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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ______________ to ______________.
Commission File Number 0-27570
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1640186
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3151 SEVENTEENTH STREET EXTENSION
WILMINGTON, NORTH CAROLINA
(Address of principal executive offices)
28412
(ZIP CODE)
Registrant's telephone number, including area code (910) 251-0081
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 23,345,177 shares of common
stock, par value $0.10 per share, as of October 29, 1998.
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<PAGE>
INDEX
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PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations for the Three and Nine Months Ended
September 30, 1998 and 1997.................................................................. 3
Consolidated Condensed Balance Sheets as of September 30, 1998
and December 31, 1997........................................................................ 4
Consolidated Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997.................................................................. 5
Notes to Consolidated Condensed Financial Statements........................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................ 14
Signatures.......................................................................................... 15
Index to Exhibits................................................................................... 16
</TABLE>
2
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<TABLE>
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PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- --------- ---------------------
<S> <C> <C> <C> <C>
Life sciences revenues, net of subcontractor costs of $27,666,
$15,658, $71,262 and $54,097, respectively $ 61,357 $ 46,145 $ 170,786 $ 140,039
Environmental sciences revenues, net of subcontractor costs of
$2,471, $1,398, $6,917 and $4,473, respectively 12,650 12,030 38,139 35,862
Discovery sciences revenues, net of subcontractor costs of
$10, $26, $43 and $26, respectively 96 98 286 115
--------- --------- --------- ---------
Net revenue 74,103 58,273 209,211 176,016
--------- --------- --------- ---------
Direct costs - Life sciences 30,773 22,720 85,840 70,947
Direct costs - Environmental sciences 9,184 8,422 27,144 25,054
Direct costs - Discovery sciences 935 583 2,639 1,063
Selling, general and administrative expenses 21,143 16,704 61,456 50,998
Depreciation and amortization 3,493 3,179 10,418 8,986
Merger costs - - - 512
Acquired in-process research and development costs - - 3,163 9,112
--------- --------- --------- ---------
65,528 51,608 190,660 166,672
--------- --------- --------- ---------
Operating income 8,575 6,665 18,551 9,344
Interest income, net 330 154 832 770
Other income (expense), net 394 146 2,100 198
--------- --------- --------- ---------
Income before income taxes 9,299 6,965 21,483 10,312
Provision for income taxes 3,673 2,751 8,446 4,101
--------- --------- --------- ---------
Net income $ 5,626 4,214 $ 13,037 $ 6,211
========= ========= ========= =========
Net income per share:
Basic $ 0.24 $ 0.19 $ 0.56 $ 0.28
========== ========== ========= ==========
Diluted $ 0.24 $ 0.19 $ 0.56 $ 0.28
========== ========== ========= ==========
Weighted average number of common shares outstanding:
Basic 23,267 22,533 23,124 22,487
Dilutive effect of stock options 178 88 152 93
--------- --------- --------- ---------
Diluted 23,445 22,621 23,276 22,580
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
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<TABLE>
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PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
September 30, December 31,
1998 1997
-------------- -------------
(unaudited)
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Current assets
Cash and cash equivalents $ 26,178 $ 15,879
Marketable securities - 7,994
Accounts receivable and unbilled services, net 128,723 101,554
Investigator advances 1,226 1,870
Prepaid expenses and other current assets 8,199 7,227
Deferred tax asset 1,280 1,973
----------- -----------
Total current assets 165,606 136,497
Property, plant and equipment, net 40,154 34,902
Goodwill, net 14,880 18,026
Other assets, net 8,204 7,622
----------- -----------
Total assets $ 228,844 $ 197,047
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 3,933 $ 4,906
Accounts payable 6,904 6,249
Payables to investigators 6,661 4,138
Other accrued expenses 30,226 23,532
Unearned income 32,087 27,722
----------- -----------
Total current liabilities 79,811 66,547
Long-term debt, less current maturities 292 340
Deferred rent and other 2,167 2,555
----------- -----------
Total liabilities 82,270 69,442
----------- -----------
Shareholders' equity
Common stock 2,330 2,295
Paid-in capital 120,887 115,680
Unrealized gain on investments and marketable securities, net - 168
Cumulative translation adjustment 160 (650)
Retained earnings 23,197 10,112
----------- -----------
Total shareholders' equity 146,574 127,605
----------- -----------
Total liabilities and shareholders' equity $ 228,844 $ 197,047
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
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<TABLE>
<CAPTION>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
September 30,
------------------------------
1998 1997
------ ------
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Cash flows from operating activities:
Net income $ 13,037 $ 6,211
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,418 8,986
Acquired in-process research and development costs 3,163 9,112
Gain on sale of business (1,071) -
Other 925 (401)
Change in operating assets and liabilities (14,804) (20,613)
----------- -----------
Net cash provided by operating activities 11,668 3,295
----------- -----------
Cash flows from investing activities:
Purchases of investments - (10,972)
Sale of investments 8,000 17,240
Purchases of property and equipment (15,568) (10,635)
Net cash paid for acquisitions (1,006) (8,121)
Net cash paid for acquisition of in-process research
and development costs (3,163) -
Net cash received in sale of business 5,285 -
Other - 174
----------- -----------
Net cash used in investing activities (6,452) (12,314)
----------- -----------
Cash flows from financing activities:
Repayment of long-term debt (998) (530)
Other long-term borrowings - 138
Proceeds from issuance of common stock 5,222 2,152
Distributions to shareholders - (430)
Other 49 -
----------- -----------
Net cash provided by financing activities 4,273 1,330
----------- -----------
Effect of exchange rate changes on cash 810 (1,373)
----------- -----------
Net increase (decrease) in cash and cash equivalents 10,299 (9,062)
Cash and cash equivalents, beginning of the period 15,879 21,838
----------- -----------
Cash and cash equivalents, end of the period $ 26,178 $ 12,776
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACCOUNTING POLICIES
The significant accounting policies followed by Pharmaceutical Product
Development, Inc. (the "Company") for interim financial reporting are consistent
with the accounting policies followed for annual financial reporting. These
unaudited consolidated condensed financial statements have been prepared in
accordance with Rule 10-01 of Regulation S-X, and in management's opinion, all
adjustments of a normal recurring nature necessary for a fair presentation have
been included. The accompanying consolidated condensed financial statements do
not purport to contain all the necessary financial disclosures that might
otherwise be necessary in the circumstances and should be read in conjunction
with the consolidated financial statements and notes thereto in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. The results of
operations for the three month and nine month periods ended September 30, 1998
are not necessarily indicative of the results to be expected for the full year
or any other period. The amounts on the December 31, 1997 consolidated condensed
balance sheet have been derived from the audited financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain 1997 financial statement amounts have been reclassified to
conform with the 1998 presentation.
2. PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated condensed financial statements
include the accounts and operations of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
3. ACQUISITIONS
PURCHASES
In January 1998, the Company acquired two environmental consulting
businesses for a total of $1,000,000 in cash and the potential for the former
owners to earn an additional amount depending on the profitability of the
businesses for a certain period after the acquisition. In connection with these
acquisitions, the Company recorded approximately $900,000 in goodwill. Pro forma
information is not presented as the acquired companies' results of operations
prior to the dates of the acquisitions were not material individually or
collectively to the Company.
In January 1997, the Company acquired Technical Assessment Systems,
Inc. for $490,000 cash, a note for approximately $300,000 and the potential to
earn an additional amount depending on their profitability for a certain period
after the acquisition. In connection with the acquisition, the Company recorded
$1,070,000 in goodwill. In June 1997, the Company acquired the GSX System, a
functional genomics platform technology. The GSX System was purchased for
approximately $8,700,000 in cash. Liabilities assumed in this transaction were
$832,000. Pro forma information is not presented as the results of operations of
the acquired company and technology prior to the dates of the acquisitions were
not material individually or collectively to the Company.
POOLING
In March 1997, the Company acquired Belmont Research, Inc. ("Belmont").
The consideration for Belmont consisted of 502,384 shares of the Company's
common stock plus options to purchase approximately 115,000 shares of Company
common stock. In June 1997, the Company acquired SARCO, Inc. ("SARCO"). The
consideration for SARCO consisted of 263,158 shares of the Company's common
stock. In November 1997, the Company acquired Intek Labs, Inc. ("Intek"). The
consideration for Intek consisted of 399,999 shares of the Company's common
stock. All three of these acquisitions were accounted for as pooling of
interests transactions. Pro forma information is not presented as the acquired
companies' results of operations prior to the year of the acquisitions were not
material individually or collectively to the Company.
6
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PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
4. PER SHARE INFORMATION
The computation of basic income per share information is based on the
weighted average number of common shares outstanding during the period. The
computation of diluted income per share information is based on the weighted
average number of common shares outstanding during the period plus the effects
of any dilutive common stock equivalents at period end.
5. SALE OF BUSINESS
In February 1998, the Company, through its subsidiary Clinix
International Inc., sold substantially all of the assets of the Chicago Center
for Clinical Research ("CCCR"). The selling price was approximately $7,785,000
in the form of cash and a promissory note payable over five years. The sale
resulted in a gain of approximately $1,071,000 which was recognized as other
income during the first quarter of 1998. As part of the sales agreement, the
Company will continue to provide CCCR with certain clinical and administrative
services for an agreed upon amount through the first quarter of 1999.
6. NEW ACCOUNTING PRONOUNCEMENTS
The Company will adopt Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), for the year ending December 31, 1998. SFAS No. 131 requires
the Company to report certain information about operating segments in complete
sets of financial statements and in condensed financial statements of interim
period issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company does not expect this new pronouncement to have a significant impact
on its financial statements.
The Company will adopt Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits"
("SFAS No. 132"), for the year ending December 31, 1998. SFAS No. 132
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information and changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful. The Company does not expect this new pronouncement to have a significant
impact on its financial statements.
7. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
As required by SFAS No. 130, prior year information has been modified to conform
with the new presentation.
The Company's total comprehensive income for the three month periods
ended September 30, 1998 and 1997 was $6,706,000 and $3,738,000, respectively,
and for the nine month periods ended September 30, 1998 and 1997 was $13,847,000
and $4,350,000, respectively. Information concerning the components of the
Company's other comprehensive income (loss) for the three and nine month periods
ended September 30, 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 1998 1997
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Cumulative translation adjustment 1,080 (95) 810 (1,402)
Unrealized gain on investments - (381) - (459)
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPANY OVERVIEW
Pharmaceutical Product Development, Inc. ("PPDI" or "the Company") provides
a broad range of research and consulting services in the life, environmental and
discovery sciences. The Company's Life Sciences Group provides services through
(i) PPD Pharmaco, Inc. and its wholly-owned European, South American, South
African, Asian, Australian and Canadian subsidiaries (collectively "PPD
Pharmaco"), (ii) Belmont Research, Inc. ("Belmont"), and (iii) Intek Labs, Inc.
("Intek"). PPD Pharmaco is a leading contract research organization ("CRO"),
providing integrated product development services on a global basis to
complement the research and development activities of companies in the
pharmaceutical and biotechnology industries. Through its environmental sciences
subsidiaries, APBI Environmental Sciences Group, Inc., operating under the trade
name ENVIRON, the Company also provides assessment and management of chemical
and environmental health risk. PPD Discovery, Inc., the Company's discovery
sciences subsidiary, focuses on the discovery segment of the research and
development outsourcing market.
LIFE SCIENCES GROUP
PPD PHARMACO offers its clients high quality, value-added services
designed to reduce drug development time. Reduced development time allows the
client to get its products into the market faster and to maximize the period of
marketing exclusivity and the economic return for such products. In addition,
PPD Pharmaco's integrated services offer its clients a variable cost alternative
to the fixed costs associated with internal drug development. PPD Pharmaco's
professional CRO services include Phase I clinical testing, laboratory services,
patient recruitment, Phase II-IV clinical trial management, clinical data
management and biostatistical analysis, treatment Investigational New Drug
Applications, medical writing and regulatory services, and healthcare economics
and outcomes research. The Company believes that it is one of only a few CROs in
the world capable of providing such a broad range of clinical development
services.
BELMONT was acquired by the Company in March 1997. Belmont provides
software development and system integration services to the pharmaceutical
industry. Belmont's clients include international and domestic pharmaceutical
and biotechnology companies, scientific software vendors and government agencies
including the FDA. Belmont also develops specialized software products to
support different aspects of the pharmaceutical research process, including drug
discovery, clinical trials and regulatory review. Current Belmont software
products include RESOLVE TM, which manages data queries to investigator sites,
and CROSSGRAPHS (R),which is used for exploration and presentation of research
data.
INTEK was acquired in November 1997. Intek provides molecular
genotyping, phenotyping and large-scale genomic DNA purification services
through its current Good Laboratory Practice ("cGLP") compliant reference
laboratory. Intek also furnishes pharmacogenetic services for clinical trials.
Intek routinely reports pharmacogenetic profiles within 48 hours, enabling
genotyping to be performed on clinical trial candidates at enrollment. Intek
also provides genotyping and phenotyping for difficult cellular and tissue
samples such as liver, hepatocytes and S9 liver fractions. Additional services
include IN VITRO studies to correlate therapeutic response with polymorphisms
early in drug development, and large-scale genomic DNA purification and
archiving services to prepare clinical trial samples for DNA banking and
pharmacogenomic research.
The Life Sciences Group also includes Clinix International, Inc., which
in August 1995 acquired the business and substantially all of the assets of
Chicago Center for Clinical Research ("CCCR"), a nationally recognized
organization which conducts clinical trials in the pharmaceutical, food and
nutrition industries. The Company sold substantially all of the assets of CCCR
in February 1998. For more detailed information on the Company's Life Sciences
Group, see the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
ENVIRONMENTAL SCIENCES GROUP
ENVIRON provides a broad range of scientific, technical and strategic
management consulting services that address a wide variety of public health and
environmental issues related to the presence of chemicals in foods, drugs,
medical devices, consumer products, the workplace, and the environment. Services
provided by ENVIRON are concentrated in the assessment and management of
chemical risk and are characterized by engagements supporting private sector
clients with complex, potentially high-liability concerns. For more detailed
information on the Company's Environmental Sciences Group, see the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
8
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DISCOVERY SCIENCES GROUP
PPD Discovery, Inc. ("PPD Discovery") was established in June 1997, at
which time the Company acquired SARCO, Inc. ("SARCO"), a combinational chemistry
company, and the GSX System, a functional genomics platform technology. These
acquisitions form the basis of a group of wholly-owned subsidiaries focused on
the discovery research segment of the research and development outsourcing
market. In May 1998, the Company created GenuPro, Inc., a subsidiary of PPD
which holds licenses to a number of compounds in the genitourinary field. For
more detailed information on the Company's Discovery Sciences Group, see the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
FORWARD-LOOKING STATEMENTS
Statements in this Management's Discussion and Analysis that are not
descriptions of historical facts are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and reflect
management's current view with respect to certain future events and financial
performance that are subject to risks and uncertainties. Although the Company
has attempted to be accurate in making those forward-looking statements, it is
possible that the assumptions made by management may not materialize. In
addition, other important factors which could cause results to differ materially
include the following: economic conditions in the pharmaceutical and
biotechnology industries; outsourcing trends in the pharmaceutical and
biotechnology industries; risks associated with acquisitions; loss of large
contracts; competition within the CRO industry; continued success in sales
growth; the ability to attract and retain key personnel; and the other risk
factors set forth from time to time in the Company's other SEC filings, copies
of which are available upon request from PPD's investor relations department.
Since a large percentage of the Company's operating costs are relatively fixed,
variations in the timing and progress of large contracts can materially affect
results. See "Potential Volatility of Quarterly Operating Results and Stock
Price".
RESULTS OF OPERATIONS
GENERAL
In January 1998, the Company acquired two environmental consulting
businesses for $1,000,000. These acquisitions were accounted for using the
purchase method of accounting and resulted in the Company recording
approximately $900,000 in goodwill. In May 1998, the Company created GenuPro,
Inc., a subsidiary of PPD which holds licenses to a number of compounds in the
genitourinary field which were purchased the second quarter of 1998. As a result
of the purchase of these compounds, the Company recorded one-time acquired
in-process research and development of $3.2 million in the second quarter of
1998.
During the third quarter of 1998, net income increased 33.5% to $5.6
million, from $4.2 million for the same period in 1997. Operating income
increased by 28.7% to $8.6 million from $6.7 million a year earlier.
THREE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1997
Net revenue increased $15.8 million, or 27.2%, to $74.1 million in the
third quarter of 1998 from $58.3 million in the same period last year. The Life
Sciences Group's operations accounted for 82.8% of the Company's net revenue for
the 1998 period as compared to 79.2% for the 1997 period. The Life Sciences
Group generated net revenue of $61.4 million, up $15.2 million, or 33.0%, from
the 1997 third quarter. The growth in the Life Sciences Group operations was due
primarily to an increase in the size, scope and number of contracts in the
clinical development and biostatistics business. Net revenue from ENVIRON, the
Company's Environmental Sciences Group, representing 17.1% of the Company's net
revenue for the third quarter 1998, was $12.6 million, compared with $12.0
million in 1997.
Total direct costs increased 28.9% to $40.9 million from $31.7 million
in the same period last year and increased slightly as a percentage of net
revenue at 55.2% for 1998 and 54.4% for 1997. The Life Science Group's direct
costs as a percentage of related net revenue increased to 50.2% from 49.2% last
year. This increase in direct costs relative to net revenue was due principally
to a different mix of contracts performed during the current quarter. ENVIRON's
direct costs as a percentage of related net revenue increased to 72.6% from
70.0% last year. This increase is attributable to lower consultant utilization.
9
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Selling, general and administrative ("SG&A") expenses increased 26.6%
to $21.1 million from $16.7 million in 1997. As a percentage of net revenue,
SG&A expenses remained relatively constant at 28.5%, compared to 28.7% in the
same period last year.
Total depreciation and amortization expense of $3.5 million was $0.3
million, or 9.9%, higher than last year. The increase was related to the
Company's growth, as well as the depreciation of the ongoing capital investment
in the Company's base business.
Net interest and other income (expense), net, improved by $0.4 million,
rising to $0.7 million in net other income for the quarter ended September 30,
1998 from $0.3 million in net other income for the quarter ended September 30,
1997. The improvement was primarily the result of the covenant not to compete
income of $0.2 million, resulting from the sale of CCCR in the first quarter of
1998.
Operating income increased $1.9 million to an operating income of $8.6
million for the three months ended September 30, 1998, as compared to operating
income of $6.7 million for the three months ended September 30, 1997. As a
percentage of net revenue, the quarterly operating income of 11.6% represents an
increase from the operating income of 11.4% of net revenue for the same period
last year.
Provision for income taxes increased $0.9 million to $3.7 million for
the three months ended September 30, 1998, as compared to $2.8 million for the
three months ended September 30, 1997. As a percentage of income before income
taxes, provision for income taxes has remained constant at 39.5%.
Net income of $5.6 million represents an improvement of $1.4 million
over the same quarter a year ago. On an equivalent earnings-per-share basis, net
income per diluted share of $0.24 compares to net income per diluted share of
$0.19 for the same period last year computed on 0.8 million less shares
outstanding.
NINE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1997
Net revenue increased $33.2 million, or 18.9%, to $209.2 million in
1998 from $176.0 million last year. The Life Sciences Group's operations
accounted for 81.6% of the Company's net revenue for the 1998 period as compared
to 79.6% for the 1997 period. The Life Sciences Group generated net revenue of
$170.8 million, up $30.7 million, or 22.0%, from last year. The growth in the
Life Sciences Group operations was due primarily to an increase in the size,
scope and number of contracts in the clinical development and biostatistics
business. Net revenue from ENVIRON, the Company's Environmental Sciences Group,
representing 18.2% of the Company's net revenues in the first nine months was
$38.1 million, compared with $35.8 million in 1997, an increase of 6.3% or $2.3
million.
Total direct costs increased 19.1% to $115.6 million from $97.1 million
last year and remained relatively constant as a percentage of net revenue at
55.3% for 1998 and 55.2% for 1997. The Life Science Group's direct costs as a
percentage of related net revenue declined to 50.3% from 50.7% last year. This
decrease is principally due to higher labor utilization and a focused effort to
control costs across all business segments. ENVIRON's direct costs as a
percentage of related net revenue increased slightly to 71.2% from 69.9% last
year. This increase is attributable to lower consultant utilization.
Selling, general and administrative ("SG&A") expenses increased 20.5%
to $61.5 million from $51.0 million in 1997. As a percentage of net revenue,
SG&A expenses increased to 29.4% from 29.0% last year. The SG&A increase as a
percentage of net revenue is primarily attributable to the investment in the
Company's business development and marketing department, as well as the addition
of the SG&A of the Discovery Sciences Group, which began operations in June
1997.
Total depreciation and amortization expense of $10.4 million was $1.4
million, or 15.9%, higher than last year. The increase was related to the
Company's growth, as well as the depreciation of the ongoing capital investment
in the Company's base business.
Net interest and other income (expense), net, improved by $1.9 million,
rising to $2.9 million in net other income for the nine months ended September
30, 1998 from $1.0 million in net other income for the nine months ended
September 30, 1997. Excluding the gain related to the sale of CCCR, net other
income of $1.9 million was
10
<PAGE>
$0.9 million higher than last year's net other income of $1.0 million. The
improvement was primarily the result of the covenant net to compete income of
$0.5 million, resulting from the sale of CCCR in the first quarter of 1998.
Operating income increased $9.2 million to $18.6 million for the nine
months ended September 30, 1998, as compared to $9.3 million for the nine months
ended September 30, 1997. As a percentage of net revenue, excluding nonrecurring
costs (acquired in-process research and development costs, the gain relating to
the sale of CCCR and merger costs), the operating income of 10.4% represents a
decline from the operating income of 10.8% of net revenue for the same period
last year.
Provision for income taxes increased $4.3 million to $8.4 million for
the nine month ended September 30, 1998, as compared to $4.1 million for the
nine months ended September 30, 1998. As a percentage of income before income
taxes, provision for income taxes has remained relatively constant at 39.3% and
39.8% for the nine months ended September 30, 1998 and 1997, respectively.
Net income of $13.0 million represents an improvement of $6.8 million
over the same period a year ago. Net income per basic and diluted share of $0.56
compares to net income per basic and diluted share of $0.28 for the same period
last year. Excluding the nonrecurring costs, the Company's net income of $14.3
million was 19.4% higher than last year's net income of $12.0 million. On an
equivalent earnings-per-share basis, the net income per diluted share, excluding
nonrecurring costs, of $0.61 compares to $0.53 for the same period last year
computed on 0.7 million less shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had $26.2 million of cash and
cash equivalents on hand. The Company has historically funded its operations and
growth, including acquisitions, with cash flow from operations and borrowings.
For the nine months ended September 30, 1998, the Company experienced a
net increase in cash from operating activities of $11.7 million. For the period,
net income of $13.0 million and depreciation and amortization of $10.4 million
were partially offset by the net change of $14.8 million in operating assets and
liabilities (which includes a $30.1 million increase in billed and unbilled
receivables).
For the nine months ended September 30, 1998, the Company's investing
activities used $6.5 million in cash. Capital expenditures of $15.6 million,
cash paid for the purchase of technology of $3.2 million and the $1.0 million
net cash paid for acquisitions were partially offset by $8.0 million from the
sale of investments and $5.3 million of net cash received in sale of business.
For the nine months ended September 30, 1998, the Company's financing
activities provided $4.3 million in cash, as net proceeds from stock option
exercises of $5.2 million were partially offset by $1.0 million in net repayment
of long-term debt.
In June 1998, the Company entered into a $50.0 million revolving credit
facility with First Union National Bank. Interest accrues on amounts borrowed at
a floating rate currently equal to LIBOR plus 0.625% per year. Indebtedness
under the line is unsecured and subject to certain covenants relating to
financial ratios and tangible net worth. The unused portion of the loan is
available to provide working capital and for general corporate purposes. As of
September 30, 1998, the Company had $15.0 million reserved under this facility
in the form of a letter of credit.
In August 1998, the Company renegotiated a credit facility for $50.0
million with Wachovia Bank, N.A. Interest accrues on amounts borrowed at a
floating rate currently equal to LIBOR plus 0.70% per year. Indebtedness under
the line is unsecured and subject to certain covenants relating to financial
ratios and tangible net worth. The unused portion of the loan is available to
provide working capital and for general corporate purposes. As of September 30,
1998, the Company had $3.3 million outstanding under this facility.
The Company expects to continue expanding its operations through
internal growth and strategic acquisitions. The Company expects such activities
will be funded from existing cash, cash flow from operations, borrowings under
its credit facilities and through the use of the Company's stock. The Company
believes that such
11
<PAGE>
sources of cash will be sufficient to fund the Company's current operations for
at least the next 12 months. The Company is currently evaluating a number of
acquisitions and other growth opportunities which may require additional
external financing, and the Company may from time to time seek to obtain funds
from public or private issuances of equity or debt securities.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs having been
written using two digits, rather than four, to define the applicable year. As a
result, in less than two years, computer systems and/or software used by many
companies in a very wide variety of applications will experience operating
difficulties unless they are modified or upgraded to adequately process
information involving, related to or dependent upon the four digit field.
Significant uncertainty exists concerning the scope and magnitude of problems
associated with the Year 2000.
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 failures and has established an ongoing internal
review team to address the Year 2000 issue that encompasses operating and
administrative areas of the Company. During the first quarter of 1997, a team of
experienced information technology staff were assigned to work with Company
personnel to identify and resolve significant Year 2000 issues in a timely
manner. In addition, executive management regularly monitors the status of the
Company's Year 2000 remediation plans. The process includes an assessment of
issues and development of remediation plans, where necessary, as they relate to
internally used software, computer hardware and use of computer applications in
the Company's operations and administrative areas. In addition, the Company is
engaged in assessing the Year 2000 issue with significant suppliers and clients.
The assessment process is 85% to 90% complete for computer software and
hardware information technology systems used internally by the Company. The
Company has also determined that it is unlikely that it will have any material
exposure to contingencies related to the Year 2000 issue in connection with
products sold by the Company. The Company is still assessing phone systems and
related products. This assessment should be completed in the fall of 1998. The
Company is currently testing, fixing and replacing hardware and software. The
majority of the work is associated with applying vendor upgrades and testing.
Replacement is required for approximately 5% of the Company's end user
equipment. The Company has completed approximately half of the testing and
replacement process and currently expects to complete the process by April 1999.
Before the end of 1998 the Company will initiate formal communications with its
significant suppliers in North America and Europe to determine the extent to
which the Company is vulnerable to third party failure to remediate Year 2000
compliance problems. The Company is in regular communication with key suppliers
and clients and has responded to all requests for information regarding Year
2000 compliance. Based on current information available, management believes
that it will be able to perform all services and provide all products it
currently offers without any material adverse effects arising from failure to
remediate deficiencies arising from Year 2000.
External and internal costs specifically associated with applying
vendor upgrades, testing, and modifying internal use software for Year 2000
compliance are expensed as incurred. The Company pays for Year 2000 expenses
with cash from operating activities. The percentage of the Company's information
technology budget expected to be used for remediation is approximately 11% in
1998 and 5% in 1999. To date, the Company has spent $1.2 million on Year 2000
compliance, and expects to spend $0.4 million to complete the compliance
process. Of the total amount which the Company expects to spend, $1.2 million is
attributable to internal labor costs for assessment and testing. Although
internal resources have been dedicated to Year 2000 efforts, work has been
spread across all areas and there has been no material delay in any major
projects. Management does not expect costs relating to Year 2000 remediation to
have a material effect on results of operations or financial condition.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. The Company has
represented to some clients that it intends to be Year 2000 compliant by April
1999. If unexpected issues arise causing delays in the studies, the Company will
have a specified period of time to correct those issues. If not corrected, the
client can modify or terminate the study contract. The Company believes that
modification or termination of one or more client contracts represents the most
reasonably likely adverse event which might arise from material Year 2000
compliance failures. Due to the general uncertainty inherent in the Year 2000
problem, resulting in part from the uncertainty of the Year 2000 readiness of
third-party suppliers and clients, the Company is unable to determine at this
time whether the
12
<PAGE>
consequences of Year 2000 failures will have a material impact on its results of
operations, liquidity or financial condition.
The Company expects to significantly reduce the level of uncertainty about Year
2000 problems and, in particular, about Year 2000 compliance and readiness of
its material suppliers and clients as it nears completion of the inquiry,
testing and replacement phase. The Company also believes that its experienced
information technology staff, which has been instrumental in the Company's Year
2000 compliance efforts, may be able to mitigate many Year 2000 problems.
However, the Company will continue to assess its contingency plans for a
possible Year 2000 failure as it completes its assessment of Year 2000 issues.
The cost of the Year 2000 compliance project and the time by which the
Company expects to complete its Year 2000 assessment and remediation are
estimates, based on numerous assumptions, including the continued availability
of funding resources and third party modification plans. However, there can be
no guarantee that these estimates are accurate and will be achieved, and actual
results could differ significantly from management's expectations. In addition,
there is no guarantee that the Company's evaluation of the most likely effects
of a material Year 2000 compliance failure is correct, or that its plan to
address such failure will be adequate. In either instance, the effect upon the
Company's financial condition could be material.
INFLATION
The Company believes the effects of inflation have not had a material
adverse effect on its results of operations or financial condition.
EXCHANGE RATE FLUCTUATIONS AND EXCHANGE CONTROLS
The vast majority of the Company's contracts are entered into by the
Company's United States or United Kingdom subsidiaries. The contracts entered
into by the United States subsidiaries are almost always denominated in United
States dollars.
Contracts between the Company's United Kingdom subsidiaries and their
clients are generally denominated in pounds sterling. Substantially all of the
United Kingdom subsidiaries' expenses, such as salaries, services, materials and
supplies, are paid in pounds sterling. However, the Company's consolidated
financial statements are denominated in dollars and, accordingly, changes in the
exchange rate between the pound sterling and the dollar will affect the
translation of such subsidiaries' financial results into dollars for purposes of
reporting the Company's consolidated financial results, and also affect the
dollar amounts actually received by the Company from such subsidiaries.
The Company currently participates in only a small number of
transactions involving multiple currencies. In most of those situations,
contractual provisions either limit or reduce the translation risk. Financial
statement translation has not, to date, been material to the Company's balance
sheet. The reasons for this are that the majority of international operations
are located in the United Kingdom, which traditionally has had a relatively
stable currency, and that international operations have not accounted for a
significant portion of total operations (less than 15%). The Company currently
believes that those conditions will persist for at least the following year.
In the countries in which the Company's subsidiaries conduct
operations, there are no material exchange controls currently in effect on the
payment of dividends or otherwise restricting the transfer of funds outside such
countries by a company resident in such countries. Although the Company performs
services for clients located in a number of foreign jurisdictions, to date, the
Company has not experienced any difficulties in receiving funds remitted from
foreign countries. However, if any such jurisdictions were to impose or modify
existing exchange control restrictions on the remittance of funds to the
Company, such restrictions could have an adverse effect on the Company's
business.
13
<PAGE>
POTENTIAL VOLATILITY OF QUARTERLY OPERATING RESULTS AND STOCK PRICE
The Company's quarterly operating results are subject to volatility due
to such factors as the commencement, completion or cancellation of large
contracts, progress of ongoing contracts, acquisitions, the timing of start-up
expenses for new offices, management of growth and changes in the mix of
services. Since a large percentage of the Company's operating costs are
relatively fixed, variations in the timing and progress of large contracts can
materially affect quarterly results. To the extent the Company's international
business increases, exchange rate fluctuations may also influence these results.
The Company believes that comparisons of its quarterly financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. However, fluctuations in quarterly results or other factors beyond
the Company's control, such as changes in earnings estimates by analysts, market
conditions in the CRO, environmental, pharmaceutical and biotechnology
industries and general economic conditions could affect the market price of the
Common Stock in a manner unrelated to the longer-term operating performance of
the Company.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 10.115 First Amendment to Loan Agreement dated August
6, 1998, between Pharmaceutical Product Development,
Inc. and Wachovia Bank, N.A.
Exhibit 10.116 First Amendment to Lease Agreement dated
September 28, 1998, between PPD Pharmaco, Inc. and
Weeks Realty, Inc.
Exhibit 10.117 Lease Agreement dated September 15, 1998
between PPD Pharmaco, Inc. and BBC Family Limited
Partnership
Exhibit 27 Financial Data Schedule (for SEC use only)
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
------------------------------------------
(Registrant)
By /s/ Rudy C. Howard
----------------------------------------------------------------
Chief Financial Officer, Vice President of Finance and Treasurer
(Principal Financial Officer)
Date: November 13, 1998
15
<PAGE>
INDEX TO EXHIBITS
-----------------
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
Exhibit 10.115 First Amendment to Loan Agreement dated August
6, 1998, between Pharmaceutical Product Development,
Inc. and Wachovia Bank, N.A.
Exhibit 10.116 First Amendment to Lease Agreement dated
September 28, 1998, between PPD Pharmaco, Inc. and
Weeks Realty, Inc.
Exhibit 10.117 Lease Agreement dated September 15, 1998
between PPD Pharmaco, Inc. and BBC Family Limited
Partnership
Exhibit 27 Financial Data Schedule (for SEC use only)
16
Exhibit 10.115
AMENDMENT TO LOAN AGREEMENT
THIS AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made as of
the 6th day of August , 1998, by and among PHARMACEUTICAL PRODUCT DEVELOPMENT,
INC., a North Carolina corporation (together with its successors, the
"Borrower"); the subsidiaries and affiliates identified on the signature pages
hereof (collectively, the "Guarantors"); and WACHOVIA BANK, N.A., a national
banking association (together with its endorsees, successors and assigns, the
"Bank").
R E C I T A L S:
The Borrower, the Guarantors and the Bank are parties to a certain
Loan Agreement dated as of August 7, 1997 (the "Loan Agreement").
Capitalized terms used in this Amendment which are not otherwise
defined in this Amendment shall have the respective meanings assigned to them in
the Loan Agreement.
The Borrower has requested an extension of the Termination Date to
August 5, 1999 and the Bank is willing to extend the Termination Date to August
5, 1999 and to amend the Loan Agreement, subject to the terms, provisions and
conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the Recitals, the mutual
promises herein contained and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Borrower, the Guarantors
and the Bank, intending to be legally bound hereby, agree as follows:
SECTION 1. Recitals. The Recitals are incorporated herein by
reference and shall be deemed to be a part of this Amendment.
SECTION 2. Amendments. Effective from and after the date of this
Amendment, the Loan Agreement is hereby amended as follows:
2.1 Extension of Termination Date. The following amendments are
hereby made to the Loan Agreement, and the following agreements are hereby
entered into, with respect to the extension of the Termination Date:
(a) The Termination Date is hereby extended to August 5, 1999.
2.2 Year 2000 Compliance. The following provisions are hereby added
to the Loan Agreement:
(a) The following defined term is hereby added to Section 1 of the
Loan Agreement to read as follows:
<PAGE>
"Year 2000 Compliant and Ready" means that (A) in all material
respects the Borrower's and its subsidiaries' hardware and software
systems with respect to the operation of its business and its general
business plan will: (i) handle date information involving any and all
dates before, during and/or after January 1, 2000, including accepting
input, providing output and performing date calculations in whole or in
part; (ii) operate accurately without interruption on and in respect of
any and all dates before, during and/or after January 1, 2000 and without
any change in performance; and (iii) store and provide date input
information without creating any ambiguity as to the century; and (B) the
Borrower has developed alternative plans to ensure business continuity in
the event of the failure of any or all of items (A)(i) through (iii)
above."
(b) Section 5 of the Loan Agreement is hereby amended to add a new
representation and warranty as Section 5.11 to read as follows (and on the date
hereof the Borrower and the Guarantors represent and warrant to the Bank that):
"5.11 Year 2000 Compliant and Ready. The Borrower has developed a
comprehensive plan (the "Y2K Plan") for insuring that the Borrower's and
its subsidiaries' software and hardware systems which impact or affect in
any material way the business operations of the Borrower and its
subsidiaries will be Year 2000 Compliant and Ready. The Borrower and its
subsidiaries have met the Y2K Plan milestones such that all hardware and
software systems will be Year 2000 Compliant and Ready in accordance with
the Y2K Plan."
(c) One new subparagraph is hereby added to Section 6.2 of the Loan
Agreement to be designated as subparagraph (d) and to read as follows:
"(d) Third Party Assessments. Promptly upon the receipt
thereof, a copy of any third party assessments of the Borrower's Y2K
Plan together with any recommendations made by such third party with
respect to Year 2000 compliance."
(d) Section 6 of the Loan Agreement is hereby amended to add a new
covenant regarding Year 2000 compliance as new Section 6.13 to read as follows:
"6.13 Year 2000 Compliance. The Borrower and its subsidiaries will
meet the milestones contained in the Y2K Plan and will have all hardware
and software systems which are essential to everyday operations Year 2000
Compliant and Ready (including all internal and external testing) on or
before June 30, 1999."
2
<PAGE>
SECTION 3. Conditions to Effectiveness. The effectiveness of this
Amendment and the obligations of the Bank hereunder are subject to receipt by
the Bank of the following:
(a) an original Amendment, duly executed by the Borrower and the
Guarantors;
(b) a certificate of incumbency satisfactory to the Bank, certifying
as to the names, true signatures and incumbency of the officer or officers
of the Borrower and the Guarantors authorized to execute and deliver this
Amendment;
(c) such other documents or items as the Bank or its counsel may
reasonably request.
The effectiveness of this Amendment and the obligations of the Bank hereunder
are further subject to the condition that no Event of Default or event or
condition which with notice or lapse of time, or both, would constitute an Event
of Default under the Loan Agreement, as hereby amended, shall have occurred and
be continuing, and the representations and warranties contained in Section 5 of
the Loan Agreement, as amended herein, are true on and as of the date hereof.
SECTION 4. No Other Amendment. Except for the amendments set forth
above, the Loan Agreement shall remain unchanged and in full force and effect.
This Amendment is not intended to effect, nor shall it be construed as, a
novation. The Loan Agreement and this Amendment shall be construed together as a
single agreement. Nothing herein contained shall waive, annul, alter, limit,
diminish, vary or affect any provision, condition, covenant or agreement
contained in the Loan Agreement, except as herein amended, nor affect or impair
any rights, powers or remedies under the Loan Agreement as hereby amended. The
Bank does hereby reserve all of its rights and remedies against all parties who
may be or may hereafter become secondarily liable for the repayment of the Loan.
The Borrower and the Guarantors promise and agree to perform all of the
requirements, conditions, agreements and obligations under the terms of the Loan
Agreement, as hereby amended, the Loan Agreement, as amended, being hereby
ratified and affirmed. The Borrower and Guarantors hereby expressly agree that
the Loan Agreement, as amended, is in full force and effect and confirm that
they have no set off, counterclaim or defense with respect to the Loan
Agreement, the Loan, the Note, the Guaranty contained in the Loan Agreement or
the Guaranteed Obligations.
SECTION 5. Representations and Warranties. The Borrower and the
Guarantors hereby represent and warrant to the Bank as follows:
3
<PAGE>
(a) No Event of Default or event or condition which with notice or
lapse or time, or both, would constitute an Event of Default under the
Loan Agreement, as hereby amended, has occurred and is continuing on the
date hereof.
(b) The representations and warranties contained in Section 5 of the
Loan Agreement, as amended herein, are true on and as of the date of this
Amendment.
(c) This Amendment has been duly authorized, validly executed and
delivered by one or more authorized officers of the Borrower and the
Guarantors, and constitutes the legal, valid and binding obligation of the
Borrower and Guarantors enforceable against them in accordance with its
terms.
(d) The execution and delivery of this Amendment and the Borrower's
and the Guarantors' performance hereunder do not and will not require the
consent or approval of any regulatory authority or governmental authority
or agency having jurisdiction over the Borrower or any Guarantor, nor be
in contravention of or in conflict with the Articles of Incorporation or
Bylaws of the Borrower or any Guarantor, or the provision of any statute,
or any judgment, order or indenture, instrument, agreement or undertaking
to which the Borrower or any Guarantor is party or by which the Borrower's
or a Guarantor's assets or properties are or may become bound.
SECTION 6. Counterparts. This Amendment may be executed in
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall constitute one and the same agreement.
SECTION 7. Governing Law. This Amendment shall be deemed to be made
pursuant to the laws of the State of North Carolina with respect to agreements
made and to be performed wholly in the State of North Carolina and shall be
construed, interpreted, performed and enforced in accordance therewith.
SECTION 8. Costs and Expenses. The Borrower shall pay any and all
out-of-pocket expenses in connection with the preparation, execution and
delivery of this Amendment, including, without limitation, the fees and expenses
of the Bank's counsel in connection therewith.
SECTION 9. Entire Agreement. This Amendment contains the entire
agreement of the parties with respect to the subject matter hereof, and there
are no representations, inducements or other provisions among the parties
regarding such subject matter
4
<PAGE>
other than those expressed herein in writing. All changes, additions or
deletions to this Amendment must be in writing and signed by all parties.
IN WITNESS WHEREOF, the parties hereto have caused their respective
duly authorized officers or representatives to execute and deliver this
Amendment as of the day and year first above written.
BORROWER:
ATTEST: PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
/s/ Fred Davenport Secretary By: /s/ Rudy Howard
Title: VP, CFO
[CORPORATE SEAL]
BANK:
WACHOVIA BANK, N.A.
By: /s/ Keith Sherman
Title: Senior Vice President
GUARANTORS:
ATTEST: PPD PHARMACO, INC.
/s/ Fred Davenport By: /s/ Rudy Howard
___________ Secretary Title: Vice President
[Corporate Seal]
ATTEST: APBI ENVIRONMENTAL SCIENCES GROUP, INC.
/s/ Fred Davenport By: /s/ Rudy Howard
___________ Secretary Title: Assistant Vice President
[Corporate Seal]
EXHIBIT 10.116
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made this
28th day of September, 1998 by and between PPD PHARMACO, INC., a Texas
corporation (hereinafter, the "Tenant"), and WEEKS REALTY, L.P., a Georgia
limited partnership (hereinafter, the "Landlord").
WITNESSETH:
WHEREAS, pursuant to a Lease Agreement dated June 26, 1998 by and between
Landlord and Tenant (the Lease Agreement, and all amendments thereto shall be
referred to herein collectively as the "Lease"), Landlord leased to Tenant
certain premises in a building located in Morrisville, Wake County, North
Carolina 27560 which has been provided the address of 4023 Paramount Parkway,
all as more particularly described in the Lease; and
WHEREAS, the parties desire to modify the Lease to, among other things,
confirm the actual rentable square footage of the Premises, and to confirm the
lease by Tenant of certain additional space on the third floor of the Building,
as provided herein.
NOW, THEREFORE, in consideration of cash in hand paid and the promises and
the provisions contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant
hereby agree to amend and modify the Lease as follows:
1. Additional Space.
(a) Tenant has advised Landlord that it desires to exercise certain rights
to expand the Premises as set forth in paragraph 1(d) of the Lease to lease
certain additional space in the Building and located on the third floor
consisting of 36,481 rentable square feet (the "First Expansion Space").
(b) Landlord shall perform the upfit of the First Expansion Space for
occupancy by Tenant in accordance with the provisions of the Lease. Tenant shall
be provided an upfit allowance as provided in the Lease, and the upfit shall be
conducted in accordance with plans and specifications for the First Expansion
Space that shall be mutually and reasonably approved by Landlord and Tenant.
2. Base Rent and Expenses.
(a) Base rent, Additional Rent and operating expenses shall continue to be
due and payable as provided in the Lease increased to reflect the addition of
the First Expansion Space. Base rent shall continue to be subject to increase as
provided in the Lease.
1
<PAGE>
(b) With the addition of the First Expansion Space, the proportionate
share of Tenant of the Building shall equal 61.23 percent.
3. Premises. With the addition of the First Expansion Space, the rentable
square footage of the "Premises" is modified to reflect the corrected
measurement of 72,962 rentable square feet, which, in addition to the First
Expansion Space, includes 36,481 rentable square feet on the fourth floor of the
Building.
4. Building. The rentable square footage of the "Building" is modified to
reflect the corrected measurement of 119,162 rentable square feet.
5. Effective Date. The provisions of this Amendment shall be and become
effective as of the day and year first above written.
6. Severability. In the event any term, covenant or condition of this
Amendment, the Lease, or any amendments thereto shall to any extent be invalid
or unenforceable, the remainder shall not be affected thereby and each term,
covenant or condition shall be valid and enforceable to the full extent
permitted by law.
7. Successors and Assigns. This Amendment shall apply to, inure to the
benefit of, and be binding upon the parties hereto and upon their respective
heirs, legal representatives, successors and permitted assigns, except as
otherwise provided herein.
8. Authority of Tenant. Tenant certifies to Landlord that it is authorized
to enter into this Amendment, and that those persons signing below on its behalf
are authorized to do so, and shall promptly upon the request of Landlord provide
a resolution to this effect.
9. Interpretation. Although the printed provisions of this Amendment were
drafted by Landlord, such fact shall not cause this Amendment to be construed
either for or against Landlord or Tenant.
10. Full Force and Effect. Except as modified hereby, the Lease remains
unmodified and in full force and effect.
11. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of North Carolina.
12. Mutual Acknowledgment of Non-Existence of Claims. Landlord and Tenant
acknowledge and agree that as of the day hereof there are no known claims by
either party against the other party hereto arising from the relationship as
Landlord and Tenant, respectively, pursuant to the Lease, as amended.
2
<PAGE>
13. Confidentiality. The terms and provisions of the Lease, and this
Amendment are strictly confidential, are to be shared by Tenant only with its
accountant, employees, and attorneys, and each of those parties shall be advised
of the confidential nature of the Lease, and this Amendment.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Amendment causing their respective seals to be affixed hereto the day and year
first above written.
LANDLORD:
WEEKS REALTY, L.P. (SEAL), a Georgia
limited partnership authorized to do
business in the State of North
Carolina as Weeks Realty Limited
Partnership
BY: WEEKS GP HOLDINGS, INC., a
Georgia corporation, its sole
general partner
By: /s/ Robert G. Cutlip
Robert G. Cutlip,
Senior Vice President
TENANT:
PPD PHARMACO, INC., a Texas
corporation qualified to do business
in North Carolina
ATTEST:
By: /s/ Fred Davenport By: /s/ Thomas D'Alonzo
_____ Secretary President
[CORPORATE SEAL]
4
EXHIBIT 10.117
LEASE AGREEMENT
PPD
ARTICLE I
FUNDAMENTAL LEASE PROVISIONS
1.1 SUBJECTS REFERRED TO.
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Section 1.1:
BUILDING PPD Building 2 to be constructed at the Building Address specified
below
BUILDING ADDRESS____________________________________________________________
TENANT PPD Pharmaco, Inc., a Texas corporation
TENANT'S REPRESENTATIVE Dr. Fred Eshelman
TENANT'S ADDRESS (NOTICE & BILLING) (same as above)
LANDLORD BBC FAMILY LIMITED PARTNERSHIP, a North Carolina limited partnership
LANDLORD'S REPRESENTATIVE Mr. Scott C. Sullivan
MANAGING AGENT BBC FAMILY LIMITED PARTNERSHIP
LANDLORD'S & MANAGING AGENT'S ADDRESS 1201 Glen Meade Road,
Wilmington, N.C. 28401 910/762-2676
TENANT'S RENTABLE SQUARE FEET ("RSF") 70,000
BUILDING TOTAL RSF 70,000
TERM COMMENCEMENT DATE see Section 2.2.1
TERM EXPIRATION DATE see Section 2.2
Annual
RENT Lease Year Base Rent
per RSF
1 $ 12.50
2 12.88
3 13.26
4 13.66
5 14.07
1
<PAGE>
6 14.49
7 14.93
8 15.37
9 15.84
10 16.31
TENANT'S ALLOCABLE SHARE WHERE APPLICABLE 100.0%
PERMITTED USE General Office Use
INSURANCE REQ'TS: BODILY INJURY $5,000,000 PROPERTY DAMAGE $5,000,000
($1,000,000 base policy, with $4,000,000 umbrella)
1.2 EXHIBITS.
The exhibits listed below are incorporated into and form a part of this
Lease:
EXHIBIT A Legal Description of the Property....Page_________
EXHIBIT B Site Plan.............................Page_________
EXHIBIT C Plans and Specifications with
Project Budget .......................Page_________
EXHIBIT D Landlord's Services ..................Page_________
EXHIBIT E Rules and Regulations.................Page_________
EXHIBIT F Janitorial Services...................Page_________
1.3 SPECIAL PROVISIONS.
1.3.1 Renewal Options. As long as there has not been an uncured event of
default, Landlord will grant Tenant the right to renew this Lease for two
periods of five (5) years each under the following terms and conditions. Tenant
must notify Landlord at least two hundred forty (240) days in advance of the
Term Expiration Date of Tenant's desire to exercise its right to renew this
Lease for the first five-year renewal Term, and Tenant must notify Landlord at
least two hundred forty (240) days in advance of the last day of the first
five-year renewal Term of Tenant's desire to exercise its right to renew this
Lease for the second five-year renewal Term. Tenant and Landlord shall be bound
by all of the terms and conditions of this Lease during each renewal Term except
for Base Rent as hereinabove defined, which shall be increased at the beginning
of each renewal Term to an amount equal to ninety-five (95%) percent of the
market rent for the Premises at the beginning of such renewal Term, and
increased
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thereafter for each Lease Year of each renewal Term by an amount equal to three
percent (3%) of the Base Rent for the preceding Lease Year of the renewal Term.
As used in this Lease, "Lease Year" means each twelve-month period beginning on
the day of the calendar year on which the Term Commencement Date falls and
ending on the day of the calendar year preceding the date on which the Term
Commencement Date falls.
For the first thirty (30) days following Landlord's receipt of Tenant's
notice of exercise of one of the above options to renew, Landlord and Tenant
shall have the opportunity and option to mutually agree upon the fair market
rental for the Premises. If Landlord and Tenant are unable to agree upon such
fair market rental within the time period set forth above, then each party shall
within thirty (30) days after the expiration of said time period appoint an
appraiser and notify the other party of such appointment by identifying the
appraiser. Each party hereby agrees to select as its respective appraiser a
licensed real estate broker, who is an individual having at least five (5) years
experience with respect to office property ownership, management, and marketing
in the Wilmington, North Carolina area. Not later than ten (10) days after both
appraisers are appointed, each party shall separately, but simultaneously,
submit in a sealed envelope to each appraiser their suggested fair market rental
and shall provide a copy of such submission to the other party. The two selected
appraisers, after reviewing such submissions, shall each independently determine
the fair market rental of the Premises. If both appraisers agree on the fair
market rental for the Premises, they shall declare the same to be the fair
market rental for the Premises and their decision shall be final and binding
upon the parties, provided that such fair market rental shall not be outside of
the bounds established by Landlord's and Tenant's
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estimates furnished as set forth above. If the two selected appraisers are
unable to agree upon the fair market rental within thirty (30) days after
receipt of Landlord's and Tenant's submitted estimates, then the appraisers
shall inform the parties and the appraisers shall select a third appraiser, not
less than ten (10) days after the expiration of the thirty (30) day period. If
no appraiser is selected within such ten (10) day period, either party may
immediately petition a court of competent jurisdiction to appoint such third
appraiser. The third appraiser shall have the same qualifications as set forth
above. The third appraiser shall independently determine the fair market rental
of the Premises. The ultimate fair market rental of the Premises shall be the
arithmetic average of the two fair market rental values determined by two of the
three appraisers which are closest to each other, but in no event in outside the
bounds established by Landlord's and Tenant's estimates furnished as set forth
above. The appraisals or estimates of the fair market rental of the Premises
made under this paragraph shall be appraisals or estimates of such value as of
the commencement date of the renewal Term in question. The fair market rental
established under this paragraph shall be conclusive, unappealable, and binding
upon the parties hereto. Each party shall be responsible for the costs, charges,
and/or fees of its appraiser, and the parties shall equally share the costs,
charges, and/or fees of the third appraiser.
1.3.2. Base Rent Reduction or Increase.
1.3.2.1 Tenant's Annual Base Rent per RSF hereunder shall be reduced or
increased to the extent that the cost of the Project is less or more than the
cost set forth in the Project Budget set forth in Exhibit C attached hereto, or
as such Project Budget may be amended in writing by Landlord and Tenant, at the
rate of $0.10 per rentable square foot for every $100,000.00 in cost reduction
or cost increase.
1.3.2.2 Upon completion of the Building, the Rentable Square Feet in the
Building will be measured and calculated in accordance with current standards
defined by the Building Owners and Managers Association (BOMA), and such
measured and calculated Rentable Square Feet shall be used as the Rentable
Square Feet ("RSF") under this Lease.
ARTICLE II
PREMISES AND TERM
2.1 PREMISES.
Landlord does hereby lease to Tenant and Tenant hereby leases from
Landlord upon the terms and conditions herein stated that certain real property
(the "Property"), together with the improvements and the Building hereafter to
be erected thereon (the term "Premises" as hereinafter used, refers to such
Property, improvements and Building) as more specifically shown on:
EXHIBIT A Legal Description of the Property
EXHIBIT B Site Plan
EXHIBIT C Plans and Specifications with Project Budget
Landlord agrees to construct at Landlord's sole cost and expense and at no
expense whatsoever to Tenant, the Premises in substantial compliance with the
plans and specifications (the
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"Plans") identified and described in Exhibit C hereto. The construction of the
Building and related improvements on the Property is sometimes herein referred
to as the "Project." Any additional detail and value engineering to be performed
in connection with and pursuant to the Plans, shall be mutually agreed upon in
advance by Landlord and Tenant. Specifically, Landlord and Tenant shall work
cooperatively and in good faith with each other and the architect and the
general contractor, when the general contractor for the Project has been chosen
by the Landlord, in the design/build process to incorporate any Building Permit
("BP") requirements into Exhibit C without exceeding the budgeted construction
amounts of construction costs set forth in the Project Budget, including the
shell and interior upfit.
Construction shall be done in accordance with applicable building codes,
laws and regulations, and in a good, substantial and workmanlike manner, and all
materials used will be of appropriate grade and quality for the use for which
they are employed. Landlord guarantees for a period of one (1) year after the
Term Commencement Date that any details of construction of the Building found to
be deficient shall be promptly replaced or remedied without charge to Tenant.
Landlord also guarantees for a period of two (2) years after the Term
Commencement Date that any latent defects of initial construction of the
Building not reasonably discernible within the first year which become obvious
within such two-year period shall be promptly replaced or remedied without
charge to Tenant. Landlord shall have no further liability for patent defects
one year after the Term Commencement Date and no further liability for latent
defects two years after the Term Commencement Date, but such release from
liability for said patent and latent defects shall not be construed in any way
to diminish Tenant's liability for items included in Operating Expenses under
Section 4.2.1 hereof. Landlord shall assign to Tenant any equipment warranties
available to Landlord.
All of the fixtures, partitions, equipment (telephone, office, and
otherwise), and other personal property required by Tenant in the operation of
its business shall be supplied, constructed, and installed by Tenant at its sole
expense and shall be referred to hereinafter as "Tenant's Property". It is
agreed that Tenant's Property shall not be subject to the lien of any mortgage
or deed of trust of Landlord, and may be removed from the Premises by Tenant at
its option, on the termination of this Lease or up to thirty (30) days
thereafter, provided Tenant shall pay the cost of any repairs to the Premises
necessitated by any said removal.
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2.2 TERM.
2.2.1 The Term. The Term of this Lease shall commence upon the Term
Commencement Date, and shall continue for a period of ten (10) years. The Term
Expiration Date shall be ten (10) years (120 months) after the Term Commencement
Date, unless extended by Tenant's exercise of its renewal rights under Section
1.3.1. The Term Commencement Date shall be the date when the Premises have been
substantially completed and Tenant can take possession of the entire Premises
without violating any permits, ordinances or other laws applicable to the
construction and occupancy of the Premises. If Landlord and Tenant cannot agree
upon the Term Commencement Date, said determination shall be made by the
architect for the Project. Notwithstanding the foregoing, Tenant shall be
entitled to take possession of portions of the Building as same become available
for occupancy prior to the Term Commencement Date, provided such occupancy by
Tenant shall not be in violation of any applicable permits, ordinances or laws.
If Tenant shall take possession of a portion or portions of the Building prior
to the Term Commencement Date, Tenant shall pay as rent for any portion or
portions of the Building occupied by Tenant prior to the Term Commencement Date
the Base Rent for the portion or portions of the Building occupied based upon
the rentable square feet occupied as same bears to the Building Total RSF, plus
the Operating Expenses and the Separately Paid Expenses for the portion or
portions of the Building occupied by Tenant, all as hereinafter defined in
Article IV. Landlord agrees to use its best efforts to substantially complete
construction of the Building and other improvements on the Premises and to
deliver possession of the Premises to Tenant on or before September 1, 1999,
which date shall, however, be extended for a period equal to that of any delays
due to government relations, unusual scarcity of or inability to obtain labor or
materials, labor difficulties, casualty, loss or other causes reasonably beyond
the control of Landlord, its contractors and/or subcontractors, as well as any
time deemed necessary by the architect to incorporate changes in the Project
requested by Tenant and agreed to by Landlord. Notwithstanding any of the
foregoing provisions, if Landlord fails to substantially complete construction
and deliver possession of the Premises to Tenant on or before October 1, 1999
(Outside Delivery Date), Tenant, at its option, may terminate this Lease by
giving written notice to Landlord after this date unless Landlord, prior to
September 1, 1999 makes available to Tenant at Landlord's expense temporary
accommodations acceptable to Tenant which will permit Tenant to continue its
business in the normal course without disruption. In addition, if Landlord fails
to substantially complete
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construction and deliver possession of the Premises to Tenant on or before
September 1, 1999, then on September 1, 1999, and on each day thereafter
Landlord shall pay Tenant the sum of $5,000 until Landlord shall have
substantially completed construction and delivered possession of the Premises to
Tenant; provided, however, that nothing in this sentence shall be construed to
deprive Tenant of its option to terminate the Lease after October 1, 1999 as
provided in the immediately preceding sentence unless Landlord supplies the
accommodations acceptable to Tenant as described above.
2.2.2 Condition Precedent to Lease. Notwithstanding any of the foregoing
provisions of this Lease, it is acknowledged and agreed that the obligations of
Landlord and Tenant hereunder are expressly conditioned upon the issuance by the
City of Wilmington of a BP permitting the construction of the Premises as
contemplated hereunder, together with any additional permits, site plans and
other governmental approvals that may be required from time to time by the City
of Wilmington. In the event all such permits are not reasonably assured on or
before ninety (90) days from the date of execution of this Lease (or such
earlier date after execution of this Lease if it is reasonably certain that in
no event can the required governmental approval be obtained), either party may
so elect to terminate this Lease by giving written notice to the other party,
upon the occurrence of which this Lease shall be deemed to be of no further
force and effect, and the parties shall have no further obligations hereunder.
ARTICLE III
REPRESENTATION
3.1 REPRESENTATIVES.
Each party authorizes the other to rely in connection with their
respective rights and obligations under this Article III upon approval and other
actions on the party's behalf by Landlord's Representative in the case of
Landlord or Tenant's Representative in the case of Tenant or by any person
designated in substitution or addition by notice to the party relying.
3.2 LANDLORD AND TENANT RELATIONSHIP
This Lease shall create the relationship of lessor and lessee between
Landlord and Tenant; no estate shall pass out of Landlord and this Lease shall
not be subject to levy and/or sale and shall not be assignable by Tenant except
as provided in
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Section 6.1.4 hereof. Nothing herein contained shall be deemed to create any
relationship between the parties such as creating the relationship of principal
and agent or of partnership and joint venture between the parties other than the
relationship between Landlord and Tenant.
3.3 REPRESENTATIONS
Tenant acknowledges that neither Landlord nor Landlord's employees or
contractors have made any representations or promises with respect to the
Premises or this Lease except as expressly set forth herein and that Tenant
shall have no claim, right or cause of action based on or attributable to any
representation or promise allegedly made by Landlord, its agents, employees or
contractors which is not expressly set forth herein. Attached as Exhibits B and
C are the Site Plans and the Plans for the Project made by Landlord's architect.
Landlord and Tenant acknowledge the Plans are acceptable subject to adjustments
per final requirements of the BP or other governmental permits and subsequent
mutual agreement to amend same. Landlord and Tenant shall use their best efforts
and work cooperatively with each other, the architect and general contractor to
make construction of the Project conform as closely as possible with the Plans,
remain within the Project Budget, and meet all requirements of the BP.
3.4 LANDLORD'S LIABILITY
It is understood and agreed that there shall be no personal liability as
to Landlord or any partner of Landlord in respect to any of the covenants,
conditions, or provisions of this Lease. In the event of a breach or default by
Landlord of any of its obligations under this Lease, Tenant shall look solely to
the equity of the Premises.
ARTICLE IV
RENT
Tenant's rent obligations to Landlord herein are the sum of Base Rent
hereinabove defined and Additional Rent defined below.
4.1 PAYMENTS OF BASE RENT AND ADDITIONAL RENT.
Tenant agrees to pay to Landlord, in advance and without any notice,
demand, offset or reduction whatsoever, the Annual Base Rent per RSF and the
Operating Expenses per RSF for the Premises, in equal monthly installments,
adjusted pursuant to the terms hereof, on or before the first day of each
calendar month
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included in the Term, and a prorated portion thereof for any portion of a
calendar month at the beginning or end of the Term. Until Landlord shall notify
Tenant otherwise, Tenant shall pay Landlord for Operating Expenses an amount
equal to Two and 45/100 Dollars ($2.45) per RSF per Lease Year, in equal monthly
installments in advance. Said amount is an estimate of such charges, and it is
understood and agreed that at the end of each Lease Year, or more frequently,
Landlord shall make a determination concerning actual Operating Expenses for the
Premises and, if the estimated amount paid is greater than actual, the excess
shall be credited to rents and other charges thereafter coming due. If the
estimated amount paid is less than actual, the deficit shall be paid by Tenant
to Landlord, upon demand. When each such determination of the actual amount is
made, the monthly amount paid by Tenant for Operating Expenses shall be adjusted
to such actual amount, on an annual basis, and such adjusted amount shall be
paid by Tenant in equal monthly installments until the next determination of the
actual amount of Operating Expenses is made. Provided, however, in no event
shall the amount paid to Landlord as Operating Expenses by Tenant increase by
more than six percent (6%) per year. Tenant shall have the right to audit
Landlord's books and financial records regarding the Operating Expenses, at
Tenant's expense, once each Lease Year, upon seven days prior written notice to
Landlord.
In addition, Tenant agrees to pay all other sums required to be paid by Tenant
under the provisions of this Lease including but not limited to the Separately
Paid Expenses defined in Section 4.2.1 below, in accordance with the terms
hereof. All sums (other than the Base Rent) required to be paid by Tenant,
including but not limited to the Operating Expenses and the Separately Paid
Expenses defined in Sections 4.2 through 4.7, below, are included in the term
"Additional Rent" as used herein.
4.2 OPERATING EXPENSES AND SEPARATELY PAID EXPENSES
4.2.1 General. "Operating Expenses" are those costs associated with
operating the Building and Premises as described below.
The Operating Expenses paid by Tenant will include: (a) compensation and
all fringe benefits, worker's compensation insurance premiums and payroll taxes
paid by Landlord to, for or with respect to all persons engaged in operating,
managing, administering, supervising, maintaining, and/or cleaning the Premises,
and/or maintaining records (financial or otherwise) in connection with the
Premises; (b) water, sewer, electric, gas, telephone, and other utility charges
for the Premises not paid by
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the Tenant as Separately Paid Expenses, (c) costs of building and cleaning
supplies and equipment (including rental) for the Premises; (d) cost of
maintenance, exterior cleaning and repairs of the Premises; (e) cost of snow
plowing or removal, or both, and care of landscaping of the Premises; (f)
payments to independent contractors under service contracts for operating,
managing, maintaining and repairing the Premises (which payments may be to
affiliates of Landlord provided the same are at reasonable rates consistent with
the type of occupancy and the services rendered); (g) Tax Impositions as defined
in Section 4.3, below; (h) Insurance Costs as defined in Section 4.4, below; and
(i) all other reasonable and necessary expenses paid in connection with the
operation, cleaning, maintenance and repair of the Premises. Some of the
services to be provided by Landlord are more specifically set forth in Exhibit D
attached, but nothing in said Exhibit D shall be construed to limit the
obligations of Tenant to pay the Operating Expenses as set forth in this
Article.
Operating Expenses shall not include Utilities as defined in Section 4.5, below,
or Janitorial Services as defined in Section 4.6, below, both of which shall be
paid by Tenant, which Utilities and Janitorial Services are referred to as
"Separately Paid Expenses" in this Lease.
The following are also specifically excluded from the definition of Operating
Expenses: Costs (1) for capital improvements made to the Building, except for
items, which, though capital for accounting purposes, are properly considered
maintenance and repair items, such as painting of common areas, replacement of
carpet in elevator lobbies, and the like; (2) for repair, replacements and
general maintenance paid by proceeds of insurance, by Tenant, or by third
parties, and alterations attributable solely to tenants in the Building other
than Tenant; (3) for interest amortization or other payments on loans to
Landlord; (4) for depreciation on the Building; (5) for leasing commissions; (6)
for legal expenses, other than those incurred for the general benefit of the
Building's tenants (e.g., tax disputes); (7) for renovating or otherwise
improving space for occupants of the Building or vacant space in the Building;
(8) for correcting defects in the construction of the Building; (9) for overtime
or other expenses of Landlord in curing defaults or performing work expressly
provided for in this Lease to be borne at Landlord's expense; (10) for federal
income taxes imposed on or measured by the income of Landlord from the operation
of the Building; (11) any ground lease rental; (12) advertising and promotional
costs; (13) damages, fines, interest or penalties, including tax penalties
incurred by Landlord due to failure to
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timely comply with its contractual obligations or its obligations under the law,
except to the extent caused (directly or indirectly) by Tenant's failure to
perform its obligations hereunder (for example, without limitation, Tenant's
failure to timely pay Operating Expenses); (14) rentals and other related
expenses incurred in leasing HVAC equipment, elevator equipment, or other
equipment ordinarily considered to be of a capital nature in excess of that
amount which would be included in the cost of the Project under section 1.3.2;
(15) costs incurred in bringing the Building's structure, Building's systems,
and parking lot into compliance with any law in effect prior to the Term
Commencement Date; (16) cost of contract services provided by Landlord or its
affiliates and overhead and profit increments paid to affiliates of Landlord for
services to the extent that the costs of such services exceed market costs for
such services rendered by unrelated persons or entities of similar skill,
competence, and experience; (17) expenses resulting from the gross negligence or
willful misconduct of Landlord, its agents, employees, and contractors; (18) any
bad debt loss, rent loss, or reserves for bad debt or rent loss; (19) costs
associated with the operation of the business of the person or entity which
constitutes Landlord (as the same are distinguished from the costs of operation
of the Building); (20) costs incurred by Landlord for repairs or replacements to
the extent that the Landlord is reimbursed under warranties or guaranties; (21)
damage and repairs attributable to condemnation; and (22) any sale, syndication,
financing or refinancing costs.
Nothing herein shall be deemed to release Tenant from its obligations under
Section 6.1.14 below.
4.2.2 Accounting Period. Landlord shall have the right from time to time
to change the periods of accounting with respect to Landlord's pro-rated billing
of Separately Paid Expenses. In all Landlord's Statements, amounts for periods
partially within and partially without the accounting periods shall be
appropriately apportioned, and any items which are not determinable at the time
of a Landlord's Statement shall be included therein on the basis of Landlord's
reasonable estimate, and with respect thereto Landlord shall render promptly
after a determination a supplemental Landlord's Statement, and appropriate
adjustment shall be made according thereto. If the Lease expires or is
terminated as of a date other than the last day of a calendar year, then for
such fraction of a year at the end of the Term, Tenant's last payment to
Landlord under this Section 4.2 shall be made on the basis of Landlord's best
estimate of the items otherwise includable in Landlord's Statement and shall be
made on or before the later of (a) 10 days
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after Landlord delivers such estimate to Tenant or (b) the last day of the Term,
with an appropriate payment or refund to be made upon submission of Landlord's
Statement.
4.3 TAX IMPOSITIONS.
Landlord shall pay before they become delinquent all taxes and assessments
of any kind and nature whatsoever (collectively, the Tax Impositions) levied or
assessed against the Premises or any part thereof, and the same shall be
included in the Operating Expenses paid to Landlord by Tenant. The term Tax
Impositions shall mean and include all assessments or charges paid or incurred
by Landlord for public betterments or improvements, fire or water line taxes, ad
valorem real estate and/or personal property taxes, or any other tax on rents or
real estate as such (other than income taxes thereon) from time to time directly
or indirectly assessed or imposed upon the Premises and/or the property,
furniture, fixtures, and equipment used in the operation, maintenance or repair
of the Premises, including, when done at the request of Tenant, all costs and
fees paid or incurred by Landlord in contesting, or in negotiating with, the
public authorities as to the amount of such assessments, charges or taxes or the
basis upon which the same shall be assessed. If Landlord does not desire to
contest or negotiate such matters, Landlord may delegate such opportunity to do
so to Tenant. If the tax bills are sent to Tenant, Tenant shall promptly notify
Landlord of taxes due and shall provide Landlord with a copy of the bill,
statement or invoices.
All taxes on the Premises shall be prorated between the Landlord and
Tenant on the basis of a 365 day year with respect to the tax years in which
this Lease commences or terminates. Tenant shall pay that part of the taxes
attributable to the portion of the tax year covered by this Lease. Tenant shall
also pay before delinquency all taxes, assessments, license fees and other
charges that are levied and assessed against Tenant's personal property
installed or located in or on the Premises.
The foregoing provisions to the contrary notwithstanding, it is understood
and agreed that any and all assessments or charges for public betterments or
improvements, ad valorem real estate taxes or other taxes on business or
personal property or any other tax on real estate or business or personal
property as such from time to time directly or indirectly assessed or imposed
upon or with respect to any alterations, additions or improvements made to the
Premises by Tenant or under its direction or at its request or with respect to
any property of Tenant therein shall be borne and paid entirely by Tenant and,
if any of said items or
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any portion thereof shall be paid by Landlord, Tenant shall reimburse Landlord
for the same as Additional Rent immediately upon receipt by Tenant of written
demand therefore from Landlord.
4.4 INSURANCE COSTS.
As part of the Operating Expenses, Tenant shall reimburse Landlord for all
insurance which the Mortgagee, hereinafter defined, may require be maintained by
Landlord from time to time on the Premises, or which Landlord may reasonably
maintain on the Premises if there is no Mortgagee including, but not limited to,
all risk, fire and extended coverage insurance, rental loss insurance, general
liability insurance as set forth in Section 6.1.6, workmen's compensation
insurance in the amount required in Section 6.1.7, and insurance against
liability for defamation and claims for false arrest.
4.5 UTILITIES.
Tenant shall have its direct electrical usage separately metered for all
types of use including but not limited to 277/408 volt and 120/208 volt services
and Tenant's mechanical or HVAC use. Such items will be metered separately from
other building services and shall be deemed to be "Direct Electric Use".
Landlord shall deliver to Tenant an accounting of the electrical usage for each
billing period which shall show the meter readings and the millage rate charged
Landlord by the utility for such usage. Tenant shall pay to Landlord as
Additional rent within ten (10) days of receipt of Landlord's notice the cost of
Tenant's Direct Electric Use. Landlord will not charge any fees or profits
associated with any such electrical usage. Tenant shall pay only its
proportionate share at the direct cost to Landlord from the providing utility.
To the extent reasonably possible, all items to be paid by Tenant under this
Section 4.5 will be billed directly to Tenant by the service provider.
4.6 JANITORIAL SERVICES
Tenant shall provide and pay for all Janitorial Services described in
Exhibit F.
4.7 AMOUNTS DUE UPON TERMINATION.
Notwithstanding any expiration or termination of this Lease (except in the
case of cancellation by mutual agreement or as otherwise stated herein),
Tenant's obligation to pay Base Rent, Separately Paid Expenses and all other
items of Additional Rent under this Lease shall continue and shall cover all
periods up to
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the Term Expiration Date. Tenant's obligation to pay any and all such amounts
under this Lease, and Landlord's and Tenant's obligations to make the
adjustments referred to above, shall survive any expiration or termination of
this Lease. Except in the case of cancellation by mutual agreement between
Landlord and Tenant, any and all sums due and owed to Landlord by Tenant under
this Section 4.7 shall be reduced by the amount(s) paid to Landlord by any
subsequent tenant(s) occupying the Premises, less Landlord's direct costs of
lease commissions, attorney fees, tenant improvements, and/or other direct costs
to enter into a lease agreement(s) with a subsequent tenant(s).
4.8 LATE CHARGES.
In the event that Tenant fails to pay any sum due under any provisions of
this Lease (including, without limitation, Base Rent, Additional Rent, or any
other costs, charges, or reimbursements provided for herein) when due as herein
provided, then, such sum shall bear interest at the highest legal rate not to
exceed eighteen (18%) percent per annum calculated from said due date. The
payment of such interest shall not excuse or cure any default by Tenant under
this Lease. Tenant shall, in addition, pay a late charge of 5% (five percent)
for processing of late payments. Such interest and late charges shall be
considered Additional Rent under the provisions hereof, the non-payment of which
shall be considered a default on the part of Tenant and shall entitle Landlord
to exercise all of its rights and privileges hereunder.
ARTICLE V
LANDLORD'S COVENANTS
5.1 LANDLORD'S COVENANTS DURING THE TERM.
5.1.1 Repairs and Maintenance by Landlord. Except as otherwise provided
herein, Landlord at its cost shall maintain in good condition the plumbing, the
elevators, the heating, ventilation and air conditioning compressors, fans,
heating units, and cooling units, the structural parts of the Premises,
including the roof, repair of roof leaks, foundations, and load bearing and
exterior walls. Upon written notice given by Tenant of the need for repairs of
which Landlord is responsible hereunder, Landlord shall promptly repair the
Premises in a good, workmanlike manner. Landlord shall have 30 days after notice
from Tenant to commence to perform its obligations hereunder, except that
Landlord shall perform its obligations immediately if the nature of the problem
presents a hazard or emergency. If
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Landlord fails to perform its obligations within the time limits herein
provided, or, if the repair requires a period of time greater than 30 days and
Landlord is not diligently pursuing repair, Tenant may perform the repair and
shall have the right to be reimbursed by Landlord within 30 days after written
demand for the sum Tenant reasonably expends in the performance thereof, or, at
Tenant's option, Tenant may deduct the actual incurred direct cost from Base
Rent hereunder.
5.1.2 Quiet Enjoyment. Landlord has the right to make this Lease and
Tenant, on paying its financial obligations and performing its contractual
obligations hereunder, shall peacefully and quietly have, hold and enjoy the
Premises throughout the Term without any manner of hindrance or molestation from
Landlord or anyone claiming under Landlord, subject however to all the terms and
provisions hereof.
5.1.3 Indemnity. Landlord shall defend, save harmless, and indemnify
Tenant from any liability for injury, loss or damage to any person or property
and from any claims, actions, proceedings and expenses and costs in connection
therewith (including, without limitation, reasonable counsel fees) arising out
of or connected with Tenant's occupancy or use of the Premises and (i) resulting
from the willful act or negligence of Landlord, or (ii) resulting from the
failure of Landlord to perform and discharge its covenants and obligations under
this Lease.
5.2 INTERRUPTIONS.
Landlord shall not be liable to Tenant for any compensation or reduction
of rent by reason of reasonable inconvenience or annoyance or for loss of
business arising from power losses or shortages or from the necessity of
Landlord's entering the Premises for any of the purposes authorized in this
Lease, or for repairing the Premises or any portion thereof.
ARTICLE VI
6.1 TENANT'S COVENANTS DURING THE TERM
6.1.1 Occupancv and Use. During the Term of this Lease, Tenant shall use
and occupy the Premises only for the Permitted Use, and not injure or deface the
exterior or interior of the Premises, nor permit in the Premises any nuisance or
the emission from the Premises of any objectionable noise or odor, nor any use
thereof which is improper, offensive, contrary to law or ordinances, or liable
to render necessary any alteration or addition to the Premises. Tenant shall
comply with all rules and
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regulations as noted by Landlord and as outlined in Exhibit E.
6.1.2. Repairs and Surrender by Tenant. Except as provided in Section
5.1.1 and Section 4.2, Tenant shall keep the Premises in good condition. Tenant
shall either notify Landlord or Landlord's management agent of needed repairs or
maintenance as provided in Section 5.1.1, or if Tenant does not so notify
Landlord, Tenant shall itself make all repairs to the interior of the Premises
including painting and other cosmetic repairs and replacements to the Building
interior partitions, doors, fixtures and equipment (including electrical,
lighting, heating, and air conditioning, and plumbing fixtures and windows).
Tenant shall notify Landlord or Landlord's management agent of all needed
exterior repairs and Landlord, at its option, may make the repairs as provided
in Section 6.1.12 herein. Upon written notice given by Landlord of the need of
repairs for which Tenant is responsible hereunder, which repairs are outside the
scope of Section 4.2, Tenant shall promptly repair the Premises in a good
workmanlike manner. Tenant shall have thirty (30) days after notice from
Landlord to commence performance of the obligations hereunder, except Tenant
shall perform its obligations immediately if the nature of the problem presents
a hazard or emergency. If Tenant fails to perform its obligations within the
time limits herein provided, or, if the repair requires a period of time greater
than thirty (30) days and Tenant is not diligently pursuing repair, Landlord may
perform the obligations and Landlord shall have the right to be reimbursed by
Tenant within thirty (30) days after written demand for the sum Landlord
reasonably expends for the performance thereof. At the expiration or termination
of this Lease, Tenant shall peaceably surrender the Premises and all changes or
additions therein in as good order, repair and condition as they were when
received, reasonable wear and tear excepted. Tenant shall leave the Premises
clean and neat, Landlord reserving the right to perform upon Tenant's failure to
do so and bill Tenant as Additional Rent for such cost. Nothing contained in
this Section shall be construed to be a general covenant on the part of Tenant
or to diminish Tenant's obligations under Section 4.2 hereof or Landlord's
obligations under Exhibit D attached.
6.1.3 Safety Appliances. Tenant shall keep the Premises equipped with all
safety appliances required by law or ordinance or any other regulation of any
public or private authority having jurisdiction over the Premises (including
insurance underwriters or rating bureaus) because of any use made by Tenant and
to procure all licenses and permits so required because of such use and, if
requested by Landlord, to do any work so required because of such use, it being
understood that the foregoing provisions
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shall not be construed to broaden in any way the Permitted Use.
6.1.4 Assignment and Subletting. Tenant shall not assign this Lease
without Landlord's prior written consent, which shall not be unreasonably
withheld. Tenant also shall not, without the prior written consent of Landlord
which shall not be unreasonably withheld or delayed, make any sublease, nor to
permit occupancy of the Premises or any part thereof by anyone other than Tenant
voluntarily or by operation of law, except in the case that such subletting is
to Tenant's subsidiaries, affiliates, and organizations directly associated with
Tenant, in which case Landlord's consent shall not be required. Tenant shall
reimburse Landlord promptly for reasonable legal and other expenses incurred by
Landlord in connection with any request by Tenant for consent to assignment or
subletting. No assignment or subletting, and no conduct or course of dealing by
Landlord, Tenant, or any such assignee or sublessee shall affect the continuing
primary liability of Tenant to perform and pay in accordance with the terms of
this Lease (which, following assignment, shall be joint and several with the
assignee) and no consent to any of the foregoing in a specific instance shall
operate as a waiver in any subsequent instance. Tenant and each assignee hereof,
upon such assignment, will sign an agreement reasonably acceptable to Landlord
which includes the terms of the foregoing sentence before such assignment shall
be effective.
6.1.5 Indemnity. Tenant shall defend save harmless, and indemnify Landlord
from any liability for injury, loss or damage to any person or property and from
any claims, actions, proceedings and expenses and costs in connection therewith
(including, without limitation, reasonable counsel fees) arising out of or
connected with Tenant's occupancy or use of the Premises, unless such injury,
loss or damage is due to the willful act or negligence of Landlord or results
from the failure of Landlord to perform and discharge its covenants and
obligations under this Lease.
6.1.6 Tenant's Liability Insurance. During the Term of this Lease, Tenant
shall maintain public liability insurance with respect to the Premises only in
amounts which initially shall be at least equal to the limits set forth in
Section 1.1 and from time to time during the Term shall be for such higher
limits, if any, as are customarily carried in the area in which the Premises are
located on property similar to the Premises and used for similar purposes. Such
insurance shall name Landlord and the Mortgagee, if any, as an additional
insured. Tenant shall furnish Landlord with the certificates thereof upon
request.
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6.1.7 Tenant's Worker's Compensation Insurance. Tenant shall keep all
Tenant's employees working in the Premises covered by worker's compensation
insurance in the required statutory amounts. Such insurance shall name Landlord
as an additional insured, if permitted by law, and Tenant shall furnish Landlord
with certificates thereof upon request.
6.1.8 Landlord's Right of Entry. Tenant shall permit Landlord and
Landlord's agents entry to examine the Premises at reasonable times and, if
Landlord shall so elect, to make repairs or replacements and/or remove, at
Tenant's expense, any changes, additions, signs, curtains, blinds, shades,
awnings, aerials, flagpoles, or the like not permitted by the Rules and
Regulations set forth in Exhibit E or not otherwise consented to in writing by
Landlord. Landlord may show the Premises to prospective tenants during the eight
(8) months preceding expiration of the Term or any renewal thereof and may show
the Premises to prospective purchasers and mortgagees at all reasonable times.
6.1.9 Loading. During the Term of this Lease, without Landlord's prior
written consent, Tenant shall not place any load upon the Premises which exceeds
eighty pounds per square foot, except the first floor, where Tenant shall not
place any load which exceeds one hundred pounds per square foot (provided,
however, there shall be an area on the first floor of two thousand five hundred
square feet where Tenant may place a load not exceeding one hundred ninety two
pounds per square foot), it being Tenant's responsibility to determine and to
notify Landlord of any intended use which may exceed the above load limits or
the Premises' designed capacity. Tenant shall not move any safe, vault or other
heavy equipment in, about or out of the Premises except in such manner as
Landlord shall in each instance approve; nor shall Tenant allow business
machines and mechanical equipment which create vibration or noise that may be
transmitted to the Building structure or to any other space in the Building to
operate in the Building unless said items are placed and maintained by Tenant in
settings of cork, rubber, spring, or other types of vibration and/or noise
eliminators sufficient to eliminate such vibration or noise in Landlord's
opinion.
6.1.10 Tenant's Property. Tenant shall solely assume the risk of loss of
all the furnishings, fixtures, equipment, effects and property of every kind,
nature and description of Tenant and of all persons claiming by, through, or
under Tenant, during the continuance of this Lease or any occupancy of the
Premises by Tenant or anyone claiming under Tenant, anywhere on the Premises. If
the whole or any part thereof shall be destroyed or damaged by fire, water or
otherwise, or by the leakage or bursting of
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water pipes, steam pipes or other pipes, by theft, or from any other cause,
Tenant shall hold Landlord harmless for the loss or damage thereto; provided,
however, that Tenant shall not be responsible nor does Tenant agree to hold
Landlord harmless under this Section 6.1.10 for the loss or damage to the
above-referenced items in the event such loss or damage is occasioned in whole
or in part by (i) intentional willful acts or (ii) grossly negligent acts or
omissions of Landlord, its agents, servants, assigns, and employees.
6.1.11 Labor or Materialmen's Liens. Tenant shall pay promptly when due
the entire cost of any work done on the Premises by Tenant or its agents,
employees, or independent contractors. Tenant shall not cause or permit any
liens for labor or materials performed or furnished in connection therewith to
attach to the Premises, and shall immediately discharge any such liens which may
so be attached.
6.1.12 Changes, Additions and/or Repairs by Tenant. During the Term of
this Lease, Tenant shall not make any structural or permanent changes or
additions to the Premises which would require a permit without Landlord's prior
written consent, which shall not be unreasonably withheld. Any repairs required
or desired to be made by Tenant must receive Landlord's prior written consent.
Tenant shall reimburse Landlord as Additional Rent for all reasonable costs
incurred in reviewing Tenant's proposed changes, additions and/or repairs. At
Landlord's option, any changes, additions or repairs to the exterior of the
Building required or desired to be made by Tenant may be made by Landlord, at
Tenant's expense, provided that Landlord shall obtain at least three bids from
independent contractors selected by Landlord for such work. Tenant shall
reimburse Landlord for the cost of such changes, additions or repairs as
Additional Rent.
6.1.13 Holdover. Tenant shall pay to Landlord one and one-half (1 1/2)
times the total of the Base Rent, as adjusted, and the Additional Rent then
applicable for each month or portion thereof Tenant shall retain possession of
the Premises or any part thereof after the Term Expiration Date, including
extension thereof by renewal of the Term as provided in Section 1.3.1, of this
Lease, whether by lapse of time or otherwise, and shall also pay all damages
sustained by Landlord on account thereof. The provisions of this subsection
shall not operate as a waiver by Landlord of any rights or remedies provided in
this Lease.
6.1.14 Repairs and maintenance by Tenant. Tenant shall promptly repair all
damage or injury to the Premises, caused by
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any act or negligence of Tenant, its agents, employees, licensees, invitees or
visitors. Such repairs must be approved by Landlord in writing in advance, and
repairs to the exterior of the Building may be made by Landlord, at its option,
at Tenant's expense as provided in Section 6.1.12.
6.1.15 Tenant's Obligation for Timely Response. During the period from the
execution of this Lease to Tenant's occupancy in the Premises and specifically
during the period of the general contractor's construction of the Premises,
Tenant shall have ten (10) business days to provide any documentation, input, or
decision Landlord requires from Tenant. If Tenant does not deliver such
documentation, input, or decision within this ten (10) business day period,
Landlord may unilaterally make such determination as is required to keep
delivery of the Premises on schedule. This Section is intended to ensure on-time
delivery of the Premises and that Tenant by virtue of delaying any decision
required on its part, such as but not limited to interior floor plans, selection
of materials such as carpet and paint, and other detail construction items and
finishes, does not delay delivery of the Premises. This Section does not apply
to extension of the Term Commencement Date and the Outside Delivery Date due to
changes in the Project requested by Tenant, which are governed by Section
2.2.1., but if any such changes are agreed to, this Section shall apply to any
such documentation, input, or decision by Tenant Landlord requires to implement
such change after such change has been agreed upon.
ARTICLE VII
CASUALTY AND TAKING
7.1 CASUALTY TO PREMISES.
If the Premises are damaged by fire or other casualty, but are not
rendered untenable for Tenant's business, either in whole or in part, Landlord
shall cause such damage to be repaired without unreasonable delay and neither
the Base Rent, as adjusted, nor any Additional Rent shall be abated or reduced.
If, by reason of such casualty, the Premises are rendered untenable, either in
whole or in part, as determined by Landlord for the Permitted Use, Landlord
shall cause the damage to the Premises to be repaired or replaced without
unreasonable delay, and, in the interim, the Base Rent, as adjusted, and any
Additional Rent shall be proportionately reduced in the same ratio as the
portion of the Premises which are rendered untenable. Any such abatement of rent
shall not, however, create an extension of the Term; provided, however, if, by
reason of such casualty, the Premises are rendered untenable in some
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material portion as determined by Landlord acting in good faith and the amount
of time required to repair the damage using due diligence is in excess of one
hundred twenty (120) days, then either party shall have the right to terminate
this Lease by giving written notice of termination within thirty (30) days after
the date of casualty, and the Base Rent, as adjusted, and all Additional Rent
shall abate as of the date of such casualty in proportion to the portion of the
Premises rendered untenable.
Except as provided in this section, there shall be no obligation of Landlord to
rebuild or repair in case of fire or other casualty and no termination under
this section shall affect any rights of Landlord or Tenant hereunder because of
prior default of the other party. Tenant shall give Landlord immediate notice of
any fire or other casualty occurring in the Premises.
7.2 CONDEMNATION
7.2.1. As used in this Section 7.2:
(a) "Condemnation" shall mean the (i) exercise of any governmental power,
whether by legal proceedings or otherwise, by a Condemnor under a power of
eminent domain or (ii) a voluntary sale or transfer by Landlord to any
Condemnor, either under threat of condemnation or while legal proceedings for
Condemnation are pending;
(b) "Date of Taking" shall mean the date the Condemnor acquires any
interest or right in and to the Premises;
(c) "Award" shall mean all compensation, sums, or anything of value
awarded, paid or received on a total or partial Condemnation;
(d) "Condemnor" shall mean any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation; and
(e) "Taking" shall mean any acquisition by a Condemnor of any right
appurtenant or interest in and to the Premises by virtue of a condemnation.
7.2.2 Total Taking. If the Premises are totally taken by Condemnation,
this Lease shall terminate on the Date of Taking.
7.2.3 Partial Taking. If any portion of the Premises is taken by
Condemnation, this Lease shall remain in effect, except
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that either Landlord or Tenant may elect to terminate this Lease if twenty five
percent (25%) or more of the Building is taken and such Taking shall materially
impair the normal operation of the Premises or Tenant's business.
If the parking area adjacent to the Building is taken by Condemnation,
this Lease shall remain in full force and effect, except that if forty percent
(40%) or more of the parking area adjacent to the Building is taken and such
Taking causes Tenant's use of the Premises to become a non-conforming use under
the zoning ordinances of Wilmington, either party shall have the election to
terminate this Lease.
If either party elects to terminate this Lease pursuant to this Section
7.2.3, then the party exercising such election shall give written notice to the
other within thirty (30) days after the Date of Taking. The date of termination
of the Lease under this election shall be the Date of Taking. If either party
does not elect to terminate this Lease within the thirty (30) day period, this
Lease shall continue in full force and effect except that in the case of a
partial Taking of the Premises, the Base Rent, as adjusted, and Additional Rent
shall be proportionately and equitably adjusted.
7.2.4 Landlord's Election to Prevent Lease Termination. If Tenant elects
to terminate this Lease pursuant to Section 7.2.3, Landlord may elect to restore
the remaining Premises or parking area so that the area and approximate layout
thereof will be substantially equivalent after the Date of Taking as they were
before the Date of Taking. Landlord shall give notice of such election within
sixty (60) days after the Date of Taking, and such notice shall cause Tenant's
election to terminate this Lease pursuant to Section 7.2.3 to become null and
void; provided, Landlord must commence such restoration as soon as practicable
and diligently pursue completion thereof. In such case, this Lease shall
continue in full force and effect without any reduction in Base Rent, as
adjusted, and Additional rent, except that during such restoration, said rent
shall be proportionately and equitably adjusted.
7.2.5 Restoration of Premises. If there is a partial Taking of the
Premises, and neither party elects to terminate this Lease pursuant to Section
7.2.3, then Landlord shall repair and restore the Premises to the best possible
tenantable condition and the Base Rent, as adjusted, and Additional Rent shall
be proportionately and equitably adjusted. Any rent adjustment shall be based
upon the extent to which the restoration interferes with Tenant's use of the
Premises for its
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Permitted Use.
7.2.6 Award. All compensation awarded for any Taking effected during the
period of this Lease shall be the property of Landlord, whether such Award is
for compensation for damages to Landlord's or Tenant's interest, and Tenant
hereby assigns all of its interest in any Award to Landlord; however, Landlord
shall not have any interest in any separate award made to Tenant for loss of
business, moving expense or the taking of Tenant's trade fixtures or equipment
which shall be recoverable by Tenant from the Condemnor in a separate action. No
claim by Tenant may diminish Landlord's Award.
7.2.7 Temporary Taking. The Taking of the Premises or any part thereof by
military or other public authority shall constitute a Taking of the Premises
only when the use and occupancy by the Taking authority has continued for longer
than one hundred eighty (180) consecutive days. During the one hundred eighty
(180) day period, all provisions of this Lease shall remain in full force and
effect, except that Base Rent, as adjusted, and Additional Rent shall be
proportionately and equitably adjusted during such period of Taking based on the
extent to which the Taking interferes with Tenant's use of the Premises.
Landlord shall be solely entitled to any Award that may be paid for the use and
occupation of the Premises for the period involved as provided in Section 7.2.6.
ARTICLE VIII
RIGHTS OF MORTGAGEE
8.1 PRIORITY OF LEASE.
Landlord shall have the option to subordinate this Lease to any mortgage
or deed of trust (the "Mortgage") on the Premises (the "Mortgaged Property"),
provided that the holder thereof (the "Mortgagee") enters into an agreement with
Tenant by the terms of which the Mortgagee (or anyone purchasing Mortgagee's
interest at foreclosure sale) will agree to recognize the rights of Tenant under
this Lease and to accept Tenant as a tenant of the Premises under the terms and
conditions of this Lease in the event of acquisition of title by such Mortgagee
through foreclosure proceedings or otherwise and Tenant will agree to recognize
the Mortgagee as the landlord hereunder in such event, which agreement shall be
made to expressly bind and inure to the benefit of the successors and assigns of
Tenant and such Mortgagee and anyone purchasing the Mortgaged Property at any
foreclosure sale.
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Within fifteen (15) days of Landlord's prior written request, Tenant
agrees to execute and deliver from time to time a written agreement and any
other documents in order to accomplish the purposes of this Section 8.1 which
are required by any Mortgagee or issuer of any commitment to make a Mortgage,
provided, however, any such agreement will only be executed in exchange for a
non-disturbance agreement executed by such Mortgagee or issuer of a commitment
to make a mortgage. Failure of Tenant to so execute and deliver said documents)
within ten (10) days of Landlord's written demand notice subsequent to Landlord'
s initial fifteen (15) day prior written request shall constitute a default
under this Lease. Any Mortgage to which this Lease shall be subordinated may
contain such terms, provisions and conditions as the Mortgagee reasonably deems
usual or customary; provided, however, that any term or condition therein which
is intended to amend this Lease or lessen Tenant's rights hereunder shall not be
deemed usual or customary. Unless Landlord exercises such option, this Lease
shall be superior to and shall not be subordinate to any Mortgage or other
voluntary lien or other encumbrance on the Mortgaged Property. Said written
agreement and other documents shall accurately reflect the Lease terms and
conditions in effect at that time.
8.2 LIMITATION ON MORTGAGEE'S LIABILITY.
Upon entry and taking possession of the Mortgaged Property for any purpose
other than foreclosure, the Mortgagee shall have all rights of Landlord and,
during the period of such possession, the duty to perform all Landlord's
obligations hereunder. Except during such period of possession, no Mortgagee
shall be liable, either as mortgagee or as holder of a collateral assignment of
this Lease, to perform, or be liable in damages for failure to perform, any of
the obligations of Landlord unless and until such Mortgagee shall enter and take
possession of the Mortgaged Property for the purpose of foreclosing a Mortgage.
Upon entry for the purpose of foreclosing a mortgage, such Mortgagee shall be
liable to perform all of the obligations of Landlord, provided that a
discontinuance of any foreclosure proceeding shall be deemed a conveyance to the
owner of the equity of the Mortgaged Property.
8.3 NO PREPAYMENT OR MODIFICATION, ETC.
Neither Base Rent, as adjusted, Operating Expenses, nor any other charge
shall be paid more than ten (10) days prior to the due dates thereof, and
payments made in violation of this provision shall (except to the extent that
such payments are
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actually received by a Mortgagee in possession or in the process of foreclosing
its Mortgage) be a nullity as against such Mortgagee, and Tenant shall be liable
for the amount of such payments to such Mortgagee. No assignment of this Lease
and no agreement to make or accept any surrender, termination or cancellation of
this Lease and no agreement to modify so as to reduce the rent, change the Term,
or otherwise materially change the rights of Landlord under this Lease, or to
relieve Tenant of any obligations or liability under this Lease, shall be valid
as against Mortgagee unless consented to in writing by Landlord's Mortgagees of
record which Mortgagees have given Tenant written notice of their intent to
exercise such authority, if any, such consent not to be unreasonably withheld or
delayed.
ARTICLE IX
DEFAULT
9.1 DEFAULT BY TENANT.
If one or more of the following Events of Default shall occur and shall
continue for such time after any required notice is given as hereinafter
provided:
(i) If Tenant shall fail to pay any rent and/or any other sum due
hereunder when due in accordance with the terms of this Lease and such default
shall continue for a period of five (5) days after written notice to Tenant
thereof; or
(ii) If Tenant shall fail to keep or perform or abide by any other term,
condition, covenant or agreement in this Lease or of the Rules and Regulations
now or hereafter in effect and such default shall continue for a period of
fifteen (15) days after written notice to Tenant thereof; or
(iii) If Tenant, or if Tenant is a partnership, if any partner of Tenant,
shall file a petition in bankruptcy or take or consent to any other action
seeking any such judicial decree or shall make any assignment for the benefit of
its creditors or shall admit in writing its inability to pay its debts generally
as they become due, or if any court of competent jurisdiction shall enter a
decree or order adjudicating it bankrupt or insolvent, or if any trustee or
receiver for Tenant or for any substantial part of its property be appointed, or
if any person shall file a petition for involuntary bankruptcy against Tenant
and such appointment or petition shall not be stayed or vacated within sixty
(60) days of entry thereof; or
(iv) If Tenant's interest in this Lease or the Premises
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shall be subjected to any attachment, levy or sale pursuant to any order or
decree entered against Tenant in any legal proceeding and such order or decree
shall not be vacated within thirty (30) days of entry thereof; or
(v) If Landlord, on four (4) or more occasions in any twelve (12) month
period, gives notice to Tenant of default under the first and third
subparagraphs above, notwithstanding Tenant's cure of such noticed defaults
within the allowable periods;
Then and in any such event Landlord without declaring a termination of
this Lease (which right is, however, unconditionally and absolutely reserved)
may at its election exercise one or more of the remedies in Section 9.2 in
addition to any other remedies available to Landlord in law, in equity, or
pursuant to the terms of this Lease.
Notwithstanding anything contained in this Section 9.1 to the contrary,
Tenant may cease operations, vacate or abandon the Premises or fail to operate
its business continuously in the Premises so long as Tenant continues to (i) pay
Base Rent, Additional Rent, and other charges, if any, to Tenant hereunder,
including costs incurred by Landlord in the ordinary course of operating and
maintaining the Premises and collecting all sums due and owed Landlord under
this Lease, and (ii) perform all other obligations and duties assigned to Tenant
hereunder, and such vacating or abandonment shall not be deemed a default
hereunder.
9.2 REMEDIES TO LANDLORD UPON DEFAULT BY TENANT.
Upon the occurrence of any Event of Default as set forth above, Landlord,
with or without terminating this Lease, immediately or at any time thereafter,
shall have the right, at its option, to utilize any one or more of the following
rights:
(i) Landlord may make any payment required of Tenant and/or re-enter the
Premises and correct or repair any condition which shall constitute a failure on
Tenant's part to keep or perform. Tenant shall reimburse and compensate Landlord
for any expenditures made by Landlord in making such payment and/or corrections
or repairs within fifteen (15) days after delivery of a statement to Tenant;
(ii) Landlord may demand in writing that Tenant vacate the Premises.
Tenant shall vacate the Premises and remove all its property thereon within
thirty (30) days of Tenant's receipt of such notice, whereupon Landlord shall
have the right to re-enter
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and take possession of the Premises;
(iii) Landlord may accelerate and collect all rent and all other charges
which are due or may become due it under the Lease for the balance of the Term;
(iv) Landlord may re-enter the Premises and remove Tenant therefrom and
all property belonging to or placed on the Premises by, at the direction of, or
with the consent of Tenant;
(v) Landlord may re-let the Premises or any part thereof for such time and
at such rent and upon such other terms and conditions as Landlord, in its sole
discretion, may deem advisable. Landlord may make any alterations or repairs to
the Premises which it may deem necessary or proper to facilitate such
re-letting. Tenant shall pay all costs of such re-letting including the cost of
any repairs to the Premises. If this Lease shall have not been terminated,
Tenant shall continue to pay all rent due under this Lease up to and including
the date of beginning of payment of rent by any subsequent tenant of part or all
of the Premises, and thereafter Tenant shall pay monthly during the remainder of
the Term of this Lease the difference, if any, between the rent collected from
any such subsequent tenant or tenants and the rent reserved in this Lease, but
Tenant shall not be entitled to receive any excess of any such rents collected
over the rents reserved herein;
(vi) Landlord, immediately or at any time thereafter, may terminate this
Lease without notice or demand to vacate the Premises. This Lease shall be
deemed to have been terminated upon receipt by Tenant of written notice of such
termination and upon such termination Landlord shall have and recover from
Tenant all damages Landlord may suffer by reason of such termination including
without limitation the cost (including legal expenses and reasonable attorneys'
fees) of recovering possession of the Premises, and the cost of any repairs to
the Premises which are necessary or proper to prepare the same for reletting. In
addition thereto, Landlord, at its election, shall have and recover from Tenant
either (i) an amount equal to the excess, if any, of the total amount of all
rents to be paid by Tenant for the remainder of the Term of this Lease over the
then reasonable rental value of the Premises for the remainder of the Term of
this Lease or (ii) the rents which Landlord would be entitled to receive from
Tenant pursuant to the provisions of subparagraph (v) above if the Lease were
not terminated. Such election shall be made by Landlord's giving Tenant written
notice thereof within thirty (30) days of the notice of termination.
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In the event of any re-entry of the Premises by Landlord pursuant to any
of the provisions of this Lease, Tenant hereby waives all claims for damages
which may be caused by such re-entry by Landlord except such claims as arise
from the negligence of Landlord. Tenant shall save Landlord harmless from any
loss, cost (including legal expenses and reasonable attorneys' fees) or damages
suffered by Landlord by reason of such re-entry and storage of Tenant's
property, if any. No such re-entry shall be considered or construed to be a
forcible entry.
Upon any breach of this Lease, regardless of whether such breach is, or
becomes, an Event of Default, Landlord shall be reimbursed for any and all
expenses incurred by Landlord, including legal expenses, and reasonable
attorneys' fees, in enforcement of the terms and provisions of this Lease.
The exercise by Landlord of any one or more of the remedies provided in
this Lease shall not prevent the subsequent exercise by Landlord of any one or
more of the other remedies herein provided. All remedies provided for in this
Lease are cumulative and may, at the election of Landlord, be exercised
alternatively, successively or in any other manner and are in addition to any
other rights provided by law.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove and obtain in proceedings for bankruptcy or
insolvency by reason of the Tenant's default under this Lease, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time.
9.3 DEFAULT BY LANDLORD; TENANT'S REMEDIES.
In the event of any default hereunder by Landlord, except as otherwise
specifically provided herein (including as provided in Sections 2.2.1 and 2.2.2
hereof), Tenant shall not be entitled to terminate this Lease, but shall have
the right to pursue any other legal or equitable remedy available under law or
in equity, including money damages and setoff.
ARTICLE X
MISCELLANEOUS
10.1 TITLES, HEADINGS, CAPTIONS, AND REFERENCES.
The article and section captions contained in this Lease are for
convenience only and do not in any way limit or amplify any term or provision
hereof. The terms "Landlord" and "Tenant" as
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used herein shall include the plural as well as the singular, the neuter shall
include the masculine and feminine genders and, if there be more than one
tenant, the obligations herein imposed upon Tenant shall be joint and several.
10.2 NOTICE OF LEASE.
Upon request of either party both parties shall execute and deliver, after
the Term begins, a short form memorandum of this Lease in form appropriate for
recording or registration, the costs of recording to be paid by Tenant, and if
this Lease is terminated before the Term expires, an instrument in such form
acknowledging the fact and date of termination.
10.3 NOTICE.
No notice, approval, consent requested or election required or permitted
to be given or made pursuant to this Lease shall be effective unless the same is
in writing. Communications shall be addressed, if to Landlord, at
BBC Family Limited Partnership
1201 Glen Meade Road
P. O. Box 3649
Wilmington, North Carolina 28406
Attention: Scott C. Sullivan
or at such other address as may have been specified by prior notice to Tenant
and, if to Tenant, at
PPD Pharmaco, Inc.
Corporate Administration
Attention: Meg Davenport
3151 17th Street Extension
Wilmington, North Carolina 28412
or at such other place as may have been specified by prior notice to Landlord.
Unless this Lease specifically provides to the contrary, any communication so
addressed shall be deemed duly served and received if mailed by registered or
certified mail, return receipt requested.
10.4 BIND AND INURE.
The obligations of this Lease shall run with the land, and this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Landlord named herein and
each successive owner
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of the Premises shall be liable only for the obligations accruing during the
period of its ownership. Whenever the Premises are owned by a trustee or
trustees, the obligations of Landlord shall be binding upon Landlord's trust
estate, but not upon any trustee, beneficiary or shareholder of the trust
individually.
10.5 NO SURRENDER.
The delivery of keys or other such tender of possession of the Premises to
any employee of Landlord or to Landlord's agent or any employee thereof shall
not operate as a termination of this Lease or a surrender of the Premises.
10.6 NO WAIVER.
The failure of Landlord or of Tenant to seek redress for violation of, or
to insist upon the strict performance of any covenant or condition of this Lease
or, with respect to such failure of Landlord, any of the Rules and Regulations
referred to herein, whether heretofore or hereafter adopted by Landlord, shall
not be deemed a waiver of such violation nor prevent a subsequent act, which
would have originally constituted a violation, from having all the force and
effect of an original violation, nor shall the failure of Landlord to enforce
any of said Rules and Regulations against any other tenant in the Building be
deemed a waiver of any such Rules or Regulations. The receipt by Landlord of all
or a portion of Base Rent, as adjusted, or Additional Rent with knowledge of the
breach of any covenant of this Lease shall not be deemed a waiver of such breach
by Landlord, unless such waiver be in writing signed by Landlord or Landlord's
Representative. No consent or waiver, express or implied, by Landlord or Tenant
to or of any breach of any agreement or duty shall be construed as a waiver or
consent to or of any other breach of the same or any other agreement or duty.
10.7 NO ACCORD AND SATISFACTION.
No acceptance by Landlord of a lesser sum than the Base Rent, as adjusted,
Additional Rent and other sums then due from Tenant shall be deemed to be other
than on account of the earliest installment of such payments due, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment be deemed as accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of such
installment or pursue any other remedy in this Lease provided.
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10.8 QUIET ENJOYMENT.
If Tenant promptly and punctually complies with each of its obligations
hereunder, it shall peacefully have and enjoy the possession of the Premises
during the Term hereof, providing that no action of Landlord in work in other
space in the building, or in repairing or restoring the Premises, shall be
deemed a breach of this covenant, or give Tenant any right to modify this Lease
either as to term, rent payable, or other obligations to perform. However,
Landlord shall not be responsible or liable to Tenant for injury or damage
resulting from acts or omissions of persons occupying property adjacent to the
Premises or any part of the building in which the Premises are a part, or for
injury or damage resulting to Tenant or its property from bursting, stoppage or
leaking of water, gas, sewer or steam pipes, except where such loss or damage
arises from the willful misconduct of Landlord.
10.9 ATTORNMENT.
Tenant shall attorn (recognize) and be bound to any of Landlord's assigns
or successors under this Lease in accordance with all of the Lease terms,
covenants and conditions. The term "Landlord" as used herein shall be deemed to
include any successor to Landlord's interest hereunder.
10.10 CUMULATIVE REMEDIES.
The specific remedies to which a party may resort under the terms of this
Lease are cumulative and are not intended to be exclusive of any other remedies
or means of redress to which it may be lawfully entitled in case of any breach
or threatened breach of any provisions of this Lease. In addition to the other
remedies provided in this Lease, both Landlord and Tenant, if so ordered by a
court of competent jurisdiction, shall be entitled to the restraint by
injunction of the violation or attempted or threatened violation of any of the
covenants, conditions or provisions of this Lease or to a decree compelling
specific performance of any such covenants, conditions or provisions.
10.11 PARTIAL INVALIDITY.
If any term of this Lease, or the application thereof to any person or
circumstances, shall to any extent be invalid or unenforceable, the remainder of
this Lease, or the application of such term to persons or circumstances other
than those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term of this Lease shall be valid and
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enforceable to the fullest extent permitted by law.
10.12 LANDLORD'S AND TENANT'S RIGHT TO CURE.
If Tenant shall at any time default in the performance of any obligation
under this Lease, Landlord shall have the right, but shall not be obligated, to
enter upon the Premises and to perform such obligation, notwithstanding the fact
that no specific provision for such substituted performance by Landlord is made
in this Lease with respect to such default. In performing such obligation,
Landlord may make any payment of money or perform any other act. All sums so
paid by Landlord (together with late charges and interest as specified in
Section 4.8), and all necessary incidental documented costs and expenses in
connection with the performance of any such act by Landlord, shall be deemed to
be Additional Rent under this Lease and shall be payable to Landlord immediately
on demand. Landlord may exercise the foregoing rights without waiving any other
of its rights or releasing Tenant from any of its obligations under this Lease.
If Landlord shall at any time default in the performance of any obligation under
this Lease, Tenant shall have the right, but shall not be obligated, to perform
such obligation, notwithstanding the fact that no specific provision for such
substituted performance by Tenant is made in this Lease with respect to such
default. In performing such obligation, Tenant may make any payment of money or
perform any other act. Tenant shall be reimbursed by Landlord for any such sums
paid by Tenant (together with interest at the rate of one percent per annum
above the prime rate as charged by NationsBank, N.A., from time to time), and
all necessary incidental costs and expenses in connection with the performance
of any such act by Tenant. Tenant may exercise the foregoing rights without
waiving any of its other rights or releasing Landlord from any of its
obligations under this Lease.
10.13 ESTOPPEL CERTIFICATES.
Tenant agrees on the Term Commencement Date, and from time to time
thereafter upon not less than fifteen (15) days prior written request by
Landlord, to execute, acknowledge and deliver to Landlord a statement in
writing, certifying that to the best of its knowledge this Lease is unmodified
and in full force and effect; that Tenant has no defenses, offsets or
counterclaims against its obligations to pay the Base Rent, as adjusted, and
Additional Rent and to perform its other covenants under this Lease; that there
are no uncured defaults of Landlord or Tenant
32
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under this Lease (or, if there have been any modifications, that this Lease is
in full force and effect as modified and stating the modifications, and if there
are any defenses, offsets, counterclaims, or defaults, setting them forth in
reasonable detail); and the dates to which the Base Rent, as adjusted,
Additional Rent and other charges have been paid. Not withstanding anything
contained herein, Tenant shall only execute and deliver such statement that in
its form and content is true and accurate as of the date of delivery thereof.
Failure of Tenant to so execute and deliver said documents within ten (10) days
of Landlord's written demand notice subsequent to Landlord's initial fifteen
(15) day prior written request shall constitute a default under this Lease.
Any such statement delivered pursuant to this Section 10.13 may be relied
upon by any prospective purchaser or mortgagee of property which include the
Premises or any prospective assignee of any such mortgagee. Likewise, Landlord
agrees from time to time upon not less than fifteen (15) days prior written
notice by Tenant, to execute, acknowledge and deliver to Tenant a similar
statement in writing to serve as an estoppel certificate covering such matters
as are reasonably required by Tenant in its business operations.
10.14 WAIVER OF SUBROGATION.
Any insurance carried by either party with respect to the Premises and
property therein or occurrences thereon shall, if the other party so requests
and it can be so written without additional premium or with an additional
premium which the other party agrees to pay and without otherwise adversely
affecting coverage, include a clause or endorsement denying to the insurer
rights of subrogation against the other party to the extent rights have been
waived by the insured prior to occurrence of injury or loss. Each party,
notwithstanding any provisions of this Lease to the contrary, hereby waives any
rights of recovery against the other for injury or loss due to hazards covered
by insurance containing such clause or endorsement to the extent of the
indemnification received thereunder.
10.15 BROKERAGE.
Tenant represents and warrants that it has identified to Landlord
Corporate Realty Advisors, and that no other broker is involved in connection
with Tenant's representation in this transaction. Tenant agrees to defend,
indemnify and save Landlord and Managing Agent harmless from and against any and
all claims and damages (including reasonable attorneys' fees) for a
33
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commission arising out of this Lease made by anyone, except that Landlord shall
be solely responsible for the commissions due Corporate Realty Advisors and such
commission agreement shall be attached to this Lease and included in the Project
Budget in Exhibit C.
10.16 EVIDENCE OF AUTHORITY.
If requested by Landlord, Tenant shall furnish appropriate legal
documentation evidencing the valid existence and good standing of Tenant and the
authority of any parties signing this Lease to act for Tenant. If Tenant signs
as a corporation, each of the persons executing this Lease on behalf of Tenant
does hereby covenant and warrant that Tenant is a duly authorized and existing
corporation, that Tenant has and is qualified to do business in North Carolina,
that the corporation has full right and authority to enter into this Lease and
that the person(s) signing on behalf of the corporation are authorized to do so.
10.17 LEASE REVIEW; DATE OF EXECUTION.
The submission of this Lease to Tenant for review does not constitute a
reservation of or option for the Premises, and this Lease shall become effective
as a contract only upon execution and delivery by both Landlord and Tenant. The
date of execution shall be inserted on the execution signature page of this
Lease, and shall be the date on which the last party signed the Lease, or as
otherwise may be specifically agreed by both parties. Such date, once inserted,
shall be established as the final date of ratification by all parties to this
Lease, and shall be the date for use throughout this Lease as the Date of
Execution or Execution Date.
10.18 PARKING.
The Premises shall throughout the term of this Lease, including any
extensions or renewals, include (i) three hundred fifty parking spaces, or (ii)
the maximum number of parking spaces allowable at the time under the then
applicable laws, governmental regulations, and governmental rules, whichever is
less. Said parking spaces shall insofar as possible be constructed in accordance
with the Site Plan and Plans and Specifications set forth in Exhibits B and C.
10.19 SIGNAGE.
Tenant shall have the right to place, construct and maintain an exclusive
exterior sign on the Building or other portion of
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the Premises identifying Tenant and/or advertising its business. Said sign, to
the extent the cost of same exceeds the allowance therefor in the Project
Budget, shall be constructed at Tenant's sole expense. Landlord shall have the
right to approve such sign, which approval shall not be unreasonably withheld.
In requesting such approval, Tenant shall submit information showing the size
and location of such sign, elevations showing all dimensions, materials, colors,
and method of illumination, and photographs of identical or similar signs from
other projects, if available. It is the intent of the parties that the Building
located on the Premises shall be known as the PPD Building and that Tenant, to
the extent permitted by local municipal codes, rules and regulations, shall be
entitled to place a sign on the Building designating it as such. Any sign Tenant
has the right to place, construct and maintain shall comply with all applicable
laws, ordinances, and restrictive covenants. Upon termination of this Lease,
Tenant shall remove any signs, and replace and repair any damage or injury to
the Premises caused thereby.
10.20 HAZARDOUS SUBSTANCES.
Tenant agrees that no storage tanks or facilities shall be installed or
placed on the Premises without Landlord's prior written consent. Tenant shall be
solely responsible for any storage tanks and facilities which Tenant places upon
the Premises. Tenant shall have no responsibility or liability for any storage
tanks, facilities, or hazardous substances (as herein defined) which Tenant did
not introduce or authorize to be introduced, either directly or indirectly, onto
or into the Premises.
Tenant agrees to indemnify and hold harmless Landlord for any and all
claims, fines, damages, judgments, penalties, costs, liabilities or loss,
including without limitation any and all sums to pay for settlement claims,
attorney's fees, consultants or expert fees, from or in connection with presence
or suspected presence of Hazardous Substances in or on the Premises, unless the
Hazardous Substances are present or enter onto or into the Premises as the
result of negligence, willfulness misconduct, or other acts of Landlord or
Landlord's agents or invitees. To the extent that such substances are present or
enter onto or into the Premises due to such acts of Landlord or Landlord's
agents or invitees, Landlord indemnifies Tenant to the same extent as Tenant
indemnifies Landlord herein. Without limitation of the forgoing, this
indemnification shall include any and all cost incurred due to any investigation
of the Premises, or any clean-up, removal or restoration mandated by a federal,
state or local agency, unless the Hazardous Substances are present as a result
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of negligence, willful misconduct or other acts of Landlord, Landlord's agents
or invitees. This indemnification shall include any and all costs due to the
flowing, leaching, defusing, migrating, or percolating of Hazardous Substances
into or onto Premises after the date of this Lease.
For purposes of the provision, the term "Hazardous Substances" shall be
interpreted broadly to include, but not be limited to, substances designated as
hazardous under the Resource Conservation and Recovery Act, Federal Water
Pollution Control Act, the Clean Air Act, or the Comprehensive Environmental
Response Compensation Liability Act of 1980 and oil and petroleum base
derivatives. The terms shall also be interpreted to include, but not be limited
to, any substances which after release into the environment and upon exposure,
ingestion, inhalation, or assimilation, will or may reasonably be anticipated to
cause death, disease, behavior abnormalities, cancer and/or genetic
abnormalities.
10.21 PUNCH LIST.
Landlord, Landlord's contractor and Tenant shall jointly conduct a visual
inspection of the Premises and agree upon a written punch list of defects in
construction prior to occupancy and the Term Commencement Date. Landlord and
Tenant hereby agree that failure to include a latent defect or defects on such
punch list does not constitute a waiver by Tenant of any rights under this Lease
or under applicable law with respect to such defects. Within thirty (30) days of
compiling said punch list, Landlord will use its best efforts to immediately
commence and diligently complete any work required to correct punch list items
and defects noted by Tenant.
10.22 MODIFICATION FOR BENEFIT OF LANDLORD'S MORTGAGEE.
Tenant may enter into any certificates, lease memoranda, or modifications
of this Lease, when so requested by any institutional lender providing financing
to Landlord for the construction of improvements to Premises, provided execution
of such certificates, modifications or other instruments is reasonable and any
Lease modifications are acceptable to Tenant acting in good faith.
10.23 ENTIRE AGREEMENT AND NO OFFER.
This Lease constitutes the entire agreement, intent and understanding
between the parties hereto with respect to the subject matter hereof, and no
prior or contemporaneous agreement or understanding with regard to any matter
shall be effective for
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any purpose unless reduced to writing herein. No provision of this Lease may be
amended or added to except by an agreement in writing signed by the parties
hereto or their respective successor in interest. The submission of this Lease
for examination or consideration by Tenant shall not constitute an offer to
lease by Landlord nor a reservation of space and this Lease shall be effective
only upon execution and delivery hereof by both Landlord and Tenant.
10.24 REPRESENTATIONS.
Tenant acknowledges that neither Landlord nor Landlord's employees or
contractors have made any representations or promises with respect to the
Premises, or this Lease except as expressly set forth herein and that Tenant
shall have no claim, right or cause of action based on or attributable to any
representation or promise allegedly made by Landlord, its agents, employees or
contractors which is not expressly set forth herein.
10.25 JURISDICTION.
The laws of the State of North Carolina shall govern the interpretation,
validity, performance, and enforcement of this Lease.
EXECUTED in two or more counterparts on the day and year written below.
(Signatures on the following page.)
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LANDLORD: BBC FAMILY LIMITED TENANT: PPD PHARMACO, INC.
PARTNERSHIP
By:/s/ Scott C. Sullivan By:/s/ Rudy Howard
- --------------------------- ---------------------------
(Signature) (Signature)
Its: General Partner Its:CFO
---------------------------
By:/s/ Louise C. Graham (Title)
- ---------------------------
(Signature)
Its: General Partner
By:/s/ Jabe Hardee
- ---------------------------
(Signature)
Its: General Partner
----------------------
Execution Date_15 September, 1998.
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EXHIBIT A
Legal Description of the Property
39
<PAGE>
40
<PAGE>
EXHIBIT B
Site Plan
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EXHIBIT C
Plans and Specifications
1. Description of Plans and Specification.
The plans and specifications are those plans and specifications prepared
by Boney Architects, Inc. et al which are hereby incorporated by reference into
this Lease and made a part hereof.
2. Project Budget
PPD II Budget
70,000 Square Foot
Office Building
Description Amount
Boney Architects, Land
Architectural and Engineering Design, et al. $300,000.00
Building Shell, Site Work
and other costs 70,000 Sq. Ft. @ $60 $4,200,000.00
Impact Fees $75,000.00
Tenant Fit-Up 70,000 Sq. Ft. @ $18 $1,260,000.00
Financial $250,000.00
General and Administrative $125,000.00
Corporate Realty Advisors
Marketing Commission $400,000.00
Legal Fees $30,000.00
Land 6 acres @ $200,000 $1,200,000.00
Contingencies $152,000.00
------------------------------------------------------------------------------
Total $7,992,000.00
------------------------------------------------------------------------------
------------------------------------------------------------------------------
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Landlord's Services
1.0 General
Landlord shall perform all services included in Operating Expenses as set
forth in Section 4.2.1 of this Lease, unless and except otherwise provided
in Section 4.2.1 or elsewhere in this lease, which services shall include
but not be limited to those items described in Sections 2.0 through 8.0
below.
2.0 Heating, Ventilating and Air Conditioning
2.1 Maintenance and Repair or Replacement
Landlord will maintain heating, ventilating and air conditioning systems as
required to provide inside temperatures between 70 degrees and 74 degrees
Fahrenheit for such hours as Tenant is conducting business on the Premises.
These systems shall be kept in good working order with scheduled
replacement of filters and service as needed.
2.2 Maintenance and repair or replacement of any additional or special air
conditioning equipment including units for the Computer/Telephone Room and
Drug Rooms, will be at Tenant's expense.
3.0 Plumbing and Water Service
3.1 Building Services
Landlord will provide hot water for shower and lavatory purposes and cold
water for drinking, shower, lavatory and toilet purposes. Maintenance and
repair or replacement of said items and plumbing, hot water heaters,
garbage disposal, dishwasher, sinks, facets, and toilets, shall be
Landlord's responsibility, except as provided in Section 6.1.15 of the
Lease. Vending machines shall be Tenant's responsibility.
3.2 Irrigation System
Landlord will maintain landscaping of the Premises.
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Landlord will prune, weed, mow, and replace plantings as necessary.
Landlord will provide and maintain an irrigation system to water the
Premises as needed. The irrigation water will be separately metered and its
cost will be paid by Landlord.
4.0 Lighting
Maintenance, repair and replacement of light fixtures shall be Landlord's
responsibility. Tenant will reimburse Landlord for the cost of lamp's
ballasts, and starters, and the cost of replacing same within the Premises,
Lights will be checked and replaced, as needed, monthly.
5.0 Breakroom and Vending Installation
5.1 Maintenance, repair and replacement of plumbing, plumbing fixtures, sinks,
faucets, garbage disposals, and dishwasher shall be Landlord's
responsibility. Tenant shall keep such areas clean and sanitary.
5.2 Vending machines or refreshment service installation by Tenant must be
approved by Landlord in writing and shall be restricted in use to employees
and business callers. All cleaning necessitated by such installations shall
be Tenant's expense.
6.0 Electricity
6.1 Landlord shall maintain, repair or replace the Building distribution system
in conformance with local codes and in good working order. Landlord will be
responsible for electrical utility company wiring and entrance to the
Building.
6.2 Tenant shall not, without prior written notice to Landlord in each
instance, connect to the Building electric distribution system and
fixtures, appliances or equipment other that normal office machines such as
personal computers, fax machines, desk-top calculators and standard
typewriters, or any fixtures, appliances or equipment which Tenant on a
regular basis operates beyond normal building operating hours.
6.3 Tenant's use of electrical energy on the Premises shall not at any time
exceed the capacity of any of the electrical conductors or equipment in or
otherwise serving the Premises. In order to insure that such capacity is
not
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exceeded and to avert possible adverse effect upon the Building electrical
service. Tenant shall not, without prior written notice to Landlord in each
instance, connect to the Building electrical distribution system any
fixtures, appliances or equipment which operates on a voltage in excess of
120 volts nominal or make an alteration or addition to the electrical
system of the Building or Premises. Unless Landlord shall reasonably object
to the connection of any such fixtures, appliances or equipment, all
additional risers or other equipment thereof shall be provided by Landlord,
and the cost thereof shall be paid by Tenant upon Landlord's demand.
7.0 Telephone Service
7.1 Landlord shall be responsible for maintenance of Telephone Service to the
Southern Bell - PPD interface. Tenant shall be responsible for all wiring
and equipment beyond that point.
8.0 Grounds and Outside Building Maintenance
8.1 Landlord shall be responsible for maintenance of the Building exterior
surface. Landlord will wash windows as needed (weather permitting) and
perform any other required maintenance.
8.2 Landlord will maintain exterior walks and parking lot. Landlord will
replace and patch paving as required.
8.3 Landlord will be responsible for snow and ice removal, said service to be
provided on a demand basis.
8.4 All repairs to the Building roof will be Landlord's responsibility. Tenant
shall obtain Landlord's permission before erecting any structure on the
roof or before making any roof penetration.
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EXHIBIT E
Rules and Regulations
1.0 Freight. The moving in or out of the Premises of all safes, freight,
furniture or bulky matter of any description must take place during the hours
which Landlord may determine from time to time. Landlord reserves the right to
inspect all freight and bulky matter to be brought into the Building and to
exclude from the Building all freight and bulky matter which violates any of
these Rules and Regulations or the Lease of which the Rules and Regulations are
a part.
2.0 Signs; Window or Door Hangings. No curtains, blinds, shades,screens or signs
other than those furnished by Landlord shall be attached to, hung in or used in
connection with any window or door of the Premises without the prior written
consent of Landlord. Interior signs on doors shall be painted or affixed for
Tenant by Landlord or by sign painters first approved by Landlord at the expense
of Tenant and shall be of a size, color, and style acceptable to Landlord.
3.0 Locks and Keys. Tenant shall, upon the termination of its tenancy, hand over
to Landlord all keys of stores, shops, booths, stands, offices and toilet rooms,
either furnished
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to or otherwise procured by Tenant.
4.0 Solicitations on Premises. Canvassing, soliciting and peddling in the
Building are prohibited and Tenant shall cooperate to prevent the same.
5.0 Smoking Policy. If Tenant elects a controlled smoking policy, Tenant must
also arrange for designated smoking areas within its Premises and may not allow
its employees to monopolize common areas of the building for the purposes of
smoking. The responsibility for enforcement of this will remain with Tenant for
its respective employees. Tenant remains responsible for enforcing all
applicable codes and regulations related to smoking.
EXHIBIT F
Janitorial Services
A. Daily Duties
1. Office Areas
* Empty trash and reline containers as needed
* Clean waste containers as needed
* Vacuum all rugs and carpeted areas
2. Lavatories
* Sweep and mop floors with disinfectant
* Wash both sides of toilet seats with disinfectant
* Spot clean toilet partitions
* Wash all mirror, basins, bowls, urinals
* Empty and disinfect sanitary napkin disposal receptacles
47
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* Refill toilet tissue, towel, soap and sanitary napkin dispensers
3. Lobby Area, Conference Rooms, Halls, Elevators
* Wipe down doors, clean glass (interior and exterior)
* Vacuum elevator carpets and wipe down doors and walls
* Vacuum hall carpets
* Wet mop/buff lobby tile
* Clean receptionist counter, straighten magazines, etc.
* Clean water coolers
4. Loading dock
* Clean glass
* Sweep loading dock and stairs
* Sweep and keep area around dumpsters neat
* Mop tile floor nightly
5. Breakroom
* Wipe down table and chairs
* Wet mop tile floors each night
* Wipe front of refrigerator, dishwasher, and vending
machines
* Clean inside and outside of microwave nightly
* Empty dishwasher of all clean dishes and place in the cupboard
* Place containers, dirty dishes in dishwasher. Run
dishwasher nightly
* Keep toaster and other appliances clean
* Maintain neat appearance of breakroom
* Refill towel dispensers
* Empty and clean aluminum can and glass recyclable
containers
B. As Needed Duties
1. Resilient Tile
* Buff all resilient tile
2. Carpet
*Spot clean
48
<PAGE>
C. Weekly Duties
* Hand dust and wipe clean all horizontal surfaces with treated
cloths. Includes:
furniture
clean workstations (work areas to be cleared by PPD Employees)
office equipment
window sills
door ledges
chair rails
baseboards
* Remove finger marks from entrance doors, light switches and
doorways
* Sweep all stairways
D. Monthly Duties
* Buff and wax tile floors (strip and wax yearly)
* Vacuum seat cushions on chairs
* Dust blinds
* Clean inside of windows
49
<PAGE>
50
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PHARMACEUTICAL PRODUCT DEVELOPMENT INC. CONSOLIDATED BALANCE SHEET AND STATEMENT
OF OPERATIONS INCLUDED WITHIN THIS FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 26,178
<SECURITIES> 0
<RECEIVABLES> 129,816
<ALLOWANCES> 1,093
<INVENTORY> 0
<CURRENT-ASSETS> 165,606
<PP&E> 96,929
<DEPRECIATION> 56,775
<TOTAL-ASSETS> 228,844
<CURRENT-LIABILITIES> 79,811
<BONDS> 0
0
0
<COMMON> 2,330
<OTHER-SE> 144,244
<TOTAL-LIABILITY-AND-EQUITY> 228,844
<SALES> 0
<TOTAL-REVENUES> 209,211
<CGS> 0
<TOTAL-COSTS> 115,623
<OTHER-EXPENSES> 75,037
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 294
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