3963-04-60	[**]	1000 (drum of 60,000)
4mg	3904-04-20-17-03	[**]	bottle of 100
4mg	3904-04-60	[**]	1000 (drum of 60,000)
12mg	3910-04-20-17-03	[**]	bottle of 100
16mg	3960-04-20-17-03	[**]	bottle of 100
Tiagabine	49462	[**]	KG
Table 2
Table 2 tablet pricing is applicable if product is manufactured with non-Abbott Active Drug Substance
Strength	Abbott List Number	Price	Per
	List-Label-Inv-Sales-TUC
2mg	3963-04-20-17-03	[**]	bottle of 100
2mg	3963-04-60	[**]	1000 (drum of 60,000)
4mg	3904-04-20-17-03	[**]	bottle of 100
4mg	3904-04-60	[**]	1000 (drum of 60,000)
12mg	3910-04-20-17-03	[**]	bottle of 100
16mg	3960-04-20-17-03	[**]	bottle of 100

/s/ Michael L. McGibbon	12/15/04	/s/ Robert J. Urban	12/2/2004
Abbott Laboratories	Dated	Cephalon, Inc.	Dated
Michael L. McGibbon
General Manager, Pharma

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

Schedule D
Cephalon, Inc.
Gabitril Commercial Pricing for 4^th Quarter, 2004
(Based on 4% of Net Sales for 1^st Quarter, 2004 for 100 count. Other at cost + 25%)

Effective for material shipped October 1, 2004 through December 31, 2004

Strength		Abbott List Number	Price	Per
		List-Label-Inv-Sales-TUC
2mg		3963-04-20-17-03	[**]	bottle of 100
2mg	Full Lot	3963-04-60	[**]	1000 (drum of 60,000)
4mg		3904-04-20-17-03	[**]	bottle of 100
4mg	Full Lot	3904-04-60	[**]	1000 (drum of 60,000)
12mg		3910-04-20-17-03	[**]	bottle of 100
16mg		3960-04-20-17-03	[**]	bottle of 100

Accepted by:		Accepted by:
/s/ Michael L. McGibbon	12/15/04	/s/ Robert J. Urban	12/2/2004
Abbott Laboratories	Dated	Cephalon, Inc.	Dated
Michael L. McGibbon
General Manager, Pharma

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

EX-10.19

EXHIBIT 10.19

SALE AND PURCHASE AGREEMENT

BY AND BETWEEN:

SANOFI-SYNTHELABO FRANCE, a French corporation (société anonyme) with a capital of 12,688,000 euros, having its principal office at 1-13 Boulevard Romain Rolland, 75014 Paris, registered in the Paris Trade and Companies Register under number 403 335 904, represented by Mr. Christian Lajoux and Mr. Didier Blondel, respectively President and Managing Director, and Finance Director of said company.

(hereinafter “SSF”)

AND

CEPHALON FRANCE, a simplified French corporation (société par actions simplifiée) with a capital of 11,553,920 euros, having its principal office at 20 Rue Charles Martigny, 94700 Maisons Alfort, registered in the Créteil Trade and Companies Register under number 552 061 962, represented by Mr. Alain Aragues and by Ms. Ann Baugas, respectively President and Managing Director, and Legal Director of said company.

(hereinafter the “Beneficiary”)

SSF and BENEFICIARY are referred to herein individually as “a Party” or collectively as “the Parties”.

RECITALS

WHEREAS

1SSF has entered into “Co-Marketing Agreements” (described more fully below) with ABBOTT FRANCE SA (“ABBOTT”), under which SSF has been granted the right to promote, distribute and sell in France a pharmaceutical product belonging to ABBOTT, known under the international generic name of “clarithromycin” and marketed by SSF under the “Naxy” ® trademark.

2Within the Sanofi-Synthelabo offer to the Aventis shareholders, Sanofi-Synthelabo (Sanofi-Aventis since August 20, 2004), has entered into an Undertaking before the European Commission on behalf of its affiliate, SSF, to irrevocably sell all of its rights and obligations under said Co-Marketing Agreements.

1

3Beneficiary expressed an interest in taking over all of the rights and obligations arising under the Co-Marketing Agreements, so that it can sell in its own name the pharmaceutical product known under the Naxy ® trademark.

The Parties then entered into discussions, and consequently

IT HAS BEEN AGREED AS FOLLOWS:

ARTICLE 1 – DEFINITIONS

For the purposes of this agreement the terms set out below are defined as follows:

1.1Affiliate: any company directly or indirectly controlling, controlled by, or under common control with, the companies of the Cephalon Inc. or Sanofi-Aventis Groups. Control shall mean the direct or indirect ownership of more than fifty percent (50 %) of a company’s share capital.

1.2MA: the marketing authorizations for the French market granted for the Pharmaceutical products, the international generic name of which is “clarithromycin”.

1.3Marketing: theprocurement, storage, physical distribution, promotion, order taking, invoicing and sale of the pharmaceutical products to customers: wholesalers , hospitals or clinics, and retail pharmacies in the Territory.

1.4Agreement: the present agreement and its schedules.

1.5Co-Marketing Agreements: the Agreements entered into between ABBOTT and SSF (previously known as Sanofi-Winthrop):

•Co-Marketing Agreement of December 23, 1991 with amendments 1 to 4, including the contractual letter dated September 25, 1997, regarding indications for “respiratory infections” in the form of 250 mg and 500 mg tablets;

•Co-Marketing Agreement of April 17, 1996, regarding the indication for “helicobacter pylori” in the form of 500 mg tablets;

•Co-Marketing Agreement of April 15, 1998, regarding the indications for “respiratory infections” in the form of soluble granules for 25mg/ml liquid solutions;

•Co-Marketing Agreement of May 31, 2000 regarding the indications for “respiratory infections” in the form of soluble granules for 50mg/ml liquid solutions;

•Safety Data Exchange Agreement of December 1, 2003.

2

1.6Effective Date: the effective date of this sale and purchase agreement set by mutual agreement of the Parties, subject to and within five (5) business days of the date when the condition precedent referred to in Article 3 is satisfied, provided, however that the Effective Date shall not fall less than twelve (12) business days after the date of execution.

1.7Transfer Date: the date on which the Pharmaceutical products marketing authorizations are transferred to Beneficiary, following authorization by the Director General of the French Health Products Safety Agency, pursuant to the provisions of the Public Health Code, article R 5138.

1.8Files: the regulatory files and the documentation necessary for registration of the marketing authorizations with the French health authorities, including formulae, production and control methods and processes, technical and analytical studies and files as well as all the scientific and technical documents concerning the Pharmaceutical products.

1.9Transition period: the period between the Effective Date and the Transfer Date. Under no circumstances shall the Transition Period be more than two (2) months from the sending (save a request for additional information from the Director General of the French Health Products Safety Agency) by Beneficiary of the application for transfer of the marketing authorizations drawn up in conformity with the provisions of Public Health Code article R 5138.

1.10Promotion: thedetailing and information provided to physicians in the Territory concerning the Pharmaceutical products through a network of sales representatives, the provision of medical information, medical documentation and implementation of communication programs (symposia, etc.) intended to provide health professionals with information on the Pharmaceutical products.

1.11Pharmaceutical products: the pharmaceutical products for human use marketed by SSF under the Naxy ® trademark, according to marketing authorizations, in the forms and presentations set forth in Schedule 1.11. The term Pharmaceutical products also refers to the Mono-Naxy ® products set forth in Schedule 1.11.a, not marketed at the time of this agreement, for which marketing authorizations were granted on August 16, 2004 and which have not yet been reviewed by the Transparency Commission. The term also applies to Naxy ® products set forth in Schedule 1.11.b, not marketed at the time of this agreement.

1.12Territory: France and its overseas departments and territories.

ARTICLE 2 - PURPOSE OF THE AGREEMENT

2.1Under the terms of this agreement and subject to satisfaction of the condition precedent set forth in Article 3 hereof, on the Effective Date SSF assigns and transfers to Beneficiary, which accepts, the Co-Marketing Agreements and all of the rights and obligations attached thereto to which SSF is entitled as of the Effective Date hereof under said Co-Marketing Agreements.

3

The Parties indicate that a tripartite agreement between SSF, Beneficiary and ABBOTT was also signed today, according to which ABBOTT agrees to the transfer by SSF of said agreements to Beneficiary subject to the condition precedent of the occurrence of the Effective Date.

2.2All of the rights and assets not expressly defined in Article 2.1 above shall be excluded from the rights and assets transferred under this Agreement. Likewise, Beneficiary shall not be required to enter into any other commitments, obligations or responsibilities of any kind whatsoever unless expressly stipulated under the terms and conditions of this Agreement. In particular, Beneficiary represents that it has on its own staff the personnel necessary to ensure operation of the rights and assets transferred, and more generally represents that it is in a position to ensure as from the Effective Date the Marketing and the Promotion of the Pharmaceutical products under satisfactorily competitive conditions at least equivalent to the conditions under which SSF operated the business prior to the Effective Date of this Agreement. Beneficiary consequently represents that it does not desire the transfer, in any legal form whatsoever, of any SSF or Affiliate personnel who may have been assigned to the operation of the business prior to the Effective Date.

2.3As from the Effective Date, SSF shall cease all Promotion and Marketing activities for the Pharmaceutical products in France. Moreover, as from such date and for a period of ten (10) years thereafter, SSF undertakes not to promote or market identical pharmaceutical products in the Territory.

2.4SSF undertakes toprotect until the Effective Date, the economic viability, market value and competitiveness of the business transferred under this Agreement, in conformity with sound business practices and standard business practice in the pharmaceutical industry sector. SSF further undertakes to reduce the risks of loss of competitiveness of such business. Until the Effective Date, SSF undertakes, in particular:

(i)to manage the Promotion and Marketing of the Pharmaceutical products with prudence and due care and carry on these operations in accordance with its business practices prior to signature of this Agreement. In this regard, SSF notably undertakes prior to the Effective Date not to sell to wholesalers or retail pharmacies any abnormally large quantities as measured by market demand,

(ii)not to perform any acts which would have a material adverse effect on the value or the competitiveness of the business transferred,

(iii)to maintain sufficient resources required for the operation of the business available to said business, on the basis of and in accordance with existing business plans.

ARTICLE 3- CONDITION PRECEDENT- EFFECTIVE DATE

Within 10 business days following the signature of this Agreement by the Parties, SSF undertakes to petition the competition authorities for their agreement on (i) the choice of a Beneficiary entity and (ii) the conditions set forth herein, pursuant to articles 16 and 17 of the

4

Undertakings entered into on April 23, 2004 by Sanofi-Synthelabo (today Sanofi-Aventis) before the European Commission, in the Comp./M.3354 case.

SSF undertakes to inform Beneficiary of the Competition authorities’ decision within two business days following SSF’s receipt thereof, by facsimile sent to Beneficiary at the following number: 01 49 81 80 90 for the attention of Ms. Ann Baugas, confirmed by electronic mail to the following address: abaugas@cephalon.fr.

Should the Competition authorities decide against the proposed transfer or fail to reply by December 31, 2004 at the latest, each Party shall have the option of terminating this Agreement, effective immediately, simply by notifying the other party of such decision. In such case, the parties undertake to sign and send the Escrow Bank a joint letter of instruction for said bank, a template of which is attached in Schedule 11a.

Each of the Parties shall use its best efforts to take the abovementioned steps without delay. The Parties shall cooperate in this respect, within limits reasonably acceptable to the Party which is not responsible for the given action.

ARTICLE 4- REGULATORY IMPLEMENTATION

4.1SSF’s responsibility:

4.1.1On the date of signature:

SSF shall provide Beneficiary with the artworks ,designs, graphics, digital photo tools, packaging templates presently used in the Territory, a copy of the market study and marketing plans listed in Schedule 4.1.1, a copy of the promotional materials listed in Schedule 4.1.2, all of the training materials with regard to the Pharmaceutical products (digitized modules and presentations), part I of the Files including tabulated summaries of clinical studies available on Naxy ® and Mononaxy ®, the bibliography, the standard medical information letters (called  B.Q.R.), the level of inventory for each Pharmaceutical product and for each presentation, and the purchase and sales forecasts over the next twelve months for each Pharmaceutical product and for each presentation, in order to allow Beneficiary to prepare in advance and at its own risk the operations for which it is responsible as from the Effective Date.

Schedule 4.1.1a also lists the items, which SSF undertakes to provide to Beneficiary within no more than five (5) business days following the date of signature of this Agreement.

4.1.2On the Effective Date:

•The Parties agree to sign (i) an affidavit certifying satisfaction of the condition precedent set forth in article 3 above and the occurrence of the Effective Date of this transfer agreement, and (ii) the letter of joint instructions to the Escrow Bank, a template of which is attached in Schedule 11b.

5

•SSF undertakes to sign the letter of waiver or any other document and to take any other reasonably necessary steps to enable Beneficiary to obtain the transfer in its name of the marketing authorizations, pursuant to Public Health Code article R. 5138.

•SSF undertakes to ensure that its Affiliate, Sanofi-Aventis, shall sign any necessary documents and take any necessary steps to enable Beneficiary to secure the transfer in its name of Naxy ® and Mononaxy ® trademarks registered with the National Institute of Industrial Property under the name of Sanofi-Synthelabo, with the express stipulation that the Naxy ® and Mononaxy ® trademarks belong to ABBOTT France.

•SSF undertakes to give Beneficiary the original copies of the Co-Marketing Agreements and their amendments, as well as copies of any correspondence between ABBOTT and SSF which would provide clarification or additional information on certain contractual provisions of the Co-Marketing Agreements, with the stipulation that such letters are given to Beneficiary by SSF for information only and that they can in no way be construed as constituting the entire correspondence between ABBOTT and SSF with regard to the Pharmaceutical products, and more generally with regard to their cooperation since the signature of the Co-Marketing Agreements. SSF also undertakes to provide Beneficiary with all the elements constituting the Files, all the promotional documents prior to 2002 remaining in the possession of SSF, the transparency files including correspondence with the Transparency Commission, the economic files, all of the correspondence with the French Health Products Safety Agency, in particular with regard to advertising and Pharmacovigilance, any and all on-going tenders and agreements, as well as any other documents useful to Beneficiary in its exercise of the rights and use of the assets transferred by SSF, and in particular all of the items listed in Schedule 4.1.2a.

•SSF transfers all of its copyrights with regard to advertising and promotional campaigns developed for Naxy ® and listed in Schedule 4.1.2 such as the “Dragon Naxy” and “Comtwa” logos. To this effect, SSF shall provide Beneficiary with the original copies of the advertising contracts relative to each copyright transferred and shall specify the scope of the rights transferred.

4.1.3SSF undertakes to ensure that the documents it provides to Beneficiary pursuant to this Article 4.1 are communicated wherever possible in digital format and that the advertising artwork is communicated on media and in formats compatible with a PC (in particular in unlocked PDF format, (EPS) illustrator format, JPEG format, as well as with the equipment used by advertising agencies and printers).

4.2Beneficiary’s responsibility:

4.2.1On the Effective Date:

Beneficiary shall pay any and all direct and indirect taxes, levies and charges of any kind whatsoever generated by the Promotion and Marketing by Beneficiary of the Pharmaceutical products, in particular those resulting from the provisions of Public Health Code article L 5121-17. Beneficiary shall also market the Pharmaceutical products in accordance with the marketing and distribution agreement and shall ensure compliance with the legal, administrative or regulatory provisions concerning their Promotion and Marketing in the

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Territory. To avoid any ambiguity, it is stipulated that SSF shall pay on a pro-rated basis until the Effective Date, any taxes in relation to the “Convention” relating to the sale of the Pharmaceutical products in the Territory.

4.2.2Within two (2) business days following receipt of the letter of waiver referred to in Article 4.1.2, Beneficiary undertakes at its cost to take to take all necessary steps as provided in Public Health Code article R 5138, in order to obtain the  transfer of the marketing authorizations under its own name for the Pharmaceutical products and shall pay all costs incurred in connection with the said transfer.

ARTICLE 5 - TRANSFER

5.1Beneficiary undertakes to inform SSF of the transfer of the marketing authorizations to it within two (2) business days of receipt of notification by Beneficiary from the French Health Products Safety Agency that the Pharmaceutical product marketing authorizations have been transferred.

5.2Beneficiary shall as from the Transfer Date:

•Bear all pharmaceutical liability for the marketing and distribution of the Pharmaceutical products pursuant to Public Health Code article R 5106.

Pharmaceutical liability for marketing and distribution covers the following operations:

•selling,

•producing and reviewing promotional material,

•providing medical information,

•Adverse event reporting,

•Tracking product and withdrawing non-conforming batches.

ARTICLE 6 – TRANSITION PERIOD

6.1Pursuant to the provisions of Public Health Code article R 5106-3, as from the Effective Date SSF assigns to Beneficiary, which accepts, responsibility as from such date for Promotion to health care professionals and Marketing of the Pharmaceutical products in the Territory.

6.2During the period in which SSF remains the marketing holder, SSF will continue to be solely liable towards the competent authorities, in particular the French Health Products Safety Agency, with respect to all obligations incumbent on SSF in its capacity as marketing authorization holder for the Pharmaceutical products in the Territory, it being understood that Beneficiary will use any and all means reasonably necessary to enable SSF to fully comply with such obligations.

6.3On theEffective Date, the Parties will sign a marketing and distribution agreement in the form set forth in Schedule 6.3.

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ARTICLE 7- SALE OF INVENTORY

7.1On the Effective Date, Beneficiary undertakes to buy from SSF the inventory of the Pharmaceutical products meeting specifications and released by manufacturer at their net book value on SSF’s books, calculated according to the accounting rules in effect within the Sanofi-Aventis Group.

The Parties shall jointly draw up an inventory of the stock stored at Sanofi Winthrop Industrie, Industrial Zone Couvertaire, 33450 Saint-Loubes, no later than two (2) business days before the Effective Date. There shall be no turnover between the date of inventory and the Effective Date.

So that Beneficiary is in a position as from the Effective Date to fill its customers orders as well as those received by SSF before the Effective Date which SSF was unable to fill, the Parties agree to consign on the date indicated in a consignment contract signed on this day by the Parties (“the Consignment Contract”) in storage facilities designated by Beneficiary a certain quantity of the Pharmaceutical products to be defined under the Consignment Contract.

It will not be possible to transfer any batch of the Pharmaceutical products with an expiration date of less than one year or which are not in good condition. Moreover, Beneficiary will not take over any samples that were in the possession of SSF sales representatives.

Beneficiary represents that it is aware of the fact that the projected inventory value as of November 30, 2004, and estimated by SSF for information purposes only, is 3 826 840 (three million eight hundred twenty six thousand eight hundred and  forty) euros, based on that projection.

Payment of that amount shall be made by check remitted by Beneficiary to SSF on the Effective Date.

7.2For a period of 6 months as from the Transfer Date, Beneficiary will be authorized to market the Pharmaceutical products under the SSF logo and in SSF packaging. Thereafter, Beneficiary will be able to market the Pharmaceutical products in packaging identical to that of SSF, for each presentation, as indicated in Schedule 7.2, provided that the names of SSF and its Affiliates are replaced by Beneficiary’s own names and logo on all packaging items (blister or bottle, packaging  and prescribing information) and that it removes the comma logo  from the seal flaps, as indicated in Schedule 7.2.

7.3Beneficiary shall bear the transportation expenses incurred in transferring the inventory to its facilities or to the facilities of the service provider appointed by Beneficiary.

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ARTICLE 8 – REPRESENTATIONS AND WARRANTIES

8.1Beneficiary agrees to take over all of the rights and obligations transferred under this Agreement, as they stand on the Effective Date, without any possibility of making any claim whatsoever with regard to said rights and obligations or to the Promotion and Marketing of the Pharmaceutical products, subject solely to the representations and warranties herein.

8.2Under this agreement, SSF represents and warrants to Beneficiary that:

(a)SSF is the lawful holder of the rights and assets assigned or transferred, having legitimately acquired them from ABBOTT or developed them itself in the normal course of business. Those rights and assets are not encumbered by any pledge, lien, restriction or security interest whatsoever such that they would not be freely transferable.

(b)Schedule 8.2(b) of this Agreement contains information on sales of the Pharmaceutical products by SSF over the three (3) fiscal years 2001, 2002 and 2003 as well as during the first ten (10) months of 2004 and the operating results for these periods. Given the specific nature of the rights and assets assigned under this Agreement, Beneficiary recognizes and agrees that these operating results – calculated according to applicable accounting rules within the Sanofi-Aventis Group and taken from its cost accounting system– are only estimates prepared on the basis of SSF documents and accounting records and the specific business structure of the Sanofi-Aventis Group. Beneficiary also recognizes and agrees that it conducted a due diligence investigation of such rights and assets prior to the signature of the Agreement, and that as part of said due diligence investigation it had access to all the information necessary for a reasonable determination of the profitability levels of such rights and assets that it can expect, and in particular all of the accounting documents held by SSF concerning the Marketing of the Pharmaceutical products.

(c)The acquisition by Beneficiary of the rights and obligations which are the subject of this Agreement shall not give rise to any right to occupy any real property under a lease or in any other form.

(d)With the exception of the litigation indicated in Schedule 8.2 (d), no legal action against SSF is pending, or to its knowledge, likely to be brought against it in the foreseeable future, concerning (i) the manufacture, distribution and/or sale of the Pharmaceutical products, and (ii) more generally any of the rights or assets transferred under this Agreement.

(e)SSF warrants to Beneficiary that it will  be responsible for the product liability suits indicated in Article 8.2 (d) and any product liability suits which could be brought after the Effective Date and involve a Pharmaceutical product marketed by SSF prior to the Effective Date. In this respect, SSF indemnifies and holds Beneficiary harmless against any financial consequences of such litigation.

The warranty in (e) above is granted to Beneficiary provided that Beneficiary enables SSF to defend its interests by communicating any and all information and documentation or facts reasonably necessary for such purpose.

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(f)There is no commercial bank, broker or other intermediary authorized to act on behalf of SSF that could claim fees or commissions from Beneficiary by virtue of the transfer of rights and obligations under this Agreement.

(g)SSF indemnifies and holds Beneficiary harmless against the financial consequences of any claims or recalls of batches of the Pharmaceutical products marketed by SSF.

8.3Under this Agreement, Beneficiary represents and warrants to SSF that:

(a)It has obtained from its parent company, Cephalon Inc., all authorizations of any kind necessary for the signature of this Agreement and for the consummation of the transactions set forth in this Agreement, and more generally, that the signature of this Agreement represents a binding commitment pursuant to applicable law and its articles of incorporation and bylaws.

(b)It is a professional of the pharmaceutical industry that relies on the capabilities of its various departments and has conducted a complete due diligence investigation of the rights in the Pharmaceutical products transferred under this Agreement, including a full audit of the marketing authorization files for such Pharmaceutical products.

It acknowledges that it has been fully informed in this respect and has all the data it requires to be sufficiently informed about the Pharmaceutical products and their marketing authorizations in the Territory.

ARTICLE 9- LIMITATION OF SSF LIABILITY UNDER THE REPRESENTATIONS AND WARRANTIES

(a)Within the limits set forth in paragraph (b) above, the sole and exclusive liability of SSF for any breach whatever of the representations and/or warranties stipulated in Article 8 above shall be determined in accordance with the provisions of paragraph (b) below.

(b)It is stipulated and agreed that:

(i)With the exception of the litigation indicated in Schedule 8.2 (d), Beneficiary shall not make any claims against SSF for any fact or event which he has been informed of during the due diligence procedure conducted by it prior to the date of signature of this Agreement.

(ii)With the exception of the warranty granted in sections 8.2 (d), 8.2 (e) and 8.2 (g) above, SSF shall not be liable for any breach of any of the representations and/or warranties whatsoever stipulated in Article 8 above, unless the loss caused to Beneficiary as a result of said breach is in excess of [**] euros.

**           Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

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(iii)With the exception of the warranty granted in articles 8.2 (d), 8.2 (e) and 8.2 (g) above, SSF shall not be required to indemnify Beneficiary in the event SSF breaches any of the representations and/or warranties whatsoever stipulated in Article 8 above unless the aggregate loss caused by said breach or breaches is in excess of [**] euros.

In order to avoid any ambiguity, it is stipulated and agreed that in calculating said aggregate amount, no individual breach representing less than the sum referred to in paragraph (b) (ii) above shall be taken into account.

It is further stipulated and agreed that SSF shall not be liable for such sum and, accordingly, that if the sum of [**] euros referred to in the preceding paragraph is reached, SSF shall only owe Beneficiary the amount in excess of said threshold.

(iv)With the exception of the warranty granted in articles 8.2 (d), 8.2 (e) and 8.2 (g) above, for any breach of the representations and/or warranties under Article 8 above, the cumulative amount owed by SSF to Beneficiary shall not exceed the sum of [**] euros.

(v)With the exception of the warranty granted in articles 8.2 (d), 8.2 (e) and 8.2 (g) above, SSF shall no longer be subject to any obligation to indemnify Beneficiary for any breach of the representations and/or warranties under Article 8 above, after a period of [**] months from the Effective Date of this Agreement. Thereafter, only those claims notified prior thereto by Beneficiary to SSF by registered letter, return receipt requested shall be covered by the provisions of this Article 9.

ARTICLE 10 – ASSISTANCE AND ADVISORY SERVICES – MARKETED FORMS

On the date of signature of this Agreement, SSF shall give Beneficiary the documents for training relating to the Pharmaceutical products, including any training document which could have been prepared for the launch of Mononaxy ®, and shall provide the following in accordance with a schedule to be agreed upon by the Parties, but in any event between the date of signature and the Effective Date of this Agreement:

•assistance with training Beneficiary’s sales representative trainers to the relevant medical/marketing data, by making two members of SSF’s marketing team in charge of Naxy ® available to Beneficiary in the Paris region for a total of two half-days,

•assistance with scientific training of Beneficiary’s sales representative trainers, by making the Naxy ® product physician available to Beneficiary in the Paris region for a total of three days.

**           Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

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ARTICLE 11 –PURCHASE PRICE

Under the terms of this Agreement and subject to its conditions, in exchange for the transfer and assignment of the Co-Marketing Agreements and of the rights and obligations attached thereto, Beneficiary shall pay SSF the final lump sum total amount of 31 000 000 euros without VAT (thirty one millions excluding Value Added Taxes), without prejudice to the amounts paid pursuant to Article 7 above.

The total amount shall be paid by a check drawn on the OBC – Odler Bungener Courvoisier Bank— made out to BNP PARISBAS and remitted to SSF for deposit in the escrow account in that bank (hereinafter the “Escrow Bank”) on the signature date. SSF will immediately deposit the check with the Escrow Bank. The Parties have asked the “Escrow Bank” to open an account in the name of SSF for that purpose. The conditions for release of the escrow are specified in the November 30, 2004 letter from Beneficiary and SSF to the Escrow Bank, a copy of which is attached as Schedule 11 to this Agreement. The templates for joint instruction letters requesting release of the Escrow referred to in Article 3 and Article 4.1.2 are found in Schedules 11 a and 11 b.

The total amount indicated in the first paragraph of this Article 11 may not be adjusted or modified in any way.

ARTICLE 12 –CONDITION SUBSEQUENT

12.1This Agreement is entered into subject to the condition subsequent that the Director General of the French Health Products Safety Agency issues a final denial of a request to transfer one or more marketing authorizations within the two-month period referred to in Public Health Code article R 5138.

12.2Should the above condition subsequent occur, this Agreement shall be deemed rescinded by operation of law. In that case, (i) Beneficiary shall promptly return to SSF all the documents, Files, graphics, etc., and in particular those referred to in Article 4.1 given to Beneficiary by SSF in connection with the performance of this Agreement, (ii) SSF shall reimburse Beneficiary the transfer price specified in Article 11 above and (iii) Beneficiary shall reimburse SSF the operating results generated by the Marketing of the Pharmaceutical products during the Transition Period less the sums paid by Beneficiary to SSF under the marketing and distribution agreement.

ARTICLE 13 - CONFIDENTIALITY

Each Party shall, for a period of two (2) years from the date of signature of the Agreement (i) keep confidential all such information as it has received in connection with the negotiation or signature of this Agreement and not disclose such information to any third party, with the exception of the authorities, without prior authorization from the Party that provided the information and (ii) only use such information in furtherance of the purpose of the Agreement.

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This obligation does not apply to information:

•already in the public domain at the time it is disclosed by a Party, or which would fall into the public domain for reasons beyond the control of the Party that received the information,

•already known to the Party that received the information prior to the date of signature of this Agreement, provided that such information is not covered by a separate undertaking of confidentiality and restricted use signed by the Parties,

•lawfully transferred to the Party or Parties that received it by a third party not bound by a confidentiality obligation towards the Party which provided the information.

ARTICLE 14 – JURISDICTION

Any dispute that may arise in connection with this Agreement that is not settled within a reasonable time shall be referred to the Paris Commercial Court.

ARTICLE 15 – NOTICE

Any notice given under this Agreement shall be given by registered letter, return receipt requested mailed to the following addresses:

To SSF: Attention: Legal Director– France at:
	9 Boulevard Romain Rolland
	75159 Paris Cedex 14
With a copy to the Legal Director - Operations at:
	174 Avenue de France
	75013 Paris
To Beneficiary: Attention: Legal Director at:
	20 Rue Charles Martigny
	94700 Maisons-Alfort

ARTICLE 16 – COSTS, FEES, TAXES

Each Party shall pay all the fees and costs that it incurs in connection with this Agreement and for the consummation of the transfer of rights and assets which is its purpose. It is understood and agreed by the Parties, however, that all excise taxes, sales or standard business taxes, registration and filing fees and/or value-added tax, transfer duties, stamp duties, filing registration fees and other similar taxes (with the exception of corporate income tax, in order to avoid any ambiguity on that point), which may be collected by the tax authorities in connection with this Agreement and the consummation of the transfer of the rights and assets which is the purpose of such Agreement, shall be borne solely by Beneficiary. Beneficiary

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shall register this Agreement in accordance with the provisions of French Tax Code article 719 and shall promptly give SSF a copy of the Agreement bearing the references of the corresponding registration.

Executed in Paris

On December 8, 2004

In two (2) original copies, of which one (1) for each Party

For SANOFI-SYNTHELABO FRANCE	FOR CEPHALON FRANCE
/s/ Christian Lajoux	/s/ Alain Aragues
Christian Lajoux	Alain Aragues
Title: President and Managing Director	Title: President and Managing Director
/s/ Didier Blondel	/s/ Ann Baugas
Didier Blondel	Ann Baugas
Title: Finance Director	Title: Legal Director

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EX-10.20(A)

EXHIBIT 10.20(A)

OFFICE LEASE

WESTBROOK CORPORATE CENTER

THIS OFFICE LEASE (this “Lease”) is made as of January 14, 2004, by and between

“Landlord”The Multi-Employer Property Trust, a trust organized under 12 C.F.R. Section 9.18

and

“Tenant”Cephalon, Inc., a Delaware corporation

TABLE OF CONTENTS

SECTION 1:		DEFINITIONS
	1.1	Definitions
SECTION 2:		PREMISES AND TERM
	2.1	Lease of Premises
	2.2	Lease Term
	2.3	Plans and Specifications
	2.4	Tenant Improvements
	2.5	Intentionally Omitted.
	2.6	Intentionally Omitted
	2.7	Reception Desk
	2.8	Intentionally Omitted
	2.9	Intentionally Omitted
	2.10	Use and Conduct of Business
	2.11	Compliance with Governmental Requirements and Rules and Regulations
	2.12	Option to Renew
	2.13	Right of First Offer to Lease Additional Space
SECTION 3:		BASE RENT, ADDITIONAL RENT AND OTHER SUMS PAYABLE UNDER LEASE
	3.1	Payment of Rental
	3.2	Base Rent
	3.3	Supplemental Rent
	3.4	Additional Rent
	3.5	Utilities
	3.6	Holdover
	3.7	Late Charge
	3.8	Default Rate
SECTION 4:		GENERAL PROVISIONS
	4.1	Maintenance and Repair by Landlord
	4.2	Maintenance and Repair by Tenant
	4.3	Common Areas/Security
	4.4	Building Services

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	4.5	Tenant Alterations
	4.6	Tenant’s Work Performance
	4.7	Surrender of Possession
	4.8	Removal of Property
	4.9	Access
	4.10	Damage or Destruction
	4.11	Condemnation
	4.12	Intentionally Omitted
	4.13	Indemnification
	4.14	Tenant Insurance
	4.15	Landlord’s Insurance
	4.16	Waiver of Subrogation
	4.17	Assignment and Subletting by Tenant
	4.18	Assignment by Landlord
	4.19	Estoppel Certificates and Financial Statements
	4.20	Modification for Lender
	4.21	Hazardous Substances
	4.22	Access Laws
	4.23	Quiet Enjoyment
	4.24	Signs
	4.25	Subordination
	4.26	Intentionally Omitted
	4.27	Brokers
	4.28	Exculpation and Limitation of Liability
	4.29	Intentionally Omitted
	4.30	Mechanic’s Liens and Tenant’s Personal Property Taxes
	4.31	Satellite Antenna
	4.32	Parking
SECTION 5:		DEFAULT AND REMEDIES
	5.1	Events of Default

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	5.2	Remedies
	5.3	Right to Perform
	5.4	Landlord’s Default
SECTION 6:		MISCELLANEOUS PROVISIONS
	6.1	Notices
	6.2	Attorney’s Fees and Expenses
	6.3	No Accord and Satisfaction
	6.4	Successors; Joint and Several Liability
	6.5	Choice of Law
	6.6	No Waiver of Remedies
	6.7	Offer to Lease
	6.8	Force Majeure
	6.9	Landlord’s Consent
	6.10	Severability; Captions
	6.11	Interpretation
	6.12	Incorporation of Prior Agreement; Amendments
	6.13	Authority
	6.14	Time of Essence
	6.15	Survival of Obligations
	6.16	Consent to Service
	6.17	Landlord’s Authorized Agents
	6.18	Waiver of Jury Trial
	6.19	Representations and Warranties of Landlord

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LISTING OF EXHIBITS

Exhibit A	Legal Description of the Land
Exhibit B	Drawing Showing Location of the Premises
Exhibit C	Tenant Improvements
Exhibit D	Intentionally Deleted
Exhibit E	Rules and Regulations
Exhibit F	Description of Cleaning Services

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SECTION 1:DEFINITIONS

1.1Definitions:  Each underlined term in this section shall have the meaning set forth next to that underlined term.  Capitalized terms that are used in this Lease without definition but are defined in any of the Exhibits to this Lease shall have the meanings ascribed to those terms in the applicable Exhibit.

Access Laws:  The Americans With Disabilities Act of 1990 (including the Americans with Disabilities Act Accessibility Guidelines for Building and Facilities) and all other Governmental Requirements relating to the foregoing.

Additional Rent:  Defined in Paragraph 3.4 captioned “Additional Rent”.

Additional Space: Defined in Paragraph 2.13 captioned “Right of First Offer to Lease Additional Space”.

Additional Space Commencement Date: Defined in Paragraph 2.13 captioned “Right of First Offer to Lease Additional Space”.

Base Amount Allocable to the Premises:  Defined in Paragraph 3.4 captioned “Additional Rent”.

Base Rent:  Base Rent shall be as follows:

	Annual		Monthly
Lease Year	Base Rent		Base Rent
1	$	[**]	$	[**]
2	$	[**]	$	[**]
3	$	[**]	$	[**]
	(if the first renewal option is validly exercised)
4	$	[**]	$	[**]
	(if the second renewal option is validly exercised)
5	as determined pursuant to subparagraph 2.12(d)
	(if the third renewal option is validly exercised)
6-10	as determined pursuant to subparagraph 2.12(d)

Base Year:  2004.

Brokers:  Tenant was represented in this transaction by Julien J. Studley, Inc., a licensed real estate broker.  Landlord was represented in this transaction by Trammell Crow Services, Inc., a licensed real estate broker.

Building:  The building located on the Land at 41 Moores Road, Frazer, Pennsylvania 19355 commonly known as Westbrook Corporate Center and containing approximately 187,653 rentable square feet.

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

Business Day:  Calendar days, except for Saturdays and Sundays and the following holidays: New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Business Hours:  From 7:00 a.m. to 6:00 p.m. on Business Days and from 9:00 a.m. to 1:00 p.m. on Saturdays.

Claims: An individual and collective reference to any and all claims, demands, damages, injuries, losses, liens, liabilities, penalties, fines, lawsuits, actions, other proceedings and expenses (including attorneys’ fees and expenses incurred in connection with the proceeding whether at trial or on appeal).

Commencement Date:  The date on which Tenant takes possession of any part or portion of the Premises, whether for construction of Tenant Improvements or for the Permitted Use.

ERISA:  The Employee Retirement Income Security Act of 1974, as now or hereafter amended, and the regulations promulgated under it.

Estimated Operating Costs Allocable to the Premises:  Defined in Paragraph 3.4, captioned “Additional Rent”.

Events of Default:  One or more of those events or state of facts defined in Paragraph 5.1, captioned “Events of Default”.

Excess Operating Costs Allocable to the Premises: Defined in Paragraph 3.4 captioned “Additional Rent”.

Force Majeure:  Any one or more of the following: act of God, strike, lockout, labor trouble or dispute, inability to procure or shortage of material or labor, failure of power or utility, delay in transportation, fire, vandalism, accident, flood, severe weather, other casualty, Governmental Requirements (including mandated changes in the Plans and Specifications or the Tenant Improvements resulting from changes in pertinent Governmental Requirements or interpretations thereof), riot, insurrection, civil commotion, terrorism, sabotage, explosion, war, natural or local emergency, act or omission of others, including Landlord or Tenant, as the case may be, or other reasons of a similar or dissimilar nature not solely the fault of, or under the exclusive control of, Landlord or Tenant, as the case may be.

Governmental Agency:  The United States of America, the state in which the Land is located, any county, city, district, municipality or other governmental subdivision, court or agency or quasi-governmental agency having jurisdiction over the Land and any board, agency or authority associated with any such governmental entity, including the fire department having jurisdiction over the Land.

Governmental Requirements:  Any and all statutes, ordinances, codes, laws, rules, regulations, orders and directives of any Governmental Agency as now or later amended.

Hazardous Substance(s):  Asbestos, PCBs, petroleum or petroleum-based chemicals or substances, urea formaldehyde or any chemical, material, element, compound, solution, mixture,

substance or other matter of any kind whatsoever which is now or later defined, classified, listed, designated or regulated as hazardous, toxic or radioactive by any Governmental Agency.

Land:  The land upon which the Building is located in Chester County, Pennsylvania, as legally described in Exhibit A attached to this Lease.

Landlord:  The trust named on the first page of this Lease, or its successors and assigns as provided in Paragraph 4.18, captioned “Assignment by Landlord”.

Landlord’s Agents:  Any and all partners, officers, agents, employees, contractors, trustees, investment advisors and consultants of Landlord.

Lease Term:  The Lease Term shall commence on the Commencement Date and end thirty-six (36) months following the Rent Commencement Date.  The “Lease Term,” as used herein, shall also include a Renewal Term, if exercised, and the duration of the Lease Term shall be extended accordingly.  The Lease Term is divided into an “Interim Period,” which begins on the Commencement Date and ends the day preceding the Rent Commencement Date, and “Lease Years,” the first of which commences on the Rent Commencement Date and ends on the date twelve (12) months thereafter, with each succeeding Lease Year being the twelve (12) month period immediately following the expiration of the preceding Lease Year.

Manager:  Trammell Crow Services, Inc., or its replacement as specified by written notice from Landlord to Tenant.

Manager’s Address:  c/o Trammell Crow Company, 101 West Elm Street, Suite 400, Conshohocken, PA 19428-2009

Mortgage: Defined in Paragraph 4.25, captioned “Subordination”.

Mortgagee: Defined in Paragraph 4.25, captioned “Subordination”.

Operating Costs:  Defined in Paragraph 3.4, captioned “Additional Rent”.

Operating Costs Allocable to the Premises:  Defined in Paragraph 3.4, captioned “Additional Rent”.

Permitted Use:  General and executive office uses and any other uses incidental thereto, including, but not limited to, a pantry for the exclusive use of Tenant’s employees (which pantry may contain a microwave, refrigerator, and table and chairs), a cafeteria for the exclusive use of Tenant’s employees,  and a training facility for the exclusive use of Tenant’s employees.

Plans and Specifications:  Those certain plans and specifications for the Tenant Improvements prepared by Tenant and approved by Landlord in accordance with Exhibit C.

Premises: The portion of the Building depicted on Exhibit B, which consists of approximately 38,933 rentable square feet on the first floor of the Building, approximately 42,590 square feet on the second floor of the Building and approximately 32,226 square feet on the third floor of the Building, for an aggregate of approximately 113,749 rentable square feet.

Tenant agrees that the rentable area of the Premises, as set forth in this paragraph, shall be the rentable area of the Premises for all purposes of this Lease.

Prime Rate:  Defined in Paragraph 3.8, captioned “Default Rate”.

Property:  The Land together with all improvements thereon, including without limitation, the Building.

Property Taxes:  (a) Any form of ad valorem real or personal property tax or assessment imposed by any Governmental Agency on the Land, Building, related improvements or any personal property owned by Landlord associated with such Land, Building or improvements; (b) any other form of tax or assessment, license fee, license tax, tax or excise on rent or any other levy, charge, expense or imposition made or required by any Governmental Agency on any interest of Landlord in such Land, Building, related improvements or personal property; (c) any fee for services charged by any Governmental Agency for any services such as fire protection, street, sidewalk and road maintenance, refuse collection, school systems or other services provided or formerly provided to property owners and residents within the general area of the Land; (d) any governmental impositions allocable to or measured by the area of any or all of such Land, Building, related improvements or personal property or the amount of any base rent, additional rent or other sums payable under any lease for any or all of such Land, Building, related improvements or personal property, including any tax on gross receipts or any excise tax or other charges levied by any Governmental Agency with respect to the possession, leasing, operation, maintenance, alteration, repair, use or occupancy of any or all of such Land, Building, related improvements, personal property or the rent earned by any part of or interest in such Land, Building, related improvements or personal property; and (e) any impositions by any Governmental Agency on any transaction evidenced by a lease of any or all of such Land, Building, related improvements or personal property or charge with respect to any document to which Landlord is a party creating or transferring an interest or an estate in any or all of such Land, Building, related improvements or personal property.  Property Taxes shall not include taxes on Landlord’s net income or any inheritance, estate, gift, capital levy, franchise, transit, profit, capital stock or transfer taxes, nor shall Property Taxes include any judgments, penalties, liens, interest or late fees resulting from Landlord’s failure to pay in a timely manner any Property Taxes, unless Tenant shall have failed to pay Landlord for either estimated or actual Property Taxes pursuant to Paragraph 3.4 hereof.

Rent Commencement Date: The later of (a) March 1, 2004 or (b) the date Landlord delivers to Tenant a current certificate of occupancy and/or use and occupancy permit subject to only those conditions imposed by the Township relating to the open plan areas.

Security Deposit:  None.

Tenant:  The person or entity named on the first page of this Lease.

Tenant Alterations:  Defined in Paragraph 4.5, captioned “Tenant Alterations”.

Tenant Improvement Allowance:  The maximum amount to be expended by Landlord for the cost of Tenant Improvements (including architectural, engineering, permitting, and space

planning fees), which maximum shall not exceed $[**] ($[**] per rentable square foot of space in the Premises).

Tenant Improvements:  Those alterations or improvements to the Premises as appear and are depicted in the Plans and Specifications.

Tenant’s Agents:  Any and all officers, partners, members, directors, contractors, subcontractors, consultants, licensees, agents, concessionaires, subtenants, servants, employees, customers, guests, invitees or visitors of Tenant.

Tenant’s Pro Rata Share: A fraction, the numerator of which is the number of rentable square feet of floor area in the Premises, and the denominator of which is the number of rentable square feet of floor area in the Building, or 60.62%.  Notwithstanding the foregoing, for purposes of determining the Excess Operating Costs Allocable to the Premises, Tenant’s Pro Rata Share for the first Lease Year is deemed to be 39.97% and Tenant’s Pro Rata Share for the second Lease Year is deemed to be 49.03%.

Tenant’s Construction Representative.  A person or entity to be named by Tenant by notice to Landlord prior to the construction of any Tenant Improvements pursuant to Paragraph 2.4, who shall serve as Tenant’s construction representative during the construction of the Tenant Improvements.

Year:  A calendar year commencing January 1 and ending December 31.

SECTION 2:   PREMISES AND TERM

2.1Lease of Premises.  Landlord leases the Premises to Tenant, and Tenant leases the Premises from Landlord, upon the terms and conditions set forth in this Lease.

2.2Lease Term.  The Lease Term shall be for the period stated in the definition of that term, unless earlier terminated as provided in this Lease.

2.3Plans and Specifications. Plans and Specifications shall be prepared, received and approved as provided in Exhibit C.  Terms used in Exhibit C but not defined therein shall have the meaning given in this Lease.

2.4Tenant Improvements. Tenant shall design and construct the Tenant Improvements for the Premises in accordance with the provisions of Exhibit C attached hereto.  Landlord shall make disbursements to Tenant from the Tenant Improvement Allowance for the cost of designing and constructing the Tenant Improvements for the Premises in an amount not to exceed the Tenant Improvement Allowance, in accordance with the provisions of Exhibit C. All Tenant improvements paid for out of the Tenant Improvement Allowance shall be the property of Landlord and shall remain upon and be surrendered with the Premises upon the expiration or earlier termination of this Lease.

2.5Intentionally Omitted.

2.6Intentionally Omitted

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

2.7Reception Desk.  Tenant shall not use the west lobby of the Premises for purposes other than ingress and egress; provided, however, Tenant shall be permitted, subject to Landlord’s prior consent, which consent shall not be unreasonably withheld, conditioned or delayed, to install and operate a reception desk/security station and related electrical, voice and data connections (collectively, the “Reception Desk”) in the west lobby of the Premises. Tenant hereby agrees that, if Tenant elects to install and operate the Reception Desk in the west lobby of the Premises, Tenant shall:

(a)Install the Reception Desk in a good and workmanlike manner, in compliance with all applicable Governmental Requirements.

(b)Upon expiration or the sooner termination of this Lease, remove the Reception Desk (together with all electrical, voice and data connections), repair any damage caused by such removal and restore any affected area of the lobby to substantially the same condition as of the Commencement Date.

2.8Intentionally Omitted

2.9Intentionally Omitted.

2.10Use and Conduct of Business.  The Premises are to be used only for the Permitted Use, and for no other business or purpose without the prior consent of Landlord.  Landlord makes no representation or warranty as to the suitability of the Premises for Tenant’s intended use.  Tenant shall, at its own cost and expense, obtain and maintain any and all licenses, permits, and approvals necessary or appropriate for its use, occupation and operation of the Premises.  Tenant’s inability to obtain or maintain any such license, permit or approval necessary or appropriate for its use, occupation or operation of the Premises shall not relieve it of its obligations under this Lease, including the obligation to pay Base Rent and Additional Rent.  No act shall be done in or about the Premises that is unlawful or that will increase the existing rate of insurance on any or all of the Land or Building (which insurance premiums are based upon the use of the Premises for general office purposes).  Tenant shall not: (a) commit or allow to be committed or exist any waste upon the Premises, (b) commit or allow to be committed or exist any public or private nuisance, (c) knowingly violate any reasonable provisions of Landlord’s contracts affecting any or all of the Land or Building, (d) create any work stoppage, strike, picketing, labor disruption or dispute, or (e) interfere in any material way with the business of Landlord or with the rights or privileges of any contractors, subcontractors, licensees, agents, concessionaires, subtenants, servants, employees, customers, guests, invitees or visitors or any other persons lawfully in and upon the Land or Building.  Tenant shall not, without the prior consent of Landlord, which consent shall not be unreasonably withheld, conditioned, or delayed, use any apparatus, machinery or device in or about the Premises which will cause any substantial noise or vibration or any increase in the normal consumption level of electric power. If any of Tenant’s machines and equipment should disturb the quiet enjoyment of any other tenant in the Building, then Tenant shall provide, at its sole cost and expense, adequate insulation or take other such action, including removing such machines and equipment, as may be necessary to eliminate the disturbance.

2.11Compliance with Governmental Requirements and Rules and Regulations.  Tenant shall comply with all Governmental Requirements relating to its use, occupancy and operation of the Premises and shall observe such reasonable rules and regulations of general application as may be adopted and published by Landlord from time to time for the safety, care and cleanliness of the Premises, the Building and the Land, and for the preservation of good order in the Building, including the Rules and Regulations attached to this Lease as Exhibit E. However, in case of any conflict or inconsistency between the provisions of this Lease and any of the Rules and Regulations, the provisions of this Lease shall control. Notwithstanding the foregoing, during construction of the Tenant Improvements, the following Rules listed on Exhibit E shall be temporarily suspended, and Tenant’s performance of these three obligations shall be governed instead by the Plans and Specifications and by the reasonable requirements imposed by Landlord’s construction manager: first sentence of Rule 3, solely as it relates to obstructions of the west wing of the Building, 18, 22, third sentence of Rule 29 (relating to overnight parking of vehicles) and 31.

2.12Option to Renew.  Landlord hereby grants Tenant three (3) options to renew the Lease Term, upon the following terms and conditions:

(a)Each of the first two renewal terms (a renewal term, once exercised, is referred to in this Section as a “Renewal Term”) shall be for one (1) year, with the first Renewal Term, if exercised, commencing on the day following the expiration date of the initial Lease Term of this Lease and expiring at midnight on the day preceding the one year anniversary of the commencement date of the first Renewal Term, and the second Renewal Term, if exercised, commencing on the day following the expiration date of the first Renewal Term, and expiring at midnight on the day preceding the one year anniversary of the commencement of the second Renewal Term;

(b)The third Renewal Term shall be for five (5) years and, if exercised, shall commence on the day following the expiration date of the second Renewal Term and expiring at midnight on the day preceding the five year anniversary of the commencement date of the third Renewal Term;

(c)Tenant must exercise a renewal option, if at all, upon at least twelve (12) months written notice to Landlord, prior to the expiration date of, as applicable, the initial Lease Term, the first Renewal Term or the second Renewal Term;

(d)At the time Tenant delivers a notice of election to renew to Landlord, this Lease must be in full force and effect, Tenant must not have assigned this Lease or sublet more than fifteen (15%) percent of the Premises, and no Event of Default shall have occurred and be continuing hereunder;

(e)Each Renewal Term shall be upon the same terms, covenants and conditions contained in this Lease, except that (1) the annual Base Rent for the first Renewal Term shall be as stated in the definition of the term “Base Rent”, and (2) the annual Base Rent for the second and third Renewal Terms shall be the then-current Fair Market Rent of the Premises as of the first day of the second Renewal Term or third Renewal Term, as applicable, but in no event less than the annual Base Rent payable during the prior Renewal Term; and

(f)Exercise of the renewal option with respect to the second and third Renewal Terms is subject to Tenant having validly exercised its option with respect to the prior Renewal Term, and there shall be no further privilege of renewal beyond the third Renewal Term.

As used in this Section, “Fair Market Rent” shall mean the amount of annual Base Rent, expressed in dollars and cents per rentable square foot, equal to the market rental then being negotiated for comparable space in Class A office buildings in the Route 202 – Valley Forge – King of Prussia office sub-market, adjusted to reflect a 2004 Base Year.  In the event that Landlord and Tenant are unable to agree on the Fair Market Rent for the Renewal Term within thirty (30) days after Tenant’s exercise of its renewal option, either party may require determination of the Fair Market Rent for such Renewal Term by giving written notice to that effect to the other party, which notice shall designate a real estate broker selected by the initiating party having at least ten (10) years experience in the office leasing business in the Route 202 – Valley Forge – King of Prussia office sub-market.  Within fifteen (15) days after receipt of such notice, the other party to this Lease shall select a real estate broker meeting the same requirements and give written notice of such selection to the initiating party.  Within fifteen (15) days after selection of the second broker, the two (2) real estate brokers so selected shall select a third real estate broker having at least ten (10) years experience in the office leasing business in the Route 202 – Valley Forge – King of Prussia office sub-market who (and whose firm) is not then employed as a leasing broker or management agent by either party or any of their respective affiliates.  Each of the three (3) brokers shall determine the Fair Market Rent rate for the Premises as of the commencement of the Renewal Term for a term equal to the Renewal Term within fifteen (15) days after the appointment of the third broker.  The Fair Market Rent shall be equal to the arithmetic average of such three determinations; provided, however, that if any such broker’s determination deviates more than five percent (5%) from the median of such determinations the Fair Market Rent shall be an amount equal to the average of the two (2) closest determinations.  Landlord shall pay the costs and fees of Landlord’s broker in connection with any determination hereunder, and Tenant shall pay the costs and fees of Tenant’s broker in connection with such determination.  The cost and fees of the third broker shall be paid one-half by Landlord and one-half by Tenant.  If a party fails to designate a real estate broker within the time period required by this Paragraph, the “third” real estate broker shall be selected by the broker designated by the initiating party, and those two brokers shall determine the Fair Market Rental by averaging their determinations.

If Tenant exercises an option to renew, Landlord and Tenant shall execute and deliver an amendment to this Lease confirming the commencement and expiration dates of the Renewal Term, and any other relevant terms and conditions agreed upon by Landlord and Tenant applicable during such Renewal Term.  In such event the term “Lease Term” whenever used herein shall be deemed to include such Renewal Term.

2.13Right of First Offer to Lease Additional Space. If at any time during the Lease Term (including any Renewal Term) Landlord receives notice that the approximately 73,904 rentable square feet of space within the Building (the “Additional Space”) currently leased by Systems & Computer Technology Corporation (“S&CTC”), is to become vacant and available, Landlord shall extend to Tenant a right of first offer to lease all of the Additional

Space or a portion of the Additional Space (the “First Offer Right”) upon the following terms and conditions:

(a)Landlord shall give Tenant written notice that the Additional Space is available, which written notice shall specify the date (no earlier than thirty (30) days from the date of such letter) on which the Additional Space is projected to be available for lease by Tenant (the “Additional Space Commencement Date”);

(b)If Tenant elects to exercise its First Offer Right with respect to a portion of the Additional Space, then Tenant shall specify whether Tenant is exercising such right with respect to the space available on the first, second or third floors and shall be required to include all the space available on the specified floor(s) in such exercise;

(c)If Tenant elects to exercise its First Offer Right with respect to the Additional Space Tenant shall deliver notice of such election to Landlord within thirty (30) days after receipt of Landlord’s notice that the Additional Space is available and Tenant’s notice shall specify the Additional Space to be taken by Tenant;

(d)As a condition to exercising the First Offer Right, at least two (2) Lease Years must remain in the then-current Lease Term, as extended or renewed pursuant to Paragraph 2.12;

(e)At the time the Additional Space becomes available, Tenant shall not have assigned this Lease or sublet the Premises and no Event of Default shall have occurred and be continuing hereunder;

(f)If the First Offer Right is exercised, the lease for such Additional Space shall be upon the same terms, covenants and conditions as contained in this Lease, except that (1) if the Additional Space Commencement Date is earlier than March 1, 2009, the annual Base Rent payable with respect to the Additional Space leased by Tenant for the period from the Additional Space Commencement Date through February 28, 2009 shall be the Fair Market Rental, but not less than the per rentable square foot annual Base Rent payable with respect to the Premises; (2) the annual Base Rent for the period, if any, from and after March 1, 2009 shall be the Annual Base Rent payable for the applicable Lease Years with respect to the Premises, proportionally increased to include the rentable square footage of the Additional Space leased by Tenant in the rentable square footage of the Premises; (3) the Additional Space shall be delivered to Tenant in its then as-is condition, (4) Tenant’s Pro Rata Share shall be proportionally increased to include the portion of the Additional Space leased by Tenant; and

(d)This First Offer Right is subject to the renewal rights granted to S&CTC in connection with its leasing of the Additional Space.

SECTION 3:   BASE RENT, ADDITIONAL RENT AND OTHER SUMS PAYABLE UNDER LEASE

3.1Payment of Rental.  Tenant agrees to pay Base Rent, Additional Rent and any other sum due under this Lease to Landlord without demand, deduction, credit, adjustment or offset of any kind or nature except as otherwise specifically provided herein, in lawful money

of the United States when due under this Lease, at the offices of Manager at Manager’s Address, or to such other party or at such other place as Landlord may from time to time designate in writing. If this Lease does not specify a due date with respect to any sum payable by Tenant hereunder, such sum shall be due thirty (30) calendar days after written demand for such payment is given to Tenant.

3.2Base Rent.    Tenant agrees to pay Base Rent to Landlord without demand, in advance of or before the first day of each calendar month of the Lease Term from and after the Rent Commencement Date.  Base Rent for any partial month at the beginning or end of the Lease Term shall be prorated. No Base Rent shall be payable with respect to the Interim Period.

3.3Supplemental Rent

(a)The amount of Base Rent payable by Tenant with respect to the first and second Lease Years was negotiated between the parties with the anticipation that Tenant would not physically occupy more than 75,000 rentable square feet in the Premises during the first Lease Year and would not occupy more than 92,000 rentable square feet in the Premises during the second Lease Year. Notwithstanding anything contained herein to the contrary, Tenant shall have the right to occupy more than 75,000 rentable square feet in the Premises during the first Lease Year and to occupy more than 92,000 square feet in the Premises during the second Lease Year.  In the event Tenant occupies more than 75,000 rentable square feet in the Premises during the first Lease Year and/or more than 92,000 rentable square feet during the second Lease Year (any such additional occupied space, the “Additional Occupied Area”) Tenant shall pay to Landlord additional rent (the “Supplemental Rent”) with respect to the period the Additional Occupied Area is so occupied, as provided in this Paragraph 3.3.  Tenant shall give Landlord written notice within ten (10) calendar days after Tenant occupies Additional Occupied Area, specifying the location of the Additional Occupied Area, the rentable area of the Additional Occupied Area, the date occupancy of such Additional Occupied Area first commenced and, if Tenant does not intend to occupy such Additional Occupied Area through the end of the second Lease Year, the date Tenant anticipates that it will vacate such Additional Occupied Area.  Tenant’s failure to provide such notice to Landlord shall not affect Tenant’s obligation to pay Supplemental Rent to Landlord in accordance with this Paragraph 3.3.

(b)The Supplemental Rent payable with respect to Additional Occupied Area will be equal to the Operating Costs allocable to the Additional Occupied Area with respect to the period prior to the third Lease Year.  Supplemental Rent shall be paid on an estimated basis, based on Landlord’s estimate of Operating Costs for the applicable Year or Years, subject to reconciliation and adjustment in the same manner as for Additional Rent pursuant to Paragraph 3.4.  Landlord’s estimate of Operating Costs for the Year 2004 is $[**] per rentable square foot.  Supplemental Rent shall be paid in monthly installments equal to one-twelfth (1/12) of Landlord’s per rentable square foot estimate of Operating Costs for the applicable Year multiplied by the rentable area of the Additional Occupied Area, in advance and without demand on or before the first day of each calendar month, from the date the Additional Occupied Area is first occupied by Tenant until the last day of the second Lease Year or any earlier date that Tenant vacates such Additional Occupied Area, with the Supplemental Rent for any partial month prorated.

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

3.4Additional Rent.  Definitions of certain terms used in this Paragraph are set forth in subparagraph 3.4.5.  Tenant agrees to pay to Landlord additional rent as computed in this Paragraph (individually and collectively the “Additional Rent”):

3.4.1Rental Adjustment for Estimated Operating Costs.  Landlord shall furnish Tenant a written statement of Estimated Operating Costs Allocable to the Premises for each Year following the Base Year and the amount payable monthly by Tenant for such Costs shall be computed as follows:  One-twelfth of the amount, if any, by which the Estimated Operating Costs Allocable to the Premises exceeds the Base Amount Allocable to the Premises (the “Excess Operating Costs Allocable to the Premises”) shall be Additional Rent and shall be paid monthly by Tenant for each month during such Year. If Landlord fails to deliver a written statement of the Estimated Operating Costs for any Year, Tenant shall continue to make monthly payments on account of the Estimated Operating Costs in an amount equal to the estimated monthly payment amount established for the preceding Year.  If any such written statement is furnished after the commencement of the Year, Tenant shall also make a retroactive lump-sum payment to Landlord equal to the monthly payment amount multiplied by the number of months during the Year prior to delivery of such written statement, less any payments made by Tenant for Estimated Operating Costs for such period.

3.4.2Actual Costs.  Within ninety (90) days after the close of each Year, Landlord shall deliver to Tenant a written statement setting forth the Operating Costs Allocable to the Premises during the preceding Year (including 2004).  If for such Year the excess of such Operating Costs Allocable to the Premises over the Base Amount exceeds the Estimated Operating Costs Allocable to the Premises paid by Tenant to Landlord pursuant to subparagraph 3.4.1 for such Year, Tenant shall pay the amount of such excess to Landlord within fifteen (15) calendar days after receipt of such statement by Tenant.  If such statement shows the amount by which Operating Costs Allocable to the Premises exceeds the Base Amount to be less than the Estimated Operating Costs Allocable to the Premises paid by Tenant to Landlord pursuant to subparagraph 3.4.1, then the amount of such overpayment shall be paid by Landlord to Tenant within ten (10) calendar days following the date of such statement or, at Tenant’s option, shall be credited towards the installment(s) of Additional Rent next coming due from Tenant.

3.4.3Determination.  The determination of Operating Costs Allocable to the Premises shall be made by Landlord in accordance with standard accounting practices used by institutional owners of commercial real estate (“Institutional Accounting Practices”), consistently applied.  On or prior to the Rent Commencement Date, Landlord shall deliver to Tenant a statement showing the actual Operating Costs Allocable to the Premises for the years 2002 and 2003.  Each statement of Operating Costs furnished by Landlord to Tenant shall be conclusive and binding upon Tenant unless, within ninety (90) days after receipt of such statement, Tenant shall notify Landlord in writing that Tenant desires to review Landlord’s books and records with respect to such statement.  Except as provided in subparagraph (b) below, Tenant shall pay all reasonable and actual out-of-pocket costs associated with or resulting from such review, and pending the completion of such review, Tenant shall pay, without delay, the full amount of the Additional Rent due from Tenant in accordance with each such statement that Tenant desires to review.  In the event Tenant gives timely notice of its desire to review a statement of Operating Costs as provided in this Paragraph, Tenant, acting by itself or through an independent nationally recognized accounting firm that is not being compensated by Tenant on a contingency fee basis,

shall have the right, upon ten (10) days advance notice and during business hours, to inspect the books and records of Landlord applicable to the determination of such statement of the Operating Costs, for the purpose of verifying in good faith the information contained in such statement for a period of up to one (1) year after the receipt of such statement by Tenant.  Any such review shall take place at the location Landlord customarily maintains its books and records with respect to Operating Costs.  Landlord shall maintain full, complete and accurate books and records prepared in accordance with Institutional Accounting Practices with respect to Operating Costs, and shall retain such records with respect to each Year for a period not less than two (2) years following delivery of the annual statement for such Year.

(a)Tenant’s review of Landlord’s books and records shall be conditioned upon Tenant and its auditor confirming in writing that all information obtained by Tenant and its auditor as a result of such review, and any resulting compromise, settlement or adjustment between Landlord and Tenant, shall be maintained as confidential and not disclosed to any other person.  Tenant shall deliver a written report of its review of Landlord’s books and records to Landlord promptly following completion of an auditor’s review.  If as a result of Tenant’s review of Landlord’s books and records Tenant believes that the amount paid by Tenant for Operating Costs Allocable to the Premises with respect to the Year in question is in excess of the actual Operating Costs Allocable to the Premises for such Year, and Landlord does not accept Tenant’s determination and Landlord and Tenant do not otherwise agree to compromise or settle their dispute over the actual Operating Costs Allocable to the Premises within thirty (30) days after Tenant delivers the written report of its review to Landlord, then either party may require, by giving a written notice to the other, that the dispute be submitted to binding arbitration in accordance with this Paragraph.  Within fifteen (15) days after either party gives notice requiring arbitration, Landlord shall submit to Tenant a list of three (3) independent accounting firms (which shall be other than the regular certified public accountants used by Landlord and its affiliates), and Tenant shall select the accounting firm to be used as arbitrator within fifteen (15) days after Tenant receives such list from Landlord.  Each party shall have the right to submit its position regarding the matter in dispute to the selected arbitrator, in writing, with a copy to the other party.  The selected arbitrator shall review Landlord’s books and records with respect to the matter in dispute and render its written decision to Landlord and Tenant within forty-five (45) days of the arbitrator’s appointment.  Such decision shall be final and binding on Landlord and Tenant.

(b)If it is determined (whether by agreement of the parties or through arbitration) that Tenant’s payments on account of Operating Costs covered by an annual statement were in excess of the amount actually payable by Tenant for the applicable period, Landlord shall grant Tenant a rent credit for the amount of such excess within fifteen (15) days after such determination.  Similarly, if it is determined that Tenant’s payments on account were less than the amount actually due, Tenant shall pay the amount of the shortfall to Landlord within such fifteen (15) day period.  If it is determined that Tenant’s payments on account of the Operating Costs covered by such annual statement exceeded the amount actually payable by Tenant by more than [**] percent ([**]%), Landlord shall reimburse Tenant for the reasonable out of pocket costs incurred by Tenant in its review of such annual statement and pay the fee and expenses of the arbitrator, if any.  Except as provided in the preceding sentence, the cost of any review of Landlord’s books and records, including but not limited to the fees and expenses of

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

any arbitrator and any reasonable copying charges imposed by Landlord, shall be at Tenant’s sole expense.

3.4.4End of Term.  If this Lease shall terminate on a day other than the last day of a Year, (a) Landlord shall estimate the Operating Costs Allocable to the Premises for such Year predicated on the most recent reliable information available to Landlord; (b) the amount determined under clause (a) of this sentence shall be prorated by multiplying such amount by a fraction, the numerator of which is the number of calendar days within the Lease Term in such Year and the denominator of which is 360; (c) the Base Amount Allocable to the Premises shall be prorated in the manner described in clause (b); (d) the clause (c) amount (i.e., the prorated Base Amount Allocable to the Premises) shall be deducted from the clause (b) amount (i.e., the prorated Operating Costs Allocable to the Premises); (e) if the clause (d) amount exceeds the Estimated Operating Costs Allocable to the Premises paid by Tenant for the last Year in the Lease Term, then Tenant shall pay the excess to Landlord within fifteen (15) calendar days after Landlord’s delivery to Tenant of a statement for such excess; and (f) if the Estimated Operating Costs Allocable to the Premises paid by Tenant for the last Year in the Lease Term exceeds the clause (d) amount, then Landlord shall refund to Tenant the excess within the ten (10) calendar day period described in clause (e).  Landlord’s and Tenant’s obligations under this Paragraph shall survive the expiration or other termination of this Lease.

3.4.5Definitions.  Each underlined term in this subparagraph shall have the meaning set forth next to that underlined term:

(a)Base Amount Allocable to the Premises:  The Operating Costs Allocable to the Premises for the Base Year.

(b)Estimated Operating Costs Allocable to the Premises:  Landlord’s estimate of Operating Costs allocable to the Premises for a Year to be given by Landlord to Tenant pursuant to subparagraph 3.4.1.

(c)Operating Costs: All expenses paid or incurred by Landlord for maintaining, operating, owning and repairing any or all of the Land, Building, related improvements, and the personal property used in conjunction with such Land, Building and related improvements, including all expenses paid or incurred by Landlord for:  (1) utilities, including electricity, water, gas, sewers, refuse collection, telephone charges, cable television or other electronic or microwave signal reception, steam, heat, cooling or any other service which is now or in the future considered a utility and which are not payable directly by tenants in the Building; (2) supplies; (3) cleaning and janitorial services (including window washing), landscaping and landscaping maintenance (including irrigating, trimming, moving, fertilizing, seeding and replacing plants), snow removal and other services; (4) security services, if any; (5) premiums and deductibles for insurance; (6) management fees and administrative salaries (not to increase on a cumulative basis over the management fees and administrative salaries included in the Base Amount by more than 150% of the increase in the Consumer Price Index, Urban Wage Earners & Clerical Workers, from the date of this Lease to the date of calculation); provided, however, the management fees and administrative salaries included in the Base Amount shall not exceed 4% of gross receipts; (7) Property Taxes, tax consultant fees and expenses, and costs of appeals of any Property Taxes; (8) services of independent contractors; (9) compensation

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

(including employment taxes and fringe benefits) of all persons who are directly engaged in the repair, operation and maintenance of the Building and the Land, provided that such expenses shall only be included to the extent they are not included in the management fee described in (6) above; (10) license, permit and inspection fees; (11) audit fees and accounting services related to the Building other than in connection with Tenant’s audit of Landlord’s Books pursuant to 3.4.3(b), and charges for the computation of the rents and charges payable by tenants in the Building (but only to the extent the cost of such fees and services are in addition to the cost of the management fee); (12) the cost of maintenance, repairs and replacements; (13) maintenance and service contracts unless directly paid by Tenant; (14) legal fees not attributable to leasing, collection or collection activity and only to the extent that they benefit the tenants or project generally; (15) elevator service and repair, if any; (16) the annual amortization of costs, if any, incurred by Landlord for compliance with Access Laws, as set forth in the paragraph captioned “Access Laws;” and (17) any other expense or charge which, in accordance with generally accepted accounting and management principles, would be considered an expense of maintaining, operating, owning or repairing the Building.  Operating Costs shall also include an amount necessary to amortize the cost of improvements which would be considered capital improvements under Institutional Accounting Practices (as distinguished from replacement parts or components installed in the ordinary course of business) installed to reduce Operating Costs, the cost to replace carpeting, draperies and wall coverings for the common areas of the Building, and the cost of all capital improvements required by governmental agencies by reason of laws and ordinances first enacted following the Commencement Date; all amortized over their useful economic lives together with market interest on their unamortized balances and only the annual amortization amount may be included in Operating Costs for each Year (or portion thereof) of such useful economic life within the Lease Term.  Any cost or expense of the nature described above shall be included in Operating Costs for any calendar year no more than once, notwithstanding that such cost or expense may fall under more than one of the categories listed above.  Expenses shall be calculated on the accrual basis of accounting.

(d)Exclusions from Operating Costs. Notwithstanding anything contained herein to the contrary, Operating Costs shall not include any of the following:  (1) ground rent or similar payments to a ground lessor and the cost of consummating any ground lease; (2) interest and amortization of funds borrowed by Landlord; (3) except as specifically provided in the preceding subparagraph, costs of a capital nature including capital improvements, capital replacements, capital repairs, capital equipment, capital expenditures, and capital taxes, as determined under Institutional Accounting Practices; (4) depreciation of the Building or equipment used in connection therewith; (5) interest, points, fees and amortization or other costs, including legal fees, associated with any mortgage, loan or refinancing of the Building or the Land (except as provided above for the amortization of capital improvements); (6) principal payments of mortgage and other non-operating debts of Landlord; (7) the cost of repairs or other work to the extent Landlord is reimbursed by insurance or condemnation proceeds or third parties (other than through Operating Costs); (8) repairs or other work occasioned by:  (a) fire, windstorm or other casualty of the type which Landlord has insured (to the extent that Landlord has received insurance proceeds, or would have received insurance proceeds if the insurance required to be maintained by Landlord pursuant to Paragraph 4.15. hereof had been maintained), or (b) the exercise of the right of eminent domain (to the extent that such repairs or other work are covered by the proceeds of the award, if any, received by Landlord); (9) Landlord’s costs of electricity and other services sold or provided to tenants in the Building (including Tenant) and

for which Landlord is entitled to be reimbursed by such tenants as a separate additional charge or rental over and above the base rental or additional base rental payable under the lease with such tenant or with respect to any vacant rentable areas of the Building; (10) the cost in connection with the initial construction of the Building and any costs at any time of any installation and decoration incurred in connection with leasing space in the Building (including the space leased to Tenant), including legal fees and brokerage commissions; (11) lease concessions, including rental abatements and construction allowances, granted to specific tenants; (12) costs incurred in connection with the sale, financing or refinancing of the Building (including, without limitation, transfer taxes); (13) organizational expenses associated with the creation and operation of the entity which constitutes Landlord and all general corporate overhead and general administrative expenses not related to the operation of the Building or the Land; (14) any penalties or damages that Landlord pays to Tenant under this Lease or to other tenants in the Building under their respective leases; (15) items and services (of a nature or in a quantity) that Landlord provides selectively to one or more but less than all tenants of the Building; (16) overhead and profit paid to subsidiaries or affiliates of Landlord for management or other services on or to the Building or the Land or for supplies or other materials, to the extent the cost of the services, supplies or materials exceeds the competitive costs of the services, supplies, materials were they not provided by a subsidiary or affiliate; (17) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature other than equipment used in providing janitorial services and not affixed to the Building; (18) any costs, fines or penalties incurred because Landlord violated any governmental rule or authority; (19) leasing commissions, legal fees, advertising, space planning expenses, and renovation costs incurred in procuring or retaining tenants; (20) structural repairs to the foundation, walls or roof of the Building; (21) costs relating to the preparation of Landlord’s tax returns; (22) legal fees or similar expenses relating to disputes or negotiations with tenants based on Landlord’s negligent or other tortious conduct, the enforcement of leases, or the securing of defense of Landlord’s title to the Land or the Building; (23) salaries, wages, or other compensation paid to employees above the level of building manager, or to officers or executives of Landlord in their capacities as officers and executives; and (24) any cost or expense related to removal, cleaning, abatement or remediation of Hazardous Substances (as hereinafter defined) or asbestos in or about the Building, the Common Areas or the Land, including, without limitation, Hazardous Substances in the ground water or soil to the extent that the presence of such Hazardous Substances or asbestos is not a direct result of Tenant’s use or occupancy of the Premises.

(e)Calculation of Operating Costs.  Operating Costs for each year including the Base Year shall be determined as if the Building had been at least 95% occupied and Landlord had been supplying services to at least 95% of the rentable square footage of the Building.  The extrapolation of Operating Costs shall be performed by appropriately adjusting the cost of those components of Operating Costs that are impacted by changes in the occupancy of the Building; provided, however, such adjustment shall not result in Landlord collecting sums in excess of actual Operating Costs.

(f)Operating Costs Allocable to the Premises:  The product of Tenant’s Pro Rata Share times Operating Costs.

3.5Utilities.

3.5.1Landlord shall have the right from time to time to select the company or companies providing local telephone and telecommunication services to the Building. Tenant shall contract directly and pay for all telephone and other telecommunication services used on or from the Premises together with any taxes, penalties, surcharges or similar charges relating to such services.  If Tenant desires to use the services of a provider of local telephone or telecommunication services whose equipment is not then servicing the Building, no such provider shall be permitted to install its lines or other equipment within the Building without the prior written consent of Landlord, which shall not be unreasonably withheld, conditioned or delayed.

3.5.2Landlord reserves the right to select the electric utility provider to the Building. Tenant shall pay Landlord for all electricity consumed in the Premises during the Lease Term, at such rates as are charged to Landlord by the providing utilities from time to time, without fee or mark-up to Landlord; provided that, electricity consumed by central air-conditioning, heating and ventilating equipment and electricity consumed in the operation of the common areas shall not be paid directly by Tenant but shall be included in the Operating Costs paid by Tenant.  As part of the Tenant Improvements, Tenant shall install (to the extent not previously installed) electric meters to measure all electricity consumed in the Premises, including the HVAC units serving the Premises, and Tenant shall pay for electricity based on such meters and any meter reading charges actually incurred by Landlord.  All charges for electricity shall be payable as Additional Rent, with the installment of Base Rent with which they are billed, or if billed separately, shall be due and payable within twenty (20) calendar days after such billing.

3.6Holdover. If Landlord agrees in writing that Tenant may hold over after the expiration or termination of this Lease, and Landlord and Tenant do not otherwise agree in writing on the terms of such holding over, then the hold over tenancy shall be subject to termination by Landlord at any time upon not less than ten (10) days advance written notice, or by Tenant at any time upon not less than thirty (30) days advance written notice, and all of the other terms and provisions of this Lease shall be applicable during that period, except that Tenant shall pay Landlord monthly, in advance, as Base Rent for the period of any such holding over, an amount equal to 150% of the Base Rent in effect on the termination date, computed on a daily basis for each day of the holding over period.  Such payment shall not release Tenant from Tenant’s obligation to pay Additional Rent and any other sums due under this Lease.  No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly agreed by Landlord in writing.  The foregoing notwithstanding, if Landlord does not agree in writing that Tenant may hold over after the expiration or termination of this Lease, Tenant shall pay the daily Base Rent, Additional Rent and other sums during the period of such holding over as set forth above, and Landlord shall be entitled to pursue all remedies at law and in equity to which Landlord is entitled, including, without limitation, rights to ejectment and damages.

3.7Late Charge.  If Tenant fails to make any payment of Base Rent, Additional Rent or other amount when due under this Lease, Tenant shall also pay a late charge equal to three percent (3%) of the amount of any such payment.  Landlord and Tenant agree that this charge compensates Landlord for the administrative costs caused by the delinquency.  The parties agree that Landlord’s damage would be difficult to compute and the amount stated in this

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

Paragraph represents a reasonable estimate of such damage.  Assessment or payment of the late charge contemplated in this Paragraph shall not excuse or cure any Event of Default or breach by Tenant under this Lease or impair any other right or remedy provided under this Lease or under law.

3.8Default Rate.  Any Base Rent, Additional Rent or other sum payable under this Lease which is not paid when due shall bear interest at a rate equal to the lesser of:  (a) the published prime rate of Riggs Bank, N.A. or such other national banking institution designated by Landlord if such bank ceases to publish a prime rate (the “Prime Rate”) then in effect, plus three (3) percentage points, or (b) the maximum rate of interest per annum permitted by applicable law (the “Default Rate”), but the payment of such interest shall not excuse or cure any Event of Default or breach by Tenant under this Lease or impair any other right or remedy provided under this Lease or under law.

SECTION 4:   GENERAL PROVISIONS

4.1Maintenance and Repair by Landlord.  Subject to the Paragraphs captioned “Damage or Destruction” and “Condemnation”, Landlord shall maintain the public and common areas of the Building and the roof, foundation, exterior walls and windows, interior structural walls, all base Building systems (HVAC, electrical, mechanical and plumbing), and all exterior common areas (including lighting, parking areas, paved surfaces, striping and landscaping) in good order, condition and repair, except for (a) damage occasioned by an act or omission of Tenant or Tenant’s Agents which shall be paid for entirely by Tenant upon demand by Landlord, and (b) ordinary wear and tear.  In the event any or all of the Building or exterior common areas becomes in need of maintenance or repair which Landlord is required to make under this Lease, Tenant shall immediately give written notice to Landlord, and Landlord shall commence such maintenance or repairs within a reasonable time after Landlord’s receipt of such notice.  Landlord shall provide Tenant with reasonable notice (either oral or written) of Landlord’s intent to make any repairs to the Premises, and shall use reasonable efforts to avoid disruption of Tenant’s business operations therein.

4.2Maintenance and Repair by Tenant.  Except as is expressly set forth as Landlord’s responsibility pursuant to the Paragraphs captioned “Maintenance and Repair by Landlord” and “Building Services” and subparagraph 4.2.1, Tenant shall at Tenant’s sole cost and expense keep and maintain the Premises in good condition and repair, ordinary wear and tear excepted.  If Tenant fails to maintain or repair the Premises in accordance with this Paragraph, then Landlord may, but shall not be required to, enter the Premises upon thirty (30) calendar days prior written notice to Tenant (or immediately without any notice in the case of an emergency) to perform such maintenance or repair at Tenant’s sole cost and expense (unless in such period Tenant has performed such work and notified Landlord thereof).  Tenant shall pay to Landlord the actual cost of such maintenance or repair within thirty (30) calendar days after written demand from Landlord.

4.2.1Notwithstanding anything in this Lease to the contrary, Tenant shall not be responsible or liable for any costs, fees or expenses associated with the following:

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

(a)The Property’s failure to comply with Governmental Requirements (including, without limitation, environmental laws and Access Laws) as of the Commencement Date;

(b)Claims arising out of the presence or release of Hazardous Substances at, on, in, under or from the Property and not directly resulting from Tenant’s use or occupancy of the Premises; and

(c)Asbestos in the Building as of the Commencement Date.

4.3Common Areas/Security. The exterior common areas shall be subject to Landlord’s sole management and control.  Without limiting the generality of the immediately preceding sentence, Landlord reserves the exclusive right, upon reasonable prior written notice to Tenant, to install, construct, maintain and operate lighting systems, facilities, improvements, equipment and signs on, in or to all parts of the common areas; change the number, size, height, layout, or locations of driveways and parking areas now or later forming a part of the Land or the Building; make alterations or additions to the Building or common area using reasonable efforts to avoid disruption of Tenant’s business operations in the Premises; close temporarily all or any portion of the common areas to make repairs, changes or to avoid public dedication;  grant easements to which the Land will be subject; replat, subdivide or make other changes to the Land; place, relocate and operate utility lines through, over or under the Property; and use or permit the use of all or any portion of the roofs of the Building, provided that such changes do not impair Tenant’s use of the Premises in a materially adverse manner.  Landlord reserves the right, upon reasonable written notice to Tenant, to relocate parking areas and driveways and to build additional improvements in the common areas.  Landlord has no duty or obligation to provide any security services in, on or around the Premises, Land or Building, and Tenant recognizes that security services, if any, provided by Landlord will be for the sole benefit of Landlord and the protection of Landlord’s property and under no circumstances shall Landlord be responsible for, and Tenant waives any rights with respect to, Landlord providing security or other protection for Tenant or Tenant’s Agents or property in, on or about the Premises, Land or Building.  Tenant shall have the right to provide its own security service, security equipment and implement its own security procedures provided that such service, equipment and procedures are entirely within the Premises and do not increase Operating Costs, and provided further that Tenant shall ensure that Landlord and Landlord’s Manager continue to have access to the Premises as set forth herein.  In addition, Tenant shall have the right, upon at least sixty (60) days prior notice to Landlord, to have the automatic security system locking system on the front and back entrance doors servicing the west wing of the Building deactivated and to install, following Landlord’s approval (which approval shall not be unreasonably withheld, conditioned or delayed) of such system and plans for its installation, Tenant’s own security system at the entrance of the west wing of the Building, provided that such system does not increase Operating Costs, and provided further that Tenant shall ensure that Landlord and Landlord’s Manager continue to have access to the west wing of the Building and the Premises as set forth herein.  If Tenant’s security system includes monitoring services acceptable to Landlord, and Tenant ensures that Landlord or Landlord’s Agents have notice under any  such monitoring services agreement, Tenant shall have the right, upon at least sixty (60) days prior notice to Landlord, to have the security system monitoring service currently employed by Landlord discontinued on the west wing of the Building.  If Tenant exercises this right to deactivate the security system at the

west wing entrance doors, upon the expiration or sooner termination of this Lease, Tenant shall at its expense remove the security system installed by it and repair any damage caused thereby and, if necessary, reinstall the Landlord’s security system locking system on such doors.

4.4Building Services.

4.4.1Landlord shall use diligent efforts to provide the following services and facilities to the Premises:

(a)Heating, ventilating and air conditioning during Business Hours subject to such regulations as the Department of Energy or other Governmental Agency shall adopt from time to time.  Tenant agrees to cooperate fully with Landlord and to abide by all the rules and regulations which Landlord may reasonably prescribe for the proper functioning and protection of the heating, ventilating and air conditioning systems.  If Tenant requires heating, ventilation and air conditioning service at times other than Business Hours, Landlord shall supply the same, subject to payment by Tenant within thirty (30) calendar days of billing, of a charge reasonably established by Landlord to offset the cost incurred by Landlord in providing after-Business Hours HVAC service (including wear and tear on equipment).  Landlord currently estimates the charge for wear and tear on HVAC equipment at $10.00 per hour per heat pump.

(b)Subject to payment of the charges therefor by Tenant, electricity for normal office use, including normal office equipment, in the Premises (four (4) watts per rentable square foot is deemed normal office use).

(c)Cleaning and maintenance of common areas in the Building.

(d)Continuous passenger elevator service during Business Hours, and service via at least one (1) elevator car at all other times.

(e)Janitorial services, including cleaning of the Premises, in accordance with Exhibit F.  Landlord shall not be required to furnish cleaning services to any kitchens, lunchrooms or non-Building standard lavatories in the Premises.

(f)Water for lavatory and drinking purposes.

4.4.2Tenant shall reimburse Landlord for any and all additional cleaning expenses incurred by Landlord, including garbage and trash removal expenses over and above the normal cleaning provided by Landlord or due to the presence of a lunchroom or kitchen or food or beverage dispensing machines within the Premises.

4.4.3The services described in this Paragraph 4.4 may be subject to slowdown, interruption or stoppage due to the order of any Governmental Agency, Force Majeure, or the maintenance, repair, replacement or improvement of any of the equipment involved in the furnishing of any such service.  No such slowdown, interruption or stoppage of any such service shall be construed as an eviction, actual or constructive, of Tenant, nor shall same cause any abatement of Base Rent or Additional Rent or relieve Tenant from any of its obligations under this Lease. Landlord agrees to use reasonable efforts to resume the affected service promptly following any such slowdown, interruption or stoppage.  Landlord will provide

Tenant, whenever reasonably possible, advance notice of any scheduled service slowdowns, interruptions or stoppages of which it has knowledge.  Notwithstanding the foregoing, if any such slowdown, interruption or stoppage is due to the negligence or willful misconduct of Landlord and results in Tenant’s inability to use the Premises and such inability to use the Premises continues for a period in excess of five (5) consecutive business days from the date of Tenant’s notice, Base Rent shall abate hereunder commencing on the sixth (6th) day following the date of Tenant’s notice of such slowdown, interruption or stoppage until Tenant is again able to use the Premises for the Permitted Use.

4.4.4Landlord shall allow Tenant to use up to twenty-five (25) KVA of draw capacity from the Building’s emergency backup generator to provide a source of temporary power for Tenant’s use in the event of a disruption in the regular supply of electric power to the Building.  Tenant acknowledges that the primary purpose of the Building’s emergency backup generator is to provide emergency backup power to the Building’s life safety systems, and that in the event Tenant intends to use its allocated share of the emergency power for computer or other sensitive applications, Tenant shall be solely responsible for taking such measures as Tenant deems necessary or advisable to convert the emergency power to a “clean” power source suitable for such applications.

4.5Tenant Alterations.  Following completion of the Tenant Improvements, Tenant shall not make any alterations, additions or improvements in or to the Premises (individually and collectively “Tenant Alterations”) with an estimated cost in excess of $[**] or which will impact the structural portions of the Building or the mechanical systems of the Building without first obtaining the consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed.  Tenant shall deliver to Landlord full and complete plans and specifications for any proposed Tenant Alterations (the “Tenant Alterations Plans”)and, if consent by Landlord is given, all such work shall be performed at Tenant’s expense by one or more contractors selected by Tenant and approved by Landlord pursuant to Paragraph 4.6. If Landlord fails to respond to Tenant’s request for approval of the Tenant Alterations Plans within fifteen (15) days of receipt, Landlord shall be deemed to have approved the Tenant Alterations Plans. Tenant shall reimburse Landlord, within thirty (30) days of demand therefor, for all third party costs and expenses (including the fees of reviewing architects and engineers) incurred by Landlord in reviewing the Tenant Alterations Plans, regardless of whether Landlord approves Tenant’s request.  Upon completion of the Tenant Alterations, Tenant shall pay Landlord a construction management fee equal to [**] percent ([**]%) of the total cost of any Tenant Alterations to compensate Landlord for the services to be provided by the Manager to Landlord with respect to the review of such work.  Without limiting the generality of the foregoing, Landlord may require Tenant, at Tenant’s sole cost and expense, to obtain and provide Landlord with proof of insurance coverage, in forms and amounts reasonably acceptable to Landlord and by companies licensed in the Commonwealth of Pennsylvania, as well as with evidence that Tenant’s contractor is bondable at standard rates with a reputable surety company licensed to do business in the Commonwealth of Pennsylvania.  All Tenant Alterations shall become the property of Landlord and shall remain upon and be surrendered with the Premises upon the expiration or earlier termination of this Lease; provided that, if, at the time Tenant requested Landlord’s consent to proposed Tenant Alterations, Landlord required as a condition of Landlord’s approval that Tenant remove such Tenant Alterations, then, upon the expiration or earlier termination of this Lease, Tenant shall remove the Tenant Alterations designated in such

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

consent(s) and repair any damages to the Premises caused by such removal (it being understood that nothing herein requires Tenant to remove any of the Tenant Improvements). If Tenant fails to remove any such Tenant Alterations as required by this Paragraph 4.5, Landlord may do so and Tenant shall pay to Landlord the actual costs of such removal plus an administrative charge of [**] percent ([**]%) within thirty (30) calendar days after Tenant’s receipt of Landlord’s written demand therefor.  Nothing contained in this Paragraph or the Paragraph captioned “Tenant’s Work Performance” shall be deemed a waiver of the provisions of the Paragraph captioned “Mechanic’s Liens”.

4.6Tenant’s Work Performance. All construction work to be performed by Tenant that requires Landlord’s consent pursuant to this Lease shall be performed by contractors approved in advance by Landlord (which approval shall not be unreasonably withheld, conditioned or delayed).  Without limiting the generality of the foregoing, Landlord shall have the right to require that the prime contractor and the respective subcontractors: (a) be parties to, and bound by, a collective bargaining agreement with a labor organization affiliated with the Building and Construction Trades Council of the AFL-CIO and (b) employ only members of such labor organizations to perform work within their respective jurisdictions.  Tenant’s contractors, workers and suppliers shall not unreasonably interfere with workers or contractors of Landlord or other tenants.  If Tenant’s contractors, workers or suppliers unreasonably interfere with workers or contractors of Landlord or other tenants, Landlord’s consent to the continuation of such work may be withdrawn upon not less than two (2) days prior written notice to Tenant.  All Tenant Alterations shall be (1) completed in accordance with the plans and specifications approved by Landlord; (2) completed in accordance with all Governmental Requirements; (3) carried out promptly in a good and workmanlike manner; (4) free of defect in materials and workmanship; and (5) reviewed for quality control (punchlisted) by Landlord’s construction manager.  Any and all portions of the Tenant Alterations not substantially in accordance with the plans and specifications approved by Landlord pursuant to Paragraph 4.5 or otherwise not in conformance with the existing quality and standards of the Building shall be corrected by Tenant, at Tenant’s expense, within thirty (30) days after notification of such defects by Landlord.  If Tenant fails to bring the work in question up to the existing Building standard within such 30 day period, Landlord may complete such work (but shall have no obligation to do so) and Tenant shall pay the entire cost thereof to Landlord within thirty (30) calendar days after Tenant’s receipt of Landlord’s written demand therefor.  Tenant shall pay for all damage to the Premises, Building and Land caused by Tenant or Tenant’s Agents.  Tenant shall indemnify, defend and hold harmless Landlord and Landlord’s Agents from any Claims arising as a result of any defect in design, material or workmanship of any Tenant Alterations completed by or at the direction of Tenant.

4.7Surrender of Possession. Subject to Paragraph 4.10 captioned “Damage or Destruction” and except as provided in Paragraph 4.5 captioned “Tenant Alterations”, Tenant shall, at the expiration or earlier termination of this Lease, surrender and deliver the Premises to Landlord in as good condition as when received by Tenant from Landlord or as later improved, reasonable use and wear excepted. Tenant shall give written notice to Landlord at least twenty (20) calendar days prior to vacating the Premises and shall arrange to meet with Landlord for a joint inspection of the Premises prior to vacating.

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

4.8Removal of Property.  Upon expiration or earlier termination of this Lease, Tenant may remove its trade fixtures, office supplies and office furniture and equipment if (a) such items are readily moveable and are not permanently attached to the Premises; (b) such removal is completed prior to the expiration or earlier termination of this Lease; (c) no Event of Default exists; and (d) Tenant immediately repairs all damage caused by or resulting from such removal; and Tenant shall immediately remove all such property if requested to do so by Landlord pursuant to Paragraph 4.5.  All other property in the Premises and any Tenant Alterations (including, wall-to-wall carpeting, paneling, wall covering or lighting fixtures and apparatus) or any other article affixed to the floor, walls, ceiling or any other part of the Premises or Building, shall become the property of Landlord and shall remain upon and be surrendered with the Premises, except as may be otherwise provided in the Paragraph captioned “Tenant Alterations”.  Tenant waives all rights to any payment or compensation for such property.  If, at the expiration or earlier termination of this Lease or at such time as Landlord exercises its right of re-entry, Tenant has failed to remove any property from the Premises, Building or Land which it is entitled or required to remove as provided in this Lease, Landlord may, at its option, remove and store such property without liability for loss of or damage to such property and the reasonable costs of such storage shall be for the account and at the expense of Tenant.  If Tenant fails to pay the cost of storing any such property within thirty (30) days of receiving notice of such cost, Landlord may, at its option, sell or permit to be sold, any or all such property at public or private sale (and Landlord may become a purchaser at such sale), in such manner and at such times and places as Landlord in its sole discretion may deem proper, without notice to Tenant, and Landlord shall apply the proceeds of such sale:  first, to the cost and expense of such sale, including reasonable attorney’s fees actually incurred; second, to the payment of the costs or charges for storing any such property; third, to the payment of any other sums of money which may then be or later become due Landlord from Tenant under this Lease; and, fourth, the balance, if any, to Tenant.

4.9Access.  Tenant shall permit Landlord and Landlord’s Agents to enter into the Premises at any reasonable time upon one (1) business day notice (oral or written) to Tenant (or without notice in the event of an emergency) for the purpose of inspecting the same or for the purpose of repairing, altering or improving the Premises or the Building.  Nothing contained in this Paragraph shall be deemed to impose any obligation upon Landlord not expressly stated elsewhere in this Lease.  When necessary, Landlord may temporarily close Building or Land entrances, Building doors or other facilities, without liability to Tenant by reason of such closure and without such action by Landlord being construed as an eviction of Tenant or as relieving Tenant from the duty of observing or performing any of the provisions of this Lease; provided, however, if such closure prevents Tenant from occupying the Premises and continues for a period in excess of three (3) business days, Base Rent shall abate hereunder.  Landlord shall have the right to enter the Premises upon one (1) business day notice to Tenant for the purpose of showing the Premises to prospective tenants within the period of two hundred seventy (270) calendar days prior to the expiration or sooner termination of this Lease and to erect on the Premises a suitable sign indicating the Premises are available; provided, however, such entry and signage shall not interfere with Tenant’s use and enjoyment of the Premises.  Landlord shall not be liable for the consequences of admitting by passkey, or refusing to admit to the Premises, Tenant or any of Tenant’s Agents, or other persons claiming the right of admittance, unless Landlord has been negligent in admitting any person to the Premises.

4.10Damage or Destruction.

4.10.1If the Premises are damaged by fire, earthquake or other casualty, Tenant shall give immediate written notice thereof to Landlord.  Landlord shall determine, within forty five (45) days following receipt of such notice from Tenant, whether the damage can be repaired within one hundred eighty (180) calendar days after Landlord’s receipt of notice from Tenant and if there are sufficient insurance proceeds available to repair such damage, and if Landlord determines that these conditions can be satisfied, then Landlord shall proceed with reasonable diligence to restore the Premises to substantially the condition which existed prior to the damage and this Lease shall not terminate.  If, in the estimation of a reputable architect or contractor designated by Landlord and reasonably approved by Tenant, the damage cannot be repaired within such 180 day period or if there are insufficient insurance proceeds available to repair such damage, Landlord or Tenant may elect to terminate this Lease or, if neither Landlord nor Tenant elect to terminate this Lease, Landlord shall restore the Premises to substantially the condition which existed prior to the damage and this Lease will continue. Landlord shall not be required to repair or restore any or all furniture, fixtures, equipment, inventory, improvements or other property which was in or about the Premises at the time of the damage, Tenant Alterations and Tenant Improvements which are in excess of the building standard Tenant Improvements.  Base Rent, Additional Rent and any other sum due under this Lease during any reconstruction period shall be abated from the date of such damage or destruction until Landlord’s repairs are substantially completed and possession of the Premises is delivered to Tenant.  Tenant agrees to look to the provider of Tenant’s insurance for coverage for the loss of Tenant’s use of the Premises and any other related losses or damages incurred by Tenant during any reconstruction period.

4.10.2In addition to Tenant’s right of termination set forth in Paragraph 4.10.1 above, if such damage is not repaired within two hundred ten (210) days after Landlord is notified by Tenant of such damage, Tenant shall have the right, upon notice to Landlord, to terminate this Lease.  Tenant’s notice of termination under this Paragraph 4.10.2 shall be effective as of the date of the damage or destruction if the Premises have been rendered unusable, or upon receipt if the Premises have not been rendered unusable.

4.10.3Notwithstanding anything contained in this Lease to the contrary, if there is damage to the Premises, or Building and the holder of any indebtedness secured by a mortgage or deed of trust covering any such property requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) calendar days after such requirement is made by such holder.

4.11Condemnation. If all of the Premises, or such portions of the Building as may be required for the Tenant’s reasonable use of the Premises, are taken by eminent domain or by conveyance in lieu thereof, or if thirty percent (30%) of the parking spaces are so taken and Landlord is unable either to replace such spaces or to provide alternative parking arrangements reasonably acceptable to Landlord and Tenant, then each party shall have the option, upon notice to the other, to terminate this Lease as of the date the physical taking occurs, and all Base Rent, Additional Rent and other sums payable under this Lease shall be paid to that date.  In case of taking of a part of the Premises or a portion of the Building not required for the Tenant’s

reasonable use of the Premises, or of fewer than thirty percent (30%) of the parking spaces, then this Lease shall continue in full force and effect and the Base Rent shall be equitably reduced based on the proportion by which the floor area of the Premises is reduced, such reduction in Base Rent to be effective as of the date the physical taking occurs.  In order to exercise its rights to terminate this Lease, a party must provide written notice of termination to the other within thirty (30) days after the Tenant first receives notice of the taking from Landlord.  Any such termination shall be effective as of the date the physical taking occurs.  Additional Rent and all other sums payable under this Lease shall not be abated but Tenant’s Pro Rata Share shall be redetermined as equitable under the circumstances.  Landlord reserves all rights to damages or awards for any taking by eminent domain relating to the Premises, Building, Land and the unexpired term of this Lease.  Tenant assigns to Landlord any right Tenant may have to such damages or award and Tenant shall make no claim against Landlord for damages for termination of its leasehold interest or interference with Tenant’s business.  Tenant shall have the right, however, to claim and recover from the condemning authority compensation for any loss to which Tenant may be entitled for Tenant’s moving expenses or other relocation costs; provided that, such expenses or costs may be claimed only if they are awarded separately in the eminent domain proceedings and not as a part of the damages recoverable by Landlord.

4.12Intentionally Omitted.

4.13Indemnification.

4.13.1Tenant shall indemnify, defend and hold harmless Landlord and Landlord’s Agents from and against any and all Claims, arising in whole or in part out of (a) the possession, use or occupancy of the Premises or the business conducted in the Premises during the Lease Term, (b) any act, omission or negligence of Tenant or Tenant’s Agents, or (c) any breach or default under this Lease by Tenant, provided that Tenant shall not be obligated to indemnify Landlord to the extent any such Claim arises from the negligence or willful misconduct of Landlord or Landlord’s Agents.  Neither Tenant nor Tenant’s Agents shall have any liability for any indirect or consequential losses suffered by Landlord or Landlord’s Agents.

4.13.2Landlord shall indemnify, defend and hold harmless Tenant and Tenant’s Agents from and against any and all Claims, arising in whole or in part out of (a) any act, omission or negligence of Landlord, Landlord’s Agents, or (b) any breach or default under this Lease by Landlord, provided that Landlord shall not be obligated to indemnify Tenant to the extent any such Claim arises from the negligence or willful misconduct of Tenant or Tenant’s Agents.

4.13.3Neither Landlord nor Landlord’s Agents shall, to the extent permitted by law, have any liability to Tenant, or to Tenant’s Agents, for any Claims arising out of any cause whatsoever, including repair to any portion of the Premises; interruption in the use of the Premises or any equipment therein; any accident or damage resulting from any use or operation by Landlord, Tenant or any person or entity of heating, cooling, electrical, sewerage or plumbing equipment or apparatus; termination of this Lease by reason of damage to the Premises or Building; fire, robbery, theft, vandalism, mysterious disappearance or any other casualty; actions of any other tenant of the Building or of any other person or entity; inability to furnish any service required of Landlord as specified in this Lease; or leakage in any part of the Premises or

the Building from rain, ice or snow, or from drains, pipes or plumbing fixtures in the Premises or the Building; except for Claims arising solely out of the negligence or willful misconduct of Landlord in failing to repair or maintain the Building as required by this Lease after any notice by Tenant required by the Paragraph captioned “Maintenance and Repair by Landlord”; provided that, in no event shall Landlord be responsible for any interruption to Tenant’s business or for any indirect or consequential losses suffered by Tenant or Tenant’s Agents.

4.13.4The obligations of this Paragraph shall be subject to the Paragraph captioned “Waiver of Subrogation”.

4.14Tenant Insurance.

4.14.1Tenant shall, throughout the Lease Term, at its own expense, keep and maintain in full force and effect:

(a)A policy of commercial general liability insurance, including a contractual liability endorsement covering Tenant’s obligations under the Paragraph captioned “Indemnification”, insuring against claims of bodily injury and death or property damage with a combined single limit at the Commencement Date of this Lease of not less than Two Million Dollars ($2,000,000.00), which limit shall be reasonably increased during the Lease Term at Landlord’s request to reflect both increases in liability exposure arising from inflation as well as from changing use of the Premises or changing legal liability standards, which limits may be satisfied by an excess liability policy and which policy shall be payable on an “occurrence” rather than a “claims made” basis, and which policy names Landlord and Manager and, at Landlord’s request Landlord’s mortgage lender(s), as additional insureds, as their interests appear; and

(b)A special form policy of property insurance (formerly known as the “all risk” form of property insurance) covering Tenant Improvements over the value of the Tenant Improvement Allowance, Tenant Alterations, and any and all furniture, fixtures, equipment, inventory, improvements and other property in or about the Premises which is not owned by Landlord, for one hundred percent (100%) of the then current replacement value of such property.

4.14.2All insurance policies required under this Paragraph may be “blanket” policies which cover other properties occupied by Tenant and shall be with companies having a Best’s rating of A-/VIII or better, and each policy shall provide that it is not subject to cancellation or reduction in coverage as specifically defined under Paragraph 4.14 except after thirty (30) calendar days’ written notice to Landlord.  Tenant shall deliver to Landlord and, at Landlord’s request Landlord’s mortgage lender(s), prior to the Commencement Date and from time to time thereafter, certificates evidencing the existence and amounts of all such policies.

4.14.3If Tenant fails to acquire or maintain any insurance or provide any certificate required by this Paragraph, Landlord may, but shall not be required to, obtain such insurance or certificates and the costs associated with obtaining such insurance or certificates shall be payable by Tenant to Landlord on demand.

4.15Landlord’s Insurance. Landlord shall, throughout the Lease Term, keep and maintain in full force and effect:

4.15.1A policy of commercial general liability insurance, insuring against claims of bodily injury and death or property damage or loss with a combined single limit at the Commencement Date of not less than Five Million Dollars ($5,000,000.00), which policy shall be payable on an “occurrence” rather than a “claims made” basis;

4.15.2A special form policy of property insurance (formerly known as the “all risk” form of property insurance) covering the Building, the value of the Tenant Improvements up to the Tenant Improvement Allowance and Landlord’s personal property, if any, located on the Land in the amount of one hundred percent (100%) of the then current replacement value of such property; and

4.15.3Such business interruption and/or rent loss insurance as Landlord shall from time to time determine appropriate.

Landlord may, but shall not be required to, maintain property insurance coverage for earthquakes, floods and such other perils in such amounts as Landlord deems appropriate, and the limit on the deductible amount set forth in the last sentence of this Paragraph shall not be applicable to such coverage.  Such policies may be “blanket” policies which cover other properties owned by Landlord and shall be with an insurance company having a Best rating of A/VIII or better. The cost of all insurance policies maintained by Landlord relating to the Land, Building or Premises or the income therefrom shall be Operating Costs. To the extent that any payment on an insurance claim under Landlord’s property policy is reduced by a deductible, such deductible shall be an Operating Costs; provided, however, that the  that the maximum deductible amount Landlord shall charge as an Operating Cost under the policy of insurance described in Paragraph 4.15.2 shall be Thirty Thousand Dollars ($30,000.00).

4.16Waiver of Subrogation.  Notwithstanding anything in this Lease to the contrary, Landlord and Tenant hereby each waive and release the other from any and all Claims or any loss or damage that may occur to the Land, Building, Premises, or personal property located therein, by reason of fire or other casualty regardless of cause or origin, including the negligence or misconduct of Landlord, Tenant, Landlord’s Agents or Tenant’s Agents, but only to the extent of the insurance proceeds paid to such releasor under its policies of insurance under Paragraph 4.14 and 4.15 or if it fails to maintain the required policies, the insurance proceeds that would have been paid to such releasor if it had maintained such policies.  Each party to this Lease shall promptly give to its insurance company written notice of the mutual waivers contained in this subparagraph, and shall cause its insurance policies to be properly endorsed, if necessary, to prevent the invalidation of any insurance coverages by reason of the mutual waivers contained in this subparagraph.

4.17Assignment and Subletting by Tenant.

4.17.1Tenant shall not have the right to assign, transfer, mortgage or encumber this Lease in whole or in part, nor sublet the whole or any part of the Premises, nor allow the occupancy of all or any part of the Premises by another, without first obtaining

Landlord’s consent, which consent shall be given or withheld as provided in this Paragraph 4.17.  Notwithstanding any permitted assignment or subletting, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of all sums payable under this Lease and for compliance with all of its other obligations as tenant under this Lease.  Upon the occurrence of an Event of Default, if the Premises or any part of the Premises are then subject to an assignment or subletting, Landlord, in addition to any other remedies provided in this Lease or by law, may at its option collect directly from such assignee or subtenant all rents becoming due to Tenant under such assignment or sublease and apply such rents against any sums due to Landlord from Tenant under this Lease, and no such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenant’s obligations under this Lease.  Tenant makes an absolute assignment to Landlord of such assignments and subleases and any rent, security deposits and other sums payable under such assignments and subleases as collateral to secure the performance of the obligations of Tenant under this Lease.  Landlord agrees not to collect any such rent, security deposits or other sums payable under such assignments and subleases unless an Event of Default shall have occurred and be continuing.

4.17.2In the event Tenant desires to assign this Lease or to sublet all or any portion of the Premises, Tenant shall give written notice of such desire to Landlord setting forth the name of the proposed subtenant or assignee, the proposed term, the proposed commencement date of the assignment or sublease, the nature of the proposed subtenant’s or assignee’s business to be conducted on the Premises, the rental rate, and any other particulars of the proposed subletting or assignment that Landlord may reasonably request.  Without limiting the preceding sentence, Tenant shall also provide Landlord with:  (a) recent financial statements certified as accurate, complete and prepared in conformance with generally accepted accounting principles by the president, managing partner or other appropriate officer of the proposed subtenant or assignee; (b) proof satisfactory to Landlord that the proposed subtenant or assignee will promptly occupy and thereafter use all or a portion the Premises  for the remainder of the Lease Term (or for the entire term of the sublease, if shorter) in compliance with the terms of this Lease; and (c) a copy of the proposed sublease, assignment or letter of intent.  At the same time that Tenant provides Landlord with notice of its desire to assign or sublease, Tenant shall pay to Landlord the sum of $500 as Landlord’s fee for processing such proposed assignment and sublease, including attorneys’ fees incurred by Landlord with respect to such processing (provided that such fee shall be waived in the event Landlord accepts the proposed assignment or sublease and the rent or other consideration, either initially or over the term if the assignment or sublease, exceeds the Base Rent payable hereunder).  Receipt of such fee shall not obligate Landlord to approve the proposed assignment or sublease.

4.17.3In determining whether to grant or withhold consent to a proposed assignment or sublease, Landlord may consider, and weigh, any commercial factor it deems relevant; provided, however, Landlord may not unreasonably withhold condition or delay consent.  Tenant agrees that any one or more of the following will be proper grounds for Landlord’s disapproval of a proposed assignment or sublease:

(a)Landlord believes that the proposed assignment or sublease will constitute a prohibited transaction under or otherwise violate ERISA;

(b)The proposed assignee or subtenant does not, in Landlord’s good faith judgment, have sufficient financial worth to insure the full and timely performance under this Lease;

(c)Landlord has not received financial statements of the proposed assignee or subtenant to make the determination set forth in clause (b);

(d)The proposed assignee or subtenant has a reputation for disputes in contractual relations, for failure to observe and perform its contractual obligations in a timely and complete manner or for negative business relations in the business community as a tenant of property or otherwise;

(e)Landlord has received from any prior lessor of the proposed assignee or subtenant a negative report concerning such prior lessor’s experience with the proposed assignee or subtenant;

(f)Landlord has had prior negative leasing experience with the proposed assignee or subtenant;

(g)In Landlord’s reasonable judgment, the proposed assignee or subtenant is engaged in a business, or the Premises or any part of the Premises will be used in a manner, that is not in keeping with the then standards of the Building, or that is not compatible with the businesses of other tenants in the Building, or that is inappropriate for the Building, or that will violate any negative covenant as to use contained in any other lease of space in the Building;

(h)The use of the Premises by the proposed assignee or subtenant will violate any Governmental Requirement or create a violation of Access Laws which Tenant will not cure or pay to correct;

(i)An Event of Default has occurred and continuing under this Lease;

(j)Landlord does not approve of any of the tenant improvements required for the proposed assignee or subtenant; or

(k)The proposed assignee or subtenant is a current tenant or a subtenant of the Building.

4.17.4Within fifteen (15) calendar days after Landlord’s receipt of all required information to be supplied by Tenant pursuant to this Paragraph, Landlord shall notify Tenant of Landlord’s approval, disapproval or conditional approval of any proposed assignment or subletting, or of Landlord’s election to recapture the space as provided in subparagraph 4.17.7.  Landlord shall have no obligation to respond unless and until all required information has been submitted.  In the event Landlord approves of any proposed assignment or subletting, Tenant and the proposed assignee or sublessee shall execute and deliver to Landlord an assignment (or subletting) and assumption agreement in form and content satisfactory to Landlord.

4.17.5Notwithstanding anything in this Paragraph 4.17 to this contrary, without the consent of Landlord but upon notice to Landlord,  Tenant may assign or sublet all or any part of the Premises to any of the following (each, a “Permitted Transferee”):

(a)any entity that controls, is controlled by, or is under common control with, Tenant; or

(b)any corporation resulting from the merger, consolidation or other corporate reorganization with Tenant or to any entity that acquires all or substantially all of Tenant’s assets, as long as the assignee or sublessee is a bona fide entity and assumes the obligations of Tenant under this Lease and such entity has a net worth following such merger, consolidation or reorganization at least equal to the net worth of Tenant on the date hereof or the date of such merger, consolidation or reorganization, whichever is higher; provided that such corporation or other entity is not a party in interest with Landlord that would result in this Lease being a non-exempt prohibited transaction under ERISA.

4.17.6If Landlord consents to any assignment or sublease and Tenant receives rent or any other consideration, either initially or over the term of the assignment or sublease, in excess of the Base Rent and Additional Rent (or, in the case of a sublease of a portion of the Premises, in excess of the Base Rent and Additional Rent paid by Tenant on a per square foot basis under this Lease), Tenant shall pay to Landlord fifty (50%) percent of such excess after deduction of all expenses related to procuring such assignee or subtenant including, but not limited to, associated brokerage fees, leasing commissions, legal fees and advertising costs.

4.17.7If Tenant delivers a notice to Landlord requesting approval of a proposed assignment or sublease, then Landlord may elect, in the case of a proposed assignment of the Lease or subletting of the entire Premises, to terminate this Lease or, in the case of a proposed subletting of a portion of the Premises, to terminate Tenant’s rights under this Lease as to the area proposed to be sublet, as of the date set forth in that notice for the proposed commencement date of the assignment or the sublease; provided that, if no date is set forth in Tenant’s notice, then Landlord may elect to terminate this Lease as of a date at least sixty (60) calendar days after the date of the notice. Landlord shall exercise its rights under this subparagraph by written notice to Tenant no later than twenty (20) calendar days after its receipt of the last of the materials delivered by Tenant to Landlord under this Paragraph 4.17.

4.18Assignment by Landlord.  Landlord shall have the right to transfer and assign, in whole or in part, its rights and obligations under this Lease and in any and all of the Land or Building.  If Landlord sells or transfers any or all of the Building, including the Premises, Landlord and Landlord’s Agents shall, upon consummation of such sale or transfer, be released automatically from any liability relating to obligations or covenants under this Lease to be performed or observed after the date of such transfer, and the assignee of Landlord’s interest herein shall be deemed to have assumed such obligations and covenants, and in such event, Tenant agrees to look solely to Landlord’s successor-in-interest with respect to such liability.

4.19Estoppel Certificates and Financial Statements.  Landlord and Tenant shall, from time to time, but no more than twice during any Year, upon the written request of the

other party, execute, acknowledge and deliver to such party or its designee a written statement stating:  (a) the date this Lease was executed and the date it expires; (b) the date Tenant entered into occupancy of the Premises; (c) the amount of monthly Base Rent and Additional Rent and the date to which such Base Rent and Additional Rent have been paid; and (d) certifying that (1) this Lease is in full force and effect and has not been assigned, modified, supplemented or amended in any way (or specifying the date of the agreement so affecting this Lease); (2) to the knowledge of the certifying party, the other party is not in breach of this Lease (or, if so, a description of each such breach) and that no event, omission or condition has occurred which would result, with the giving of notice or the passage of time, in a breach of this Lease by such party; (3) this Lease (as it may have been assigned, modified, supplemented or amended as disclosed pursuant to subparagraph (d)(1) hereof) represents the entire agreement between the parties with respect to the Premises; (4) all required contributions by Landlord to Tenant on account of Tenant Improvements have been delivered or received, as the case may be; (5) on the date of execution, there exist no defenses or offsets of which the certifying party has knowledge against the enforcement of this Lease by the Landlord (or, if any, a description of any such offset or defense); (6) no Base Rent, Additional Rent or other sums payable under this Lease have been paid in advance except for Base Rent and Additional Rent for the then current month; (7) no security has been deposited with Landlord (or, if so, the amount of such security); and (8) it is intended that any statement by the certifying party may be relied upon by a prospective purchaser or mortgagee of Landlord’s interest or an assignee of any such mortgagee.  If Landlord or Tenant, as the case may be, fail to respond within fifteen (15) business days of its receipt of a written request from the other party as provided in this Paragraph, such shall be a breach of this Lease and such party shall be deemed to have admitted the accuracy of any information supplied by the other party to a prospective purchaser, mortgagee or assignee.  Tenant represents and warrants to Landlord that Tenant is a public company and, as a public company, Tenant has filed relevant financial information (which filings are publicly available) with the Securities and Exchange Commission in accordance with applicable Government Requirements.

4.20Modification for Lender.  If, in connection with obtaining construction, interim or permanent financing for the Building or Land, Landlord’s lender, if any, shall request reasonable modifications to this Lease as a condition to such financing, Tenant will not unreasonably withhold or delay its consent to such modifications; provided that, such modifications do not increase the obligations of Tenant under this Lease or adversely affect Tenant’s rights under this Lease.

4.21Hazardous Substances.

4.21.1Tenant agrees that neither Tenant, any of Tenant’s Agents nor any other person will store, place, generate, manufacture, refine, handle, or locate on, in, under or around the Land or Building any Hazardous Substance, except for storage, handling and use of reasonable quantities and types of cleaning fluids and office supplies in the Premises in the ordinary course and the prudent conduct of Tenant’s business in the Premises, provided that, (a) the storage, handling and use of such permitted Hazardous Substances must at all times conform to all Governmental Requirements and to applicable fire, safety and insurance requirements; (b) the types and quantities of permitted Hazardous Substances which are stored in the Premises must be reasonable and appropriate to the nature and size of Tenant’s operation in the Premises and reasonable and appropriate for a first-class building of the same or similar use and in the

same market area as the Building; (c) no Hazardous Substance shall be spilled or disposed of on, in, under or around the Land or Building or otherwise discharged from the Premises or any area adjacent to the Land or Building; and (d) in no event will Tenant be permitted to store, handle or use on, in, under or around the Premises any Hazardous Substance which will increase the rate of fire or extended coverage insurance on the Land or Building, unless: (1) such Hazardous Substance and the expected rate increase have been specifically disclosed in writing to Landlord; (2) Tenant has agreed in writing to pay any rate increase related to each such Hazardous Substance; and (3) Landlord has approved in writing each such Hazardous Substance, which approval shall be subject to Landlord’s sole discretion.

4.21.2Tenant shall indemnify, defend and hold harmless Landlord and Landlord’s Agents from and against any and all Claims arising out of any breach of any provision of this Paragraph.  Tenant agrees that Landlord may be irreparably harmed by Tenant’s breach of this Paragraph and that a specific performance action may appropriately be brought by Landlord; provided that, Landlord’s election to bring or not bring any such specific performance action shall in no way limit, waive, impair or hinder Landlord’s other remedies against Tenant.

4.21.3As of the execution date of this Lease, Tenant represents and warrants to Landlord that, except as otherwise disclosed by Tenant to Landlord, Tenant has no intent to bring any Hazardous Substances on, in or under the Premises except for the type and quantities authorized in the first Paragraph of the Paragraph captioned “Hazardous Substances.”

4.22Access Laws.

4.22.1Tenant agrees to notify Landlord if Tenant receives written notice of: (a) any condition or situation on, in, under or around the Property which may constitute a violation of any Access Laws or (b) any threatened or actual lien or action that the Property is not in compliance with any Access Laws.

4.22.2Tenant shall not alter or permit any assignee or subtenant or Tenant’s Agents to alter the Premises in any manner which would violate any Access Laws or increase Landlord’s responsibilities for compliance with Access Laws, without the prior approval of Landlord.  In connection with Landlord’s review of Tenant Alterations Plans, Landlord may require a certificate of compliance with Access Laws from an architect, engineer or other person acceptable to Landlord and Landlord shall be reimbursed for the costs of such review pursuant to Paragraph 4.5.  Landlord’s approval of any Tenant Alterations Plans shall (a) not relieve Tenant of its obligations or indemnities contained in this Paragraph or this Lease or (b) be construed as a warranty that such proposed alteration complies with any Access Law.

4.22.3Tenant shall be solely responsible for all costs and expenses relating to or incurred in connection with bringing the Building and the common areas of the Building into compliance with Access Laws, but only to the extent such failure or noncompliance arises out of or relates to:  (a) Tenant’s use of the Premises in violation of this Lease; or (b) Tenant Alterations to the Premises; or (c) construction of the Tenant Improvements.  If Tenant is required to perform any work pursuant to this subparagraph, Tenant shall provide written notice to Landlord of Tenant’s proposed actions to correct such failure or noncompliance and shall perform such work in a timely manner after receiving notice that such work is required.

4.22.4Landlord shall be responsible for all costs and expenses relating to or incurred in connection with bringing the common areas of the Building into compliance with Access Laws, unless such costs and expenses are Tenant’s responsibility as provided in the preceding subparagraph, which work Landlord agrees to perform in a timely manner after receiving notice that such work is required.  Provided the Property complies with all Access Laws on the Commencement Date, any cost or expense paid or incurred by Landlord to bring the Premises or common areas of the Building into compliance with Access Laws which is not Tenant’s responsibility under the preceding subparagraph shall be amortized over the useful economic life of the improvements (not to exceed ten (10) years) using an amortization rate reasonably determined by Landlord, and shall be an Operating Cost for purposes of this Lease.

4.22.5Tenant agrees to indemnify, defend and hold harmless Landlord and Landlord’s Agents from and against any and all Claims arising out of or relating to any failure of Tenant or Tenant’s Agents to comply with Tenant’s obligations under this Paragraph.

4.23Quiet Enjoyment.  Landlord covenants that Tenant, upon paying Base Rent, Additional Rent and all other sums payable under this Lease and performing all covenants and conditions required of Tenant under this Lease shall and may peacefully have, hold and enjoy the Premises without hindrance or molestation by Landlord or any person claiming under Landlord.

4.24Signs.  Tenant shall not install any signs on the Building exterior or inscribe, post, place, or in any manner display any sign, notice, picture, placard or poster, or any advertising matter whatsoever, anywhere in or about the Land or Building (including, without limitation, the interior of the Premises) at places visible (either directly or indirectly as an outline or shadow on a glass pane) from anywhere outside the Premises without first obtaining Landlord’s consent, which consent shall not be unreasonably withheld, conditioned or delayed.  Subject to Landlord’s consent, which consent shall not be unreasonably withheld, conditioned or delayed and subject to Tenant’s compliance with all applicable Governmental Requirements, including receipt of all necessary permits, Tenant shall have the non-exclusive right to install and maintain, at Tenant’s sole cost and expense, (a) signs in all parking areas and (b) signs in the glass doors installed in the entrances to the Building (the Building Signage”). Tenant shall at all time maintain the Building Signage in good condition and repair and, upon expiration or earlier termination of this Lease, shall remove the Building Signage and restore the Property at the Building Signage location to its condition prior to the installation of the Building Signage, all at Tenant’s sole cost and expense.

4.25Subordination. This Lease is subject and subordinate to any mortgage(s), deed(s) of trust, ground lease(s) or other lien(s) now or subsequently arising upon the Premises, the Building or the Property, and to renewals, modifications, refinancings and extensions thereof (collectively referred to as a “Mortgage”) provided that the holder of any such Mortgage (a “Mortgagee”) agrees to recognize this Lease and not disturb Tenant’s occupancy or other rights hereunder so long as no Event of Default has occurred and is continuing.  This clause shall be self-operative, but upon not less than thirty (30) days prior written request from Landlord, Tenant shall execute a subordination, non-disturbance and attornment agreement reasonably satisfactory to the Mortgagee and Tenant. In lieu of having the Mortgage be superior to this Lease, a Mortgagee shall have the right at any time to subordinate its Mortgage to this Lease.  Tenant further covenants and agrees that if any Mortgagee acquires the Premises as a purchaser at any

foreclosure sale or otherwise, Tenant shall recognize and attorn to such party as landlord under this Lease.  Tenant waives the provisions of any law or regulation, now or hereafter in effect, which may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease or the obligations of Tenant hereunder in the event that any such foreclosure or termination or other proceeding is prosecuted or completed.  Landlord represents and warrants to Tenant that as of the date hereof the Land and Building are not subject to a Mortgage.

4.26Intentionally Omitted.

4.27Brokers.  Landlord shall pay commissions to the Brokers in connection with this Lease in accordance with the terms of the separate commission agreements between Landlord and the Brokers.  Except for Landlord’s obligations to the Brokers under such separate commission agreements, each party to this Lease shall indemnify, defend and hold harmless the other party from and against any and all Claims asserted against such other party by any real estate broker, finder or intermediary relating to any act of the indemnifying party in connection with this Lease.  Each party represents and warrants to the other that the representing party has not dealt with any real estate broker with respect to this transaction other than the Brokers defined in Paragraph 1.1.

4.28Exculpation and Limitation of Liability.  Landlord has executed this Lease by its authorized agent signing solely in a representative capacity.  Notwithstanding anything contained in this Lease to the contrary, Tenant confirms that the covenants of Landlord are made and intended, not as personal covenants of Landlord’s trustee or agent, or for the purpose of binding the trustee or agent personally, but solely in the exercise of the representative powers conferred upon the trustee and agent by Landlord.  Liability with respect to the entry and performance of this Lease by or on behalf of Landlord, however it may arise, shall be asserted and enforced only against the Landlord’s estate and interest in the Building or the Land and any insurance or condemnation proceeds for the Building received by Landlord, and Landlord shall have no personal liability in the event of any claim against Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant’s use of the Premises.  For purposes hereof, “Landlord’s estate and interest in the Building or the Land” shall include all rent received by Landlord and the net proceeds received by Landlord from the sale or other disposition of all or any part of Landlord’s title or interest in the property or building (but prior to the distribution of the same to any partner or shareholder of Landlord or any third party).  Any and all personal liability, if any, beyond that which may be asserted under this Paragraph, is expressly waived and released by Tenant and by all persons claiming by, through or under Tenant.

4.29Intentionally Omitted .

4.30Mechanic’s Liens and Tenant’s Personal Property Taxes.

4.30.1Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord or Tenant in the Premises or to charge the rentals payable under this Lease for any Claims in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Tenant shall pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises on which any lien is or can be validly and legally asserted against its leasehold interest in the Premises and Tenant shall indemnify, defend and hold harmless Landlord from any and all Claims arising out of any such asserted Claims.  Tenant agrees to give Landlord immediate written notice of any such Claim.

4.30.2Tenant shall be liable for all taxes levied or assessed against personal property, furniture or fixtures placed by Tenant in the Premises.  If any such taxes for which Tenant is liable are levied or assessed against Landlord or Landlord’s property and Landlord elects to pay them or if the assessed value of Landlord’s property is increased by inclusion of such personal property, furniture or fixtures and Landlord elects to pay the taxes based on such increase, Tenant shall reimburse Landlord for the sums so paid by Landlord, within fifteen (15) days following demand by Landlord.

4.31Satellite Antenna.  So long as Tenant is entitled to possession of the Premises, Tenant shall be entitled, at no additional cost to Tenant, to use of part of the roof of the Building (the “Roof Space”) for the purpose of maintaining a satellite dish or an antenna (the “Roof Structure”) with dimensions no greater than twenty-four (24) inches in diameter or length; provided however, that (i) the Roof Structure shall be used solely for Tenant’s internal operational benefit and Tenant shall not derive any benefit from the sale of use privileges of the Roof Structure, (ii) the portion of the Roof Space to be used by Tenant for the Roof Structure shall be designated by Landlord, in Landlord’s sole discretion, (iii) the installation, any relocation and the removal of the Roof Structure on the Roof Space shall be performed by Landlord at Tenant’s sole cost and expense, (iv) Tenant shall be allowed on the Roof Space for the purpose of inspecting or maintaining the Roof Structure only after advance written notice to Landlord and only if accompanied by Landlord or Landlord’s agent, and (v) use of the Roof Structure must not interfere with operations by Landlord or other tenants of the Building.  Prior to installation of any Roof Structure, Tenant shall provide to Landlord a specification sheet on the Roof Structure for Landlord’s approval, which approval shall not be unreasonably withheld or delayed. If requested by Landlord and upon not less than thirty (30) days prior written request, Tenant and Landlord shall execute a license agreement relating to Tenant’s use of the Roof Space in a form reasonably satisfactory to Tenant and Landlord.

4.32Parking.  Subject to changes required by applicable Governmental Requirements or eminent domain, Landlord shall provide surface parking for passenger vehicles for the Building at a ratio of 4.0 parking spaces for each 1,000 rentable square feet in the Building.  Such parking shall be available without charge during the Lease Term on a first-come, first-served basis.

SECTION 5:   DEFAULT AND REMEDIES

5.1Events of Default.

5.1.1The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Tenant (“Event of Default”):

(a)vacation or abandonment of all or any material portion of the Premises; provided that the vacating of all or a material part of the Premises by Tenant shall not constitute an Event of Default so long as Tenant continues to pay Base Rent and Additional Rent and otherwise continue to perform Tenant’s obligations under this Lease, where such failure continues after Landlord has provided Tenant with notice of the delinquent payment in accordance with Paragraph 5.1.1.b;

(b)failure by Tenant to make any payment of Base Rent, Additional Rent or any other sum payable by Tenant under this Lease where such failure continues for more than ten (10) calendar days after Landlord has provided Tenant with notice of the delinquent payment; provided, however, Landlord need not give any such notice, and Tenant shall not be entitled to any such period of grace, more than three times in any twelve (12) month period;

(c)an assignment of this Lease by Tenant or a sublease of any or all of the Premises without Landlord’s permission except in conformance with Paragraph 4.17 hereof;

(d)failure by Tenant to observe or perform any covenant or condition of this Lease, other than the making of payments, where such failure shall continue for a period of thirty (30) calendar days after written notice from Landlord; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within such thirty (30) day period, Tenant shall not be deemed to be in default if Tenant shall commence the cure of such default within such thirty (30) day period and thereafter diligently prosecute the same to completion within sixty (60) days after Tenant receives written notice thereof;

(e)(1) the making by Tenant of any general assignment or general arrangement for the benefit of creditors; (2) the filing by or against Tenant of a petition in bankruptcy, including reorganization or arrangement, unless, in the case of a petition filed against Tenant, unless the same is dismissed within forty-five (45) calendar days; (3) the appointment of a trustee or receiver to take possession of substantially all of Tenant’s assets located in the Premises or of Tenant’s interest in this Lease; (4) any execution, levy, attachment or other process of law against any property of Tenant or Tenant’s interest in this Lease, unless the same is dismissed within forty-five (45) calendar days; (5) adjudication that Tenant is bankrupt; (6) the making by Tenant of a transfer in fraud of creditors; or (7) the failure of Tenant to generally pay its debts as they become due; or

(f)any information furnished by or on behalf of Tenant to Landlord in connection with the entry of this Lease is determined to have been materially false, misleading or incomplete when made, which is not corrected or completed within thirty (30) days after written notice from Landlord.

5.1.2If a petition in bankruptcy is filed by or against Tenant, and if this Lease is treated as an “unexpired lease” under applicable bankruptcy law in such proceeding, then Tenant agrees that Tenant shall not attempt nor cause any trustee to attempt to extend the applicable time period within which this Lease must be assumed or rejected.

5.2Remedies.  If any Event of Default occurs and remains uncured after Landlord delivers notice of such Event of Default and the applicable cure period, if any, has expired, Landlord may exercise, without limiting Landlord in the exercise of any right or remedy at law which Landlord may have by reason of such Event of Default, the rights and remedies, either singularly or in combination, as are specified or described in the subparagraphs of this Paragraph.

5.2.1Landlord may terminate this Lease and all rights of Tenant under this Lease either immediately or at some later date by giving Tenant written notice that this Lease is terminated.  If Landlord so terminates this Lease, then Landlord may recover from Tenant the sum of:

(a)the unpaid Base Rent, Additional Rent and all other sums payable under this Lease which have been earned at the time of termination;

(b)interest at the Default Rate on the unpaid Base Rent, Additional Rent and all other sums payable under this Lease which have been earned at the time of termination; plus

(c)the amount by which the unpaid Base Rent, Additional Rent and all other sums payable under this Lease which would have been earned after termination until the time of award exceeds the amount of such rental loss, if any, as Tenant proves could have been reasonably avoided and interest on such excess at the Default Rate; plus

(d)the amount by which the aggregate of the unpaid Base Rent, Additional Rent and all other sums payable under this Lease for the balance of the Lease Term after the time of award exceeds the amount of such rental loss, if any, as Tenant proves could be reasonably avoided, with such difference being discounted to present value at the Prime Rate at the time of award; plus

(e)any other amount necessary to compensate Landlord for the detriment proximately caused by Tenant’s failure to perform Tenant’s obligations under this Lease or which, in the ordinary course of things, would be likely to result from such failure, including, leasing commissions, tenant improvement costs, renovation costs and advertising costs; plus

(f)all such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

5.2.2Landlord shall also have the right, without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises.  Landlord may cause property so removed from the Premises to be stored in a public warehouse or elsewhere at the expense and for the account of Tenant.

5.2.3Landlord shall also have the right, without terminating this Lease, to accelerate and recover from Tenant the sum of all unpaid Base Rent, Additional Rent and all other sums payable under the then remaining term of the Lease, discounting such amount to present value at the Prime Rate.  Upon recovery of all such amounts, the Lease and all rights of Tenant hereunder shall terminate.

5.2.4If Tenant vacates, abandons or surrenders the Premises in violation of this Lease, or if Landlord re-enters the Premises as provided in subparagraph 5.2.2 or takes possession of the Premises pursuant to legal proceedings or through any notice procedure provided by law, then, if Landlord does not elect to terminate this Lease, Landlord may, from time to time, without terminating this Lease, either (a) recover all Base Rent, Additional Rent and all other sums payable under this Lease as they become due or (b) relet the Premises or any part of the Premises on behalf of and for the benefit of Tenant for such term or terms, at such rent or rents and pursuant to such other provisions as Landlord may reasonably deem advisable, all with the right, at Tenant’s cost, to make alterations and repairs to the Premises and recover any deficiency from Tenant as set forth in subparagraph 5.2.6.

5.2.5None of the following remedial actions, singly or in combination, shall be construed as an election by Landlord to terminate this Lease unless Landlord has in fact given Tenant written notice that this Lease is terminated:  an act by Landlord to maintain or preserve the Premises; any efforts by Landlord to relet the Premises; any repairs or alterations made by Landlord to the Premises; re-entry, repossession or reletting of the Premises by Landlord pursuant to this Paragraph or the appointment of a receiver, upon the initiative of Landlord, to protect Landlord’s interest under this Lease.  If Landlord takes any of the foregoing remedial action without terminating this Lease, Landlord may nevertheless at any time after taking any such remedial action terminate this Lease by written notice to Tenant.

5.2.6Landlord shall use reasonable commercial efforts to relet the Premises following an Event of Default.  The parties agree that it shall be reasonable for Landlord to refuse to relet the Premises on the grounds set forth in Paragraph 4.17.3.  The parties further agree that Landlord shall not violate its obligations under this Paragraph if it leases other available space in the Building before leasing the Premises.  If Landlord relets the Premises, Landlord shall apply the revenue from such reletting as follows:  first, to the payment of any indebtedness of Tenant to Landlord other than Base Rent, Additional Rent or any other sums payable by Tenant under this Lease; second, to the payment of any reasonable cost of reletting (including finders’ fees and leasing commissions); third, to the payment of the reasonable cost of any alterations, improvements, maintenance and repairs to the Premises; and fourth, to the payment of Base Rent, Additional Rent and other sums due and payable and unpaid under this Lease.  Landlord shall hold and apply the residue, if any, to payment of future Base Rent, Additional Rent and other sums payable under this Lease as the same become due, and shall deliver the eventual balance, if any, to Tenant.  Should revenue from letting during any month, after application pursuant to the foregoing provisions, be less than the sum of the Base Rent, Additional Rent and other sums payable under this Lease and Landlord’s expenditures for the Premises during such month, Tenant shall be obligated to pay such deficiency to Landlord as and when such deficiency arises.

5.2.7TENANT, IN CONSIDERATION FOR THE EXECUTION OF THIS LEASE BY LANDLORD AND FOR THE COVENANTS AND AGREEMENTS ON THE PART OF LANDLORD HEREIN CONTAINED, AND FULLY COMPREHENDING THE RELINQUISHMENT OF CERTAIN RIGHTS INCLUDING RIGHTS OF PRE-JUDGMENT NOTICE AND HEARING PRIOR TO ENTRY OF JUDGMENT AND EXECUTION ON SUCH JUDGMENT, HEREBY EXPRESSLY AUTHORIZES AND EMPOWERS (WHICH POWER IS COUPLED WITH AN INTEREST) ANY PROTHONOTARY OR ATTORNEY OF ANY COURT OF RECORD TO ACCEPT SERVICE OF PROCESS FOR, TO APPEAR FOR, AND TO CONFESS JUDGMENT AGAINST TENANT TO RECOVER POSSESSION FROM TIME TO TIME OF THE PREMISES (AND TENANT AGREES THAT UPON THE ENTRY OF JUDGMENT FOR POSSESSION, A WRIT OF POSSESSION OR OTHER APPROPRIATE PROCESS MAY ISSUE FORTHWITH).  In any action by confession for ejectment, Landlord shall first cause to be filed in such action an affidavit made by it or someone acting for it setting forth the facts necessary to authorize the entry of judgment, of which facts such affidavit shall be conclusive evidence, and if a true copy of this Lease be filed in such action, it shall not be necessary to file the original as a warrant of attorney, any rule of court, custom or practice to the contrary notwithstanding.  The authority to confess judgment against Tenant hereunder shall not be exhausted by one (1) exercise thereof, but judgment may be confessed as provided herein from time to time as often as any Event of Default occurs and is continuing under this Lease, and such authority may be exercised as well after the expiration of the Term of this Lease or during or after the expiration of any renewal Term, by Landlord or any successor Landlord.

5.2.8Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies provided in this Lease or by law (all such remedies being cumulative), nor shall pursuit of any remedy provided in this Lease constitute a forfeiture or waiver of any Base Rent, Additional Rent or other sum payable under this Lease or of any damages accruing to Landlord by reason of the violation of any of the covenants or conditions contained in this Lease.

5.3Right to Perform.  If Tenant shall fail to pay any sum of money, other than Base Rent or Additional Rent, required to be paid by it under this Lease or shall fail to perform any other act on its part to be performed under this Lease, and such failure shall continue for thirty (30) calendar days after notice of such failure by Landlord (or such shorter period as may be reasonable under the circumstances), Landlord may, but shall not be obligated to, and without waiving or releasing Tenant from any obligations of Tenant, make such payment or perform such other act on Tenant’s part to be made or performed as provided in this Lease.  Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the nonpayment of sums due under this Paragraph as in the case of default by Tenant in the payment of Base Rent.

5.4Landlord’s Default.  In the event that Landlord defaults under or breaches this Lease, Tenant shall notify Landlord of such default or breach in writing, and Tenant shall not exercise any right or remedy which Tenant may have under this Lease, at law or in equity if Landlord commences to cure such default or breach within thirty (30) calendar days after receipt of Tenant’s notice and thereafter diligently prosecutes the cure to completion within sixty (60) days after Landlord receives written notice thereof.

SECTION 6:   MISCELLANEOUS PROVISIONS

6.1Notices.  Unless otherwise specifically stated in this Lease, any notice, request or written communication required or permitted to be delivered under this Lease shall be:  (a) in writing; (b) transmitted by personal delivery, express or courier service, United States Postal Service in the manner described below, or electronic means of transmitting written material; and (c) deemed to be delivered on the earlier of the date received or four (4) calendar days after having been deposited in the United States Postal Service, postage prepaid.  Such writings shall be addressed to Landlord or Tenant, as the case may be, at the respective designated addresses set forth opposite their signatures, or at such other address(es) as they may, after the execution date of this Lease, specify by written notice delivered in accordance with this Paragraph, with copies to the persons at the addresses, if any, designated opposite each party’s signature.  Those notices which contain a notice of breach or default or a demand for performance may be sent by any of the methods described in clause (b) above, but if transmitted by personal delivery or electronic means, shall also be sent concurrently by certified or registered mail, return receipt requested.

6.2Attorney’s Fees and Expenses.  In the event either party requires the services of an attorney in connection with enforcing the terms of this Lease, or in the event suit is brought for the recovery of Base Rent, Additional Rent or any other sums payable under this Lease or for the breach of any covenant or condition of this Lease, or for the restitution of the Premises to Landlord or the eviction of Tenant during the Lease Term or after the expiration or earlier termination of this Lease, the prevailing party shall be entitled to a reasonable sum for attorney’s and paralegal’s fees, expenses and court costs, including those relating to any appeal.

6.3No Accord and Satisfaction.  No payment by Tenant or receipt by Landlord of an amount less than the Base Rent or Additional Rent or any other sum due and payable under this Lease shall be deemed to be other than a payment on account of the Base Rent, Additional Rent or other such sum, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, nor preclude Landlord’s right to recover the balance of any amount payable or Landlord’s right to pursue any other remedy provided in this Lease or at law, unless specifically agreed to in writing by Landlord.

6.4Successors; Joint and Several Liability.  Except as provided in the Paragraph captioned “Exculpation and Limitation of Liability” and subject to the Paragraph captioned “Assignment and Subletting by Landlord”, all of the covenants and conditions contained in this Lease shall apply to and be binding upon Landlord and Tenant and their respective heirs, executors, administrators, successors and assigns.  In the event that more than one person, partnership, company, corporation or other entity is included in the term “Tenant,” then each such person, partnership, company, corporation or other entity shall be jointly and severally liable for all obligations of Tenant under this Lease.

6.5Choice of Law.  This Lease shall be construed and governed by the laws of the Commonwealth of Pennsylvania.  Tenant consents to venue in the Eastern District of Pennsylvania or Chester County, Pennsylvania for any legal proceeding brought by Landlord or Tenant to enforce the terms of this Lease.

6.6No Waiver of Remedies.  Unless otherwise stated in this Lease, the waiver by Landlord or Tenant of any covenant or condition contained in this Lease shall not be deemed to be a waiver of any subsequent breach of such covenant or condition nor shall any custom or practice which may develop between the parties in the administration of this Lease be construed to waive or lessen the rights of Landlord or Tenant, as the case may be, to insist on the strict performance by the other of all of the covenants and conditions of this Lease.  Unless otherwise specifically provided under this Lease, no act or thing done by Landlord or Landlord’s Agents during the Lease Term shall be deemed an acceptance or a surrender of the Premises, and no agreement to accept a surrender of the Premises shall be valid unless made in writing and signed by Landlord. The mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy it might have, either under this Lease or at law, nor shall the waiver of or redress for any violation of any covenant or condition in this Lease or in any of the rules or regulations attached to this Lease or later adopted by Landlord, prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation.  The receipt by Landlord or payment by Tenant of Base Rent, Additional Rent or any other sum payable under this Lease with knowledge of a breach of any covenant or condition in this Lease shall not be deemed a waiver of such breach.  The failure of Landlord to enforce any of the rules and regulations attached to this Lease or later adopted, against Tenant or any other tenant in the Building, shall not be deemed a waiver.  To be effective, any waiver by Landlord or Tenant must be in writing and signed by the party against whom such waiver is claimed.

6.7Offer to Lease.  The submission of this Lease to Tenant or its broker or other agent does not constitute an offer to Tenant to lease the Premises.  This Lease shall have no force or effect until: (a) it is executed and delivered by Tenant to Landlord; and (b) it is executed and delivered by Landlord to Tenant.

6.8Force Majeure.  In the event that either party shall be delayed, hindered in or prevented from the performance of any act or obligation required under this Lease (other than the payment of money) by reason of Force Majeure, then performance of such act or obligation shall be excused for the period of the delay and the period for the performance of any such act or obligation shall be extended for the period equivalent to the period of such delay.  Nothing in the foregoing shall abrogate Tenant’s right to delay the Rent Commencement Date as provided in Paragraph 1.1, or to terminate this Lease as provided in Paragraphs 4.10 or 4.11.

6.9Landlord’s Consent.  Unless otherwise provided in this Lease, whenever Landlord’s consent, approval or other action is required under the terms of this Lease, such consent, approval or action shall be subject to Landlord’s judgment or discretion exercised in good faith and shall be delivered in writing.

6.10Severability; Captions.  If any clause or provision of this Lease is determined to be illegal, invalid, or unenforceable under present or future laws, the remainder of this Lease shall not be affected by such determination, and in lieu of each clause or provision that is determined to be illegal, invalid or unenforceable, there be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.  Headings or captions in this Lease are added as a matter of convenience only and in no way define, limit or otherwise affect the construction or interpretation of this Lease.

6.11Interpretation.  Whenever a provision of this Lease uses the term (a) ”include” or “including”, that term shall not be limiting but shall be construed as illustrative, (b) ”covenant”, that term shall include any covenant, agreement, term or provision, (c) ”at law”, that term shall mean at law or in equity, or both, and (d) ”day”, that uncapitalized word shall mean a calendar day.  This Lease shall be given a fair and reasonable interpretation of the words contained in it without any weight being given to whether a provision was drafted by one party or its counsel.

6.12Incorporation of Prior Agreement; Amendments.  This Lease contains all of the agreements of the parties to this Lease with respect to any matter covered or mentioned in this Lease, whether oral or written, and no prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective for any purpose.  No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties to this Lease or their respective successors in interest.

6.13Authority.  If Tenant is a partnership, company, corporation or other entity, each individual executing this Lease on behalf of Tenant represents and warrants to Landlord that he or she is duly authorized to so execute and deliver this Lease and that all partnership, company, corporation or other entity actions and consents required for execution of this Lease have been given, granted or obtained.  If Tenant is a partnership, company, corporation or other business organization, it shall, within ten (10) calendar days after demand by Landlord, deliver to Landlord satisfactory evidence of the due authorization of this Lease and the authority of the person executing this Lease on its behalf.

6.14Time of Essence.  Time is of the essence with respect to the performance of every covenant and condition of this Lease.

6.15Survival of Obligations.  Notwithstanding anything contained in this Lease to the contrary or the expiration or earlier termination of this Lease, any and all obligations of either party accruing prior to the expiration or termination of this Lease shall survive the expiration or earlier termination of this Lease, and either party shall promptly perform all such obligations whether or not this Lease has expired or terminated.  Such obligations shall include any and all indemnity obligations set forth in this Lease.

6.16Consent to Service.  Tenant irrevocably consents to the service of process of any action or proceeding at the address provided pursuant to Paragraph 6.1, as amended from time to time.  Nothing in this Paragraph shall affect the right to serve process in any other manner permitted by law.

6.17Landlord’s Authorized Agents.  Notwithstanding anything contained in the Lease to the contrary, including without limitation, the definition of Landlord’s Agents, only Kennedy Associates Real Estate Counsel, Inc., the authorized signatory of this Lease, and officers of Riggs & Company, the trustee of Landlord, are authorized to amend, renew or terminate this Lease, or to compromise any of Landlord’s claims under this Lease or to bind Landlord in any manner.  Without limiting the effect of the previous sentence, no property manager or broker shall be considered an authorized agent of Landlord to amend, renew or

terminate this Lease, to compromise any of Landlord’s claims under this Lease or to bind Landlord in any manner.

6.18Waiver of Jury Trial.  Landlord and Tenant agree to waive trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter arising out of or relating in any way to this Lease.

6.19Representations and Warranties of Landlord. Landlord represents and warrants to Tenant that Landlord is a trust organized under 12 C.F.R. Section 9.18 whose Trustee is Riggs and Company.  Landlord has full power and authority to enter into this Lease.  The person executing this Lease on behalf of Landlord is duly authorized to do so.

(signature pages follow)

LANDLORD SIGNATURE PAGE

TO OFFICE LEASE

IN WITNESS WHEREOF, Landlord has executed this Lease as of the day and year first above set forth.

Designated Address for Landlord:	LANDLORD:
Riggs Bank N.A., as trustee of the	MULTI-EMPLOYER PROPERTY TRUST,
Multi-Employer Property Trust	a trust organized under 12 C.F.R. Section 9.18
808 17th Street, NW
Washington, DC 20006	By:	Kennedy Associates Real Estate
Attn: Patrick O. Mayberry		Counsel, Inc.,
Facsimile: 202-835-6887		Authorized Signatory
with copies to:		By:	/s/ James R. Landau
		Name:	James R. Landau
The Multi-Employer Property Trust		Its:	Vice President
c/o Kennedy Associates Real Estate Counsel, Inc.
2400 Financial Center
1215 Fourth Avenue
Seattle, WA 98616
Attn: Director of Asset Management
Facsimile: 206-682-4769
and
The Multi-Employer Property Trust
c/o Kennedy Associates Real Estate Counsel, Inc.
7315 Wisconsin Avenue, Suite 350 West
Bethesda, MD 20814
Attn: Vice President, Asset Management
Facsimile: 301-656-9339
with a copy to Manager at:
Trammell Crow Company
101 West Elm Street, Suite 400
Conshohocken, PA 19428
Facsimile: 484-530-4601

TENANT SIGNATURE PAGE

TO OFFICE LEASE

IN WITNESS WHEREOF, Tenant has executed this Lease as of the day and year first above set forth.

Designated Address for Tenant:	TENANT:
Cephalon, Inc.	CEPHALON, INC.,
145 Brandywine Parkway	a Delaware corporation
West Chester, PA 19380
Attn: Richard L. Gulino, Esq.	By:	/s/ Carl A. Savini
Facsimile: 610-738-6590	Name:	Carl A. Savini
	Its:	Sr. Vice President, Human Resources
with a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
Attn: J. J. Broderick, Esq.
Facsimile: 215-963-5001

EXHIBIT A TO LEASE

LEGAL DESCRIPTION OF LAND

LOT 2 - WESTBROOK CORPORATE CENTER

ALL THAT CERTAIN LOT or parcel of ground, Situate in the Township of East Whiteland, County of Chester and State of Pennsylvania, bounded and described according to a Subdivision Plan of Westbrook Corporate Center for Trammell Crow Company, prepared by Edward B. Walsh and Associates, Inc., Civil Engineers, Exton, PA, dated January 27, 1997 and last revised June 9, 1997.  Being more particularly described as follows:

BEGINNING at a point on the Northerly right-of-way of Moore Road (T-415) (60 feet wide), said point being a corner this and Lot 3 as shown on said plan, thence extending along the northerly right-of-way of Moore Road, the four (4) following courses and distances: (1) South 61 degrees 16 minutes 30 seconds West, 336.08 feet to a point, (2) South 64 degrees 53 minutes 32 seconds West, 124.05 feet to a point of curvature, (3) on the arc of a circle curving to the left, having a radius of 488.37 feet, the arc distance of 102.06 feet to a point at a point of tangency, and (4) South 52 degrees 55 minutes 08 seconds West, 190.79 feet to a point in the bed of a stream, on the northeasterly right-of-way of Conestoga Road (S. R. 0401) (variable width) being a point on a non tangent curve, a radial line to said point bears South 31 degrees 55 minutes 36 seconds West; thence extending along the said right-of-way, the five (5) following courses and distances: (1) on the arc of a circle curving to the left, having a radius of 5,829.58 feet, the arc distance of 82.13 feet to a point, (2) radial to last mentioned curve, South 31 degrees 07 minutes 10 seconds West, crossing said stream 40.00 feet to a point, a point of nontangent curve, a radial line to said curve bears South 31 degrees 07 minutes 10 seconds West, (3) on the arc of a circle curving to the left, having a radius of 5,789.58 feet, crossing another stream, the arc distance of 455.66 feet to a point of tangency, (4) North 63 degrees 23 minutes 24 seconds West, 99.06 feet to a point, and (5) South 26 degrees 36 minutes 36 seconds West 37.00 feet to a point on the Northeasterly right-of-way of Conestoga Road (S. R. 0401); thence along said right of way North 63 degrees 23 minutes 24 seconds West, 440.33 feet to a point in line of lands now or late of Great Valley High School; thence extending along the same, the two (2) following courses and distances: (1) North 33 degrees 20 minutes 30 seconds East, re-crossing said stream, 834.01 feet to a marble monument found, and (2) South 56 degrees 39 minutes 30 seconds East, 1004.00 feet to an Iron Pin Set, a corner of lands now or late of East Whiteland Township; thence extending along the same, North 33 degrees 20 Minutes 30 seconds East 179.73 feet to an Iron Pin Set, a corner of late now or late Kathryn Freda Cubbing; thence along of said Cubbing South 56 degrees 39 minutes 30 seconds East 163.18 feet to an Iron Pin Set; thence still along land of said Cubbing and land now or late of James L. and Viola A. Price South 76 degrees 52 minutes 50 seconds East 81.79 feet to a point a corner of Lot #3 as shown on said plan thence along said Lot 3 South 05 degrees 26 minutes 12 seconds East 243.23 feet to the said point an place of beginning.

BEING Lot 2 as shown on said plan.

CONTAINING:  21.995 acres of land, be the same, more or less.

LOT 3 - WESTBROOK CORPORATE CENTER

ALL THAT CERTAIN LOT or parcel of ground, Situate in the Township of East Whiteland, County of Chester and State of Pennsylvania, bounded and described according to a Subdivision Plan of Westbrook Corporate Center for Trammell Crow Company, prepared by Edward B. Walsh and Associates, Inc., Civil Engineers, Exton, PA, dated January 27, 1997 and last revised June 9, 1997.  Being more particularly described as follows:

BEGINNING at a point of Northerly right-of-way line of Moore Road, (T-415)(60 feet wide), said point being a corner of Lot 4; thence extending from said point of beginning along the North side of Moore Road, South 61 degrees 16 minutes 30 seconds West 296.70 feet to a point, a corner of Lot 2 as shown on said plan; thence extending along the same, North 05 degrees 26 minutes 12 seconds West, 243.23 feet to a point in the land now or late of James L. and Viola A. Price; thence along the land of said Price the three (3) following courses and distances: (1) South 76 degrees 52 minutes 50 seconds East, 44.00 feet to an Iron Pin Set; (2) North 84 degrees 55 minutes 10 seconds East, 170.48 feet to an Iron Pin Set; (3), North 66 degrees 43 minutes 10 seconds East, 11.65 feet to a point, a corner of Lot 4 as shown on said plan; thence along said Lot 4, South 28 degrees 43 minutes 30 seconds East, 124.58 feet to the point and place of beginning.

BEING Lot 3 as shown on said plan.

CONTAINING: 44,001 square feet of land, be the same, more or less.

LOT 4 - WESTBROOK CORPORATE CENTER

ALL THAT CERTAIN LOT or parcel of ground, Situate in Township of East Whiteland, County of Chester and State of Pennsylvania, bounded and described according to a Subdivision Plan of Westbrook Corporate Center for Trammell Crow Company, prepared by Edward B. Walsh and Associates, Inc., Civil Engineers, Exton, PA, dated January 27, 1997 and last revised June 9, 1997.  Being more particularly described as follows:

BEGINNING at a point of the Northerly right-of-way line of Moore Road, (T-415)(60 feet wide), said point being a corner of land now or late of Paul R. and Mary Kay Dunne; thence extending from said point of beginning along the North side of Moore Road, South 61 degrees 16 minutes 30 seconds West 321.74 feet to a point, a corner of Lot 3 as shown on said plan; thence extending along the same, North 28 degrees 43 minutes 30 seconds West, 124.58 feet to a point in line of lands now or late of James and Viola A. Price; thence continuing along said Price and lands now or late of Robert J. and Mary Ellen Clarke, North 66 degrees 43 minutes 10 seconds East, 152.77 feet to an Iron Pin Set; thence continuing along Clark and lands now or late of Dr. Karl A. and Marylyn Palmer, North 36 degrees 14 minutes 20 seconds East, 207.88 feet to an Iron Pin Set a corner of said Dunne; thence along said Dunne, South 23 degrees 20 minutes 00 seconds East, 198.94 feet to the first mentioned point and place of beginning.

BEING Lot 4 as shown on said plan.

CONTAINING: 45,012 square feet of land, be the same, more or less

TOGETHER WITH certain easement rights reserved unto the Grantor by Deed of Dedication dated July 30, 1985 recorded October 29, 1985 in Record Book 117 page 407.

EXHIBIT B TO LEASE

DRAWING SHOWING LOCATION OF THE PREMISES

[graphic omitted]

EXHIBIT “C”

WESTBROOK CORPORATE CENTER

TENANT IMPROVEMENTS

The following provisions shall apply to the design and construction of the Tenant Improvements with the same force and effect as if all of the provisions of this Exhibit ”C” were set forth at length in the body of the Lease.

1.Plans and Specifications. Tenant shall prepare and submit to Landlord for its approval, which approval shall not be unreasonably withheld, conditioned or delayed, construction drawings, plans and specifications for all improvements to the Premises to be constructed by Tenant, including but not limited to any proposed demolition or modification of the existing improvements in the Premises.  If Landlord fails to respond to Tenant’s request for approval of such construction drawings, plans and specifications within fifteen (15) days of receipt, Landlord shall be deemed to have approved such construction drawings, plans and specifications.  Such construction drawings, plans and specifications, once approved by Landlord, are referred to herein and throughout this Lease as the “Plans and Specifications”.  Without limiting the generality of the foregoing, the Plans and Specifications shall show the following details:  partition layout (dimensioned), door location and door schedule, reflected ceiling plans, electrical outlets with locations dimensioned, occupancy requirements by room or space, drawings, sections, details and specifications for special equipment and fixtures, dimensioned locations of all floor loads beyond 60 lbs. per square foot (including partition load), requirements for special air-conditioning, plumbing and electrical needs, and specifications of all specialty systems or equipment to be installed in the Premises. Tenant shall not make any material modification to the Plans and Specifications without first submitting the proposed modification to Landlord and obtaining Landlord’s written consent thereto, which consent shall not be unreasonably withheld, conditioned or delayed.

2.Construction.

(a)The Tenant Improvements shall be constructed in a good and workmanlike manner, in compliance with all Governmental Requirements, by contractors approved in advance by Landlord (which approval shall not be unreasonably withheld, conditioned or delayed) (collectively, the “Tenant Improvement Contractor”).  Without limiting the scope of Landlord’s approval rights, the Tenant Improvement Contractor must be a party to and bound by a collective bargaining agreement with a labor organization affiliated with the Building and Construction Trades Council of the AFL-CIO and covenant to employ with respect to the construction of the Tenant Improvements only subcontractors similarly bound by such a collective bargaining agreement and employing only members of such labor organizations to perform work within their respective jurisdictions.

(b)Landlord’s construction manager shall be given access to the Premises at all times during the performance of the Tenant Improvements for purposes of reviewing the same.  Landlord shall have the right to reject any portion of the Tenant Improvements which Landlord reasonably determines to deviate materially from the Plans and Specifications or to be in violation of any Governmental Requirements.  Upon substantial completion of the Premises,

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the Tenant Improvements shall be reviewed for quality control (punchlisted) by Landlord’s construction manager.  Any and all portions of the Tenant Improvements not in material conformance with the Plans and Specifications shall be corrected by Tenant, at Tenant’s expense, within thirty (30) days after notification of such material defects by Landlord or, if Tenant is diligently prosecuting such correction, until such correction is completed.  Landlord’s review of the Plans and Specifications or inspection of the Tenant Improvements is for Landlord’s separate purposes; Landlord’s approval or inspection of any Tenant Improvements shall not be construed as a recommendation, representation or warranty of any kind, including but not limited to compliance with Governmental Requirements or fitness for a particular purpose, or otherwise limit Tenant’s obligations under this Lease.

(c)Prior to the commencement of the Tenant Improvements, Tenant or the Tenant Improvement Contractor shall provide to Landlord copies of all required building permits for construction of the Tenant Improvements and insurance certificates with coverages and limits as specified by Landlord, naming Landlord and the Manager as additional insureds.  The Tenant Improvement Contractor shall also execute a waiver of mechanics liens in form and substance satisfactory to Landlord, which waiver must be filed with the Chester County Prothonotary prior to commencement of such Tenant Improvements at Tenant’s expense.

(d)Tenant shall be solely responsible for (i) transportation, safekeeping and storage of material and equipment used in the performance of the work by the Tenant Improvement Contractor, (ii) the cost of removal of debris and waste resulting therefrom, and (iii) any damage caused by the Tenant Improvement Contractor; provided however, that Tenant shall be entitled to draw upon the Tenant Improvement Allowance for payment of costs associated with subsections (i) and (ii) of this subsection (d).

3.Tenant Improvement Costs.

(a)The cost of any improvement, modification, construction, design, management, inspection, review or any other cost or expense incurred toward the preparation of the Tenant Improvements for Tenant’s desired and Permitted Use, including but not limited to the cost of architectural and engineering services, permits and approvals and the sums payable to the Tenant Improvement Contractor, are collectively referred to herein as the “Tenant Improvement Costs”.  The Tenant Improvement Costs shall also include a construction management fee equal to [**] percent ([**]%) of all other costs included in the Tenant Improvement Costs, payable to Landlord to cover the cost of construction management services provided by the Manager to Landlord.  Tenant shall be responsible for payment of the Tenant Improvement Costs as and when due, subject to reimbursement by Landlord in an amount not to exceed the Tenant Improvement Allowance pursuant to Section 4 below.

(b)Prior to commencement of the Tenant Improvements, Tenant shall deliver to Landlord a certificate executed by Tenant attaching a budget (the “Budget”) for the Tenant Improvements, which shall constitute Tenant’s good faith estimate of all Tenant Improvement Costs for the Premises.  Tenant shall be permitted from time to time to adjust the Budget if Tenant’s good faith estimate has changed.

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

4.Tenant Improvement Allowance.

(a)Landlord shall reimburse Tenant for any Tenant Improvement Costs for the Premises up to a maximum of the Tenant Improvement Allowance. Landlord shall pay the Tenant Improvement Allowance within 30 days of receiving the following:

(i)final releases of lien signed by the Tenant Improvement Contractor and all subcontractors who provided any labor or materials with respect to the Tenant Improvements (which releases may be contingent upon the receipt of sums reflected in the final payment application and/or which may exclude reasonable holdbacks for punchlist items);

(ii)a certificate executed by Tenant confirming the amount of Tenant Improvement Costs incurred by Tenant and that all Tenant Improvement Costs have been paid by Tenant except for reasonable holdbacks related to punchlist items as specified in such certificate; and

(iii)a set of the Plans and Specifications marked to show as-built conditions, which shall be reproducible if permitted by the party that prepared such Plans and Specifications.

(b)Landlord’s obligation to reimburse Tenant in accordance with subparagraph (a) above shall be conditioned upon the following:

(i)No Event of Default shall have occurred and be continuing hereunder at the time any such payment is requested; and

(ii)Construction of the Tenant Improvements shall have been substantially completed.

In the event that the cost of the Tenant Improvements is less than the Tenant Improvement Allowance, Tenant shall receive a credit in the amount of such savings, to be applied against the installments of Base Rent first falling due following determination of the amount of such credit.

EXHIBIT D TO LEASE

Intentionally Deleted

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EXHIBIT E TO LEASE

RULES AND REGULATIONS

1.Except as provided in the Lease, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building or Land without the prior written consent of the Landlord.  Landlord shall have the right to remove, at Tenant’s expense and without notice, any sign installed or displayed in violation of this rule.  All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person chosen by Landlord.

2.If Landlord reasonably objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, Tenant shall immediately discontinue such use. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises.

3.Tenant shall not obstruct any sidewalk, halls, passages, exits, entrances, elevators, escalators, or stairways of the Building.  The halls, passages, exits, entrances, elevators, escalators and stairways are not open to the general public.  Landlord shall in all cases retain the right to control and prevent access to such areas of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Land, Building and the Building’s tenants; provided that, nothing in this Lease contained shall be construed to prevent such access to persons with whom any Tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities.  Tenant shall not go upon the roof of the Building.

4.The directory of the Building will be provided exclusively for the display of the name and location of tenants only, and Landlord reserves the right to exclude any other names therefrom.

5.All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises.  Landlord shall not in any way be responsible to any Tenant for any loss of property on the Premises, however occurring, or for any damage to any Tenant’s property by the janitor, any of Landlord’s Agents or any other person.

6.Landlord will furnish Tenant, free of charge, two (2) keys to each door lock in the Premises.  Landlord may make a reasonable charge for any additional keys.  Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of its Premises.  Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor.

7.If Tenant requires telegraphic, telephonic, computer circuits, burglar alarm or similar services, it shall first obtain Landlord’s consent, which consent shall not be unreasonably

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withheld, conditioned or delayed, and comply with, Landlord’s instructions for their installation, and shall pay the entire cost of such installation(s).

8.Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by Governmental Requirements.  Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight.  Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the Building or to any space in the Building or to any other tenant in the Building, shall be placed and maintained by Tenant, at Tenant’s expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration.

9.Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities permitted by the Lease.  Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations nor shall Tenant bring into or keep in or about the Premises any birds or animals.

10.Tenant shall not waste any utility provided by Landlord and agrees to cooperate fully with Landlord to assure the most effective operation of the Building’s heating and air-conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice.

11.Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building; provided, however, Landlord is prohibited from including the name of any competitor of Tenant in the name of the Building.

12.Landlord reserves the right to exclude from the Building during non-Business Hours, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified.  Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons.  Landlord shall not be liable for damages for any reasonable error with regard to the admission to or exclusion from the Building of any person.  Landlord reserves the right to prevent access to the Building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action.

13.Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets at the close of business each day.  Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule.

14.Tenant shall not arrange for bulk deliveries to the Premises of ice, drinking water, food, beverage, towel or other similar services, except at such hours as may be fixed by Landlord for such deliveries, and otherwise in accordance with these Rules and Regulations.  All such deliveries shall be made by the freight elevator, and not by passenger elevator.

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15.The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be deposited in them.  The expenses of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by Tenant if it or its employees or invitees shall have caused it.

16.Tenant shall not sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises.  Tenant shall not make any room-to-room solicitation of business from other tenants in the Building.  Tenant shall not use the Premises for any business or activity other than that specifically provided for in the Lease.

17.Except as provided in Paragraph 4.31 of the Lease, Tenant shall not be permitted to install radio or television antennas, loudspeaker or other device in, on or about the Premises or Building without Landlord’s consent, and provided that the installation and maintenance of such equipment shall not permeate the membrane of the roof or otherwise vitiate any warranty on the roof of the Building, and provided further that such equipment shall be properly screened.  Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere.

18.Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises.  Tenant shall not cut or bore holes for wires.  Tenant shall not affix any floor covering to the floor of the Premises in any manner except pursuant to Paragraph 4.5 of the Lease.  Tenant shall repair any damage resulting from noncompliance with this rule.

19.Tenant shall not install upon the Premises any vending machine except at such hours as may be fixed by Landlord for a delivery of heavy equipment and otherwise in accordance with these Rules and Regulations.  Any delivery of any vending machine shall be made by the freight elevator, and not by passenger elevator.

20.Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Building or Land are prohibited, and Tenant shall reasonably cooperate to prevent the same.

21.Landlord reserves the right to exclude or expel from the Building and Land any person who, in Landlord’s judgment, reasonably exercised, is intoxicated, under the influence of liquor or drugs or in violation of any of these Rules and Regulations.

22.Tenant shall store all of its trash and garbage within the Premises.  Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal.  All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord.

23.The Premises shall not be used for lodging or any improper or immoral or objectionable purpose.  No cooking shall be done or permitted by Tenant, except for in the cafeteria and except  that use by Tenant of Underwriters’ Laboratory approved equipment for microwaving food or for

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brewing coffee, tea, hot chocolate and similar beverages shall be permitted; provided that, such equipment and its use is in accordance with all Governmental Requirements.

24.Tenant shall not use in the Premises or in the public halls of the Building any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve.  Tenant shall not bring any other vehicles of any kind into the Building.

25.Without the prior written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant’s address.

26.Tenant shall comply with all safety, fire protection and evacuation procedures and regulations reasonably established by Landlord or any governmental agency.

27.Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.

28.The requirements of Tenant will be attended to only upon appropriate application to the Manager of the Building by an authorized individual.  Employees of Landlord are not required to perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord is required to admit Tenant to any space other than the Premises without specific instructions from Landlord.

29.Tenant shall not park its vehicles in any parking areas designated by Landlord as areas for parking by visitors to the Building or Land. Tenant shall not use more than its pro rata share of parking spaces.  Tenant shall not leave vehicles in the parking areas overnight nor park any vehicles in the Building parking areas other than automobiles, motorcycles, motor driven or nonmotor driven bicycles or four-wheeled trucks. Landlord shall have no obligation whatsoever to monitor or police the use of the parking or other common areas.

30.Tenant and Tenant’s Agents shall observe faithfully and comply with the rules and regulations set forth in this Exhibit, provided such rules and regulations are applied to Tenant in a non-discriminatory manner.

31.These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the covenants and conditions of any lease of premises in the Building.  If any provision of these Rules and Regulations conflicts with any provision of the Lease, the terms of the Lease shall prevail.

32.No smoking shall be permitted in the Building except for rooms constructed with ventilation systems approved by Landlord which are vented directly to the exterior of the Building.  No smoking shall be permitted outside the Building except in areas designated by Landlord as smoking areas.

33.Landlord reserves the right to make such other and reasonable Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, the care and cleanliness

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of the Building and Land and the preservation of good order in the Building.  Tenant agrees to abide by all the Rules and Regulations stated in this exhibit and any additional rules and regulations which are so made by Landlord.

34.Tenant shall be responsible for the observance of all of the foregoing rules by Tenant and Tenant’s Agents.

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EXHIBIT F TO LEASE

SCHEDULE OF CLEANING SERVICES

Daily Cleaning Services

•Empty waste baskets and remove refuse to designated area.  Reline and wipe clean receptacles as needed.

•Break down all boxes or any items marked trash and remove to designated areas.

•Thorough vacuuming of all carpeted area.

•Sweep all hard floors (tile, wood, etc.).

•Sweep and damp mop all vinyl, marble and quarry tile floors.  Spot buff as needed.

•Spot clean minor carpet stains.

•Dust and/or wipe clean the following surfaces:

•desks

•chairs

•file cabinets

•tables

•telephones

•pictures and frames

•doors

•lamps

•ledges and shelves

•desk/furniture partitions

•any other horizontal surface of a fixture or furniture subject to collecting dust

•Wipe clean the following surfaces:

•window sills and ledges

•counter tops and kitchen cabinets

•private entrance doors

•glass, mirrored and wood doors, panels, windows and walls

•walls in kitchen and disposal area

•conference tables

•Wash, clean and disinfect water fountains and/or coolers.  Give special attention to adjacent floor areas.

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•Establish regular cleaning maintenance program for floor in public lobby area in conjunction with Property Manager; standard necessary to maintain is high quality shine with no water marks, stains, scuffing or other signs of wear.

•Wipe and polish all glass, chrome and metal surfaces such as windows (interior and up to standard ceiling height), partitions, banisters, door knobs, light switch plates, kick plates, directional signs and door saddles.

•Dust and wipe clean sand urns.

•Polish directory.

•Vacuum and spot shampoo all carpet entrance mats.

•Spot clean all wall surfaces.

•Clean all entrance doors.

Daily Elevators

•Wash and polish wood and stainless walls, doors and hall plate.

•Keep tracks clean of dust, dirt and debris.

•Vacuum carpet.

•Spot clean carpet as needed.

Daily Vending Areas

•Thoroughly vacuum carpeting and damp mop tile flooring daily.

•Special attention to cleaning crevices, between and under vending machines.

•Thoroughly wipe all tops and sides of vending machines and express mail box cabinets with damp cloth.

•Spot clean all wall surfaces.

•Empty trash and reline can daily.

•Spot clean exteriors of waste containers.

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Daily Lavatories

•Sweep and wet mop all tile floors using disinfectant.

•Deck brush under urinals and behind toilets as required.

•Thoroughly clean all mirrors, top to bottom.

•Scour, wash and disinfect all sink basins, counter tops, bowls, urinals, including undersides.

•Wash toilet seats, both sides.

•Wipe clean all partitions and tops of ledges.

•Wipe clean all wall tile as needed.

•Remove all trash and sanitary waste, wash receptacles as necessary.

•Remove rubbish to designated area.

•Restock hand soap and paper products.

•Polish all stainless dispensers and fixtures.

Weekly Cleaning Services

•Wash and sanitize metal partitions.

•Dust horizontal surfaces exceeding 70” height.

•Damp clean ceiling and exhaust fans.

•Dust all blinds in common areas.

•Sweep fire tower stairwells.

•Wet mop as needed.

•Wipe hand rails and dust metalwork.

•Wipe clean all desk tops and credenzas.

•Remove all finger prints and dirt from door frames, kick and push plates, handles and railings.

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•Wet wipe all horizontal surfaces to 70” including moldings, shelves, etc.

•Polish all fine wood furniture including desks, chairs and cabinets.

•Spray buff all vinyl tiles floors as necessary.

•Machine buff other hard surfaces, floors to include ceramic, quarry and marble title as necessary.

•Wipe clean all plant containers in common areas.

•Stiff brush upholstered furniture to remove lint and dirt.

Monthly / Quarterly Cleaning Services

•Thoroughly wipe clean all ceiling vents and exhaust fans and area immediately adjacent:  monthly to quarterly, as needed.

•Strip and refinish all tile floors including restroom floors on a quarterly basis.

•Wipe clean and remove all fingerprints from full height doors on a monthly basis.

•Vacuum all upholstered furniture on a quarterly basis.

•Thoroughly clean all venetian blinds, pipes, ventilating and air conditioning louvers, ducts and high molding:  monthly to quarterly, as needed.

•Wipe clean as needed all vinyl base.  Vacuum as needed all carpet cove base:  monthly to quarterly, as needed.

•Spot clean all vertical surfaces on a monthly basis.

•Spray buff all vinyl floors (both tenant and common areas) monthly.

•Clean exterior windows on a quarterly basis.

Semi-Annual Cleaning Services

•Wash all common area walls including wallcovering, paint, marble and vinyl base.

•Clean interior windows.

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EX-10.20(B)

EXHIBIT 10.20(B)

Execution Copy

CONSENT TO SUBLEASE

This Consent to Sublease (this “Agreement”) is executed as of April 2, 2004 between the Multi-Employer Property Trust, a trust organized under 12 C.F.R. Section 9.18 (“Landlord”), Systems & Computer Technology Corporation, a Delaware corporation (“Tenant”) and Cephalon, Inc., a Delaware corporation (“Subtenant”).

RECITALS:

A.Tenant and Landlord are parties to a certain Office Lease dated October 19, 1998, between the Landlord and the Tenant, as amended by a certain Fist Amendment to Lease dated June 3, 1999 (as amended, the “Lease”), under which Landlord is leasing to Tenant approximately 73,904 rentable square feet (the “Premises”) on the first, second and third floors of the building located at 41 Moores Road, Frazer, Pennsylvania, commonly known as Westbrook Corporate Center. Capitalized terms used herein but not defined shall be given the meanings assigned to them in the Lease.

B.Tenant desires to sublet the entire Premises to Subtenant, and Subtenant desires to assume all of Tenant’s obligations under the Lease, subject to the terms and conditions contained herein.

AGREEMENTS:

For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Consent. Subject to the terms and conditions contained in this Agreement, Landlord hereby consents to the subletting by Tenant of the Premises to Subtenant pursuant to a certain Sublease dated as of March 1, 2004 between Tenant and Subtenant, the exact form of which is attached hereto as Exhibit A (the “Sublease”). Nothing contained herein shall be deemed to constitute a release of the Tenant from any of its obligations under the Lease, and Tenant shall remain fully liable for the payment and performance of all of its obligations under the Lease. Landlord’s consent contained herein shall not waive its rights as to any subsequent assignment, sublease or other transfer.

2.Permitted Use.  Landlord herby agrees that the Permitted Use, as defined in Section 1.27 of the Lease, permits Tenant to use the Premises for general and executive office uses and any other uses incidental thereto, including, but not limited to, a pantry for the exclusive use of Tenant’s employees (which pantry may contain a microwave, refrigerator, and table and chairs), a cafeteria for the exclusive use of Tenant’s employees, and a training facility for the exclusive use of Tenant’s employees. Landlord acknowledges that a cafeteria is currently constructed in the Building adjacent to the Premises and hereby agrees that, subject to the Landlord’s approval rights under the Lease, Tenant may construct a similar cafeteria in the Premises.

3.No Obligations Created. Each of the parties to this Agreement agree and acknowledge that Landlord shall have no obligation or liability under the terms of the Sublease. Without limiting the generality of the foregoing, Landlord shall have no liability (and shall not be bound by) any modifications, deletions or waivers of any provision of the Lease which Landlord has not agreed to specifically in writing. Additionally, Landlord shall have no obligation to give notice of any default under the Lease except to Tenant (and only to the extent required under the Lease) and shall have no obligation to deal with any party other than Tenant with respect to the Lease or the Premises. Nothing in this Agreement or otherwise shall create privity of estate between Landlord and Subtenant, and Subtenant irrevocably waives any claims based on, or alleged to have arisen from, such an estate. Subtenant hereby releases, acquits and forever discharges Landlord and its agents, employees, officers, directors, partners and affiliates from any and all claims, liabilities and obligations arising out of or in any way related to the Sublease which Subtenant or any party claiming by, through or under Subtenant now has or may ever have in the future against Landlord or any of such other parties. Subtenant acknowledges that Landlord would not have entered this Agreement without such release.

4.Indemnification. To the fullest extent allowed by law, Subtenant shall indemnify, defend and hold harmless Landlord from and against any and all loss, liability, reasonable attorneys’ fees, expenses and claims arising out of any injury to person or damage to property on or about the Premises caused by any act or omission of Subtenant, its agents, servants, contractors, employees or invitees. The foregoing indemnification is supplemental and in addition to any indemnification contained in the Lease and Sublease.

5.Condition of Subleased Premises. Landlord makes no representations or warranties, express or implied, concerning the condition of the Premises, and, subject to the Sublandlord’s obligations under the Sublease, Subtenant accepts the Premises in their “AS-IS” condition as of the date hereof.

6.Subordination. Tenant hereby subordinates to the interest of Landlord any statutory lien, contractual lien, security interest or other rights which Tenant may claim with respect to any property of Subtenant.

7.Termination/Expiration of Lease. The Sublease and all rights of the Subtenant thereunder are subject and subordinate to the Lease. Upon the expiration or the early termination of the term of the Lease while the Sublease is in effect, the Sublease and the term and estate thereby granted shall, at Landlord’s election, expire and come to an end as of the effective date of such expiration or early termination, and Subtenant shall vacate and surrender the Premises in accordance with the terms and provisions of the Lease on or before such date. In case of failure of Subtenant to so vacate and surrender, Landlord shall be entitled to all the rights and remedies which are available to a Landlord against a tenant holding over after the expiration or earlier termination of a term, in addition to the rights and remedies which are available to Landlord under the Lease in the event that Tenant holds over after the expiration or earlier termination of the term of the Lease. In the event of the expiration or earlier termination of the term of the Lease as set forth above, and in the event that Landlord in its sole discretion does not so elect to have the term and estate granted by the Sublease expire, Landlord shall take over all of the right,

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title and interest of Tenant as sublandlord under the Sublease, and Subtenant shall, at Landlord’s sole option, attorney to Landlord pursuant to the then executory provisions of the Sublease, except that Landlord shall not be (i) liable for any previous act or omission of Tenant under the Sublease, (ii) subject to any credit, offset, claim, counterclaim, demand or defense which Subtenant may have against Tenant, (iii) bound by any previous modification of the Sublease or by any previous prepayment of more than one (1) month’s rent, (iv) bound by any covenant of Tenant to undertake or complete any construction of the Premises or any portion thereof, (v) required to account for any security deposit of Subtenant other than any security deposit actually delivered to Landlord, (vi) bound by any obligation to make any payment to Subtenant or grant any credits, except for services, repairs, maintenance and restoration provided for under the Sublease to be performed after the date of such attornment, (vii) responsible for any monies owing by Landlord to the credit of Tenant or (viii) required to remove any person occupying the Premises or any part thereof.

8.Conditions Precedent. Subtenant’s delivery to Landlord of the following item(s) on or before March 29, 2004 shall be conditions precedent to the effectiveness of this Agreement: (a) $500.00 from Tenant, representing Landlord’s fee for reviewing the Sublease and processing this Consent, including Landlord’s attorneys’ fees incurred in connection with the Sublease and this Agreement, and (b) certificate(s) of insurance from Subtenant satisfying all the requirements of the Lease, except that any insurance policies required under Paragraph 4.14 of the Lease may be with companies having a Best’s rating of A-NIII or better, rather than ANIII as required under the Lease (provided that such exception shall apply only to the Subtenant and not to the Tenant). Such certificates shall name the following landlord parties as additional insureds:

The Multi-Employer Property Trust

c/o Kennedy Associates Real Estate Counsel, Inc.

Attention: Senior Vice President, Asset Management

1215 Fourth Ave., 2400 Financial Center

Seattle, W A 98161

Kennedy Associates Real Estate Counsel, Inc.

Attention: Senior Vice President, Asset Management

1215 Fourth Ave., 2400 Financial Center

Seattle, WA 98161

Trammell Crow Company

101 West Elm Skeet, Suite 400

Conshohocken, Pennsylvania 19428-2009

9.Limitation of Liability. In addition to any other limitations of Landlord’s liability as contained in the Lease, the liability of Landlord to either Tenant or Subtenant for any default by Landlord under the terms of the Lease shall be limited to such party’s actual direct, but not consequential, damages therefore and shall be recoverable only from the interest of Landlord in the building in which the Premises are located and any insurance proceeds for the Building received by Landlord, and neither Landlord nor any principal or affiliate of Landlord shall be personally liable for any deficiency.

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10.Brokerage.  Neither Tenant nor Subtenant has dealt with any broker or agent in connection with the negotiation or execution of the Sublease, except GV A Smith Mack representing Tenant and Julien J. Studley representing Subtenant (collectively, the “Named Brokers”). In no event shall Landlord be liable for any leasing or brokerage commission with respect to the negotiation and execution of the Sublease or this Agreement. Tenant and Subtenant shall each jointly and severally indemnify, defend and hold Landlord harmless from and against all costs, expenses, attorneys’ fees and other liability for commissions or other compensation claimed by any broker or agent (including, but not limited to, the Named Brokers) claiming the same by, through or under the indemnifying party with respect to the Sublease or this Agreement.

11.Notices. All notices and other communications given pursuant to the Lease and this Agreement shall be in writing and shall be given in the manner provided in the Lease, except that Landlord’s Designated Notice Address is amended to read as follows:

Landlord’s Designated Notice Address:

The Multi-Employer Property Trust

c/o Kennedy Associates Real Estate Counsel, Inc.

Attention: Director of Asset Management

1215 Fourth Ave., 2400 Financial Center

Seattle, WA 98161

Facsimile: 206-682-4769

with a copy to:

The Multi-Employer Property Trust

c/o Kennedy Associates Real Estate Counsel, Inc.

Attn: Vice President, Asset Management

7315 Wisconsin Avenue, Suite 350

West Bethesda, MD 20814

Facsimile: 301-656-9339

with a copy to:

Riggs Bank N.A., as trustee of the

Multi-Employer Property Trust

808 17th St. N.W., 7th Floor

Washington, D.C., 20006

Attn: Pat Mayberry

Facsimile: 202-835-6887

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with a copy to:

Trammell Crow Company

101 West Elm Skeet. Suite 400

Conshohocken, Pennsylvania 19428-2009

Facsimile: 484-530-4601

and with a copy to:

Robert C. Zinnershine, Esq.

Seyfarth Shaw

World Trade Center East Two

Seaport Lane, Suite 300

Boston. MA 02210

Telecopy No.: 617-946-4801

12.Ratification. Tenant and Subtenant hereby ratify and confirm their respective obligations under the Lease, and represent and warrant to Landlord that, as of the date hereof, they have no defenses thereto. Additionally, Tenant, and Subtenant further confirm and ratify that, as of the date hereof, (a) the Lease is and remains in good standing and in full force and effect and, except as set forth above, has not been amended or modified, and (b) neither of such parties has any claims, counterclaims, set-offs or defenses against Landlord arising out of the Lease or in any way relating thereto or arising out of any other transaction between Landlord, Tenant or Subtenant.

13.Binding Effect; Governing Law. Except as modified hereby, the Lease shall remain in full effect and this Agreement shall be binding upon Landlord, Tenant, and Subtenant and their respective successors and assigns. If any inconsistency exists or arises between the terms of this Agreement and the terms of the Lease, the terms of this Agreement shall prevail. This Agreement shall be governed by the laws of the state in which the Premises are located.

14.Amendment; Entire Agreement. This Agreement shall not be amended or modified except by an instrument in writing signed by all the parties hereto and this Agreement contains all of the agreements, understandings, representations and warranties of the parties with respect to the subject matter hereof.

15.Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which shall constitute one document.

<REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.>

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EXECUTED as of the date first written above.

LANDLORD:	Multi-Employer Property Trust,
	a trust organized under 12 C.F .R. Section 9.18
	By:			/s/ James R. Landau
	Name:					James R. Landau
	Its:		Vice President
TENANT:	Systems & Computer Technology Corporation
	By:			/s/ Eric Haskell
	Name:					Eric Haskell
	Title:				Executive Vice President & CFO
SUBTENANT:	Cephalon, Inc.
	By:	/s/ J. Kevin Buchi
	Name:					J. Kevin Buchi
	Title:				Sr. Vice President & CFO

EXHIBIT A

LOCATION:

Westbrook Corporate Center

41 Moores Road

Frazer, PA

SUBLEASE

THIS SUBLEASE is dated as of the 1^st day of March, 2004 (the “Sublease”), between:

Systems & Computer Technology Corporation, a Delaware corporation (“Sublandlord”)

—and—

Cephalon, Inc., a Delaware corporation (“Subtenant”)

RECITALS

Master Landlord:	Riggs & Company, a division of Riggs Bank NA as trustee of the Multi-Employer Property Trust
Building:	Westbrook Corporate Center; Consisting of approximately 187,653 rentable square feet of space.
Subleased Premises:	Consisting of approximately 73,904 rentable square feet of space within the Building, as further described on the Floor Plans attached hereto as Exhibit A (hereinafter referred to as the “Subleased Premises”).

Subtenant’s Proportionate Share:  39.38% (calculated by dividing the 73,904 rentable square feet of space of the Subleased Premises by the 187,653 rentable square feet of space of the Building).

Whereas, Master Landlord, as landlord, and Sublandlord, as tenant, entered into a certain lease dated as of October 19, 1998 (the “Original Lease”), as amended by that certain First Amendment to Lease dated June 3, 1999 (the “First Amendment” and together with the Original Lease, the “Master Lease”) for the Leased Premises.  A copy of the Master Lease is attached hereto as Exhibit B.  Terms used in this Sublease and not otherwise defined shall have the meanings ascribed to them in the Master Lease.

Whereas, Subtenant has agreed to sublease the Subleased Premises from Sublandlord under the terms and conditions set forth in this Sublease.

NOW THEREFORE, in consideration of the foregoing and of the mutual promises hereinafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE 1

INCORPORATION OF MASTER LEASE

1.01Incorporation of Master Lease.  Except to the extent otherwise provided in this Sublease, the terms and conditions of the Master Lease are hereby incorporated into this Sublease, with necessary modifications as to context.  All defined terms used in this Sublease but not defined in this Sublease shall have the meanings set forth in the Master Lease.  In the case of any inconsistency between a provision of this Sublease and a provision of the Master Lease, this Sublease shall prevail unless otherwise stated.

1.02Binding Effect of Master Lease.  Subtenant agrees for the benefit of Sublandlord and the Master Landlord to abide by and perform all of the terms and provisions of the Master Lease as applicable to the Subleased Premises, except as otherwise expressly provided by this Sublease.  Subtenant shall not commit, nor allow by any party for whom Subtenant is legally responsible to commit, any act or omission which shall violate any term or condition of the Master Lease.

1.03Maintenance of Master Lease.  Sublandlord agrees to maintain the Master Lease and all covenants contained therein in full force and effect during the Term, subject however, to any earlier termination of all or any part of the Master Lease without the fault or voluntary acts or omissions of Sublandlord.  If the Master Lease is terminated for any reason, then this Sublease shall terminate when and to the extent such Master Lease terminates.  Sublandlord may assign, transfer or convey this Sublease and in such event, Sublandlord shall provide Subtenant with written notice of any such assignment, transfer or conveyance.  Unless an Event of Default has occurred hereunder that has not been cured to Sublandlord’s satisfaction, during the Term Sublandlord shall not terminate, or cause to be terminated, the Master Lease without first obtaining Subtenant’s prior written consent.

1.04Obligations of Master Landlord.  Subtenant agrees that no failure or delay on the part of Master Landlord to supply any service, make repairs or take any other action required under the Master Lease shall constitute a default or breach by Sublandlord of this Sublease or give rise to a claim against Sublandlord for damages.  To the extent that Master Landlord fails to perform its obligations under the Master Lease, Sublandlord shall be relieved of its obligations hereunder, except that Sublandlord shall at all times use commercially reasonable efforts and due diligence in attempting to enforce the Master Lease and Sublandlord shall commence litigation or arbitration to enforce the Master Lease promptly following receipt of written instructions to do so from Subtenant.   Subtenant hereby agrees to indemnify, protect and hold Sublandlord harmless in and from any such litigation or arbitration and to reimburse Sublandlord for any costs associated therewith.

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1.05Approval by Master Landlord of this Sublease.  This Sublease and the parties’ rights and obligations hereunder are subject to the written consent of the Master Landlord, as required under the Master Lease.  This Sublease shall be null and void and of no further force or effect, and neither Sublandlord nor Subtenant shall have any liability to the other whatsoever, should the Master Landlord fail to give such consent to this Sublease, or require conditions to this Sublease to which Sublandlord, Subtenant, or both, are unwilling to accept.

1.06Approvals of Master Landlord.  Throughout this Sublease, where reference is made to approvals by the Sublandlord, such approvals, if required by the Master Lease, shall include approvals by the Master Landlord.  Master Landlord shall also, under the terms of the Master Lease, review and approve all plans for any renovation to the Subleased Premises.  Sublandlord shall respond to Subtenant’s request for approvals within the time limits proscribed herein, provided, however, Sublandlord shall be excused from any failure to comply with such time limits if such failure is solely attributable to Master Landlord’s delay in reviewing or approving documents or plans.  Sublandlord shall not have any liability hereunder as a result of Master Landlord’s failure to prosecute its review and approval in a timely manner.

1.07Enforcement of Master Lease by Sublandlord.  Sublandlord acknowledges that Subtenant has entered into a direct lease with Master Landlord for the balance of the space within the Building (“Subtenant’s Direct Lease”) and that the terms and conditions of Subtenant’s Direct Lease differ in certain regards from the terms and conditions of the Master Lease.  As such, Sublandlord hereby agrees that unless and until such time Master Landlord threatens or asserts a default or other enforcement (including, but not limited to the collection by Master Landlord of rents, additional rents, fees or other items of monetary value) of the Master Lease against Sublandlord, whether orally or in writing, which determination of threat or assertion shall be made in Sublandlord’s sole discretion, Sublandlord agrees that, in accordance with the terms set forth more fully below, it will not affirmatively enforce the following provisions of the Master Lease against Subtenant:

a.The calculation of Subtenant’s Proportionate Share of Operating Costs.  In the event Master Landlord calculates the Operating Costs for the Building and the Subleased Premises in accordance with Subtenant’s Direct Lease and does not bill or charge Sublandlord for such costs in any other manner, whether during or after the Term, Sublandlord will not seek to collect the payment of Subtenant’s Proportionate Share in accordance with the method for the calculation of Operating Costs set forth in the Master Lease.

b.Provided Subtenant delivers to Sublandlord the Master Landlord’s prior written consent to any signage installations desired by Subtenant and upon the expiration or sooner termination of this Sublease Subtenant restores the Building and the Subleased Premises in accordance with the terms of Paragraph 4.24 of the Master Lease, Sublandlord shall not seek to enforce such Paragraph 4.24 of the Master Lease.

c.For the purposes of this Sublease, the relationship between Subtenant and Sublandlord, and in the absence of enforcement by Master Landlord as described

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above, Exhibit E to the Master Lease shall be revised as follows and incorporated herein by reference:

•In Rule 2, the word “reasonably” is hereby inserted between the words “Landlord” and “objects.”

•In Rule 7, the phrase “which consent shall not be unreasonably withheld, conditioned or delayed,” is hereby inserted after the phrase “it shall first obtain Landlord’s consent.”

•The second to last sentence of Rule 8 is hereby deleted in their entirety.

•Rule 14 is hereby revised such that the first sentence is deleted in its entirety and the following inserted in its place, “Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets at the close of business each day.”

•In Rule 21, the word “reasonably” is hereby inserted between the words “shall” and “cooperate.”

•In Rule 22, the words “reasonably exercised” are hereby inserted between the words “judgment” and “is.”

•In Rule 24 the words “except for in the cafeteria and” are hereby inserted between the words “Tenant,” and “except” and the phrase “or toasting” is hereby deleted.

•In Rule 27, the word “reasonably” is hereby inserted between the words “regulations” and “established.”

•Rule 33 is hereby deleted in its entirety.

Anything in this Paragraph 1.07 notwithstanding, Sublandlord shall not be prevented from enforcing any other term of this Sublease or the Master Lease, as incorporated herein, against Subtenant.  In the event Master Landlord enforces any of the provisions the Master Lease set forth above in this Paragraph 1.07 against Sublandlord, Subtenant shall indemnify, protect and hold Sublandlord harmless against such enforcement action and shall be responsible for compliance with the Master Lease in accordance with its terms, including the payment of any monetary damages asserted by Master Landlord and the alteration or restoration of the Subleased Premises to cause conformity with the Master Lease.

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ARTICLE 2

SUBLEASED PREMISES

2.01Subleased Premises.  Sublandlord hereby leases to Subtenant, and Subtenant hereby leases from Sublandlord, the Subleased Premises.

2.02Building Common Areas.  To the extent Sublandlord has rights under the Master Lease, Subtenant shall also have the right, in common with others, to reasonable use of the common areas of the Land and the Building, including, without limitation, parking, elevators, corridors, restrooms and walkways, to the extent permitted and subject to the rules imposed by Master Landlord under the Master Lease.

2.03Condition Precedent. Without limitation to other conditions or agreements stated herein, all obligations of Subtenant under this Sublease, including, without limitation, Subtenant’s obligation to sublease the Subleased Premises, is subject to the condition that, within 10 days of the date of this Sublease, Sublandlord and Alternative Resources Corporation (“ARC”) shall have entered into an agreement (the “ARC Termination Agreement”) whereby (a) ARC agrees to vacate, on or before May 1, 2004, the portion of the Subleased Premises currently subleased by ARC and consisting of approximately 6,703rentable square feet on the first floor of the Building (the “ARC Space”), and (b) ARC and Sublandlord agree to terminate the sublease agreement for the ARC Space.  If Sublandlord fails to obtain the ARC Termination Agreement within 10 days of the date of this Sublease, Subtenant shall have the option of terminating this Sublease by providing written notice of such intention to Sublandlord at any time prior to the Sublease Commencement Date.  In the event Subtenant has failed to provide such notice of termination and the ARC Space has not been vacated by the Sublease Commencement Date, the Subleased Premises shall be deemed to exclude the ARC Space and Subtenant’s Proportionate Share and Base Rent shall be reduced accordingly until such time that the ARC Space is made available for Subtenant’s use and enjoyment.  If obtained, Sublandlord hereby agrees to diligently enforce the ARC Termination Agreement and prosecute the terms thereof for the benefit of Subtenant.

ARTICLE 3

TERM

3.01Term.  The term of this Sublease (“Term”) shall commence as of March 1, 2004 (the “Sublease Commencement Date”), and shall expire on February 28, 2007.

3.02Extension of Term.  Provided that no uncured event of default shall exist as of either (i) the date of exercise of the Extension Option, as defined below, or (ii) the commencement of any renewal term, Subtenant shall have two (2) options to extend the Term of this Sublease for an additional period of one (1) year each.  The first renewal term, if exercised, shall commence on March 1, 2007 and expire on February 28, 2008 and the second renewal term, if exercised, shall commence on March 1, 2008 and expire on February 28, 2009 (each an “Extension Option”).  Each Extension Option shall be exercised by Tenant, if at all, by providing Sublandlord with written notice no more than twelve (12) months and no less than nine (9) months prior to the commencement date of

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the corresponding renewal term.  Any holdover or extension beyond the then current term shall be without the consent of the Sublandlord and any costs, penalties, or actions otherwise taken by the Master Landlord shall be at the sole cost and expense of the Subtenant.

ARTICLE 4

RENT

4.01Base Rent.    For and during the Term, as extended by the renewal terms, if exercised, Subtenant shall pay to Sublandlord as base rent (“Base Rent”) for the Subleased Premises, the following amounts, which shall be paid in advance on the first day of each and every calendar month:

Period	Monthly Rent	Annual Rent	Rent Per RSF
3/1/04 to 2/28/05	[**]	[**]	[**]
3/1/05 to 2/28/06	[**]	[**]	[**]
3/1/06 to 2/28/07	[**]	[**]	[**]
3/1/07 to 2/28/08	[**]	[**]	[**]
3/1/08 to 2/28/09	[**]	[**]	[**]

Notwithstanding the foregoing, the initial installment of Base Rent due hereunder shall not be required to be paid in advance, but rather shall be paid within five (5) days following Sublandlord’s delivery of Master Landlord’s consent to this Sublease to Subtenant.

4.02Late Charge.  If Subtenant fails to make any payment of Base Rent, Additional Rent (as defined below) or other amount when due under this Sublease, Subtenant shall also pay a late charge equal to five percent (5%) of the amount of any such payment.  Sublandlord and Subtenant agree that this charge compensates Sublandlord for the administrative costs caused by the delinquency.  The parties agree that Sublandlord’s damage would be difficult to compute and the amount stated in this Paragraph represents a reasonable estimate of such damage.  Assessment or payment of the late charge contemplated in this Paragraph shall not excuse or cure any Event of Default or breach by Subtenant under this Sublease or impair any other right or remedy provided under this Sublease or under law.

4.03Prorated Rent.  In the event this Sublease commences or ends on some date other than the first or last day of the month, said commencement or termination month’s rent shall be prorated on the basis of a 30-day month to reflect the actual period of the subtenancy.

4.04Payment of Rent.  Except as expressly provided for in this Sublease, all Base Rent and other sums due to Sublandlord under this Sublease shall be payable in advance on the first day of each calendar month and shall be made payable to SCT Corp. and forwarded to Four Country View Road, Malvern, PA 19355 Attn:  Facilities Dept. or to such other address as Sublandlord may otherwise designate in writing.

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

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ARTICLE 5

ADDITIONAL RENT

5.01Additional Rent.  The term, “Rent” as used in this Sublease, unless otherwise stated,

shall mean Base Rent and all additional amounts payable by the Subtenant hereunder (“Additional Rent”) collectively, and Sublandlord shall have all rights and remedies for non-payment of Additional Rent amounts as for non-payment of Base Rent.  All payments of Additional Rent shall be due together with the next installment of Base Rent falling due after Sublandlord delivers an invoice to Subtenant for the same.

a.Operating Costs.  Commencing on the date hereof, Subtenant shall pay, as Additional Rent, Subtenant’s Proportionate Share of Operating Costs (as defined in the Master Lease) in accordance with the terms of Paragraph 3.4 of the Master Lease.  Notwithstanding the foregoing, for purposes of this Sublease, the Base Year for Operating Costs shall be 2004 and Subtenant shall be responsible for its Proportionate Share of Operating Costs to the extent they exceed such Base Year.

b.Additional Electricity and Other Services.  Beginning on the date hereof, Subtenant shall be responsible for the payment, as Additional Rent, of any after hour utility usage and for such additional services requested by Subtenant in accordance with the terms of the Master Lease and Master Landlord’s rules and regulations applicable to the Building.

5.02Electricity Usage.  Beginning on the Sublease Commencement Date, Subtenant shall pay Sublandlord (at Sublandlord’s actual cost), as Additional Rent, for all electricity consumed in the Subleased Premises.  Electricity consumption in the Subleased Premises will be determined by separate meters to be installed.  Notwithstanding the foregoing, the parties acknowledge that Operating Costs include charges for electricity consumed in the common areas of the Building, as prorated among the tenants in the Building.  Such payment for separately submetered electricity shall be made as Additional Rent.

ARTICLE 6

USE AND CONDITION OF SUBLEASED PREMISES; SURRENDER

6.01Use.  Subtenant shall use the Subleased Premises for only those purposes permitted by the Master Lease and for no other use or purpose without the prior written consent of Sublandlord, which shall not be unreasonably withheld, and the prior written consent of  Master Landlord.  Subtenant shall not conduct any activities in the Subleased Premises nor undertake a change of the use of the Subleased Premises after the Sublease Commencement Date which would increase Sublandlord’s risks, liabilities (in relation to hazardous substances or otherwise) or insurance rates, without first obtaining Sublandlord’s consent in writing, and shall not commit waste or nuisance on the Subleased Premises.  The Sublandlord makes no representation or warranty as to the suitability of the Subleased Premises for Subtenant’s intended use.  Subtenant shall, at its own cost and expense, obtain and maintain any and all licenses, permits, and approvals

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necessary or appropriate for its use, occupation and operation of the Subleased Premises; provided, however, Sublandlord, at no additional cost to Sublandlord, shall cooperate with Subtenant in obtaining such licenses, permits and approvals.  Subtenant’s inability to obtain or maintain any such license, permit or approval necessary or appropriate for its use, occupation or operation of the Subleased Premises shall not relieve it of its obligations under this Sublease, including the obligation to pay Rent.

6.02Subtenant Improvements.  Subtenant shall make no alterations, improvements or renovations to the Subleased Premises, including, without limitation, the installation of any equipment or facilities that would utilize excessive amounts of electricity, without the prior written approval of Sublandlord, which approval Sublandlord agrees shall not be unreasonably withheld, conditioned or delayed, the prior written approval of Master Landlord and the payment of any fees or costs required by the Master Lease.  If Sublandlord fails to respond to Subtenant’s request for approval within fifteen (15) days of receipt and such delay is not attributable to any delay by Master Landlord in granting its own approval, Sublandlord shall be deemed to have approved such request.  All alterations to the Subleased Premises, regardless of which party constructed them, shall become the property of Master Landlord and shall remain upon and be surrendered with the Subleased Premises upon the expiration or earlier termination of this Sublease; provided that, unless at the time Subtenant requested Sublandlord’s and Master Landlord’s consent to a proposed alteration, Subtenant requested, and Sublandlord and Master Landlord each agreed in writing, that Subtenant need not remove such alteration upon the expiration or sooner termination of this Sublease, upon the expiration or earlier termination of this Sublease, at either Sublandlord’s or Master Landlord’s election and upon notice to Subtenant, Subtenant shall be required to remove some or all of the alterations as designated in either the Sublandlord’s or Master Landlord’s notice to Subtenant.

6.03Building Maintenance and Repair.  Subject to the terms of the Master Lease, Master Landlord shall maintain and repair the common areas of the Building in their current state of repair, ordinary wear and tear excepted.  Subtenant shall keep the Subleased Premises in good order, condition and repair throughout the Term.

6.04Condition of Subleased Premises.  Subtenant accepts the Subleased Premises as of the Sublease Commencement Date in their “as-is, where-is” condition and acknowledges that Sublandlord has made no representation or warranty as to the suitability of the Subleased Premises for the conduct of Subtenant’s business.  Other than those improvements to the previously unimproved space within the Subleased Premises (the “Unimproved Space”) to be completed in accordance with the Subtenant Improvement Letter Agreement attached hereto as Exhibit C and made a part hereof, Sublandlord shall have no obligation or responsibility to install or construct any alterations, additions, or improvements to the Subleased Premises.  Upon ARC’s vacation of the ARC Space, Subtenant shall have the right, upon at least sixty (60) days prior notice to Master Landlord and Sublandlord and having obtained Master Landlord’s prior written consent, to have the automatic security system on the front and back entrance doors servicing the west wing of the Building deactivated and to install, following Master Landlord’s approval of such system and

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plans for its installation, Subtenant’s own security system at the entrance of the west wing of the Building, provided that such system does not unreasonably increase Operating Costs and provided further that Subtenant shall ensure that Sublandlord, Master Landlord, and Master Landlord’s Manager continue to have access to the west wing of the Building and the Subleased Premises as set forth herein.  If Subtenant’s security system includes monitoring services acceptable to Sublandlord and Master Landlord, and Subtenant ensures that Sublandlord, Master Landlord and Master Landlord’s agents have notice under any such monitoring services agreement, Subtenant shall have the right, upon at least sixty (60) days prior notice to Sublandlord and Master Landlord and the delivery of Master Landlord’s written consent to the same, to have the security system monitoring service currently employed by Master Landlord discontinued on the west wing of the Building.  If Subtenant exercises this right to deactivate the security system at the west wing entrance doors upon the expiration or sooner termination of this Sublease, Subtenant shall, at its expense, remove the security system installed by it and repair any damage caused thereby, and if requested by either Sublandlord or Master Landlord at the expiration of this Sublease, reinstall Master Landlord’s security locking system on such doors.  All Subtenant Improvements shall be the property of Sublandlord and shall remain upon and be surrendered with the Subleased Premises upon the expiration or earlier termination of this Sublease unless Sublandlord provides written notice to Subtenant directing Subtenant to remove such improvements and restore the Subleased Premises to their condition as of the Sublease Commencement Date.

6.05Compliance with Laws.  During the Term, Subtenant shall, at its expense, comply promptly with all Governmental Requirements relating to its use, occupancy and operation of the Subleased Premises.  Subtenant shall be solely responsible for obtaining or maintaining all permits, licenses and approvals necessary to the conduct of its business in the Subleased Premises.  Subtenant shall not use or permit the use of the Subleased Premises in any manner that will tend to create waste or a nuisance.  Subtenant shall at all times cause its employees, invitees and licensees to the Subleased Premises to comply with such reasonable rules and regulations as may be imposed from time to time by Sublandlord or Master Landlord with respect to use of the common areas of the Building, and Master Landlord’s regulations and requirements with respect to general security and access to the Building and the use of the common areas.  Notwithstanding the foregoing, during construction of the Subtenant Improvements, the following Rules listed on Exhibit E of the Master Lease shall be temporarily suspended as to Subtenant’s operations within the Unimproved Space and to the extent otherwise reasonably necessary to accommodate such construction, and Subtenant’s performance of these obligations shall be governed instead by the Plans and Specifications (as such term is defined in Exhibit ”C” to this Sublease) and by the reasonable requirements imposed by Master Landlord’s construction manager: first sentence of Rule 3, solely as it relates to obstructions of the east wing of the Building, 19, 23, third sentence of Rule 30 (relating to overnight parking of vehicles) and 33.

6.06Right of Entry.  For the purposes of this Sublease, all references to “Landlord” in Paragraph 4.9 of the Master Lease shall be deemed to include both Master Landlord and Sublandlord.

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6.07Conduct of Repairs.  Sublandlord shall have no responsibility for performing any repairs or replacements to the Subleased Premises.  In the event that any repairs or replacements are required to be made to the Subleased Premises, and such repairs or replacements are the responsibility of the Master Landlord under the Master Lease, Subtenant shall notify Master Landlord of such repairs and in accordance with Paragraph 1.04 of this Sublease, Sublandlord shall seek to enforce Master Landlord’s compliance with the Master Lease.

6.08Surrender of Subleased Premises.  Subject to Paragraph 4.10 of the Master Lease, at the expiration or sooner termination of the Term, Subtenant shall surrender the Subleased Premises in accordance with the terms and conditions specified in Paragraph 4.7 of the Master Lease.  Notwithstanding anything contained in this Sublease or the Master Lease to the contrary, Subtenant shall not be responsible for any repairs or restoration required as a result of events occurring or conditions arising either prior to the Sublease Commencement Date or after the expiration or earlier termination of this Sublease.

6.09Covenants of Subtenant.  Subtenant shall pay the rent herein reserved, abide by, observe and perform all of the terms, covenants and conditions of this Sublease and surrender the Subleased Premises to Sublandlord on the expiration or sooner termination of this Sublease in the condition required hereunder.

6.10Hazardous Substances.  Subtenant agrees to comply with Paragraph 4.21 of the Master Lease regarding Hazardous Substances and shall indemnify Sublandlord and Master Landlord in accordance with the terms thereof.

6.11Furniture.   Sublandlord shall remove all of Sublandlord’s furniture presently located in the Subleased Premises on or before March 31, 2004 and Sublandlord shall be entitled to enter into the Subleased Premises at any time prior to such date in order to achieve such removal; provided, however, Sublandlord shall not remove any of the construction inventory currently located in the Unimproved Space or any of the equipment in the data center, including, without limitation, the racking and stand-alone HVAC system.

ARTICLE 7

INDEMNITIES

7.01Subtenant.   Subtenant shall indemnify, protect, defend and hold Sublandlord and Master Landlord and each of their respective directors, officers, shareholders, employees and agents (each, a “Sublandlord Indemnitee”) harmless from and against any damages, costs and expenses (including reasonable attorneys’ fees and costs), claims, actions, causes of action or judgments (collectively, “Claims”) incurred, suffered by or claimed against a Sublandlord Indemnitee as a result, directly or indirectly, of:

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(a)any personal injury, death or property damage occurring in, on, or about the Subleased Premises or any part thereof, or occasioned by any act or omission of Subtenant, its officers, employees, agents, licensees, contractors or invitees; or

(b)any claims made against a Sublandlord Indemnitee as a result of breach of this Sublease or the Master Lease by the Subtenant.

Notwithstanding the foregoing, neither Subtenant nor Subtenant’s agents shall have any liability for any indirect or consequential losses suffered by Sublandlord or Sublandlord’s Indemnitees.

7.02Sublandlord.  Except if caused by Subtenant’s negligence or willful misconduct, Sublandlord shall indemnify, protect and hold Subtenant and its directors, officers, shareholders, employees and agents (each, a “Subtenant Indemnitee”) harmless from and against any Claims incurred, suffered by or claimed against a Subtenant Indemnitee as a result, directly or indirectly, of:

(a)any negligent act or willful misconduct of Sublandlord, its officers, employees, agents, licensees, contractors or invitees; or

(b)any Claims made by Master Landlord against a Subtenant Indemnitee as a result of breach of this Sublease or the Master Lease by Sublandlord.

Notwithstanding the foregoing, neither Sublandlord nor Sublandlord’s agents shall have any liability for any indirect or consequential losses suffered by Subtenant or Subtenant’s Indemnitees.

ARTICLE 8

INSURANCE AND CASUALTY

8.01Subtenant’s Insurance.

(a)Subtenant shall, at its own expense, obtain and keep in force during the term of this Sublease all insurance required to be maintained by Sublandlord as tenant, pursuant to the terms of the Master Lease.  Such policies shall include a contractual liability endorsement covering Subtenant’s obligation under Article 7 and any other indemnification clause set forth herein expressly or by incorporation of the terms of the Master Lease.  All liability policies of insurance required to be maintained by Subtenant hereunder shall name Sublandlord and Master Landlord as additional insureds.  All policies of insurance required to be maintained by Subtenant hereunder shall include a provision requiring the insurer to endeavor to notify Sublandlord and Master Landlord at least thirty (30) days prior to any cancellation or reduction in coverage amounts required by this Sublease, and shall in all other respects be in accordance with the terms of the Master Lease.  Notwithstanding the rating requirements set forth in the Master

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Lease, all insurance policies required under this Paragraph shall be with companies having a Best’s rating of A-/VIII or better and which are licensed to do business in the Commonwealth of Pennsylvania.

(b)As soon as available following the execution of this Sublease, Subtenant shall deliver to Sublandlord certificates of insurance evidencing the insurance required by the terms of this Sublease upon standard liability Acord forms, with separate endorsements as to all required additional insureds.  Notwithstanding anything in this Sublease to the contrary, Subtenant shall not be entitled to enter upon or conduct activities within the Subleased Premises until such evidence of insurance has been delivered to Sublandlord.  Such prohibition on Subtenant’s entry shall in no way suspend, abate or diminish Subtenant’s obligations under this Sublease, including the obligation to pay Rent, while such evidence of insurance is pending.

(c)If Subtenant fails to procure and maintain the insurance hereunder, Sublandlord may, at its option, procure and maintain the same and Subtenant shall reimburse Sublandlord on demand for the reasonable costs of said insurance.  Subtenant acknowledges that Sublandlord will not carry insurance on Subtenant’ furnishings, fixtures or equipment and Subtenant agrees that Sublandlord will not be obligated to repair any damage thereto or replace the same.

8.02Waiver of Subrogation.  Notwithstanding anything in this Sublease to the contrary, Master Landlord, Sublandlord and Subtenant hereby each waive and release the other from any and all Claims or any loss or damage that may occur to the Land, Building, Subleased Premises, or personal property located therein, by reason of fire or other casualty regardless of cause or origin, including the negligence or misconduct of Master Landlord, Sublandlord, Subtenant, Master Landlord’s Agents, Sublandlord’s Agents or Subtenant’s Agents, but only to the extent of the insurance proceeds paid to such releasor under its policies of insurance under Paragraph 8.01 of this Sublease and Paragraphs 4.14 and 4.15 of the Master Lease or if it fails to maintain the required policies, the insurance proceeds that would have been paid to such releasor if it had maintained such policies.  Each party to this Sublease shall promptly give to its insurance company written notice of the mutual waivers contained in this subparagraph, and shall cause its insurance policies to be properly endorsed, if necessary, to prevent the invalidation of any insurance coverages by reason of the mutual waivers contained in this subparagraph.

8.03Fire and Casualty.  Subtenant has reviewed the provisions of the Master Lease concerning the obligation of the Master Landlord to make repairs and replacements to the Building in case the Building or any portion thereof shall be totally or partially damaged or destroyed by fire or by any other casualty whatsoever, or any adjacent structure providing access or essential services thereto, by fire or other casualty.  Other than Sublandlord’s obligation to enforce the terms of the Master Lease in accordance with the terms of Paragraph 1.04 of this Sublease, Subtenant acknowledges and agrees that Sublandlord shall have no liability or responsibility for any restoration of the Building or Subleased Premises following any casualty.

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8.04Eminent Domain.  Subtenant has reviewed the provisions of the Master Lease concerning the obligations of the Master Landlord in the event any part of the Building or common areas thereof shall be taken for public use by a governmental authority by right (in lieu of) of eminent domain.  Other than Sublandlord’s obligation to enforce the terms of the Master Lease in accordance with the terms of Paragraph 1.04 of this Sublease, Subtenant acknowledges and agrees that Sublandlord shall have no liability or responsibility for any restoration of the Building or Subleased Premises as may be necessitated by any eminent domain proceedings (or any transfer in lieu thereof).  Subtenant shall not be entitled to share in any award of compensation for such condemnation, and hereby assigns any rights to any such award to Sublandlord.

ARTICLE 9

DEFAULTS

9.01Subtenant Default.  The occurrence of any one or more of the following events shall constitute a material default and breach of this Sublease by Subtenant (“Event of Default”):

a.vacation or abandonment of all or any material portion of the Subleased Premises; provided that the vacating of all or a material part of the Subleased Premises by Subtenant shall not constitute an Event of Default so long as (i) Subtenant gives Sublandlord and Master Landlord not less than thirty (30) days notice of the date Subtenant intends to vacate the Subleased Premises, (ii) on or before the date Subtenant vacates the Subleased Premises Subtenant pays to Sublandlord rent for the next month in advance of the date otherwise due (e.g., pay on September 1, the installments of rent for the months of October and November), and (iii) otherwise continue to perform Subtenant’s obligations under this Sublease;

b.failure by Subtenant to make any payment of Rent or any other sum payable by Subtenant under this Sublease where such failure continues for more than ten (10) calendar days after Sublandlord has provided Subtenant with notice of the delinquent payment; provided, however, Sublandlord need not give any such notice, and Subtenant shall not be entitled to any such period of grace, more than two times in any twelve (12) month period;

c.an assignment of this Sublease by Subtenant or a sublease of any or all of the Subleased Premises without Sublandlord’s permission except in conformance with Paragraph 10.04 hereof;

d.failure by Subtenant to observe or perform any covenant or condition of this Sublease, other than the making of payments, where such failure shall continue for a period of fifteen (15) calendar days after written notice from Sublandlord; provided,

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however, that if the nature of the default is such that the same cannot reasonably be cured within such fifteen (15) day period, Subtenant shall not be deemed to be in default if Subtenant shall commence the cure of such default within such fifteen (15) day period and thereafter diligently prosecute the same to completion within sixty (60) days after Subtenant receives written notice thereof;

e.(1) the making by Subtenant of any general assignment or general arrangement for the benefit of creditors; (2) the filing by or against Subtenant of a petition in bankruptcy, including reorganization or arrangement, unless, in the case of a petition filed against Subtenant, unless the same is dismissed within forty-five (45) calendar days; (3) the appointment of a trustee or receiver to take possession of substantially all of Subtenant’s assets located in the Subleased Premises or of Subtenant’s interest in this Sublease; (4) any execution, levy, attachment or other process of law against any property of Subtenant or Subtenant’s interest in this Sublease, unless the same is dismissed within forty-five (45) calendar days; (5) adjudication that Subtenant is bankrupt; (6) the making by Subtenant of a transfer in fraud of creditors; or (7) the failure of Subtenant to generally pay its debts as they become due; or

f.any information furnished by or on behalf of Subtenant to Sublandlord in connection with the entry of this Sublease is determined to have been materially false or misleading as of when made, or Subtenant shall have failed to include a material fact necessary to make such information, in the light of the circumstances under which it was delivered, not misleading.

Subtenant shall notify Sublandlord promptly of any Event of Default or any facts, conditions or events which, with the giving of notice or passage of time, or both, would constitute and Event of Default.

If a petition in bankruptcy is filed by or against Subtenant, and if this Sublease is treated as an “unexpired lease” under applicable bankruptcy law in such proceeding, then Subtenant agrees that Subtenant shall not attempt nor cause any trustee to attempt to extend the applicable time period within which this Sublease must be assumed or rejected.

9.02Remedies for Subtenant Default.If any Event of Default occurs and remains uncured after Sublandlord delivers notice of such Event of Default and the applicable cure period, if any, has expired, Sublandlord may exercise, without limiting Sublandlord in the exercise of any right or remedy at law which Sublandlord may have by reason of such Event of Default, the rights and remedies, either singularly or in combination, as are specified or described in the subparagraphs of this Paragraph.

a.Sublandlord may terminate this Sublease and all rights of Subtenant under this Sublease either immediately or at some later date by giving Subtenant written notice that this Sublease is terminated.  If Sublandlord so terminates this Sublease, then Sublandlord may recover from Subtenant the sum of:

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1.the unpaid Rent and all other sums payable under this Sublease which have been earned at the time of termination;

2.interest at the Default Rate on the unpaid Rent and all other sums payable under this Sublease which have been earned at the time of termination; plus

3.the amount by which the unpaid Rent and all other sums payable under this Sublease which would have been earned after termination until the time of award exceeds the amount of such rental loss, if any, as Subtenant proves could have been reasonably avoided and interest on such excess at the Default Rate; plus

4.the amount by which the aggregate of the unpaid Rent and all other sums payable under this Sublease for the balance of the Sublease Term after the time of award exceeds the amount of such rental loss, if any, as Subtenant proves could be reasonably avoided, with such difference being discounted to present value at the Prime Rate at the time of award; plus

5.any other amount necessary to compensate Sublandlord for the detriment proximately caused by Subtenant’s failure to perform Subtenant’s obligations under this Sublease or which, in the ordinary course of things, would be likely to result from such failure, including, leasing commissions, tenant improvement costs, renovation costs and advertising costs; plus

6.all such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

b.Sublandlord shall also have the right, without terminating this Sublease, to re-enter the Subleased Premises and remove all persons and property from the Subleased Premises.  Sublandlord may cause property so removed from the Subleased Premises to be stored in a public warehouse or elsewhere at the expense and for the account of Subtenant.

c.Sublandlord shall also have the right, without terminating this Sublease, to accelerate and recover from Subtenant the sum of all unpaid Rent and all other sums payable under the then remaining term of the Sublease, discounting such amount to present value at the Prime Rate.  Upon recovery of all such amounts, the Sublease and all rights of Subtenant hereunder shall terminate.

d.If Subtenant vacates, abandons or surrenders the Subleased Premises in violation of this Sublease, or if Sublandlord re-enters the Subleased Premises as provided in Paragraph 9.02.b or takes possession of the Subleased Premises pursuant to legal proceedings or through any notice procedure provided by law, then, if Sublandlord does not elect to terminate this Sublease, Sublandlord may, from time to time, without terminating this Sublease, either (a) recover all Rent and all other sums payable under this Sublease as they become due or (b) relet the Subleased Premises or any part of the Subleased Premises on behalf of and for the benefit of Subtenant for such term or terms, at such rent or rents and pursuant to such other provisions as Sublandlord may reasonably deem advisable, all with the right, at Subtenant’s cost, to make alterations

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and repairs to the Subleased Premises and recover any deficiency from Subtenant as set forth in Paragraph 9.02.f.

e.None of the following remedial actions, singly or in combination, shall be construed as an election by Sublandlord to terminate this Sublease unless Sublandlord has in fact given Subtenant written notice that this Sublease is terminated:  an act by Sublandlord to maintain or preserve the Subleased Premises; any efforts by Sublandlord to relet the Subleased Premises; any repairs or alterations made by Sublandlord to the Subleased Premises; re-entry, repossession or reletting of the Subleased Premises by Sublandlord pursuant to this Paragraph or the appointment of a receiver, upon the initiative of Sublandlord, to protect Sublandlord’s interest under this Sublease.  If Sublandlord takes any of the foregoing remedial action without terminating this Sublease, Sublandlord may nevertheless at any time after taking any such remedial action terminate this Sublease by written notice to Subtenant.

f.Sublandlord shall use reasonable commercial efforts to relet the Subleased Premises following an Event of Default.  The parties agree that it shall be reasonable for Sublandlord to refuse to relet the Subleased Premises on the grounds set forth in Paragraph 4.17.3 of the Master Lease.  The parties further agree that Sublandlord shall not violate its obligations under this Paragraph if it leases other available space in the Building before leasing the Subleased Premises.  If Sublandlord relets the Subleased Premises, Sublandlord shall apply the revenue from such reletting as follows:  first, to the payment of any indebtedness of Subtenant to Sublandlord other than Rent or any other sums payable by Subtenant under this Sublease; second, to the payment of any reasonable cost of reletting (including finders’ fees and leasing commissions); third, to the payment of the reasonable cost of any alterations, improvements, maintenance and repairs to the Subleased Premises; and fourth, to the payment of Rent and other sums due and payable and unpaid under this Sublease.  Sublandlord shall hold and apply the residue, if any, to payment of future Rent and other sums payable under this Sublease as the same become due, and shall deliver the eventual balance, if any, to Subtenant.  Should revenue from letting during any month, after application pursuant to the foregoing provisions, be less than the sum of the Rent and other sums payable under this Sublease and Sublandlord’s expenditures for the Subleased Premises during such month, Subtenant shall be obligated to pay such deficiency to Sublandlord as and when such deficiency arises.

g.SUBTENANT, IN CONSIDERATION FOR THE EXECUTION OF THIS LEASE BY SUBLANDLORD AND FOR THE COVENANTS AND AGREEMENTS ON THE PART OF SUBLANDLORD HEREIN CONTAINED, AND FULLY COMPREHENDING THE RELINQUISHMENT OF CERTAIN RIGHTS INCLUDING RIGHTS OF PRE-JUDGMENT NOTICE AND HEARING PRIOR TO ENTRY OF JUDGMENT AND EXECUTION ON SUCH JUDGMENT, HEREBY EXPRESSLY AUTHORIZES AND EMPOWERS (WHICH POWER IS COUPLED WITH AN INTEREST) ANY PROTHONOTARY OR ATTORNEY OF ANY COURT OF RECORD TO ACCEPT SERVICE OF PROCESS FOR, TO APPEAR FOR, AND TO CONFESS JUDGMENT AGAINST SUBTENANT TO RECOVER POSSESSION FROM TIME TO TIME OF THE PREMISES (AND

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SUBTENANT AGREES THAT UPON THE ENTRY OF JUDGMENT FOR POSSESSION, A WRIT OF POSSESSION OR OTHER APPROPRIATE PROCESS MAY ISSUE FORTHWITH).  In any action by confession for ejectment, Sublandlord shall first cause to be filed in such action an affidavit made by it or someone acting for it setting forth the facts necessary to authorize the entry of judgment, of which facts such affidavit shall be conclusive evidence, and if a true copy of this Sublease be filed in such action, it shall not be necessary to file the original as a warrant of attorney, any rule of court, custom or practice to the contrary notwithstanding.  The authority to confess judgment against Subtenant hereunder shall not be exhausted by one (1) exercise thereof, but judgment may be confessed as provided herein from time to time as often as any Event of Default occurs under this Sublease, and such authority may be exercised as well after the expiration of the Term of this Sublease or during or after the expiration of any renewal Term, by Sublandlord or any successor Sublandlord.

h.Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies provided in this Sublease or by law (all such remedies being cumulative), nor shall pursuit of any remedy provided in this Sublease constitute a forfeiture or waiver of any Rent or other sum payable under this Sublease or of any damages accruing to Sublandlord by reason of the violation of any of the covenants or conditions contained in this Sublease.

9.03INTENTIONALLY OMITTED.

9.04Default Interest.  Any Rent or other sum payable under this Sublease which is not paid when due shall bear interest at a rate equal to the lesser of:  (a) the published prime rate of Riggs Bank, N.A. or such other national banking institution designated by Master Landlord if such bank ceases to publish a prime rate (the “Prime Rate”) then in effect, plus five (5) percentage points, or (b) the maximum rate of interest per annum permitted by applicable law (the “Default Rate”), but the payment of such interest shall not excuse or cure any Event of Default or breach by Subtenant under this Sublease or impair any other right or remedy provided under this Sublease or under law.  Subtenant shall indemnify and hold Sublandlord harmless from and against any late payment charge or interest charges imposed upon or charged against Sublandlord by Master Landlord as direct result of late payment or non-payment by Subtenant to Sublandlord of amounts due and owing under this Sublease if and to the extent the late charge set forth in Paragraph 4.02 of this Sublease and the foregoing imposition of the Default Rate are not sufficient to reimburse Sublandlord for such charges.

9.05Holding Over.In the event Subtenant remains in possession of the Subleased Premises after expiration of Term, and without the execution of a new lease, but with Sublandlord’s written consent, it shall be deemed to be occupying the Subleased Premises as a tenant from month to month, subject to all the provisions, conditions and obligations of this Sublease insofar as the same can be applicable to a month-to-month tenancy, except that the Base Rent shall be the greater of (i) the then current Base Rent due hereunder, (ii) the “Base Rent” payable by Sublandlord to Master Landlord under the Master Lease, or (iii) the then current fair market rate for the Subleased Premises as reasonably determined by

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

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Sublandlord.  In the event Subtenant remains in possession of the Subleased Premises after expiration of the Term and without the execution of a new lease and without Sublandlord’s written consent, Subtenant shall be deemed to be occupying the Subleased Premises without claim of right and Subtenant shall pay, as a charge for each day of occupancy, an amount equal to 150% of the “Base Rent” payable by Sublandlord pursuant to the Master Lease and Additional Rent (on a daily basis) then due under this Lease and Sublandlord shall be entitled to pursue all remedies available at law or in equity.  Subtenant shall indemnify and hold Sublandlord harmless from any additional holdover rent or other charges, penalties, damages or costs charged to, imposed upon, or suffered or incurred by Sublandlord as a result of Subtenant’s failure to surrender the Subleased Premises upon the expiration or sooner termination of the Term.

ARTICLE 10

OTHER PROVISIONS

10.01Rights under Master Lease.  Any options to renew the Master Lease, terminate or amend the term or otherwise amend the Master Lease, and any rights of first offer or refusal or any other such options or rights found in the Master Lease shall be for the benefit of the Sublandlord only and Subtenant shall have no right to exercise such rights on its own behalf or that of the Sublandlord and Sublandlord shall have no obligation to exercise any such right or option on behalf of Subtenant.  Provided Subtenant has exercised the next applicable Extension Option at least three hundred and fifty (350) days prior to the commencement date of the corresponding renewal term, Sublandlord covenants not to exercise its rights under Paragraphs 2.12 and 2.13 of the Master Lease.

10.02Notices.  Unless otherwise specifically stated in this Sublease, any notice, request or written communication required or permitted to be delivered under this Sublease shall be:  (a) in writing; (b) transmitted by personal delivery, express or courier service, United States Postal Service in the manner described below, or electronic means of transmitting written material; and (c) deemed to be delivered on the earlier of the date received or four (4) calendar days after having been deposited in the United States Postal Service, postage prepaid.  Such writings shall be addressed to Sublandlord or Subtenant, as the case may be, at the respective designated addresses set forth below, or at such other address(es) as they may, after the execution date of this Sublease, specify by written notice delivered in accordance with this Paragraph, with copies to the persons at the addresses, if any, designated opposite each party’s signature.  Those notices which contain a notice of breach or default or a demand for performance may be sent by any of the methods described in clause (b) above, but if transmitted by personal delivery or electronic means, shall also be sent concurrently by certified or registered mail, return receipt requested.

Sublandlord’s Address:

SunGard SCT Inc.

Four Country View Road

Malvern, PA 19355

Attention: Facilities Department

** Portions of this exhibit have been omitted and filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

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With a copy to:

Stradley Ronon Stevens & Young, LLP

30 Valley Stream Parkway

Malvern, PA 19355

Attention:  Michael E. Roynan, Esquire

Subtenant’s Address:

Cephalon, Inc.

145 Brandywine Parkway

West Chester, PA 19380

Attention: Richard L. Gulino, Esq.

With a copy to:

Cephalon, Inc.

145 Brandywine Parkway

West Chester, PA 19380

Attention: Dick Bacon

With a copy to:

Morgan, Lewis & Bockius LLP

1701 Market Street

Philadelphia, PA  19103

Attention:  J. J. Broderick, Esq.

Master Landlord’s Address

Riggs Bank N.A., as trustee of the

Multi-Employer Property Trust

808 17^th Street, NW

Washington, DC  20006

Attn:   Patrick O. Mayberry

Facsimile:  202-835-6887

With copies to:

The Multi-Employer Property Trust

c/o Kennedy Associates Real Estate Counsel, Inc.

2400 Financial Center

1215 Fourth Avenue

Seattle, WA  98616

Attn:  Director of Asset Management

Facsimile:  206-682-4769

and

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The Multi-Employer Property Trust

c/o Kennedy Associates Real Estate Counsel, Inc.

7315 Wisconsin Avenue, Suite 350 West

Bethesda, MD  20814

Attn:  Vice President, Asset Management

Facsimile:  301-656-9339

and Manager at:

Trammell Crow Company

101 West Elm Street, Suite 400

Conshohocken, PA  19428

Facsimile:  484-530-4601

10.03Signs.  Signage for Subtenant will be provided in the lobby directory of the Building and at the Subleased Premises entrance in accordance with the terms of the Master Lease.  Subtenant shall not install any signs on the Subleased Premises without the prior written consent of Sublandlord and Master Landlord.

10.04Assignment of Sublease, Subletting.  Subtenant shall not assign, mortgage, pledge or otherwise encumber the Sublease nor sublet the Subleased Premises or any part thereof without the prior written consent of Sublandlord and of the Master Landlord.

10.05Subordination.  Subtenant acknowledges that it has read and is familiar with the terms of the Master Lease, including, without limitation, Paragraph 4.25 of the Master Lease and agrees that this Sublease is subordinate and subject to the Master Lease and that any termination of the Master Lease shall likewise terminate this Sublease.  This Sublease is subordinate and subject to any mortgages, ground leases and/or other encumbrances to the same extent, and on the same terms, as the Master Lease is subordinate and subject to the terms thereof.

10.06Attorney’s Fees.  Should a party hereto employ an attorney for the purpose of enforcing, construing, or declaring rights under this Sublease in any litigation commenced with respect to the Sublease or Master Lease, the prevailing party shall be entitled to receive from the other party or parties thereto, reimbursement for all reasonable attorney’s fees and costs and such reimbursement may be included in any judgement or final order issued in that proceeding, provided that such fees shall not be duplicative of those fees required to be paid pursuant to the Master Lease.  The “prevailing party” means the party determined by the court to most nearly prevail in the litigation.

10.07Quiet Enjoyment.  Sublandlord represents and warrants to Subtenant that the Master Lease is in full force and effect and that there are no defaults on Sublandlord’s part as of the date hereof. Subject to the terms hereof, Sublandlord covenants that, so long as Subtenant is not in default under this Sublease, Subtenant shall quietly enjoy the Subleased Premises for the Term.

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10.08Waiver.  The waiver by either party of a breach of any term herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term of this Sublease.  The subsequent acceptance of rent by Sublandlord shall not be deemed to be a waiver of any preceding breach by Subtenant of any term of this Sublease, other than the failure of Subtenant to pay the particular rent so accepted, regardless of Sublandlord’s knowledge of such preceding breach at the time of acceptance of such rent.

10.09Brokers Fees.  Each party warrants and represents that it has not dealt with any real estate broker or agent in connection with this Sublease, other than GVA Smith Mack representing the Sublandlord and Julien J. Studley representing the Subtenant (collectively, the “Brokers”). Sublandlord shall pay commissions to the Brokers in connection with this Sublease in accordance with the terms of the separate commission agreements between Sublandlord and the Brokers.  Except for Sublandlord’s obligations to the Brokers under such separate commission agreements, each party to this Sublease shall indemnify, defend and hold harmless the other party from and against any and all Claims resulting from a breach of this representation.  Each party represents and warrants to the other that the representing party has not dealt with any real estate broker with respect to this transaction other than the Brokers.

10.10Estoppel Certificates.  Subtenant shall at all times, in good faith and with diligence, cooperate with Sublandlord in providing information and such documentation as may be reasonably required in order to ensure that Sublandlord complies with Paragraph 4.19 of the Master Lease.  Sublandlord shall, from time to time, but no more than twice during any Year, upon the written request of Subtenant, execute, acknowledge and deliver to such party or its designee a written statement stating  (a) the date this Sublease was executed and the date it expires; (b) the date Subtenant entered into occupancy of the Subleased Premises; (c) the amount of monthly Rent and the date to which such Rent have been paid; and (d) certifying that (1) this Sublease is in full force and effect and has not been assigned, modified, supplemented or amended in any way (or specifying the date of the agreement so affecting this Sublease); (2) to the knowledge of Sublandlord, Subtenant is not in breach of this Sublease (or, if so, a description of each such breach) and that no event, omission or condition has occurred which would result, with the giving of notice or the passage of time, in a breach of this Sublease by Sublandlord; (3) this Sublease (as it may have been assigned, modified, supplemented or amended as disclosed pursuant to subparagraph (d)(1) hereof) represents the entire agreement between the parties with respect to the Subleased Premises; (4) all required contributions by Sublandlord to Subtenant on account of Subtenant Improvements have been delivered or received, as the case may be; (5) on the date of execution, there exist no defenses or offsets of which the certifying party has knowledge against the enforcement of this Sublease by the Sublandlord (or, if any, a description of any such offset or defense); (6) no Rent or other sums payable under this Sublease have been paid in advance except for Rent for the then current month; and (7) no security has been deposited with Sublandlord (or, if so, the amount of such security).

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10.11Recording.  Neither this Sublease nor any notice thereof may be recorded on title to the Subleased Premises or Building without the prior consent of the Sublandlord and the Master Landlord.

10.12Parking.  Sublandlord does not warrant the availability of sufficient parking to satisfy Subtenant’s parking requirements at any given time, provided, however, in accordance with Paragraph 1.04 of this Sublease, Sublandlord shall seek to enforce Master Landlord’s compliance with the Master Lease as it pertains to parking.

10.13Provisions Inapplicable to this Sublease. For the purposes of this Sublease, Paragraphs 1.28, 1.29, 1.33, 1.34, 1.35, 1.36, 1.37, 1.39, 1.40, 1.41, 2.6, 2.8, 2.9, 3.2, 3.7, 3.8, 4.27, 4.29 and 6.19 of the Master Lease shall not apply to Subtenant or to this Sublease.

10.14Authority.  Each signatory executing this Sublease represents and warrants that he or she is duly authorized to execute and deliver this Sublease.

10.15Successors and Assigns.  Each provision hereof shall extend to and inure to the benefit of the parties and their respective agents, employees, successors and assigns, provided that this Sublease shall not inure to the benefit of any assignee or transferee of Subtenant except with Sublandlord’s and Master Landlord’s written consent.

IN WITNESS WHEREOF, the parties hereto have executed this sublease as of the date first set forth above.

SUBLANDLORD:			SUBTENANT:
Systems & Computer Technology Corporation			Cephalon, Inc.
By:	/s/ Eric Haskell		By:	/s/ J. Kevin Buchi
		Name: Eric Haskell			Name: J. Kevin Buchi
		Title: CFO			Title: Sr. V.P. & CFO
Date:		March 4, 2004	Date:		March 3, 2004

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EXHIBIT A

Floor Plan

[graphic omitted]

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EXHIBIT B

OFFICE LEASE

WESTBROOK CORPORATE CENTER

THIS OFFICE LEASE (this “Lease”) is made as of October 19, 1998, by and between

“Landlord”Riggs & Company, a division of Riggs Bank, N.A. as Trustee of the Multi-Employer Property Trust, a trust organized under 12 C.F.R. Section 9.18

and

“Tenant”Systems & Computer Technology Corporation, a Delaware corporation

TABLE OF CONTENTS

SECTION 1: DEFINITIONS
1.1	Definitions
1.2	Access Laws
1.3	Additional Rent
1.4	Base Amount Allocable to the Premises
1.5	Base Rent
1.6	Brokers
1.7	Building
1.8	Business Day
1.9	Business Hours
1.10	Claims
1.11	Commencement Dates
1.12	ERISA
1.13	Estimated Operating Costs Allocable to the Premises
1.14	Events of Default.
1.15	Force Majeure
1.16	Governmental Agency
1.17	Governmental Requirements
1.18	Hazardous Substance(s)
1.19	Land
1.20	Landlord
1.21	Landlord’s Agents
1.22	Lease Term
1.23	Manager
1.24	Manager’s Address
1.25	Operating Costs
1.26	Operating Costs Allocable to the Premises
1.27	Permitted Use
1.28	Plans and Specifications
1.29	Prepaid Rent
1.30	Premises
1.31	Prime Rate
1.32	Property Taxes
1.33	Punch List Work
1.34	Security Deposit
1.35	Scheduled Commencement Dates
1.36	Intentionally Omitted
1.37	Tenant
1.38	Tenant Alterations
1.39	Tenant Delay
1.40	Tenant Improvement Allowance
1.41	Tenant Improvements
1.42	Tenant’s Agents

1.43	Tenant’s Pro Rata Share
1.44	Tenant’s Construction Representative
1.45	Year
SECTION 2: PREMISES AND TERM
2.1	Lease of Premises
2.2	Lease Term
2.3	Plans and Specifications
2.4	Tenant Improvements
2.5	Landlord’s Work
2.6	Inspection and Punch List Work
2.7	Intentionally Omitted
2.8	Landlord Delays
2.9	Memorandum of Commencement Date
2.10	Use and Conduct of Business
2.11	Compliance with Governmental Requirements and Rules and Regulations
2.12	Option to Renew
2.13	Right of First Offer to Lease Additional Space
SECTION 3: BASE RENT, ADDITIONAL RENT AND OTHER SUMS PAYABLE UNDER LEASE
3.1	Payment of Rental
3.2	Base Rent
3.3	Intentionally Omitted
3.4	Additional Rent
3.6	Holdover
3.7	Late Charge
3.8	Default Rate
SECTION 4: GENERAL PROVISIONS
4.1	Maintenance and Repair by Landlord
4.2	Maintenance and Repair by Tenant
4.3	Common Areas/Security
4.4	Building Services
4.5	Tenant Alterations
4.6	Tenant’s Work Performance
4.7	Surrender of Possession
4.8	Removal of Property
4.9	Access
4.10	Damage or Destruction
4.11	Condemnation
4.12	Intentionally Omitted
4.13	Indemnification
4.14	Tenant Insurance
4.15	Landlord’s Insurance
4.16	Waiver of Subrogation
4.17	Assignment and Subletting by Tenant
4.18	Assignment by Landlord
4.19	Estoppel Certificates and Financial Statements

4.20	Modification for Lender
4.21	Hazardous Substances
4.22	Access Laws
4.23	Quiet Enjoyment
4.24	Signs
4.25	Subordination
4.26	Workers Compensation Immunity
4.27	Brokers
4.28	Exculpation and Limitation of Liability
4.29	ERISA Representations
4.30	Mechanic’s Liens and Tenant’s Personal Property Taxes
4.31	Intentionally Omitted
4.32	Parking
SECTION 5: DEF AUL T AND REMEDIES
5.1	Events of Default
5.2	Remedies
5.3	Right to Perform
5.4	Landlord’s Default
SECTION 6: MISCELLANEOUS PROVISIONS
6.1	Notices
6.2	Attorney’s Fees and Expenses
6.3	No Accord and Satisfaction
6.4	Successors; Joint and Several Liability
6.5	Choice of Law
6.6	No Waiver of Remedies
6.7	Offer to Lease
6.8	Force Majeure
6.9	Landlord’s Consent
6.10	Severability; Captions
6.11	Interpretation
6.12	Incorporation of Prior Agreement; Amendments
6.13	Authority
6.14	Time of Essence
6.15	Survival of Obligations
6.16	Consent to Service
6.17	Landlord’s Authorized Agents
6.18	Waiver of Jury Trial
6.19	Representations and Warranties of Landlord

LISTING OF EXHIBITS

Exhibit A	Legal Description of the Land
Exhibit B	Drawing Showing Location of the Premises
Exhibit C	Listing of Plans and Specifications for Tenant Improvements or Workletter, as applicable
Exhibit D	Form of Memorandum of Commencement Date

Exhibit E	Rules and Regulations
Exhibit F	Description of Cleaning Services
Exhibit G	Building Facade Sign

SECTION 1: DEFINITIONS

1.1 Definitions: Each underlined term in this section shall have the meaning set forth next to that underlined term. Capitalized terms that are used in this Lease without definition but are defined in any of the Exhibits to this Lease shall have the meanings ascribed to those terms in the applicable Exhibit.

1.2 Access Laws: The Americans With Disabilities Act of 1990 (including the Americans with Disabilities Act Accessibility Guidelines for Building and Facilities) and all other Governmental Requirements relating to the foregoing.

1.3 Additional Rent: Defined in paragraph 3.4 captioned “Additional Rent”.

1.4 Base Amount Allocable to the Premises: Defined in paragraph 3.4 captioned “Additional Rent”.

1.5 Base Rent: Annual Base Rent during first Lease Year shall be $25.00/rsf. When the Expansion Space is added to the Premises in accordance with paragraphs 1.11 and 1.30, the annual Base Rent for the first Lease Year shall increase by the number of rentable square feet added to the Premises multiplied by $25.00/rsf. Upon the Expansion Commencement Date, Base Rent for remainder of the initial Lease Term shall be as follows:

Lease Year	Annual Base Rent		Monthly Base Rent
2	$	1,884,552.00	$	157,046.00
3	$	1,921.504.00	$	160,125.33
4	$	1,958,456.00	$	163,204.67
5	$	1,995,408.00	$	166,284.00
6	$	2,069.312.00	$	172,442.67
7	$	2,106.264.00	$	175,522.00
8	$	2,143.216.00	$	178,601.33
9	$	2,180,168.00	$	181,680.67
10	$	2,217,120.00	$	184,760.00

1.6 Brokers: Tenant was represented in this transaction by The Binswanger Company, a licensed real estate broker. Landlord was represented in this transaction by Trammell Crow NE, Inc., a licensed real estate broker.

1.7 Building: The building located on the Land at 41 Moores Road, Frazer, Pennsylvania 19355 commonly known as Westbrook Corporate Center and containing approximately 187,653 rentable square feet.

1.8 Business Day: Calendar days, except for Saturdays and Sundays and the following holidays: New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

1.9 Business Hours: From 7:00 a.m. to 6:00 p.m. on Business Days and from 9:00 a.m. to 1:00 p.m. on Saturdays.

1.10 Claims: An individual and collective reference to any and all claims, demands, damages, injuries, losses, liens, liabilities, penalties, fines, lawsuits, actions, other proceedings and expenses (including attorneys’ fees and expenses incurred in connection with the proceeding whether at trial or on appeal).

1.11 Commencement Dates: The “Initial Commencement Date” shall be the earlier to occur of: (a) the date which is ninety (90) days following the issuance of a building permit for the Tenant Improvements by East Whiteland Township; (b) the date the Tenant Improvements for the Initial Premises are substantially completed, as evidenced by a certificate of occupancy, whether temporary or permanent, authorizing Tenant to occupy the Initial Premises for the Permitted Use; (c) the date on which Tenant takes possession of the Initial Premises for the Permitted Use (the parties agreeing that Tenant’s possession of the Initial Premises for the sole purpose of performing the Tenant Improvements shall not trigger the Initial Commencement Date); or (d) the Scheduled Commencement Date for the Initial Premises. The “Expansion Commencement Date” shall be the earlier of: (a) the date the Tenant Improvements for the Expansion Space are substantially completed, as evidenced by a certificate of occupancy. whether temporary or permanent, authorizing Tenant to occupy the Expansion Space for the Permitted Use; (b) the date on which Tenant takes possession of the Expansion Space for the Permitted Use (the parties agreeing that Tenant’s possession of the Expansion Space for the sole purpose of performing the Tenant Improvements to such Expansion Space shall not trigger the Expansion Commencement Date); or (c) the Scheduled Commencement Date for the Expansion Space.

1.12 ERISA: The Employee Retirement Income Security Act of 1974, as now or hereafter amended, and the regulations promulgated under it.

1.13 Estimate Operating Costs Allocable to the Premises:  Defined in paragraph 3.4 captioned “Additional Rent”.

1.14 Events of Default: One or more of those events or states of facts defined in paragraph 5.1 captioned “Events of Default”.

1.15 Force Majeure: Anyone or more of the following: act of God, strike, lockout, labor trouble or dispute, inability to procure or shortage of material or labor, failure of power or utility, delay in transportation, fire, vandalism, accident, flood, severe weather, other casualty, Governmental Requirements (including mandated changes in the Plans and Specifications or the Tenant Improvements resulting from changes in pertinent Governmental Requirements or interpretations thereof), riot, insurrection, civil commotion, sabotage, explosion, war, natural or local emergency, act or omission of others, including Landlord or Tenant, as the case may be, or other reasons of a similar or dissimilar nature not solely the fault of, or under the exclusive control of, Landlord or Tenant, as the case may be.

1.16 Governmental Agency: The United States of America, the state in which the Land is located, any county, city, district, municipality or other governmental subdivision, court or agency or quasi-governmental agency having jurisdiction over the Land and any board, agency or authority associated with any such governmental entity, including the fire department having jurisdiction over the Land.

1.17 Governmental Requirements: Any and all statutes, ordinances, codes, laws, rules, regulations, orders and directives of any Governmental Agency as now or later amended.

1.18 Hazardous Substance(s): Asbestos, PCBs, petroleum or petroleum-based chemicals or substances, urea formaldehyde or any chemical, material, element, compound, solution, mixture, substance or other matter of any kind whatsoever which is now or later defined, classified, listed, designated or regulated as hazardous, toxic or radioactive by any Governmental Agency.

1.19 Land: The land upon which the Building is located in Chester County, Pennsylvania, as legally described in Exhibit A attached to this Lease.

1.20 Landlord: The trust named on the first page of this Lease, or its successors and assigns as provided in paragraph 4.18 captioned “Assignment by Landlord”.

1.21 Landlord’s Agents: Any and ail partners, officers, agents, employees, contractors, trustees, investment advisors and consultants of Landlord, and potential tenants of the Building at the Premises with Landlord’s consent.

1.22 Lease Term: The Lease Term shall commence on the Initial Commencement Date, and end one hundred twenty (120) months later, provided that, if the Initial Commencement Date is a day other than the first day of a calendar month, the Lease Term shall be extended by the number of calendar days remaining in the month in which the Initial Commencement Date expires. The “Lease Tern,” as used herein, shall also refer to the Renewal Term, if exercised, and the duration of the Lease Term shall be extended accordingly. The Lease Term is divided into “Lease Years,” the first of which commences on the Initial Commencement Date and ends on the date twelve (12) months thereafter with each succeeding Lease Year being the twelve (12) month period immediately following the expiration of the preceding Lease Year.  If the Initial Commencement Date is other than the first day of a calendar month, the first Lease Year will be extended by the number of calendar days remaining in the month in which the Initial Commencement Date occurs.

1.23 Manager: Trammell Crow NE, Inc., or its replacement as specified by written notice from Landlord to Tenant.

1.24 Manager’s Address: Bay Colony Executive Park, 575 East Swedesford Road, Suite 150, Wayne, PA 19087-1613, which address may be changed by written notice from Landlord to Tenant.

1.25 Operating Costs: Defined in paragraph 3.4 captioned “Additional Rent”.

1.26 Operating Costs Allocable to the Premises: Defined in paragraph 3.4 captioned “Additional Rent”.

1.27 Permitted Use: General office uses consistent with Governmental Requirements and first-class buildings of the same or similar use as the Building located in the western suburbs of Philadelphia.

1.28 Plans and Specifications: Those certain plans and specifications for the Tenant Improvements prepared in accordance with the Workletter attached hereto as Exhibit C.

1.29 Prepaid Rent: $101,610.42, to be applied toward Base Rent for the first full calendar month of the Lease Term.

1.30 Premises: The “Initial Premises” shall consist of the greater of: (i) approximately 48,773 rentable square feet of space in that portion of the Building depicted on Exhibit B, or that portion of the Building depicted on Exhibit B that Tenant initially improves pursuant to paragraph 2.4 hereof. On or before the Initial Commencement Date, Landlord and Tenant shall confirm the actual area of the Premises and the Base Rent payable thereon in a Memorandum of Commencement Date executed and delivered pursuant to paragraph 2.9 hereof.  The “Expansion Space” shall consist of the balance of the space in that portion of the Building depicted on Exhibit B. Prior to the Expansion Commencement Date, references in this Lease to the “Premises” shall be deemed to mean and refer only to the Initial Premises. From and after the Expansion Commencement Date, the term “Premises” shall include, collectively, the Initial Premises and the Expansion Space, containing in the aggregate approximately 73,904 rentable square feet of space (approximately 19,175 rentable square feet on the First Floor of the -” Building; approximately 21,966 rentable square feet on the Second Floor of the Building; and approximately 32,763 rentable square feet on the Third Floor of the Building). Tenant agrees that the rentable square footage of the Premises, as set forth in this paragraph 1.30, shall be the rentable square footage of the Premises for all purposes of this Lease.

1.31 Prime Rate: Defined in paragraph 3.8 captioned “Default Rate”.

1.32 Property Taxes: (a) Any form of ad valorem real or personal property tax or assessment imposed by any Governmental Agency on the Land, Building, related improvements or any personal property owned by Landlord associated with such Land, Building or improvements; (b) any other form of tax or assessment, license fee, license tax, tax or excise on rent or any other levy, charge, expense or imposition made or required by any Governmental Agency on any interest of Landlord in such Land, Building, related improvements or personal property; (c) any fee for services charged by any Governmental Agency for any services such as fire protection, street, sidewalk and road maintenance, refuse collection, school systems or other services provided or formerly provided to property owners and residents within the general area of the Land; (d) any governmental impositions allocable to or measured by the area of any or all of such Land, Building, related improvements or personal property or the amount of any bas’~ rent, additional rent or other sums payable under any lease for any or all of such Land, Building, related improvements or personal property, including any tax on gross receipts or any excise tax

or other charges levied by any Governmental Agency with respect to the possession, leasing, operation, maintenance, alteration, repair, use or occupancy of any or all of such Land, Building, related improvements, personal property or the rent earned by any part of or interest in such Land, Building, related improvements or personal property; (e) any impositions by any Governmental Agency on any transaction evidenced by a lease of any or all of such Land, Building, related improvements or personal property or charge with respect to any document to which Landlord is a party creating or transferring an interest or an estate in any or all of such Land, Building, related improvements or personal property; and (f) any increase in any of the foregoing based upon construction of improvements or change of ownership of any or all of such Land, Building, related improvements or personal property. Property Taxes shall not include taxes on Landlord’s net income or any inheritance, estate or gift taxes, nor shall Property Taxes include any judgments, penalties, liens, interest or late fees resulting from Landlord’s failure to pay in a timely manner any Property Taxes, unless Tenant shall have failed to pay Landlord for either estimated or actual Property Taxes pursuant to paragraph 3.4 hereof.

1.33 Punch List Work: Minor items of repair, correction, adjustment or completion to Landlord’s Work, as such phrase is commonly understood in the construction industry in the western suburbs of Philadelphia.

1.34 Security Deposit: None.

1.35 Scheduled Commencement Dates: March 1, 1999 with respect to the Initial Premises and December 1, 1999 with respect to the Expansion Space; subject, however, to extension for period not to exceed fifteen (15) days for Force Majeure.

1.36 Intentionally Omitted

1.37 Tenant: The person or entity named on the first page of this Lease.

1.38 Tenant Alterations: Defined in paragraph 4.5 ~captioned “Tenant Alterations”.

1.39 Tenant Delay: Defined in paragraph 2.8 captioned “Tenant Delays”.

1.40 Tenant Improvement Allowance: The maximum amount to be expended by Landlord for the cost of Tenant Improvements (including architectural, engineering, permitting, space planning and tenant construction management fees), which maximum shall not exceed $31.00/rentable square foot of space in the Initial Premises or the Expansion Space, as applicable, for a maximum aggregate;: obligation of Landlord for the cost of Tenant Improvements of Two Million Two Hundred Ninety-one Thousand Twenty-four Dollars ($2,291,024.00). During construction of the Tenant Improvements, Landlord shall provide construction management services to Tenant at no cost to Tenant and otherwise without offset against or reduction from the Tenant Improvement Allowance.

1.41 Tenant Improvements: Those alterations or improvements to the Premises as appear and are depicted in the Plans and Specifications.

1.42 Tenant’s Agents: Any and all officers, partners, contractors, subcontractors, consultants, licensees, agents, concessionaires, subtenants, servants, employees, customers, guests, invitees or visitors of Ten ant.

1.43 Tenant’s Pro Rata Share shall be a fraction, the numerator of which shall be the number of rentable square feet of floor area in the Premises, and the denominator of which shall be the number of rentable square feet of floor area in the Building. On the Expansion Commencement Date, Tenant’s Pro Rata Share shall be 39.38%. If Tenant exercises its Right of First Offer to Lease Additional Space pursuant to paragraph 2.13, Tenant’s Pro Rata Share shall be adjusted in accordance with the formula set forth in this Section 1.43.

1.44 Tenant’s Construction Representative. A person or entity to be named by Tenant by notice to Landlord prior to the construction of any Tenant Improvements pursuant to Section 2.4, who shall serve as Tenant’s construction representative during the construction of the Tenant Improvements.

1.45 Year: A calendar year commencing January 1 and ending December 31.

SECTION 2: PREMISES AND TERM

2.1 Lease of Premises. Landlord leases the Premises to Tenant, and Tenant leases the Premises from Landlord, upon the terms and conditions set forth in this Lease.

2.2 Lease Term. The Lease Term shall be for the period stated in the definition of that term, unless earlier terminated as provided in this Lease.

2.3 Plans and Specifications. Plans and Specifications shall be prepared, received and approved as provided in Exhibit C. Terms used in Exhibit C but not defined therein shall have the meaning given in this Lease.

2.4 Tenant Improvements. Tenant shall design and construct the Tenant Improvements for the Initial Premises and Expansion Space in accordance with the provisions of Exhibit C attached hereto. Landlord shall make disbursements to Tenant from the Tenant Improvement Allowance for the cost of designing and constructing the Tenant Improvements for the Initial Premises and Expansion Space in an amount not to exceed the Tenant Improvement Allowance for the applicable space, in accordance with the provisions of Exhibit C. All Tenant improvements paid for out of the Tenant Improvement Allowance shall be the property of Landlord and shall remain upon and be surrendered with the Premises upon the expiration or earlier termination of this Lease.

2.5 Landlord’s Work. Prior to the execution of this Lease Landlord has substantially completed construction of the Building core and shell in accordance with the specifications for base building work attached hereto as Exhibit C-l (“Landlord’s Work”). All improvements to the Premises required for the lawful use and occupancy thereof by Tenant .other than Landlord’s Work shall constitute Tenant Improvements.

2.6 Inspection and Punch List Work. Within ten (10) calendar days following the full execution and delivery of this Lease, Landlord, Tenant and Tenant’s Construction Representative shall inspect the Premises and prepare a list of all Punch List Work for all Base Building Work as described in Exhibit C-I. Landlord will use reasonable efforts to complete the correction of Punch List Work within thirty calendar days after such inspection. At Landlord’s request, Tenant shall sign such form as is appropriate to indicate that the Punch List Work has been completed to Tenant’s satisfaction or that certain items remain to be completed. In no event shall the refusal or failure of the parties to agree on the nature and extent of Punch List Work, the existence of items of Punch List Work or the completion thereof delay or postpone the occurrence of the Commencement Date.

2.7 Intentionally Omitted.

2.8 Landlord Delays. Landlord’s failure to respond to any Plans and Specifications or proposed changes thereto, or to any contractor proposed by Tenant for the Tenant Improvements within five (5) Business Days after submission thereof to Landlord for approval (including all information regarding the contractor Landlord shall require to determine that it complies with the requirements of paragraph 4.6 of this Lease and paragraph 2(a) of Exhibit C) shall constitute a “Landlord Delay.” The Scheduled Commencement Date shall be extended by one calendar day for each day of Landlord Delay. Except as provided in paragraph 1.35, the Scheduled Commencement Date shall not otherwise be subject to extension.

2.9 Memorandum of Commencement Date. Landlord and Tenant shall execute a Memorandum of Commencement Date in the form attached as Exhibit D with respect to each Commencement Date. In no event shall Tenant record this Lease or any Memorandum of Commencement Date.

2.10 Use and Conduct of Business. The Premises are to be used only for the Permitted Use, and for no other business or purpose without the prior consent of Landlord.  Landlord makes no representation or warranty as to the suitability of the Premises for Tenant’s intended use. Tenant shall, at its own cost and expense, obtain and maintain any and all licenses, permits, and approvals necessary or appropriate for its use, occupation and operation of the Premises. Tenant’s inability to obtain or maintain any such license, permit or approval necessary or appropriate for its use, occupation or operation of the Premises shall not relieve it of its obligations under this Lease, including the obligation to pay Base Rent and Additional Rent. No act shall be done in or about the Premises that is unlawful or that will increase the existing rate of insurance on any or all of the Land or Building (which insurance premiums are based upon the use of the Premises for general office purposes). Tenant shall not commit or allow to be committed or exist: (a) any waste upon the Premises, (b) any public or private nuisance, or (c) any act or condition which disturbs the quiet enjoyment of any other tenant in the Building, knowingly violates any of Landlord’s contracts affecting any or all of the Land or Building, creates or contributes to any work stoppage, strike, picketing, labor disruption or dispute, interferes in any way with the business of Landlord or any other tenant in the Building or with the rights or privileges of any contractors, subcontractors, licensees, agents, concessionaires, subtenants, servants, employees, customers, guests, invitees or visitors or any other persons lawfully in and upon the Land or Building, or causes any impairment or reduction of the good

will or reputation of the Land or Building. Tenant shall not, without the prior consent of Landlord, use any apparatus, machinery or device in or about the Premises which will cause any substantial noise or vibration or any increase in the normal consumption level of electric power.  If any of Tenant’s machines and equipment should disturb the quiet enjoyment of any other tenant in the Building, then Tenant shall provide, at its sole cost and expense, adequate insulation or take other such action, including removing such machines and equipment, as may be necessary to eliminate the disturbance.

2.11 Compliance with Governmental Requirements and Rules and Regulations.  Tenant shall comply with all Governmental Requirements relating to its use, occupancy and operation of the Premises and shall observe such reasonable rules and regulations of general application as may be adopted and published by Landlord from time to time for the safety, care and cleanliness of the Premises, the Building and the Land, and for the preservation of good order in the Building, including the Rules and Regulations attached to this Lease as Exhibit E.  Notwithstanding the foregoing, during construction of the Tenant Improvements, the following Rules listed on Exhibit E shall be temporarily suspended, and Tenant’s performance of these three obligations shall be governed inste3;d by the Plans and Specifications and by the reasonable requirements imposed by Landlord’s construction manager: first sentence of Rule 3, solely as it relates to obstructions of the east wing of the Building, 19, 23, third sentence of Rule 30 (relating to overnight parking of vehicles) and 33.

2.12 Option to Renew. Landlord hereby grants Tenant an option to renew the Term of this Lease, upon the following terms and conditions:

(a) The renewal term (such renewal term, once exercised, is referred to in this Section as the “Renewal Term”) shall be for five (5) years, commencing on the next day following the expiration date of the initial Lease Term of this Lease and expiring at midnight on the day preceding the fifth (5th) anniversary of the commencement date of such Renewal Term;

(b) Except as provided below, Tenant must exercise this option, if at all, upon at least twelve (12) months written notice to Landlord, prior to the expiration date of the initial Lease Term;

(c) At the time Tenant delivers its notice of election to renew to Landlord, this Lease shall be in full force and effect, Tenant shall not have assigned this Lease or sublet more than fifteen (15%) percent of the Premises, and no Event of Default shall have occurred and be continuing hereunder;

(d) The Renewal Term shall be upon the same terms, covenants and conditions contained in this Lease, except that (1) the annual Base Rent shall be the then-current Fair Market Rent of the Premises as of the first day of the Renewal Term, and (2) the Base Amount Allocable to the Premises shall be the Operating Costs Allocable to the Premises for the last calendar Year of the initial Lease Term; and

(e) There shall be no further privilege of renewal.

As used in this Section, “Fair Market Rent” shall mean the amount of annual Base Rent, expressed in dollars and cents per rentable square foot, equal to the market rental then being negotiated for comparable space in Class A office buildings in the Route 202 - Valley Forge - King of Prussia office sub-market. In the event that Landlord and Tenant are unable to agree on the Fair Market Rent for the Renewal Term within thirty (30) days after Tenant’s exercise of its renewal option, either party may require determination of the Fair Market Rent for such Renewal Term by giving written notice to that effect to the other party, which notice shall designate a real estate broker selected by the initiating party having at least ten (10) years experience in the office leasing business in the Route 202 - Valley Forge - King of Prussia office sub-market. Within fifteen (15) days after receipt of such notice, the other party to this Lease shall select a real estate broker meeting the same requirements and give written notice of such selection to the initiating party. Within fifteen (15) days after selection of the second broker, the two (2) real estate brokers so selected shall select a third real estate broker having at least ten (10) years experience in the office leasing business in the Route 202 - Valley Forge - King of Prussia office sub-market who (and whose firm) is not then employed as a leasing broker or management agent by either party or any of their respective affiliates. Each of the three (3) brokers shall determine the Fair Market Rent rate for the Premises as of the commencement of the Renewal Term for a term equal to the Renewal Term within fifteen (15) days after the appointment of the third broker. The Fair Market Rent shall be equal to the arithmetic average of such three determinations; provided, however, that if any such broker’s determination deviates more than five percent (5%) from the median of such determinations the Fair Market Rent shall be an amount equal to the average of the two (2) closest determinations. Landlord shall pay the costs and fees of Landlord’s broker in connection with any determination hereunder, and Tenant shall pay the costs and fees of Tenant’s broker in connection with such determination. The cost and fees of the third broker shall be paid one-half by Landlord and one-half by Tenant. If a party fails to designate a real estate broker within the time period required by this paragraph, the “third” real estate broker shall be selected by the broker designated by the initiating party, and those two brokers shall determine the Fair Market Rental by averaging their determinations.

If Tenant exercises this option to renew, Landlord and Tenant shall execute and deliver an amendment to this Lease confirming the commencement and expiration dates of the Renewal Term, and any other relevant terms and conditions agreed upon by Landlord and Tenant applicable during such Renewal Term. In such event the term “Term” whenever used herein shall be deemed to include such Renewal Term.

2.13 Right of First Offer to Lease Additional Space. If at any time during the initial Lease Term (but specifically excluding any Renewal Term) Landlord receives notice that any space in the Building (the “Additional Space”) is to become vacant and available after it is initially leased to a third party tenant, Landlord shall extend to Tenant a right of first offer to lease the Additional Space (the “First Offer Right”) upon the following terms and conditions:

(a) At the time the Additional Space becomes available, the remaining term of this Lease must be at least four (4) years. If necessary to ensure a term of not less than four (4) years,

Tenant may exercise the Renewal Option in conjunction with its exercise of the First Offer Right;

(b) When and if Landlord receives notice that such Additional Space shall become available during the initial Lease Term, Landlord shall first offer in writing to lease such Additional Space to Tenant (which offer shall designate only the Additional Space and not Landlord’s estimate of Fair Market Rent, which shall be determined pursuant to subsection (e) hereof), and Tenant shall accept such offer, if at all, in writing within ten (10) days after receipt of such notice from Landlord. If Landlord does not receive notice of Tenant’s acceptance within such ten (10) day period, the First Offer Right shall terminate and be of no further force and effect;

(c) Tenant shall have the right to lease the entire Additional Space available, and shall specifically not have the right to lease only part of the Additional Space available;

(d) At the time the Additional Space becomes available, Tenant shall not have assigned this Lease or sublet the Premises, and no Event of Default shall have occurred and be continuing hereunder;

(e) If the First Offer Right is exercised, the lease for such Additional Space shall be upon the same terms, covenants and conditions as contained in this Lease, except that (I) the~ annual Base Rent shall be the then-current Fair Market Rent of the Premises as determined pursuant to Paragraph 2.12 as of the first day Landlord delivers possession of the Additional Space to Tenant (assuming that the Base Amount Allocable to the Premises remains unchanged and will be the Base Amount allocable to the Additional Space), but in no event shall the annual Base Rent for the Additional Space be less than the annual Base Rent otherwise payable under this Lease (determined on a per rentable square foot basis), and (2) the Additional Space shall be delivered to Tenant in its then “as-is” condition, with no obligation on the part of Landlord to construct Tenant Improvements; and

(f) This First Offer Right shall be subordinate to any extensions, renewals or other terms and conditions granted to the third party tenant in connection with the initial leasing of the Additional Space.

SECTION 3: BASE RENT. ADDITIONAL RENT AND OTHER SUMS PAYABLE UNDER LEASE

3.1 Payment of Rental. Tenant agrees to pay Base Rent, Additional Rent and any other rent due under this Lease to Landlord without demand, deduction, credit, adjustment or offset of any kind or nature, in lawful money of the United States when due under this Lease, at the offices of Manager at Manager’s Address, or to such other party or at such other place as Landlord may from time to time designate in writing. If this Lease does not specify a due date with respect to any sum payable by Tenant hereunder, such sum shall be due twenty (20) calendar days after written demand for such payment is given to Tenant.

3.2 Base Rent. Tenant agrees to pay Base Rent to Landlord without demand, in advance on or before the first day of each calendar month of the Lease Term. Base Rent for any partial month at the beginning or end of the Lease Term shall be prorated. On execution of this Lease, Tenant has paid to Landlord the amount specified in the definition of Prepaid Rent for the month specified in the definition of that term. Base Rent for any partial month at the beginning of the Lease Term shall be paid by Tenant on the Commencement Date.

3.3 Intentionally Omitted.

3.4 Additional Rent. Definitions of certain terms used in this paragraph are set forth in subparagraph 3.4.5. Tenant agrees to pay to Landlord additional rent as computed in this paragraph (individually and collectively the “Additional Rent”):

3.4.1 Rental Adjustment for Estimated Operating: Costs. Landlord shall furnish Tenant a written statement of Estimated Operating Costs Allocable to the Premises for each Year following 1999 and the amount payable monthly by Tenant for such Costs shall be computed as follows: one-twelfth (1/12) of the amount, if any, by which the Estimated Operating Costs Allocable to the Premises exceeds the Base Amount Allocable to the Premises shall be Additional Rent and shall be paid monthly by Tenant for each month during such Year after the Commencement Date. If Landlord fails to deliver a written statement of the Estimated Operating Costs for any Year, Tenant shall continue to make monthly payments on account of the Estimated Operating Costs in an amount equal to the estimated monthly payment amount established for the preceding Year. If any such written statement is furnished after the commencement of the Year (or as to the first Year during the Lease Term, after the Commencement Date), Tenant shall also make a retroactive lump-sum payment to Landlord equal to the monthly payment amount multiplied by the number of months during the Year (or as to the first Year during the Lease Term, after the Commencement Date) prior to delivery of such written statement, less any payments made by Tenant for Estimated Operating Costs for such period.

3.4.2 Actual Costs. Within four (4) months after the close of each Year, Landlord shall deliver to Tenant a written statement setting forth the Operating Costs Allocable to the Premises during the preceding Year (including 1999). If for such Year the excess of such Operating Costs Allocable to the Premises over the Base Amount exceeds the Estimated Operating Costs Allocable to the Premises paid by Tenant to Landlord pursuant to subparagraph 3.4.1 for such Year, Tenant shall pay the amount of such excess to Landlord within fifteen (15) calendar days after receipt of such statement by Tenant. If such statement shows the amount by which Operating Costs Allocable to the Premises exceeds the Base Amount to be less than the Estimated Operating Costs Allocable to the Premises paid by Tenant to Landlord pursuant to subparagraph 3.4.1, then the amount of such overpayment shall be paid by Landlord to Tenant within ten (10) calendar days following the date of such statement or, at Landlord’s option, shall be credited towards the installment(s) of Additional Rent next coming due from Tenant.

3.4.3 Determination. The determination of Operating Costs Allocable to the Premises shall be made by Landlord in accordance with standard accounting practices used by institutional owners of commercial real estate (“Institutional Accounting Practices”), consistently

applied. Each statement of Operating Costs furnished by Landlord to Tenant shall be conclusive and binding upon Tenant unless, within ninety (90) days after receipt of such statement, Tenant shall notify Landlord in writing that Tenant desires to review Landlord’s books and records with respect to such statement. Tenant shall pay all costs associated with or resulting from such review, and pending the completion of such review, Tenant shall pay, without delay, the full amount of the Additional Rent due from Tenant in accordance with each such statement that Tenant desires to review. In the event Tenant gives timely notice of its desire to review a statement of Operating Costs as provided in this paragraph, Tenant, acting by itself or through an independent nationally recognized accounting firm that is not being compensated by Tenant on a contingency fee basis, shall have the right, upon reasonable advance notice and during business hours, to inspect the books and records of Landlord applicable to the determination of such statement of the Operating Costs, for the purpose of verifying in good faith the information contained in such statement for a period of up to one (1) year after the receipt of such statement by Tenant. Any such review shall take place at the location Landlord customarily maintains its books and records with respect to Operating Costs. Landlord shall maintain full, complete and accurate books and records prepared in accordance with Institutional Accounting Practices with respect to Operating Costs, and shall retain such records with respect to each Year for a period not less than two (2) years following delivery of the annual statement for such Year.

Tenant’s review of Landlord’s books and records shall be conditioned upon Tenant and its auditor confirming in writing that all information obtained by Tenant and its auditor as a result of such review, and any resulting compromise, settlement or adjustment between Landlord and Tenant, shall be maintained as confidential and not disclosed to any other person. Tenant shall deliver a written report of its review of Landlord’s books and records to Landlord promptly following completion of an auditor’s review. If as a result of Tenant’s review of Landlord’s books and records Tenant believes that the amount paid by Tenant for Operating

Costs Allocable to the Premises with respect to the Year in question is in excess of the actual Operating Costs Allocable to the Premises for such Year, and Landlord does not accept Tenant’s determination and Landlord and Tenant do not otherwise agree to compromise or settle their dispute over the actual Operating Costs Allocable to the Premises within thirty (30) days after Tenant delivers the written report of its review to Landlord, then either party may require, by giving a written notice to the other, that ‘the dispute be submitted to binding arbitration in accordance with this paragraph. Within fifteen (15) days after either party gives notice requiring arbitration, Landlord shall submit to Tenant a list of three (3) independent accounting firms (which shall be other than the regular certified public accountants used by Landlord and its affiliates), and Tenant shall select the accounting firm to be used as arbitrator within fifteen (IS) days after Tenant receives such list horn Landlord. Each party shall have the right to submit its position regarding the matter in dispute to the selected arbitrator, in writing, with a copy to the other party. The selected arbitrator shall review Landlord’s books and records with respect to the matter in dispute and render its written decision to Landlord and Tenant within forty-five (45) days of the arbitrator’s appointment. Such decision shall be final and binding on Landlord and Tenant.

If it is determined (whether by agreement of the parties or through arbitration) that Tenant’s payments on account of Operating Costs covered by an annual statement were in

excess of the amount actually payable by Tenant for the applicable period, Landlord shall grant Tenant a rent credit for the amount of such excess within fifteen (15) days after such determination. Similarly, if it is determined that Tenant’s payments on account were less than the amount actually due, Tenant shall pay the amount of the shortfall to Landlord within such fifteen (15) day period. If it is determined that Tenant’s payments on account of the Operating Costs covered by such annual statement exceeded the amount actually payable by Tenant by more than five percent (5%), Landlord shall reimburse Tenant for the reasonable out of pocket costs incurred by Tenant in its review of such annual statement and pay the fee and expenses of the arbitrator, if any. Except as provided in the preceding sentence, the cost of any review of Landlord’s books and records, including but not limited to the fees and expenses of any arbitrator and any reasonable copying charges imposed by Landlord, shall be at Tenant’s sole expense.

3.4.4 End of Term. If this Lease shall terminate on a day other than the last day of a Year, (a) Landlord shall estimate the Operating Costs Allocable to the Premises for such Year predicated on the most recent reliable information available to Landlord; (b) the amount determined under clause (a) of this sentence shall be prorated by multiplying such amount by a fraction, the numerator of which is the number of calendar days within the Lease Term in such Year and the denominator of which is 360; (c) the Base Amount Allocable to the Premises shall be prorated in the manner described in clause (b); (d) the clause (c) amount (i.e., the prorated Base Amount Allocable to the Premises) shall be deducted horn the clause (b) amount (i.e., the prorated Operating Costs Allocable to the Premises ); (e) if the clause (d) amount exceeds the Estimated Operating Costs Allocable to the Premises paid by Tenant for the last Year in the Lease Term, then Tenant shall pay the excess to Landlord within fifteen (15) calendar days after Landlord’s delivery to Tenant of a statement for such excess; and (f) if the Estimated Operating’ Costs Allocable to the Premises paid by Tenant for the last Year in the Lease Term exceeds the clause (d) amount, then Landlord shall refund to Tenant the excess within the ten (l0) calendar day period described in clause (e). Landlord’s and Tenant’s obligations under this paragraph shall survive the expiration or other termination of this Lease.

3.4.5 Definitions. Each underlined term in this subparagraph shall have the meaning set forth next to that underlined term:

Base Amount Allocable to the Premises: The Operating Costs Allocable to the Premises for the Year 1999.

Estimated Operating Costs Allocable to the Premises: Landlord’s estimate of Operating Costs allocable to the Premises for a Year to be given by Landlord to Tenant pursuant to subparagraph 3.4.1.

Operating Costs: All expenses paid or incurred by Landlord for maintaining, operating, owning and repairing any or all of the Land, Building, related improvements, and the personal property used in conjunction with such Land, Building and related improvements, including all expenses paid or incurred by Landlord for: (a) utilities, including electricity, water, gas, sewers, refuse collection, telephone charges, cable television or other electronic or microwave signal reception, steam, heat, cooling or any other service which is now or in the future considered a utility and which are not payable directly by tenants in the Building;

(b) supplies; (c) cleaning and janitorial services (including window washing), landscaping and landscaping maintenance (including irrigating, trimming, moving, fertilizing, seeding and replacing plants), snow removal and other services; (d) security services, if any; (e) insurance; (f) management fees and administrative salaries (not to increase on a cumulative basis over the management fees and administrative salaries included in the Base Amount by more than 150% of the increase in the Consumer Price Index, Urban Wage Earners & Clerical Workers (“CPI”) published by the Bureau of Labor Statistics, United States Department of Labor from the date of this Lease to the date of calculation); (g) Property Taxes, tax consultant fees and expenses, and costs of appeals of any Property Taxes; (h) services of independent contractors; (i) compensation (including employment taxes and fringe benefits) of all persons who perform duties in connection with any service, repair, maintenance, replacement or improvement or other work included in this subparagraph; G) license, permit and inspection fees; (k) assessments and special assessments due to deed restrictions, declarations or owners associations or other means of allocating costs of a larger tract of which the Land is a part; (1) rental of any machinery or equipment; (m) audit fees and accounting services related to the Building, and charges for the computation of the rents and charges payable by tenants in the Building (but only to the extent the cost of such fees and services are in addition to the cost of the management fee); (n) the cost of maintenance, repairs and replacements; (0) maintenance and service contracts; (P) legal fees and other similar expenses to the extent that they benefit the tenants or project generally; (q) costs incurred by Landlord for compliance with Access Laws, as set forth in the paragraph captioned “Access Laws”; (r) elevator service and repair, if any; and (s) any other expense or charge which in accordance with generally accepted accounting and management principles would be considered an expense of maintaining, operating, owning or repairing the Building. Operating Costs shall also include an amount necessary to amortize the cost of improvements installed to reduce Operating Costs, the cost to replace carpeting, draperies and wall coverings for the common areas of the Building following substantial completion of the Building, and the cost of all capital improvements required by governmental agencies following substantial completion of the Building by reason of laws and ordinances first enacted following substantial completion of the Building; all amortized over their useful lives together with market interest on their unamortized balances.

Operating Costs shall not include any of the following: (i) ground rent; (ii) interest and amortization of funds borrowed by Landlord; (iii) except as specifically provided in the last sentence of the preceding subparagraph, costs of a capital nature including capital improvements, capital replacements, capital repairs, capital equipment, and capital taxes, as determined under Institutional Accounting Practices; (iv) items and services (of a nature or in a quantity) that Landlord provides selectively to one or more but less than all tenants of the Building; (v) overhead and profit paid to subsidiaries or affiliates of Landlord for management or other services on or to the Building or the Land or for supplies or other materials, to the extent the cost of the services, supplies or materials exceeds the competitor costs of the services, supplies, materials were they not provided by a subsidiary or affiliate; (vi) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature other than equipment used in providing janitorial services and not affixed to the Building; (vii) any costs, fines or penalties incurred because Landlord violated any governmental rule or authority; (viii) leasing commissions, legal fees, advertising V’ and space planning expenses incurred in procuring tenants; (ix) structural repairs

to the foundation, walls or roof of the Building; (x) costs relating to the preparation of Landlord’s tax returns; (xi) legal fees or similar expenses relating to disputes or negotiations with tenants based on Landlord’s negligent or other tortious conduct; (xii) and salaries, wages, or other compensation paid to employees above the level of building manager (provided that if such employees are employed by a subsidiary or affiliate of Landlord, the salaries, wages and other compensation paid to such employees shall not exceed the salaries, wages and other compensation paid by competitors for similarly qualified personnel), or to officers or executives of Landlord in their capacities as officers and executives. If less than ninety-five percent (95%) of the net rentable area of the Building is occupied by tenants at all times during any Year, then Operating Costs for such Year shall include all additional costs and expenses that Landlord reasonably determines would have been incurred had ninety-five percent (95%) of the Building been occupied at all times during such Year by tenants.

Operating: Costs Allocable to the Premises: The product of Tenant’s Pro Rata Share times Operating Costs.

3.5 Utilities.

3.5.1 Landlord shall have the right from time to time select the company or companies providing local telephone and telecommunication services to the Building.  Tenant shall contract directly and pay for all telephone and other telecommunication services used on or from the Premises together with any taxes, penalties, surcharges or similar charges relating to such services.  If Tenant desires to use the services of a provider of local telephone or telecommunication services whose equipment is not then servicing the Building, no such provider shall be permitted to install its lines or other equipment within the Building without the prior written consent of Landlord.

3.5.2 Landlord reserves the right to select the electrical utility provider to the Building. Tenant shall pay Landlord for all electricity consumed at the premises during the Lease Term, at such rates as are charged to Landlord by the providing utilities from time to time, without fee or mark-up to Landlord; provided that, electric consumed by central air conditioning, heating and ventilating equipment and electricity          the operation of the common areas shall not be paid directly by Tenant but shall be:          the Operating Costs paid by Tenant. As part of the Tenant Improvements, Tenant shall install electric meters to measure all electricity consumed in the Premises, including the H\ C units serving the Premises, and Tenant shall pay for electricity based on such meters’ any meter reading charges actually incurred by Landlord. All charges for electricity shall                 as Additional Rent, with the installment of Base Rent with which they are billed, or if, billed separately, shall be due and payable within twenty (20) calendar days after such billing.

3.6 Holdover. If Landlord agrees in writing that Tenant may hold over after the expiration or termination of this Lease, and Landlord and Tenant do not otherwise agree in writing on the terms of such holding over, then the hold over tenancy shall be subject to termination by Landlord at any time upon not less than ten (10) days advance written notice, or by Tenant at any time upon not less than thirty (30) days advance written notice, and all of the

other terms and provisions of this Lease shall be applicable during that period, except that for the first three months of such holding over, Tenant shall pay Landlord from time to time, upon demand, as Base Rent for the period of any such holding over, an amount equal to 150% of the Base Rent in effect on the termination date, computed on a daily basis for each day of the holding over period, and for any period thereafter, an amount equal to 200% of the Base Rent in effect on the termination date, computed on a daily basis for each day of the period of the holding over. Such payment shall not release the Tenant from Tenant’s obligation to pay Additional Rent and any other sums due under this Lease. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly agreed by Landlord in writing. The foregoing notwithstanding, if Landlord does not agree in writing that Tenant may hold over after the expiration or termination of this Lease, Tenant shall pay the daily Base Rent, Additional Rent and other sums during the period of such holding over as set forth above, and Landlord shall be entitled to pursue all remedies at law and in equity to which Landlord is entitled, including, without limitation, rights to ejectment and damages.

3.7 Late Charge. If Tenant fails to make any payment of Base Rent, Additional Rent or other amount when due under this Lease, Tenant shall also pay a late charge equal to three percent (3%) of the amount of any such payment. Landlord and Tenant agree that this charge compensates Landlord for the administrative costs caused by the delinquency. The parties agree that Landlord’s damage would be difficult to compute and the amount stated in this paragraph represents a reasonable estimate of such damage. Assessment or payment of the late charge contemplated in this paragraph shall not excuse or cure any Event of Default or breach by Tenant under this Lease or impair any other right or remedy provided under this Lease or under law.

3.8 Default Rate. Any Base Rent, Additional Rent or other sum payable under this Lease which is not paid when due shall bear interest at a rate equal to the lesser of: (a) the published prime rate of Riggs Bank, N.A. or such other national banking institution designated by Landlord if such bank ceases to publish a prime rate (the “Prime Rate”) then in effect, plus three (3) percentage points, or (b) the maximum rate of interest per annum permitted by applicable law (the “Default Rate”), but the payment of such interest shall not excuse or cure any Event of Default or breach by Tenant under this Lease or impair any other right or remedy provided under this Lease or under law.

SECTION 4: GENERAL PROVISIONS

4.1 Maintenance and Repair by Landlord. Subject to the paragraphs captioned “Damage or Destruction” and “Condemnation”, Landlord shall maintain the public and common areas of the Building and the roof, foundation, exterior walls and windows, interior structural walls, all base building systems (HVAC, electrical, mechanical and plumbing), and all exterior common areas (including lighting, parking areas, paved surfaces, striping and landscaping) in reasonably good order and condition, except for damage occasioned by the act or omission of Tenant or Tenant’s Agents which shall be paid for entirely by Tenant upon demand by Landlord, and ordinary wear and tear. In the event any or all of the Building or exterior common areas becomes in need of maintenance or repair which Landlord is required to make under this Lease, Tenant shall immediately give written notice to Landlord, and Landlord shall commence such

maintenance or repairs within a reasonable time after Landlord’s receipt of such notice. Landlord shall provide Tenant with reasonable notice (either oral or written) of Landlord’s intent to make any repairs to the Premises, and shall use reasonable efforts to avoid disruption of Tenant’s business operations therein.

4.2 Maintenance and Repair by Tenant. Except as is expressly set forth as Landlord’s responsibility pursuant to the paragraphs captioned “Maintenance and Repair by Landlord” and “Building Services”, Tenant shall at Tenant’s sole cost and expense keep and maintain the Premises in good condition and repair, ordinary wear and tear excepted. If Tenant fails to maintain or repair the Premises in accordance with this paragraph, then Landlord may, but shall not be required to, enter the Premises upon three (3) calendar days prior written notice to Tenant (or immediately without any notice in the case of an emergency) to perform such maintenance or repair at Tenant’s sole cost and expense (unless in such period Tenant has performed such work and notified Landlord thereof). Tenant shall pay to Landlord the cost of such maintenance or repair within fifteen (15) calendar days after written demand from Landlord.

4.3 Common Areas/Security. The common areas of the Building shall be subject to Landlord’s sole management and control. Without limiting the generality of the immediately preceding sentence, Landlord reserves the exclusive right as it deems in its reasonable discretion necessary or desirable to install, construct, remove, maintain and operate lighting systems, facilities, improvements, equipment and signs on, in or to all parts of the common areas; change the number, size, height, layout, or locations of walks, driveways and truckways or parking areas now or later forming a part of the Land or Building; make alterations or additions to the Building or common area using reasonable efforts to avoid disruption of Tenant’s business operations in the Premises; close temporarily all or any portion of the common areas to make repairs, changes or to avoid public dedication; grant easements to which the Land will be subject, replat, subdivide, or make other changes to the Land; place, relocate and operate utility lines through, over or under the Land and Building; and use or permit the use of all or any portion of the roofs of the Building, provided that such changes do not impair Tenant’s use of the Premises in a materially adverse manner. Landlord reserves the right to relocate parking areas and driveways and to build additional improvements in the common areas. Landlord has no duty or obligation to provide any security services in, on or around the Premises, Land or Building, and Tenant recognizes that security services, if any, provided by Landlord will be for the sole benefit of Landlord and the protection of Landlord’s property and under no circumstances shall Landlord be responsible for, and Tenant waives any rights with respect to, Landlord providing security or other protection for Tenant or Tenant’s Agents or property in, on or about the Premises, Land or Building. Tenant shall have the right to provide its own security service, security equipment and implement its own security procedures provided that such service, equipment and procedures are entirely within the Premises and do not increase Operating Costs, and provided further that Tenant shall ensure that Landlord and Landlord’s Manager continue to have access to the Premises as set forth herein. In addition, Tenant shall have the right, upon at least sixty (60) days prior notice to Landlord, to have the automatic Kastle Security System locking system on the front and back entrance doors servicing the east wing of the Building deactivated and to install, following Landlord’s approval of such system and plans for its installation, its own security system at the entrance of the east wing of the Building, provided that such system does not increase Operating Costs, and provided further that Tenant shall ensure that Landlord and

Landlord’s Manager continue to have access to the east wing of the Building and the Premises as set forth herein. If Tenant’s security system includes monitoring services acceptable to Landlord, and Tenant ensures that Landlord or Landlord’s agents have notice under any such monitoring services agreement, Tenant shall have the right, upon at least sixty (60) days prior notice to Landlord, to have the Kastle Security System monitoring service discontinued on the east wing of the Building. If Tenant exercises this right to deactivate the Kastle Security System at the east wing entrance doors, upon the expiration or sooner termination of this Lease, Tenant shall at its expense remove the security system installed by it and repair any damage caused thereby and, if necessary, reinstall the Kastle Security System locking system on such doors.

4.4 Building Services.

4.4.1 Landlord shall use diligent efforts to provide the following services and facilities to the Premises:

(a) Heating, ventilating and air conditioning during Business Hours subject to such regulations as the Department of Energy or other Governmental Agency shall adopt from time to time. Tenant agrees to cooperate fully with Landlord and to abide by all the rules and regulations which Landlord may reasonably prescribe for the proper functioning and protection of the heating, ventilating and air conditioning systems. If Tenant requires heating, ventilation and air conditioning service at times other than Business Hours, Landlord shall supply the same, subject to payment by Tenant within ten (10) calendar days of billing, of a charge reasonably established by Landlord to offset the cost incurred by Landlord in providing after-Business Hours HVAC service (including wear and tear on equipment). Landlord currently estimates the charge for wear and tear on HVAC equipment at $10.00 per hour per heat pump.

(b) Subject to payment of the charges therefor by Tenant, electricity for normal office use, including normal office equipment, in the Premises (four (4) watts per rentable square foot is deemed normal office use).

(c) Cleaning and maintenance of common areas in the Building.

(d) Continuous passenger elevator service during Business Hours, and service via at least one (I) elevator car at all other times.

(e) Janitorial services, including cleaning of the Premises, in accordance with Exhibit F. Landlord shall not be required to furnish cleaning services to any kitchens, lunchrooms or non-Building standard lavatories in the Premises.

(f) Water for lavatory and drinking purposes.

4.4.2 Tenant shall reimburse Landlord for any and all additional cleaning expenses incurred by Landlord, including garbage and trash removal expenses over and above the normal cleaning provided by Landlord or due to the presence of a lunchroom or kitchen or food or beverage dispensing machines within the Premises.

4.4.3 The services described in this paragraph 4.4 may be subject to slowdown, interruption or stoppage due to the order of any Governmental Agency, Force Majeure, or the maintenance, repair, replacement or improvement of any of the equipment involved in the furnishing of any such service. No such slowdown, interruption or stoppage of any such service shall be construed as an eviction, actual or constructive, of Tenant, nor shall same cause any abatement of Base Rent or Additional Rent or relieve Tenant from any of its obligations under this Lease. Landlord agrees to use reasonable efforts to resume the affected service promptly following any such slowdown, interruption or stoppage. Landlord will provide Tenant, whenever reasonably possible, advance notice of any scheduled service slowdowns, interruptions or stoppages of which it has knowledge. Notwithstanding the foregoing, if any such slowdown, interruption or stoppage is due to the negligence or willful misconduct of Landlord, results in Tenant’s inability to use the Premises and such inability to use the Premises continues for a period in excess of five (5) consecutive business days from the date of Tenant’s notice, Base Rent shall abate hereunder commencing on the sixth (6th) day following the date of Tenant’s notice of such slowdown, interruption or stoppage until Tenant is again able to use the Premises for the Permitted Use.

4.4.4 Landlord shall allow Tenant to use up to twenty-five (25) KV A of draw capacity from the Building’s emergency backup generator to provide a source of temporary power for Tenant’s use in the event of a disruption in the regular supply of electric power to the Building. Tenant acknowledges that the primary purpose of the Building’s emergency backup generator is to provide emergency backup power to the Building’s life safety systems, and that in the event Tenant intends to use its allocated share of the emergency power for computer or other sensitive applications, Tenant shall be solely responsible for taking such measures as Tenant deems necessary or advisable to convert the emergency power to a “clean” power source suitable for such applications. In the alternative, Tenant, with the prior consent of Landlord, shall be permitted to install and maintain, at its sole cost and expense, an emergency electrical generator and power lines to the Premises (collectively, the “Generator”), in order to provide emergency electrical service to the Premises in the event of a power failure. Tenant shall submit to Landlord plans and specifications for the Generator, along with landscaping plans for screening the Generator, for Landlord’s approval. The location of Tenant’s Generator shall be as mutually agreed upon by Landlord and Tenant and identified on a plot plan which Landlord and Tenant shall initial, and Tenant shall be responsible, at Tenant’s sole cost and expense, for installing the approved landscaping in the area around the Generator so that it is screened from view. Tenant shall be solely responsible for maintaining its Generator in good working order and in compliance with all legal requirements. Landlord shall have no responsibility to Tenant for the maintenance, security or operation of Tenant’s Generator, all of which is assumed by Tenant. At the expiration or earlier termination of the Lease, Tenant shall remove the Generator and shall repair any damage caused as a result of such removal.

4.5 Tenant Alterations. Following completion of the Tenant Improvements, Tenant shall not make any alterations, additions or improvements in or to the Premises, or make changes to locks on doors, or add, disturb or in any way change any floor covering, wall covering, fixtures, plumbing or wiring (individually and collectively “Tenant Alterations”), Without first obtaining the consent of Landlord which may be withheld in Landlord’s reasonable discretion.  Tenant shall deliver to Landlord full and complete plans and specifications for any proposed Tenant

Alterations and, if consent by Landlord is given, all such work shall be performed at Tenant’s expense by one or more contractors selected by Tenant and approved by Landlord pursuant to Section 4.6, provided that if the proposed Tenant Alteration involves alteration of the Building Structure or systems,: Landlord may condition Landlord’s approval of such proposed Tenant Alteration on performance of the work by Landlord, at Tenant’s expense. Tenant shall reimburse Landlord, upon receipt of demand therefor, for all out-of-pocket costs and expenses incurred by Landlord related to its review of Tenant’s plans and specifications (regardless of whether Landlord approves Tenant’s request). Upon completion of the Tenant Alterations, Tenant shall pay Landlord a construction management fee to compensate Landlord for the coordination and inspection of such work. The construction management fee shall be equal to five (5%) percent of the total cost of any Tenant Alteration, and shall cover the following services: coordination of space planner; coordination of preparation of construction documents; competitive bidding of Tenant alteration work; selection of contractor; oversight of construction from commencement through completion; oversight of quality of workmanship; coordination of building permit and other necessary approvals from any Governmental Agency; management of change orders; periodic inspections of ongoing construction; and project closeout. Without limiting the generality of the foregoing, Landlord may require Tenant (if Landlord has elected to require Tenant to perform the Tenant Alterations), at Tenant’s sole cost and expense, to obtain and provide Landlord with proof of insurance coverage, in forms, amounts and by companies acceptable to Landlord, as well as with evidence that Tenant’s contractor is bondable at standard rates with a reputable surety company licensed to do business in the Commonwealth of Pennsylvania and otherwise reasonably acceptable to Landlord. All Tenant Alterations to the Premises, regardless of which party constructed them, shall become the property of Landlord and shall remain upon and be surrendered with the Premises upon the expiration or earlier termination of this Lease; provided that, unless at the time Tenant requested Landlord’s consent to a proposed Tenant Alteration, Tenant requested, and Landlord agreed in writing, that Tenant need not remove such Tenant Alteration upon the expiration or sooner termination of this Lease, upon the expiration or earlier termination of this Lease, at Landlord’s election and upon notice to Tenant, Tenant shall be required to remove some or all of the Tenant Alterations as designated in Landlord’s notice to Tenant (it being understood that nothing herein requires Tenant to remove any of the Tenant Improvements). If Tenant fails to remove any such Tenant Alterations as required by this paragraph 4.5, Landlord may do so and Tenant shall pay to Landlord the entire cost of such removal plus an administrative charge of ten percent (10%) within fifteen (15) calendar days after Tenant’s receipt of Landlord’s written demand therefor. Nothing contained in this paragraph or the paragraph captioned “Tenant’s Work Performance” shall be deemed a waiver of the provisions of the paragraph captioned “Mechanic’s Liens”.

4.6 Tenant’s Work Performance. All construction work to be performed by Tenant that requires Landlord’s consent pursuant to this Lease shall be performed by contractors employed by Tenant under one or more construction contracts, in form and content approved in advance in writing by Landlord (which approval shall be subject to Landlord’s discretion and may include a requirement that the prime contractor and the respective subcontractors: (a) be parties to, and bound by, a collective bargaining agreement with a labor organization affiliated with the Building and Construction Trades Council of the AFL-CIO and (b) employ only members of such labor organizations to perform work within their respective jurisdictions). Tenant’s contractors, workers and suppliers shall work in harmony with and not interfere with workers or

contractors of Landlord or other tenants of Landlord. If Tenant’s contractors, workers or suppliers do, in the opinion of Landlord, cause such disharmony or interference, Landlord’s consent to the continuation of such work may be withdrawn upon written notice to Tenant. All Tenant Alterations shall be (1) completed in accordance with the plans and specifications approved by Landlord; (2) completed in accordance with all Governmental Requirements; (3) carried out promptly in a good and workmanlike manner; (4) of all new materials; (5) free of defect in materials and workmanship; and (6) inspected for quality control (punchlisted) by Landlord’s construction manager. Any and all portions of the Tenant Alterations not in accordance with the plans and specifications approved by Landlord pursuant to Section 4.5 or otherwise not meeting Landlord’s quality and building standards shall be corrected by Tenant, at Tenant’s expense, within thirty (30) days after notification of such defects by Landlord. If Tenant fails to bring the work in question up to the required standards within such 30 day period, Landlord may complete such work (but shall have no obligation to do so) and Tenant shall pay the entire cost thereof to Landlord within fifteen (15) calendar days after Tenant’s receipt of Landlord’s written demand therefor. Tenant shall pay for all damage to the Premises, Building and Land caused by Tenant or Tenant’s Agents. Tenant shall indemnify, defend and hold harmless Landlord and Landlord’s Agents from any Claims arising as a result of any defect in design, material or workmanship of any Tenant Alterations completed by or at the direction of Tenant.

4.7 Surrender of Possession. Subject to the last subparagraph of the paragraph captioned “Insurance”, Tenant shall, at the expiration or earlier termination of this Lease, surrender and deliver the Premises to Landlord in as good condition as when received by Tenant from Landlord or as later improved, reasonable use and wear excepted. Tenant shall give written notice to Landlord at least twenty (20) calendar days prior to vacating the Premises and shall arrange to meet with Landlord for a joint inspection of the Premises prior to vacating.  In the event of Tenant’s failure to give such notice or arrange such joint inspection, Landlord’s inspection at or after Tenant’s vacating the Premises shall be conclusively deemed correct for purposes of determining Tenant’s responsibility for repairs and restoration.

4.8 Removal of Property. Upon expiration or earlier termination of this Lease, Tenant may remove its trade fixtures, office supplies and office furniture and equipment if (a) such items are readily moveable and are not permanently attached to the Premises; (b) such removal is completed prior to the expiration or earlier termination of this Lease; (c) Tenant is not in default of any covenant or condition of this Lease at the time of such removal; and (d) Tenant immediately repairs all damage caused by or resulting from such removal; and Tenant shall immediately remove all such property if requested to do so by Landlord (unless Landlord has agreed pursuant to Section 4.5 that such property need not be removed). All other property in the Premises and any Tenant Alterations (including, wall-to-wall carpeting, paneling, wall covering or lighting fixtures and apparatus) or any other article affixed to the floor, walls, ceiling or any other part of the Premises or Building, shall become the property of Landlord and shall remain upon and be surrendered with the Premises, except as may be otherwise provided in the paragraph captioned “Tenant Alterations” or the paragraph captioned “Tenant’s Contribution to Tenant Improvement Costs”. Tenant waives all rights to any payment or compensation for such property. If, at the expiration or earlier termination of this Lease or at such time as Landlord exercises its right of re-entry, Tenant has failed to remove any property from the Premises,

Building or Land which it is entitled or required to remove as provided in this Lease, Landlord may, at its option, remove and store such property without liability for loss of or damage to such property, such storage to be for the account and at the expense of Tenant. If Tenant fails to pay the cost of storing any such property, Landlord may, at its option, sell or permit to be sold, any or all such property at public or private sale (and Landlord may become a purchaser at such sale), in such manner and at such times and places as Landlord in its sole discretion may deem proper, without notice to Tenant, and Landlord shall apply the proceeds of such sale: first, to the cost and expense of such sale, including reasonable attorney’s fees actually incurred; second to the payment of the costs or charges for storing any such property; third to the payment of any other sums of money which may then be or later become due Landlord from Tenant under this Lease; and, fourth the balance, if any, to Tenant.

4.9 Access. Tenant shall permit Landlord and Landlord’s Agents to enter into the Premises at any reasonable time upon twenty-four (24) hours notice (oral or written) to Tenant (or without notice in the event of an emergency) for the purpose of inspecting the same or for the purpose of repairing, altering or improving the Premises or the Building. Nothing contained in this paragraph shall be deemed to impose any obligation upon Landlord not expressly stated elsewhere in this Lease. When reasonably necessary, Landlord may temporarily close Building or Land entrances, Building doors or other facilities, without liability to Tenant by reason of such closure and without such action by Landlord being construed as an eviction of Tenant or as relieving Tenant from the duty of observing or performing any of the provisions of this Lease. Landlord shall have the right to enter the Premises upon twenty-four (24) hours notice to Tenant for the purpose of showing the Premises to prospective tenants within the period of two hundred seventy (270) calendar days prior to the expiration or sooner termination of this Lease and to erect on the Premises a suitable sign indicating the Premises are available. Landlord shall not be liable for the consequences of admitting by passkey, or refusing to admit to the Premises, Tenant or any of Tenant’s Agents, or other persons claiming the right of admittance, unless Landlord has been grossly negligent in admitting any person to the Premises.

4.10Damage or Destruction.

4.10.1 If the Premises are damaged by fire, earthquake or other casualty, Tenant shall give immediate written notice thereof to Landlord. Landlord shall determine, within forty-five (45) days following receipt of such notice from Tenant, whether the damage can be repaired within two-hundred-forty (240) calendar days after Landlord’s receipt of notice from Tenant and if there are sufficient insurance proceeds available to repair such damage, and if Landlord determines that these conditions can be satisfied, then Landlord shall proceed with reasonable diligence to restore the Premises to substantially the condition which existed prior to the damage and this Lease shall not terminate. If, in Landlord’s estimation, the damage cannot be repaired within such 240 day period or if there are insufficient insurance proceeds available to repair such damage, Landlord may elect in its absolute discretion to either: (a) terminate this Lease or (b) restore the Premises to substantially the condition which existed prior to the damage and this Lease will continue. If Landlord restores the Premises under this paragraph, then (1) the Lease Term shall be extended for the time required to complete such restoration, (2) Tenant shall pay to Landlord, upon demand, Tenant’s Pro Rata Share of any applicable deductible amount specified under Landlord’s insurance and (3) Landlord shall not be required to repair or restore any or all

furniture, fixtures, equipment, inventory, improvements or other property which was in or about the Premises at the time of the damage, Tenant Alterations or Tenant Improvements which are in excess of the building standard Tenant Improvements. Base Rent, Additional Rent and any other sum due under this Lease during any reconstruction period shall be abated from the date of such damage or destruction until Landlord’s repairs are substantially completed and possession of the Premises is delivered to Tenant. Tenant agrees to look to the provider of Tenant’s insurance for coverage for the loss of Tenant’s use of the Premises and any other related losses or damages incurred by Tenant during any reconstruction period.

4.10.2 If the Building is damaged by fire, earthquake or other casualty and more than fifty percent (50%) of the Building is rendered untenantable, without regard to whether the Premises are affected by such damage, Landlord may in its absolute discretion and without limiting any other options available to Landlord under this Lease or otherwise, elect to terminate this Lease by notice in writing to Tenant within sixty (60) calendar days after the occurrence of such damage. Such notice shall be effective as of the date of damage or destruction if the Premises have been rendered unusable, or upon receipt if the Premises have not been rendered unusable.

4.10.3 Notwithstanding anything in the foregoing to the contrary, if Landlord estimates that any damage cannot be repaired within two-hundred-forty (240) days after Landlord is notified by Tenant of such damage and such damage occurs in the last year of the Lease Term, Tenant shall have the right, upon notice to Landlord, to terminate this Lease within thirty (30) days of receipt of such estimate from Landlord. In addition, or if such damage is not repaired within three hundred (300) days after Landlord is notified by Tenant of such damage, Tenant shall have the right, upon notice to Landlord, to terminate this Lease. Tenant’s notice of termination under this paragraph 4.10.3 shall be effective as of the date of the damage or destruction if the Premises have been rendered unusable, or upon receipt if the Premises have not been rendered unusable.

4.10.4 Notwithstanding anything contained in this Lease to the contrary, if there is damage to the Premises, or Building and the holder of any indebtedness secured by a mortgage or deed of trust covering any such property requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) calendar days after such requirement is made by such holder.

4.11 Condemnation. If all of the Premises, such portions of the Building as may be required for the Tenant’s reasonable use of the Premises, are taken by eminent domain or by conveyance in lieu thereof, or if thirty (30%) percent of the parking spaces are so taken and Landlord is unable either to replace such spaces or to provide alternative parking arrangements reasonably acceptable to Landlord and Tenant, then Landlord or Tenant shall have the option, upon notice to the other, to terminate this Lease as of the date the physical taking occurs, and all Base Rent, Additional Rent and other sums payable under this Lease shall be paid to that date. In case of taking of a part of the Premises or a portion of the Building not required for the Tenant’s reasonable use of the Premises, or of fewer than thirty (30%) percent of the parking spaces, then this Lease shall continue in full force and effect and the Base Rent shall be equitably

reduced based on the proportion by which the floor area of the Premises is reduced, such reduction in Base Rent to be effective as of the date the physical taking occurs. Additional Rent and all other sums payable under this Lease shall not be abated but Tenant’s Pro Rata Share may be redetermined as equitable under the circumstances. Landlord reserves all rights to damages or awards for any taking by eminent domain relating to the Premises, Building, Land and the unexpired term of this Lease. Tenant assigns to Landlord any right Tenant may have to such damages or award and Tenant shall make no claim against Landlord for damages for termination of its leasehold interest or interference with Tenant’s business. Tenant shall have the right, however, to claim and recover from the condemning authority compensation for any loss to which Tenant may be entitled for Tenant’s moving expenses or other relocation costs; provided that, such expenses or costs may be claimed only if they are awarded separately in the eminent domain proceedings and not as a part of the damages recoverable by Landlord.

4.12Intentionally Omitted.

4.13Indemnification.

4.13.1 Tenant shall indemnify, defend and hold harmless Landlord and Landlord’s Agents from and against any and all Claims, arising in whole or in part out of (a) the possession, use or occupancy of the Premises or the business conducted in the Premises during the Lease Term, (b) any act, omission or negligence of Tenant or Tenant’s Agents, or (c) any breach or default under this Lease by Tenant, provided that Tenant shall not be obligated to indemnify Landlord to the extent any such Claim arises from the gross negligence or willful misconduct of Landlord.

4.13.2 Landlord shall indemnify, defend and hold harmless Tenant and Tenant’s Agents from and against all Claims to the extent arising from the gross negligence or willful misconduct of Landlord or Landlord’s Agents with respect to this Lease, the Premises or the Building.

4.13.3 Neither Landlord nor Landlord’s Agents shall, to the extent permitted by law, have any liability to Tenant, or to Tenant’s Agents, for any Claims arising out of any cause whatsoever, including repair to any portion of the Premises; interruption in the use of the Premises or any equipment therein; any accident or damage resulting from any use or operation by Landlord, Tenant or any person or entity of heating, cooling, electrical, sewerage or plumbing equipment or apparatus; termination of this Lease by reason of damage to the Premises or Building; fire, robbery, theft, vandalism, mysterious disappearance or any other casualty; actions of any other tenant of the Building or of any other person or entity; inability to furnish any service required of Landlord as specified in this Lease; or leakage in any part of the Premises or the Building from rain, ice or snow, or from drains, pipes or plumbing fixtures in the Premises or the Building; except for Claims arising solely out of the gross negligence or willful misconduct of Landlord in failing to repair or maintain the Building as required by this Lease after any notice by Tenant required by the paragraph captioned “Maintenance and Repair by Landlord”; provided that, in no event shall Landlord be responsible for any interruption to Tenant’s business or for any indirect or consequential losses suffered by Tenant or Tenant’s Agents.

4.13.4 The obligations of this paragraph shall be subject to the paragraph captioned “Waiver of Subrogation”.

4.14Tenant Insurance.

4.14.1 Tenant shall, throughout the Lease Term, at its own expense, keep and maintain in full force and effect:

(a) A policy of commercial general liability insurance, including a contractual liability endorsement covering Tenant’s obligations under the paragraph captioned “Indemnification”, insuring against claims of bodily injury and death or property damage or loss with a combined single limit at the Commencement Date of this Lease of not less than Two Million Dollars ($2,000,000.00), which limit shall be reasonably increased during the Lease Term at Landlord’s request to reflect both increases in liability exposure arising from inflation as well as from changing use of the Premises or changing legal liability standards, which policy shall be payable on an “occurrence” rather than a “claims made” basis, and which policy names Landlord and Manager and, at Landlord’s request Landlord’s mortgage lender(s) or its investment advisor, as additional insureds, as their interests appear; and

(b) A policy of extended property insurance (which is commonly called “all risk”) covering Tenant Improvements over the value of the Tenant Improvement Allowance, Tenant Alterations, and any and all furniture, fixtures, equipment, inventory, improvements and other property in or about the Premises which is not owned by Landlord, for one hundred percent (100%) of the then current replacement value of such property.

4.14.2 All insurance policies required under this paragraph may be “blanket” policies which cover other properties occupied by Tenant and shall be with companies having a Best’s rating of ANIII or better, and each policy shall provide that it is not subject to cancellation or reduction in coverage except after thirty (30) calendar days’ written notice to Landlord.  Tenant shall deliver to Landlord and, at Landlord’s request Landlord’s mortgage lender(s), prior to the Commencement Date and from time to time thereafter, certificates evidencing the existence and amounts of all such policies.

4.14.3 If Tenant fails to acquire or maintain any insurance or provide any certificate required by this paragraph, Landlord may, but shall not be required to, obtain such insurance or certificates and the costs associated with obtaining such insurance or certificates shall be payable by Tenant to Landlord on demand.

4.15Landlord’s Insurance. Landlord shall, throughout the Lease Term, keep and maintain in full force and effect:

4.15.1 A policy of commercial general liability insurance, insuring against claims of bodily injury and death or property damage or loss with a combined single limit at the Commencement Date of not less than Five Million Dollars ($5,000,000.00), which policy shall be payable on an “occurrence” rather than a “claims made” basis;

4.15.2 A policy of extended property insurance (what is commonly called “all risk”) covering the Building, the value of the Tenant Improvements up to the Tenant Improvement Allowance and Landlord’s personal property, if any, located on the Land in the amount of one hundred percent (100%) of the then current replacement value of such property;

and

4.15.3 Such business interruption and/or rent loss insurance as Landlord shall from time to time determine appropriate.

Landlord may, but shall not be required to, maintain property insurance coverage for earthquakes, floods and such other perils in such amounts as Landlord deems appropriate, and the limit on the deductible amount set forth in paragraph 4.15.2 shall not be applicable to such coverage. Such policies may be “blanket” policies which cover other properties owned by Landlord and shall be with an insurance company having a Best rating of ANIII or better. The cost of all insurance policies maintained by Landlord relating to the Land, Building or Premises or the income therefrom shall be Operating Costs. To the extent that any payment on an insurance claim under any Landlord’s policy is reduced by a deductible, such deductible shall be an Operating Cost; provided, however, that the maximum amount Landlord shall charge as an Operating Cost under the policy of insurance described in paragraph 4.15.2 shall be Thirty Thousand Dollars ($30,000.00).

4.16Waiver of Subrogation. Notwithstanding anything in this Lease to the contrary, Landlord and Tenant hereby each waive and release the other from any and all Claims or any loss or damage that may occur to the Land, Building, Premises, or personal property located therein, by reason of fire or other casualty regardless of cause or origin, including the negligence or misconduct of Landlord, Tenant, Landlord’s Agents or Tenant’s Agents, but only to the extent of the insurance proceeds paid to such releasor under its policies of insurance or if it fails to maintain the required policies, the insurance proceeds that would have been paid to such releasor if it had maintained such policies. Each party to this Lease shall promptly give to its insurance company written notice of the mutual waivers contained in this subparagraph, and shall cause its insurance policies to be properly endorsed, if necessary, to prevent the invalidation of any insurance coverages by reason of the mutual waivers contained in this subparagraph.

4.17Assignment and Subletting by Tenant.

4.17.1 Tenant shall not have the right to assign, transfer, mortgage or encumber this Lease in whole or in part, nor sublet the whole or any part of the Premises, nor allow the occupancy of all or any part of the Premises by another, without first obtaining Landlord’s consent. Notwithstanding any permitted assignment or subletting, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of all sums payable under this Lease and for compliance with all of its other obligations as tenant under this Lease.  Upon the occurrence of an Event of Default, if the Premises or any part of the Premises are then subject to an assignment or subletting, Landlord, in addition to any other remedies provided in this Lease or by law, may at its option collect directly from such assignee or subtenant all rents becoming due to Tenant under such assignment or sublease and apply such rents against any sums due to Landlord from Tenant under this Lease, and no such collection shall be construed to

constitute a novation or release of Tenant from the further performance of Tenant’s obligations under this Lease. Tenant makes an absolute assignment to Landlord of such assignments and subleases and any rent, security deposits and other sums payable under such assignments and subleases as collateral to secure the performance of the obligations of Tenant under this Lease.  Landlord agrees not to collect any such rent, security deposits or other sums payable under such assignments and subleases unless an Event of Default shall have occurred and be continuing.

4.17.2 In the event Tenant desires to assign this Lease or to sublet all or any portion of the Premises, Tenant shall give written notice of such desire to Landlord setting forth the name of the proposed subtenant or assignee, the proposed term, the proposed commencement date of the assignment or sublease, the nature of the proposed subtenant’s or assignee’s business to be conducted on the Premises, the rental rate, and any other particulars of the proposed subletting or assignment that Landlord may reasonably request. Without limiting the preceding sentence, Tenant shall also provide Landlord with: (a) such financial information as Landlord may reasonably request concerning the proposed subtenant or assignee, including recent financial statements certified as accurate, complete and prepared in conformance with generally accepted accounting principles by the president, managing partner or other appropriate officer of the proposed subtenant or assignee; (b) proof satisfactory to Landlord that the proposed subtenant or assignee will promptly occupy and thereafter use the entire Premises (or any sublet portion of the Premises) for the remainder of the Lease Term (or for the entire term of the sublease, if shorter) in compliance with the terms of this Lease; and (c) a copy of the proposed sublease or assignment or letter of intent. At the same time that Tenant provides Landlord with notice of its desire to assign or sublease, Tenant shall pay to Landlord the sum of $500 as Landlord’s fee for processing such proposed assignment and sublease, including attorneys’ fees incurred by Landlord with respect to such processing (provided that such fee shall be waived in the event Landlord accepts the proposed assignment or sublease and the rent or other consideration, either initially or over the term if the assignment or sublease, exceeds the Base Rent payable hereunder). Receipt of such fee shall not obligate Landlord to approve the proposed assignment or sublease.

4.17.3 In determining whether to grant or withhold consent to a proposed assignment or sublease, Landlord may consider, and weigh, any commercial factor it deems relevant. Without limiting what may be construed as a factor considered by Landlord in good faith, Tenant agrees that anyone or more of the following will be proper grounds for Landlord’s disapproval of a proposed assignment or sublease:

(a) The proposed assignee or subtenant is or will be unwilling or unable to execute and deliver to Landlord an ERISA Certificate in a form consistent with the provisions of the paragraph captioned “ERISA Representations”, as may be updated by Landlord, or Landlord believes that the proposed assignment or sublease will constitute a prohibited transaction under or otherwise violate ERISA;

(b) The proposed assignee or subtenant does not, in Landlord’s good faith judgment, have sufficient financial worth to insure the full and timely performance under this Lease;

(c) Landlord has received insufficient evidence of the financial worth or creditworthiness of the proposed assignee or subtenant to make the determination set forth in clause (b);

(d) The proposed assignee or subtenant has a reputation for disputes in contractual relations, for failure to observe and perform its contractual obligations in a timely and complete manner or for negative business relations in the business community as a tenant of property or otherwise;

(e) Landlord has received from any prior lessor of the proposed assignee or subtenant a negative report concerning such prior lessor’s experience with the proposed assignee or subtenant;

(f) Landlord has had prior negative leasing experience with the proposed assignee or subtenant;

(g) In Landlord’s reasonable judgment, the proposed assignee or subtenant is engaged in a business, or the Premises or any part of the Premises will be used in a manner, that is not in keeping with the then standards of the Building, or that is not compatible with the businesses of other tenants in the Building, or that is inappropriate for the Building, or that will violate any negative covenant as to use contained in any other lease of space in the Building;

(h) The use of the Premises by the proposed assignee or subtenant will violate any Governmental Requirement or create a violation of Access Laws;

(i) An Event of Default has occurred and continuing under this Lease;

(j) Landlord does not approve of any of the tenant improvements required for the proposed assignee or subtenant; or

(k) The proposed assignee or subtenant is a current tenant or a subtenant of the Building, or Landlord has shown space in the Building other than the Premises to the proposed assignee or subtenant in the six (6) months preceding Tenant’s request.

4.17.4 Within fifteen (15) calendar days after Landlord’s receipt of all required information to be supplied by Tenant pursuant to this paragraph, Landlord shall notify Tenant of Landlord’s approval, disapproval or conditional approval of any proposed assignment or subletting, or of Landlord’s election to recapture the space as provided in subparagraph 4.17.7.  Landlord shall have no obligation to respond unless and until all required information has been submitted. In the event Landlord approves of any proposed assignment or subletting, Tenant and the proposed assignee or sublessee shall execute and deliver to Landlord an assignment (or subletting) and assumption agreement in form and content satisfactory to Landlord.

4.17.5 Notwithstanding anything in this Paragraph 4.17 to this contrary, without the consent of Landlord but upon notice to Landlord, Tenant may assign or sublet all or any part of the Premises to any of the following (each, a “Permitted Transferee”):

(a) any entity that controls, is controlled by, or is under common control with, Tenant; or

(b) any corporation resulting from the merger, consolidation or other corporate reorganization with Tenant or to any entity that acquires all of substantially all of Tenant’s assets, as long as the assignee or sublessee is a bona fide entity and assumes the obligations of Tenant under this Lease and such entity has a net worth following such merger, consolidation or reorganization at least equal to the net worth of Tenant on the date hereof or the date of such merger, consolidation or reorganization, whichever is higher; provided that such corporation or other entity is not a party in interest with Landlord that would result in this Lease being a nonexempt prohibited transaction under ERISA.

4.17.6 If Landlord consents to any assignment or sublease and Tenant receives rent or any other consideration, either initially or over the term of the assignment or sublease, in excess of the Base Rent and Additional Rent (or, in the case of a sublease of a portion of the Premises, in excess of the Base Rent paid by Tenant on a square footage basis under this Lease), Tenant shall pay to Landlord fifty (50%) percent of such excess.

4.17.7 If Tenant delivers a notice to Landlord requesting approval of a proposed assignment or sublease, then Landlord may elect, in the case of a proposed assignment of the Lease or subletting of the entire Premises, to terminate this Lease or, in the case of a proposed subletting of a portion of the Premises, to terminate Tenant’s rights under this Lease as to the area proposed to be sublet, as of the date set forth in that notice for the proposed commencement date of the assignment or the sublease; provided that, if no date is set forth in Tenant’s notice, then Landlord may elect to terminate this Lease as of a date at least sixty (60) calendar days after the date of the notice. Landlord shall exercise its rights under this subparagraph by written notice to Tenant no later than twenty (20) calendar days after its receipt of the last of the materials delivered by Tenant to Landlord under this paragraph 4.17.

4.18 Assignment by Landlord. Landlord shall have the right to transfer and assign, in whole or in part, its rights and obligations under this Lease and in any and all of the Land or Building. If Landlord sells or transfers any or all of the Building, including the Premises, Landlord and Landlord’s Agents shall, upon consummation of such sale or transfer, be released automatically from any liability relating to obligations or covenants under .this Lease to be performed or observed after the date of such transfer, and the assignee of Landlord’s interest herein shall be deemed to have assumed such obligations and covenants, and in such event, Tenant agrees to look solely to Landlord’s successor-in-interest with respect to such liability; provided that, as to the Security Deposit and Prepaid Rent, Landlord shall not be released from liability therefor unless Landlord has delivered (by direct transfer or credit against the purchase price) the Security Deposit or Prepaid Rent to its successor-in-interest.

4.19 Estoppel Certificates and Financial Statements. Tenant shall, from time to time, upon the written request of Landlord, execute, acknowledge and deliver to Landlord or its designee a written statement stating: (a) the date this Lease was executed and the date it expires; (b) the date Tenant entered into occupancy of the Premises; (c) the amount of monthly Base Rent

and Additional Rent and the date to which such Base Rent and Additional Rent have been paid; and (d) certifying that (1) this Lease is in full force and effect and has not been assigned, modified, supplemented or amended in any way (or specifying the date of the agreement so affecting this Lease); (2) to the knowledge of Tenant, Landlord is not in breach of this Lease (or, if so, a description of each such breach) and that no event, omission or condition has occurred which would result, with the giving of notice or the passage of time, in a breach of this Lease by Landlord; (3) this Lease (as it may have been assigned, modified, supplemented or amended as disclosed pursuant to subsection (d)(l) hereof) represents the entire agreement between the parties with respect to the Premises; (4) all required contributions by Landlord to Tenant on account of Tenant Improvements have been received; (5) on the date of execution, there exist no defenses or offsets which the Tenant has knowledge against the enforcement of this Lease by the Landlord (or, if any, a description of any such offset or defense); (6) no Base Rent, Additional Rent or other sums payable under this Lease have been paid in advance except for Base Rent and Additional Rent for the then current month; (7) no security has been deposited with Landlord (or, if so, the amount of such security); (8) it is intended that any Tenant’s statement may be relied upon by a prospective purchaser or mortgagee of Landlord’s interest or an assignee of any such mortgagee; (9) the representations in the paragraph captioned “ERISA Representations” remain true and correct; and (10) such other information as may be reasonably requested by Landlord. If Tenant fails to respond within fifteen (15) calendar days of its receipt of a written request by Landlord as provided in this paragraph, such shall be a breach of this Lease and Tenant shall be deemed to have admitted the accuracy of any information supplied by Landlord to a prospective purchaser, mortgagee or assignee. In addition, Tenant shall, from time to time, upon the written request of Landlord, deliver to or cause to be delivered to Landlord or its designee then current financial statements (including a statement of operations and balance sheet) certified as accurate, complete and prepared in conformance with generally accepted accounting principles by the president, managing partner or other appropriate officer for (i) Tenant, (ii) any entity which owns a controlling interest in Tenant, (iii) any entity the controlling interest of which is owned by Tenant, (iv) any successor entity to Tenant by merger or operation of law, and (v) any guarantor of this Lease.

4.20Modification for Lender. If, in connection with obtaining construction, interim or permanent financing for the Building or Land, Landlord’s lender, if any, shall request reasonable modifications to this Lease as a condition to such financing, Tenant will not unreasonably withhold or delay its consent to such modifications; provided that, such modifications do not increase the obligations of Tenant under this Lease or materially adversely affect Tenant’s rights under this Lease.

4.21Hazardous Substances.

4.21.1 Tenant agrees that neither Tenant, any of Tenant’s Agents nor any other person will store, place, generate, manufacture, refine, handle, or locate on, in, under or around the Land or Building any Hazardous Substance, except for storage, handling and use of reasonable quantities and types of fuels for the generation of emergency backup power as permitted by paragraph 4.4 hereof, cleaning fluids and office supplies in the Premises in the ordinary course and the prudent conduct of Tenant’s business in the Premises, provided that, (a) the storage, handling and use of such permitted Hazardous Substances must at all times conform

to all Governmental Requirements and to applicable fire, safety and insurance requirements; (b) the types and quantities of permitted Hazardous Substances which are stored in the Premises must be reasonable and appropriate to the nature and size of Tenant’s operation in the Premises and reasonable and appropriate for a first-class building of the same or similar use and in the same market area as the Building; (c) no Hazardous Substance shall be spilled or disposed of on, in, under or around the Land or Building or otherwise discharged from the Premises or any area adjacent to the Land or Building; and (d) in no event will Tenant be permitted to store, handle or use on, in, under or around the Premises any Hazardous Substance which will increase the rate of fire or extended coverage insurance on the Land or Building, unless: (1) such Hazardous Substance and the expected rate increase have been specifically disclosed in writing to Landlord; (2) Tenant has agreed in writing to pay any rate increase related to each such Hazardous Substance; and (3) Landlord has approved in writing each such Hazardous Substance, which approval shall be subject to Landlord’s sole discretion.

4.21.2 Tenant shall indemnify, defend and hold harmless Landlord and Landlord’s Agents from and against any and all Claims arising out of any breach of any provision of this paragraph, which expenses shall also include laboratory testing fees, personal injury claims, clean-up costs and environmental consultants’ fees. Tenant agrees that Landlord may be irreparably harmed by Tenant’s breach of this paragraph and that a specific performance action may appropriately be brought by Landlord; provided that, Landlord’s election to bring or not bring any such specific performance action shall in no way limit, waive, impair or hinder Landlord’s other remedies against Tenant.

4.21.3 As of the execution date of this Lease, Tenant represents and warrants to Landlord that, except as otherwise disclosed by Tenant to Landlord, Tenant has no intent to bring any Hazardous Substances on, in or under the Premises except for the type and quantities authorized in the first paragraph of the paragraph captioned “Hazardous Substances.”

4.22Access Laws.

4.22.1 Tenant agrees to notify Landlord immediately if Tenant receives notification or otherwise becomes aware of: (a) any condition or situation on, in, under or around the Land or Building which may constitute a violation of any Access Laws or (b) any threatened or actual lien, action or notice that the Land or Building is not in compliance with any Access Laws. If Tenant is responsible for such condition, situation, lien, action or notice under this paragraph, Tenant’s notice to Landlord shall include a statement as to the actions Tenant proposes to take in response to such condition, situation, lien, action or notice.

4.22.2 Tenant shall not alter or permit any assignee or subtenant or any other person to alter the Premises in any manner which would violate any Access Laws or increase Landlord’s responsibilities for compliance with Access Laws, without the prior approval of the Landlord. In connection with any such approval, Landlord may require a certificate of compliance with Access Laws from an architect, engineer or other person acceptable to Landlord. Tenant agrees to pay the reasonable fees incurred by such architect, engineer or other third party in connection with the issuance of such certificate of compliance. Landlord’s consent to any proposed Tenant Alteration shall (a) not relieve Tenant of its obligations or indemnities

contained in this paragraph or this Lease or (b) be construed as a warranty that such proposed alteration complies with any Access Law.

4.22.3 Tenant shall be solely responsible for all costs and expenses relating to or incurred in connection with: (a) failure of the Premises to comply with the Access Laws; and (b) bringing the Building and the common areas of the Building into compliance with Access Laws, if and to the extent such failure or noncompliance arises out of or relates to: (I) Tenant’s use of the Premises in violation of this Lease; or (2) Tenant Alterations to the Premises; or (3) Tenant Improvements which differ from building standard. Tenant agrees to perform any work required to correct any such failure or noncompliance in a timely manner after notice that such work is required.

4.22.4 Landlord shall be responsible for all costs and expenses relating to or incurred in connection with bringing the common areas of the Building into compliance with Access Laws, unless such costs and expenses are Tenant’s responsibility as provided in the preceding subparagraph, which work Landlord agrees to perform in a timely manner after notice that such work is required. Any cost or expense paid or incurred by Landlord to bring the Premises or common areas of the Building into compliance with Access Laws which is not Tenant’s responsibility under the preceding subparagraphs shall be amortized over the useful economic life of the improvements (not to exceed ten (10) years) using an amortization rate reasonably determined by Landlord, and shall be an Operating Cost for purposes of this Lease.

4.22.5 Tenant agrees to indemnify, defend and hold harmless Landlord and Landlord’s Agents from and against any and all Claims arising out of or relating t~ any failure of Tenant or Tenant’s Agents to comply with Tenant’s obligations under this paragraph.

4.22.6 The provisions of this paragraph shall supersede any other provisions in this Lease regarding Access Laws, to the extent inconsistent with the provisions of any other paragraphs.

4.23Quiet Environment. Landlord covenants that Tenant, upon paying Base Rent, Additional Rent and all other sums payable under this Lease and performing all covenants and conditions required of Tenant under this Lease shall and may peacefully have, hold and enjoy the Premises without hindrance or molestation by Landlord or any person claiming under Landlord.

4.24Signs.  Tenant shall not install any signs on the Building exterior or inscribe, post, place, or in any manner display any sign, notice, picture, placard or poster, or any advertising matter whatsoever, anywhere in or about the Land or Building (including without limitation the interior of the Premises) at places visible (either directly or indirectly as an outline or shadow on a glass pane) from anywhere outside the Premises without first obtaining Landlord’s consent, which consent shall not be unreasonably withheld. Subject to Tenant’s compliance with all applicable Governmental Requirements, including receipt of all necessary permits, Tenant shall have the non-exclusive right to install and maintain, at Tenant’s sole cost and expense, a sign on the facade of the Building in accordance with the drawing and specifications attached hereto as Exhibit G (the “Building Facade Sign”) at a location approved by Landlord in writing prior to the installation of the Building Facade Sign. Tenant shall at all times maintain the Building Facade ;”

Sign in good condition and repair and, upon expiration or sooner termination of this Lease, shall ‘( remove the Building Facade Sign and restore the Building to its condition prior to the installation “of the Building Facade Sign, all at Tenant’s sole cost and expense. Landlord also agrees to/ provide Tenant, at Landlord’s reasonable expense, with identification on the monument sign to be to be located at the main entrance to the Building (which identification shall be available to Tenant in a size at least equal to that of any other tenant of the Building), two (2) building standard suite identification signs in the public corridor adjacent to and to the right of each of Tenant’s main suite entrances, and with identification on the Building directory.

4.25Subordination. Tenant subordinates this Lease and all rights of Tenant under this Lease to any mortgage, deed of trust, ground lease or vendor’s lien, or similar instrument which may from time to time be placed upon the Premises (and all renewals, modifications, replacements and extensions of such encumbrances), and each such mortgage, deed of trust, ground lease or lien or other instrument shall be superior to and prior to this Lease provided that the holder of such mortgage, deed of trust, ground lease, lien or other instrument agrees to recognize this Lease and Tenant’s rights hereunder. Upon request, Tenant shall execute a subordination, non-disturbance and attornment agreement in a form reasonably satisfactory to Tenant and Landlord’s lender. Notwithstanding the foregoing, the holder or beneficiary of such mortgage, deed of trust, ground lease, vendor’s lien or similar instrument shall have the right to subordinate or cause to be subordinated any such mortgage, deed of trust, ground lease, vendor’s lien or similar instrument to this Lease. Tenant further covenants and agrees that if the lender or ground lessor acquires the Premises as a purchaser at any foreclosure sale or otherwise, Tenant shall recognize and attorn to such party as landlord under this Lease, and shall make all payments required hereunder to such new landlord without deduction or set-off and, upon the request of such purchaser or other successor, execute, deliver and acknowledge documents confirming such attornment. Tenant waives the provisions of any law or regulation, now or hereafter in effect, which may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease or the obligations of Tenant hereunder in the event that any such foreclosure or termination or other proceeding is prosecuted or completed.

4.26Workers Compensation Immunity. If and to the extent that Tenant is obligated to indemnify, defend or hold harmless Landlord or Landlord’s Agents from any Claims arising from its use of the Premises or any act or failure to act by Tenant or Tenant’s Agents or otherwise, Tenant expressly waives, to and in favor of Landlord and Landlord’s Agents, its statutory workers compensation act employers immunity relative to any injury to an employee or employees of Tenant. Nothing herein shall be construed as a waiver of any rights Tenant may have with respect to its employees, and no employee of Tenant shall be deemed a third party beneficiary of this provision.

4.27Brokers. Landlord shall pay commissions to the Brokers in connection with this Lease in accordance with the terms of the separate commission agreements between Landlord and the Brokers. Except for Landlord’s obligations to the Brokers under such separate commission agreements, each party to this Lease shall indemnify, defend and hold harmless the other party from and against any and all Claims asserted against such other party by any real estate broker, finder or intermediary relating to any act of the indemnifying party in connection with this Lease.

4.28Exculpation and Limitation of Liability. Landlord has executed this Lease by its trustee signing solely in a representative capacity. Notwithstanding anything contained in this Lease to the contrary, Tenant confirms that the covenants of Landlord are made and intended, not as personal covenants of the trustee, or for the purpose of binding the trustee personally, but solely in the exercise of the representative powers conferred upon the trustee by its principal.  Liability with respect to the entry and performance of this Lease by or on behalf of Landlord, however it may arise, shall be asserted and enforced only against the Landlord’s estate and interest in the Building and any insurance proceeds for the Building received by Landlord, and Landlord shall have no personal liability in the event of any claim against Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant’s .use of the Premises. Further, in no event whatsoever shall any Landlord’s Agent have any liability or responsibility whatsoever arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant’s use of the Premises. Any and all personal liability, if any, beyond that which may be asserted under this paragraph, is expressly waived and released by Tenant and by all persons claiming by, through or under Tenant.

4.29ERISA Representations. Tenant represents to Landlord that with the exception of this Lease, neither the Tenant nor any affiliate of the Tenant is a tenant under a lease or any other tenancy arrangement (1) with (a) Riggs and Company, a division of Riggs Bank N.A., as trustee of the Multi-Employer Property Trust, (b) Riggs Bank N.A. as trustee of the Multi-Employer Property Trust; (c) the Multi-Employer Property Trust; (d) the National Bank of Washington Multi-Employer Property Trust, the previous name of the Multi-Employer Property Trust; (e) The Riggs National Bank of Washington, D.C., as trustee of the Multi-Employer Property Trust; (f) the Harman International Business Campus Joint Venture; (g) the Corporate Drive Corporation as trustee of the Corporate Drive Nominee Realty Trust; (h) Goldbelt Place Joint Venture; (i) Arboretum Lakes-I, L.L.C., a Delaware limited liability company; G) Village Green of Rochester Hills Associates L.L.C.; (k) Pine Street Development, L.L.C.; (I) MEPT Realty LLC; (m) MEPT, L.L.C.; (n) Cabrillo Properties LLC; (0) Valencia LLC; or (P) Mission Trails LLC; or (2) involving any property in which anyone or more of the entities named in clauses (1) (a) through (e) are known by the Tenant to have an ownership interest.

4.30Mechanic’s Liens and Tenant’s Personal Property Taxes.

4.30.1 Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord or Tenant in the Premises or to charge the rentals payable under this Lease for any Claims in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Subject to Landlord’s reimbursement of such costs for the Tenant Improvements pursuant to paragraph 2.4 and Exhibit C hereof, Tenant shall payor cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises on which any lien is or can be validly and legally asserted against its leasehold interest in the Premises and Tenant shall indemnify, defend and hold harmless Landlord from any and all Claims arising out of any such asserted Claims. Tenant agrees to give Landlord immediate written notice of any such Claim.

4.30.2 Tenant shall be liable for all taxes levied or assessed against personal property, furniture or fixtures placed by Tenant in the Premises. If any such taxes for which Tenant is liable are levied or assessed against Landlord or Landlord’s property and Landlord elects to pay them or if the assessed value of Landlord’s property is increased by inclusion of such personal property, furniture or fixtures and Landlord elects to pay the taxes based on such increase, Tenant shall reimburse Landlord for the sums so paid by Landlord, within fifteen (15) days following demand by Landlord.

4.31Intentionally Omitted.

4.32Parking. Subject to changes required by applicable Governmental Requirements or eminent domain, Landlord shall provide surface parking for passenger vehicles for the Building at a ratio of 4.0 parking spaces for each 1,000 rentable square feet in the Building.

Such parking shall be available without charge during the Lease Term on a first-come, first served basis.

SECTION 5: DEFAULT AND REMEDIES

5.1Events of Default.

5.1.1 The occurrence of anyone or more of the following events shall constitute a material default and breach of this Lease by Tenant (“Event of Default”):

(a) vacation or abandonment of all or any material portion of the Premises; provided that the vacating of all or a material part of the Premises by Tenant shall not constitute an Event of Default so long as (i) Tenant gives Landlord not less than thirty (30) days notice of the date Tenant intends to vacate the Premises, (ii) on or before the date Tenant vacates the Premises Tenant pays to Landlord Base Rent for the next month in advance of the date otherwise due (e.g., pay on September 1, the installments of Base Rent for the months of October and November), and (iii) otherwise continue to perform Tenant’s obligations under this Lease;

(b) failure by Tenant to make any payment of Base Rent, Additional Rent or any other sum payable by Tenant under this Lease where such failure continues for more than ten (10) calendar days after Landlord has provided Tenant with notice of the delinquent payment; provided, however, Landlord need not give any such notice, and Tenant shall not be entitled to any such period of grace, more than twice in any twelve (12) month period;

(c) an assignment of this Lease by Tenant or a sublease of any or all of the Premises without Landlord’s permission except in conformance with paragraph 4.17 hereof;

(d) failure by Tenant to observe or perform any covenant or condition of this Lease, other than the making of payments, where such failure shall continue for a period of thirty (30) calendar days after written notice from Landlord; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within such thirty (30) day period,

Tenant shall not be deemed to be in default if Tenant shall commence the cure of such default within such thirty (30) day period and thereafter diligently prosecute the same to completion within sixty (60) days after Tenant receives written notice thereof;

(e) (1) the making by Tenant of any general assignment or general arrangement for the benefit of creditors; (2) the filing by or against Tenant of a petition in bankruptcy, including reorganization or arrangement, unless, in the case of a petition filed against Tenant, unless the same is dismissed within forty-five (45) calendar days; (3) the appointment of a trustee or receiver to take possession of substantially all of Ten ant’s assets located in the Premises or of Tenant’s interest in this Lease; (4) any execution, levy, attachment or other process of law against any property of Tenant or Tenant’s interest in this Lease, unless the same is dismissed within forty-five (45) calendar days; (5) adjudication that Tenant is bankrupt; (6) the making by Tenant of a transfer in fraud of creditors; or (7) the failure of Tenant to generally pay its debts as they become due; or

(f) any information furnished by or on behalf of Tenant to Landlord in connection with the entry of this Lease is determined to have been materially false, misleading or incomplete when made.

5.1.2 Tenant shall notify Landlord promptly of any Event of Default or any facts, conditions or events which, with the giving of notice or passage of time or both, would constitute an Event of Default.

5.1.3 If a petition in bankruptcy is filed by or against Tenant, and if this Lease is treated as an “unexpired lease” under applicable bankruptcy law in such proceeding, then Tenant agrees that Tenant shall not attempt nor cause any trustee to attempt to extend the applicable time period within which this Lease must be assumed or rejected.

5.2Remedies. If any Event of Default occurs, Landlord may at any time after such occurrence, with or without notice or demand except as stated in this paragraph, and without limiting Landlord in the exercise of any right or remedy at law which Landlord may have by reason of such Event of Default, exercise the rights and remedies, either singularly or in combination, as are specified or described in the subparagraphs of this paragraph.

5.2.1 Landlord may terminate this Lease and all rights of Tenant under this Lease either immediately or at some later date by giving Tenant written notice that this Lease is terminated. If Landlord so terminates this Lease, then Landlord may recover from Tenant the sum of:

(a) the unpaid Base Rent, Additional Rent and all other sums payable under this Lease which have been earned at the time of termination;

(b) interest at the Default Rate on the unpaid Base Rent, Additional Rent and all other sums payable under this Lease which have been earned at the time of termination; plus

(c) the amount by which the unpaid Base Rent, Additional Rent and all other sums payable under this Lease which would have been earned after termination until the time of award exceeds the amount of such rental loss, if any, as Tenant proves could have been reasonably avoided and interest on such excess at the Default Rate; plus

(d) the amount by which the aggregate of the unpaid Base Rent, Additional Rent and all other sums payable under this Lease for the balance of the Lease Term after the time of award exceeds the amount of such rental loss, if any, as Tenant proves could be reasonably avoided, with such difference being discounted to present value at the Prime Rate at the time of award; plus

(e) any other amount necessary to compensate Landlord for the detriment proximately caused by Tenant’s failure to perform Tenant’s obligations under this Lease or which, in the ordinary course of things, would be likely to result from such failure, including, leasing commissions, tenant improvement costs, renovation costs and advertising costs; plus

(f) all such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

5.2.2 Landlord shall also have the right, with or without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises. Landlord may cause property so removed from the Premises to be stored in a public warehouse or elsewhere at the expense and for the account of Tenant.

5.2.3 Landlord shall also have the right, without terminating this Lease, to accelerate and recover from Tenant the sum of all unpaid Base Rent, Additional Rent and all other sums payable under the then remaining term of the Lease, discounting such amount to present value at the Prime Rate. Upon recovery of all such amounts, the Lease and all rights of Tenant hereunder shall terminate.

5.2.4 If Tenant vacates, abandons or surrenders the Premises without Landlord’s consent, or if Landlord re-enters the Premises as provided in subparagraph 5.2.2 or takes possession of the Premises pursuant to legal proceedings or through any notice procedure provided by law, then, if Landlord does not elect to terminate this Lease, Landlord may, from time to time, without terminating this Lease, either (a) recover all Base Rent, Additional Rent and all other sums payable under this Lease as they become due or (b) relet the Premises or any part of the Premises on behalf of and for the benefit of Tenant for such term or terms, at such rent or rents and pursuant to such other provisions as Landlord may reasonably deem advisable, all with the right, at Tenant’s cost, to make alterations and repairs to the Premises and recover any deficiency from Tenant as set forth in subparagraph 5.2.5.

5.2.5 None of the following remedial actions, singly or in combination, shall be construed as an election by Landlord to terminate this Lease unless Landlord has in fact given Tenant written notice that this Lease is terminated: an act by Landlord to maintain or preserve the Premises; any efforts by Landlord to relet the Premises; any repairs or alterations made by Landlord to the Premises; re-entry, repossession or reletting of the Premises by Landlord

pursuant to this paragraph; or the appointment of a receiver, upon the initiative of Landlord, to protect Landlord’s interest under this Lease. If Landlord takes any of the foregoing remedial action without terminating this Lease, Landlord may nevertheless at any time after taking any such remedial action terminate this Lease by written notice to Tenant.

5.2.6 Landlord shall use reasonable commercial efforts to relet the Premises following an Event of Default. The parties agree that it shall be reasonable for Landlord to refuse to relet the Premises on the grounds set forth in paragraph 4.17.3. The parties further agree that Landlord shall not violate its obligations under this paragraph if it leases other available space in the Building before leasing the Premises. If Landlord relets the Premises, Landlord shall apply the revenue from such reletting as follows: first. to the payment of any indebtedness of Tenant to Landlord other than Base Rent, Additional Rent or any other sums payable by Tenant under this Lease; second, to the payment of any reasonable cost of reletting (including finders’ fees and leasing commissions); third. to the payment of the reasonable cost of any alterations, improvements, maintenance and repairs to the Premises; and fourth. to the payment of Base Rent, Additional Rent and other sums due and payable and unpaid under this Lease. Landlord shall hold and apply the residue, if any, to payment of future Base Rent, Additional Rent and other sums payable under this Lease as the same become due, and shall deliver the eventual balance, if any, to Tenant. Should revenue from letting during any month, after application pursuant to the foregoing provisions, be less than the sum of the Base Rent, Additional Rent and other sums payable under this Lease and Landlord’s expenditures for the Premises during such month, Tenant shall be obligated to pay such deficiency to Landlord as and when such deficiency arises.

5.2.7 TENANT, IN CONSIDERATION FOR THE EXECUTION OF THIS LEASE BY LANDLORD AND FOR THE COVENANTS AND AGREEMENTS ON THE PART OF LANDLORD HEREIN CONTAINED, AND FULLY COMPREHENDING THE RELINQUISHMENT OF CERTAIN RIGHTS INCLUDING RIGHTS OF PRE-JUDGMENT NOTICE AND HEARING PRIOR TO ENTRY OF JUDGMENT AND EXECUTION ON SUCH JUDGMENT, HEREBY EXPRESSLY AUTHORIZES AND EMPOWERS (WHICH POWER IS COUPLED WITH AN INTEREST) ANY PROTHONOTARY OR ATTORNEY OF ANY COURT OF RECORD TO ACCEPT SERVICE OF PROCESS FOR, TO APPEAR FOR, AND TO CONFESS JUDGMENT AGAINST TENANT TO RECOVER POSSESSION FROM TIME TO TIME OF THE PREMISES (AND TENANT AGREES THAT UPON THE ENTRY OF JUDGMENT FOR POSSESSION, A WRIT OF POSSESSION - OR OTHER APPROPRIATE PROCESS MAY ISSUE FORTHWITH). In any action by confession for ejectment, Landlord shall first cause to be filed in such action an affidavit made by it or someone acting for it setting forth the facts necessary to authorize the entry of judgment, of which facts such affidavit shall be conclusive evidence, and if a true copy of this Lease be filed in such action, it shall not be necessary to file the original as a warrant of attorney, any rule of court, custom or practice to the contrary notwithstanding. The authority to confess judgment against Tenant hereunder shall not be exhausted by one (1) exercise thereof, but judgment may be confessed as provided herein from time to time as often as any Event of Default occurs under this Lease, and such authority may be exercised as well after the expiration of the Term of this Lease or during or after the expiration of any renewal Term, by Landlord or any successor Landlord.

5.2.8 Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies provided in this Lease or by law (all such remedies being cumulative), nor shall pursuit of any remedy provided in this Lease constitute a forfeiture or waiver of any Base Rent, Additional Rent or other sum payable under this Lease or of any damages accruing to Landlord by reason of the violation of any of the covenants or conditions contained in this Lease.

5.3Right to Perform. If Tenant shall fail to pay any sum of money, other than Base Rent or Additional Rent, required to be paid by it under this Lease or shall fail to perform any other act on its part to be performed under this Lease, and such failure shall continue for fifteen (15) calendar days after notice of such failure by Landlord, or such shorter time if reasonable under the circumstances, Landlord may, but shall not be obligated to, and without waiving or releasing Tenant from any obligations of Tenant, make such payment or perform such other act on Tenant’s part to be made or performed as provided in this Lease. Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the nonpayment of sums due under this paragraph as in the case of default by Tenant in the payment of Base Rent.

5.4Landlord’s Default. In the event that Landlord defaults under or breaches this Lease, Tenant shall notify Landlord of such default or breach in writing, and Tenant shall not exercise any right or remedy which Tenant may have under this Lease or at law if Landlord commences to cure such default or breach within thirty (30) calendar days after receipt of Tenant’s notice and thereafter diligently prosecutes the cure to completion.

SECTION 6: MISCELLANEOUS PROVISIONS

6.1Notices. Unless otherwise specifically stated in this Lease, any notice, request or written communication required or permitted to be delivered under this Lease shall be: (a) in writing; (b) transmitted by personal delivery, express or courier service, United States Postal Service in the manner described below, or electronic means of transmitting written material; and (c) deemed to be delivered on the earlier of the date received or four (4) calendar days after having been deposited in the United States Postal Service, postage prepaid. Such writings shall be addressed to Landlord or Tenant, as the case may be, at the respective designated addresses set forth opposite their signatures, or at such other addressees) as they may, after the execution date of this Lease, specify by written notice delivered in accordance with this paragraph, with . copies to the persons at the addresses, if any, designated opposite each party’s signature. Those notices which contain a notice of breach or default or a demand for performance may be sent by any of the methods described in clause (b) above, but if transmitted by personal delivery or electronic means, shall also be sent concurrently by certified or registered mail, return receipt requested.

6.2Attorney’s Fees and Expenses. In the event either party requires the services of an attorney in connection with enforcing the terms of this Lease, or in the event suit is brought for the recovery of Base Rent, Additional Rent or any other sums payable under this Lease or for the breach of any covenant or condition of this Lease, or for the restitution of the Premises to Landlord or the eviction of Tenant during the Lease Term or after the expiration or earlier

termination of this Lease, the non-breaching party shall be entitled to a reasonable sum for attorney’s and paralegal’s fees, expenses and court costs, including those relating to any appeal.

6.3No Accord and Satisfaction. No payment by Tenant or receipt by Landlord of an amount less than the Base Rent or Additional Rent or any other sum due and payable under this Lease shall be deemed to be other than a payment on account of the Base Rent, Additional Rent or other such sum, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, nor preclude Landlord’s right to recover the balance of any amount payable or Landlord’s right to pursue any other remedy provided in this Lease or at law, unless specifically agreed to in writing by Landlord.

6.4Successors: Joint and Several Liability. Except as provided in the paragraph captioned “Exculpation and Limitation of Liability” and subject to the paragraph captioned “Assignment and Subletting by Landlord”, all of the covenants and conditions contained in this Lease shall apply to and be binding upon Landlord and Tenant and their respective heirs, executors, administrators, successors and assigns. In the event that more than one person, partnership, company, corporation or other entity is included in the term “Tenant,” then each such person, partnership, company, corporation or other entity shall be jointly and severally liable for all obligations of Tenant under this Lease.

6.5Choice of Law. This Lease shall be construed and governed by the laws of the state in which the Land is located. Tenant consents to venue in the Eastern District of Pennsylvania or Chester County, Pennsylvania for any legal proceeding brought by Landlord or Tenant to enforce the terms of this Lease.

6.6No Waiver of Remedies. Unless otherwise stated in this Lease, the waiver by Landlord or Tenant of any covenant or condition contained in this Lease shall not be deemed to be a waiver of any subsequent breach of such covenant or condition nor shall any custom or practice which may develop between the parties in the administration of this Lease be construed to waive or Lessen the rights of Landlord or Tenant, as the case may be, to insist on the strict performance by the other of all of the covenants and conditions of this Lease. No act or thing done by Landlord or Landlord’s Agents during the Lease Term shall be deemed an acceptance or a surrender of the Premises, and no agreement to accept a surrender of the Premises shall be valid unless made in writing and signed by Landlord. The mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy it might have, either under this Lease or at law, nor shall the waiver of or redress for any violation of any covenant or condition in this Lease or in any of the rules or regulations attached to this Lease or later adopted by Landlord, prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord or payment by Tenant of Base Rent, Additional Rent or any other sum payable under this Lease with knowledge of a breach of any covenant or condition in this Lease shall not be deemed a waiver of such breach.  The failure of Landlord to enforce any of the rules and regulations attached to this Lease or later adopted, against Tenant or any other tenant in the Building, shall not be deemed a waiver. To be effective, any waiver by Landlord or Tenant must be in writing and signed by the party against whom such waiver is claimed.

6.7Offer to Lease. The submission of this Lease to Tenant or its broker or other agent does not constitute an offer to Tenant to lease the Premises. This Lease shall have no force or effect until: (a) it is executed and delivered by Tenant to Landlord; and (b) it is executed and delivered by Landlord to Tenant.

6.8Force Majeure. In the event that either party shall be delayed, hindered in or prevented from the performance of any act or obligation required under this Lease (other than the payment of money) by reason of Force Majeure, then performance of such act or obligation shall be excused for the period of the delay and the period for the performance of any such act or obligation shall be extended for the period equivalent to the period of such delay. Nothing in the foregoing shall abrogate Tenant’s right to delay the Scheduled Commencement Date as provided in paragraph 1.35, or to abate rent as provided in paragraphs 4.10 and 4.11.

6.9Landlord’s Consent. Unless otherwise provided in this Lease, whenever Landlord’s consent, approval or other action is required under the terms of this Lease, such consent, approval or action shall be subject to Landlord’s judgment or discretion exercised in good faith and shall be delivered in writing.

6.10Severability; Captions. If any clause or provision of this Lease is determined to be illegal, invalid, or unenforceable under present or future laws, the remainder of this Lease shall not be affected by such determination, and in lieu of each clause or provision that is determined to be illegal, invalid or .unenforceable, there be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. Headings or captions in this Lease are added as a matter of convenience only and in no way define, limit or otherwise affect the construction or interpretation of this Lease. .

6.11Interpretation. Whenever a provision of this Lease uses the term (a) ”include” or “including”, that term shall not be limiting but shall be construed as illustrative, (b) ”covenant”, that term shall include any covenant, agreement, term or provision, (c) ”at law”, that term shall mean at law or in equity, or both, and (d) ”day”, that uncapitalized word shall mean a calendar day. This Lease shall be given a fair and reasonable interpretation of the words contained in it without any weight being given to whether a provision was drafted by one party or its counsel.

6.12Incorporation of Prior Agreement: Amendments. This Lease contains all of the agreements of the parties to this Lease with respect to any matter covered or mentioned in this Lease, whether oral or written, and no prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties to this Lease or their respective successors in interest.

6.13Authority. If Tenant is a partnership, company, corporation or other entity, each individual executing this Lease on behalf of Tenant represents and warrants to Landlord that he or she is duly authorized to so execute and deliver this Lease and that all partnership, company, corporation or other entity actions and consents required for execution of this Lease have been

given, granted or obtained. If Tenant is a partnership, company, corporation or other business organization, it shall, within ten (10) calendar days after demand by Landlord, deliver to Landlord satisfactory evidence of the due authorization of this Lease and the authority of the person executing this Lease on its behalf.

6.14Time of Essence. Time is of the essence with respect to the performance of every covenant and condition of this Lease.

6.15Survival of Obligations. Notwithstanding anything contained in this Lease to the contrary or the expiration or earlier termination of this Lease, any and all obligations of either party accruing prior to the expiration or termination of this Lease shall survive the expiration or earlier termination of-this Lease, and either party shall promptly perform all such obligations whether or not this Lease has expired or terminated. Such obligations shall include any and all indemnity obligations set forth in this Lease.

6.16Consent to Service. Tenant irrevocably consents to the service of process of any action or proceeding at the address of the Premises. Nothing in this paragraph shall affect the right to serve process in any other manner permitted by law.

6.17Landlord’s Authorized Agents. Notwithstanding anything contained in the Lease to the contrary, including without limitation, the definition of Landlord’s Agents, only officers of Riggs Bank, N.A. are authorized to amend, renew or terminate this Lease, or to compromise any of Landlord’s claims under this Lease or to bind Landlord in any manner.  Without limiting the effect of the previous sentence, no property manager or broker shall be considered an authorized agent of Landlord to amend, renew or terminate this Lease or to compromise any of Landlord’s claims under this Lease or to bind Landlord in any manner.

6.18Waiver of Jury Trial. Landlord and Tenant agree to waive trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter arising out of or relating in any way to this Lease.

6.19Representations and Warranties of Landlord. Landlord represents and warrants to Tenant as follows:

6.19.1 Landlord is a trust organized under 12 C.F.R. Section 9.18 whose Trustee is Riggs and Company, a division of Riggs Bank, N.A. Landlord has full power and authority to enter into this Lease. The person executing this Lease on behalf of Landlord is duly authorized to do so, and occupies the position with the Trustee delineated on the signature page of this Lease.

6.19.2 On the date hereof, to Landlord’s actual knowledge without investigation, the Premises is in compliance with all Access Laws.

(next page is signature page)

IN WITNESS WHEREOF, this Lease has been executed the day and year first above set forth.

Designated Address for Landlord:

c/o Riggs and Company

Attn:                           

808 17th Street, N.W.

Washington, DC 20006

Facsimile: 202-835-6887

LANDLORD

Riggs and Company, a division of Riggs Bank,

N.A. as Trustee of the Multi-Employer Property

Trust, a trust organized under 12 C.F.R. Section 9.18.

By:

Name:

Its:

with copy to Manager at:

Trammell Crow NE, Inc.

Bay Colony Executive Park

575 East Swedesford Road, Suite 150

Wayne, PA 19087-1613

Facsimile: 610-989-0278

Designated Address for Tenant:

TENANT:

Systems & Computer Technology Corporation,

a Delaware corporation

By:

Name:

Its:

EXHIBIT A TO LEASE

LEGAL DESCRIPTION OF LAND

LOT 2 - WESTBROOK CORPORATE CENTER

ALL THAT CERTAIN LOT or parcel of ground, Situate in the Township of East Whiteland, County of Chester. and State of Pennsylvania, bounded and described according to a Subdivision Plan of Westbrook Corporate Center for Trammell Crow Company, prepared by Edward B. Walsh and Associates, Inc., Civil Engineers, Exton, PA, dated January 27, 1997 and last revised June 9, 1997. Being more particularly described as follows:

BEGINNING at a point on the Northerly right-of-way of Moore Road (T -415) (60 feet wide), said point being a comer this and Lot 3 as shown on said plan, thence extending along the northerly right-of-way of Moore Road, the four (4) following courses and distances: (1) South 61 degrees 16 minutes 30 seconds West, 336.08 feet to a point, (2) South 64 degrees 53 minutes 32 seconds West, 124.05 feet to a point of curvature, (3) on the arc of a circle curving to the left, having a radius of 488.37 feet, the arc distance of 102.06 feet to a point at a point of tangency, and (4) South 52 degrees 55 minutes 08 seconds West, 190.79 feet to a point in the bed of a stream, on the northeasterly right-of-way of Conestoga Road (S. R. 0401) (variable width) being a point on a non tangent curve, a radial line to said point bears South 31 degrees 55 minutes 36 seconds West; thence extending along the said right-of-way, the five (5) following courses and distances: (1) on the arc of a circle curving to the left, having a radius of 5,829.58 feet, the arc distance of 82.13 feet to a point, (2) radial to last mentioned curve, South 31 degrees 07 minutes 10 seconds West, crossing said stream 40.00 feet to a point, a point of nontangent curve, a radial line to said curve bears South 31 degrees 07 minutes 10 seconds West, (3) on the arc of a circle curving to the left, having a radius of 5,789.58 feet, crossing another stream, the arc distance of 455.66 feet to a point of tangency, (4) North 63 degrees 23 minutes 24 seconds West, 99.06 feet to a point, and (5) South 26 degrees 36 minutes 36 seconds West 37.00 feet to a point on the Northeasterly right-of-way of Conestoga Road (S. R. 0401); thence along said right of way North 63 degrees 23 minutes 24 seconds West, 440.33 feet to a point in line of lands now or late of Great Valley High School; thence extending along the same, the two (2) following courses and distances: (1) North 33 degrees 20 minutes 30 seconds East, re-crossing said stream, 834.01 feet to a marble monument found, and (2) South 56 degrees 39 minutes 30 seconds East, 1004.00 feet to an Iron Pin Set, a comer of lands now or late of East Whiteland Township; thence extending along the same, North 33 degrees 20 Minutes 30 seconds East 179.73 feet to an Iron Pin Set, a comer of late now or late Kathryn Freda Cubbing; thence along of said Cubbing South 56 degrees 39 minutes 30 seconds East 163.18 feet to an Iron Pin Set; thence still along land of said Cubbing and land now or late of James L. and Viola A. Price South 76 degrees 52 minutes 50 seconds East 81.79 feet to a point a comer of Lot #3 as shown on said plan thence along said Lot 3 South 05 degrees 26 minutes 12 seconds East 243.23 feet to the said point an place of beginning.

BEING Lot 2 as shown on said plan.

CONTAINING: 21.995 acres of land, be the same, more or less.

1

LOT 3 - WESTBROOK CORPORATE CENTER

ALL THAT CERTAIN LOT or parcel of ground, Situate in the Township of East Whiteland, County of Chester and State of Pennsylvania, bounded and described according to a Subdivision Plan of Westbrook Corporate Center for Trammell Crow Company, prepared by Edward B. Walsh and Associates, Inc., Civil Engineers, Exton, PA, dated January 27, 1997 and last revised June 9, 1997. Being more particularly described as follows:

BEGINNING at a point of Northerly right-of-way line of Moore Road, (T-415)(60 feet wide), said point being a comer of Lot 4; thence extending nom said point of beginning along the North side of Moore Road, South 61 degrees 16 minutes 30 seconds West 296.70 feet to a point, a comer of Lot 2 as shown on said plan; thence extending along the same, North 05 degrees 26 minutes 12 seconds West, 243.23 feet to a point in the land now or late of James L. and Viola A. Price; thence along the land of said Price the three (3) following courses and distances: (1) South 76 degrees 52 minutes 50 seconds East, 44.00 feet to an Iron Pin Set; (2) North 84 degrees 55 minutes 10 seconds East, 170.48 feet to an Iron Pin Set; (3), North 66 degrees 43 minutes 10 seconds East, 11.65 feet to a point, a comer of Lot 4 as shown on said plan; thence along said Lot 4, South 28 degrees 43 minutes 30 seconds East, 124.58 feet to the point and place of beginning.

BEING Lot 3 as shown on said plan.

CONTAINING: 44,001 square feet of land, be the same, more or less.

2

LOT 4-WESTBROOK CORPORATE CENTER

ALL THAT CERTAIN LOT or parcel of ground. Situate in Township of East Whiteland. County of Chester and State of Pennsylvania, bounded and described according to a Subdivision Plan of Westbrook Corporate Center for Trammell Crow Company. prepared by Edward B. Walsh and Associates, Inc., Civil Engineers, Exton, PA dated January 27, 1997 and last revised June 9. 1997. Being more particularly described as follows:

BEGINNING at a point of the Northerly right-of-way line of Moore Road. (T-415)(60 feet wide), said point being a comer of land now or late of Paul R. and Mary Kay Dunne; thence extending from said point of beginning along the North side of Moore Road, South 61 degrees 16 minutes 30 seconds West 321.74 feet to a point. a comer of Lot 3 as shown on said plan; thence extending along the same. North 28 degrees 43 minutes 30 seconds West, 124.58 feet to a point in line of lands now or late of James and Viola A. Price; thence continuing along said Price and lands now or late of Robert J. and Mary Ellen Clarke. North 66 degrees 43 minutes 10 seconds East, 152.77 feet to an Iron Pin Set; thence continuing along Clark and lands now or late of Dr. Karl A. and Marylyn Palmer. North 36 degrees 14 minutes 20 seconds East, 207.88 feet to an Iron Pin Set a comer of said Dunne; thence along said Dunne. South 23 degrees 20 minutes 00 seconds East, 198.94 feet to the first mentioned point and place of beginning.

BEING Lot 4 as shown on said plan.

CONTAINING: 45,012 square feet of land, be the same, more or less

TOGETHER WITH certain easement rights reserved unto the Grantor by Deed of Dedication dated July 30, 1985 recorded October 29. 1985 in Record Book 117 page 407.

3

EXHIBIT B TO LEASE

DRAWING SHOWING LOCATION OF THE PREMISES

[graphic omitted]

EXHIBIT “C”

WESTBROOK CORPORATE CENTER

TENANT IMPROVEMENTS

The following provisions shall apply to the design and construction of the Tenant Improvements with the same force and effect as if all of the provisions of this Exhibit ”C” were set forth at length. in the body of the Lease.

1.Plans and Specifications. Within forty-five (45) days following the date of this Lease, Tenant shall prepare and submit to Landlord for its approval construction drawings, plans and specifications for all improvements to the Initial Premises necessary or appropriate for the lawful occupancy thereof by Tenant for the Permitted Use, and within twenty (20) Business Days prior to the planned commencement of construction of the Expansion Space. Without limiting the generality of the foregoing, such construction drawings, plans and specifications shall show the following details: partition layout (dimensioned), door location and door schedule, reflected ceiling plans, electrical outlets with locations dimensioned, occupancy requirements by room or space, all necessary drawings, sections, details and specifications for special equipment and fixtures, dimensioned locations of all floor loads beyond 60 lbs. per square foot (including partition load), carpentry and millwork, color schedule of all finish items, floor coverings, wall coverings, other special finishes, requirements for special air-conditioning, plumbing and electrical needs, and specifications of all specialty systems or equipment to be installed in the Initial Premises or Expansion Space, as applicable. The term “Premises,” as used in this Exhibit C, shall refer collectively to the Initial Premises and the Expansion Space. Landlord may require that Tenant include in its design of the Premises the building standard suite entry doors specified on Exhibit ”C-2” hereto; otherwise Landlord’s approval of Tenant’s construction drawings, plans and specifications shall not be unreasonably withheld or delayed. Such construction drawings, plans and specifications, once approved by Landlord, are referred to herein and throughout this Lease as the “Plans and Specifications”. Tenant shall not make any modification to the Plans and Specifications without first submitting the proposed modification to Landlord and obtaining Landlord’s written consent thereto.

2.Construction.

(a)The Tenant Improvements shall be constructed in a good and workmanlike manner, in compliance with all Governmental Requirements, by one or more contractors (collectively, the “Tenant Improvement Contractor”) selected by Tenant and approved in writing by Landlord. Without limiting the scope of Landlord’s approval rights, the Tenant Improvement Contractor must be a party to and bound by a collective bargaining agreement with a labor organization affiliated with the Building and Construction Trades Council of the AFL-CIO and covenant to employ with respect to the construction of the Tenant Improvements only subcontractors similarly bound by such a collective bargaining agreement and employing only members of such labor organizations to perform work within their respective jurisdictions.

(b)Landlord’s construction manager shall be given access to the Initial Premises or Expansion Space, as applicable, at all times during the performance of the applicable Tenant Improvements for purposes of inspecting the same. Landlord shall have the right to reject any portion of the Tenant Improvements which Landlord determines to deviate materially from the Plans and Specifications or to be in violation of any Governmental Requirements. Upon substantial completion of the Initial Premises or Expansion Space, as applicable, the Tenant Improvements shall be inspected for quality control (punchlisted) by Landlord’s construction manager. Any and all portions of the Tenant Improvements not in conformance with the Plans and Specifications shall be corrected by Tenant, at Tenant’s expense, within thirty (30) days after notification of such defects by Landlord. Landlord’s review of the Plans and Specifications or inspection of the Tenant Improvements is for Landlord’s separate purposes; Landlord’s approval or inspection of any thereof shall not be construed as a recommendation, representation or warranty of any kind, including but not limited to compliance with Governmental Requirements or fitness for a particular purpose, or otherwise limit Tenant’s obligations under this Lease.

(c)Prior to the commencement of the applicable Tenant Improvements, Tenant or the Tenant Improvement Contractor shall provide to Landlord copies of all required building permits for construction of the applicable Tenant Improvements and insurance certificates with coverages and limits as specified by Landlord, naming Landlord and the Manager as additional insureds. The Tenant Improvement Contractor shall also execute a waiver of mechanics liens in form and substance satisfactory to Landlord, which waiver must be filed with the Chester County Prothonotary prior to commencement of such Tenant Improvements at Tenant’s expense; provided, however, that if funds remain in the Tenant Improvement Allowance, Tenant shall be entitled to draw upon the Tenant Improvement Allowance for payment of any expenses associated with the filing of mechanics lien waivers.

(d)Construction of the Tenant Improvements shall not, at any time or in any manner, interfere with any work being performed by Landlord in or about the Building. Tenant shall be fully responsible for coordinating the work of the Tenant Improvement Contractor with the work of Landlord’s contractors so as to prevent any interference with construction undertaken by Landlord in other portions of the Building. Landlord agrees to cooperate with Tenant in such scheduling. All conflicts between Tenant and the Tenant Improvement Contractor on the one hand and Landlord’s contractors on the other hand shall be resolved as reasonably determined by Landlord’s construction manager. Tenant shall be and remain liable to Landlord for all costs of any kind which are incurred by Landlord as a result of interference, disruption or non-coordination with the work of Landlord’s contractors. In the event of a work stoppage or slowdown by Landlord’s contractors as a result of work being performed by the Tenant Improvement Contractor, Tenant will, upon notice from Landlord, cease all such construction until Tenant can schedule such work so that it does not interfere with the work being performed by Landlord’s contractors.

(e)Tenant shall be solely responsible for (i) transportation, safekeeping and storage of material and equipment used in the performance of the work by the Tenant Improvement Contractor, (ii) the cost of removal of debris and waste resulting therefrom, (iii) defective design and work caused by the Tenant Improvement Contractor; and (iv) any damage caused by the Tenant Improvement Contractor; provided however, that Tenant shall be entitled

to draw upon the Tenant Improvement Allowance for payment of costs associated with subsections (i) and (ii) of this subsection (e). Tenant shall also indemnify and hold harmless Landlord and Manager from any and all claims arising out of, in any manner, the operation of the Tenant Improvement Contractor.

3.Tenant Improvement Costs.

(a)The cost of any improvement, modification, construction, design, management, inspection, review or any other cost or expense incurred toward the preparation of the Tenant Improvements for Tenant’s desired and Permitted Use, including but not limited to the cost of architectural and engineering services, permits and approvals and the sums payable to the Tenant Improvement Contractor, are collectively referred to herein as the “Tenant Improvement Costs”.  Tenant shall be responsible for payment of the Tenant Improvement Costs as and when due, subject to reimbursement by Landlord in an amount not to exceed the Tenant Improvement Allowance pursuant to Section 4 below.

(b)Prior to commencement of the Tenant Improvements for each portion of the Premises, Tenant shall deliver to Landlord (i) a certificate executed by Tenant attaching a budget (the “Budget”) for the Tenant Improvements for such portion of the Premises, which shall constitute Tenant’s good faith estimate of all Tenant Improvement Costs for such portion of the Premises, and (ii) a copy of Tenant’s construction contract with the Tenant Improvement Contractor. Tenant shall be permitted from time to time to adjust the Budget if Tenant’s good faith estimate has changed, but in no event shall total costs in the Budget for the Tenant Improvements for any portion of the Premises exceed the Tenant Improvement Allowance allocated to such portion of the Premises.

4.Tenant Improvement Allowance. Landlord agrees to pay to Tenant an amount to be applied against Tenant Improvement Costs for each of the Initial Premises and the Expansion Space, up to a maximum of the applicable Tenant Improvement Allowance. Landlord’s obligation to pay the Tenant Improvement Allowance shall be subject to the following:

(a)No Event of Default shall have occurred and be continuing hereunder at the time any such payment is requested.

(b)Payments by Landlord shall be requested no more frequently than once per month and shall be made within twenty-three (23) Business Days after Landlord’s receipt of the applicable supporting documentation mentioned in this Section.

(c)Each request by Tenant for payment shall be accompanied by (i) a copy of an application and certificate for payment (AIA Document G702 or equivalent) signed by the Tenant Improvement Contractor, (ii) a certificate from Tenant that all amounts requested are for Tenant Improvement Costs actually incurred, that all amounts payable to the Tenant Improvement Contractor for which previous requests for payment have been made and for which Tenant has received payment from Landlord have been fully paid and the current payment requested by Tenant is then due and payable, and (iii) releases of liens executed by the Tenant Improvement Contractor and all subcontractors, releasing all lien rights any of such contractors

may have with respect to all work performed through the date of the previous payment. To the extent that there is a dispute between Tenant and its contractors pursuant to which Tenant has withheld payment on account of any Tenant Improvement Costs, Tenant shall not request payment therefor and Landlord shall not make payment with respect thereto until such dispute is resolved.

(d)In the event that the Budget indicates that the applicable Tenant Improvement Costs are in excess of the applicable Tenant Improvement Allowance, Landlord shall not be obligated to make any payment under this Section unless and until Tenant has demonstrated to Landlord’s satisfaction that Tenant has paid for Tenant Improvement Costs in such amount as may be required so that the remaining Tenant Improvement Costs to be paid do not exceed the remaining Tenant Improvement Allowance to be advanced by Landlord. If upon completion of the Initial Premises or the Expansion Space any Tenant Improvement Allowance remains for such portion of the Premises, Landlord shall reimburse Tenant for any amounts expended by Tenant pursuant to this subparagraph (d).

(e)Tenant’s construction contract with the Tenant Improvement Contractor shall provide for retainage of not less than ten percent (10%) until substantial completion of the applicable Tenant Improvements. Whether or not the construction contract so provides, Landlord shall be entitled to retain an amount equal to ten percent (10%) of all payments otherwise to be funded by Landlord for payment to the Tenant Improvement Contractor until such time as the applicable Tenant Improvements have been substantially completed.

(f)Prior to Tenant’s request for the final payment of the applicable Tenant Improvement Allowance, Tenant shall submit to Landlord (i) final releases of lien signed by the Tenant Improvement Contractor and all subcontractors who provided any labor or materials with respect to the applicable Tenant Improvements (which releases may be contingent upon the receipt of sums reflected in the final payment application and for which may exclude reasonable holdback:) for punchlist items), (ii) if requested by Landlord, a Confirmation of Lease Term Agreement in the form of Exhibit ”D” hereto, satisfactorily completed and executed by Tenant, (iii) a certificate executed by Tenant that all applicable Tenant Improvement Costs have been paid by Tenant except for reasonable holdbacks related to punchlist items as specified in such certificate, and (iv) a set of the Plans and Specifications marked to show as-built conditions, which shall be reproducible if permitted by the party that prepared such Plans and Specifications.

(g)In the event that the cost of the Tenant Improvements for the Initial Premises or the Expansion Space is less than the Tenant Improvement Allowance allocated to such space, Tenant shall receive a credit in the amount of fifty (50%) percent of such savings, to be applied against the installments of Base Rent first falling due following determination of the amount of such credit; provided, however, that. the credit shall not exceed $31.00/rentable square foot of space in the Initial Premises or the Expansion Premises, as applicable.

EXHIBIT “C-1”

BASE BUILDING WORK

Floor Finish:	1st Floor:	4” slab on grade
	2nd and 3rd Floors:	4 ½” lightweight slab
Interior Columns:	Steel “I” beams enclosed with ½” gypsum wall board; taped and spackled; ready for paint.
Exterior (Perimeter)
Columns:	Steel “I” beams enclosed with ½” gypsum wall board; taped and spackled; ready for paint.
Exterior Knee Walls
(below windows):	Pre-case concrete exterior with 3 ½” R-13 kraft paper faced mineral fiber batt insulation between 2 ½” metal stud knee wall. Exterior walls do not include gypsum wall board on tenant side.
Window Wall Sills:	5 ½” wide extruded aluminum sill.
Window Treatments:	All exterior windows shall receive Levelor Riviera Contract 1” blind in a brushed aluminum 34 color.
Demising Partitions:	3 5/8” 25-gauge metal studs, 16” O.C. with 5/8” gypsum wall board on each side of wall to underside of structure above. 1 ½” thick mineral wool batts will be provided in all demising walls. Demising partitions shall mean walls separating Tenant’s space from base Building common areas.
Ceilings:	Armstong 15/16” Prelude hook exposed tee system. Ceiling will be installed in a 4’ x 4’ grid pattern with balance of grid to complete a 2’ x 4’ ceiling system stocked in tenant area for installation as part of Tenant Improvements. Ceiling tiles to be a Second Look II, angled tegular panel. Tiles will be installed at each sprinkler head with balance of stock distributed on each floor for installation as part of Tenant Improvements.
Sprinklers:	Chrome semi-recessed sprinkler heads with white escutcheons will be installed at code minimum for an open unoccupied building. Heads to be installed within 6” radius of center of each 2’ x 2’ (Second Look) tile pattern.
Light Fixtures:	2’ x2’ or 2’ x 4’ fluorescent 277-volt lay-in fixtures. Fixtures to be distributed and stocked on each floor at one (1) fixture per every

	90 square feet of rentable area, for installation as part of Tenant Improvements.
Electrical:	Tenant electrical panels are located in electric rooms situated on each floor adjacent to building cores.
HVAC System:	Water source heat pump system. Water loops will be installed complete in each tenant space. Heat pumps will be distributed and stockpiled on each floor for installation as part of Tenant Improvements. HVAC units will be provided in size and number sufficient, based upon the Building standard mechanical design parameters, to service an office environment consisting of 60% private offices and 40% open space. Distribution and diffusers from the heat pumps is not included under the base building scope of work and is to be provided as part of the Tenant Improvements.
Plumbing:	Wet stacks, vents and cold water risers are provided throughout tenant areas. Access to plumbing risers will depend upon space’ configuration.
Telephone:	Telephone rooms are provided on each floor adjacent to main lobby and building core areas.

EXHIBIT “C-2”

TENANT IMPROVEMENT STANDARD SPECIFICATIONS

WESTBROOK CORPORATE CENTER

The following are standard specifications for office tenant spaces constructed by the Landlord at Westbrook Corporate Center. This Exhibit is included in the Lease solely for informational purposes as to Landlord’s quality and building standards. As provided in Paragraph 2.4 of the Lease, Landlord is not providing to Tenant any of the services or materials contemplated by this Exhibit. Tenant is solely responsible for construction of Tenant Improvements, and shall construct such Tenant Improvements using quality standards and materials of the same or superior quality or craftsmanship as set forth herein.

DESIGN SERVICES

The Landlord’s interior designer will meet with the Tenant to determine the Tenant’s requirements and will develop a space plan for the Tenant’s approval. This space plan and construction drawings for a “standard” tenant space will be provided at Landlord’s sole expense unless otherwise noted in the lease proposal. Landlord will not be responsible for construction schedule delays caused by Tenant’s failure to provide necessary programming information to the interior designer in a timely manner, and as specifically requested in a schedulized format. The Architect will arbitrate any discrepancy in punch list items between Contractor and Tenant. The Architect or Landlord will determine substantial completion.

SIGNAGE

The Landlord shall provide two building standard suite identification signs in the public corridors adjacent to and to the right of Tenant’s main suite entrances. The signs will consist of a suite number and Tenant’s name in the building-standard sign format.

SUITE ENTRANCE

Suite Entrance Doors: Building standard suite entrance doors shall be full height 3’0” x 8’4” x 1¾” solid core, flush panel, plastic laminate covered to match building standard (Nevamar Black Lodestone Textured - LD-6-11). Frames shall be welded steel to match building standard with painted finish. Finish to be two (2) finish coats of acrylic enamel over one (1) primer coat Paint shall be Duron, Fired Steel 8794M. One suite entrance door shall be provided per tenant space, except if additional exits are required by the building code. Any suite entrance door proposed in lieu of the building standard must be approved by Landlord.

Suite Entrance Hardware: Hardware at suite entrance doors shall be Sargent 8200 series (or equal) lever handle locksets in US26D finish and two (2) pair of Hager, AB920, 4½” x 4 ½” hinges with a US26 finish. Door closer will be LCN, hinge side, aluminum, HO, 1460DA-3049. Wall stops and silencers shall also be provided.

INTERIOR FINISHES

Interior Partitions: Standard interior office partitions shall be 8’-6” in height (ceiling height). Construction shall be non-load-bearing, with 3-5/8” metal studs, 25 gauge, 24” oc, and 5/8” gypsum board on each side. All gypsum board partitions shall be taped, bedded, floated, textured, sanded and painted.

Three-inch thick sound attenuation batts will be provided within all walls around conference rooms, with 3-1/2” thermal batts laid over ceiling at wall junction located such that two feet of batts are laying on each side of partition.

The Landlord allowance provides for one linear foot of interior partition for each 36 square feet of leased space.

Demising Partitions: Standard tenant separation partitions shall be 3-5/8”, 25-gauge metal studs, 16” oc, with 5/8” gypsum board on each side of wall to underside of structure. Sound attenuation batts will be provided in all tenant demising walls.

The Landlord allowance provides for demising partitions as required by the tenant plan.

Interior Doors: All interior doors shall be building standard 3’0” x 8’4” x 1¾” solid-core, flush panel, plastic laminate covered with Nevamar Black Lodestone Textured LD-6-1T. Frames shall be welded steel to match building standard with painted finish.

One interior door per 800 square feet of leased space shall be provided.

Interior Door Hardware: Hardware shall be Sargent 8200 series (or equal) lever handle latchsets in US26D finish and two (2) pair of Hager, AB920, 4 ½” x 4 1/2” hinges with a US26 finish. Hardware to include wall stops and silencers.

Ceilings: Ceilings shall be suspended 2’-0” x 4’-0” acoustical tile system with an exposed metal “tee” grid, located 8’-6” above finish floor. Ceiling tile is U.S. Gypsum Omni “Illusion” 2 x 4

Second Look II, or equal. Suspension system shall be DODD Products, Class ”A” with white baked enamel finish, or equal.

Floor Finish: Floor finish shall be 32 ounce cut-pile carpeting in a glue-down installation with 2-1/2” rubber cove base. Armstrong Standard Excelon vinyl composition tile flooring is also available, as is 28 ounce level loop carpet.

Samples of the building standard flooring and base will be provided by Landlord’s interior designer.

Upgraded flooring is available from Landlord’s tenant selection samples.

Wall Finish: The building standard wall finish shall be three coats (one primer; two color coat) of flat latex paint as selected by the Tenant from Landlord’s samples. One base color and not more than two accent colors will be provided.

Vinyl and fabric wallcoverings may be selected by Tenant from Landlord’s samples.

Windows: Sills at perimeter windows shall be Aluminum to match the window frames. Window blinds shall be provided by Landlord at all exterior and atrium windows. Blinds will be 1” slim-line mini blinds, Levelor or equal, in brushed aluminum finish.

MECHANICAL AND ELECTRICAL SYSTEMS

Air-conditioning and Heating: Office areas shall be conditioned by the building’s summer and winter air conditioning and heating system based on the following performance specifications (based on one person per 250 square feet with no heat-producing machines):

When outside conditions are:	Office conditions shall be:
Summer: Between 95° F(db) and 75°F(db)	75° F-78 ° F(db) 50% R humidity
Winter: 10° F(db)	69° F-75 ° F(db) 20% R humidity

Air-conditioning and heating distribution shall be specifically engineered for each tenant space using base building systems. Linear diffusers will be provided at all exterior walls, 2’ x 2’ square diffusers at the interior.

All costs related to heat pump units or duct work that is in addition to what is provided to meet the performance specifications for base building shell design, and all other costs related to moving existing heat pump units or ductwork or for additional cooling required by computers, telephone or other equipment, shall be paid by Tenant.

Electrical Power: The building’s standard electrical service is 277/480-volt, 3-phase, 4-wire. The size of this service for each space shall be determined by electrical load requirements for the standard office. No additional service will be provided for tenant equipment unless specifically agreed upon and indicated on lease construction plans. The Landlord reserves the right to separately meter all electrical usage.

Electrical power shall be provided for normal electrical devices such as building standard fluorescent lighting, receptacles, copy machines, desktop computers, etc. Any additional service required as a result of heavy electrical demand (Computer Room Cooling Systems, UPS Systems, etc.) shall be at Tenant’s expense.

Lighting: Standard lighting in the office areas shall be 2’-0” x 4’-0” fluorescent fixtures with three (3) 32WT8 lamps and 27 deep cell parabolic lenses. Fixtures will be 277 volt, Lithonia #2PMOGB-332-27-GEB10 or equal.

Light fixtures shall be provided at one (1) 2’-0” x 4’ -0” fixture per 100 square feet of leased space.

Switches and Receptacles: Wall outlets/receptacles (standard 120-volt duplex) and switches shall be black devices with satin finish stainless steel or aluminum plates and provided after review and mutual approval of the space plan and construction drawings by Landlord and Tenant.

One (1) 120-volt duplex wall outlet shall be provided per 350 square feet of tenant office space.

One (1) wall switch shall be provided per 350 square feet of tenant office space.

Dedicated receptacles and any special equipment receptacles shall be provided at Tenant’s cost after review and mutual approval of the space plan and construction drawings by Landlord and Tenant.

Telephone: Each tenant must arrange for its telephone requirements directly with Bell Atlantic-PA Telephone or the shared tenant services provider. Telephone installation shall be scheduled and coordinated by Tenant with Landlord at time of construction. Installation shall be at Tenant’s expense. Phone outlet locations can be indicated on construction documents at the request, of Tenant. A conduit with pull string from telephone equipment room to tenant space will be provided by Landlord.

Fire Protection: The building is fully sprinklered. Chrome pendent-mounted sprinkler heads shall be provided at one per 250 square feet. Additional heads or relocation required by the building code will be provided after review and mutual approval of the space plan and construction drawings by Landlord and Tenant.

Additional heads due to unusual or densely officed tenant designs shall be at Tenant’s expense.

Fire extinguishers shall be provided as required by code for standard office uses.

Plumbing: Sinks and other plumbing fixtures within the lease space are available and will be provided at Tenant’s expense after review and mutual approval of a space plan and construction drawings by Landlord and Tenant.

EXHIBIT D TO LEASE

FORM OF MEMORANDUM OF COMMENCEMENT DATE

Riggs and Company, a division of Riggs Bank, N.A. as trustee of the Multi-Employer Property Trust, a trust organized under 12 C.F.R Section 9.18, as Landlord, and Systems & Computer Technology Corporation, a Delaware corporation, as Tenant, executed that certain Office Lease dated as of                        , 1998 (the “Lease”).

The Lease contemplates that upon satisfaction of certain conditions Landlord and Tenant will agree and stipulate as to certain provisions of the Lease. All such conditions precedent to that stipulation have been satisfied.

Landlord and Tenant agree as follows:

1.The Commencement Date of the Lease is                                                         .

2.The Termination Date of the Lease is                                                               .

3.The Premises consist of                            rentable square feet.

4.Base Rent is as follows: Annual Base Rent during first Lease Year shall be $25.00/rsf. When the Expansion Space is added to the Premises in accordance with paragraphs 1.11 and 1.30, the Annual Base Rent for the first Lease Year shall increase by the number of rentable square feet added to the Premises multiplied by $25.00/rsf. Upon the Expansion Commencement Date, Base Rent for remainder of the Lease Term shall be as follows:

Lease Year	Annual Base Rent		Monthly Base Rent
2	$	1,884,552.00	$	157,046.00
3	$	1,921,504.00	$	160,125.33
4	$	1,958,456.00	$	163,204.67
5	$	1,995,408.00	$	166,284.00
6	$	2,069,312.00	$	172,442.67
7	$	2,106,264.00	$	175,522.00
8	$	2,143,216.00	$	178,601.33
9	$	2,180,168.00	$	181,680.67
10	$	2,217,120.00	$	184,760.00

Tenant’s Pro Rata Share shall be a fraction, the numerator of which shall be the number of square feet of rentable floor area in the Premises, and the denominator of which shall be the number of square feet of rentable floor area in the Building.

IN WITNESS WHEREOF, the parties have caused this Memorandum to be duly executed as of                                             , 199  .

LANDLORD:	TENANT
Riggs and Company, a division of Riggs Bank	Systems & Computer Technology
N.A. as trustee of the Multi-Employer Property	Corporation, a Delaware corporation
Trust, a trust organized under 12 C.F.R. Section
9.18
By:	By:
Name:	Name:
Its:	Its:

EXHIBIT E TO LEASE

RULES AND REGULATIONS

1.No sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building or Land without the prior written consent of the Landlord. Landlord shall have the right to remove, at Tenant’s expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person chosen by Landlord.

2.If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, Tenant shall immediately discontinue such use. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises.

3.Tenant shall not obstruct any sidewalk, halls, passages, exits, entrances, elevators, escalators, or stairways of the Building. The halls, passages, exits, entrances, elevators, escalators and stairways are not open to the general public. Landlord shall in all cases retain the right to control and prevent access to such areas of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Land,  Building and the Building’s tenants; provided that, nothing in this Lease contained shall be construed to prevent such access to persons with whom any Tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. Tenant shall not go upon the roof of the Building.

4.The directory of the Building will be provided exclusively for the display of the name and location of tenants only, and Landlord reserves the right to exclude any other names therefrom.

5.All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. Landlord shall not in any way be responsible to any Tenant for any loss of property on the Premises, however occurring, or for any damage to any Tenant’s property by the janitor, any of Landlord’s Agents or any other person.

6.Landlord will furnish Tenant, free of charge, two (2) keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of its Premises. Tenant, upon the termination of its tenancy,

shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor.

7.If Tenant requires telegraphic, telephonic, computer circuits, burglar alarm or similar services, it shall first obtain Landlord’s consent, and comply with, Landlord’s instructions for their installation, and shall pay the entire cost of such installation(s).

8.Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by Governmental Requirements. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight.  Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the Building or to any space in the Building or to any other tenant in the Building, shall be placed and maintained by Tenant, at Tenant’s expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant.

9.Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities permitted by the Lease. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations nor shall Tenant bring into or keep in or about the Premises any birds or animals.

10.Tenant shall not use any method of heating or air-conditioning other than that supplied by Landlord.

11.Tenant shall not waste any utility provided by Landlord and agrees to cooperate fully with Landlord to assure the most effective operation of the Building’s heating and air conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice.

12.Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building.

13.Landlord reserves the right to exclude from the Building during non-Business Hours, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. Landlord reserves the right to prevent access to the

Building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action.

14.Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and electricity, gas or air outlets before Tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule.

15.Tenant shall not arrange for bulk deliveries to the Premises of ice, drinking water, food, beverage, towel or other similar services, except at such hours as may be fixed by Landlord for such deliveries, and otherwise in accordance with these Rules and Regulations. All such deliveries shall be made by the freight elevator, and not by passenger elevator.

16.The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be deposited in them. The expenses of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by Tenant if it or its employees or invitees shall have caused it.

17.Tenant shall not sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business nom other tenants in the Building. Tenant shall not use the Premises for any business or activity other than that specifically provided for in the Lease.

18.Tenant shall not install any radio or television antenna, loudspeaker or other device in, on or about the Premises or Building without Landlord’s consent, and provided that the installation and maintenance of such equipment shall not permeate the membrane of the roof or otherwise vitiate any warranty on the roof of the Building, and provided further that such equipment shall be properly screened. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere.

19.Tenant shall not mark, drive nails, screws or drill into the partitions, woodwork, doors, or plaster or in any way deface the Premises. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule.

20.Tenant shall not install upon the Premises any vending machine except at such hours as may be fixed by Landlord for a delivery of heavy equipment and otherwise in accordance with these Rules and Regulations. Any delivery of any vending machine shall be made by the freight elevator, and not by passenger elevator.

21.Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Building or Land are prohibited, and Tenant shall cooperate to prevent the same.

22.Landlord reserves the right to exclude or expel from the Building and Land any person who, in Landlord’s judgment, is intoxicated, under the influence of liquor or drugs or in violation of any of these Rules and Regulations.

23.Tenant shall store all of its trash and garbage within the Premises. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord.

24.The Premises shall not be used for lodging or any improper or immoral or objectionable purpose. No cooking shall be done or permitted by Tenant, except that use by Tenant of Underwriters’ Laboratory approved equipment for microwaving or toasting food or for brewing coffee, tea, hot chocolate and similar beverages shall be permitted; provided that, such equipment and its use is in accordance with all Governmental Requirements.

25.Tenant shall not use in the Premises or in the public halls of the Building any hand truck except those equipped with rubber tires and side guards or such other material handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the Building.

26.Without the prior written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant’s address.

27.Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

28.Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.

29.The requirements of Tenant will be attended to only upon appropriate application to the Manager of the Building by an authorized individual. Employees of Landlord are not required to perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord is required to admit Tenant to any space other than the Premises without specific instructions from Landlord.

30.Tenant shall not park its vehicles in any parking areas designated by Landlord as areas for parking by visitors to the Building or Land. Tenant shall not use more than its prorata share of parking spaces. Tenant shall not leave vehicles in the parking areas overnight nor park any vehicles in the Building parking areas other than automobiles, motorcycles, motor driven or

nonmotor driven bicycles or four-wheeled trucks. Landlord shall have no obligation whatsoever to monitor or police the use of the parking or other common areas.

31.Landlord may waive anyone or more of these Rules and Regulations for the benefit of Ten ant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other person, nor prevent Landlord from thereafter revoking such waiver and enforcing any such Rules and Regulations against any or all of the tenants of the Building.

32.These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the covenants and conditions of any lease of premises in the Building. If any provision of these Rules and Regulations conflicts with any provision of the Lease, the terms of the Lease shall prevail.

33.No furniture, equipment, supplies or merchandise of Tenant shall be received in the Building, or carried up or down the elevators or stairways, except during such hours as shall be designated by Landlord.

34.No smoking shall be permitted in the Building except for rooms constructed with ventilation systems approved by Landlord which are vented directly to the exterior of the Building. No smoking shall be permitted outside the Building except in areas designated by Landlord as smoking areas.

35.Landlord reserves the right to make such other and reasonable Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, the care and cleanliness of the Building and Land and the preservation of good order in the Building.  Tenant agrees to abide by all the Rules and Regulations stated in this exhibit and any additional rules and regulations which are so made by Landlord.

36.Tenant shall be responsible for the observance of all of the foregoing rules by Tenant and Tenant’s Agents.

EXHIBIT F TO LEASE

SCHEDULE OF CLEANING SERVICES

Daily Cleaning Services

1.Empty waste baskets and remove refuse to designated area. Reline and wipe clean receptacles as needed.

2.Break down all boxes or any items marked trash and remove to designated areas.

3.Thorough vacuuming of all carpeted area.

4.Sweep all hard floors (tile, wood, etc.).

5.Sweep and damp mop all vinyl, marble and quarry tile floors. Spot buff as needed.

6.Spot clean minor carpet stains.

7.Dust and/or wipe clean the following surfaces:

•           desks

•           chairs

•           file cabinets

•           tables

•           telephones

•           pictures and frames

•           doors

•           lamps

•           ledges and shelves

•           desk/furniture partitions

•any other horizontal surface of a fixture or furniture subject to collecting dust

8.          Wipe clean the following surfaces:

•           window sills and ledges

•           counter tops and kitchen cabinets

•           private entrance doors

•           glass, mirrored and wood doors, panels, windows and walls

•           walls in kitchen and disposal area

•           conference tables

9.Wash, clean and disinfect water fountains and/or coolers. Give special attention to adjacent floor areas.

10.Establish regular cleaning maintenance program for floor in public lobby area in conjunction with Property Manager; standard necessary to maintain is high quality shine with no water marks, stains, scuffing or other signs of wear.

11.Wipe and polish all glass, chrome and metal surfaces such as windows (interior and up to standard ceiling height), partitions, banisters, door knobs, light switch plates, kick plates, directional signs and door saddles.

12.Dust and wipe clean sand urns.

13.Polish directory.

14.Vacuum and spot shampoo all carpet entrance mats.

15.Spot clean all wall surfaces.

16.Clean all entrance doors.

Daily Elevators

1.Wash and polish wood and stainless walls, doors and hall plate. Keep tracks clean of dust, dirt and debris. Vacuum carpet. Spot clean carpet as needed.

Daily Vending Areas

2.Thoroughly vacuum carpeting and damp mop tile flooring daily. Special attention to cleaning crevices, between and under vending machines.

3.Thoroughly wipe all tops and sides of vending machines and express mail box cabinets with damp cloth. Spot clean all wail surfaces.

4.Empty trash and reline can daily.

5.Spot clean exteriors of waste containers.

Daily Lavatories

6.Sweep and wet mop all tile floors using disinfectant. Deck brush under urinals and behind toilets as required.

7.Thoroughly clean all mirrors, top to bottom.

8.Scour, wash and disinfect all sink basins, counter tops, bowls, urinals, including undersides.

9.Wash toilet seats, both sides.

10.Wipe clean all partitions and tops of ledges.

11.Wipe clean all wall tile as needed.

12.Remove all trash and sanitary waste, wash receptacles as necessary. Remove rubbish to designated area.

13.Restock hand soap and paper products.

14.Polish all stainless dispensers and fixtures.

Weekly Cleaning Services

15.Wash and sanitize metal partitions. Dust horizontal surfaces exceeding 70” height.

Damp clean ceiling and exhaust fans.

16.Dust all blinds in common areas.

17.Sweep fire tower stairwells. Wet mop as needed. Wipe hand rails and dust metalwork.

18.Wipe clean all desk tops and credenzas.

19.Remove all finger prints and dirt from door frames, kick and push plates, handles and railings.

20.Wet wipe all horizontal surfaces to 70” including moldings, shelves, etc.

21.Polish all fine wood furniture including desks, chairs and cabinets.

22.Spray buff all vinyl tiles floors as necessary.

23.Machine buff other hard surfaces, floors to include ceramic, quarry and marble title as necessary.

24.Wipe clean all plant containers in common areas.

25.Stiff brush upholstered furniture to remove lint and dirt.

Monthly / Quarterly Cleaning Services

26.Thoroughly wipe clean all ceiling vents and exhaust fans and area immediately adjacent:  monthly to quarterly, as needed.

27.Strip and refinish all tile floors including restroom floors on a quarterly basis.

28.Wipe clean and remove all fingerprints from full height doors on a monthly basis.

29.Vacuum all upholstered furniture on a quarterly basis.

30.Thoroughly clean all Venetian blinds, pipes, ventilating and air conditioning louvers, ducts and high molding: monthly to quarterly, as needed.

31.Wipe clean as needed all vinyl base. Vacuum as needed all carpet cove base: monthly to quarterly, as needed.

32.Spot clean all vertical surfaces on a monthly basis.

33.Spray buff all vinyl floors (both tenant and common areas) monthly.

34.Clean exterior windows on a quarterly basis.

Semi-Annual Cleaning Services

35.Wash all common area walls including wall covering, paint, marble and vinyl base.

36.Clean interior windows.

EXHIBIT G TO LEASE

BUILDING FACADE SIGN

[graphic omitted]

EXHIBIT C

SUBTENANT IMPROVEMENT LETTER AGREEMENT

The following provisions shall apply to the design and construction of the Subtenant Improvements with the same force and effect as if all of the provisions of this Exhibit ”C” were set forth at length in the body of the Sublease.

1.Plans and Specifications. Within twenty (20) Business Days prior to the planned commencement of construction of the Unimproved Space, Subtenant shall prepare and submit to Sublandlord for its approval, which approval shall not be unreasonably withheld, conditioned or delayed and for Master Landlord’s approval, construction drawings, plans and specifications for all improvements to the Unimproved Space to be constructed by Subtenant, including but not limited to any proposed demolition or modification of the existing improvements in the Unimproved Space. If Sublandlord fails to respond to Subtenant’s request for approval of such construction drawings, plans and specifications within fifteen (15) days of receipt and such delay is not attributable to any delay by Master Landlord in granting its own approval, Sublandlord shall be deemed to have approved such construction drawings, plans and specifications. Such construction drawings, plans and specifications, once approved by Sublandlord and Master Landlord, are referred to herein and throughout this Sublease as the “Plans and Specifications”. The Plans and Specifications shall be prepared and submitted in accordance with the requirements of Exhibit C-I and Exhibit C-2 of the Master Lease.  Without limiting the generality of the foregoing, the Plans and Specifications shall show the following details: partition layout (dimensioned), door location and door schedule, reflected ceiling plans, electrical outlets with locations dimensioned, occupancy requirements by room or space, drawings, sections, details and specifications for special equipment and fixtures, dimensioned locations of all floor loads beyond 60 lbs. per square foot (including partition load), carpentry and millwork, color schedule of all finish items, floor coverings, wall coverings, other special finishes, requirements for special air conditioning, plumbing and electrical needs, and specifications of all specialty systems or equipment to be installed in the Subleased Premises. Subtenant shall not make any material modification to the Plans and Specifications without first submitting the proposed modification to Sub landlord and Master Landlord and obtaining Sublandlord’s written consent thereto, which consent shall not be unreasonably withheld, conditioned or delayed, and obtaining Master Landlord’s written consent thereto.

2.Construction.

(a)The Subtenant Improvements shall be constructed in a good and workmanlike manner, in compliance with all Governmental Requirements, by contractors approved in writing in advance by Sublandlord (which approval shall not be unreasonably withheld, conditioned or delayed) and Master Landlord (collectively, the “Subtenant Improvement Contractor”). Without limiting the scope of Sub landlord’s and Master Landlord’s approval rights, the Subtenant Improvement Contractor must be a party to and bound by a collective bargaining agreement with a labor organization affiliated with the Building and Construction Trades Council of the AFL-CIO and covenant to employ with respect to the construction of the Subtenant Improvements only subcontractors similarly bound by such a

collective bargaining agreement and employing only members of such labor organizations to perform work within their respective jurisdictions.

(b)Sublandlord’s and Master Landlord’s construction managers, if any, shall be given access to the Subleased Premises at all times during the performance of the Subtenant Improvements for purposes of inspecting the same. Sub landlord and Master Landlord shall have the right to reject any portion of the Subtenant Improvements which either Sub landlord or Master Landlord determines to deviate materially from the Plans and Specifications or to be in violation of any Governmental Requirements, provided, Sub landlord agrees not to be unreasonable in making such determination. Upon substantial completion of the Subleased Premises, the Subtenant Improvements shall be reviewed for quality control (punchlisted) by Sublandlord’s and Master Landlord’s construction managers, if any. Any and all portions of the Subtenant Improvements not in conformance with the Plans and Specifications shall be corrected by Subtenant, at Subtenant’s expense, within thirty (30) days after notification of such defects by Sublandlord or Master Landlord. Sub landlord’s review of the Plans and Specifications or inspection of the Subtenant Improvements is for Sublandlord’s separate purposes; Sub landlord’s approval or inspection of any Subtenant Improvements shall not be construed as a recommendation, representation or warranty of any kind, including but not limited to compliance with Governmental Requirements or fitness for a particular purpose, or otherwise limit Subtenant’s obligations under this Sublease.

(c)Prior to the commencement of the Subtenant Improvements, Subtenant or the Subtenant Improvement Contractor shall provide to Sublandlord and Master Landlord copies of all required building permits for construction of the Subtenant Improvements and insurance certificates with coverages and limits as specified by Sublandlord, naming Sub landlord and Master Landlord as additional insureds. The Subtenant Improvement Contractor shall also execute a waiver of mechanics liens in form and substance satisfactory to Sublandlord, which waiver must be filed with the Chester County Prothonotary prior to commencement of such Subtenant Improvements at Subtenant’s expense.

(d)Subtenant shall be solely responsible for (i) transportation, safekeeping and storage of material and equipment used in the performance of the work by the Subtenant Improvement Contractor, (ii) the cost of removal of debris and waste resulting therefrom, (iii) defective design and work caused by the Subtenant Improvement Contractor and (iv) any damage caused by the Subtenant Improvement Contractor; provided however, that Subtenant shall be entitled to draw upon the Subtenant Improvement Allowance for payment of costs associated with subsections (i) and (ii) of this subsection (d). Subtenant shall also indemnify and hold harmless Sub landlord, Master Landlord and Master Landlord’s Manager from any and all claims arising out of, in any manner, the operation of the Subtenant Improvement Contractor.

3.Subtenant Improvement Costs.

(a) The cost of any improvement, modification, construction, design, management, inspection, review or any other cost or expense incurred toward the preparation of the Subtenant Improvements for Subtenant’s desired and Permitted Use, including but not limited to the cost of architectural and engineering services, permits and approvals and the sums payable

to the Subtenant Improvement Contractor, are collectively referred to herein as the “Subtenant Improvement Costs”. The Subtenant Improvement Costs shall also include a construction management fee in an amount equivalent to any fee charged to Sublandlord by Master Landlord in connection with the construction of the Subtenant Improvements. Subtenant shall be responsible for payment of the Subtenant Improvement Costs as and when due, subject to reimbursement by Sub landlord in an amount not to exceed the Subtenant Improvement Allowance pursuant to Section 4 below.

(b) Prior to commencement of the Subtenant Improvements, Subtenant shall deliver to Sublandlord a certificate executed by Subtenant attaching a budget (the “Budget”) for the Subtenant Improvements, which shall constitute Subtenant’s good faith estimate of all Subtenant Improvement Costs for the Subleased Premises. Subtenant shall be permitted from time to time to adjust the Budget if Subtenant’s good faith estimate has changed.

4.Subtenant Improvement Allowance.

(a)Subtenant shall be entitled to an improvement allowance, to be applied to construction costs associated with the Plans and Specifications, of $30.00 for each rentable square foot of the Unimproved Space, for a total allowance of $362,970.00 (the “Subtenant Improvement Allowance”). Subtenant shall be responsible for all costs associated with constructing the Subtenant Improvements in excess of the Subtenant Improvement Allowance, including the costs of any Subtenant Change Orders or NonStandard Work.

(b)Sublandlord shall reimburse Subtenant for any Subtenant Improvement Costs for the Subleased Premises up to a maximum of the Subtenant Improvement Allowance. Sub landlord shall pay the Subtenant Improvement Allowance within 30 days of receiving the following:

(i)final releases of lien signed by the Subtenant Improvement Contractor and all subcontractors who provided any labor or materials with respect to the Subtenant Improvements (which releases may be contingent upon the receipt of sums reflected in the final payment application and/or which may exclude reasonable holdbacks for punchlist items);

(ii)a certificate executed by Subtenant confirming the amount of Subtenant Improvement Costs incurred by Subtenant and that all Subtenant Improvement Costs have been paid by Subtenant except for reasonable holdbacks related to punchlist items as specified in such certificate;

(iii)a set of the Plans and Specifications marked to show as built conditions, which shall be in a reproducible electronic media format; and

(iv)Sublandlord’s receipt of the Sublandlord’s improvement allowance from Master Landlord in accordance with the terms of the Master Lease.

(c)Sub landlord’s obligation to reimburse Subtenant in accordance with subparagraph (b) above shall be conditioned upon the following:

(i)No Event of Default shall have occurred and be continuing hereunder at the time any such payment is requested; and

(ii)Construction of the Subtenant Improvements shall have been substantially completed.

In the event that the cost of the Subtenant Improvements is less than the Subtenant Improvement Allowance, Subtenant shall receive a credit in the amount of up to fifty percent (50%) such savings, if and to the extent Sub landlord receives such credit from Master Landlord, to be applied against the installments of Base Rent first falling due following Sub landlord’s receipt of such credit from Master Landlord.

CONSENT TO SUBLEASE

(MEPT Form Consent)

This Consent to Sublease of Real Estate Lease (the “Consent’’) is made this              day of                                 , 2004, by and among Riggs & Company, a division of Riggs Bank N.A., as trustee of the Multi-Employer Property Trust, a trust organized under 12 C.F.R. Section 9.18, having its principal office at 808-17^th Street N.W., Washington, D.C. 20006 (“Landlord’’), Systems & Computer Technology Corporation, a Delaware corporation, (“Tenant”), and Cephalon, Inc., a Delaware corporation (“Subtenant’’).

BACKGROUND

Tenant is leasing that certain real property (the “Premises’’) from Landlord pursuant to the terms of that certain lease dated October 19, 1998 (which lease as heretofore or hereafter amended is hereinafter, called the “Lease’’). The Premises are more specifically described on Exhibit A attached hereto.

Tenant desires and has agreed to sublease all of the Premises to Subtenant on the terms and conditions set forth in that certain Sublease attached hereto as Exhibit ”B” (the “Sublease’’), and Subtenant desires and has agreed to sublease that portion and to abide by the duties, obligations and conditions set forth in the Lease from and after March 1, 2004 (the “Effective Date’’) for a period of three years (the “Sublease Term’’), unless further extended in accordance with the provisions of the Sublease. Pursuant to the terms of the Lease, Tenant now seeks Landlord’s consent to such sublease.

NOW THEREFORE:

1.Subject to the satisfaction of the terms and conditions precedent set forth in this Consent, Landlord hereby consents to the requested sublease of the Lease by Tenant to Subtenant, effective as of the Effective Date.

2.By Landlord’s execution hereof, Landlord acknowledges receipt of the following: (a) the fully executed, written Sublease in the form attached hereto as Exhibit ”B” by which Tenant and Subtenant agreed to the subleasing of the Premises set forth in Exhibit ”A” to Subtenant under the terms and conditions of the Lease; (b) such financial information as Landlord has deemed appropriate or necessary concerning the Subtenant, including relevant financial information filed by Subtenant with the Securities Exchange Commission; (c) proof satisfactory to the Landlord that the Subtenant will occupy and use the Premises in compliance with the terms of the Sublease and Lease; (d) the sum of Five Hundred Dollars ($500) as Landlord’s fee for processing the Sublease to Subtenant, including reasonable attorney’s fees incurred by landlord with respect to such processing.

3.Nothing contained in this Consent shall:

(a) be construed to modify, waive or affect (i) any of the provisions, covenants or conditions in the lease, (ii) any of the obligations of the Tenant under the lease, or (iii) any rights or remedies of Landlord under the lease or to enlarge or increase Landlord’s obligations or the rights of the Tenant under the lease.

(b) be construed to waive any present or future breach or default on the part of Tenant or Subtenant under the lease. In case of any conflict between the provisions of this Consent and the provisions of the Sublease the provisions of this Consent shall prevail unaffected by the Sublease.

4.Tenant acknowledges that neither this Consent nor the Sublease shall release or discharge the Tenant from any liability under the lease and Tenant shall remain liable and responsible for the full performance and observance of all the provisions, covenants and conditions set forth in the lease on the part of the Tenant to be performed and observed. Any breach or violation of any provision of the lease by Subtenant shall be deemed to be and shall constitute a default by Tenant in fulfilling such provision.

5.Nothing contained in the Assignment shall modify, waive or affect the terms of the Lease; the lease is in full force and effect and as of the date of this Consent has not been amended or modified, and the Landlord is not in default under the lease.

6.This Consent is not assignable.

7.This Consent shall not be construed as consent by Landlord to any further subleasing or assignments by Tenant or Subtenant without the prior written consent of the landlord in each instance.

8.This Consent shall be binding upon and inure to the benefit of the parties to the Lease, their successors and assigns.

March 3, 2004

Mr. Patrick O. Mayberry

Riggs Bank N.A., as trustee of the

Multi-Employer Property Trust

808 17^th Street, NW

Washington, DC  20006

Dear Mr. Mayberry:

In connection with the execution of a certain sublease (the “Sublease”) by and between Cephalon, Inc. (“Subtenant”) and Systems & Computer Technology Corporation, a Delaware corporation (“Sublandlord”) respecting certain premises consisting of approximately 73,904 rentable square feet of space (the “Premises”) in the building known as the Westbrook Corporate Center (the “Building”), the parties wish to clarify their further understandings with respect to Section 1.27 of that certain lease (the “Master Lease”) by and between Sublandlord and Riggs & Company, a division of Riggs Bank, N.A. as Trustee of the Multi-Employer Property Trust (“Master Landlord”).  Unless otherwise defined in this Letter Agreement, all defined terms used herein shall have the meaning set forth in the Sublease or the Master Lease.

Section 1.27 of the Master Lease defines the “Permitted Use” as “General office uses consistent with Governmental Requirements and first-class buildings of the same or similar use as the Building located in the western suburbs of Philadelphia.”

Master Landlord hereby agrees that the Permitted Use, as defined in Section 1.27 of the Master Lease, permits Sublandlord and Subtenant to use the Premises for general and executive office uses and any other uses incidental thereto, including, but not limited to, a pantry for the exclusive use of Subtenant’s employees (which pantry may contain a microwave, refrigerator, and table and chairs), a cafeteria for the exclusive use of Subtenant’s employees, and a training facility for the exclusive use of Subtenant’s employees.  Master Landlord acknowledges that a cafeteria is currently constructed in the Building adjacent to the Premises and hereby agrees that, subject to Master Landlord’s approval rights under the Master Lease, Subtenant may construct a similar cafeteria in the Premises.

Kindly indicate your agreement to the terms of this letter by signing on the following page where indicated and returning a photocopy to me.

Very truly yours,

CEPHALON, INC.

/s/ J. Kevin Buchi

Name: J. Kevin Buchi

Title: Sr. V.P. and CFO

[SIGNATURE PAGE FOLLOWS]

Accepted and Agreed to this 30^th  day of March, 2004

Systems & Computer Technology Corporation
By:	/s/ Calvin J. Bampton
Name:	Calvin J. Bampton
Title:	Director, Facilities & Purchasing
c:	Michael E. Roynan, Esquire
	J.J. Broderick, Esquire

March 26, 2004

Systems & Computer Technology Corporation

Four Country View Road

Malvern, PA 19355

Attention: Facilities Department

Dear Sir or Madam:

In connection with the execution of a certain sublease (the “Sublease”) by and between Cephalon, Inc. (“Subtenant”) and Systems & Computer Technology Corporation, a Delaware corporation (“Sublandlord”) respecting certain premises consisting of approximately 73,904 rentable square feet of space (the “Premises”) in the building known as the Westbrook Corporate Center (the “Building”), the parties wish to clarify their further understandings with respect to that certain lease (the “Original Lease”) by and between Sublandlord and Riggs & Company, a division of Riggs Bank, N.A. as Trustee of the Multi-Employer Property Trust (“Master Landlord”) dated October 19, 1998, as amended by that certain First Amendment to Lease dated June 3, 1999 (the “First Amendment” and together with the Original Lease, the “Master Lease”). Unless otherwise defined in this Letter Agreement, all defined terms used herein shall have the meaning set forth in the Sublease or the Master Lease.

The First Amendment grants Sub landlord, as tenant, a license to install and operate a Reception Desk in the east lobby of the Building. Paragraph 1 (a) of the First Amendment provides that the location of the Reception Desk is subject to Master Landlord’s approval and further provides that Master Landlord reserves the right to require the relocation of the reception desk to another area of the lobby from time to time, at Sub landlord’s expense.

Sublandlord agrees that, once Sublandlord has approved the location of the Reception Desk, Sublandlord will not, at any time thereafter, require the Subtenant to relocate the Reception Desk and will not revoke the Subtenant’s license to install and operate the Reception Desk. Sublandlord further agrees that the relocation right granted in Paragraph 1(a) of the First Amendment and the right to revoke the license to install and operate the Reception Desk shall be reserved exclusively to Master Landlord and such rights shall be enforced against Subtenant only to the extent Master Landlord requires relocation of the Reception Desk or revokes the license to install and operate the Reception Desk.

Kindly indicate your agreement to the terms of this letter by signing on the following page where indicated and returning a photocopy to me.

Very truly yours,

/s/ J. Kevin Buchi

Name: J. Kevin Buchi

Title:   Sr. V.P. and CFO

[SIGNATURE PAGE FOLLOWS]

Accepted and Agreed to this        day of                     , 2004

MULTI-EMPLOYER PROPERTY TRUST,

a trust organized under 12 C.F.R. Section 9.18

By: Kennedy Associates Real Estate
Counsel, Inc.,
Authorized Signatory

By:

Name:

Its:

Acknowledged and Agreed to this 3^rd day of March ,2004

SunGard SCT Inc., formerly known as Systems & Computer Technology Corporation

By:	/s/ Calvin J. Bampton
Name:		Calvin J. Bampton

c:	Director of Asset Management, The Multi-Employer Property Trust, c/o Kennedy Associates Real Estate Counsel, Inc.
	Vice President, Asset Management, The Multi-Employer Property Trust, c/o Kennedy Associates Real Estate Counsel, Inc.
	Manager, The Multi-Employer Property Trust, Trammell Crow Company
	Facilities Department, SunGard SCT Inc., formerly known as Systems & Computer Technology Corporation
	Michael E. Roynan, Esquire

EX-12.1

EXHIBIT 12.1

Cephalon, Inc.

Computation of Ratio of Earnings to Fixed Charges

(Amounts in thousands of dollars)

	1999		2000		2001		2002	2003	2004
Pre-tax income (loss) from continuing operations	(79,432	)	(93,744	)	(55,484	)	62,433	130,314	(28,184	)
Fixed charges:
Interest expense and amortization of debt discount and premium on all indebtedness	8,377		5,189		20,630		38,215	28,905	22,186
Appropriate portion of rentals	907		747		1,092		1,433	2,286	3,437
Preferred stock dividend requirements of consolidated subsidiaries	3,398		9,063		5,664		—	—	—
Total fixed charges	12,682		14,999		27,386		39,648	31,191	25,623
Pre-tax income (loss) from continuing operations, plus fixed charges, less preferred stock dividend requirements of consolidated subsidiaries	(70,148	)	(87,808	)	(33,762	)	102,081	161,505	(2,561	)
Ratio of earnings to fixed charges (1)	—		—		—		2.57	5.18	—

(1) For the years ended December 31, 1998, 1999, 2000 and 2001, no ratios are provided because earnings were insufficient to cover fixed charges and fixed charges and preferred dividends, respectively.

EX-21

Exhibit 21

Cephalon, Inc.

Subsidiaries

Name	Jurisdiction of Incorporation
Anesta Corp.	Delaware
Anesta AG	Switzerland
Anesta UK Limited	United Kingdom
Cephalon Australia Holdings, LLC	Delaware
Cephalon (Bermuda) Limited	Bermuda
Cephalon Development Corporation	Delaware
Cephalon Financiere Luxembourg S.a.r.l.	Luxembourg
Cephalon France SAS	France
Cephalon France Holdings SAS	France
Cephalon GmbH	Germany
Cephalon International Holdings, Inc.	Delaware
Cephalon Investments, Inc.	Delaware
Cephalon Luxembourg S.a.r.l	Luxembourg
Cephalon Technologies Partners, Inc.	Delaware
Cephalon Technology, Inc.	Delaware
Cephalon Titrisation	France
Cephalon (UK) Limited	England and Wales
Cephalon Ventures, Inc.	Delaware
CIMA LABS INC.	Delaware
Financiere Lafon SA	France
Genelco SA	Switzerland
Lafon Pharma SA	Switzerland
Organisation de Synthese Mondiale Orsymonde	France
Societe Civile Immobiliere Martigny	France

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Forms S-3 (Nos. 333-122418, 33-74320, 333-20321, 333-75281, 333-88985, 333-94219, 333-62234, 333-59410, 333-82788, 333-89224, 333-108320, 333-112541) and Forms S-8 (Nos. 333-118611, 33-43716, 33-71920, 333-02888, 333-69591, 333-89909, 333-87421, 333-52640, 333-43104, 333-89228, 333-89230, 333-106112, 333-106115) of Cephalon, Inc. of our report dated March 15, 2005, relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Philadelphia, PA

March 15, 2005

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Frank Baldino, Jr., certify that:

1.I have reviewed this annual report on Form 10-K of Cephalon, 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)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

(d)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 an 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(s) 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.

Date:March 15, 2005
	/s/ FRANK BALDINO, JR.
	Frank Baldino, Jr., Ph.D.
	Chairman and Chief Executive Officer
	(Principal executive officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, J. Kevin Buchi, certify that:

1.I have reviewed this annual report on Form 10-K of Cephalon, 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)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

(d)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 an 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(s) 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.

Date:March 15, 2005
	/s/ J. KEVIN BUCHI
	J. Kevin Buchi
	Senior Vice President and Chief Financial Officer
	(Principal financial officer)

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 Cephalon, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frank Baldino, Jr., Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, based on my knowledge, 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.

/s/ FRANK BALDINO, JR.

Frank Baldino, Jr., Ph.D.

Chairman and Chief Executive Officer

March 15, 2005

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 Cephalon, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Kevin Buchi, Sr. Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, based on my knowledge, 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.

/s/ J. KEVIN BUCHI

J. Kevin Buchi

Sr. Vice President and Chief Financial Officer

March 15, 2005