SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 incorporation (IRS Employer Identification No.)
or organization)
3151 South Seventeenth Street
Wilmington, North Carolina 28412
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 251-0081
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates of the
registrant was $606,797,458 as of February 16, 1999, based upon the closing
price of the Common Stock on that date on the NASDAQ National Market System.
Shares of Common Stock held by each executive officer and director and by each
person who owns 10% or more of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status may not be conclusive for other purposes.
The number of shares outstanding of the registrant's class of Common Stock, par
value $0.10 per share, was 23,536,413 as of February 16, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders (certain parts as indicated herein Part III).
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PART I
STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K THAT ARE NOT DESCRIPTIONS
OF HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CURRENTLY
ANTICIPATED DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH HEREIN AND IN
THE COMPANY'S OTHER SEC FILINGS, AND INCLUDING, IN PARTICULAR, RISKS RELATING TO
GOVERNMENT REGULATION, DEPENDENCE ON CERTAIN INDUSTRIES, FIXED PRICE NATURE OF
CONTRACTS, DEPENDENCE ON PERSONNEL, MANAGEMENT OF GROWTH AND COMPETITION.
ITEM 1. BUSINESS
Company Overview
Pharmaceutical Product Development, Inc. ("PPD" or "the Company")
provides a broad range of research and development and consulting services in
the life and discovery sciences. PPD Pharmaco, Inc. is the Company's life
sciences subsidiary. The Company believes that PPD Pharmaco is the fourth
largest contract research organization ("CRO") in the world, providing
integrated product development resources on a global basis to complement the
research and development activities of companies in the pharmaceutical and
biotechnology industries. PPD Discovery, Inc., the Company's discovery sciences
subsidiary, focuses on the discovery segment of the research and development
outsourcing market.
LIFE SCIENCES GROUP
The Company's Life Sciences Group provides services through PPD
Pharmaco, Inc. and its wholly owned subsidiaries (collectively "PPD Pharmaco")
in the Americas (United States, Canada, South America), Africa, Asia, Europe and
the Pacific Rim. PPD Informatics, a division of PPD Pharmaco, provides software
development and system integration services to the pharmaceutical and
biotechnology industries.
PPD PHARMACO provides its clients high quality 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 and investigator recruitment, Phase II-IV clinical trial monitoring and
management, clinical data management and biostatistical analysis, regulatory
consulting and submissions, medical writing, pharmacovigilance, and healthcare
economics and outcomes research. The Company believes that it is one of a few
CROs in the world capable of providing such a broad range of clinical
development services.
PPD INFORMATICS became a division of the Company through the Company's
acquisition of Belmont Research, Inc., in March 1997. PPD Informatics clients
include international and domestic pharmaceutical and biotechnology companies,
scientific software vendors and government agencies including the FDA. PPD
Informatics develops specialized software products to support different aspects
of the pharmaceutical research and development process, including drug
discovery, clinical trials and regulatory review. Current PPD Informatics
software products include RESOLVE(TM), which manages data queries to
investigator sites, TABLETRANS(R), which enables ease of data transformation,
and CROSSGRAPHS(R) which is used for exploration and presentation of research
data.
During 1998, the Life Sciences Group also included Intek Labs, Inc.
("Intek") which was acquired in November 1997. Intek provides molecular
genotyping, phenotyping and large-scale genomic DNA purification and archiving
services through its Good Laboratory Practice (GLP)-certified laboratories.
Intek also furnishes pharmaco-genetic services for clinical trials. In February
1999, Intek became a subsidiary of PPGx, Inc. ("PPGx"), the Company's
pharmacogenomics joint venture with Axys Pharmaceuticals, Inc. PPGx provides
comprehensive pharmacogenomics products and services to pharmaceutical and
biotechnology companies. Pharmacogenomics is the use of genetic information to
predict the safety, toxicity and/or efficacy of drugs in individual patients or
groups of patients. Pharmacogenomics is becoming widely adopted as an essential
drug discovery and development tool and increasingly important as part of an
individual's diagnosis and treatment regimen. The Company has exclusive
marketing rights to PPGx pharmacogenomics products and services. The Company
also owns a minority position in PPGx with the option to increase its ownership
share.
During the first two months of 1998, the Life Sciences Group also
included Clinix International, Inc., which owned 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.
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DISCOVERY SCIENCES GROUP
PPD DISCOVERY, INC. ("PPD DISCOVERY") was established in June 1997 when
the Company acquired SARCO, Inc. ("SARCO"), a combinational chemistry company,
and the GSX System, a functional genomics platform technology. PPD Discovery
focuses on the discovery research segment of the research and development
outsourcing market. In May 1998, the Company created GenuPro, Inc. ("GenuPro"),
a wholly owned subsidiary, which holds licenses to a number of compounds in the
genitourinary field. GenuPro manages the research and development of these
compounds.
ENVIRONMENTAL SCIENCES GROUP
During 1998, the Company also owned an environmental sciences
consulting and management subsidiary, APBI Environmental Sciences Group, Inc.,
which operated under the trade name ENVIRON. ENVIRON was acquired by the Company
in September 1996 as part of the Applied Bioscience International Inc.
acquisition. 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.
ENVIRON's services 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. The Company sold ENVIRON to the
management of ENVIRON effective January 1999.
Industry Overview
LIFE SCIENCES GROUP
The CRO industry provides independent product development services to
the pharmaceutical and biotechnology industries and derives substantially all of
its revenue from the research and development expenditures of these companies.
The CRO industry has evolved from providing limited clinical services in the
1970s to a full-service industry today that encompasses the clinical research
process (including pre-clinical evaluations), study design, clinical trial
management, data collection, biostatistical analysis and product registration
support. All of these services are provided in accordance with applicable
government regulations covering clinical trials and the drug approval process in
the jurisdictions where the services are provided, including the regulations of
the United States Food and Drug Administration ("FDA"), the European Medicines
Evaluation Agency ("EMEA") and other regulatory authorities.
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the pharmaceutical and biotechnology
industries. Implementation of government healthcare reform may adversely affect
research and development expenditures by pharmaceutical and biotechnology
companies, which could decrease the business opportunities available to the
Company. The Company is unable to predict the likelihood of such or similar
legislation being enacted into law or the effects such legislation would have on
the Company. As a general matter, the clinical CRO industry is not capital
intensive and the financial costs of entry into the industry are relatively low.
The CRO industry is highly fragmented, with several hundred small,
limited-service providers, several medium-sized CROs and a few full-service CROs
with international capabilities. Although there are few barriers to entry for
small, limited-service providers, the Company believes that there are
significant barriers to becoming a full-service CRO with international
capabilities. Some of these barriers include the cost and experience necessary
to develop broad therapeutic expertise, the ability to manage large, complex
clinical trials, the experience to prepare regulatory submissions, and the
infrastructure and experience to respond to the international needs of clients.
Historically, pharmaceutical companies, through use of internal
programming resources, produced much of the software used in the drug discovery,
clinical development and regulatory compliance processes. Now, these companies
are also seeking external sources, including the Company's PPD Informatics
division, to meet these automation needs both through custom application
development and through proprietary packaged software. While many companies have
the computer expertise to provide these products and services, the Company
believes that detailed knowledge of the pharmaceutical industry drug discovery
and development process forms a barrier to entry.
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DISCOVERY SCIENCES GROUP
Drugs are chemical compounds that interact with biological targets in
the body. Discovering and developing new drugs is an extremely expensive and
time-consuming process. Pharmaceutical Research and Manufacturers of American
Association (PhRMA) estimates that the average cost of bringing a drug to market
exceeds $359 million and takes approximately 10-15 years. Recent figures from
the PhRMA, Vector Securities, Inc. and Lehman Brothers analysts' reports
indicate that global research-based pharmaceutical and biotechnology companies
invested approximately $39 billion in R&D activities in 1998. On average, these
companies allocate over 40% of their R&D budget to pre-clinical R&D functions.
Pre-clinical R&D functions include identification and validation of target
chemical compounds, screening to identify lead compounds, chemical optimization
of those leads, toxicology and safety testing in animals, and formulation and
stability testing for the new experimental drug.
SARCO is a chemical technology company that provides chemical compounds
to the pharmaceutical, biotechnology, agrochemical and animal health industries.
SARCO's core expertise includes the rapid synthesis of large numbers of
compounds for use in the pre-clinical drug discovery and development process as
well as the chemical optimization of those compounds found to have beneficial
biological activity.
The GSX System identifies targets for drug discovery by the selective
inhibition of genes responsible for key steps in a disease process. The system
is based on the finding that a gene fragment, when introduced into cells,
sometimes specifically inhibits the function of the whole gene from which the
fragment was obtained.
PPD Discovery markets its products and services to those research-based
companies looking for outsource research support. The Company believes that this
outsourcing trend will continue over the next decade.
The Drug Development Process
Before a new drug is marketed, the drug must undergo extensive testing
and regulatory review in order to determine that it is safe and effective. The
development process consists of two stages: pre-clinical and clinical. The first
stage is pre-clinical research, in which the new drug is tested IN VITRO (test
tube) and IN VIVO (in animals) generally over a one- to three-year period, in
order to determine the basic biological activity and safety of the drug. The
Company provides Investigational New Drug ("IND") submission preparation and
compilation but does not provide animal-based services in this stage of
development.
If the drug is perceived to be safe for human testing, the drug then
enters the clinical stage. During the clinical stage, one of the most
time-consuming and expensive parts of the drug development process, the drug
undergoes a series of tests in humans, including healthy volunteers as well as
patients with the targeted disease or condition. The Company provides full
development services for the clinical stage.
Prior to commencing human clinical trials in the United States, the
sponsor must file an IND application with the FDA. In order to receive IND
status, the sponsor of the new drug must provide available manufacturing data,
pre-clinical data, information about any use of the drug in humans for other
purposes and a detailed plan for the conduct of the proposed clinical trials.
The design of these trials, also referred to as the study protocols, is
essential to the success of the drug development effort, because the protocols
must correctly anticipate the nature of the data to be generated and results
that the FDA will require before approving the drug. In the absence of any FDA
comments within 30 days after the IND filing, human clinical trials may begin.
Although there is no statutory definition of the structure or design of
clinical trials, human trials usually start on a small scale to assess safety
and then expand to larger trials to test efficacy. These trials are usually
grouped into the following three phases, with multiple trials generally
conducted within each phase:
o PHASE I. Phase I trials involve testing the drug on a limited
number of healthy individuals, typically 20 to 80 persons, to
determine the drug's basic safety data relating to tolerance,
absorption, metabolism and excretion as well as other
pharmacological indications and actions. This phase lasts an average of
six months to one year.
o PHASE II. Phase II trials involve testing a small number of
volunteer patients, typically 100 to 200 persons who suffer from
the targeted disease or condition, to determine the drug's
effectiveness and dose response relationship. This phase lasts an
average of one to two years.
o PHASE III. Phase III trials involve testing large numbers of
patients, typically several hundred to several thousand persons,
to verify efficacy on a large scale, as well as long-term safety.
These trials involve numerous sites and generally last two to
three years.
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After the successful completion of all three clinical phases, the
sponsor of a new drug in the United States submits a New Drug Application
("NDA") to the FDA requesting that the product be approved for marketing. The
NDA is a comprehensive, multi-volume filing that includes, among other things,
the results of all pre-clinical and clinical studies, information about the
drug's composition and the sponsor's plans for producing, packaging and labeling
the drug. In addition, while the FDA does not use price as a criterion for
approving a new drug, advisory panels of scientists that help the FDA evaluate
new types of therapies have started taking cost into consideration. The FDA's
review of an NDA can last from a few months (for drugs related to
life-threatening circumstances) to many years, with the average review lasting
18 months. Drugs that successfully complete this review may be marketed in the
United States, subject to any conditions imposed by the FDA.
As a condition to its approval of a drug, the FDA may require that the
sponsor conduct additional clinical trials following receipt of NDA approval to
monitor long-term risks and benefits, study different dosage levels or evaluate
different safety and efficacy parameters in target patient populations. In
recent years, the FDA has increased its reliance on these trials, known as Phase
IV trials, which allow new drugs that show early promise to reach patients
without the delay associated with the conventional review process. Phase IV
trials usually involve thousands of patients. Phase IV trials also are initiated
by pharmaceutical manufacturers to gain longer market value for an approved
product. For example, large-scale trials would be used to prove efficacy and
safety of new dosage administration forms for approved drugs, such as inhalation
form versus tablets or a sustained-release form versus capsules taken multiple
times per day.
Regulatory Environment
The market for the services offered by the Company's CRO operations has
developed as a result of significant laws and regulations governing the
development and testing of certain drugs and chemicals as well as the impact of
chemicals on the environment.
Many countries require safety testing prior to obtaining governmental
approval to market pharmaceutical products. The results of clinical tests
conducted upon pharmaceutical products must be submitted to appropriate
government agencies, such as the FDA in the United States, the EMEA and national
regulatory agencies in Europe, and the Ministry of Health and Welfare in Japan,
as part of the relevant pre-market approval process in individual countries. The
Company's business depends on its ability to comply with these strict and
ever-changing laws and regulations.
Trends Affecting the CRO Industry
In 1998, worldwide expenditures on research and development by
pharmaceutical and biotechnology companies are estimated to have been $39
billion, of which the Company estimates $8 to $10 billion was spent on drug
development activities of the type offered by the CRO industry. The Company
believes that approximately $4 billion of such spending was outsourced to CROs.
The Company believes that the outsourcing of drug development
activities by pharmaceutical and biotechnology companies has been increasing and
will continue to increase for the following reasons:
COST CONTAINMENT PRESSURES
Market forces and governmental initiatives have placed significant
pressure on pharmaceutical and biotechnology companies to reduce drug prices.
Pressures on profit margins have arisen from increased competition as a result
of patent expiration, market acceptance of generic drugs, and governmental and
private efforts to reduce healthcare costs. In addition, private managed care
organizations are beginning to limit the selection of drugs from which
affiliated physicians may prescribe, thereby further increasing competition
among pharmaceutical and biotechnology companies. The Company believes that the
pharmaceutical industry is responding to these pressures by downsizing
operations, decentralizing the internal research and development process, and
converting the fixed costs of maintaining a research and development
infrastructure to variable costs by outsourcing drug development activities to
CROs. The downsizing of research and development activities also creates demand
for CROs as internal development bottlenecks arise when a large number of
compounds emerge from the research process and need to be pushed through the
development pipeline. In addition, increased pressure to differentiate products
and to generate support for product pricing serves as the foundation for growth
in the area of healthcare economics, both with respect to drugs under
development and to products already on the market.
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REVENUE ENHANCEMENT THROUGH FASTER DRUG DEVELOPMENT
Pharmaceutical and biotechnology companies face increased pressure to
bring innovative, patent-protected medicines to market in the shortest possible
time, while following good scientific practices and adhering to government
regulations. Pharmaceutical and biotechnology companies are attempting to
increase the speed of new product development, and thereby maximize the period
of marketing exclusivity and economic returns for their products, by outsourcing
development activities to CROs. The Company believes that CROs, by providing
specialized development services, are often able to perform the needed services
with a higher level of expertise or specialization, and therefore more quickly
than a pharmaceutical or biotechnology company could perform such services
internally. In addition, some pharmaceutical and biotechnology companies are
beginning to contract with large full-service CROs to conduct all phases of
clinical trials for new product programs lasting several years, rather than
separately contracting specific phases of drug development to several different
CROs, an approach which the Company believes may result in shorter overall
development times. This trend may favor large full-service CROs like the
Company, but could also increase competitive pressures and risks.
BIOTECHNOLOGY INDUSTRY GROWTH
The United States biotechnology industry has grown rapidly over the
last ten years and is developing significant numbers of new drug candidates that
will require regulatory approval. Many of these new drug candidates are now
moving into clinical development and many biotechnology companies do not have
the necessary staff, expertise or financial resources to conduct clinical trials
on their own. Accordingly, many of these companies have chosen to outsource the
product development process rather than expend significant time and resources to
develop an internal clinical development capability. Further, PPD Pharmaco's
experience suggests that biotechnology companies are increasingly turning to
CROs for their sophisticated regulatory expertise to provide assistance in the
generation of the ideal development plan. Moreover, the biotechnology industry
is expanding into and within Europe, providing growth opportunities for CROs
with international capabilities.
NEED FOR INTERNATIONAL SUPPORT
More pharmaceutical and biotechnology companies are attempting
simultaneous filings of registration packages in several major jurisdictions
rather than following the past practice of sequential filings. The studies to
support such registration packages may include a combination of multinational
and domestic trials. Pharmaceutical and biotechnology companies may turn to CROs
for assistance with such trials, as well as collecting, analyzing, integrating
and reporting the data. The Company believes that CROs with an international
presence and management experience in the simultaneous filing of multiple
applications may benefit from these trends.
CONSOLIDATION IN THE CRO INDUSTRY
As a result of competitive pressures, the CRO industry is
consolidating. Mergers and acquisitions have resulted in the emergence of
several large, full-service CROs that have the capital, technical and financial
resources to conduct all phases of clinical trials on behalf of pharmaceutical
and biotechnology companies. As pharmaceutical and biotechnology companies
increasingly outsource development, they may increasingly turn to larger CROs
that provide a broad range of clinical services, while at the same time they may
also limit the number of CROs they choose to provide such services. The Company
believes that these trends will further concentrate market share among larger
CROs with a track record of speed, flexibility, responsiveness and overall
development experience and expertise.
Company Strategy
The Company's fundamental strategy is to distinguish its services on
the basis of superior performance to maximize its clients' return on their R&D
investments. The Company strives to deliver to its clients efficient and
innovative services that accelerate the rate of new product development. The
Company intends to continue to expand the depth and breadth of its services by
(i) capitalizing on its managerial and operational strengths, (ii) focusing on
hiring and training its staff, (iii) focusing on its strategic marketing
initiatives, (iv) developing its services in healthcare economics and
communications consulting, (v) pursuing strategic acquisitions to enhance
discovery and development services, (vi) expanding geographically, (vii)
pursuing opportunities provided by technological advances, and (viii) expanding
on its vertical expertise in five core therapeutic areas.
The Company differentiates itself from competitors by providing a
continuum of high-quality services, from discovery through aftermarket support.
The Company intends to be a leader in integrating pharmacogenomics in drug
development and research.
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MANAGERIAL AND OPERATIONAL STRENGTH
The Company is guided by senior management who have spent much of their
careers as research or development experts within major pharmaceutical companies
and who have a record of success bringing drugs to market both nationally and
internationally. PPD Pharmaco concentrates on its core operational strengths in
all phases of clinical studies and other critical path studies such as treatment
INDs. Timely performance is based on parallel drug development processes and
leveraging the knowledge and experience of management and investigators. Basic
medical, scientific and regulatory services continue to be integrated with and
streamlined through various technological advances, all directed toward a
reduction in overall development times. PPD Pharmaco emphasizes efficiencies in
each phase of clinical trials initiation and management, data acquisition, data
management and analysis, and report writing and filing, in order to reduce the
time and cost of obtaining regulatory approval for its clients' products. As a
means of differentiating itself from its competitors, PPD Pharmaco emphasizes
therapeutic area specialization, in particular in the areas of
virology/infectious diseases, cardiopulmonary diseases, neuropyschiatric
disorders, oncology and immunology.
HIRING AND TRAINING
The Company believes that its success is based on the quality and
dedication of its employees. The Company strives to hire the best available
people in terms of ability, experience, attitude and fit with the Company's
performance philosophy. New employees are trained extensively, and the Company
believes that it is an industry leader in the thoroughness of its training
programs. In addition, employees are encouraged to continually upgrade and
broaden their skills through internal and external training programs. As new
technologies develop, employees are equipped with and trained to make use of
such technological innovations.
GLOBAL STRATEGIC MARKETING INITIATIVES
PPD Pharmaco focuses its integrated marketing and sales efforts on high
volume clients with needs in the service segments and therapeutic areas in which
the Company specializes. Direct salespeople concentrate on a group of assigned
clients, marketing across service segments. PPD Pharmaco's business development
personnel consult with potential clients early in the bidding process in order
to determine their needs. The business development personnel and PPD Pharmaco's
project managers then invest significant time to determine the optimal way to
design and carry out the potential client's proposal. PPD Pharmaco's
recommendations to the potential client with respect to study design and
implementation are an integral part of PPD Pharmaco's bids and an important
aspect of the integrated services that PPD Pharmaco offers to its clients. PPD
Pharmaco believes that its preliminary efforts relating to the evaluation of a
potential client's proposed clinical protocol and implementation plan allows
accelerated commencement of the clinical trial after the contract has been
awarded to PPD Pharmaco.
Discovery services are marketed through centralized PPD corporate
marketing efforts to supplement localized marketing by scientists to scientists,
with support from appropriate outside consultants. The functional genomics
technology (GSX) is marketed primarily to large pharmaceutical companies, while
combinatorial chemistry is directed more toward biotechnology and virtual
companies.
The Company sponsors and encourages the participation by its personnel
in a variety of scientific endeavors, including the presentation of papers by
its professional staff at meetings of professional societies and major
conferences, and the publication of scientific articles in respected journals.
The Company believes such activities enhance its reputation for professional
excellence. The Company's core marketing and communications efforts include
advertising in trade journals, participation at scientific conferences,
speakers' bureaus, direct mail, presentation materials and media relations.
HEALTHCARE ECONOMICS AND OUTCOMES RESEARCH
The healthcare market in the United States is evolving from a
fragmented system of individual providers with little incentive to control costs
to a managed care system in which large organizations attempt to lower the cost
of healthcare through a number of means. The Company believes that such market
dynamics support the need for healthcare economics analysis and outcomes
research. PPD Pharmaco offers programs integrating such analysis in clinical
development programs to support regulatory approval, as well as pricing,
marketing and reimbursement strategies. While PPD Pharmaco's current focus in
this area is on its traditional client base within the pharmaceutical and
biotechnology industries, both with respect to drugs under development and
products already on the market, PPD Pharmaco expects to extend such services to
payers and providers as well.
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ACQUISITIONS
The Company will continue to actively seek strategic acquisitions, both
within and outside current CRO service segments. Acquisition candidates must
provide opportunities for innovation, synergy and growth. The Company's criteria
for acquisitions may include complementary client lists, ability to increase
market share within and across clients, complementary therapeutic area and
service segment strengths, strategic geographic capabilities or particular
process expertise.
Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations and services of the acquired companies, the
expenses incurred in connection with attempted or successful acquisitions and in
connection with subsequent assimilation of operations and products, the
diversion of management's attention from other business concerns and the
potential loss of key employees of the acquired company. If the Company
consummates any acquisitions in the future, there can be no assurance that such
acquisitions will be successfully integrated into the Company's operations.
GEOGRAPHICAL EXPANSION
PPD Pharmaco currently has operations in the Americas (the United
States, Canada, South America), Europe (including Eastern Europe), South Africa,
Asia and the Pacific Rim. PPD Pharmaco has identified certain strategic areas of
promise where CROs currently have limited or no presence and intends to
selectively pursue these and other strategic opportunities internationally.
Geographic expansion involves numerous risks, including up-front expenses,
potential political or economic instability, assimilation of staff and cultural
differences.
TECHNOLOGICAL ADVANCES
PPD Pharmaco believes that optimizing the use of information technology
can accelerate the drug development process and yield valuable marketing
information. PPD Pharmaco has experience in the use of information technology in
clinical trial management and offers a wide range of technology-based services,
including initial market research and study design, remote monitoring and data
acquisition, ongoing study management, outcomes research, patient and disease
management, and the filing of Computer Assisted New Drug Applications and
Product License Applications. The Company believes that the use of third-party
systems and selected internally developed software allows it to offer its
clients advanced technology for expediting the drug development process.
Services Offered
LIFE SCIENCES GROUP
PPD Pharmaco has designed its various global services to be flexible
and integrated in order to assist its clients in optimizing their research and
development spending through the clinical stages of the drug development
process. PPD Pharmaco provides Phase I clinical testing, laboratory services,
patient and investigator recruitment, Phase II-IV clinical trial monitoring and
management, clinical data management and biostatistical analysis, regulatory
consulting and submission, medical writing, pharmacovigilance, and healthcare
economics and outcomes research for its clients. These resources are provided
individually or as an integrated package of services to meet the client's needs.
PPD Informatics provides innovative software development and system integration
services and creates a data link between discovery and development.
PHASE I CLINICAL TESTING
After an Investigational New Drug Application has been filed with the
FDA, human testing of a new drug can begin. The drug is typically first
administered to healthy volunteers to determine the drug's basic safety data
based on tolerance, absorption, metabolism, excretion and other pharmacological
actions. Later, special studies are conducted in volunteers and special patient
populations to further define the drug's overall pharmacological profile. The
Company believes that PPD Pharmaco is one of the industry's largest Phase I
providers with clinical testing services conducted in its 212-bed unit in
Austin, Texas, its 64-bed unit located near Research Triangle Park, North
Carolina and its 52-bed unit in Leicester, England. The Company's professional
nursing staff administers general Phase I safety tests, special population
studies, and bioavailability and bioequivalence testing. Special population
studies may involve the elderly, women or patients with specific diagnoses, such
as renal failure or asymptomatic HIV disease. The Austin, Texas site also has a
Dental Research Center to evaluate new analgesic compounds used in molar
extractions for safety and effectiveness.
The Company's clinical research studies rely upon the ready
accessibility and willing participation of volunteer subjects. These subjects
generally include volunteers from the communities in which the studies are
conducted, including the Phase I centers in Austin, Research Triangle Park and
Leicester, which to date have provided a substantial pool of potential subjects
for research studies. However, the Company's business could be adversely
affected if the Company were unable to attract suitable and willing volunteers.
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The Company also provides bioavailability and bioequivalence testing
services. This testing is generally conducted each time the dosage, form or
formulation of the drug is modified. It involves administration of the test
compounds and obtaining biological fluids sequentially over time to measure
absorption, distribution, metabolization and excretion of the drug.
PPD Pharmaco attempts to manage its Phase I services to maximize
scheduling flexibility and efficiency. The services also can integrate with PPD
Pharmaco's other service segments such as laboratory, pharmacokinetic and
biostatistical services. PPD Pharmaco is one of the few full-service CROs
offering Phase I clinical testing in the United States and Europe.
LABORATORY SERVICES
PPD Pharmaco provides biodiscovery, bioanalytical and product analysis
services through its Good Laboratory Practice (GLP)-certified laboratories in
Richmond, Virginia and Middleton, Wisconsin. PPD Pharmaco's laboratories analyze
biological fluid samples from animal and human clinical studies. The latter
includes those conducted by PPD Pharmaco's Phase I units for drug and metabolite
content and concentration. PPD Pharmaco currently has over 800 validated assays
available for its clients' use in conducting laboratory analyses, qualifying PPD
Pharmaco for a wide range of assignments. PPD Pharmaco's laboratories also
process fluid samples for pre-clinical studies.
The Company's biodiscovery group links drug discovery to development by
providing rapid IN VIVO screening of new chemical entities, producing
pharmacokinetic and enzyme-kinetic profiles to assess stability, metabolism and
bioavailability of compounds. This non-GLP, high throughput proof-of-principle
method of screening provides companies with a lower-cost way to quickly assess
viability of multiple lead compounds.
Product analysis services include dissolution and stability studies,
which are necessary to characterize dosage form release patterns and stability
under various environmental conditions in the intended package for marketing.
These studies must be carried out over the commercial life of products,
beginning at the clinical trial stage. New formulations require the same set of
studies as the original dosage form. Comprehensive measurement services include
Gas Chromatography/Mass Spectrometry, Liquid Chromatography/Mass Spectrometry
(LC/MS and LC/MSMS), High Performance Liquid Chromatography, Gas Chromatography,
Radioimmunoassay and Enzyme Linked Immunosorbent Assay. Support services include
HIV-positive sample handling, sample/data management for kinetic studies from
multi-center trials and sample/data archiving.
PPD Pharmaco is one of a few full-service CROs able to offer its
clients the advantages of both bioanalytical and product analysis, as well as
Phase I clinical testing.
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PHASE II-IV CLINICAL TRIAL MANAGEMENT
The core of PPD Pharmaco's business is a comprehensive package of
services for the conduct of Phase II-IV clinical trials, which, in concert with
its other analytical and Phase I testing services, pharmacogenomics and
informatics, allows PPD Pharmaco to offer its clients an integrated package of
clinical management services. The Company has significant clinical trials
experience in the areas of:
AIDS Primary disease and treatment/prophylaxis of
opportunistic infections
Analgesia Acute and chronic pain modeling
Biotechnology Growth hormone, multiple sclerosis, sepsis,
wound healing
Cardiovascular disease Hypertension, angina pectoris
Central nervous system Schizophrenia, depression, epilepsy, chronic
pain, anxiety, obsessive-disease compulsive
disorders, panic disorders
Dermatology Wound healing, acne, hair loss, psoriasis
Gastroenterology Duodenal ulcer, gastric ulcer, gastro-esophageal
reflux disease H. PYLORI, nonsteroidal
anti-inflammatory drug-induced ulcers,
inflammatory bowel disease
Infectious disease Acute and chronic bacterial and fungal diseases,
including pneumonia, influenza and sinusitis
Metabolic disease Diabetes, hormone replacement therapy
Oncology Prostate, colorectal, breast and lung cancer
Pulmonary/Allergy Asthma, allergic rhinitis, community acquired
pneumonia, Acute Respiratory Distress Syndrome
Rheumatology Rheumatoid and osteoarthritis
Virology AIDS, herpes simplex, hepatitis B, chronic
hepatitis C
Women's health Osteoporosis, oral contraception
Clients' needs are served by conducting clinical trials through a
dedicated project team. A project manager supervises all aspects of the conduct
of the clinical trial, while PPD Pharmaco's clinical research associates are in
the field monitoring the trial at the various investigational sites where it is
being conducted. Within this project-oriented structure, PPD Pharmaco can manage
every aspect of the clinical trial in Phases II through IV of the drug
development process, including protocol development, case report form ("CRF")
design, feasibility studies, investigator selection, recruitment and training,
site initiation and monitoring, accelerated patient enrollment, development of
training materials for investigators and training of clients' staff.
PPD Pharmaco monitors its clinical trials in compliance with government
regulations. PPD Pharmaco has adopted global standard operating procedures
("SOPs") which are intended to satisfy regulatory requirements and serve as a
tool for controlling and enhancing the quality of its clinical trials. All PPD
Pharmaco SOPs are in compliance with Good Clinical Practice ("GCP") requirements
and the International Conference on Harmonization ("ICH") standards. The FDA has
adopted the ICH's standards, and, the European Community has agreed to conduct
all studies in accordance with the standards from ICH, which sets global
clinical study standards based on GCP. Data generated during clinical trials are
compiled, analyzed, interpreted and submitted in report form to the FDA or other
relevant regulatory agencies for purposes of obtaining regulatory approval. The
Company provides expert consulting on conducting clinical trials for
simultaneous regulatory submissions to multiple countries.
PPD Pharmaco provides its clients with one or more of the following
core Phase II-IV clinical trials management services using parallel processing
to accelerate the development process:
STUDY DESIGN
PPD Pharmaco serves its clients in the critical area of study
design by applying its wide development experience in the preparation of study
protocols and CRFs. A study protocol defines the medical issues to be examined
in evaluating the safety and efficacy of a drug, the number of patients required
to produce statistically valid results, the clinical tests to be performed, the
time period over which the study will be conducted, the frequency and dosage of
drug administration, and the exact patient criteria. The success of the study
depends not only on the ability of the protocol to correctly predict
requirements of regulatory authorities, but also on the ability of the protocol
to fit coherently with the other aspects of the development process and the
ultimate marketing strategy for the drug. This process includes healthcare
economic components to support rational pricing and positioning.
9
<PAGE>
Once the study protocol has been finalized, CRFs must be developed to
record the information to be obtained from the clinical studies. The various
other disciplines involved in the drug development process, including data
management, must work closely with the clinical trial management project team to
assure that the data are recorded in a form that is efficient for subsequent
data entry, management and reporting. Proper CRF design is critical to allowing
investigators and field monitors to conduct their respective jobs quickly,
accurately and effectively.
INVESTIGATOR RECRUITMENT
During clinical trials, physicians (also referred to as investigators)
at hospitals, clinics or other locations (also referred to as investigational
sites) supervise administration of the drug to patients. PPD Pharmaco recruits
investigators who contract directly with either the Company or its client. For
large scale trials, or trials with a short start-up timeline, PPD Pharmaco's
Telecommunications Center (TCC) is utilized for investigator recruitment. The
TCC integrates telephony, relational databases, computerized scripts, and
customized tracking software to provide high-speed results and to manage high
volumes of inbound and outbound calls for investigator recruitment. Recently,
the TCC staff recruited and obtained IRB approval for over 900 investigators in
12 weeks. The successful rapid identification and recruitment of investigators
who have the appropriate expertise and an adequate base of patients who satisfy
the requirements of the study protocol are critical to the timely completion of
the trial.
PPD Pharmaco maintains and constantly expands and refines its
computerized database of over 20,500 investigators. Information regarding PPD
Pharmaco's experience with these investigators, including factors relevant to
rapid study initiation, are contained in the database. This information allows
project managers to efficiently choose the appropriate investigators for a
particular study.
STUDY MONITORING
PPD Pharmaco provides study-monitoring services, which include
investigational site initiation, patient enrollment assistance and data
collection through subsequent site visits. These visits also serve to assure
that data is gathered according to GCP, according to the requirements of the
client and applicable regulatory authorities, and as specified in the study
protocol.
Project management and field-monitoring services are the operational
heart of Phase II and III clinical studies. In many instances, a project's
timely completion is based on meeting deadlines during the first few months of
study initiation. Therefore, PPD Pharmaco focuses at an early stage on
identifying and quickly completing the critical rate-limiting steps of screening
and selecting qualified investigators, processing pre-study regulatory
paperwork, obtaining investigative review board approvals and scheduling
investigational site initiation visits. Drugs under study cannot be released to
the investigational sites, and thus the study cannot begin, until these
activities have been completed.
Following study initiation, PPD Pharmaco utilizes a number of
appropriate methods of accelerating patient recruitment. This may involve PPD
Pharmaco's integrated systems of telephone recruitment, telefaxing and media
advertising. As with Phase I clinical trials, rapid patient recruitment is
critical to the Company's success in providing services to maximize clients'
return on R&D investments.
Patient data must be obtained from the field efficiently, quickly and
accurately to speed subsequent data entry, management and analysis, and report
writing. PPD Pharmaco reviews data through visits by its field monitors to
investigative sites. Field monitors receive orientation training and routine
updates on changes in federal study regulations and new company SOPs for quality
trial monitoring and reporting. These monitors are equipped with laptop
computers for the purpose of SOP and regulatory information updates as well as
report generation.
PPD Pharmaco has monitored many clinical trials, including a number of
very large studies. For example, PPD Pharmaco is in its second five-year
contract with the National Institutes of Health ("NIH") to monitor
investigational sites for AIDS treatment related trials sponsored by the NIH.
This project involves approximately 250 investigational sites and total
enrollment of approximately 60,000 patients. PPD Pharmaco has monitored 33,000
patients in 233 protocols since the beginning of the project in 1990. There has
also been over 1,900 pharmacy, regulatory and operational audits at the sites.
10
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CLINICAL DATA MANAGEMENT AND BIOSTATISTICAL ANALYSIS
The professionals who manage PPD Pharmaco's data management and
biostatistical analysis operations have extensive pharmaceutical and
biotechnology industry experience in the design and construction of local and
multinational clinical trial databases. PPD Pharmaco provides clients with
assistance in such areas as study design, sample size determination, CRF design
and production, fax based monitoring, database design and construction, New Drug
Application preparation and production (including electronic submissions to the
FDA, known as Computer Assisted New Drug Applications), and FDA presentations
and defense.
The Company offers data management and biostatistical analysis services
both separately and as part of an integrated drug development program. During
the design of development plans and protocols, PPD Pharmaco offers consulting
services relating to sample size parameters for patient enrollment, development
of data analysis plans and randomization schemes. During clinical trials, PPD
Pharmaco assists in the rapid acquisition of clean and accurate data. Following
completion of the clinical trials, PPD Pharmaco assists in report preparation
and FDA presentations. PPD Pharmaco's biostatisticians may participate with
clients in meetings with the FDA to present and defend biostatistical analyses.
PPD Pharmaco has expertise in electronically capturing and integrating
geographically diverse data. PPD Pharmaco uses SAS(R), Clintrace(TM), Oracle(R),
BBN Clintrial(TM) and other third party software, as specified by clients,
combined with customized programs developed by PPD Pharmaco.
Performing data management and biostatistical analysis activities in
parallel with other drug development activities where possible can reduce drug
development time. For example, data management personnel work with clinical
program managers and field monitors to continuously enter data, program output
tables and listings, and validate the database so that there is a rapid
progression to final tables, listing preparation and biostatistical analyses.
Similarly, there is a close working relationship with medical writing and
regulatory service personnel.
TREATMENT INVESTIGATIONAL NEW DRUG APPLICATION
A treatment Investigational New Drug ("IND") application includes a
procedure to allow patients to receive a new drug not yet approved for a serious
or immediate life-threatening disease, such as AIDS or multiple sclerosis, for
which no comparable or satisfactory therapy is available. This treatment is
provided during the clinical trial phase of development, but outside the
controlled clinical trial. The treatment IND application process has the
advantage of getting a new drug into an expanded patient base early, as well as
allowing earlier publicity about the potential success of the drug. PPD
Pharmaco's involvement in a treatment IND application may range from simply
monitoring the treatment to providing an integrated set of services involving
full investigational site management, data management, biostatistical analysis
and report writing.
MEDICAL WRITING AND REGULATORY SERVICES
PPD Pharmaco provides full planning services for product development
including pre-clinical review, CMC consulting and clinical protocol development.
These activities are complemented by report writing, program management and
regulatory services designed to reduce overall development time. Strategic
planning and program management provided over the course of a product
development life-cycle helps to ensure that regulatory dossiers are assembled in
a minimum of time and are focused on obtaining the desired labeling for the
compound. These development services are integrated with PPD Pharmaco's other
services to speed the process consistent with good service and regulatory
compliance.
PPD Pharmaco maintains a large internal compliance and quality
assurance department to provide in-process monitoring of GCP performance. PPD
Pharmaco also offers these services to clients to assess trials conducted by the
client or another CRO.
HEALTHCARE ECONOMICS, OUTCOMES AND MARKETING RESEARCH
PPD Pharmaco offers a number of services in the healthcare economics
area to pharmaceutical and biotechnology companies as well as managed care
payers and providers. These services include prospective and retrospective
clinicoeconomics analysis, quality of life and drug therapy evaluation, large
sample market research, clinical hypothesis testing for product marketing,
enhanced patient, investigator and managed care plan recruiting, managed care
consulting, patient therapeutic support systems and disease management
consulting. This research helps clients demonstrate the value of their products
in cost-sensitive markets without costly delays from designing and implementing
new randomized clinical trials.
DISCOVERY SCIENCES GROUP
PPD Discovery consists of SARCO, a combinatorial chemistry company, and
the GSX System, a functional genomics platform technology for target discovery.
GSX is a proprietary whole-cell-based system that facilitates the rapid
identification, validation and functional analysis of novel targets.
11
<PAGE>
GSX identifies targets for drug discovery by the selective inhibition
of genes responsible for key steps in a disease process. The system is based on
the finding that a gene fragment, when introduced into cells, sometimes
specifically inhibits the function of the whole gene from which the fragment was
obtained. Effective inhibitory fragments are obtained by breaking the DNA
containing the genes of interest into many different random pieces, inserting
these fragments into a population of tester cells and identifying the rare
individual cells that acquire a selected new property as a consequence of the
inhibitory action. Examples of desirable cellular properties that can be
selected include increased resistance to a virus or increased sensitivity to a
drug. The "winning" DNA fragments are then recovered from the selected cells and
analyzed to determine what genes, and thereby targets, they represent.
Activities surrounding the GSX technology are conducted in Research Triangle
Park, North Carolina and Menlo Park, California.
SARCO is a chemical technology company that provides proprietary
combinatorial chemistry and unique, drug-like small molecule combinatorial
libraries to pharmaceutical, biotechnology, agrochemical and animal health
industries. SARCO's core expertise includes the rapid synthesis of large numbers
of compounds for use in the pre-clinical drug discovery and development process
as well as the chemical optimization of those compounds found to have beneficial
biological activity.
SARCO is located in the Park Research Center, a high-technology campus
in Research Triangle Park, North Carolina. SARCO's research facility is fully
equipped to perform solid and solution-phase combinatorial chemistry, custom
monomer synthesis and solution-phase medicinal chemistry. SARCO maintains full
analytical and computational capabilities in support of its combinatorial and
medicinal chemistry activities.
Products include the SARCO base libraries, which are chemical compounds
designed for high throughput biological screening, and the SARCO Focus
Libraries, which are custom designed chemical libraries provided exclusively to
a client. Services include research collaborations and partnerships with
research-based discovery companies. These collaborations and partnerships are
typically structured for a fixed period of time or around discrete client
projects.
Clients and Marketing
The Company's Life Sciences Group provides services primarily to
pharmaceutical and biotechnology companies. For the year ended December 31,
1998, approximately 87% of the Company's Life Sciences Group's net revenue was
attributable to clinical services and 13.0% to laboratory services. For the year
ended December 31, 1998, net revenue of the Life Sciences Group was derived
approximately as follows:
Percentage of
Source Net Revenue
------ -----------
Pharmaceutical 82.05%
Biotechnology 7.97
Government 1.92
Other 8.06
During 1998, the Company provided services to 40 of the top 50
pharmaceutical companies in the world as ranked by 1997 healthcare research and
development spending.
The Company provides services to the pharmaceutical and biotechnology
industries and its revenue is highly dependent on expenditures on research and
development by clients in these industries. Accordingly, the Company's
operations could be materially and adversely affected by general economic
downturns in these industries, the current trend toward consolidation in these
industries or other factors resulting in a decrease in research and development
expenditures. Furthermore, the Company has benefited to date from the increasing
tendency of pharmaceutical and biotechnology companies to outsource large
clinical research projects. Should this trend be reversed, the revenue of the
Company could be materially and adversely affected. The Company believes that
concentration of business among certain large customers is not uncommon in the
CRO industry. The Company has experienced such concentration in the past and may
experience such concentration in the future. However, during 1998 and 1997, no
single client contributed more than 10% of the Company's total net revenue. In
1998, the Company's ten largest clients accounted for approximately 39.5% of the
Company's total net revenue and approximately 24% of the Company's total 1998
net revenue was derived from clients located outside the U.S., in particular in
Europe and Japan.
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Contractual Arrangements
Many of PPD Pharmaco's contracts are fixed price, with some variable
components, and range in duration from a few months to several years. In other
contracts, PPD Pharmaco is paid based on applying agreed upon hourly rates to
hours worked. Generally, for multi-year contracts involving clinical trials, a
portion of the contract fee is paid at the time the trial is initiated, with the
balance of the contract fee payable in installments over the trial duration. The
installment payments are typically performance-based, relating payment to
pre-established events or milestones, such as investigator recruitment, patient
enrollment or database delivery. For fixed-price contracts, PPD Pharmaco bears
the risk of cost overruns, but benefits if costs are lower than anticipated.
Underpricing of such contracts or significant cost overruns could have a
material adverse effect on the Company. Most of PPD Pharmaco's contracts for the
provision of its services, including contracts with government agencies, are
terminable by the client upon 30- to 90-days' notice under certain
circumstances, including the client's unilateral decision to terminate the
development of the product or end the study. Contracts may be terminated for a
variety of reasons, including the failure of a product to satisfy safety
requirements, unexpected or undesired results of the product, the client's
decision to forego a particular study, or insufficient patient enrollment or
investigator recruitment. Although the contracts typically require payment of
certain fees for winding down the study and, in some cases, a termination fee,
the loss of a single large contract or of multiple contracts could materially
and adversely affect the Company.
Backlog
Backlog consists of anticipated net revenue from letters of intent,
verbal commitments, and contracts that have not been completed. Net revenue is
defined as professional fee income (gross revenue) less reimbursed costs,
consisting principally of investigator fees and travel. Once contracted work
begins, net revenue is recognized over the life of the contract. In certain
cases, PPD Pharmaco begins work for a client before a contract is signed. The
backlog of the Life Sciences Group for the services described above under
written agreements, including signed letters of intent, was $291.7 million in
net revenue at December 31, 1998, compared to $205.7 million in net revenue at
December 31, 1997.
PPD Pharmaco believes that its backlog as of any date is not
necessarily a meaningful predictor of future results, because backlog can be
affected by a number of factors, including variable size and duration of
contracts, many of which are performed over several years. Additionally,
contracts generally are subject to early termination by the client or delay for
many reasons, including unexpected test results. Moreover, the scope of a
contract can change during the course of a study. There can be no assurances
that PPD Pharmaco will be able to fully realize all of its backlog as net
revenue.
Competition
The CRO industry consists of several hundred small, limited-service
providers, several medium-sized CROs and a few full-service global drug
development companies. The CRO industry is consolidating and, in recent years, a
few large, full-service competitors have emerged. This trend of industry
consolidation will likely result in greater competition among the larger CROs
for clients and acquisition candidates. PPD Pharmaco's large competitors include
Covance, Inc., Kendle International, Inc., Parexel International Corporation,
IBAH, ICON, Phoenix International, AAI and Quintiles Transnational Corporation.
PPD Pharmaco also competes against certain medium-sized companies, in-house
research and development departments of pharmaceutical and biotechnology
companies, as well as universities and teaching hospitals. In addition, the CRO
industry has few barriers to entry. Newer, smaller entities may compete
aggressively against larger CROs for clients. Furthermore, the CRO industry has
attracted the attention of the investment community, which could lead to
increased competition by increasing the availability of financial resources for
CROs. Increased competition may lead to price and other forms of competition
that may adversely affect PPD Pharmaco's operating results.
CROs compete on the basis of several factors, including reputation for
on-time quality performance, expertise and experience in specific therapeutic
areas, scope of service offerings, strengths in various geographic markets,
technological expertise and systems, ability to acquire, process, analyze and
report data in a time-saving accurate manner, ability to manage large-scale
clinical trials both domestically and internationally, expertise and experience
in healthcare economics and client communication. Although there can be no
assurance that it will continue to do so, the Company believes that it competes
favorably in these areas.
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PPD Informatic's competitors for its packaged software include major
vendors of software used in pharmaceutical applications, such as Domain
Solutions, Oracle and SAS, as well as a variety of smaller, specialized software
companies. Competitors for PPD Informatic's application development services
include major consulting companies with pharmaceutical industry groups (e.g.,
Andersen Consulting, EDS, PricewaterhouseCoopers) and smaller companies with a
pharmaceutical industry focus (e.g. DataCeutics, Netforce, ISCG).
The outsource chemistry research industry consists of several dominant
providers and numerous smaller niche companies. SARCO faces significant
competition from these companies as well as competition from research teams
funded internally by pharmaceutical and biotechnology companies. While the trend
to outsource research is increasing, the vast majority of research spending by
these companies is for their own internal research personnel.
SARCO competes principally on the basis of reputation, scientific and
technical expertise, experience and qualifications of professional staff,
quality of services, and ability to delivery quality products to the client's
specifications. As such, SARCO's ability to attract and retain qualified
technical personnel is a key component in its ability to successfully compete in
the outsource contract research market.
Potential Liability and Insurance
Clinical research services involve the testing of new drugs on human
volunteers pursuant to a study protocol. Such testing exposes the Company to the
risk of liability for personal injury or death to patients resulting from, among
other things, possible unforeseen adverse side effects or improper
administration of the new drug. Many of these patients are already seriously ill
and are at risk of further illness or death. The Company attempts to manage its
risk of liability for personal injury or death to patients from administration
of products under study through measures such as contractual indemnification
provisions with clients and through insurance maintained by clients. The
contractual indemnifications generally do not protect the Company against
certain of its own actions, such as negligence. The contractual arrangements are
subject to negotiation with clients and the terms and scope of such
indemnification vary from client to client and from trial to trial. Although
most of PPD Pharmaco's clients are large, well-capitalized companies, the
financial performance of these indemnities is not secured. Therefore, the
Company bears the risk that the indemnifying party may refuse, or not have the
financial ability, to fulfill its indemnification obligations. The Company could
be materially and adversely affected if it were required to pay damages or incur
defense costs in connection with a claim that is beyond the scope of an
indemnity provision or beyond the scope or level of insurance coverage or where
the indemnifying party does not fulfill its indemnification obligations. Until
September 1996, the Company did not maintain liability insurance with respect to
these risks. The Company currently maintains professional liability insurance
coverage of up to $5.0 million per claim, with an annual aggregate policy limit
of $5.0 million. Liability claims might exceed the limits of such coverage and
such insurance might not continue to be available on commercially reasonable
terms or at all.
Government Regulation
The laboratory services performed by PPD Pharmaco are subject to
various regulatory requirements designed to ensure the quality and integrity of
the testing process. The industry standards for conducting laboratory testing
are embodied in the regulations for Good Laboratory Practice ("GLP") and Good
Manufacturing Practice ("GMP"). GLP and GMP have been adopted by the FDA, by the
Department of Health in the United Kingdom and by similar regulatory authorities
in other parts of the world. GLP and GMP stipulate requirements for facilities,
equipment and professional staff. The regulations require standardization
procedures for studies, for recording and reporting data, and for retaining
appropriate records. To help ensure compliance, PPD Pharmaco has established
quality assurance controls at its laboratory facilities that monitor ongoing
compliance with GLP and GMP regulations by auditing test data and conducting
regular inspections of testing procedures.
The industry standard for the conduct of clinical research and
development studies is embodied in the ICH regulations for GCP. As a matter of
practice, the FDA and many other regulatory authorities require that test
results submitted to such authorities be based on studies conducted in
accordance with GCP. These regulations include (i) complying with regulations
governing the selection of qualified investigators, (ii) obtaining specific
written commitments from the investigators, (iii) verifying that informed
consent is obtained from patients, (iv) monitoring the validity and accuracy of
data, (v) verifying drug or device accountability, and (vi) instructing
investigators to maintain records and reports. For specified periods PPD
Pharmaco must also maintain reports for each study for inspection by the study
sponsor and governmental authorities during audits. Noncompliance with GCP can
result in the disqualification of data collected during the clinical trial.
PPD Pharmaco's Global Standard Operating Procedures ("SOPs") are
written in accordance with the Code of Federal Regulations and ICH guidelines
agreed upon by the United States, certain European and the Japanese governments.
This enables our work to be conducted locally, regionally and globally to
standards that exceed all currently applicable regulatory requirements.
14
<PAGE>
PPD Pharmaco's business depends on the continued government regulation
of the drug development process, especially in the United States. Changes in
regulation, including a relaxation in regulatory requirements or the
introduction of simplified drug approval procedures, could materially and
adversely affect the demand for the services offered by the Company.
The failure on the part of PPD Pharmaco to comply with applicable
regulations could result in the termination of ongoing research or the
disqualification of data for submission to regulatory authorities. Furthermore,
the issuance of a notice of finding by a governmental authority against either
PPD Pharmaco or its clients based upon a material violation by the Company of
GCP, GLP or GMP requirements could materially and adversely affect the Company.
Intellectual Property
The Company has rights in certain trademarks such as PPD(TM), PPD
Pharmaco(R), The Power of Selection(TM), CLASSIFYTM, RESOLVETM, CROSS GRAPHS(R),
TABLETRANS(R) and others. In addition, the Company holds certain licensing
privileges related to the GSX technology.
PPD Pharmaco also has developed certain computer software and
technically derived procedures intended to maximize the quality and efficiency
of its services. In addition to its rights to certain intellectual property, the
Company believes that other factors such as the technical expertise, knowledge,
ability and experience of the Company's professionals provide significant
benefits to its clients.
Employees
At December 31, 1998, the Company had approximately 3,100 full-time
equivalent employees, of whom 2,500 were employed in the Life Sciences Group,
340 were employed in the Environmental Sciences Group (which was sold in January
1999), 50 were employed in the Discovery Sciences Group and the remainder were
in the Company's corporate headquarters. Of the Company's employees,
approximately 130 hold Ph.D., M.D., Pharm.D. or D.V.M. degrees and approximately
390 hold other masters or other postgraduate degrees. None of the Company's
employees is represented by a labor union or is subject to a collective
bargaining agreement. The Company believes that its relations with its employees
are good.
The Company's performance depends on its ability to attract and retain
qualified professional, scientific and technical staff. The level of competition
among employers for such skilled personnel is high. The Company believes that
its employee benefit plans enhance employee morale, professional commitment and
work productivity and provide an incentive for employees to remain with the
Company. The Company, like many of its competitors, also relies on a number of
key executives. The loss of services of any of the Company's key executives
could have a material and adverse effect on the Company. While to date the
Company has not experienced any significant problems in attracting or retaining
qualified staff, it might in the future.
Foreign and Domestic Operations
Note 18 of Notes to Consolidated Financial Statements presents
information about the Company's operations by geographic area for each of fiscal
years 1998, 1997 and 1996.
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<PAGE>
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Wilmington,
North Carolina. In June 1998, the Company entered into a new 10-year
build-to-suit lease for approximately 67,500 square feet in Morrisville, North
Carolina which is scheduled for completion in the summer of 1999. In September
1998, the Company entered into a new 10-year build-to-suit lease for
approximately 70,000 square feet in Wilmington, North Carolina which is
scheduled for completion in the fall of 1999. In December 1998, the Company
entered into a new 15-year build-to-suit lease for approximately 61,000 square
feet in Research Triangle Park, North Carolina which is scheduled for completion
in the winter of 1999.
The Company owns and operates a 52-bed Phase I facility in Leicester,
England. The Company also owns a building in Kersewell, Scotland, which it
acquired when it purchased Data Acquisition and Research Limited in December
1996. All other facilities are leased. The Company's operations currently occupy
approximately 693,000 square feet of space worldwide, including over 126,000
square feet of space located outside of the United States. The Company believes
that its facilities have adequate capacity to handle significant additional
business growth. The locations of the Company's operating facilities as of
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
<S> <C>
LIFE SCIENCES GROUP
The Americas Europe
------------ ------
Sao Paulo, Brazil Brussels, Belgium
La Jolla, California Cambridge, England
San Bruno, California Chelmsford, England
Mississauga, Canada Leicester, England
Overland Park, Kansas Southampton, England
Columbia, Maryland Charenton-Le-Pont, France
Cambridge, Massachusetts Karlsruhe, Germany
Lawrenceville, New Jersey Nuremberg, Germany
Morrisville, North Carolina Milan, Italy
Research Triangle Park, North Carolina Kersewell, Scotland
Wilmington, North Carolina Barcelona, Spain
Austin, Texas (1) Madrid, Spain
Richmond, Virginia Stockholm, Sweden
Middleton, Wisconsin Eastern Europe
--------------
Pacific Rim Prague, Czech Republic
----------- Budapest, Hungary
Melbourne, Australia Warsaw, Poland
Asia
---- Africa
Osaka, Japan ------
Cape Town, South Africa (2)
Bangkok, Thailand Johannesburg, South Africa (2)
DISCOVERY SCIENCES GROUP
The Americas
------------
Menlo Park, California
Morrisville, North Carolina
Research Triangle Park, North Carolina
</TABLE>
The list of operating locations above does not include the locations in
which the Company's environmental sciences segment operates. This segment was
sold on January 31, 1999. See Note 4 of Notes to Consolidated Financial
Statements.
- ------
(1) In November 1995, the Company entered into a sale-leaseback transaction
related to its Austin, Texas, facilities. See Note 10 of Notes to
Consolidated Financial Statements.
(2) The operations for South Africa were merged into the Johannesburg location
in February 1999.
16
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company is a party to various
claims and legal proceedings. Although the ultimate outcome of these matters is
not yet determined, management of the Company, after consultation with legal
counsel, does not believe that the resolution of these matters will have a
material effect upon the Company's financial condition or results of operations
in any interim or annual period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1998.
17
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company as of January 31, 1999, were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Name Age Position
- --------------------------- --- -----------------------------------------------------
Fredric N. Eshelman 50 Vice Chairman and Chief Executive Officer
Thomas D'Alonzo 55 President and Chief Operating Officer
Rudy C. Howard 41 Chief Financial Officer, Vice President - Finance and
Treasurer
Fred B. Davenport, Jr. 47 General Counsel, Vice President - Legal and Secretary
Joshua S. Baker 43 Senior Vice President, Global Operations
</TABLE>
FREDRIC N. ESHELMAN has served as Chief Executive Officer and as a
director of the Company since July 1990. Dr. Eshelman founded the Company's
predecessor in 1985. Prior to rejoining the Company in 1990, Dr. Eshelman served
as Senior Vice President, Development and as a director of Glaxo Inc., a
subsidiary of Glaxo Holdings plc.
THOMAS D'ALONZO is President and Chief Operating Officer of the Company
and of its contract research organization subsidiary, PPD Pharmaco, Inc. Mr.
D'Alonzo served as General Counsel of Adria Laboratories, a pharmaceutical
company, from 1977 to 1983 and was employed from 1983 to 1993, in various
capacities, including as President, by Glaxo Inc., a subsidiary of Glaxo
Holdings plc. Mr. D'Alonzo was President of GenVec, Inc., a gene therapy
biotechnology company, from 1993 until his employment by the Company in October
1996.
RUDY C. HOWARD is Chief Financial Officer, Vice President - Finance and
Treasurer of the Company. Prior to joining the Company in October 1995, Mr.
Howard worked with Coopers & Lybrand L.L.P., an accounting firm, since 1990 and
had been a Partner at Coopers & Lybrand L.L.P. since 1993.
FRED B. DAVENPORT, JR. is General Counsel, Vice President - Legal and
Secretary of the Company. Prior to his employment by the Company in December
1996, Mr. Davenport was a Partner in the Wilmington, North Carolina law firm of
Murchison, Taylor, Kendrick and Gibson, L.L.P., which he joined in 1977. Mr.
Davenport was also a member of the faculty of the University of North Carolina
at Wilmington's Cameron School of Business Administration from 1982 to 1991.
JOSHUA S. BAKER is Senior Vice President, Global Operations of the
Company. Prior to holding this position, Dr. Baker served as Vice President,
Biostatistics and Data Management of the Company. Prior to joining the Company
in May 1994, Dr. Baker served as Director of Biostatistics of Glaxo Research
Institute, the research and development division of Glaxo Inc., a position he
had held since September 1987.
18
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of the Company, par value $0.10 per share (the "Common
Stock"), is traded under the symbol "PPDI" in the over-the-counter market and is
quoted on the National Market System of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"). The following table sets forth
the high and low prices for shares of the Common Stock, as reported by the
National Association of Securities Dealers, Inc. These prices are based on
quotations between dealers, which do not reflect retail mark-up, markdown or
commissions.
1998 1997
---------------------------------------------------------------
High Low High Low
First Quarter $ 24.25 $ 13.00 $ 30.00 $ 18.50
Second Quarter $ 25.875 $ 18.50 $ 25.125 $ 16.00
Third Quarter $ 29.375 $ 18.625 $ 24.00 $ 18.50
Fourth Quarter $ 30.688 $ 20.00 $ 22.625 $ 12.25
As of February 16, 1999, there were approximately 8,450 holders of the
Company's Common Stock.
Since its initial public offering, the Company has not paid any cash
dividends on its Common Stock. The Company has no present plans to pay cash
dividends to its shareholders and, for the foreseeable future, intends to retain
all of its earnings for use in continuing to develop its business. The
declaration of any future dividends by the Company is within the discretion of
its Board of Directors and is dependent upon the earnings, financial condition
and capital requirements of the Company, as well as any other factors deemed
relevant by the Board of Directors.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the
Company as of December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998 are derived from the audited consolidated
financial statements included elsewhere herein. The selected financial data set
forth below for the Company as of December 31, 1996, 1995 and 1994 and for each
of the two years in the period ended December 31, 1995 are derived from the
financial statements of the Company not included elsewhere herein. The data
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with the
Company's consolidated financial statements and related notes thereto included
elsewhere in this Report.
The Company's consolidated financial data reflects its former
environmental sciences segment as discontinued operations due to the sale of
this segment on January 31, 1999. See Note 4 of Notes to Consolidated Financial
Statements.
19
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------
1998 1997 1996 (4) 1995(1) (2) (3) 1994 (1) (2)
----------- ----------- ----------- --------------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net revenue (5) $ 235,553 $ 187,487 $ 152,304 $ 160,495 $ 146,342
----------- ---------- ---------- ---------- ---------
Operating expenses 211,349 170,468 143,459 157,837 142,396
Loss on sale of business, special charges,
restructuring costs, merger costs, and
acquired in-process research and 3,163 9,670 14,773 24,290 -
development costs ----------- ---------- ---------- ---------- ---------
214,512 180,138 158,232 182,127 142,396
----------- ---------- ---------- ---------- ---------
Income (loss) from operations 21,041 7,349 (5,928) (21,632) 3,946
Other income (expense), net 3,562 1,464 1,804 (2,616) (2,728)
----------- ---------- ---------- ---------- ---------
Income (loss) from continuing operations
before provision for income taxes 24,603 8,813 (4,124) (24,248) 1,218
Provision (benefit) for income taxes 9,448 3,363 2,257 (17,163) 591
Income from operations of discontinued
environmental sciences segment, net (6) 4,614 4,152 2,874 2,578 (8,614)
Extraordinary loss from early
extinguishment of debt - - - (897) -
----------- ---------- ---------- ---------- ---------
Net income (loss) $ 19,769 $ 9,602 $ (3,507) $ (5,404) $ (7,987)
=========== ========== ========== ========== =========
Income (loss) from continuing operations
per share:
Basic $ 0.65 $ 0.24 $ (0.30) $ (0.38) $ 0.03
============ ========== ========== ========== ==========
Diluted $ 0.65 $ 0.24 $ (0.30) $ (0.38) $ 0.03
============ ========== ========== ========== ==========
Income (loss) from discontinued operations
per share:
Basic $ 0.20 $ 0.18 $ 0.13 $ 0.14 $ (0.46)
============ ========== ========== ======= ==========
Diluted $ 0.20 $ 0.18 $ 0.13 $ 0.14 $ (0.46)
============ ========== ========== ======= ==========
Loss from extraordinary item per share:
Basic $ - $ - $ - $ (0.05) $ -
========== ========== ========= ======= =========
Diluted $ - $ - $ - $ (0.05) $ -
========== ========== ========= ======= =========
Net income (loss) per share:
Basic $ 0.85 $ 0.42 $ (0.17) $ (0.29) $ (0.43)
============ ========== ========== ======= ==========
Diluted $ 0.85 $ 0.42 $ (0.17) $ (0.29) $ (0.43)
============ ========== ========== ======= ==========
Weighted average number of shares
outstanding:
Basic 23,186 22,825 21,168 18,815 18,671
Dilutive effect of stock options 169 60 - - -
----------- -------- ---------- -------- ---------
Diluted 23,355 22,885 21,168 18,815 18,671
=========== ======== ========== ======== =========
As of December 31,
1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- -----------
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 34,083 $ 15,879 $ 21,838 $ 13,565 $ 9,804
Marketable securities - 7,994 14,210 242 203
Working capital 93,917 69,950 66,603 37,320 27,795
Total assets 236,582 197,047 181,457 142,661 202,773
Long-term debt 161 340 1,428 3,471 47,620
Long-term debt, including current portion 3,741 5,246 5,649 5,672 51,170
Shareholders' equity 155,410 127,605 115,306 77,300 74,198
</TABLE>
20
<PAGE>
SELECTED FINANCIAL DATA, EXCLUDING TOXICOLOGY OPERATIONS (SOLD 11/95),
LOSS ON SALE OF BUSINESS, SPECIAL CHARGES, RESTRUCTURING CHARGES, MERGER COSTS,
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS, GAIN ON SALE OF CCCR,
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS.
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996 1995(1)(2) (3) 1994(1) (2)
--------- ----------- --------- ------------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net revenue (5) $ 235,553 $187,487 $ 152,304 $122,049 $ 99,955
Operating expenses 211,349 170,468 143,459 118,255 98,418
--------- -------- --------- -------- ---------
Income from operations 24,204 17,019 8,845 3,794 1,537
Other income (expense), net 2,490 1,464 1,804 (2,616) (2,728)
--------- -------- --------- -------- ---------
Income from continuing operations before
provision for income taxes 26,694 18,483 10,649 1,178 (1,191)
Provision (benefit) for income taxes 10,274 7,215 4,249 471 (476)
--------- -------- --------- -------- ---------
Net income (loss) $ 16,420 $ 11,268 $ 6,400 $ 707 $ (715)
========= ======== ========= ======== =========
Weighted average number of
diluted shares outstanding 23,355 22,885 21,319 18,815 18,761
========= ======== ========= ======== =========
Net income (loss) per share $ 0.70 $ 0.49 $ 0.30 $ 0.04 $ (0.04)
========= ========= ========== ========= =========
</TABLE>
- ----------
1. Following termination of its status as an S corporation prior to completion
of its initial public offering in January 1996, PPD became subject to
federal and state income taxes. The income tax data for each of the years
ended December 31, 1995 and 1994 reflects the application of corporate
income taxes to PPD's net income at the statutory combined federal and
state tax rate as if the termination of PPD's S Corporation status had
occurred on January 1, 1994.
2. Weighted average shares outstanding for each of the years ended December
31, 1995 and 1994 assumes the occurrence of events pursuant to PPD's
initial public offering and the issuance of sufficient shares at $18.00 per
share to provide net proceeds, after aggregate offering expenses and
underwriting discounts, to repay the $5.5 million debt incurred by PPD in
making the final S corporation distribution.
3. The loss from continuing operations for 1995 was affected by (i) the sale
of APBI's toxicology business, which resulted in a pre-tax loss of $19.3
million charged against operating income, (ii) a special charge against
operating income of $5.0 million primarily related to the impairment of
APBI's available for sale investments and (iii) an increase in APBI's tax
benefit as a result of the reversal of certain tax liabilities recorded in
prior years for which it was determined that APBI will not be liable for
payment.
4. The net loss for 1996 was affected by $14.8 million of merger costs
incurred in connection with the acquisition of APBI. After associated tax
benefits, the impact on net income of such merger costs was $13.0 million.
5. Revenues are presented net of subcontractor costs. See accompanying
consolidated statements of operations.
6. The discontinued operations include the Company's environmental sciences
segment sold in January 1999 and the writeoff of its remaining investment
in PACE Incorporated during the fourth quarter of 1995. All prior periods
have been restated to exclude both of the above operations.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 reflecting
management's current view with respect to certain future events and financial
performance that are subject to risks and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of factors,
including those set forth herein and in the Company's other SEC filings, and
including, in particular, risks relating to government regulation; dependence on
certain industries; the fixed price nature of contracts; the commencement,
completion or cancellation of large contracts; progress of ongoing contracts;
potential liability associated with the Company's lines of business; dependence
on personnel; management of growth and competition. 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.
GENERAL
During 1998, the Company reported net income of $19.8 million, or $0.85
per share, compared to net income of $9.6 million, or $0.42 per share, during
1997. Excluding gain on sale of business and acquisition related costs, the
Company's net income of $21.0 million was 36.1% higher than prior year net
income, excluding merger and acquisition costs, of $15.5 million.
Effective January 31, 1999, the Company sold its environmental sciences
segment to Environ Holdings, Inc., a new company formed by the management of
ENVIRON. The Company received as consideration cash of $1.4 million, a four-year
note in the amount of $7.0 million and a 12-year note in the amount of $18.0
million. The Company received an opinion from Lehman Brothers to the effect that
the consideration received is fair from a financial standpoint. The Company will
not recognize a pre-tax gain or loss as a result of the sale of the
environmental sciences segment as the sales price was based on the net assets of
the environmental sciences segment at January 31, 1999. The Company entered into
a three year consulting agreement to provide certain consulting services to
Environ Holdings for a fee of $0.5 million per year.
In February 1999, the Company formed a joint venture, PPGx, with Axys
Pharmaceuticals, Inc. to pursue the business of pharmacogenomics. The Company
contributed $1.5 million in cash, the net assets of Intek, and assigned the
rights to a certain software license from Axys for an 18.2% ownership interest
in PPGx. Separately, the Company and Axys entered into a software licensing
agreement whereby the Company licensed certain software from Axys in exchange
for a $2.0 million license fee. The Company has received exclusive marketing
rights to PPGx pharmacogenomics products and services and an option to increase
its ownership share of PPGx after the first anniversary of PPGx.
In February 1999, the Company signed a non-binding letter of intent to
acquire ATP, Inc., a health information services company. ATP provides
customized inbound and outbound telecommunications programs targeting consumers
and health care providers. Under the terms of the letter of intent, the Company
will issue approximately 1 million shares of unregistered common stock, subject
to certain closing adjustments, to the shareholders of ATP in return for their
ATP stock. The transaction is expected to be accounted for as a pooling of
interests.
In May 1998, the Company created GenuPro, Inc., a subsidiary of PPD
which holds a license to a number of compounds in the genitourinary field which
was purchased from Eli Lilly & Co. in the second quarter of 1998. As a result of
the purchase of these compounds, the Company recorded an acquired in-process
research and development charge of $3.2 million in the second quarter of 1998 as
these compounds were in the initial stage of research and development at the
date the compounds were acquired. The formation of GenuPro, Inc. is an addition
to the Company's Discovery Sciences Group.
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 $7.8 million
in the form of $5.3 million in cash and a promissory note for $2.5 million which
will be received over a period of five years. The sale resulted in a gain of
approximately $1.1 million 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.
22
<PAGE>
In June 1997, the Company moved into a new line of business with the
acquisitions of SARCO and the GSX System. These acquisitions formed the basis of
the Company's Discovery Sciences Group, which focuses on the discovery segment
of the research and development outsourcing market. The Company acquired SARCO
in a transaction accounted for as a pooling of interests. The consideration for
SARCO consisted of 263,158 shares of the Company's common stock. The Company
acquired the GSX System, a functional genomics platform technology, for
approximately $8.7 million in cash.
In March 1997, the Company acquired Belmont, a software systems
company, in a transaction accounted for as a pooling of interests. The
consideration for Belmont consisted of 502,384 shares of the Company's common
stock. In November 1997, the Company acquired Intek Labs, Inc. ("Intek"), a
pharmacogenetics company, in a transaction accounted for as a pooling of
interests. The consideration for Intek consisted of 399,999 shares of the
Company's common stock.
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, amounts for
certain items in the Company's consolidated financial statements expressed as a
percentage of net revenue from continuing operations and the percentage changes
in dollar amounts of certain items compared with the prior period:
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUE FROM CONTINUING OPERATIONS
For the Years Ended December 31,
1998 1997 1996
----------------------- ---------------------- ----------------------
Amount % Amount % Amount %
---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands)
Net revenue (1):
<S> <C> <C> <C> <C> <C> <C>
Life sciences $ 234,626 99.6% $ 187,201 99.8% $ 152,304 100.0%
Discovery sciences 927 0.4 286 0.2 - -
---------- --------- ---------- -------- ---------- ------
235,553 100.0 187,487 100.0 152,304 100.0
Direct costs:
Life sciences 117,625 94,909 79,108
Discovery sciences 3,623 1,859 -
---------- ---------- ----------
121,248 51.5 96,768 51.6 79,108 51.9
Selling, general, and
administrative expenses 77,784 33.0 62,820 33.5 55,453 36.4
Depreciation and amortization 12,317 5.2 10,880 5.8 8,898 5.8
Acquired in-process research
and development costs 3,163 1.3 9,112 4.9 - -
Merger costs - - 558 0.3 14,773 9.7
---------- --------- ---------- -------- ---------- ------
Operating income (loss) $ 21,041 8.9% $ 7,349 3.9% $ (5,928) (0.4)%
========== ========= ========== ======== ========== ======
Percentage Change
For the Years Ended December 31,
----------------------------------------------
1998 vs. 1997 1997 vs. 1996
------------- -------------
Net revenue:
Life sciences 25.3% 22.9%
Discovery sciences 224.1 N/A
Total net revenue 25.6 23.1
Direct costs:
Life sciences 23.9 20.0
Discovery sciences 94.9 N/A
Selling, general and administrative expenses 23.8 13.3
Depreciation and amortization 13.2 22.3
</TABLE>
- ----------
(1) Revenues are presented net of subcontractor costs.
23
<PAGE>
YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997
Net revenue increased $48.1 million, or 25.6%, to $235.6 million in
1998 from $187.5 million. The Life Sciences Group's operations accounted for
99.6% of the Company's net revenue for 1998. The Life Sciences Group generated
net revenue of $234.6 million, up $47.4 million, or 25.3%, from last year. The
growth in the Life Sciences Group operations was primarily attributable to an
increase in the size, scope and number of contracts in the global CRO Phase
II-IV division. The Discovery Sciences Group generated net revenue of $0.9
million, up $0.6 million, or 224.1%, from last year. The growth in the Discovery
Sciences operations was primarily attributable to an increase in the number of
contracts in the combinatorial chemistry division. Net revenue is expected to
increase in the Discovery Sciences operations during 1999, however, unless net
revenue from achievement of development milestones is received, the effect of
the segment on the Company's earnings per share should remain relatively
constant.
Total direct costs increased 25.3% to $121.2 million from $96.8 million
last year and remained relatively constant as a percentage of net revenue at
51.5% for the current year from 51.6% last year. The Life Sciences Group direct
costs decreased as a percentage of related net revenue to 50.1% from 50.7%. This
decrease is principally due to higher utilization of direct labor employees and
a focused effort to control costs. The Discovery Sciences Group direct costs
increased to $3.6 million in 1998 as compared to $1.9 million in 1997. This
increase was due to a full year of operations being recorded in the current year
as opposed to a half-year of operations recorded in 1997. (As discussed
previously, the Discovery Sciences Group was formed in June 1997 with the
acquisitions of SARCO and the GSX System).
Selling, general and administrative ("SG&A") expenses increased 23.8%
to $77.8 million from $62.8 million in 1997. The increase is primarily
attributable to the investment in additional personnel to support the Company's
expanding operations. As a percentage of net revenue, SG&A expenses decreased
slightly to 33.0% from 33.5% last year.
Total depreciation and amortization expense of $12.3 million was $1.4
million, or 13.2%, higher than last year. The increase was related to the
Company's growth as well as the ongoing capital investment in the Company's
business. The Company's capital expenditures (excluding the environmental
sciences segment) were $17.6 million in 1998. Computer equipment and software
accounted for approximately 47% of this capital investment, while expanded
capabilities in the Company's labs and Discovery Sciences Group accounted for
approximately 12%.
The Company recorded an acquired in-process research and development
charge of $3.2 million in 1998 as a result of the purchase of a license to six
genitourinary compounds from Eli Lilly & Co. during the second quarter. The
Company immediately expensed the acquired in-process research and development
costs because the compounds were in the initial phase of research and
development and had no alternative future use. This compares to an acquired
in-process research and development charge of $9.1 million recognized in 1997
related to the acquisition of the GSX System.
Operating income improved $13.7 million to $21.0 million for the year
ended December 31, 1998, as compared to $7.3 million for the year 1997.
Excluding gain on sale of CCCR, merger and acquisition related costs, the
Company's adjusted operating income of $24.2 million in 1998 was 42.2% higher
than adjusted operating income of $17.0 million in 1997. As a percentage of net
revenue, the yearly operating income of 8.9% represents a dramatic improvement
from 3.9% of net revenue last year.
Net interest and other income (expense), net, improved $2.1 million,
rising to $3.6 million for the year ended December 31, 1998 from $1.5 million
for the year 1997. Excluding the gain related to the sale of CCCR, net other
income of $2.5 million was $1.0 million higher than the prior year. The
improvement was primarily the result of the covenant not to compete payments of
$0.7 million resulting from the sale of CCCR in the first quarter of 1998. The
Company expects to receive an additional $0.1 million related to the non-compete
agreement in the first quarter of 1999.
The Company recorded income from discontinued operations, net of income
tax expense, related to its environmental sciences segment, of $4.6 million in
1998, as compared to $4.2 million in 1997. The environmental sciences segment
was sold on January 31, 1999.
24
<PAGE>
The net income of $19.8 million in 1998 represents an improvement of
$10.2 million over the $9.6 million from 1997. Net income per basic and diluted
share of $0.85 for 1998 compares to $0.42 in 1997. Excluding the impact of the
gain on sale of CCCR and acquisition-related charges in 1998 and the merger and
acquisition-related charges in 1997, the Company's 1998 net income of $21.0
million is 36.1% higher than net income of $15.5 million for 1997.
YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996
Net revenue increased $35.2 million, or 23.1%, to $187.5 million in
1997 from $152.3 million. The Life Sciences Group's operations accounted for
99.8% of the Company's net revenue for 1997. The Life Sciences Group generated
net revenue of $187.2 million, up $34.9 million, or 22.9%, as compared to 1996.
The growth in the Life Sciences Group operations was primarily attributable to
an increase in the size, scope and number of contracts in the North America
clinical development and biostatistics business over 1996. The acquisitions of
Belmont and Intek, both completed in 1997, contributed net revenue of $5.7
million for 1997. The acquisitions of SARCO and the GSX System in June 1997
formed the basis for the Company's Discovery Sciences Group which had $0.3
million of net revenue during 1997.
Total direct costs increased 22.3% to $96.8 million from $79.1 million
last year and remained relatively constant as a percentage of net revenue at
51.6% for 1997 from 51.9% in 1996. The Life Sciences Group direct costs
decreased as a percentage of related net revenue to 50.7% from 51.9%. This
decrease is principally due to higher utilization of direct labor employees and
a focused effort to control costs.
Selling, general and administrative ("SG&A") expenses increased 13.3%
to $62.8 million from $55.5 million in 1996. SG&A expenses from 1997
acquisitions comprised $2.8 million of the increase. The remaining increase is
primarily attributable to the investment in the Company's business development
and marketing organization and in the area of information technology. Additional
costs in these areas include personnel costs, training and recruitment of highly
qualified individuals. As a percentage of net revenue, SG&A expenses decreased
to 33.5% from 36.4% last year.
Total depreciation and amortization expense of $10.9 million was $2.0
million, or 22.3%, higher than last year. The increase was related to the
Company's growth as well as the ongoing capital investment in the Company's
business.
During 1997, the Company recorded merger costs of $0.6 million in
connection with the acquisitions of Belmont, SARCO and Intek. These costs were
primarily cash expenses, such as legal and accounting fees related to pooling
transactions. During 1996, the Company recorded merger costs of $14.8 million.
These costs were primarily cash expenses, such as investment banking fees, legal
and accounting fees, and employee severance as a result of the integration of
the administrative functions of PPD and APBI.
The Company recorded an acquired in-process research and development
charge of $9.1 million in the second quarter of 1997. These costs were charged
to operations upon the acquisition of the GSX System. The Company hired an
independent consultant to determine the fair value of the acquired in-process
research and development. The purchase price in excess of the net assets of the
GSX System was allocated to acquired in-process research and development costs,
because the technology had no alternative future use and had not reached
technological feasibility at the date of the acquisition.
Operating income improved $13.3 million to $7.3 million for the year
ended December 31, 1997, as compared to an operating loss of $5.9 million for
the year 1996. Excluding merger and acquisition related costs, the Company's
operating income of $17.0 million in 1997 was 92.4% higher than operating income
(before the impact of merger and acquisition related costs) of $8.8 million in
1996. As a percentage of net revenue, the 1997 operating income of 3.9%
represents a dramatic improvement from the operating loss of 3.9% of net revenue
in 1996.
The Company recorded income from its discontinued environmental
sciences segment of $4.2 million in 1997, as compared to $2.9 million in 1996.
The increase in income from discontinued operations in 1997 as compared to 1996
was due to the 1997 acquisition of Technical Assessment Systems, Inc.
25
<PAGE>
The net income of $9.6 million in 1997 represents an improvement of
$13.1 million over the $3.5 million net loss in 1996. Net income per basic and
diluted share of $0.42 for 1997 compares to a net loss per basic and diluted
share of $0.17 in 1996. Excluding the impact of the merger costs and
acquisition-related charges on both years, the Company's 1997 net income of
$15.5 million is 53.6% higher than 1996's net income of $10.1 million. Excluding
these non-recurring charges, net income per diluted share of $0.68 for 1997
compares to $0.47 for 1996 computed on 1.6 million more shares outstanding for
1997.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had $34.1 million of cash and cash
equivalents on hand. The Company has historically funded its operations and
growth, including acquisitions, with cash flow from operations, borrowings and
through the use of the Company's stock.
For the year ended December 31, 1998, the Company experienced a net
increase in cash flow from operating activities to $23.6 million as compared to
$11.1 million for the year ended December 31, 1997. The increase in cash flow
from operations is primarily due to an increase in the Company's net revenues
and an increase in operating margins as a percentage of net revenues. For the
1998 period, net income of $19.8 million, depreciation and amortization of $14.2
million and the acquired in-process research and development of $3.2 million
were offset primarily by the net increase of $13.8 million in other assets and
liabilities (which includes a $28.1 million increase in accounts receivable and
unbilled services due to the growth in revenue).
For the year ended December 31, 1998, the Company's investing
activities used net cash of $11.0 million. Capital expenditures of $19.3
million, cash paid for the acquisition of a license to certain compounds of $3.2
million and $1.8 million in net cash paid for acquisitions were partially offset
by $8.0 million in proceeds from the sale of investments and $5.3 million of net
proceeds received from the sale of CCCR.
For the year ended December 31, 1998, the Company's financing
activities provided $5.6 million in cash, as net proceeds from stock option
exercises of $7.0 million were partially offset by $1.5 million in repayment of
long-term debt.
For the year ended December 31, 1997, the Company experienced a net
increase in cash flow from operating activities to $11.1 million as compared to
$0.3 for the year ended December 31, 1996. For the period, net income of $9.6
million, depreciation and amortization of $12.4 million and the acquired
in-process research and development of $9.1 million were offset primarily by the
net decrease of $19.1 million in other assets and liabilities (which includes a
$24.5 million increase in billed and unbilled receivables due to the growth in
revenue), as well as cash disbursements of $7.4 million related to previously
accrued merger expenses.
For the year ended December 31, 1997, the Company used net cash of
$16.8 million in investing activities, as capital expenditures of $13.6 million
and the cash paid for the acquisition of the GSX technology of $9.1 million were
only partially offset by $6.3 million in cash provided by net maturities of
investments.
For the year ended December 31, 1997, the Company's financing
activities provided $1.0 million in cash, as net proceeds from stock option
exercises of $2.2 million were partially offset by $1.3 million in net repayment
of long-term debt and $0.4 million in cash used to pay pre-merger distributions
to shareholders of Belmont.
In June 1998, the Company obtained 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
December 31, 1998, the Company had $15.0 million reserved under this facility in
the form of a letter of credit. This credit facility expires in June 2000, at
which time any outstanding balance is due.
26
<PAGE>
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 December 31,
1998, the Company had $3.3 million outstanding under this facility. This credit
facility expires in March 1999, at which time the outstanding balance is due.
The Company plans to renegotiate this credit facility before its expiration
date.
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 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 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, computer systems and/or software used by many companies in a very wide
variety of applications may 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 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 was 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, execution of those plans and
testing of all technology affected by this issue. In addition, the Company is
engaged in assessing the Year 2000 issue with significant suppliers and clients.
At December 31, 1998, the assessment process is 95% complete for all
equipment (including computer hardware and software technology) used internally
by the Company as compared to 85% at September 30, 1998. 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 services and
products sold by the Company. Remediation is well underway, with approximately
80% of all systems requiring remediation completed at December 31, 1998 as
compared to 50% at September 30, 1998. All systems, regardless of whether they
require remediation, are being tested to ensure Year 2000 compliance. The
Company has completed testing for Year 2000 compliance as of December 31, 1998
for 89% of our systems as compared to 50% at September 30, 1998. The Company
expects to complete this effort by April 1999. The Company has initiated 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 responds promptly 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 $1.4 million on Year 2000
compliance, and expects to spend an additional $0.2 million to complete the
compliance process. Of the total amount that 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.
27
<PAGE>
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 clinical studies being
performed for these clients, the Company will have a specified period of time to
correct those issues. If not corrected, the client can modify or terminate its
contract with the Company. 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 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 key 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 and develop contingency
plans for a possible Year 2000 failure as it completes its testing 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.
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
amounts in dollars 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 (approximately 15%). It is anticipated
that those conditions will persist for at least through December 31, 1999.
There are no material exchange controls currently in effect in any
country in which the Company's subsidiaries conduct operations 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.
28
<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 and other international business
risks 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to foreign currency risk by virtue of its
international operations. The Company conducts business in several foreign
countries and approximately 15%, 13% and 14% of the Company's net revenues for
the years ended December 31, 1998, 1997 and 1996, respectively, were derived
from the Company's operations outside the United States. Funds generated by each
subsidiary of the Company are generally reinvested in the country where they are
earned. The operations in the United Kingdom have generated more than 45% of the
Company's revenue from foreign operations. Accordingly, some exposure exists to
potentially adverse movements in the pound sterling. The United Kingdom has
traditionally had a relatively stable currency. It is anticipated that those
conditions will persist for at least through December 31, 1999.
Additionally, the Company's consolidated financial statements are
denominated in U.S. dollars and, accordingly, changes in the exchange rates
between the Company's subsidiaries' local currency and the U.S. dollar will
affect the translation of such subsidiaries' financial results into U.S. dollars
for purposes of reporting the Company's consolidated financial results.
Translation adjustments are reported with accumulated other comprehensive income
(loss) as a separate component of shareholders' equity. Financial statement
translation has not, to date, been material to the Company's balance sheet. Such
adjustments may in the future be material to the Company's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is set forth herein commencing
on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
29
<PAGE>
PART III
Certain information required by Part III is omitted from this report,
because the Registrant intends to file a definitive proxy statement for its 1999
Annual Meeting of Stockholders (the "Proxy Statement") within 120 days after the
end of its fiscal year pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended, and the information included
therein is incorporated herein by reference to the extent provided below.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 of Form 10-K concerning the
Registrant's executive officers is set forth under the heading "Executive
Officers" located at the end of Part I of this Form 10-K.
The other information required by Item 10 of Form 10-K is incorporated
by reference to the information under the headings "Proposal No. 1 - Election of
Directors" and "Other Information-Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated by
reference to the information under the heading "Proposal No. 1 - Election of
Directors - Information About the Board of Directors and Its Committees," "Other
Information - Executive Compensation Tables," "--Director Compensation,"
"--Report of the Compensation Committee on Executive Compensation,"
"--Compensation Committee Interlocks and Insider Participation," and
"--Performance Graph" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10-K is incorporated by
reference to the information under the heading "Other Information - Principal
Shareholders" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements and Financial Statement Schedules
1. The consolidated financial statements of the Company and its
subsidiaries filed as part of this Report are listed in the
attached Index to Consolidated Financial Statements and
Financial Statement Schedule.
2. The schedule to the consolidated financial statements of the
Company and its subsidiaries filed as part of this Report is
listed in the attached Index to Consolidated Financial
Statements and Financial Statement Schedule.
3. The exhibits filed as part of this Report are listed in Item
14(c) below.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission on February 16, 1999,
relating to the Company's disposition of its environmental
sciences consulting and management subsidiaries in a
management buyout, which was effective January 31, 1999. As
part of the Current Report on Form 8-K, the Company filed
unaudited pro forma financial statements as of December 31,
1998 and for the twelve months ended December 31, 1998,
December 31, 1997 and December 31, 1996, giving pro forma
effect to the sale of the environmental sciences subsidiaries
transaction.
(c) Exhibits
EXHIBIT NO. DESCRIPTION
2.1** --Plan of Merger to Merge PPD Subsidiary, Inc. with and into
Pharmaceutical Product Development Clinical Research Unit,
Inc. ("PPD-CRU").
2.2** --Plan of Merger to Merge PPD-Europe, Inc. ("PPD Europe") with
and into the Registrant.
2.3* --Agreement and Plan of Reorganization, dated as of June 20,
1996, among the Registrant, Wilmington Merger Corp. and
Applied Bioscience International Inc.
2.4* --Stock and Asset Master Purchase Agreement by and among
Huntingdon International Holdings plc, Huntingdon Life
Sciences Inc., Applied Bioscience International Inc. and
Pharmaco LSR International Inc., dated as of November 1,
1995, incorporated by reference to Exhibit 2 to Applied
Bioscience International Inc.'s Current Report on Form 8-K
filed with the Securities and Exchange Commission on December
6, 1996.
2.5* --Stock Purchase Agreement among Applied Bioscience
International Inc., PPD UK Holdings Limited and Environ
Holdings Inc. for the acquisition of all the capital stock of
APBI Environmental Sciences Group, Inc., Environmental
Assessment Group Limited and Environ International Limited,
dated January 31, 1999.
3.1* --Restated Articles of Incorporation.
3.2* --Amended and Restated Bylaws.
10.4** --Plan of Merger to Merge PPD Subsidiary, Inc. with and into
PPD-CRU (see Exhibit 2.1).
10.5** --Plan of Merger to Merge PPD-Europe with and into the
Registrant (see Exhibit 2.2).
10.8** --Pharmaceutical Product Development, Inc. Equity Compensation
Plan, effective as of October 30, 1995.
10.9** --Pharmaceutical Product Development, Inc. Stock Option Plan
for Non-Employee Directors, effective as of October 31, 1995.
10.10** --Registration Rights Agreement, dated January 24, 1996, by and
among the Registrant and certain of its shareholders.
10.31** --Lease Agreement, dated as of August 1, 1991, by and between
Connecticut General Life Insurance Company and the
Registrant, as amended on January 5, 1993 and on August 18,
1995.
10.35** --Lease, dated January 26, 1994, by and between Michael James
Lawton, Jeffrey William Ware, Prudential Nominees Limited and
Gabbay Group Limited.
10.36** --Lease on Offices, dated October 19, 1993, by and between
Eucro European Contract Research GmbH and Gabbay Group Ltd.
10.38** --Lease Agreement, dated as of October 25, 1995, by and between
the Registrant and Perimeter Park West Associates Limited
Partnership.
10.39** --Lease Agreement, dated as of October 25, 1995, by and between
PPD-CRU and Perimeter Park West Associates Limited
Partnership.
10.55** --Lease made January 23, 1996 between PPD-CRU and Western
Center Properties, Inc.
10.57* --First Amendment to Registration Rights Agreement.
10.59* --First Amendment to Lease Agreement, dated October 25, 1995,
between PPD and Perimeter Park West Associates Limited
Partnership.
10.60* --First, Second and Third Amendments to Lease Agreement, dated
March 25, 1996, between PPD and BBC Family Limited
Partnership.
31
<PAGE>
10.61* --Lease Agreement, dated March 25, 1996, between PPD and BBC
Family Limited Partnership.
10.71* --Lease Agreement by and between ABI (TX) QRS 12-11, Inc. and
Pharmaco LSR International Inc., incorporated by reference to
Exhibit 10.43 to Applied Bioscience International Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1995.
10.79* --Consulting Agreement, dated as of October 1, 1996, by and
between Applied Bioscience International Inc., and John D.
Bryer, incorporated by reference to Exhibit 10.66 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1996.
10.80* --Employment Agreement, dated as of October 5, 1996, by and
between Pharmaceutical Product Development, Inc., and Thomas
D'Alonzo, incorporated by reference to Exhibit 10.67 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1996.
10.81* --Employment Agreement, dated as of September 26, 1996, by and
between Pharmaceutical Product Development, Inc., and Fred B.
Davenport, Jr.
10.83a-83f* --Substitute Non-Statutory Stock Option Agreements by and
between Pharmaceutical Product Development, Inc. and Grover
C. Wrenn, dated as of September 26, 1996.
10.84* --Employment Agreement dated June 4, 1997, by and between the
PPD Discovery, Inc. and Mark E. Furth.
10.85* --Note and Loan Agreement, dated June 25, 1997, made by the PPD
Discovery, Inc. for the benefit of First Union National Bank
of North Carolina.
10.86* --Pharmaceutical Product Development, Inc. Employee Stock
Purchase Plan, dated May 15,1997.
10.87* --Amendment to Employee Stock Purchase Plan, dated June 21,
1997.
10.88* --Amendment to Stock Option Plan for Non-Employee Directors,
dated May 15, 1997.
10.89* --Amendment to Equity Compensation Plan, dated May 15, 1997.
10.90* --Employment Agreement, effective July 1, 1997, between
Pharmaceutical Product Development, Inc. and Fredric N.
Eshelman.
10.91* --Note and Loan Agreement, dated August 7, 1997, between
Pharmaceutical Product Development, Inc. and Wachovia Bank,
N.A.
10.92* --First Amendment to Loan Agreement dated August 11, 1997,
between the Registrant and First Union National Bank.
10.93* --Lease Agreement dated July 9, 1997, between Weeks Realty,
Inc. and PPD Pharmaco, Inc.
10.94* --Employment Agreement dated October 1, 1997 between PPD
Pharmaco, Inc. and Joshua S. Baker.
10.95* --Employment Agreement dated January 1, 1998 between
Pharmaceutical Product Development, Inc. and Rudy C. Howard.
10.96* --Employment Agreement dated January 1, 1998 between PPD
Pharmaco, Inc. and Patrick C. O'Connor.
10.97* --Employment Agreement dated January 1, 1998 between PPD
Pharmaco, Inc. and Paul S. Covington.
10.98* --Employment Agreement dated January 1, 1998 between PPD
Pharmaco, Inc. and Mark A. Sirgo.
10.99* --Amendment to Employment Agreement dated February 2, 1998
between Pharmaceutical Product Development, Inc. and Fred B.
Davenport, Jr.
10.100* --Severance Agreement dated February 2, 1998 between
Pharmaceutical Product Development, Inc. and Fredric N.
Eshelman.
10.101* --Severance Agreement dated February 2, 1998 between
Pharmaceutical Product Development, Inc. and Thomas D'Alonzo.
10.102* --Severance Agreement dated February 2, 1998 between
Pharmaceutical Product Development, Inc. and Rudy C. Howard.
10.103* --Severance Agreement dated February 2, 1998 between
Pharmaceutical Product Development, Inc. and Fred B.
Davenport, Jr.
10.104* --Severance Agreement dated February 2, 1998 between
Pharmaceutical Product Development, Inc. and Joseph H.
Highland.
10.105* --Severance Agreement dated February 2, 1998 between
Pharmaceutical Product Development, Inc. and Joshua S. Baker.
10.106* --Severance Agreement dated February 2, 1998 between
Pharmaceutical Product Development, Inc. and Patrick C.
O'Connor.
10.107* --Severance Agreement dated February 2, 1998 between
Pharmaceutical Product Development, Inc. and Paul S.
Covington.
32
<PAGE>
10.108* --Severance Agreement dated February 2, 1998 between
Pharmaceutical Product Development, Inc. and Mark A. Sirgo.
10.109* --Severance Agreement dated February 2, 1998 between
Pharmaceutical Product Development, Inc. and William Neilson.
10.110* --Amendment to Employee Stock Purchase Plan, dated March 2,
1998.
10.111* --Employment Agreement dated May 22, 1998 between Subsidiary
No. 5, Inc. and Karl B. Thor.
10.112* --Severance Agreement dated May 22, 1998 between Subsidiary No.
5, Inc. and Karl B. Thor.
10.113* --Note and Loan Agreement, dated June 24, 1998 between
Pharmaceutical Product Development, Inc. and First Union
National Bank.
10.114* --Lease Agreement dated June 26, 1998 between Weeks Realty
Limited Partnership and PPD Pharmaco, Inc.
10.115* --First Amendment to Loan Agreement dated August 6, 1998,
between Pharmaceutical Product Development, Inc. and Wachovia
Bank, N.A.
10.116* --First Amendment to Lease Agreement dated October 28, 1998,
between PPD Pharmaco, Inc. and Weeks Realty, Inc.
10.117* --Lease Agreement dated September 15, 1998 between PPD
Pharmaco, Inc. and BBC Family Limited Partnership.
10.118 --Lease Agreement dated December 16, 1998 between PPD Pharmaco,
Inc. and Weeks Realty Limited Partnership.
10.119 --Employment Agreement dated January 1, 1999 between
Pharmaceutical Product Development, Inc. and David R.
Williams.
10.120 --Severance Agreement dated February 2, 1998 and Amendment No.
1 to Severance Agreement dated January 1, 1999 between
Pharmaceutical Product Development, Inc. and David R.
Williams.
10.121 --Loan Agreement dated February 1, 1999, by and among PPGx,
Inc., Pharmaceutical Product Development, Inc., as Guarantor,
and First Union National Bank.
10.122 --First Amendment to Loan Agreement dated January 30, 1999,
between Pharmaceutical Product Development, Inc. and First
Union National Bank.
10.123 --Second Amendment to Loan Agreement dated January 30, 1999,
between Pharmaceutical Product Development, Inc. and Wachovia
Bank, N.A.
10.124 --Stock Purchase Agreement dated February 1, 1999 between PPGx,
Inc. and Pharmaceutical Product Development, Inc.
10.125 --Software License Agreement dated January 31, 1999 between
Axys Pharmaceuticals and Pharmaceutical Product Development,
Inc.
10.126 --PPD Technology Transfer Agreement dated February 1, 1999
between PPGx, Inc. and Pharmaceutical Product Development,
Inc.
10.127 --Assignment and Assumption of License Agreement dated February
1, 1999 between Pharmaceutical Product Development, Inc. and
PPGx, Inc.
10.128 --Credit and Security Agreement dated February 2, 1999, between
Applied Bioscience International Inc., Environ Holdings, Inc.
and APBI Environmental Sciences Group, Inc.
21 --Subsidiaries of the Registrant.
23.1 --Consent of PricewaterhouseCoopers LLP
27 --Financial Data Schedule (for SEC use only).
* Previously filed.
** Incorporated by reference to the Registrant's Registration Statement on
Form ex-27, as amended (File No. 33-98996).
33
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-4
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Pharmaceutical Product Development, Inc. and its Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Pharmaceutical Product Development, Inc. and its subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Raleigh, North Carolina
February 2, 1999
F-2
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
Life sciences revenues, net of subcontractor costs of $91,432,
<S> <C> <C> <C> <C>
$69,094 and $47,933, respectively $ 234,626 $ 187,201 $ 152,304
Discovery sciences revenues, net of subcontractor costs of $48
and $45 in 1998 and 1997, respectively 927 286 -
--------- --------- ---------
Net revenue 235,553 187,487 152,304
--------- --------- ---------
Direct costs - Life sciences 117,625 94,909 79,108
Direct costs - Discovery sciences 3,623 1,859 -
Selling, general and administrative expenses 77,784 62,820 55,453
Depreciation and amortization 12,317 10,880 8,898
Merger costs - 558 14,773
Acquired in-process research and development costs 3,163 9,112 -
--------- --------- ---------
214,512 180,138 158,232
--------- --------- ---------
Operating income (loss) 21,041 7,349 (5,928)
Interest:
Income 1,584 1,342 1,919
Expense (414) (478) (420)
Other income (expense), net 2,392 600 305
--------- --------- ---------
Income (loss) from continuing operations before
provision for income taxes 24,603 8,813 (4,124)
Provision for income taxes 9,448 3,363 2,257
--------- --------- ---------
Income (loss) from continuing operations 15,155 5,450 (6,381)
Income from operations of discontinued environmental sciences segment,
net of income taxes of $3,012, $2,711 and $1,877, respectively 4,614 4,152 2,874
--------- --------- ---------
Net income (loss) $ 19,769 $ 9,602 $ (3,507)
========= ========= =========
Income (loss) from continuing operations per share:
Basic $ 0.65 $ 0.24 $ (0.30)
========= ========= =========
Diluted $ 0.65 $ 0.24 $ (0.30)
========= ========= =========
Income from discontinued operations per share:
Basic $ 0.20 $ 0.18 $ 0.13
========= ========= =========
Diluted $ 0.20 $ 0.18 $ 0.13
========= ========= =========
Net income (loss) per share:
Basic $ 0.85 $ 0.42 $ (0.17)
========= ========= =========
Diluted $ 0.85 $ 0.42 $ (0.17)
========= ========= =========
Weighted average number of common shares outstanding:
Basic 23,186 22,825 21,168
Dilutive effect of stock options 169 60 -
--------- --------- ---------
Diluted 23,355 22,885 21,168
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
Current assets
<S> <C> <C>
Cash and cash equivalents $ 34,083 $ 15,879
Marketable securities - 7,994
Accounts receivable and unbilled services, net 126,815 101,554
Investigator advances 1,505 1,870
Prepaid expenses and other current assets 7,812 7,227
Deferred tax asset 2,751 1,973
---------- ---------
Total current assets 172,966 136,497
Property and equipment, net 42,509 34,902
Goodwill, net 14,869 18,026
Other assets 6,238 7,622
---------- ----------
Total assets $ 236,582 $ 197,047
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 3,580 $ 4,906
Accounts payable 7,812 6,249
Payables to investigators 5,204 4,138
Other accrued expenses 28,007 20,484
Accrued income taxes - 3,048
Unearned income 34,446 27,722
---------- ----------
Total current liabilities 79,049 66,547
Long-term debt, less current maturities 161 340
Deferred rent and other 1,962 2,555
---------- ----------
Total liabilities 81,172 69,442
---------- ----------
Commitments and contingencies (Notes 10 and 14)
Shareholders' equity
Common stock, $0.10 par value, 95,000,000 shares authorized; 23,433,000 and
22,949,000 shares issued and outstanding,
respectively 2,343 2,295
Paid-in capital 123,709 115,680
Retained earnings 29,929 10,112
Accumulated other comprehensive income (571) (482)
---------- ----------
Total shareholders' equity 155,410 127,605
---------- ----------
Total liabilities and shareholders' equity $ 236,582 $ 197,047
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Earnings Comprehensive
Common Shares Paid in (Accumulated Income
Shares Par Value Capital Deficit) (Loss)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 18,677 $ 1,870 $ 65,701 $ 10,621
Net loss (3,507) $ (3,507)
---------
Other comprehensive income:
Unrealized gain on investments 226
Translation adjustments 1,093
---------
Other comprehensive income 1,319
---------
Comprehensive loss $ (2,188)
=========
Public offering, net of cash offering costs 2,300 230 36,952
Shareholder S corp. distributions 1,595 (7,532)
Issuance of common shares 242 24 622
Issuance of common shares for exercise
of stock options 365 37 5,058
Income tax benefit from exercise of stock
options and unearned compensation
amortization 1,990
Other 40 2 688 55
------------------------------------------------
BALANCE DECEMBER 31, 1996 21,624 2,163 112,606 (363)
Net income 9,602 $ 9,602
---------
Other comprehensive income:
Unrealized loss on investments, net (64)
Translation adjustments (1,318)
---------
Other comprehensive income (1,382)
---------
Comprehensive income $ 8,220
=========
Issuance of common shares in
connection with acquisitions 1,165 115 89 1,304
Issuance of common shares for exercise
of stock options 142 16 2,199
Income tax benefit from exercise of
stock options 510
Distribution to shareholders (431)
Proceeds of Section 16(b) transaction,
net of related tax provision of $155 276
Other 18 1
------------------------------------------------
BALANCE DECEMBER 31, 1997 22,949 2,295 115,680 10,112
Net income 19,769 $ 19,769
---------
Other comprehensive income:
Reclassification adjustment for net gain
included in net income (167)
Translation adjustments 78
---------
Other comprehensive income (89)
---------
Comprehensive income $ 19,680
=========
Issuance of common shares for exercise
of stock options and employee stock
purchase plan 484 48 6,980
Income tax benefit from exercise of
stock options 1,049
Repayment from shareholders 48
------------------------------------------------
BALANCE DECEMBER 31, 1998 23,433 $ 2,343 $ 123,709 $ 29,929
========= ========= ========= =========
Accumulated
Other
Comprehensive Unearned
Income (Loss) Compensation Total
------------------------------------------
BALANCE, DECEMBER 31, 1995 $ (419) $ (473) $ 77,300
Net loss (3,507)
Other comprehensive income:
Unrealized gain on investments 226
Translation adjustments 1,093
Other comprehensive income 1,319
Comprehensive loss
Public offering, net of cash offering costs 37,182
Shareholder S corp. distributions (5,937)
Issuance of common shares 646
Issuance of common shares for exercise
of stock options 5,095
Income tax benefit from exercise of stock
options and unearned compensation
amortization 1,990
Other 473 1,218
------------------------------------
BALANCE DECEMBER 31, 1996 900 -- 115,306
Net income 9,602
Other comprehensive income:
Unrealized loss on investments, net (64)
Translation adjustments (1,318)
Other comprehensive income (1,382)
Comprehensive income
Issuance of common shares in
connection with acquisitions 1,508
Issuance of common shares for exercise
of stock options 2,215
Income tax benefit from exercise of
stock options 510
Distribution to shareholders (431)
Proceeds of Section 16(b) transaction,
net of related tax provision of $155 276
Other 1
------------------------------------
BALANCE DECEMBER 31, 1997 (482) -- 127,605
Net income 19,769
Other comprehensive income:
Reclassification adjustment for net gain
included in net income (167)
Translation adjustments 78
Other comprehensive income (89)
Comprehensive income
Issuance of common shares for exercise
of stock options and employee stock
purchase plan 7,028
Income tax benefit from exercise of
stock options 1,049
Repayment from shareholders 48
------------------------------------
BALANCE DECEMBER 31, 1998 $ (571) $ -- $ 155,410
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 19,769 $ 9,602 $ (3,507)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 14,210 12,394 10,436
Acquired in-process research and development 3,163 9,112 -
Gain on sale of CCCR (1,071) - -
Deferred income taxes 1,409 (910) 1,375
Stock compensation amortization - - 668
Loss on disposition of property and equipment 55 32 6
(Gain) loss on sale of investments (174) 3 (8)
Change in operating assets and liabilities:
Accounts receivable and unbilled services, net (28,140) (24,470) (2,043)
Prepaid expenses and other current assets (381) 2,073 (4,317)
Current income taxes (2,088) 3,406 1,354
Other assets 1,468 842 1,068
Accounts payable and other accrued expenses 7,046 (8,336) (3,873)
Payable to investigators 1,066 (1,291) (2,999)
Unearned income 7,243 8,740 2,569
Other - (58) (411)
--------- --------- ---------
Net cash provided by operating activities 23,575 11,139 318
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (19,343) (13,599) (11,176)
Net cash received from sale of CCCR 5,285 - -
Net cash paid for acquisition of in-process
research and development (3,163) (9,112) -
Proceeds from sale of property and equipment 5 174 74
Proceeds from sale of marketable securities 8,000 17,240 37,655
Purchases of marketable securities - (10,972) (51,454)
Sale of investments - - 244
Purchase of investments - (1,500) -
Net cash received from (paid for) acquisitions (1,829) 991 (3,867)
--------- --------- ---------
Net cash used in investing activities (11,045) (16,778) (28,524)
--------- --------- ---------
Cash flows from financing activities:
Line of credit borrowings - - 669
Proceeds from long-term debt - 138 167
Principal repayments on long-term debt (1,480) (1,355) (2,415)
Cash dividends paid - - (5,937)
Proceeds of Section 16(b) transaction - 431 -
Repayment from (distribution to) shareholders 48 (431) -
Proceeds from issuance of common stock 7,028 2,215 42,902
--------- --------- ---------
Net cash provided by financing activities 5,596 998 35,386
--------- --------- ---------
Effect of exchange rate changes on cash 78 (1,318) 1,093
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 18,204 (5,959) 8,273
Cash and cash equivalents, beginning of the year 15,879 21,838 13,565
--------- --------- ---------
Cash and cash equivalents, end of the year $ 34,083 $ 15,879 $ 21,838
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Pharmaceutical Product Development, Inc. and its subsidiaries,
collectively (the "Company"), provide a broad range of research and consulting
services in two business segments: life sciences and discovery sciences. Prior
to the divestiture of its environmental sciences segment on January 31, 1999
(see Note 4), the Company also provided environmental sciences services.
Services provided in the life sciences segment include worldwide clinical
research and development of pharmaceutical products and medical devices,
biostatistical analysis and analytical laboratory services. Discovery sciences
services include target identification and validation, compound creation,
screening and compound selection. Environmental sciences services included
assessment and management of chemical and environmental health risk, site
investigation and remediation planning and litigation support. The Company
provides its services under contract to clients in the pharmaceutical, general
chemical, agrochemical, biotechnology and other industries. The environmental
sciences segment also marketed services to clients in the industrial,
manufacturing and oil and gas industries. The Company's life sciences services
are marketed primarily in the United States and Europe. Revenues derived from
the Company's discovery segment are all within the United States. The
environmental sciences segment marketed its services primarily in the United
States and Europe.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
and results of operations of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
MERGER COSTS AND SPECIAL CHARGES
During 1997, the Company recorded merger costs of $600 in connection
with the acquisitions of Belmont Research, Inc., SARCO, Inc., and Intek Labs,
Inc., which were accounted for using the pooling of interests method of
accounting. These costs were primarily transaction expenses related to these
pooling transactions.
In connection with the acquisition of Applied Bioscience International
Inc. ("APBI") in September 1996, the Company implemented a reorganization plan
under which the Company would eliminate certain positions and close a facility.
The Company recorded merger and reorganization costs related to this acquisition
of $16,100. Included in these costs were transaction costs of $7,100, related
primarily to investment banking, legal and accounting fees. In addition, the
Company recorded $9,000 in accruals for severance, lease termination and certain
other costs. Of the amounts accrued, $3,200 was for severance payments primarily
for administrative personnel.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS
The Company recorded an acquired in-process research and development
charge of $3,200 in the second quarter of 1998 related to the purchase of a
license to six genitourinary compounds from Eli Lilly & Co. The Company
immediately expensed the acquired in-process research and development costs
because these compounds were in the initial phase of research and development
and had no alternative future use.
The Company acquired the GSX System for $8,700 in cash in June 1997.
Liabilities assumed in this transaction were $832. The purchase price in excess
of the net assets of the GSX System of $9,100 was allocated to acquired
in-process research and development costs and charged to operations at the
acquisition date, as the technology under development by the GSX System had not
reached technological feasibility and had no alternative future use.
F-7
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
REVENUE RECOGNITION
The Company records revenues from fixed-price contracts on a
percentage-of-completion basis. Revenues from time-and-material contracts are
recognized as hours are accumulated multiplied by the billable rates for each
contract. Revenues are recorded net of reimbursement received from clients for
pass-through expenses, which generally include subcontractor costs that consist
of investigator fees, travel and certain other contract costs.
If it is determined that a loss will result from the performance of a
fixed-price contract, the entire amount of the estimated loss is charged against
income in the period in which such determination is made. Clients generally may
terminate a study at any time, which may cause unplanned periods of excess
capacity and reduced revenues and earnings. To offset the effects of early
terminations of significant contracts, the Company attempts to negotiate the
payment of an early termination fee as part of the original contract.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of unrestricted cash accounts, which
are not subject to withdrawal restrictions or penalties, and all highly liquid
investments with a maturity of three months or less at the date of purchase.
Supplemental cash flow information consisted of the following:
YEARS ENDED DECEMBER 31,
1998 1997 1996
--------- --------- ---------
Cash paid:
Interest $ 420 $ 354 $ 326
========= ========= =========
Income taxes, net $ 12,628 $ 2,583 $ 1,594
========= ========= =========
MARKETABLE SECURITIES
The Company records its investment in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." The classification of
securities is generally determined at the date of purchase. All marketable
securities of the Company have been classified as available-for-sale and have
been reported at fair value with unrealized gains and losses reported in other
comprehensive income. The unrealized net loss on investment in marketable
securities included in other comprehensive income at December 31, 1998 and 1997
totaled $0 and $64, respectively. Gains and losses on sales of investments in
marketable securities, which are computed based on specific identification of
adjusted cost of each security, are included in other income at the time of the
sales.
INVESTIGATOR PAYMENTS
Billings and payments to investigators are based on predetermined
contractual agreements that may differ from the accrual of the expense.
Investigator expenses are recognized based upon the status of the work completed
as a percentage of the total procedures required under the contract or based on
patient enrollment over the term of the contract. Payments made in excess of the
accrued expenses are classified as investigator advances, and accrued expenses
in excess of amounts paid are classified as payables to investigators in the
consolidated balance sheet. Contracted physician costs are considered a
pass-through expense and are recorded as a reduction to revenues in the
consolidated statements of operations.
F-8
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is recorded using the straight-line method, based
on estimated useful lives of 20 to 40 years for buildings, five to 12 years for
laboratory equipment, three to five years for computers and related equipment,
and four to 10 years for furniture and equipment. Leasehold improvements are
amortized over the shorter of the respective lives of the leases or the useful
lives of the improvements. Property under capital leases is amortized over the
life of the lease or the service life, whichever is shorter.
INTERNAL USE SOFTWARE
The Company accounts for internal use software in accordance with the
provisions of AICPA Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which allows certain
direct costs and interest costs that are incurred during the application stage
of development to be capitalized and amortized over the useful life of the
software.
GOODWILL
The excess of the purchase price of the businesses acquired over the
fair value of net tangible assets and identifiable intangibles and acquired
in-process research and development costs at the date of the acquisitions has
been assigned to goodwill. Goodwill is being amortized over periods of 15 to 40
years. As of December 31, 1998 and 1997, accumulated amortization was $4,926 and
$4,383, respectively. The amortization charges for each of the three years ended
December 31, 1998, 1997 and 1996 were $1,235, $1,401 and $950, respectively.
OTHER ASSETS
Other assets are comprised of investments in certain technology
companies, other intangible assets, a note receivable and net long-term deferred
tax assets. Other intangible assets are being amortized over periods of three to
five years. See Note 8.
REALIZABILITY OF CARRYING VALUE OF LONG-LIVED ASSETS
The Company is required to review long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable, in accordance with the provisions of Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Accordingly,
when indicators of impairment are present, the Company evaluates the carrying
value of property, plant and equipment and intangibles, including goodwill, in
relation to the operating performance and estimates of future discounted cash
flows of the underlying business and recognizes an impairment, if necessary, to
state property, equipment and intangibles at their fair value. No such
impairment was necessary during each of the three years ended December 31, 1998,
1997 and 1996.
UNBILLED SERVICES AND UNEARNED INCOME
In general, prerequisites for billings are established by contractual
provisions, including predetermined payment schedules, the achievement of
contract milestones or submission of appropriate billing detail. Unbilled
services arise when services have been rendered but clients have not been
billed. Similarly, unearned income represents amounts billed in excess of
revenue recognized.
INCOME TAXES
Income taxes are computed using the asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences, the
Company generally considers all expected future events other than enactment of
changes in tax law or rates. If it is "more likely than not" that some portion
or all of a deferred tax asset will not be realized, a valuation allowance is
recorded.
F-9
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
CONCENTRATION OF CREDIT RISK
Statement of Financial Accounting Standards No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk", requires disclosure
of information about financial instruments with off-balance-sheet risk and
financial instruments with concentrations of credit risk. Financial instruments
which subject the Company to concentrations of credit risk consist principally
of accounts receivable and cash equivalents.
The Company's clients are primarily pharmaceutical and biotechnology
companies. No single client accounted for more than 10% of the Company's net
revenue in 1998, 1997 or 1996. Concentrations of credit risk with respect to
accounts receivable are limited due to the large number of clients comprising
the Company's client base. Ongoing credit evaluations of customers' financial
condition are performed and, generally, no collateral is required. The Company
maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's estimates.
The Company's cash equivalents consist principally of commercial paper.
Certain bank deposits may at times be in excess of the FDIC insurance limit.
Based on the nature of the financial instruments and/or historical realization
of these financial instruments, management believes they bear minimal risk.
TRANSLATION OF FOREIGN FINANCIAL STATEMENTS
Assets and liabilities of foreign operations, where the functional
currency is the local currency, are translated into U.S. dollars at the rate of
exchange at each reporting date. Income and expenses are translated at the
average rates of exchange prevailing during the month in which a transaction
occurs. Gains or losses from translating foreign currency financial statements
are accumulated in other comprehensive income. The cumulative translation
adjustment included in other comprehensive income at December 31, 1998 and 1997
totaled $78 and $(1,318), respectively. Foreign currency transaction gains and
losses are included in other income.
Funds generated by each subsidiary of the Company are generally
reinvested in the country where they are earned.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"), on December 31, 1997. The
computation of basic income (loss) per share information is based on the
weighted average number of common shares outstanding during the year. The
computation of diluted income (loss) per share information is based on the
weighted average number of common shares outstanding during the year plus the
effects of any dilutive common stock equivalents at year-end. Earnings per share
for all periods presented in the statements of operations conforms to the
provisions of SFAS No. 128.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"), effective January 1,
1998. SFAS No. 130 requires the Company to display an amount representing
comprehensive income for the year in a financial statement which is displayed
with the same prominence as other financial statements. The Company has elected
to present this information in the Statements of Shareholders' Equity. Upon
adoption, all prior period data presented was restated to conform to the
provisions of SFAS No. 130.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), on 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 periods
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. See Notes 17
and 18.
F-10
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The Company adopted Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits"
("SFAS No. 132"), on December 31, 1998. SFAS No. 132 standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on 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. See Note
13.
USE OF ESTIMATES
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 prior year amounts have been reclassified to conform to the
1998 presentation.
2. ACQUISITIONS:
POOLINGS
In March 1997, the Company acquired Belmont Research, Inc. ("Belmont").
The consideration for Belmont consisted of 502 shares of the Company's common
stock plus options to purchase approximately 115 shares of Company common stock.
In June 1997, the Company acquired SARCO, Inc. ("SARCO"). The consideration for
SARCO consisted of 263 shares of the Company's common stock. In November 1997,
the Company acquired Intek Labs, Inc. ("Intek"). The consideration for Intek
consisted of 400 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 nor have the Company's consolidated financial
statements for 1996 been restated to reflect the impact of these acquisitions as
the results of operations of Belmont, SARCO and Intek prior to the dates of the
acquisitions are not material individually or collectively to the Company.
On September 26, 1996, a wholly-owned subsidiary of the Company was
merged with and into APBI in a transaction accounted for as a pooling of
interests. As a result of the merger, APBI became a wholly-owned subsidiary of
the Company. Under the terms of the merger agreement, APBI shareholders received
0.4054 of a share of the Company's common stock for each APBI share. As a result
of the merger, the Company issued 12,064 shares of its common stock in exchange
for all the outstanding shares of common stock of APBI. Holders of options to
acquire APBI stock had the choice to receive either shares of Company common
stock for the value of the options, or substitute options to acquire Company
common stock. As a result of the APBI option holders' choices, 203 additional
shares of the Company's common stock were issued, and options to purchase 601
shares of the Company's common stock were issued. In accordance with the pooling
of interests method of accounting, the consolidated financial statements are
based on the assumption that the companies were combined for all of 1996 and the
financial statements for 1996 were restated to give effect to the combination.
PURCHASES
In January 1998, the Company acquired two environmental consulting
businesses for a total of $1,006 in cash and 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 in goodwill. Pro forma information is not
presented as the acquired companies' results of operations prior to the dates of
the acquisitions are not material individually or collectively to the Company.
F-11
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2. ACQUISITIONS (CONTINUED):
In January 1997, the Company acquired Technical Assessment Systems,
Inc. ("TAS") for $490 in cash, a note for approximately $300 and the potential
to earn an additional amount depending on TAS's profitability for a certain
period after the acquisition. In connection with the acquisition, the Company
recorded $1,070 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 in cash. Liabilities assumed in this transaction were $832.
Pro forma information is not presented as the acquired companies' results of
operations prior to the dates of the acquisitions are not material individually
or collectively to the Company.
The Company's Life Sciences Group furthered its expansion outside of
the U.S. in 1996 through the acquisitions of Trilife Gesellschaft Fur
Medizinische Entwicklung Verwaltungs GmbH ("Trilife") in Germany, Medisys S.L.
("Medisys") in Spain, Q&Q Suporte A Pesquisa Clinica Ltda. ("Q&Q") in Brazil,
Data Acquisition and Research Limited ("DAR") in Scotland, and Environmental
Assessment Group Limited ("EAG") in England. The consideration for these five
companies consisted of approximately $4,359 in cash and a note for $350. The
Company has paid an additional $1,264 for these acquisitions, due to earnout
clauses in the purchase agreements and amounts due on anniversaries of the
acquisitions during the period from the date of purchase through December 31,
1998. Included in debt on the consolidated balance sheet at December 31, 1998 is
another $340 which will be paid related to the acquisitions of Q&Q and DAR. In
connection with these acquisitions, the Company recorded $6,278 in goodwill. Pro
forma information is not presented as the acquired companies' results of
operations prior to the dates of the acquisitions are not material individually
or collectively to the Company.
3. SALE OF BUSINESS:
On February 27, 1998, the Company, through its subsidiary Clinix
International Inc., sold the business and assets of the Chicago Center for
Clinical Research ("CCCR"). The consideration received by the Company for CCCR
totaled approximately $7,785 which was comprised of $5,285 in cash and a
promissory note of $2,500 which will be received over five years. The sale
resulted in a gain of approximately $1,071 that 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.
4. DISCONTINUED OPERATIONS:
Effective January 31, 1999, the Company sold its environmental sciences
segment for total consideration of $26,431 in a management buyout. The Company
received as consideration cash of $1,431, a four-year note of $7,000 and a
12-year note of $18,000. The sale resulted in no pre-tax gain or loss as the
sales price was based on the net assets of the environmental sciences segment at
January 31, 1999.
The consolidated balance sheets at December 31, 1998 and 1997 include
the following assets and liabilities of the environmental sciences segment:
December 31,
---------------------------
1998 1997
---------- ----------
Current assets $ 24,214 $ 21,866
Total assets 32,527 28,647
Current liabilities 6,030 6,260
Total liabilities 6,209 6,735
---------- ----------
Net assets of discontinued operations $ 26,318 $ 21,912
========== =========
The operating results of the environmental sciences segment for each of
the years ended December 31, 1998, 1997 and 1996 were as follows:
Years Ended December 31,
---------------------------------------
1998 1997 1996
---- ---- ----
Net revenues $ 50,056 $ 47,785 45,492
Income from operations 7,627 6,863 4,751
Net income 4,614 4,152 2,874
F-12
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. MARKETABLE SECURITIES:
The estimated market value and aggregate cost of current marketable
securities were as follows:
DECEMBER 31,
1998 1997
---------- ----------
Estimated market value $ - $ 7,994
Aggregate cost - 8,000
---------- ---------
Gross unrealized loss $ - $ (6)
========== =========
Marketable securities at December 31, 1997 consisted of debt securities
issued by the U.S. Treasury. These securities were classified as
available-for-sale, and reported in the balance sheet at fair value, which was
determined based on quoted market prices.
6. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES:
Accounts receivable and unbilled services consisted of the following:
DECEMBER 31,
1998 1997
---------- -----------
Trade:
Billed $ 75,405 $ 55,257
Unbilled 51,702 46,730
Reserve for doubtful accounts (2,042) (1,515)
---------- ---------
125,065 100,472
Officers and employees 313 386
Other 1,437 696
---------- ----------
$ 126,815 $ 101,554
========== ==========
Change in reserve for doubtful accounts consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
---------- ----------- ---------
<S> <C> <C> <C>
Balance at beginning of period $ 1,515 $ 1,511 $ 3,319
Additions charged to costs and expenses 993 647 1,715
Deductions (466) (740) (3,497)
Other changes - 97 (26)
---------- ---------- ---------
Balance at end of period $ 2,042 $ 1,515 $ 1,511
========== ========== =========
</TABLE>
F-13
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
7. PROPERTY AND EQUIPMENT:
Property and equipment, stated at cost, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
--------- ---------
<S> <C> <C>
Land $ 519 $ 517
Buildings and leasehold improvements 14,002 13,291
Construction in progress and asset deposits 2,621 620
Furniture and equipment 41,296 33,066
Computer equipment and software 43,688 36,466
--------- ---------
102,126 83,960
Less accumulated depreciation and amortization 59,617 49,058
--------- ---------
$ 42,509 $ 34,902
========= =========
The annual depreciation and amortization charges on property and
equipment for each of the three years ended December 31, were:
1998 $ 12,887
1997 10,830
1996 9,399
8. OTHER ASSETS:
Other assets consisted of the following:
DECEMBER 31,
1998 1997
--------- ---------
Investment in DAS $ 1,500 $ 1,500
Investment in SDI - 1,161
Long-term deferred tax asset 1,555 3,742
Note receivable from sale of CCCR 2,000 -
Intangible and other assets, net of accumulated
amortization of $1,190 and $1,040, respectively 1,183 1,219
--------- ---------
$ 6,238 $ 7,622
========= =========
</TABLE>
The Company owns 600 shares of Digital Arts and Sciences ("DAS") Series
D preferred stock which represent approximately 6.8% and 8.0% ownership of DAS
as of December 31, 1998 and 1997, respectively. The Company's investment in DAS
is valued at cost, which approximates fair market value.
The Company owned 715 shares of Strategic Diagnostics Inc. ("SDI")
common stock as of December 31, 1997. The trading price per share was $2.25 as
of December 31, 1997. During 1997 the Company sold options to various other
companies that provided them the right to acquire all SDI shares owned by the
Company at a price of $1.625 per share. Accordingly, during 1997 the Company
reduced the carrying value of this investment to $1.625 per share. At December
31, 1997, $174 was reported in other comprehensive income to represent the
difference between option value and the carrying value of this investment at
such date. The Company received $1,161 in March 1998 when all the options to
acquire the SDI shares were exercised. At that time, a gain on the sale of the
investment in SDI was realized of $174.
The note receivable related to the sale of CCCR (see Note 3) will be
received over five years in equal annual payments and bears interest at a rate
of 10%.
The annual amortization charges on intangible assets for each of the
three years ended December 31, 1998, 1997 and 1996 were $88, $163 and $87,
respectively.
F-14
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. OTHER ACCRUED EXPENSES:
Other accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
--------- ---------
<S> <C> <C>
Accrued salaries, wages, benefits and related costs $ 21,721 $ 15,626
Other 6,286 4,858
--------- ---------
$ 28,007 $ 20,484
========= =========
10. LONG-TERM DEBT AND LEASE OBLIGATIONS:
Long-term debt consisted of the following:
DECEMBER 31,
1998 1997
-------- ------
LIBOR (5.20% at December 31, 1998) plus 0.70%
unsecured line of credit facility due March 22, 1999 $ 3,300 $ 3,300
Equipment leases 47 721
Various notes at interest rates up to 8.75% 394 1,225
--------- ---------
3,741 5,246
Less current maturities 3,580 4,906
--------- ---------
$ 161 $ 340
========= =========
</TABLE>
In June 1998, the Company entered into a $50,000 revolving credit
facility with First Union National Bank. Interest accrues on amounts borrowed at
a floating rate equal to the 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 December 31, 1998, the
Company had $15,000 reserved in the form of a letter of credit and $35,000
available for borrowings under this facility. This credit facility expires in
June 2000, at which time any outstanding balance is due.
In August 1998, the Company renegotiated a credit facility for $50,000
with Wachovia Bank, N.A. Interest accrues on amounts borrowed at a floating rate
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 December 31, 1998, the Company had
$3,300 outstanding and $46,700 available for borrowings under this facility.
This credit facility expires in March 1999, at which time the outstanding
balance is due.
For the years subsequent to December 31, 1998, annual maturities of
long-term debt outstanding are:
1999 $ 3,580
2000 76
2001 52
2002 33
---------
$ 3,741
F-15
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
10. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED):
OPERATING LEASES
The Company is obligated under noncancellable leases expiring at
various dates through 2011 relating to its operating facilities and certain
equipment. Rental expense for all operating leases, net of sublease income, was
$13,330, $13,492 and $10,334 for the years ended December 31, 1998, 1997 and
1996, respectively.
The Company completed a sale-leaseback transaction involving owned real
estate in Austin, Texas in November 1995. Total gross proceeds in the
transaction were $12,000, resulting in a pre-tax gain of approximately $2,100.
The gain, which has been deferred, is classified as deferred rent and other in
the accompanying consolidated balance sheets and is being amortized as a
reduction of rent expense on a straight-line basis over the 15-year lease term.
The facilities are leased to the Company with all responsibility of operations
and maintenance residing with the Company.
Certain facility leases entered into provided for concessions by the
landlords, including payments for leasehold improvements, moving expenses, and
free rent periods. These concessions have been reflected as deferred rent and
other in the accompanying consolidated financial statements. The Company is
recording rent expense on a straight-line basis for these leases.
Future minimum payments for all operating lease obligations for years
subsequent to December 31, 1998 are as follows:
1999 $ 11,841
2000 12,751
2001 11,828
2002 9,845
2003 8,786
2004 and thereafter 46,682
---------
$ 101,733
Omitted from the table above are the operating lease obligations
related to the Company's environmental sciences segment which was sold on
January 31, 1999. See Note 4. Future minimum payments related to operating lease
obligations of this segment were $18,593 at December 31, 1998
F-16
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. STOCK PLANS:
STOCK INCENTIVE PROGRAM
The Company has two stock option plans (the "Plans") under which the
Company may grant options to its employees and directors for up to 2,600 shares
of common stock. Under the Plans, the exercise price of each option equals the
market price of the Company's stock on the date of grant and an option's maximum
term is 10 years. Options are granted upon approval of the Board of Directors
and vest over various periods, as determined by the Board of Directors at the
date of the grant.
On January 1, 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock Based Compensation." As permitted by SFAS No. 123, the
Company has chosen to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for the Plans. Accordingly, no compensation cost has been recognized
for options granted under the Plans. Had compensation cost for the Company's
Plans been determined based on the fair value at the grant dates for awards
under the Plans consistent with the method required by SFAS No. 123, the
Company's net income (loss) and basic and diluted net income (loss) per share
would have been the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $19,769 $ 17,236 $ 9,602 $ 7,730 $ (3,507) $ (7,670)
Basic and diluted net income
(loss) per share $ 0.85 $ 0.74 $ 0.42 $ 0.34 $ (0.17) $ (0.36)
</TABLE>
For the purposes of the pro forma presentation above, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 1998, 1997 and 1996: expected volatility of 60.3%, 58.7% and 49.9%,
respectively; risk-free interest of 5.75%, 6.0% and 6.25%, respectively; and
expected lives of five years. The resulting estimated weighted average fair
value of options granted during 1998, 1997 and 1996 was $13.49, $9.48 and $11.48
per share, respectively. All options granted during the years ended December 31,
1998, 1997 and 1996 were granted with an exercise price equal to the fair value
of the Company's common stock at the grant date The estimated pro forma amounts
above include the compensation cost for the Company's Employee Stock Purchase
Plan based on the fair value of the contributions under this plan consistent
with the method of SFAS No. 123.
A summary of the status of the Plans as of December 31, 1998, 1997 and
1996, and changes during the years ending on those dates, is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- -------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,532 $ 20.53 1,274 $ 22.28 1,181 $ 16.29
Granted 381 23.20 526 15.56 1,089 22.57
Exercised (256) 15.69 (158) 14.74 (859) 15.10
Forfeited (83) 25.97 (110) 24.55 (137) 17.96
----- ------ -----
Outstanding at end of year 1,574 $ 21.67 1,532 $ 20.53 1,274 $ 22.28
===== ======= ====== ======== ===== =======
Options exercisable at year-end 837 $ 21.90 841 $ 20.80 771 $ 19.85
===== ======= ====== ======== ===== =======
</TABLE>
F-17
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. STOCK PLANS (CONTINUED):
The following table summarizes information about the Plans' stock
options at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- ----------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/98 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.00-$ 10.00 14 4.4 years $ 6.46 13 $ 6.27
$ 10.01-$ 20.00 607 6.6 years $ 15.73 357 $ 16.33
$ 20.01-$ 30.00 891 7.3 years $ 24.96 405 $ 25.17
$ 30.01-$ 40.00 56 0.4 years $ 35.58 56 $ 35.58
$ 40.01-$ 50.00 6 3.2 years $ 40.55 6 $ 40.55
-------- ---------
1,574 837
======== =========
</TABLE>
OTHER STOCK PROGRAMS
In August 1995, APBI granted a total of 60 restricted stock units
("RSUs") to two executive officers of APBI. The RSUs vested at the time the
average closing price for APBI's common stock equaled or exceeded $10.00 per
share for a period of 10 consecutive trading days. The RSUs vested in July 1996.
The executives were not required to pay any consideration in exchange for the
RSUs. Unearned compensation was amortized to expense over the vesting period of
the RSUs. Compensation expense of $534 related to these RSUs has been recorded
in the accompanying statement of operations for the year ended December 31,
1996.
SAVINGS RELATED STOCK OPTION PLAN
The Company has a United Kingdom Savings Related Stock Option Plan
under which options are granted to employees who elect to purchase shares of
common stock at the end of a five or seven-year period. Savings are accumulated
through voluntary payroll deductions. The Company contributes a bonus to each
participant's savings account equal to nine monthly contributions at the end of
the five-year period and 18 monthly contributions at the end of the seven-year
period. When the savings period ends, the employee may elect to purchase the
shares using the savings balance, including the bonus; purchase some of the
shares and receive the savings balance in cash; or receive the savings and bonus
in cash. The United Kingdom Plan, as approved by the shareholders, was
implemented by Applied Bioscience International Inc. during 1988. Currently,
employees of the Company's United Kingdom subsidiary, Pharmaco International
Ltd., participate in this plan. Outstanding options of APBI at the time of the
merger were converted in accordance with the exchange ratio provided for in the
merger agreement.
At December 31, 1998, there were 1 options outstanding at an average
exercise price of $13.72. Of those, 0.9 options were exercisable at December 31,
1998, at an average exercise price of $13.75.
F-18
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. STOCK PLANS (CONTINUED):
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has reserved 500 shares of the Company's common
stock for issuance under the Employee Stock Purchase Plan (the "ESPP"). The ESPP
has two six-month offering periods (each an "Offering Period") annually,
beginning January 1 and July 1, respectively. The first Offering Period under
the ESPP began July 1, 1997. Eligible employees can elect to make deductions
from 1% to 15% of their compensation during each payroll period of an Offering
Period. Special limitations apply to eligible employees who own 5% or more of
the outstanding common stock of the Company. None of the contributions made by
eligible employees to purchase the Company's common stock under the ESPP are tax
deductible to the employees. At the end of an Offering Period, the total payroll
deductions by an eligible employee for that Offering Period will be used to
purchase common stock of the Company at a price equal to 85% of the lesser of
(a) the reported closing price of the Company's common stock for the first day
of the Offering Period, or (b) the reported closing price of the common stock
for the last day of the Offering Period. Only 150 shares will be available for
purchase during each of the Offering Periods beginning with the period
commencing January 1, 1998.
Employees eligible to participate in the ESPP include employees of the
Company and its United States operating subsidiaries, except those employees who
customarily work less than 20 hours per week or five months in a year. Since the
eligible employee determines both participation in and contributions to the
ESPP, it is not possible to determine the benefits and amounts that would be
received by an eligible participant or group of participants in the future.
At December 31, 1998, $957 had been contributed to the ESPP relating to
unissued shares. Shares were not issued on December 31, 1998 since the market
had to be closed before a purchase price could be determined. On January 4,
1999, 51 shares were issued. During 1998, $2,971 had been contributed to the
ESPP and 225 shares were issued. The compensation costs for the ESPP as
determined based on the fair value of the contributions under the ESPP,
consistent with the method of SFAS No. 123, was $532 and $196 and is reflected
in the pro forma net income and basic and diluted net income per share for 1998
and 1997, respectively as disclosed above.
12. INCOME TAXES:
The components of income (loss) before provision for income taxes were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
---- --------- ---------
<S> <C> <C> <C>
Domestic $ 24,875 $ 10,044 $ (3,523)
Foreign (272) (1,231) (601)
--------- --------- ---------
Income (loss) from continuing operations 24,603 8,813 (4,124)
Domestic 7,357 6,169 4,817
Foreign 269 694 (66)
--------- --------- ---------
Income from discontinued operations 7,626 6,863 4,751
--------- --------- ---------
Total $ 32,229 $ 15,676 $ 627
========= ========= =========
</TABLE>
F-19
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
12. INCOME TAXES (CONTINUED):
The components of the provision for income taxes were as follows:
YEARS ENDED DECEMBER 31,
1998 1997 1996
------- ------- ---------
State income taxes:
Current $ 942 $ 313 $ 330
Deferred 99 (97) 90
Federal income taxes:
Current 9,607 5,305 2,130
Deferred 1,549 115 1,285
Foreign income taxes:
Current 503 438 299
Deferred (240) - -
--------- --------- ---------
Provision for income taxes $ 12,460 $ 6,074 $ 4,134
========= ========= =========
The income tax provision is included in the financial statements as
follows:
YEARS ENDED DECEMBER 31,
1998 1997 1996
------- -------- ---------
Continuing operations $ 9,448 $ 3,363 $ 2,257
Discontinued operations 3,012 2,711 1,877
--------- --------- ---------
Total $ 12,460 $ 6,074 $ 4,134
========= ========= =========
The 1998, 1997 and 1996 current foreign income tax expense represents
the foreign income tax liabilities associated with the Company's foreign
operations.
The 1998 federal and state tax expense reflects the benefit related to
the utilization of capital loss carryforwards on the sale of the assets of
Clinix International, Inc.
F-20
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
12. INCOME TAXES (CONTINUED):
Taxes computed at the statutory U.S. federal income tax rate of 35% are
reconciled to the provision for income taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
--------- --------- -----------
Effective tax rate 38.7% 38.7% 660.2%
========= ========= ===========
<S> <C> <C> <C>
United States federal statutory rate of 35% $ 11,280 $ 5,487 $ 213
Differential on rates applied to foreign earnings - - (72)
State taxes (net of federal benefit) 677 237 277
Utilization of capital loss carry forward (1,799) - -
Tax gain in excess of book 1,319 - -
Foreign taxes in excess of U.S. rate 423 - -
Allowance for limitation of utilization of foreign
tax losses (38) 533 299
APBI merger costs not deductible for income tax purposes - - 2,751
Goodwill and other items not deductible for income
tax purposes 450 449 435
Other 175 (371) 231
Benefit of federal statutory rate reduction from 35% to 34% - (100) -
Deferred taxes set up for S to C conversion on
acquisitions - (161) -
Change in valuation allowance (27) - -
--------- --------- -----------
Provision for income taxes $ 12,460 $ 6,074 $ 4,134
========= ========= ===========
</TABLE>
During 1997, the Company began recording deferred taxes at a 35%
federal rate due to expected levels of income in the future.
Components of the net current deferred tax asset are as follows:
DECEMBER 31,
1998 1997
--------- ---------
Future benefit of foreign net operating losses $ 2,736 $ 2,523
Allowance for doubtful accounts 413 787
Accruals 2,002 1,090
Valuation allowance (2,400) (2,427)
--------- ---------
Net current deferred tax asset $ 2,751 $ 1,973
========= =========
Components of the net long-term deferred tax asset, which are included
in other assets on the consolidated balance sheets, are as follows:
DECEMBER 31,
1998 1997
--------- ---------
Depreciation and amortization $ 1,504 $ 2,721
Deferred rent 220 1,068
Other (169) (47)
--------- ---------
Net long-term deferred tax asset $ 1,555 $ 3,742
========= =========
A valuation allowance was recorded against the foreign net operating
loss carryforwards because there is a significant uncertainty that the deferred
tax assets will be realized. In addition, there is an $11,000 gross capital loss
carryforward, which the Company has written off against the valuation allowance
as the Company does not expect to realize this.
F-21
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
12. INCOME TAXES (CONTINUED):
The cumulative amount of undistributed earnings of foreign subsidiaries
for which the Company has not provided U.S. income taxes at December 31, 1998
was $1,223. No provision has been made for the additional taxes that would
result from the distribution of earnings of foreign subsidiaries since such
earnings have been permanently reinvested in the foreign operations.
During 1997, the Company utilized all U.S. net operating loss
carryforwards and alternative minimum tax credit carryforwards.
13. EMPLOYEE SAVINGS AND PENSION PLANS:
SAVINGS PLANS
The Company provides a 401(k) Retirement Savings Plan to its U.S.
employees. The Company matches 50% of an employee's savings up to 6% of pay, and
these contributions vest ratably over a four-year period. Company matching
contributions for all employees for each of the three years ended December 31,
1998, 1997 and 1996 were $2,201, $1,945 and $1,483, respectively.
PENSION PLANS
Pension costs and related disclosures are determined under the
provisions of Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and other Postretirement Benefits," which was adopted
by the Company in 1998. There was no impact on the Company's financial statement
balances as a result of the adoption of this pronouncement.
The Company has a separate contributory defined benefit plan (the "U.K.
Plan") for its qualifying United Kingdom employees and directors employed by the
Company's U.K. subsidiaries. The benefits for the U.K. Plan are based primarily
on years of service and average pay at retirement. Plan assets consist
principally of investments managed in a mixed fund.
Pension costs for the U.K. Plan included the following components:
YEARS ENDED DECEMBER 31,
1998 1997 1996
--------- --------- ---------
Service cost-benefits earned
during the year $ 662 $ 738 $ 553
Interest cost on projected
benefit obligation 777 631 623
Actual return on plan assets (984) (954) (771)
Net amortization and deferral (13) (13) (14)
--------- --------- ---------
Net pension cost $ 442 $ 402 $ 391
========= ========= =========
F-22
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
13. EMPLOYEE SAVINGS AND PENSION PLANS (CONTINUED):
The change in benefit obligation, change in plan assets and funded status
of the defined benefit plan was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Change in benefit obligations
Benefit of obligation at beginning of year $ 8,528 $ 8,404 $ 7,456
Service cost 662 738 553
Interest cost 777 631 623
Net actuarial loss (gain) 2,046 (403) -
Benefits paid (513) (540) (228)
Foreign currency translation adjustment 45 (302) -
--------- --------- ---------
Benefit obligation at end of year $ 11,545 $ 8,528 $ 8,404
========= ========= =========
Change in plan assets
Fair value of plan assets at beginning of year $ 10,931 $ 9,963 $ 9,162
Actual return on plan assets 1,535 1,451 779
Employer contributions 430 366 171
Plan participants' contributions 141 50 79
Benefits and expenses paid (513) (540) (228)
Foreign currency translation adjustment 55 (359) -
--------- --------- ---------
Fair value of plan assets at end of year $ 12,579 $ 10,931 $ 9,963
========= ========= =========
Net amount recognized
Funded status $ 1,034 $ 2,404 $ 1,558
Unrecognized transition asset (85) (97) (115)
Unrecognized net actuarial loss (gain) 1,085 (406) 512
--------- --------- ---------
Prepaid pension cost $ 2,034 $ 1,901 $ 1,955
========= ========= =========
</TABLE>
Assumptions used to determine pension costs and projected benefit
obligations were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Discount rate 7.5% 8.5% 8.5%
Rate of compensation increase 5.0% 6.0% 6.5%
Long-term rate of return on plan assets 8.5% 9.5% 8.5%
</TABLE>
Prior to January 31, 1999, the Company maintained the APBI
Environmental Sciences Group, Inc. Pension Plan (the "Pension Plan"), a
tax-qualified, defined-contribution money-purchase pension plan, for the benefit
of its eligible ENVIRON employees. ENVIRON is required to make annual
contributions to the Pension Plan in an amount equal to the sum of 3.75% of each
eligible employee's total compensation, plus 3.75% of the portion of such
employee's compensation in excess of the Social Security wage base. Participants
vest in 20% of their account balances after two years of service and 20% per
year until they are fully vested. The annual pension expense of the Pension Plan
for the three years ended December 31, 1998, 1997 and 1996 was $697, $638 and
$620, respectively. As of December 31, 1998 and 1997, accrued pension cost,
included in other accrued expenses, was $651 and $701, respectively.
Effective January 1, 1994, APBI Environmental Sciences Group, Inc.
established the ENVIRON Supplemental Executive Retirement Plan. This plan is
nonqualified and provides certain key employees defined-contribution benefits
that supplement those provided by the Pension Plan. Company contributions to
this plan in 1998, 1997 and 1996 were $35, $35 and $39, respectively.
The Pension Plan and the ENVIRON Supplemental Executive Retirement Plan
became the responsibility of the purchaser of the environmental services segment
on January 31, 1999.
F-23
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
14. COMMITMENTS AND CONTINGENCIES:
The Company currently maintains liability insurance on a "claims made"
basis for professional acts, errors and omissions. As of December 31, 1998, this
coverage included two policies. One policy is for the Life and Discovery
Sciences Groups with a self-insured retention per claim of $250 and one is for
the environmental sciences segment with a $500 self-insured retention per claim.
As of December 31, 1998 and 1997 there are no open claims related to these
coverages.
The Company currently is self-insured for group health for employees
located within the United States. The Company maintains insurance on a "claims
made" basis, up to a maximum of $100 per occurrence. As of December 31, 1998 and
1997 the Company maintained a reserve of approximately $1,500 and $1,300,
respectively, included in other accrued expenses on the consolidated balance
sheets to cover estimated open claims.
In the normal course of business, the Company is a party to various
claims and legal proceedings. The Company records a reserve for these matters
when an adverse outcome is probable and the amount of the potential liability is
reasonably estimable. Although the ultimate outcome of these matters is
currently not determinable, management of the Company, after consultation with
legal counsel, does not believe that the resolution of these matters will have a
material effect upon the Company's financial condition or results of operations
for an interim or annual period.
15. RELATED PARTY TRANSACTIONS:
Several of the Company's shareholders collectively own 14.6% of LOI
Building, Inc. ("LOI"), which leased operating facilities to the Company through
November 1996. Rent paid to LOI for the year ended December 31, 1996 totaled
$402.
One of the members of the Company's Board of Directors (who was a
member of APBI's Board of Directors prior to the Company's acquisition of APBI)
is Vice Chairman at Lehman Brothers. Lehman Brothers acted as APBI's investment
banker for APBI's acquisition by the Company. For those investment-banking
services, Lehman Brothers earned $3,059 in 1996.
The Company is related through common ownership with E.M. Associates,
Inc., which provides investigative board services to the Company. The Company
had transactions with E.M. Associates, Inc. of $37 and $66 in expenses for the
years ended December 31, 1997 and 1996, respectively. There were no transactions
with E.M. Associates during the year ended December 31, 1998.
The Company paid legal fees in 1996 of approximately $333 to a firm,
which had a partner who became General Counsel of the Company in 1996. At the
time this individual became the Company's General Counsel, this individual
disposed of all of his interest in the law firm.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
CURRENT ASSETS AND CURRENT LIABILITIES
The carrying amount approximates fair value because of the short
maturity of those instruments.
INVESTMENT IN DAS
The Company's investment in DAS is recorded at $1,500 at December 31,
1998. The Company's investment in DAS is valued based on the cost method as the
preferred stock of DAS is not tradeable and does not exceed estimated net
realizable value.
F-24
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
INVESTMENT IN SDI
The Company's investment in SDI was recorded at $1,161 compared to the
market price $1,608 as quoted on the National Market System of the National
Association of Securities Dealers Automated Quotation System at December 31,
1997. At December 31, 1997, this investment was not valued at the market price
due to the purchase options outstanding at the exercise price of $1.625 per
share for all shares of SDI which the Company owned. The Company received $1,161
in March 1998 when all the options were exercised.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. Fair value
approximates the carrying amount as the Company's debt instruments bear interest
based on variable rates.
LETTERS OF CREDIT
The Company utilizes letters of credit to back certain guarantees and
insurance policies. The letters of credit reflect fair value as a condition of
their underlying purpose and are subject to fees competitively determined in the
market place.
17. BUSINESS SEGMENT DATA:
During 1998 and 1997, the Company operated in three business segments -
life sciences, environmental sciences and discovery sciences. The Company sold
its environmental sciences segment in January 1999 (see Note 4). Prior to 1997,
the Company operated in two segments - life sciences and environmental sciences.
Accordingly, the income statements have been restated to conform to the
provisions of APB 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and
Infrequently Occurring Events and Operations". The consolidated balance sheets
and cash flows have not been restated to exclude the assets, liabilities and
cash flows of the environmental sciences segment.
F-25
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
17. BUSINESS SEGMENT DATA (CONTINUED):
Revenues by principal business segment are separately stated in the
consolidated financial statements. Merger costs and acquired in-process research
and development costs incurred in 1998, 1997 and 1996 of $3,163, $9,670 and
$14,773, respectively, were not allocated to the Company's business segments and
are shown separately for purposes of business segment analysis. Income taxes are
allocated evenly to each division for purposes of business segment analysis.
Income (loss) from operations, net income, depreciation and amortization,
identifiable assets and capital expenditures by principal business segment were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income (loss) from operations: (a)
Life sciences $ 28,693 $ 19,344 $ 8,845
Discovery sciences (4,489) (2,325) -
Merger costs and acquired in-process
research and development costs (3,163) (9,670) (14,773)
--------- --------- --------
Total $ 21,041 $ 7,349 $ (5,928)
========= ========= =========
Net income (loss)
Life sciences $ 17,851 $ 6,856 $ (6,381)
Discovery sciences (2,696) (1,406) -
Environmental sciences 4,614 4,152 2,874
--------- --------- --------
Total $ 19,769 $ 9,602 $ (3,507)
========= ========= =========
Depreciation and amortization: (a)
Life sciences $ 11,897 $ 10,651 $ 8,898
Discovery sciences 420 229 -
--------- --------- --------
Total $ 12,317 $ 10,880 $ 8,898
========= ========= =========
Identifiable assets:
Life sciences $ 200,382 $ 165,855 $ 159,394
Discovery sciences 3,672 1,465 -
Environmental sciences 32,528 29,727 22,063
--------- --------- --------
Total $ 236,582 $ 197,047 $ 181,457
========= ========= =========
Capital expenditures:
Life sciences $ 16,866 $ 11,589 $ 9,895
Discovery sciences 740 495 -
Environmental sciences 1,737 1,515 1,281
--------- --------- ---------
Total $ 19,343 $ 13,599 $ 11,176
========= ========= =========
</TABLE>
(a) Does not include results of operations of the environmental sciences
segment which was sold January 31, 1999. See Note 4.
F-26
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
18. OPERATIONS BY GEOGRAPHIC AREA:
The following table presents information about the Company's
operations by geographic area:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
----------- ---------- ------------
<S> <C> <C> <C>
Net revenue: (a)
United States $ 199,295 $ 162,822 $ 130,851
U.K. 16,506 14,583 14,372
Other (b) 19,752 10,082 7,081
----------- ----------- -----------
Total $ 235,553 $ 187,487 $ 152,304
=========== =========== ===========
Operating income (loss): (a)
United States $ 20,749 $ 8,778 $ (6,032)
U.K. (1,004) (575) (939)
Other (b) 1,296 (854) 1,043
----------- ----------- -----------
Total $ 21,041 $ 7,349 $ (5,928)
=========== =========== ============
Identifiable assets:
United States $ 183,411 $ 157,543 $ 142,464
U.K. 36,825 27,063 27,657
Other (b) 16,346 12,441 11,336
----------- ----------- -----------
Total $ 236,582 $ 197,047 $ 181,457
=========== =========== ===========
</TABLE>
(a) Does not include results of operations of the environmental sciences
segment which was sold January 31, 1999. See Note 4.
(b) Principally consists of revenue from 15 countries, nine of which are
located in Europe, none of which individually comprise more than 5% of
net revenue, operating income (loss) or identifiable assets.
F-27
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
19. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
1998 (A) FIRST SECOND THIRD FOURTH TOTAL
- ------------------------------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue $ 52,153 $ 57,465 $ 61,452 $ 64,483 $ 235,553
Operating income 3,976 2,183 6,596 8,286 21,041
Net income from continuing
operations 3,434 1,669 4,428 5,624 15,155
Net income from operations of
discontinued environmental
sciences segment 1,102 1,206 1,198 1,108 4,614
Net income 4,536 2,875 5,626 6,732 19,769
Net income per share:
Basic $ 0.20 $ 0.12 $ 0.24 $ 0.29 $ 0.85
Diluted $ 0.20 $ 0.12 $ 0.24 $ 0.29 $ 0.85
Income from continuing operations
per share:
Basic $ 0.15 $ 0.07 $ 0.19 $ 0.24 $ 0.65
Diluted $ 0.15 $ 0.07 $ 0.19 $ 0.24 $ 0.65
1997 (A)
Net revenue $ 45,969 $ 47,942 $ 46,295 $ 47,281 $ 187,487
Operating income (loss) 3,980 (4,300) 4,544 3,125 7,349
Net income (loss) from
continuing operations 2,565 (2,382) 2,917 2,350 5,450
Net income from operations of
discontinued environmental
sciences segment 778 1,036 1,224 1,114 4,152
Net income (loss) 3,343 (1,346) 4,141 3,464 9,602
Net income (loss) per share:
Basic $ 0.15 $ (0.06) $ 0.18 $ 0.15 $ 0.42
Diluted $ 0.15 $ (0.06) $ 0.18 $ 0.15 $ 0.42
Income (loss) from continuing
operations per share:
Basic $ 0.12 $ (0.11) $ 0.13 $ 0.10 $ 0.24
Diluted $ 0.11 $ (0.11) $ 0.13 $ 0.10 $ 0.24
</TABLE>
- ----------------
(a) Quarterly financial operating results have been restated to reflect the
environmental sciences segment as discontinued operations.
F-28
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
20. SUBSEQUENT EVENTS:
On January 31, 1999, the Company sold its environmental sciences
segment. See Note 4.
In February 1999, the Company formed a joint venture, PPGx, with Axys
Pharmaceuticals, Inc. to pursue the business of pharmacogenomics. The Company
contributed $1,500 in cash, the net assets of Intek, and assigned the rights to
a certain software license from Axys for an 18.2% ownership interest in PPGx.
Separately, the Company and Axys entered into a software licensing agreement
whereby the Company licensed certain software, from Axys in exchange for a
$2,000 license fee. The Company has received exclusive marketing rights to PPGx
pharmacogenomics products and services and an option to increase its ownership
share of PPGx after the first anniversary of the forming of PPGx.
In February 1999, the Company signed a non-binding letter of intent to
acquire ATP, Inc., a health information services company. ATP provides
customized inbound and outbound telecommunications programs targeting consumers
and health care providers. Under the terms of the letter of intent, the Company
will issue approximately 1,000 shares of its unregistered common stock, subject
to certain closing adjustments, to the shareholders of ATP in return for their
ATP stock. The transaction will be accounted for as a pooling of interests.
F-29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
Date: March 4, 1999 By: /s/ Fredric N. Eshelman, Pharm.D.
---------------------------------
Name: Fredric N. Eshelman, Pharm.D.
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Fredric N. Eshelman, Pharm.D. Director and Chief Executive Officer March 4, 1999
- --------------------------------- (Principal Executive Officer)
Fredric N. Eshelman, Pharm.D.
/s/ Rudy C. Howard Chief Financial Officer, Vice President of March 4, 1999
- --------------------------------- Finance and Treasurer (Principal Financial
Rudy C. Howard Officer)
/s/ Linda Baddour Chief Accounting Officer and Executive March 4, 1999
- --------------------------------- Director, Finance (Principal Accounting
Linda Baddour Officer)
/s/ Ernest Mario, Ph.D. Director March 4, 1999
- ---------------------------------
Ernest Mario, Ph.D.
/s/ Stuart Bondurant, M.D. Director March 4, 1999
- ---------------------------
Stuart Bondurant, M.D.
/s/ Abraham Cohen Director March 4, 1999
- ---------------------------
Abraham E. Cohen
/s/ Thomas D'Alonzo Director March 4, 1999
- ------------------------------------
Thomas D'Alonzo
/s/ Frederick Frank Director March 4, 1999
- ------------------------------------
Frederick Frank
/s/ Paul J. Rizzo Director March 4, 1999
- ------------------------------------
Paul J. Rizzo
/s/ John A. McNeill, Jr. Director March 4, 1999
- ------------------------------------
John A. McNeill, Jr.
/s/ Donald C. Harrison, M.D. Director March 4, 1999
- ------------------------------------
Donald C. Harrison, M.D.
</TABLE>
S-1
LEASE AGREEMENT BY AND BETWEEN
PPD PHARMACO, INC., as Tenant
AND
WEEKS REALTY, L.P., as Landlord
<PAGE>
TABLE OF CONTENTS
1. PREMISES AND TERM.
2. BASE RENT, OPERATING EXPENSES, AND SECURITY DEPOSIT.
3. COMPLIANCE WITH LAWS AND USE.
4. REPAIR AND MAINTENANCE.
5. ALTERATIONS.
6. SIGNS.
7. INSPECTION.
8. UTILITIES.
9. ASSIGNMENT AND SUBLETTING.
10. FIRE AND CASUALTY DAMAGE.
11. LIABILITY.
12. CONDEMNATION.
13. HOLDING OVER AND TERMINATION.
14. QUIET ENJOYMENT.
15. EVENTS OF DEFAULT.
16. REMEDIES.
17. LANDLORD'S LIEN.
18. MORTGAGES.
19. MECHANIC'S LIENS.
20. NOTICES.
21. BROKER'S CLAUSE.
22. LANDLORD'S LIABILITY.
i
<PAGE>
23. RULES AND REGULATIONS.
24. HAZARDOUS MATERIALS.
25. LANDLORD'S RIGHT TO SUBSTITUTE THE PREMISES.
26. COVENANT OF TENANT.
27. MISCELLANEOUS.
ii
<PAGE>
EXHIBITS
EXHIBIT A- THE LAND
EXHIBIT B- FLOOR PLAN
EXHIBIT C- PLANS AND SPECIFICATIONS
EXHIBIT C-1- PROJECT DESIGN AND CONSTRUCTION SCHEDULE
EXHIBIT C-2- SHELL BUILDING COMPONENTS
EXHIBIT C-3- BASE BUILDING UPFIT
EXHIBIT D- RULES AND REGULATIONS
iii
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease"), is made and entered into as of
the 16th day of December, 1998, by and between WEEKS REALTY, L.P., a Georgia
limited partnership authorized to do business in North Carolina as WEEKS REALTY
LIMITED PARTNERSHIP (the "Landlord"), and PPD PHARMACO, INC., a Texas
corporation (the "Tenant").
W I T N E S S E T H:
1. PREMISES AND TERM.
(a) PREMISES. In consideration of the obligation of Tenant to pay
rent as herein provided, and in consideration of the other terms,
provisions and covenants hereof, Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord, certain premises to be comprised of
approximately 61,380 rentable square feet (the "Premises") in a
building to be constructed by Landlord (the "Building") and situated on
certain land (the "Land") in Morrisville, the County of Wake, State of
North Carolina, more particularly described on Exhibit A, attached
hereto and incorporated herein by reference, together with all rights,
privileges, easements, appurtenances and immunities belonging to or in
any way pertaining to the Premises.
A floor plan of the Building and the Premises shall be
attached hereto and made a part hereof as Exhibit B. The measurement of
the Premises shall be conducted in accordance with BOMA standards, 1996
edition, currently applicable for a Class A office building comparable
to the Building. Any upfit performed by Landlord to prepare the
Premises for occupancy by Tenant shall be conducted in a good and
workmanlike manner and in accordance with all laws, statutes, and
regulations, and Landlord shall warrant the construction of the
improvements for a period of one year from the Commencement Date. The
taking of possession by Tenant shall be deemed conclusively to
establish that each portion of the Premises and any improvements
thereto are in good and satisfactory condition as of the date Tenant
commenced occupancy of that portion of the Premises, except for latent
defects and punchlist items. Tenant and Landlord shall complete a
punchlist of items requiring repair that are the responsibility of
Landlord within thirty (30) days of the Commencement Date. Tenant
further acknowledges that no representations as to the repair of the
Premises, nor promises to alter, remodel or improve the Premises have
been made by Landlord unless such representations or promises are
expressly set forth in this Lease. Within five days of the Commencement
Date, Tenant shall, upon demand of Landlord, execute and deliver to
Landlord a letter of acceptance of delivery of the Premises,
acknowledging the Commencement Date.
All construction of the Premises shall be performed by
Landlord in accordance with the schedule, plans and specifications for
the Premises (herein referred to collectively as the "Plans") which
Plans are subject to the mutual and reasonable approval of Landlord and
Tenant, a preliminary copy of which is attached hereto and made a part
hereof as Exhibit C. Construction of the Premises shall proceed in
accordance with the
<PAGE>
Building Design and Construction Schedule attached hereto and made a
part hereof as Exhibit C-1. The components of the Shell Building shall
be as set forth in Exhibit C-2, attached hereto and made a part hereof.
The components of the Building Upfit shall be as set forth in Exhibit
C-3, attached hereto and made a part hereof.
Tenant shall review the Plans to provide its input with
respect to all aspects of the Plans, including, but not limited to, the
specific needs of Tenant with respect to Heating, Ventilation and Air
Conditioning and other Building systems, and Landlord shall act
reasonably to accommodate the specific needs of Tenant with respect to
the Building systems.
Notwithstanding the above, Landlord and Tenant agree that a
formal construction schedule and final Construction Drawings and
Specifications, upon the completion of such documents by Landlord,
Landlord's architectural and engineering service providers, and other
such parties and further subject to the mutual and reasonable approval
of such documents by Landlord and Tenant, will replace the contents of
Exhibit C for purposes of controlling the actual construction of the
Premises; and such formal construction schedule and final Construction
Drawings and Specifications shall replace Exhibit C by means of a lease
amendment between Landlord and Tenant.
The base rent delineated in Paragraph 2(a) includes the costs
of the Shell Building, currently estimated to be Ninety-Four and 35/100
Dollars ($94.35) per rentable square foot of the Premises (the "Shell
Allowance"). Should the actual costs of the Shell Building (together
with the reduced or increased financing costs and commissions of the
Landlord) be different than the Shell Allowance, the base rent due
hereunder shall be increased or decreased accordingly by multiplying
the difference between the actual cost thereof and the Shell Allowance
by a factor of Ten and 85/100 Percent (10.85%), as reasonably
determined by Landlord.
The base rent delineated in Paragraph 2(a) also includes a
contribution by the Landlord of Ninety-Two and 14/100 Dollars ($92.14)
per rentable square foot of the Premises to be applied to the Building
upfit, as set forth in Exhibit C-2 (the "Upfit Allowance"). Further,
Landlord has agreed to permit Tenant to increase the Upfit Allowance by
up to an additional Twelve and 86/100 Dollars ($12.86) per Rentable
Square Foot of the Premises to satisfy Tenant's interior finish
requirements, as reasonably approved by Landlord (the Additional Upfit
Allowance"). At the option of Tenant, any portion or all of the
Additional Upfit Allowance used by Tenant to complete the upfit shall
be amortized over the term of the Lease with interest at the rate of
eleven percent (11%) per annum and repaid by Tenant in equal monthly
installments together with its payment of base rent hereunder.
Should for any reason the upfit costs for the Premises be
greater than a total of One Hundred Five and NO/100 Dollars ($105.00)
per rentable square foot (the "Maximum Upfit Allowance"), such excess
(the "Excess") shall be borne by Tenant and payable by Tenant to
Landlord within thirty (30) days of demand by Landlord to Tenant.
Failure by Tenant to pay the Excess upon demand as aforesaid is an
event of default
2
<PAGE>
hereunder and, in addition to all other remedies available to Landlord
at law, or in equity for such event of default, Landlord may recover
from Tenant the cost it incurs in preparing the Premises for another
tenant.
Should the upfit costs for the Premises be less than the Upfit
Allowance, Tenant shall be allowed to upgrade the improvements to the
Premises, as reasonably approved by Landlord, to fully utilize the
entire Upfit Allowance; or Tenant may elect to have Landlord apply the
unused Upfit Allowance (together with the reduced financing costs and
commissions of Landlord), multiplied by the amortization constant for
eleven percent (11%) per annum to reduce the base rent due hereunder,
proportionately over the entire Lease Term, all as reasonably
determined by Landlord and Tenant.
Additionally, in the event that Tenant shall not utilize all
the Upfit Allowance or all or any part of the Additional Upfit
Allowance, Tenant shall have the right to apply such unused monies
towards the costs of upfitting the Premises subsequent to completion of
the initial improvements ("Deferred Allowance") up to the Maximum Upfit
Allowance, subject to mutual and reasonable approval of plans and
specifications for such improvements by Landlord and Tenant. Tenant's
right to the Deferred Allowance shall expire at the end of the second
year of the term of the Lease and Landlord shall have no further
obligation to provide any improvement allowances of any kind during the
term of the Lease unless stated otherwise in this Lease. Any Deferred
Allowance used by Tenant shall be amortized over the term of the Lease
remaining at the time of completion of such improvements, with interest
at the rate of eleven percent (11%) per annum (the "Amortization
Constant"), and repaid by Tenant in equal monthly installments together
with its payment of base rent hereunder.
Landlord shall act reasonably to allow Tenant reasonable access to
the Premises at least thirty days prior to the Commencement Date to
install its furniture, telephone and computer systems, and other
special Building systems. Tenant covenants and agrees to conduct its
actions in such a manner to not disturb the preparation by Landlord of
the Premises for occupancy by Tenant. Upon the entry by Tenant onto the
Premises, this Lease shall be deemed to apply with respect to the
requirements that Tenant carry the insurance policies required under
this Lease, and that Tenant shall indemnify, defend and hold harmless
Landlord in accordance with the provisions of this Lease, as provided
in Sections 10 and 11 hereof.
(b) TERM.
TO HAVE AND TO HOLD the same for an initial term of one hundred
and eighty (180) months commencing upon the date (i) the Premises are
delivered by Landlord to Tenant as substantially complete in accordance
with the Plans, and (ii) a temporary certificate of occupancy has been
issued for the Premises by the Town of Morrisville, NC (the
"Commencement Date"), and ending 180 months thereafter, unless sooner
terminated pursuant to the provisions hereof (the "Termination Date").
The Commencement Date and Termination Date may be extended by Landlord,
in its discretion, due to delays beyond the control of Landlord,
including, but not limited to, acts or omissions of Tenant,
3
<PAGE>
force majeure, delays in obtaining permits, licenses or other
approvals, acts of God, delays caused by Tenant, and/or inclement
weather, including site conditions or winter weather that prohibit or
adversely affect construction (collectively, the "Excused Delays"). In
the event the Commencement Date has not occurred by December 1, 1999
due to acts or omissions of Landlord (with such date being extended for
any Excused Delays), Landlord shall credit against the first
installment(s) of base rent due hereunder from Tenant an amount equal
to one day's base rent for each day the Commencement Date is delayed.
In the event the Commencement Date has not occurred by December 1, 1999
due to acts or omissions of Tenant (with such date being extended for
any delay due to acts or omissions of Landlord and any Excused Delay
except for a Tenant Delay), Landlord shall receive from Tenant on the
Commencement Date an amount equal to one day's base rent for each day
the Commencement Date is delayed due solely by reason of a Tenant Delay
(as hereinafter defined). The aforesaid monetary amounts shall act as a
sole and exclusive remedy to each party hereto for any delay in the
Commencement Date. Landlord shall use reasonable efforts to provide
Tenant at least sixty days prior written notice of the Commencement
Date. A Tenant Delay shall be defined as a delay due in whole or in
part to (i) failure by Tenant to furnish information requested by
Landlord within five business days of the request therefor, or if such
request may not be satisfied by Tenant within five business days due to
the time reasonably needed to satisfy such request if Tenant is acting
in good faith and proceeding diligently, Tenant fails to commence its
efforts to satisfy such request within five business days or fails to
diligently pursue satisfaction of a request thereafter; (ii) the acts
or omissions by a person or entity employed by Tenant in the completion
of any work in connection with the upfit of the Premises by said person
or entity; or (c) other acts or omissions, whether negligent, willful,
or intentional of Tenant, its agents, employees, officers, directors,
or independent contractors, and as a result of the foregoing, Landlord
is unable to complete its obligations under this Lease by the
Commencement Date. Landlord shall provide written notice to Tenant of
any Tenant Delay as soon as practicable after the occurrence of any
Tenant Delay.
(c) Option to Renew. Tenant shall have the option to renew the
term of the Lease for one renewal period (the "Renewal Term") of five
lease years in duration, provided that Tenant shall not be in default
under the Lease on the date such rights are exercised, or on the date
the Renewal Term shall commence. The date of the commencement of the
Renewal Term shall be the day after the expiration of the then current
term of the Lease (unless sooner terminated as provided herein).
All terms and conditions of this Lease shall be in effect during the
Renewal Term (including the right of Landlord to increase base rent as
provided in paragraph 2 of the Lease), except that (i) the base rent
paid by Tenant during the Renewal Term shall be the lesser of: (1)
ninety-five percent of the then prevailing market rental rate (the
"Market Rent") for laboratory buildings in the Research Triangle Park,
North Carolina area of similar research usage, utility, size, age,
construction, finishes, upfit, and with similar amenities and
landscaping, and similar occupancy levels to the Building, as
reasonably determined by Landlord and Tenant, or (2) $24.00 per
rentable square foot, triple net; and (ii) upon the exercise by Tenant
of its right for the Renewal Term, all rights of Tenant to
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renew or extend this Lease term shall lapse. The base rent established
by Landlord and Tenant for the Renewal Term shall increase on January 1
of each year during the Renewal Term by two and three-fourths percent
(2 and 3/4ths) over the base rent paid the previous year. In the event
that Landlord and Tenant cannot agree upon the base rent to be paid by
Tenant during the Renewal Term, this Lease shall terminate and the
options to renew provided to Tenant hereunder shall be null and void
and of no further force and effect. Tenant shall deliver Landlord
written notice of its election to exercise its option to renew no less
than nine (9) months prior to the expiration of the initial term of the
Lease; failing which Tenant's right to renew for the Renewal Term shall
be null and void.
(d) Option to Purchase. Provided there is (i) no default or event
of default by Tenant under this Lease on the date its rights are
exercised or upon the date that Tenant shall purchase the Building and
Land and (ii) Tenant shall continue to lease the entirety of the
Building, Tenant shall have a one-time right to purchase the Building
and Land for a purchase price of $15,000,000.00 in cash provided that
Tenant shall provide Landlord written notice of its intent to exercise
its Option to Purchase at least nine months prior to the Termination
Date, and shall close on the purchase on the first business day
following the Termination Date of the initial term of this Lease.
Should Tenant fail to comply strictly with the foregoing conditions
precedent, the rights of Tenant under this Option to Purchase shall be
null and void and of no further force and effect. Each party hereto
shall pay its fees and expenses in connection with a closing by Tenant
upon the Building and Land.
2. BASE RENT, OPERATING EXPENSES, AND SECURITY DEPOSIT.
(a) BASE RENT.
Tenant agrees to make monthly payments of base rent to Landlord
for the Premises ("base rent"), in advance, without demand, deduction
or offset, in lawful money of the United States, in the following
amounts:
TIME PERIOD BASE RENT PER RENTABLE SQUARE
FOOT OF THE PREMISES
Year 1 $23.44
Year 2 $23.44
Year 3 $23.79
Year 4 $24.16
Year 5 $24.53
Year 6 $24.92
Year 7 $25.32
Year 8 $25.73
Year 9 $26.14
Year 10 $26.58
Year 11 $27.02
Year 12 $27.02
Year 13 $27.47
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Year 14 $27.94
Year 15 . $28.42
Base rent shall be due and payable commencing upon the Commencement
Date, and continuing on the first day of each and every month
thereafter until the Termination Date. Rent payments for any fractional
calendar month at the end, or the beginning of the term of the Lease,
shall be prorated. Base rent for the Premises as provided herein has
been calculated based upon the construction of the Premises as provided
in the Plans attached hereto. Base rent shall be revised in accordance
with paragraph 1(a) of this Lease should the Plans be modified and any
such modifications result in increases or decreases in the costs
incurred in constructing the Premises in accordance with the Plans, as
reasonably determined by Landlord and Tenant.
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(b) TAXES.
Beginning on the Commencement Date and continuing for the entire
term hereof, Tenant shall pay to Landlord, as additional rental,
Tenant's pro rata share of all taxes, assessments and governmental
charges of any kind or nature whatsoever levied or assessed against the
Land and the Building by any municipality, county, or other
governmental agency (the "Taxes"), which shall be based upon the ratio
of the square footage of the Premises to the total square footage of
the Building. Tenant shall pay its pro rata share of the Taxes in
advance in equal monthly installments in such amounts as are estimated
for each year by Landlord at the beginning of each calendar year during
the term, each such installment being made along with payments of base
rent hereunder. Tenant's share of Taxes for the initial year of the
term is estimated by Landlord to be $.84 per square foot per year, or
$4,296.60 per month.
(c) INSURANCE EXPENSE.
Beginning on the Commencement Date and continuing for the entire
term hereof, Tenant shall pay to Landlord, as additional rental,
Tenant's pro rata share of the insurance premiums (the "Insurance
Expense") for commercial general liability, and fire and extended
coverage insurance on the Building and the Land, which shall be based
upon the ratio of the square footage of the Premises to the total
square footage of rentable space in the Building. Tenant shall pay its
pro rata share of the Insurance Expense in advance in equal monthly
installments in such amounts as are estimated by Landlord at the
beginning of each calendar year during the term, each such installment
being made along with payments of base rent hereunder. Tenant's pro
rata share of the Insurance Expense for the initial year of the term is
estimated by Landlord to be $.03 per square foot per year or $ 15.35
per month.
(d) CAM EXPENSE.
Beginning on the Commencement Date and continuing for the entire
term hereof, Tenant shall pay to Landlord, as additional rental,
Tenant's pro rata share of the cost to Landlord of all the costs and
expenses of the operation, repair and maintenance of the Premises, the
Building, its exterior and common areas, and driveways and parking
areas, including, but not limited to, the costs of lawn maintenance,
driveway and parking area maintenance for the Premises and for the
streets and roadways providing access to the Building and the Land,
management and supervisory fees, costs for the monitoring, review, and
supervision of Tenant with respect to its maintenance and repair
responsibilities as set forth in paragraph 4 hereof, exterior lighting
maintenance, snow removal, repair and maintenance of paved areas,
cleaning supplies, miscellaneous building supplies, sweeper brushes,
supplies for materials used in common by all tenants of the complex in
which the Premises are located, external paint for the Building,
exterior and common area maintenance, external plumbing for the
Building, utility costs for exterior lighting including lighting in
exterior common areas, security guards for the complex in which the
Premises are located, signs for the complex in which the Premises are
located, fuel for vehicles and street sweepers used by Landlord in the
complex in
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which the Premises are located and miscellaneous maintenance expenses,
labor, materials, supplies, equipment and tools, permits, licenses,
inspection fees, window glass replacement and repair, compensation
(including employment taxes and fringe benefits) of all persons who
perform duties in connection with the operation and/or maintenance of
the Building, and costs for janitorial expense, maintenance, repair,
and replacement of Building systems not being repaired, maintained and
replaced by Tenant, if any, and trash removal at the Premises
(hereinafter collectively, the "CAM Expense"). The pro rata share of
Tenant for CAM Expense shall be based upon the ratio of the square
footage of the Premises to the total square footage of rentable space
in the Building. Tenant's pro rata share of the CAM Expense for the
initial year of the term is estimated by Landlord to be $.76 per square
foot per year or $3,887.40 per month.
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(e) RECONCILIATION OF EXPENSES.
Landlord shall promptly notify Tenant of the total actual (i)
Taxes assessed against the Land and the Building, (ii) Insurance
Expense, and (iii) CAM Expense, attaching a copy of the tax or special
assessment bill, the insurance invoice, or the calculation of CAM
Expense, as applicable, and shall specify (i) Tenant's pro rata share
thereof, and (ii) the excess, if any, of Tenant's pro rata share over
Landlord's estimation for such calendar year. Tenant shall pay the
excess amount so specified to Landlord within thirty (30) days
following receipt by Tenant of Landlord's letter. Failure by Tenant to
pay Landlord such amount within the period designated shall constitute
a non-payment of rent by Tenant and a default of Tenant's obligation
under the Lease, and Landlord shall be entitled to all remedies
provided for in this Lease upon default in payment of rent. If the
first year for which Tenant's pro rata share of Taxes, Insurance
Expense, or CAM Expense (hereinafter collectively, the "Expenses") are
due or the final year of the term hereof do not coincide with the
calendar year, Tenant's pro rata share of Expenses for the portion of
that year shall be prorated according to the number of months during
which Tenant was in possession of the Premises. In the event Landlord's
estimation of Expenses shall exceed the actual amount of Expenses, the
amount paid by Tenant for such year shall be adjusted between Landlord
and Tenant and Tenant shall receive a credit against the next due
installment of rent hereunder in such excess amount unless this Lease
has expired or been otherwise terminated, in which event Landlord shall
pay to Tenant such excess amount within thirty (30) days following
receipt by Tenant of Landlord's letter.
In the event Tenant shall dispute the amount set forth in any statement
provided by Landlord under this subparagraph (e), Tenant shall have the
right, not later than thirty days following the receipt of such
statement and upon condition that Tenant shall first deposit with
Landlord the undisputed portion, if any, to elect to have Landlord's
books and records with respect to such calendar year to be audited by
auditors selected by Tenant and subject to Landlord's reasonable
approval. Such audit must be completed no later than 60 days after
receipt of Landlord's letter, with such time limit to be extended due
to delays caused by Landlord. All costs for the audit shall be borne by
Tenant unless the audit disclosed an overcharge of ten percent or more,
in which case the costs of the audit not to exceed $1,000 shall be
borne by Landlord. If Tenant shall not request an audit in accordance
with the provisions of this paragraph within thirty days of receipt of
Landlord's statement provided pursuant to this subparagraph (e), such
statement shall be final and binding for all purposes hereof.
(f) SECURITY FOR PERFORMANCE BY TENANT. Until the day that is the
sixth anniversary of the Commencement Date, Tenant shall provide
Landlord with a clean, irrevocable and unconditional letter of credit
from an issuer satisfactory to Landlord payable to Landlord as
beneficiary in the amount of $3,000,000.00 (the "Letter of Credit").
The Letter of Credit must continue at all times in full force and
effect, shall secure the performance by Tenant under this Lease and may
be presented by Landlord for payment upon either: (i) the occurrence of
an event of default under this Lease; or (ii) failure by Tenant to
provide evidence to Landlord of its renewal of the Letter of Credit at
least thirty days prior to the then current expiration date of the
Letter of Credit. Upon the
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end of the fifth lease year hereunder, if the shareholder equity in
Tenant is not in excess of $90,000,000.00, the Letter of Credit must
continue to be provided by Tenant for an additional five years upon the
terms and conditions provided herein. Should Tenant fail to provide
sufficient evidence to Landlord of its shareholder equity or the
continued existence of the Letter of Credit prior to the end of the
fifty-ninth month of the Lease term, Landlord may draw the full
$3,000,000.00 of the Letter of Credit. Should Landlord draw upon the
Letter of Credit, Landlord shall reduce the base rent due and payable
hereunder by Tenant proportionately over the term of the Lease, as
reasonably determined by Tenant. Should the Lease be terminated for any
reason, Tenant shall not be entitled to a refund of the amount drawn by
Landlord under the Letter of Credit. Landlord shall reimburse Tenant
for its legal fees and expenses in procuring and maintaining the Letter
of Credit in an amount of up to $30,000.00 each year within thirty days
after Tenant provides to Landlord reasonable evidence of its fees and
expenses.
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(g) PROVISIONS TO SURVIVE LEASE TERMINATION.
Any unperformed obligations of Tenant under this Section 2 shall
survive the termination of the Lease, for whatever reason, or any
extension or renewal hereof.
3. COMPLIANCE WITH LAWS AND USE.
(a) The Premises shall be used only for the following purposes:
the conduct of laboratory testing and research procedures and general
office purposes related thereto. Tenant shall conduct no activity that
will result in the discharge of harmful gases, effluents or other
wastes or toxic substances other than as required in the ordinary
course of the business of Tenant and in compliance with all applicable
laws, statutes, and regulations. Outside storage, including, without
limitation, trucks and other vehicles, is prohibited without Landlord's
prior written consent except such outside storage as is reflected on
the Plans. Tenant shall at its sole cost and expense obtain any and all
licenses and permits necessary for its use of the Premises. Tenant
shall comply with all governmental laws, ordinances, policies and
regulations relating to the use of the Premises, and shall promptly
comply with all governmental orders and directives for the correction,
prevention and abatement of any violation of such laws, ordinances,
policies and regulations in or upon, or connected with, the Premises,
all at Tenant's sole expense. Tenant shall not permit any objectionable
or unpleasant odors, smoke, dust, gas, noise or vibrations to permeate
in or emanate from the Premises, nor take any other action which would
constitute a nuisance or would disturb or endanger any other tenants of
the Building or unreasonably interfere with their respective premises.
Tenant shall not receive, store or otherwise handle any product,
material or merchandise which is explosive, flammable, combustible,
corrosive, caustic, radioactive, toxic, hazardous or poisonous except
as required in the ordinary course of the business of Tenant and in
compliance with all applicable laws, statutes, and regulations. Tenant
will not permit the Premises to be used for any purpose or in any
manner (including, without limitation, any method of storage) which
would render the insurance thereon void or the insurance risk more
hazardous or cause the State Board of Insurance or other insurance
authority to disallow any sprinkler credits. Tenant shall give notice
to Landlord immediately upon the occurrence of any accident or incident
on the Premises that would trigger reporting requirements under
applicable laws, including, under the Occupational Safety and Health
Act, as amended ("OSHA"), or upon Tenant's discovery of any defects
thereon or in any fixtures or equipment located therein or upon the
occurrence of any emergency in the Premises or the Building. Tenant
shall ensure the proper and lawful storage and disposal of all medical,
radioactive, hazardous, toxic and other substances from the Premises,
and shall indemnify, defend and hold harmless Landlord, its agents,
employees, and officers of and from all liability, loss, cost and
expense incurred due to the improper or unlawful storage and disposal
by Tenant of any medical, radioactive, hazardous, toxic or other
substances used by Tenant at the Premises.
(b) Any costs or expenses for alterations, additions or
improvements required to modify the common areas of the Building to
comply with the Americans with Disabilities Act, as amended (the "ADA")
shall be paid by Landlord throughout the term of this
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Lease. Such alterations, additions or improvements shall be made or not
made in the sole discretion of Landlord, and Landlord shall be solely
liable for failure to make the required alterations, additions or
improvements. All alterations, additions or improvements to the
Premises required by the ADA on the Commencement Date of this Lease,
and after the Commencement Date if the initial construction to be
performed by Landlord has not been completed prior to the Commencement
Date, shall be made and paid for by Landlord, and Landlord shall be
solely liable for failure to make such required alterations, additions
or improvements. Except as provided above, any alterations, additions
or improvements to the Premises required by any modification or
supplement to the ADA promulgated after the Commencement Date, shall be
made and paid for by Tenant, and Tenant shall be solely liable for
failure to make such required alterations, additions or improvements.
In the event either party hereto shall fail to make any required
alterations, additions or improvements pursuant to the ADA, after
thirty (30) days written notice to the other party hereto, accompanied
by evidence in support of its position regarding the needed
alterations, shall have the right but not the obligation to make such
alterations, additions or improvements at the expense of the other
party and demand reimbursement of its expenses.
For purposes of this Lease, the common areas for the Building shall
consist of the entranceways and private roadways to the Building,
landscape areas on the Land, and the driveways and parking areas
located on the Land (hereinafter collectively, the "Common Areas") but
no third party shall have rights thereto unless specifically granted.
These common areas may be expanded by Landlord for the benefit of all
occupants of the Building.
(c) To the best of Landlord's knowledge, the Premises shall, as of the
Commencement Date, comply with the ADA.
4. REPAIRS AND MAINTENANCE.
(a) Landlord shall maintain, repair and replace only the roof,
downspouts, gutters, foundation, utility lines located outside the
Premises, dock boards, truck doors, dock bumpers, parking lots and
sidewalks on the Land, and the structural soundness of the exterior
walls of the Building in good repair, reasonable wear and tear
excepted. Tenant shall repair, replace and pay for, any damage to the
foregoing caused by the negligence of Tenant or Tenant's employees,
agents or invitees, or caused by Tenant's default hereunder. The term
"walls" as used herein shall not include interior windows, glass or
plate glass, doors, special interior store fronts or office entries.
Tenant shall immediately give Landlord written notice of defect or need
for repairs, after which Landlord shall have reasonable opportunity to
repair same or cure such defect. Landlord's liability with respect to
any defects, repairs or maintenance for which Landlord is responsible
under any of the provisions of this Lease shall be limited to the cost
of such repairs or maintenance or the curing of such defect.
(b) Tenant shall at its own cost and expense maintain, repair and
replace all parts of the Premises (except those for which Landlord is
expressly responsible under the terms
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of this Lease) in good condition in accordance with the standards for
laboratory buildings in the Research Triangle Park, North Carolina area
of similar research usage, utility, size, age, construction, finishes,
and upfit as reasonably determined by Landlord, promptly making all
necessary repairs and replacements, including, but not limited to, all
Building systems, including, but not limited to, heating, ventilation,
air conditioning, mechanical, plumbing and electrical, and vacuum, air
pressure, DI water, gas manifolds, gas storage, gas pipes, hazardous
waste disposal, elevators, windows, glass and plate glass, doors, any
special office entry, interior walls, finish work, and floors and floor
coverings, and Tenant shall conduct all general maintenance, including,
bolt repair and light fixtures, normal wear and tear excepted. Tenant
shall not be obligated to repair any damage covered by the insurance to
be maintained by Landlord pursuant to subparagraph 10(a) below, unless
due to the acts or omissions of Tenant, its agents, employees, or
independent contractors.
(c) If either party hereto shall fail to fulfill its obligations
under this paragraph, the other party hereto may enter upon the area of
the Building or the Premises as required to conduct the obligations of
the defaulting party, and shall be entitled to reimbursement from the
defaulting party for its actual costs and expenses in conducting such
obligations. The defaulting party shall reimburse the other party
hereto for its actual costs and expense promptly upon demand made by
the other party hereto. The provisions of this subparagraph shall not
be interpreted to obligate either party hereto to conduct obligations
of the other party hereto.
(d) Tenant shall conduct periodic maintenance of all hot water,
heating and air conditioning systems and units in the Premises, remove
and replace filters therein. In addition, Tenant shall bear
responsibility to ensure the provision of daily janitorial service and
removal of trash and debris from the Premises. Tenant shall enter into
contracts providing for the periodic maintenance, repair, and
replacement of all Building systems, for periodic pest and insect
extermination, and for daily janitorial service and removal of trash
and debris from the Premises and deposit of trash in exterior
containers located by Landlord on the Land; provided, however, Tenant
shall bear sole responsibility for the removal of hazardous, or toxic
substances, or medical wastes from the Premises and to the appropriate
site as required under applicable laws, statutes, and ordinances. A
copy of all of the aforesaid contracts entered into by Tenant shall be
provided to Landlord on or prior to the Commencement Date.
(e) Tenant shall not damage any demising wall of the Building, or
disturb the integrity and support provided by any demising wall and
shall, at its sole cost and expense, promptly repair any damage or
injury to any demising wall caused by Tenant or its employees, agents
or invitees.
(f) Tenant and its employees, customers and licensees shall have
the non- exclusive right to use the parking areas on the Land as may be
designated by Landlord in writing, subject to reasonable rules and
regulations as Landlord may from time to time prescribe and subject to
rights of ingress and egress of other tenants. Tenant shall not park on
streets, rights of ways, driveways, or roadways adjacent to the
Building or the
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Land, nor allow its employees, agents, invitees, or licensees to do so.
No vehicles other than passenger vehicles shall be parking on the Land,
without the prior written consent of the Landlord. Any vehicles,
including, tractors, trailers, or tractor trailers parked at the
Building in violation of any provision of this Lease, or abandoned on
the Land, as reasonably determined by Landlord, are subject to removal
by Landlord, at the cost and expense of Tenant, and Tenant shall
indemnify, defend, and hold harmless Landlord of and from all loss,
cost and expense incurred by Landlord in the enforcement of the
provisions of this Section. Tenant shall be considerate of the parking
needs of other tenants of the Building, and shall not violate the
rights of other tenants of the Building. So long as Tenant shall
continue to lease at least 61,380 rentable square feet, Tenant shall
have the non-exclusive use of 172 parking spaces at the Building (this
total includes handicapped parking spaces; provided, however, in the
event any improvements, or equipment located by Tenant on the Land
consume any portion of the parking area located on the Land, the
parking spaces affected shall be counted against the parking ratio
available for use by Tenant at the Premises. Landlord shall act
reasonably to enforce Tenant's parking rights against any third
parties. Landlord may require, at its option, in its sole discretion,
that Tenant, its employees, invitees, and visitors use certain numbered
spaces to be designated by Landlord.
5. ALTERATIONS.
(a) Subject to the provisions of this subparagraph (a), Tenant
shall not make any alterations, additions or improvements to the
Premises (including, but not limited to, roof and wall penetrations)
without the prior written consent of Landlord, which consent shall not
be unreasonably withheld; provided, however, should Tenant submit
preliminary plans for making an alteration to the Premises and such
plans are in form sufficient for Landlord to review the alteration
contemplated by Tenant, Landlord shall respond within ten business days
of its receipt of such plans, or the plans and the alteration to be
made by Tenant shall be deemed approved. If the plans submitted by
Tenant are insufficient for Landlord to review the contemplated
alteration, Landlord shall so notify Tenant and Tenant shall revise and
resubmit the plans to Landlord but the ten day time period for Landlord
to act as aforesaid shall not be deemed to commence until such time as
Tenant shall have submitted a sufficient plan to Landlord, as
reasonably determined by Landlord. All submissions of plans to Landlord
under this paragraph 5 shall be sent in accordance with the provisions
of paragraph 20 hereof. Landlord may require as a condition to Tenant
making any alteration to the Premises that Tenant restore the Premises
to its condition as of the Commencement Date prior to Tenant vacating
the Premises. Tenant may, without the consent of Landlord, but at its
own cost and expense and in a good workmanlike manner, erect such
shelves, bins, machinery and trade fixtures and remove and replace
interior non-structural walls, as it may deem advisable, without
altering the basic character or structure of the Premises or
improvements and without overloading or damaging the Premises or
improvements, and in each case complying with all applicable
governmental laws, ordinances, regulations and other requirements.
Tenant shall not make any alterations, additions or improvements to the
Premises which will contravene Landlord's policies insuring against
loss or damage by fire or other hazards, including but not limited to
commercial general liability, or which will prevent Landlord from
securing
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such policies in companies acceptable to Landlord. If any such
alterations, additions or improvements cause the rate of fire or other
insurance on the Premises by companies acceptable to Landlord to be
increased beyond the minimum rate from time to time applicable to the
Premises for permitted uses thereof, Tenant shall pay as additional
rent the amount of any such increase promptly upon demand by Landlord.
(b) Any and all alterations, additions, improvements, partitions
and fixtures erected by Tenant shall be the property of Landlord and
shall remain at the Premises upon termination of the Lease or upon
earlier vacating of the Premises. All shelves, bins, machinery, trade
fixtures and other specialized equipment installed and paid for by
Tenant may be removed by Tenant prior to the termination of this Lease
provided such removal may be accomplished without damage to the
Premises or to the primary structure or structural qualities of the
Building and other improvements situated on the Premises. Tenant shall
repair any damage to the Premises, or to the Building as a result of
any alteration, addition, improvement, or repair to the Premises, or
the removal of personal property or trade fixtures by Tenant, its
employees, agents, invitees, or contractors to the Premises. Should
Tenant fail to conduct any such repair within ten days of written
notice from Landlord, Landlord may, at its option, perform same, and
Tenant shall remit payment to Landlord for the actual cost and expense
incurred by Landlord in effecting such repair immediately upon demand.
6. SIGNS.
(a) Landlord shall install at its expense a monument sign on the
Land containing the name of Tenant. In addition, Landlord shall include
the name of Tenant on the Building directory. All signs for the
Premises shall be in form and substance, location, color, shape, size
(including, height, width and length of lettering and total signage)
and configuration, mutually and reasonably approved by Landlord.
(b) Tenant shall have the right to install signs upon the Premises
only when first approved in writing by Landlord and subject to any
applicable governmental laws, ordinances, regulations and other
requirements. Tenant shall remove all such signs upon the termination
of this Lease. Such installations and removals shall be made in such
manner as to avoid injury or defacement of the Premises, and Tenant
shall repair any injury or defacement, including, without limitation,
discoloration of the Building caused by such installation and/or
removal. Tenant shall have the right to install paraphet signage on the
Building at the expense of Landlord, and provided Tenant complies with
the provisions of this paragraph 6.
7. INSPECTION AND ENTRY.
(a) Landlord and Landlord's agents and representatives shall have
the right to enter and inspect the Premises at any reasonable time during
business hours, for the purpose of ascertaining the condition of the Premises or
in order to make such repairs as may be required or permitted to be made by
Landlord under the terms of this Lease or in order to show the Premises to any
prospective purchaser or lender so long as Landlord shall be escorted by an
employee of
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Tenant, or the agent or employee of Landlord entering the Premises shall have
received training from Tenant with respect to entry upon the Premises based upon
the usage of the Premises by Tenant. During the period that is six (6) months
prior to the end of the term hereof, Landlord and Landlord's agents and
representatives shall have the right to enter the Premises at any reasonable
time during business hours for the purpose of showing the Premises to any
prospective tenant and shall have the right to erect on the Premises a suitable
sign indicating the Premises are available. Tenant shall schedule with Landlord
at least sixty (60) days prior to vacating the Premises a time mutually
agreeable to the parties hereto for a joint inspection of the Premises prior to
vacating. In the event of Tenant's failure to give notice or arrange such joint
inspection, Landlord's inspection at or after Tenant's vacating the Premises
shall be conclusively deemed correct for purposes of determining Tenant's
responsibilities for repairs and restoration.
(b) Within thirty days of the Commencement Date of this Lease,
Tenant shall develop and provide a copy to Landlord of its hazard communication
plan (the "Plan") with respect to any accidents or incidents at the Building,
and shall thereafter provide Landlord with any amendments to the Plan within
five days of their development. Tenant shall ensure that the Plan complies with
all applicable laws, statutes, and regulations. Tenant shall bear all costs of
training the employees of Landlord with respect to the Plan, and any amendments
thereof.
(c) Tenant shall provide Landlord immediately a copy of any
notices or correspondence it receives from OSHA, or from any other state,
federal, or local agency concerning the Premises.
(d) Tenant shall provide to Landlord training for its employees
and staff that may enter the Building. This training shall be provided on an
annual basis and shall be sufficient to apprise the employees and staff of
Landlord of the usage of Tenant of the Building and the safety concerns with
respect to any entry thereon. Training updates shall be provided by Tenant to
Landlord upon the same schedule as provided to employees of Tenant. All training
shall be provided in the Building or in another building of Landlord located
nearby and shall be at the cost and expense of Tenant.
8. UTILITIES. Landlord agrees to provide at its cost, all utility
line connections into the Premises. Tenant shall contract and pay for all
utilities for the Premises directly with each service provider of the Premises.
Landlord shall not be liable for any interruption or failure of utility services
on the Premises; provided, however, in the event any utility service to the
Premises is interrupted due to acts or omissions of Landlord, the liability of
Landlord therefor shall be the costs to restore same.
9. ASSIGNMENT AND SUBLETTING. Tenant shall not sublet the Premises
or the interest of Tenant therein in whole or in part, or assign this Lease or
the interest of Tenant therein in whole or in part, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. Further, Tenant may not sell, lien, or encumber its interest in this
Lease, or assign or delegate the management or permit the use or occupancy of
the Premises in whole or in part by anyone other than Tenant without the prior
written consent of Landlord, which consent Landlord may withhold in its sole
discretion. Landlord and Tenant acknowledge and agree that the foregoing
provisions have been freely negotiated by the parties
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hereto and that Landlord would not have entered into this Lease without Tenant's
consent to the terms of this Paragraph 9.
In no event shall this Lease be assignable by operation of any
law, without the prior written consent of Landlord which consent shall not be
unreasonably withheld, and Tenant's rights hereunder may not become, and shall
not be listed by Tenant as an asset under any bankruptcy, insolvency, or
reorganization proceedings. No assignment, transfer, mortgage, sublease or other
encumbrance, whether or not approved, and no indulgence granted by Landlord to
any assignee or subtenant, shall in any way impair the continuing primary
liability (which after an assignment shall be joint and several with the
assignee) of Tenant hereunder, and no approval in a particular instance shall be
deemed to be a waiver of the obligation to obtain Landlord's approval in any
other case.
If for any approved assignment or sublease Tenant receives rent or
other consideration, either initially or over the term of the assignment or
sublease, in excess of the base rent hereunder, or in case of a sublease of part
of the Premises, in excess of the portion of such rent fairly allocable to such
part, after appropriate adjustments to assure that all other payments called for
hereunder are appropriately taken into account, Tenant shall pay to Landlord as
additional rent one-half of the full excess of each such payment of rent or
other consideration received by Tenant promptly after its receipt.
Notwithstanding the foregoing, if Tenant shall offer any sublease or assignment
of space in the Premises for less than the current asking price of Landlord for
space comparable in size and usage by Landlord to a prospective tenant in an
arms length transaction at the current fair market value for such space (which
asking price Landlord shall provide to Tenant upon request made therefor), then
Landlord shall be entitled to receive all of the full excess of each such
payment of rent or other consideration received by Tenant promptly after its
receipt.
Notwithstanding any provision of this Lease to the contrary,
should Tenant receive consent from Landlord to sublease or assign its interest
in the Premises and seek to sublease or assign its interest in the Premises in
accordance with this paragraph, Tenant shall not use the name of Landlord, any
insignia of Landlord, or any likeness of the Building in any of its advertising
for such sublease or assignment.
10. FIRE AND CASUALTY DAMAGE.
(a) Landlord agrees to maintain standard fire and extended
coverage insurance for the Building in an amount not less than full
replacement cost as such term is defined in the Replacement Cost
Endorsement to be attached thereto, insuring against special causes of
loss, including, the perils of fire, and lightning, such coverages and
endorsements to be as defined, provided and limited in the standard
bureau forms prescribed by the insurance regulatory authority for the
State of North Carolina. Subject to the provisions of subparagraphs
10(c), 10(d) and 10(e) below, such insurance shall be for the sole
benefit of Landlord and under its sole control.
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(b) If the Premises should be damaged or destroyed by any peril
covered by the insurance to be provided by Landlord under subparagraph
10(a) above, Tenant shall give immediate written notice thereof to
Landlord.
(c) If the Premises should be totally destroyed by any peril
covered by the insurance to be provided by Landlord under subparagraph
10(a) above, or if they should be so damaged thereby that rebuilding or
repairs cannot in Landlord's estimation be completed within one hundred
and eighty (180) days after the date upon which Landlord is notified by
Tenant of such damage, this Lease shall terminate and the rent shall be
abated during the unexpired portion of this Lease, effective upon the
date of the occurrence of such damage.
(d) If the Premises should be damaged by any peril covered by the
insurance to be provided by Landlord under subparagraph 10(a) above,
but only to such extent that rebuilding or repairs can, in Landlord's
estimation, be completed within one hundred and eighty (180) days after
the date upon which Landlord is notified by Tenant of such damage, this
Lease shall not terminate, and Landlord shall, at its sole cost and
expense, thereupon proceed with reasonable diligence to rebuild and
repair the Premises to substantially the condition in which they
existed prior to such damage, except that Landlord shall not be
required to rebuild, repair or replace any part of the partitions,
fixtures, additions and other improvements which may have been placed
in, on or about the Premises by Tenant. If the Premises are
untenantable in whole or in part following such damage, the rent
payable hereunder during the period in which they are untenantable
shall be abated as may be fair and reasonable under all of the
circumstances, as reasonably determined by Landlord and Tenant.
(e) Notwithstanding anything herein to the contrary, in the event
the holder of any indebtedness secured by a mortgage or deed of trust
covering the Premises requires that the insurance proceeds be applied
to such indebtedness, then Landlord shall have the right to terminate
this Lease by delivering written notice of termination to Tenant within
fifteen (15) days after such requirement is made by any such holder,
whereupon all rights and obligations hereunder thereafter accruing
shall cease and terminate.
(f) Each of Landlord and Tenant hereby waives all rights to recover
against each other or against any other tenant or occupant of the
Building, or against the officers, directors, shareholders, partners,
joint venturers, employees, agents, customers, invitees, or business
visitors of each other or of any other tenant or occupant of the
Building, for any loss or damage arising from any cause covered by any
insurance required to be carried by each of them pursuant to this
Lease, or any other insurance actually carried by either of them.
Landlord and Tenant shall cause their respective insurers to issue
waiver of subrogation rights endorsements to all policies of insurance
carried in connection with the Building or the Premises or the contents
of either of them, and any cost for the issuance of such endorsements
shall be borne by the original insured under such policies.
(g) The obligation of Landlord in this paragraph 10 to repair and
restore the Premises and the Building as provided herein, does not
include an obligation of Landlord to repair
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the fixtures, equipment, or personal property of Tenant, which Tenant
shall insure for its benefit, and Tenant shall have the obligation to
repair and restore in the event of a casualty or other loss to the
extent that replacement of such items is appropriate for the Tenant's
continuing use of the Premises.
(h) The period of time within which repair and restoration of the
Premises must be completed shall be extended due to delays occasioned
by force majeure; provided, however, all repair and restoration must be
completed by Landlord within 360 days after the date of the casualty.
11. LIABILITY. Landlord shall not be liable to Tenant or Tenant's
employees, agents, officers, partners, licensees or invitees, or to any other
person whomsoever, for any damage to property on or about the Premises belonging
to Tenant or any other person, due to any cause whatsoever, unless caused by the
gross negligence, or willful or intentional misconduct of Landlord.
Tenant hereby covenants and agrees that it will at all times
indemnify, defend (with counsel approved by Landlord) and hold safe and harmless
Landlord (including, without limitation, its trustees and beneficiaries if
Landlord is a trust), and Landlord's agents, employees, patrons and visitors
from any loss, liability, claims, suits, costs, expenses, including without
limitation attorney's fees and damages, both real and alleged, incurred by
Landlord, its agents, employees, officers, partners, invitees, or licensees
arising out of or resulting from the occupancy by Tenant of the Premises, a
breach by Tenant of any provision of this Lease, or the conduct by Tenant of its
business in the Building.
Landlord hereby covenants and agrees that it will at all times
indemnify, defend (with counsel reasonably approved by Tenant) and hold safe and
harmless Tenant (including, without limitation, its trustees and beneficiaries
if Tenant is a trust), and Tenant's agents, employees, patrons and visitors from
any loss, liability, claims, suits, costs, expenses, including without
limitation attorney's fees and damages, both real and alleged, incurred by
Tenant, its agents, employees, officers, partners, invitees, or licensees
arising out of or resulting from a breach by Landlord of any provision of this
Lease.
Tenant shall procure and maintain throughout the term of this
Lease a policy or policies of insurance, at its sole cost and expense, naming
Landlord as an additional insured, and insuring both Landlord and Tenant against
all claims, demands or actions arising out of or in connection with: (i) the
Premises; (ii) the condition of the Premises; (iii) Tenant's operations in and
maintenance and use of the Premises; (iv) the equipment, personal property and
fixtures of Tenant located on the Premises; (v) any interruption in the conduct
of the business of Tenant on the Premises; (v) Tenant's liability assumed under
this Lease, and such other kinds of insurance as Landlord shall reasonably
request. The limits of coverage maintained by Tenant for (i) commercial general
liability shall be not less than $5,000,000.00 with respect to each occurrence,
not less than $5,000,000.00 with respect to personal injury or death of a single
person, not less than $5,000,000 general aggregate, and not less than
$5,000,000.00 with respect to products completed operations aggregate, (ii) for
business interruption insurance shall be not less than
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coverage for actual loss, and (iii) for replacement of the equipment, personal
property and fixtures of Tenant shall be not less than full replacement value.
All such policies shall be procured by Tenant from responsible
insurance companies satisfactory to Landlord with an A.M. Best's Rating of at
least "A". Certified copies of such policies, together with receipt evidencing
payments of premiums thereof, shall be delivered to Landlord prior to the
Commencement Date. Not less than fifteen (15) days prior to the expiration date
of any such policies, certified copies of the renewals thereof (bearing
notations evidencing the payment of renewal premiums) shall be delivered to
Landlord. Such policies shall further provide that not less than thirty (30)
days prior written notice shall be given to Landlord before such policy may be
canceled or changed to reduce insurance provided thereby.
12. CONDEMNATION.
(a) If the whole or any substantial portion of the Premises should
be taken for any public or quasi-public use under governmental law,
ordinance, or regulation, or by right of eminent domain, or by private
purchase in lieu thereof, and the taking would prevent or materially
interfere with the use of the Premises by Tenant for the purposes
provided herein, this Lease shall terminate and the rent shall be
abated during the unexpired portion of this Lease, effective when the
physical taking of the Premises shall occur.
(b) If a portion of the Premises shall be taken for any public or
quasi-public use under any governmental law, ordinance or regulation,
or by right of eminent domain, or by private purchase in lieu thereof,
and the use by Tenant of the Premises is not materially interfered
with, this Lease shall not terminate but the rent payable hereunder
during the unexpired portion of this Lease shall be reduced in an
amount that shall be reasonable under all of the circumstances.
(c) In the event of any such taking or private purchase in lieu
thereof, Landlord shall be entitled to receive and retain all awards as
may be awarded in any condemnation proceedings other than those
specifically awarded Tenant for a taking of Tenant's personal property,
loss of business and moving expenses.
13. HOLDING OVER AND TERMINATION.
(a) Tenant shall upon the termination of this Lease by lapse of
time or otherwise, yield up immediate possession to Landlord without
the requirement of notice by Landlord to Tenant of the termination of
this Lease, nor any grace or cure period should Tenant fail to yield up
immediate possession to Landlord. Unless the parties hereto shall
otherwise agree in writing, if Landlord agrees in writing that Tenant
may hold over after the expiration or termination of this Lease, the
hold over tenancy shall be subject to termination by Landlord at any
time upon not less than five (5) days advance written notice, or by
Tenant at any time upon not less than thirty (30) days advance written
notice, and all of the other terms and provisions of this Lease shall
be applicable during that period, except that Tenant shall pay Landlord
from time to time upon demand, as rental for the period of any hold
over, an amount equal to one and 35/100 (1-35/100) the
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rent in effect on the termination date, computed on a daily basis for
each day of the hold over period. No holding over by Tenant, whether
with or without consent of Landlord, shall operate to extend this Lease
except as otherwise expressly provided. The preceding provisions of
this Paragraph 13 shall not be construed as Landlord's consent for
Tenant to hold over.
(b) Upon the termination of this Lease for whatever reason, Tenant
shall quit and immediately surrender the Premises to Landlord, broom
clean, in good order and condition with all repairs and maintenance
required by Tenant hereunder having been performed, ordinary wear and
tear and damage by casualty that is the responsibility of Landlord to
repair excepted, and Tenant shall remove its personal property from the
Premises in accordance with this Lease. Should any of the personal
property or trade fixtures of Tenant remain upon the Premises after the
Termination Date, all such property shall be deemed abandoned by
Tenant, and Landlord may remove same at the cost and expense of Tenant
with no liability to Tenant therefore, and Tenant hereby releases
Landlord from all liability therefor.
14. QUIET ENJOYMENT. Landlord covenants that it now has, or will
acquire before Tenant takes possession of the Premises, good title to the
Premises, free and clear of all liens and encumbrances, excepting only the lien
for current taxes not yet due, deed of trust(s), or mortgage(s) of record,
zoning ordinances and other building and fire ordinances and governmental
regulations relating to the use of such property, and easements, restrictions
and other conditions of record. In the event this Lease is a sublease, then
Tenant agrees to take the Premises subject to the provisions of the prior
leases. Landlord represents and warrants that it has full right and authority to
enter into this Lease and that Tenant, upon paying the rental herein set forth
and performing its other covenants and agreements herein set forth, shall
peaceably and quietly have, hold and enjoy the Premises for the term hereof
without hindrance or molestation from Landlord, subject to the terms and
provisions of this Lease.
15. EVENTS OF DEFAULT. The following events shall be deemed to be
events of default by Tenant under this Lease:
(a) Tenant shall fail to pay any installment of the rent herein
reserved, or payment with respect to taxes hereunder, or any other
payment or reimbursement to Landlord required herein, within five (5)
days of when due; provided, however, the aforesaid five day period
shall be extended to ten days for any one instance in a twelve month
period in which Tenant shall make a payment after the five day period.
(b) Tenant shall become insolvent, or shall make a transfer in
fraud of creditors, or shall make an assignment for the benefit of
creditors.
(c) Tenant shall file a petition under any section or chapter of
the Bankruptcy Reform Act, as amended or under any similar law or
statute of the United States or any state thereof; or Tenant shall be
adjudged bankrupt or insolvent in proceedings filed against Tenant
thereunder.
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(d) A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant.
(e) Tenant shall desert all of the Premises.
(f) Tenant shall fail to yield up immediate possession of the
Premises to Landlord upon termination of this Lease.
(g) Tenant shall fail to comply with the provisions of this Lease
concerning the Letter of Credit as required in paragraph 2 hereof.
(h) Tenant shall fail to comply with any term, provision or
covenant of this Lease (other than the provisions of subparagraphs (a),
(b), (c), (d), (e),(f) and (g) of this Paragraph 15), and shall not
cure such failure within twenty (20) days after written notice thereof
to Tenant, or such additional period of time as shall be granted by
Landlord should Landlord determine that Tenant is acting in good faith
and proceeding diligently to effect a cure but additional time is
required by Tenant to complete a cure.
16. REMEDIES. Upon the occurrence of any event of default in
Paragraph 15 hereof, Landlord shall have the option to pursue any remedy at law
or in equity, including, but not limited to, one or more of the following
remedies without any notice or demand whatsoever:
(a) Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have
for possession or arrearage in rent, enter upon and take possession of
the Premises and expel and remove Tenant and any other person who may
be occupying the Premises or any part thereof, with or without judicial
approval, by any legal means necessary, without being liable for
prosecution or any claim of damages therefor; secure the Premises
against unauthorized entry; and Tenant agrees to pay to Landlord on
demand the amount of all loss and damage which Landlord may suffer by
reason of such termination, whether through inability to relet the
Premises on satisfactory terms or otherwise.
(b) Enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying such Premises
or any part thereof, with or without judicial approval, by any legal
means necessary, without being liable for prosecution and receive the
rent thereof; secure the Premises against unauthorized entry; store any
property located on the Premises at the expense of the owner thereof
and Tenant agrees to pay to Landlord on demand any deficiency that may
arise by reason of such reletting. In the event Landlord is successful
in reletting the Premises at a rental in excess of that agreed to be
paid by Tenant pursuant to the terms of this Lease, Landlord and Tenant
each mutually agree that Tenant shall not be entitled, under any
circumstances, to such excess rental, and Tenant does hereby
specifically waive any claim to such excess rental.
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(c) Enter upon the Premises, with or without judicial approval, by
any legal means necessary, without being liable for prosecution or any
claim for damages therefor, secure the Premises against unauthorized
entry, remove all property of Tenant from the Premises and store it at
the cost and expense of Tenant, and do whatever Tenant is obligated to
do under the terms of this Lease; and Tenant agrees to reimburse
Landlord on demand for any expenses which Landlord may incur in thus
effecting compliance with Tenant's obligations under this Lease, and
Tenant further agrees that Landlord shall not be liable for any damages
resulting to Tenant from such action, whether caused by the negligence
of Landlord or otherwise.
(d) Accelerate and demand the payment of all base rent and other
charges due and payable hereunder over the term of this Lease which
amount shall be reduced by any amounts received by Landlord from any
new tenant that enters into occupancy of the Premises.
In the event Tenant fails to pay any installment of base rent or
additional rent hereunder within fifteen days of the due date of such
installment, Tenant shall pay to Landlord on demand a late charge in an amount
equal to four percent (4%) of such installment to help defray the additional
cost to Landlord for processing such late payment. The provision for such late
charge shall be in addition to all of Landlord's other rights and remedies
hereunder or at law and shall not be construed as liquidated damages or as
limiting Landlord's remedies in any manner. If, on account of any breach or
default by Tenant in Tenant's obligations under the terms and conditions of this
Lease, it shall become necessary or appropriate for Landlord to employ or
consult with an attorney concerning or to enforce or defend any of Landlord's
rights or remedies hereunder, Tenant agrees to pay any and all reasonable
attorneys' fees so incurred.
Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies herein provided or any other remedies
provided by law or equity, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of any of the terms,
provisions and covenants herein contained. No act or thing done by Landlord or
its agents during the term hereby granted shall be deemed a termination of this
Lease or an acceptance of the surrender of the Premises, and no agreement to
terminate this Lease or accept a surrender of the Premises shall be valid unless
in writing signed by Landlord. No waiver by Landlord of any violation or breach
of any of the terms, provisions and covenants herein contained shall be deemed
or construed to constitute a waiver of any other violation or breach of any of
the terms, provisions and covenants herein contained. Landlord's acceptance of
the payment of rental or other payments hereunder after the occurrence of an
event of default shall not be construed as a waiver of such default, unless
Landlord so notifies Tenant in writing, and no receipt of money by Landlord from
Tenant after the termination of this Lease or after service of any notice or
after the commencement of any suit or after final judgment for possession of the
Premises shall reinstate, continue or extend the term of this Lease or affect
any such termination, notice, suit or judgment, unless Landlord so notifies
Tenant in writing. Forbearance by Landlord to enforce one or more of the
remedies herein provided upon an event of default shall not be deemed or
construed to constitute waiver of such default or of Landlord's right to enforce
any such remedies with respect to such default or any subsequent default.
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17. LANDLORD'S LIEN. [INTENTIONALLY DELETED.]
18. MORTGAGES. Tenant accepts this Lease subject and subordinate
to any mortgage(s) and/or deed(s) of trust now or at any time hereafter
constituting a lien or charge upon the Premises or the improvements situated
thereon; provided, however, that if the mortgagee, trustee, or holder of any
such mortgage or deed of trust elects to have Tenant's interest in this Lease
superior to any such instrument, then by notice to Tenant from such mortgagee,
trustee or holder, this Lease shall be deemed superior to such lien, whether
this Lease was executed before or after said mortgage or deed of trust. Tenant
shall at any time hereafter on demand execute any instruments, releases or other
documents which may be required by any mortgagee or trustee for the purpose of
further subjecting and subordinating this Lease to the lien of any such mortgage
or deed to trust, and shall forward same to Landlord within five days of a
request therefor; provided, that any current or future mortgagee, trustee, or
deed of trust beneficiary, as the case may be, shall provide Tenant with a
nondisturbance agreement in form reasonably satisfactory to Tenant which shall
grant Tenant the right to continue to occupy the Premises under the terms hereof
so long as Tenant is not in default under this Lease.
19. MECHANIC'S LIENS. Tenant shall have no authority, express or
implied, to create or place any lien or encumbrance of any kind or nature
whatsoever upon, or in any manner to bind, the interest of Landlord in the
Premises or to charge the rentals payable hereunder for any claim in favor of
any person dealing with Tenant, including those who may furnish materials or
perform labor for any construction or repairs, and each such claim shall affect
and each such lien shall attach to, if at all, only the leasehold interest
granted to Tenant by this instrument. Tenant covenants and agrees that it will
pay or cause to be paid all sums legally due and payable by it on account of any
labor performed or materials furnished in connection with any work performed on
the Premises on which any lien is or can be validly and legally asserted against
its leasehold interest in the Premises or the improvements thereon and that it
will save and hold Landlord harmless from any and all loss, cost or expense
based on or arising out of asserted claims or liens against the leasehold estate
or against the right, title and interest of Landlord in the Premises or under
the terms of this Lease.
20. NOTICES. Each provision of this instrument or of any
applicable governmental laws, ordinances, regulations, or other requirements
with reference to the sending, mailing, or delivery of any notice by Landlord to
Tenant or with reference to the sending, mailing, or delivery of any notice or
the making of any payment by Tenant to Landlord shall be deemed to be complied
with when and if the following steps are taken:
(a) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address
hereinbelow set forth or at such other address as Landlord may specify
from time to time by written notice delivered in accordance herewith.
Tenant's obligations to pay rent and any other amounts to Landlord
under the terms and of this Lease shall not be deemed satisfied until
such rent and other amounts have been actually received by Landlord.
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(b) Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or
not when:
(i) deposited in the United States Mail, postage prepaid;
(ii) sent by federal express or other nationally
recognized overnight courier, charges prepaid; or
(iii) sent by Certified or Registered Mail, return receipt
requested, postage prepaid,
and addressed to the parties hereto at the respective addresses set out
below, or at other such addresses as they have heretofore specified by
written notice delivered in accordance therewith.
LANDLORD:
Weeks Realty, L.P.
1800 Perimeter Park Drive
Suite 200
Morrisville, North Carolina 27560
Attention: Mr. Robert G. Cutlip
With a copy to:
Dave Lindner
Weeks Realty, L.P.
1800 Perimeter Park Drive
Suite 200
Morrisville, NC 27560
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Cathy M. Rudisill, Esq.
Smith Helms Mulliss & Moore, L.L.P.
2800 Two Hannover Square
Raleigh, North Carolina 27601
TENANT:
PPD Pharmaco, Inc.
3151 South 17th Street Extension
Wilmington, NC 28412
Attention: Director of Administration
With a copy to:
General Counsel
PPD Pharmaco, Inc.
3151 South 17th Street Extension
Wilmington, NC 28412
If and when included within the term "Landlord", as used in this instrument,
there is more than one person, firm or corporation, all shall jointly arrange
among themselves for their joint execution of such a notice specifying some
individual at some specific address for the receipt of notices and payments to
Landlord; if and when included within the term "Tenant, as used in this
instrument, there is more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address within the continental
United States for the receipt of notices to Tenant. All parties included within
the terms "Landlord" and "Tenant", respectively, shall be deemed to have
received notices in accordance with the provisions of this paragraph with the
same effect as if each had received such notice.
21. BROKER'S CLAUSE. Tenant warrants and represents to Landlord
that it has had no dealings with any real estate broker or agent in connection
with this Lease other than Corporate Realty Advisors, and Weeks Corporation, and
Tenant covenants to pay, hold harmless, and indemnify Landlord from and against
any and all costs, expenses, liabilities (including reasonable attorneys' fees),
causes of action, claims or suits in connection with any compensation,
commission, fee, or charges claimed by any other real estate broker or agent
with respect to this Lease or the negotiation thereof, arising out of any act of
Tenant. Landlord warrants and represents to Tenant that it has had no dealings
with any real estate broker or agent in connection with this Lease other than
Corporate Realty Advisors, and Weeks Corporation, and Landlord covenants to pay,
hold harmless, and indemnify Tenant from and against any and all costs,
expenses, liabilities (including reasonable attorneys' fees), causes of action,
claims or suits in connection with any compensation, commission, fee, or charges
claimed by any other real estate broker or agent with respect to this Lease or
the negotiation thereof, arising out of any act of Landlord.
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22. LANDLORD'S LIABILITY. Notwithstanding anything to contrary
contained in this Lease, Tenant agrees and understands that Tenant shall look
solely to the estate and property of Landlord in the Building for the
enforcement of a judgment (or other judicial decree) requiring the payment of
money by Landlord to Tenant by reason of default or breach of Landlord in
performance of its obligations under this Lease, it being intended that there
will be absolutely no personal liability on the part of Landlord, its successors
and assigns with respect to any of the terms, covenants, and conditions of this
Lease, and no other assets of Landlord or of Landlord's partners, if any, shall
be subject to levy, execution, attachment or any other legal process for the
enforcement or satisfaction of the remedies pursued by Tenant in the event of
such default or breach, this exculpation of liability to be absolute and without
exception whatsoever.
23. RULES AND REGULATIONS. Tenant shall fully comply with the
Rules and Regulations attached hereto as Exhibit D and made a part hereof and
any and all modifications thereof, or amendments thereto with respect to which
Landlord notifies Tenant.
24. HAZARDOUS MATERIALS.
(a) Tenant agrees that it will not release, discharge, place,
hold, or dispose of any Hazardous Material (as hereinafter defined) on,
under or at the Premises, in the Building, or on the Land, and that it
will not use the Premises, the Building, the Land, or any other portion
thereof as a site for the treatment, storage, or disposal (whether
permanent or temporary) of any Hazardous Material, other than materials
used in the ordinary course of the business of Tenant in accordance
with all Applicable Laws. Tenant further agrees that it will not cause
or allow any asbestos to be incorporated into any improvements or
alterations which Tenant makes or causes to be made to the Premises, or
the Building.
(b) Tenant hereby agrees to indemnify, defend (with counsel
reasonably approved by Landlord) and hold harmless Landlord of from and
against any and all losses, liabilities, damages, injuries, costs,
fines, penalties, expenses and claims of any and every kind whatsoever
(including without limitation, expert and consultant fees, court costs
and attorneys' fees at all tribunal levels) which at any time or from
time to time may be paid, incurred or suffered by, or asserted against
Landlord for, with respect to, or as a direct or indirect result of (i)
any breach by Tenant of the provisions of this Paragraph, or (ii) the
acts or omissions of Tenant or any agent, employee, invitee, licensee,
or independent contractor of Tenant resulting in or contributing to,
the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission, or release from, onto, or into the Premises, the
Building, the Land, the atmosphere, or any watercourse, body of water,
or groundwater, of any Hazardous Material or (iii) the violation of any
applicable law including, without limitation, any third party claim or
claims for contribution or cost recovery under applicable laws or
common law. The provisions of and undertakings and indemnification set
forth in this paragraph shall survive the termination or expiration of
this Lease, for any reason, and shall continue to be the liability,
obligation and indemnification of Tenant, binding upon Tenant forever.
The provisions of the preceding sentence shall govern and control over
any inconsistent provision of this Lease.
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(c) For purposes of this Lease, "Hazardous Material" means and
includes any radioactive, hazardous or toxic substance, pollutant,
contaminant, effluent, gas, petroleum product or medical product or
waste defined as such in (or for purposes of) the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended,
any so-called "Superfund" or "Superlien", law, the Toxic Substances
Control Act, as amended, or any other Federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating,
relating to, or imposing liability or standards of conduct concerning,
any radioactive, hazardous, toxic or dangerous waste, substance or
material, as now or at any time hereafter in effect, or any other
hazardous, toxic or dangerous, waste, substance or material, gas or
petroleum product, and "Applicable Laws" shall mean the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended,
any so-called "Superfund" or "Superlien", law, the Toxic Substances
Control Act, as amended, or any other Federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating,
relating to, or imposing liability or standards of conduct concerning,
any radioactive, hazardous, toxic or dangerous waste, substance or
material, as now or at any time hereafter in effect, or any other
hazardous, toxic or dangerous, waste, substance or material, gas,
petroleum product, medical product or waste.
(d) Tenant shall provide Landlord with a list of any and all
Hazardous Materials released, discharged, placed, held, or disposed of
on the Premises, and certification to Landlord of compliance by Tenant
with all Applicable Laws, within ten days of a request therefor by
Landlord.
25. [INTENTIONALLY DELETED.]
26. COVENANT OF TENANT. If Landlord encounters difficulties in
negotiating permanent or construction financing for the Building, and after
using its best efforts is unable to resolve those difficulties without obtaining
minor modifications to this Lease, Tenant will act in good faith to execute an
amendment to this Lease, but this agreement on the part of Tenant will not
require Tenant to make any changes that in Tenant's reasonable judgment alter
the term hereof, or adversely affect any substantive right of Tenant, whether
legal or economic.
27. MISCELLANEOUS.
(a) Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number
shall be held to include the plural, unless the context otherwise
requires.
(b) The terms, provisions and covenants and conditions contained
in this Lease 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
herein expressly provided. Landlord shall have the right to assign any
of its rights and obligations under this Lease. Each party agrees to
furnish to the other, promptly upon demand, a resolution, or other
appropriate documentation evidencing the due authorization of such
party to enter into this Lease.
28
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(c) The captions inserted in this Lease are for convenience only
and in no way define, limit or otherwise describe the scope or intent
of this Lease, or any provision hereof, or in any way affect the
interpretation of this Lease.
(d) Tenant agrees from time to time, within ten (10) days after
request of Landlord, to deliver to Landlord, or Landlord's designee, an
estoppel certificate stating that this Lease is in full force and
effect, the date to which rent has been paid, the unexpired term of
this Lease and such other matters pertaining to this Lease as may be
requested by Landlord. It is understood and agreed that Tenant's
obligation to furnish such estoppel certificates in a timely fashion is
a material inducement for Landlord's execution of this Lease.
(e) This Lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
(f) All obligations of Tenant hereunder not fully performed as of
the expiration or earlier termination of the term of this Lease shall
survive the expiration or earlier termination of the term hereof,
including, without limitation, all payment obligations concerning the
condition of the Premises.
(g) In the event of a transfer by Landlord of its interest in the
Premises, Landlord shall be released from all obligations and
liabilities under the terms of this Lease subsequent to the date of
such transfer. In the event a transferee shall agree to assume the
obligations and liabilities of Landlord under the Lease prior to the
date of the transfer, Landlord shall be released from all obligations
and liabilities under the Lease.
(h) If any clause or provision of this Lease is illegal, invalid
or unenforceable under present or future laws effective during the term
of this Lease, then and in that event, it is the intention of the
parties hereto that the remainder of this Lease shall not be affected
thereby, and it is also the intention of the parties to this Lease that
in lieu of each clause or provision of this Lease that is illegal,
invalid or unenforceable, there be added as a part of this Lease
contract a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be
legal, valid and enforceable.
(i) [INTENTIONALLY DELETED.].
(j) All references in this Lease to "the date hereof" or similar
references shall be deemed to refer to the last date, in point of time,
on which all parties hereto have executed this Lease.
(k) Time is of the essence of this Lease.
(l) (i) If Landlord (1) breaches any agreement or obligation in
this Lease and such breach continues for a period of thirty (30) days
after written notice to Landlord by
29
<PAGE>
Tenant, or (2) through Landlord's gross negligence or willful act,
Landlord fails to provide (where Landlord is obligated to provide the
Landlord Essential Service), or Landlord fails to act reasonably to
cause a cure (but only to the extent that Landlord is responsible for
the cure and such cure is within Landlord's control to effect) or
Landlord otherwise affirmatively acts to stop, interrupt or materially
reduce a Landlord Essential Service (as hereinafter defined) so that
Tenant is not able to carry on its business at the Premises for five
(5) consecutive business days and such interruption continues for a
period of five (5) business days after written notice to Landlord, then
upon the occurrence of (l) and/or (2) above, if Landlord shall not in
good faith have commenced the curing of such breach specified in (1) or
(2) above within such thirty (30) or five (5) business day period after
written notice, as the case may be and thereafter, shall have not
diligently and continuously proceeded to cure such breach completely,
the Landlord shall be in default hereunder, and Tenant shall have all
rights and remedies available at law or in equity for such default.
(ii) In addition, Tenant shall have the right but not the obligation,
to effect a cure on behalf of Landlord and to demand the actual and
reasonable costs of cure from Landlord.
(iii) For purposes of this Lease, a "Landlord Essential Service" does
not mean a service to be provided by Landlord under this Lease per se,
but rather a facility or system within the Building controlled,
operated or maintained by Landlord (but not a third party, e.g.,
Carolina Power & Light Company, to the extent that such third party is
responsible) that provides electricity, elevator service,
telecommunications (including data transmission), and heating, air
conditioning and ventilation and are necessary for the purpose of
Tenant's conduct of its business at the Premises. (iv) Landlord shall
have no liability for any incidental or consequential damages of
Tenant, or anyone claiming by, through or under Tenant, for any reason
whatsoever.
(m) In the event that Landlord shall default in the performance of
Landlord's obligations hereunder, the holder of a mortgage or the
beneficiary of a deed of trust which includes the Premises shall have
the right, but not the obligation, to perform or comply with any
covenants, agreements and provisions violated in connection with such
default. Further, if such holder or beneficiary notifies Tenant that
such holder or beneficiary has taken over Landlord's right under this
Lease, Tenant shall not assert any right to deduct the cost of repairs
or any monetary claims against Landlord theretofore accrued from rent
thereafter due and payable, but shall look solely to Landlord and not
such holder or beneficiary for satisfaction of such claim.
(n) This Lease does not create the relationship of partner or
joint venturer between Landlord and Tenant.
(o) The laws of the State of North Carolina shall govern the
interpretation, the validity, performance and enforcement of this
Lease.
(p) The undersigned officer of Tenant does hereby warrant and
certify to Landlord that Tenant is a corporation in good standing and
duly organized under the laws of the
30
<PAGE>
State of Texas and is authorized to do business in the State of North
Carolina. The undersigned officer of Tenant hereby further warrants and
certifies to Landlord that such officer is authorized and empowered to
bind the corporation to the terms of this Lease by such officer's
signature hereto. Tenant shall provide Landlord a consent of its
officers and directors to enter into this Lease, and the person
authorized to sign this Lease on behalf of Tenant concurrently with the
execution of this Lease.
(q) This Lease shall be executed in duplicate, each of which shall
be deemed an original and complete of itself and may be introduced into
evidence or used for any purpose without the production of any other
copy. If Tenant is a corporation, two authorized corporate officers
must execute this Lease in their appropriate capacity for Tenant and
affix the corporate seal.
(r) The provisions contained in the Rider attached hereto, if any,
are incorporated herein by reference and made a part of this Lease. In
the event of any conflict between the printed portion of this Lease and
the Rider, the provisions of the Rider shall govern and control.
(s) Although the printed provisions of this Lease were drafted by
Landlord, such fact shall not cause this Lease to be construed either
for or against Landlord or Tenant.
(t) This Lease may not be recorded. Upon the request and at the
expense of Tenant, Landlord shall execute a memorandum of this Lease
suitable for recording which shall omit the financial terms herein but
which shall identify the Premises and the term of this Lease. Upon the
expiration of this Lease, a recorded memorandum of this Lease may be
canceled of record by a document executed by Landlord, or its successor
in interest for such purpose.
(u) Within five days of the request by Landlord upon the
occurrence of a default or event of default hereunder by Tenant, Tenant
shall provide to Landlord, financial statements of Tenant certified by
the chief financial officer of Tenant.
(v) No remedy conferred herein is intended to be exclusive of any
other remedy and each and every remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or thereunder or now
or hereafter existing at law or in equity or by statute or otherwise.
(w) No provision of this Lease shall be deemed to waive any
statutory (as provided in Chapter 44A of the North Carolina General
Statutes), or common law rights of Landlord to assert a lien upon
property of Tenant.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
31
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IN WITNESS WHEREOF, the parties hereto have executed this Lease
under seal as of 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
By: /s/ Fred N. Eshelman
Print Name: Fred N. Eshelman
Title: CEO
Witness/Attest:
/s/ Meg Davenport
Print Name: Meg Davenport
Title: Executive Director, Corporate Administration
[CORPORATE SEAL]
32
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EXHIBIT A
THE LAND
TO BE ATTACHED UPON COMPLETION OF SITE PREPARATION FOR THE BUILDING.
33
<PAGE>
EXHIBIT B
FLOOR PLAN OF BUILDING AND PREMISES
34
<PAGE>
EXHIBIT C
PLANS AND SPECIFICATIONS
[TO BE ATTACHED UPON THE MUTUAL APPROVAL OF LANDLORD AND TENANT.]
35
<PAGE>
EXHIBIT C-1
PROJECT DESIGN AND CONSTRUCTION SCHEDULE
[TO BE ATTACHED UPON THE MUTUAL APPROVAL OF LANDLORD AND TENANT.]
36
<PAGE>
EXHIBIT C-2
SHELL BUILDING COMPONENTS
[TO BE ATTACHED UPON THE MUTUAL APPROVAL OF LANDLORD AND TENANT.]
37
<PAGE>
EXHIBIT C-3
BASE BUILDING UPFIT
[TO BE ATTACHED UPON THE MUTUAL APPROVAL OF LANDLORD AND TENANT.]
38
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks, common areas, and public portions of the
Building, such as entrances, passages, courts, elevators, vestibules, stairways,
corridors or halls, and the streets, alleys or ways surrounding or in the
vicinity of the Building shall not be obstructed by Tenant, even temporarily, or
encumbered by Tenant or used for any purpose other than ingress to and egress
from the Premises.
2. No awnings or other projections shall be attached to the
outside walls of the Building.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by Tenant on any part of the outside of
the Premises or Building unless approved by Landlord. Signs on entrance doors
shall, at Tenant's expense, be inscribed, painted or affixed for each tenant by
sign makers approved by Landlord. In the event of the violation of the foregoing
by Tenant, Landlord may remove same without notice to Tenant or any liability
therefor, and may charge the expense incurred by such removal to Tenant.
4. The sashes, sash doors, skylights, windows, heating,
ventilating and air conditioning vents and doors that reflect or admit light and
air into the halls, passageways or other public places in the Building shall not
be covered or obstructed by Tenant.
5. No show cases or other articles shall be put in front of or
affixed to any part of the exterior of the Building, nor placed in the public
halls, corridors, or vestibules without the prior written consent of Landlord.
6. The bathrooms and plumbing fixtures shall not be used for any
purposes other than those for which they were designed, and no sweepings,
rubbish, rags, or other substances shall be thrown therein. All damages
resulting from any misuse of the bathrooms or fixtures shall be the
responsibility of Tenant.
7. Tenant shall not in any way deface any part of the Premises or
the Building.
8. No bicycles, vehicles, or animals of any kind (other than
animals used by Tenant for research purposes) shall be brought into or kept in
or about the Premises, or in the Building. No cooking shall be done or permitted
by Tenant on the Premises except that performed in the ordinary course of the
business of Tenant and in conformity with all applicable laws, statutes,
regulations. Tenant shall not cause or permit any unusual or objectionable odors
to be produced upon or permeate from the Premises.
9. [INTENTIONALLY DELETED.]
10. No space in the Building shall be used for the sale of
merchandise, goods, or property of any kind at auction.
39
<PAGE>
11. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of the Building or
neighboring buildings or premises or those having business with them, whether by
the use of any musical instrument, radio, talking machine, unmusical noise,
whistling, singing, or in any other way. Tenant shall not throw anything out of
the doors, windows or skylights or down the passageways.
12. Neither Tenant, nor any of Tenant's servants, employees,
agents, visitors, or licensees, shall at any time bring or keep upon the
Premises any inflammable, combustible or explosive fluid, or chemical substance,
other than those used in the ordinary course of the business of Tenant and in
compliance with all applicable laws, statutes, and regulations.
13. No additional locks or bolts of any kind shall be placed upon
any of the doors, walls, accessways, or windows by Tenant, nor shall any changes
be made in existing locks or the mechanism thereof, without the prior written
approval of Landlord, not to be unreasonably withheld, and unless and until a
duplicate key or access card, as applicable, is delivered to Landlord. Tenant
shall, upon the termination of its tenancy (i) return to Landlord all keys for
the Premises and for any area of the Building, or common areas, either furnished
to, or otherwise procured by Tenant, (ii) restore the locks, walls, accessways,
windows, and doors to their original condition on the date of this Lease by
removing any security measures installed by Tenant, repairing any damage to the
Premises or to the Building as a result of the restoration and removal, and
(iii) in the event of the loss of any keys furnished to Tenant by Landlord,
Tenant shall pay to Landlord the cost thereof.
14. Tenant shall not overload any floor.
15. Tenant shall not occupy or permit any portion of the Premises
to be used for the possession, storage, manufacture or sale of liquor,
narcotics, or tobacco in any form except as used in the ordinary course of the
business of Tenant and in accordance with all applicable laws, statutes, and
regulations.
16. Tenant shall be responsible for all persons for whom it issues
passes and/or keys and shall be liable to Landlord for all acts of such persons.
17. The Premises shall not be used for lodging or sleeping, or for
any illegal purpose.
18. Questions of Tenant regarding the Premises and the Building
will be attended to only by Landlord or the property manager of the Premises.
19. Canvassing, soliciting, and peddling in the Building are
prohibited and Tenant shall cooperate to prevent the same.
20. All paneling, grounds or other wood products not considered
furniture shall be of fire retardant materials.
40
<PAGE>
21. No smoking is permitted in the Premises, or in the Building.
Smoking is permitted outside the Building in designated smoking areas. All
cigarette butts and other refuse should be placed in designated containers.
22. No weapons concealed or visible are permitted in the Premises,
in the Building, or on the Land.
23. Landlord shall not be responsible to Tenant or liable for the
non-observance or violation of any of these Rules and Regulations by any other
tenant.
Whenever the above rules conflict with any of the rights or
obligations of Tenant pursuant to the provisions of the Lease, the provisions of
the Lease shall govern.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement"), made
this 1st day of January, 1999, by and between Pharmaceutical Product
Development, Inc., a North Carolina corporation with its principal office at
3151 17th Street Extension, Wilmington, North Carolina 28412 (hereinafter
"PPD"), and David R. Williams (hereinafter "Employee").
RECITALS:
A. Employee desires employment upon the terms and conditions
herein stated.
B. PPD desires to employ Employee upon the terms and
conditions herein stated.
C. Employee and PPD desire to embody in writing the terms and
conditions of such employment in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and considerations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Employment. PPD hereby employs Employee and Employee hereby
accepts such employment on a full time basis as Senior Vice President of Human
Resources upon the terms and conditions hereinafter set forth.
2. Term. The term of this Agreement shall be for one year,
beginning January 1, 1999, and ending December 31, 1999, unless sooner
terminated as provided herein. Thereafter, this Agreement shall be automatically
renewed for successive one-year terms upon the terms and conditions herein set
forth and subject to salary adjustments as provided for in paragraph 9 below,
unless either party gives notice as herein provided to the other of said party's
intent not renew this Agreement not less than 60 days prior to the expiration of
the one-year term then in effect.
3. Salary. For all services rendered by Employee under this
Agreement, PPD Pharmaco shall pay to Employee an annual salary of $150,000 for
the initial one-year term hereof.
4. Duties. Employee shall have overall responsibility for and,
in consultation with executive management, decision making authority necessary
to fulfill the duties of Senior Vice President of Human Resources. Employee
shall undertake such travel as required to perform the duties prescribed herein.
During the term of this
<PAGE>
Agreement, Employee shall devote substantially all of his working time,
attention and energies to the business of PPD.
5. Working Facilities. PPD shall furnish Employee with office
space, equipment, technical, secretarial and clerical assistance and such other
facilities, services, support and supplies as may be reasonably needed to
perform the duties herein prescribed in an efficient and professional manner.
6. Non-Compete. During the term of this Agreement, Employee
hereby agrees that he shall not (a) become an officer, employee, director,
agent, representative, member, associate or consultant of or to a corporation,
partnership or other business entity or person, (b) directly or indirectly
acquire a proprietary interest in a corporation, partnership or other business
entity or person, or (c) directly or indirectly own any stock in a corporation
(other than a publicly traded corporation of which Employee owns less than five
percent (5%) of the outstanding stock) which is engaged in the business of
managing clinical research programs for pharmaceutical and medical products or
in any other business which is developed by PPD during the term of this
Agreement anywhere in the United States (whether or not such business is
physically located within the United States). The parties agree that the
business and operations of PPD are national in scope. For that reason, the
parties agree that a geographical limitation on the foregoing covenant is not
appropriate.
7. Termination. Notwithstanding any other provision of this
Agreement, PPD may terminate Employee's employment hereunder upon the occurrence
of any of the following events:
a. Death of Employee.
b. A determination by the President and Chief Operating
Officer of PPD, acting in good faith but made in his sole discretion, that
Employee has failed to substantially perform his duties under this Agreement.
c. A determination by the President and Chief Operating
Officer of PPD, acting in good faith but made in his sole discretion, that
Employee (i) has become physically or mentally incapacitated and is unable to
perform his duties under this Agreement as a result of such disability, which
inability continues for a period of sixty (60) consecutive calendar days, (ii)
has breached any of the material terms of this Agreement, (iii) has demonstrated
gross negligence or willful misconduct in the execution of his duties, or (iv)
has been convicted of a felony.
8. Disclosure of Information. As a condition of employment
hereunder, Employee will execute as of the date of this Agreement that certain
Proprietary and Inventions Agreement attached hereto as Exhibit A and
incorporated herein by reference.
2
<PAGE>
9. Benefits. During the term thereof, Employee shall be
entitled to participate in all benefits provided by PPD and its subsidiaries to
their employees generally, including but not limited to health insurance,
disability insurance and retirement plans, all of which are currently provided
to employees of PPD and its subsidiaries, subject to the eligibility
requirements of any plan(s) establishing same. Employee shall be subject to
PPD's policies applicable to other senior management employees of PPD with
respect to periodic reviews and increases in salary, and shall be considered for
and eligible to participate in benefits, if any, provided generally by PPD to
its senior management employees, including but not limited to issuance of stock
options, cash bonuses, etc., in connection with Employee's duties and
performance as a senior management employee.
10. Expenses. PPD Pharmaco shall pay all reasonable expenses
of Employee which are directly related to Employee's duties hereunder in
accordance with PPD's policy for reimbursement of employee expenses.
11. Remedies. In the event of Employee's actual or threatened
breach of the provisions of paragraph 6 of this Agreement, PPD shall be entitled
to a temporary restraining order and/or permanent injunction restraining
Employee from such breach. Nothing herein shall be construed as preventing PPD
from pursuing any other available remedies for such breach or threatened breach,
including recovery of damages from Employee and from any corporation,
partnership or other business entity or person with which the Employee has
entered or attempted to enter into a relationship.
12. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and may
not be altered or amended except by agreement in writing signed by the parties.
13. Waiver of Breach. Waiver by either party of a breach of
any provision of this Agreement by the other party shall not operate as a waiver
of any subsequent breach by the other party. No waiver shall be valid unless in
writing and signed by the party against whom the waiver is sought.
14. Severability. If any portion of this Agreement shall be
declared invalid by a court of competent jurisdiction, the remaining portion
shall continue in full force and effect as if this Agreement has been executed
with the invalid portion eliminated and this Agreement shall be so construed.
15. Benefit. This Agreement shall inure to the benefit of and
be binding upon PPD, its successors and assigns, and Employee, his heirs,
successors, assigns and personal representatives.
16. Applicable Law. This Agreement shall be governed by the
laws of the State of North Carolina.
3
<PAGE>
17. Assignment. Neither party hereto may assign said party's
rights or obligations hereunder without the prior written consent of the other.
18. Notice. Any notice required or permitted hereunder shall
be delivered in person or mailed certified mail, return receipt requested, if to
PPD at PPD's principal office in Wilmington, North Carolina at the address
hereinabove set forth, and if to Employee at PPD's principal office in
Wilmington, North Carolina, and shall be deemed received when actually received.
Any notice from Employee to PPD shall be addressed to the President and Chief
Operating Officer of PPD, with a copy to the General Counsel of PPD. Either
party hereto may change the notice address provided for herein upon ten days
prior written notice to the other in the manner prescribed for herein.
19. Arbitration. Any dispute, controversy or claim arising out
of or relating to this Agreement, including but not limited to any breach, or as
to its existence, validity, interpretation, performance or non-performance,
breach or damages, including claims in tort, shall be decided by a single
neutral arbitrator in Wilmington, North Carolina in binding arbitration pursuant
to the commercial Arbitration Rules of the American Arbitration Association then
in effect. The parties to any such arbitration shall be limited to the parties
to this Agreement or any successor thereof. The arbitration shall be conducted
in accordance with the procedural laws of the United States Federal Arbitration
Act, as amended. The written decision of the arbitrator shall be final and
binding, and may be entered and enforced in any court of competent jurisdiction
and each party specifically acknowledges and agrees to waive any right to a jury
trial in any such forum. Each party to the arbitration shall pay its fees and
expenses, unless otherwise determined by the arbitrator.
20. Amendment; Modification. No amendment or modification of
this Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is sought. No
waiver shall be deemed a continuing waiver or a waiver in respect of any
subsequent breach or deferral, either of a similar or different nature, unless
expressly so stated in writing.
21. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same Agreement.
22. Descriptive Headings: Interpretation. The descriptive
headings in this Agreement are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
-------------------------------
Name: Fredric N. Eshelman
Title: CEO
/s/ David R. Williams (SEAL)
-------------------------------
David R. Williams
SEVERANCE AGREEMENT
THIS AGREEMENT, made this 2nd day of February, 1998, by and between
Pharmaceutical Product Development, Inc. ("PPD") and David R. Williams
("Employee").
WHEREAS, Employee is a valued employee of PPD and in order to induce
Employee to remain in the employ of PPD, PPD desires to provide the severance
benefits hereinafter described in the event of a "Change in Control", as
hereinafter defined, of PPD.
NOW, THEREFORE, it is agreed as follows:
1. Definitions
a. "Change in Control" means a change of control of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), provided that such a Change in Control shall be deemed
to have occurred if any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of PPD representing 50% or more of the combined voting
power of PPD's then outstanding securities.
b. "Constructive Termination" means a termination of
Employee's employment by PPD during the Covered Period initiated by Employee
after (i) a substantial diminution or alteration in the duties of Employee, (ii)
a reduction by PPD in Employee's base salary in effect on the date of the Change
in Control, or (iii) the relocation of Employee's primary work location to a
location that is more than twenty-five (25) miles from Employee's primary work
location prior to the Change in Control. Constructive Termination specifically
does not include termination of Employee by reason of death, Disability or
retirement at or after age 65. Employee shall give PPD written notice of a
Constructive Termination, which notice shall provide a brief description of the
circumstances which Employee asserts gives rise to a right of Constructive
Termination, and PPD shall have ten (10) days from receipt of said notice within
which to remedy said circumstances.
c. "Covered Period" means the time period commencing on the
date of and coincident with a Change of Control and ending one year thereafter.
d. "Disability" means the inability of Employee to perform his
assigned duties for PPD for a period of three (3) months due to Employee's
physical or mental illness as determined by a reputable medical doctor.
<PAGE>
e. "PPD" means Pharmaceutical Product Development, Inc. and
all of its subsidiaries and affiliated entities.
f. "Termination for Cause" means (i) an act or acts involving
fraud, embezzlement or theft from PPD, (ii) Employee's willful and repeated
failure to follow directions of the Board of Directors that continues for at
least ten (10) days following written notice of the Board of Directors of such
failure to follow directions, or (iii) termination for cause as defined in and
made pursuant to a then effective employment agreement, if any, between Employee
and PPD.
2. Compensation Upon Change of Control. If during the Covered Period
(i) PPD terminates Employee's employment for reason other than Termination for
Cause or (ii) Employee's employment is terminated by reason of Constructive
Termination, Employee shall be entitled to the following compensation and
benefits:
a. PPD shall pay Employee a lump sum equal to Employee's W-2
compensation for the six (6) months ending on the last day of the month
preceding the month of Employee's termination, said sum to be paid within ten
(10) days after Employee's termination of employment.
b. PPD shall pay Employee any bonus or deferred compensation
(whether in the form of cash, stock or otherwise) accrued but unpaid as of
Employee's termination, said sum to be paid within ten (10) days after
Employee's termination of employment.
c. For a period of six months after Employee's termination of
employment with PPD, PPD shall continue to pay for and provide existing employee
welfare benefits which Employee is receiving as of the date of termination of
employment, including life insurance, health, medical, dental, vision and
wellness, accidental death and dismemberment and disability benefits; provided,
however, that PPD's obligations under this clause shall terminate from the date
that Employee first becomes eligible after termination of employment with PPD
for similar coverage under another employer's plan.
d. Notwithstanding anything to the contrary in any award
agreement for non-qualified stock options, (i) all unvested shares underlying
PPD non-qualified stock options granted more than six months prior to the date
of Employee's termination shall become fully vested as of the date of Employee's
termination, and (ii) Employee shall continue to be treated under each award
agreement as if he was an employee of PPD until the first to occur of (x) the
third anniversary of Employee's termination of employment, or (y) the expiration
of the exercise period provided for therein; provided, however, in the event of
Employee's death or his disability (as disability is defined in the award
agreement) after the date of Employee's termination of employment hereunder, the
time for exercise after death or such disability prescribed in the award
agreement shall apply. The provisions of this subsection shall also apply to any
and all substitute stock
2
<PAGE>
options granted to Employee in exchange for Employee's PPD non-qualified stock
options to which this subsection applies.
3. Miscellaneous.
a. PPD will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of PPD, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that PPD would be required
to perform it if no succession had taken place.
b. This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executives,
administrators, successors, heirs, distributees, devisees and legatees.
c. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
given (i) by certified mail, return receipt requested, postage prepaid, or (ii)
by recognized overnight carrier, and shall be deemed received when actually
received. Notices shall be addressed as follows:
If to PPD: Pharmaceutical Product Development, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attention: Chief Executive Officer
If to Employee: David R. Williams
-----------------------------------------
-----------------------------------------
Either party hereto may change the notice address by giving notice thereof in
the same manner as provided for herein.
d. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any provision or condition of
this Agreement to be performed by such other party shall be deemed a subsequent
waiver of the same or similar provisions or conditions.
e. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this agreement, and this
Agreement supersedes and replaces
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<PAGE>
in its entirety all prior agreements and representations, expressed, implied,
oral or otherwise, made by PPD to or with Employee.
f. This Agreement shall be governed by and interpreted under
the laws of the State of North Carolina.
g. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
h. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
i. All legal expenses incurred by Employee in the successful
enforcement of any of the terms of this Agreement shall be paid by PPD.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fred N. Eshelman
Title: CEO
EMPLOYEE
/s/ David R. Williams (SEAL)
Name: David R. Williams
<PAGE>
AMENDMENT NO. 1 TO SEVERANCE AGREEMENT
BETWEEN
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
AND
DAVID R. WILLIAMS
THIS AMENDMENT NO. 1, made this 1st day of January, 1999, by and
between Pharmaceutical Product Development, Inc. ("PPD") and David R. Williams
("Employee"), amends that certain Severance Agreement (the "Agreement") between
PPD and Employee dated February 2, 1998.
For and in consideration of the mutual covenants herein contained and
other good and valuable consideration, receipt of which is hereby acknowledged,
PPD and Employee hereby amend the Agreement by rewriting Section 2.a. to read as
follows:
a. PPD shall pay Employee a lump sum equal to Employee's W-2
compensation for the twelve (12) months ending on the last day of the month
preceding the month of Employee's termination, said sum to be paid within ten
(10) days after Employee's termination of employment.
The Agreement, as amended herein, shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1
effective the date first hereinabove stated.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
-------------------------------------
Name: Fredric N. Eshelman
-----------------------------------
Title: CEO
----------------------------------
/s/ David R. Williams (SEAL)
----------------------------------------
David R. Williams
f:d\l\g\amend
LOAN AGREEMENT
LOAN AGREEMENT dated February _1_, 1999 (the "Loan Agreement" or this
"Agreement") by and among PPGx, Inc., a Delaware corporation (the "Borrower"),
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina corporation (the
"Company"), the subsidiaries and affiliates of the Borrower identified on the
signature pages hereto or hereafter joined as a Guarantor hereunder (together
with the Company, the Guarantors") and FIRST UNION NATIONAL BANK (the "Bank").
W I T N E S S E T H
WHEREAS, the Borrower has requested an $8 million revolving credit
facility for the purposes hereinafter set forth;
WHEREAS, the Bank has agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United
States Code, as amended, modified, succeeded or replaced from time to time.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in Charlotte, North Carolina are authorized or
required by law to close; provided, however, that when used in connection with a
rate determination, borrowing or payment in respect of a LIBOR Rate Loan, the
term "Business Day" shall also exclude any day on which banks in London, England
are not open for dealings in U.S. dollar deposits in the London interbank
market.
"Closing Date" means the date hereof.
"Commitment Period" means the period from and including the date hereof
to but excluding the earlier of (i) the Termination Date, or (ii) the date on
which the commitments hereunder shall have been terminated in accordance with
the provisions hereof.
"Consolidated Debt to Total Capitalization Ratio" means, as of any day,
the ratio of Consolidated Funded Debt to Consolidated Total Capitalization.
"Consolidated Fixed Charge Coverage Ratio" means, as of the last day of
any fiscal quarter for the Company and its subsidiaries on a consolidated basis,
the ratio of Consolidated Income Available for Fixed Charges to Consolidated
Fixed Charges.
"Consolidated Fixed Charges" means, for the applicable period for the
Company and its subsidiaries on a consolidated basis, the sum of Consolidated
Interest Expense plus rental
<PAGE>
and lease expense, in each case as determined in accordance with GAAP applied on
a consistent basis. Except as expressly provided otherwise, the applicable
period shall be for the four consecutive fiscal quarters ending as of the date
of determination.
"Consolidated Funded Debt" means Funded Debt of the Company and its
subsidiaries on a consolidated basis determined in accordance with GAAP.
"Consolidated Income Available for Fixed Charges" means, for any period
for the Company and its subsidiaries on a consolidated basis, the sum of
Consolidated Net Income plus Consolidated Interest Expense plus federal, state
and local income taxes paid plus rental and lease expense, in each case
determined in accordance with GAAP applied on a consistent basis. Except as
expressly provided otherwise, the applicable period shall be for the four
consecutive fiscal quarters ending as of the date of determination.
"Consolidated Interest Expense" means, for any period for the Company
and its subsidiaries on a consolidated basis, all interest expense, including
the amortization of debt discount and premium, the interest component under
capital leases and the implied interest component under securitization
transactions, in each case determined in accordance with GAAP applied on a
consistent basis. Except as expressly provided otherwise, the applicable period
shall be for the four consecutive fiscal quarters ending as of the date of
determination.
"Consolidated Net Income" means, for any period for the Company and its
subsidiaries on a consolidated basis, net income as determined in accordance
with GAAP applied on a consistent basis, but excluding for purposes of
determining the Fixed Charge Coverage Ratio, (i) extraordinary gains or losses,
and any taxes on such excluded gains and any tax deductions or credits on
account of any such excluded losses, and (ii) one-time non-recurring charges
associated with mergers and acquisitions permitted hereunder. Except as
expressly provided otherwise, the applicable period shall be for the four
consecutive fiscal quarters ending as of the date of determination.
"Consolidated Net Worth" means, on any day for the Company and its
subsidiaries on a consolidated basis, shareholders' equity as determined in
accordance with GAAP applied on a consistent basis.
"Consolidated Tangible Net Worth" means, on any day Consolidated Net
Worth minus the aggregate amount of goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks, brand names, organizational
and developmental expenses, covenants not to compete and other intangible
assets, in each case as determined in accordance with GAAP applied on a
consistent basis. For purposes hereof, Consolidated Tangible Net Worth shall not
include that certain seller financing promissory note from [current management
of APBI Environmental Sciences Group, Inc.] in favor of the Company in an
aggregate principal amount of up to $18,000,000 in connection with the sale of
APBI Environmental Sciences Group, Inc. ("APBI") to [current management of
APBI].
"Consolidated Total Capitalization" means, on any day for the Company
and its subsidiaries on a consolidated basis, the sum of Consolidated Funded
Debt plus Consolidated Net Worth.
2
<PAGE>
"Credit Documents" means, collectively, this Agreement and the Note.
"Credit Parties" means the Borrower and the Guarantors.
"Eurodollar Reserve Percentage" means for any day, the percentage
(expressed as a decimal and rounded upwards, if necessary, to the next higher
1/100th of 1%) which is in effect for such day as prescribed by the Federal
Reserve Board (or any successor) for determining the maximum reserve requirement
(including without limitation any basic, supplemental or emergency reserves) in
respect of Eurocurrency liabilities, as defined in Regulation D of such Board as
in effect from time to time, or any similar category of liabilities for a member
bank of the Federal Reserve System in New York City.
"Funded Debt" means, as of any day for any Person, without duplication,
(i) all indebtedness for borrowed money, (ii) all indebtedness and obligations
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations to pay the deferred purchase price of property or services (other
than trade accounts payable arising in the ordinary course of business), (iv)
all obligations as lessee under capital leases, (v) all obligations of
reimbursement relating to letters of credit, bankers' acceptances or other
similar instruments (whether or not then drawn and owing), (vi) all Guaranty
Obligations, (vii) the attributed principal amount of any securitization
transaction and (viii) all obligations under any synthetic lease, tax retention
operating lease, off-balance sheet loan or other similar off-balance sheet
financing product where the product is considered borrowed money indebtedness
for tax purposes, but is classified as an operating lease for purposes of GAAP.
"GAAP" means generally accepted accounting principles in the United
States applied on a consistent basis.
"Governmental Authority" means any federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.
"Guaranteed Obligations" means:
(a) All unpaid principal of and interest on (including,
without limitation, interest accruing at the then applicable rate
provided in this Agreement after the maturity of the Loans and other
obligations owing under this Agreement and interest accruing at the
then applicable rate provided in this Agreement after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether
or not a claim for post-filing or post-petition interest is allowed in
such proceeding) the Loans and all other obligations and liabilities
of the Borrower to the Bank, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, this
Agreement, the Note or any other document relating hereto, in each
case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel
to the Bank that are required to be paid by the Borrower pursuant to
the terms of this Agreement); and
3
<PAGE>
(b) all other indebtedness, liabilities and obligations of any
kind or nature, now existing or hereafter arising, owing by the
Borrower to the Bank, arising under any interest rate protection
agreement, currency agreement or other agreement or arrangement,
whether primary, secondary, direct, contingent, or joint and several.
"Guaranty Obligation" means any obligation, contingent or otherwise,
directly or indirectly guaranteeing the indebtedness or other obligation of
another Person, including without limitation, (i) an agreement to purchase or
pay (or to supply or advance funds for the purchase or payment of) any such
indebtedness or other obligation (whether by way of partnership agreement,
keep-well agreement, comfort letter, maintenance agreement or the like), or (ii)
any arrangement entered into for the purpose of assuring payment of the
indebtedness or other obligation of another Person or otherwise protecting a
party from loss in respect thereof; provided that such term shall not include
endorsements for collection or deposit in the ordinary course of business.
"Interest Payment Date" means (a) as to any Prime Loan, the last
Business Day of each March, June, September and December to occur while such
Loan is outstanding, (b) as to any LIBOR Rate Loan having an Interest Period of
three months or less, the last day of such Interest Period and (c) as to any
LIBOR Rate Loan having an Interest Period longer than three months, each day
which is three months after the first day of such Interest Period and the last
day of such Interest Period.
"Interest Period" means with respect to any LIBOR Rate Loan,
(i) initially, the period commencing on the date of borrowing
or conversion date, as the case may be, with respect to such LIBOR Rate
Loan and ending one, two or months thereafter, as selected by the
Borrower in the notice of borrowing or notice of conversion given with
respect thereto; and
(ii) thereafter, each period commencing on the last day of the
immediately preceding Interest Period applicable to such LIBOR Rate
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower by irrevocable notice to the Bank not less than three
Business Days prior to the last day of the then current Interest Period
with respect thereto;
provided that the foregoing provisions are subject to the
following:
(A) if any Interest Period pertaining to a LIBOR Rate
Loan would otherwise end on a day that is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
unless the result of such extension would be to carry such Interest
Period into another calendar month in which event such Interest Period
shall end on the immediately preceding Business Day;
(B) any Interest Period pertaining to a LIBOR Rate
Loan that begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last
Business Day of the relevant calendar month;
4
<PAGE>
(C) if the Borrower shall fail to give notice as
provided above, the Borrower shall be deemed to have selected a Prime
Loan to replace the affected LIBOR Rate Loan as provided herein;
(D) any Interest Period that would otherwise extend
beyond the Termination Date shall end on the Termination Date; and
(E) no more than 6 LIBOR Rate Loans may be in effect
at any time. For purposes hereof, LIBOR Rate Loans with different
Interest Periods shall be considered as separate LIBOR Rate Loans, even
if they shall begin on the same date and have the same duration,
although borrowings, extensions and conversions may, in accordance with
the provisions hereof, be combined at the end of existing Interest
Periods to constitute a new LIBOR Rate Loan with a single Interest
Period.
"LIBOR" means the arithmetic mean (rounded to the nearest 1/100th of
1%) of the offered rates for deposits in U.S. dollars for a period equal to the
Interest Period selected which appears on the Telerate Page 3750 at
approximately 11:00 A.M. London time, two (2) Business Days prior to the
commencement of the applicable Interest Period. If, for any reason, such rate is
not available, then "LIBOR" shall mean the rate per annum at which, as
determined by the Bank, U.S. dollars in the amount of $5,000,000 are being
offered to leading banks at approximately 11:00 A.M. London time, two (2)
Business Days prior to the commencement of the applicable Interest Period for
settlement in immediately available funds by leading banks in the London
interbank market for a period equal to the Interest Period selected.
"LIBOR Rate" means a rate per annum (rounded upwards, if necessary, to
the next higher 1/100th of 1%) determined by the Bank pursuant to the following
formula:
LIBOR Rate = LIBOR
---------------------------------
1.00 - Eurodollar Reserve Percentage
"LIBOR Rate Loan" means Loans hereunder bearing interest at a rate
determined by reference to the LIBOR Rate.
"Lien" means any mortgage, pledge, hypothecation, assignment, security
interest, encumbrance, lien, preference or priority of any kind.
"Loan" or "loan" shall mean revolving loans under Section 2.1 hereof.
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
(whether or not incorporated) or any Governmental Authority.
"PPD Loan Agreement" means that Loan Agreement dated as of June 25,
1997 among the Company, the Guarantors identified therein and the Bank, as
amended, modified, extended, renewed or replaced.
"Prime Loan" means Loans hereunder bearing interest at a rate
determined by reference to the Prime Rate.
5
<PAGE>
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by the Bank as its prime rate in effect at its principal
office in Charlotte, North Carolina, with each change in the Prime Rate being
effective on the date such change is publicly announced as effective (it being
understood and agreed that the Prime Rate is a reference rate used by the Bank
in determining interest rates on certain loans and is not intended to be the
lowest rate of interest charged on any extension of credit by the Bank to any
debtor).
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
or any of its material property is subject.
"Termination Date" means June 30, 2000, or such later date as to which
the Bank may agree in its sole discretion.
SECTION 2. LOAN.
2.1 Loan. During the Commitment Period, subject to the terms and
conditions hereof, the Bank agrees to make revolving loans to the Borrower upon
request in an aggregate principal amount of up to EIGHT MILLION DOLLARS
($8,000,000) at any time outstanding. The loans hereunder may consist of Prime
Loans or LIBOR Rate Loans, or a combination thereof. The obligation of the Bank
to make any Loan is subject to the condition that the Representations and
Warranties set forth herein are true and correct in all material respects.
2.2 Notices. Requests by the Borrower for Loans hereunder (including
extensions or conversions of loans hereunder), shall be made by written notice
(or telephone notice promptly confirmed in writing) by 12:00 Noon Charlotte,
North Carolina time (i) on the Business Day of the requested borrowing,
extension or conversion in the case of Prime Loans, and (ii) on the third
Business Day prior to the date of the requested borrowing, extension or
conversion in the case of Eurodollar Loans. Each request shall be in a minimum
principal amount of $1,000,000 in the case of LIBOR Rate Loans and $100,000 in
the case of Prime Loans and, in each case, integral multiples of $100,000 in
excess thereof, and shall specify the date of the requested borrowing, extension
or conversion, the aggregate amount to be borrowed, extended or converted and if
an extension of conversion, the loan which is being extended or converted, and
whether the borrowing, extension or conversion shall consist of LIBOR Rate
Loans, Prime Loans or combination thereof. If the Borrower shall fail to specify
(A) the type of Loan requested for a borrowing, the request shall be deemed a
request for a LIBOR Rate Loan with an Interest Period of one month, (B) the
duration of the applicable Interest Period in the case of LIBOR Rate Loans, the
request shall be deemed to be a request for an Interest Period of one month.
Each request for a Loan hereunder shall be deemed a reaffirmation that the
Representations and Warranties set forth herein are true and correct in all
material respects as of such date. Unless extended in accordance with the
provisions hereof, LIBOR Rate Loans shall be converted to Prime Loans at the end
of the applicable Interest Period.
6
<PAGE>
2.3 Interest Rate. Loans outstanding hereunder shall bear interest at a
per annum rate equal to (i) the LIBOR Rate plus five-eighths of one percent
(.625%) or (ii) the Prime Rate, as the Borrower may elect; provided that after
the occurrence and during the continuance of an Event of Default, the principal
and, to the extent permitted by law, interest on the Loans and any other amounts
owing hereunder shall bear interest, payable on demand, at a rate equal to the
Prime Rate plus two percent (2%). Interest will be payable in arrears on each
Interest Payment Date.
2.4 Repayment. Unless sooner paid, the Loans shall be due and payable
in full on the Termination Date.
2.5 Note. The Loans shall be evidenced by a promissory note of the
Borrower dated as of the Closing Date, in the form of Annex A hereto (as
amended, modified, extended, renewed or replaced, the "Note").
2.6 Fees. In consideration of the commitments hereunder, the Borrower
agrees to pay to the Bank a facility fee (the "Facility Fee") equal to ten basis
points (.10%) per annum on the average daily unused portion of the commitment
for the applicable period. The Facility Fee shall be payable quarterly in
arrears on the 15th day following the last day of each calendar quarter for the
immediately preceding quarter (or portion thereof) beginning with the first such
date to occur after the date hereof.
2.7 Prepayments. The Loans may be prepaid in whole or in part without
premium or penalty. LIBOR Rate Loans may not be prepaid in whole or in part
prior to the end of the applicable Interest Period. Amounts prepaid may, subject
to the terms and conditions hereof, be reborrowed.
2.8 Capital Adequacy. If the Bank shall have reasonably determined that
the adoption of or any change in any Requirement of Law regarding capital
adequacy or in the interpretation or application thereof as a consequence of its
obligations hereunder or compliance by the Bank or any corporation controlling
the Bank with any request or directive regarding capital adequacy (whether or
not having the force of law) from any central bank or Governmental Authority
made subsequent to the date hereof as a consequence of its obligations hereunder
does or shall have the effect of reducing the rate of return on the Bank's or
such corporation's capital as a consequence of its obligations hereunder to a
level below that which the Bank or such corporation could have achieved but for
such adoption, change or compliance (taking into consideration the Bank's or
such corporation's policies with respect to capital adequacy) by an amount
reasonably deemed by the Bank to be material, then from time to time, within 15
days after demand by the Bank, the Borrower shall pay to the Bank such
additional amount as shall be certified by the Bank as being required to
compensate it for such reduction. Such a certificate as to any additional
amounts payable under this subsection submitted by the Bank (which certificate
shall include a description in reasonable detail of the basis for the
computation) to the Borrower shall be conclusive absent manifest error.
2.9 Inability to Determine Interest Rate. Notwithstanding any other
provision of this Agreement, if (i) the Bank shall reasonably determine (which
determination shall be conclusive and binding absent manifest error) that, by
reason of circumstances affecting the relevant market, reasonable and adequate
means do not exist for ascertaining LIBOR for
7
<PAGE>
such Interest Period, or (ii) the Bank shall reasonably determine (which
determination shall be conclusive and binding absent manifest error) that the
LIBOR Rate does not adequately and fairly reflect the cost of funding LIBOR Rate
Loans, the Bank shall forthwith give telephone notice of such determination,
confirmed in writing, to the Borrower, and thereafter the right to request and
continue Loans as LIBOR Rate Loans shall be suspended until such time as the
conditions giving rise to such notice shall no longer exist. In the event LIBOR
Rate Loans are not available on account of operation of this Section, the Bank
will endeavor to provide an alternative index or reference rate.
2.10 Illegality. Notwithstanding any other provision of this Agreement,
if the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof, in each case occurring after the Closing
Date, by the relevant Governmental Authority shall make it unlawful for the Bank
to make or maintain LIBOR Rate Loans as contemplated by this Agreement or to
obtain in the interbank eurodollar market through its LIBOR Lending Office the
funds with which to make such Loans, (a) the Bank shall promptly notify the
Borrower thereof, (b) the commitment of the Bank hereunder to make LIBOR Rate
Loans or continue LIBOR Rate Loans as such shall forthwith be suspended until
the Bank shall give notice that the condition or situation which gave rise to
the suspension shall no longer exist, and (c) Loans then outstanding as LIBOR
Rate Loans, if any, shall be converted on the last day of the Interest Period
for such Loans or within such earlier period as required by law to Prime Loans.
The Borrower hereby agrees promptly to pay the Bank, upon its demand, any
additional amounts necessary to compensate the Bank for actual and direct costs
(but not including anticipated profits) reasonably incurred in making any
repayment in accordance with this subsection including, but not limited to, any
interest or fees payable by the Bank to lenders of funds obtained by it in order
to make or maintain its LIBOR Rate Loans hereunder. A certificate as to any
additional amounts payable pursuant to this subsection submitted by the Bank, to
the Borrower shall be conclusive in the absence of manifest error.
2.11 Requirements of Law. If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by the Bank with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority, in each case made
subsequent to the date hereof:
(i) shall subject the Bank to any tax of any kind whatsoever
with respect to any LIBOR Rate Loan made by it, or change the basis of
taxation of payments to the Bank in respect thereof (except for changes
in the rate of tax on the net income or franchise tax applicable to the
Bank);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of the Bank which is not otherwise
included in the determination of the LIBOR Rate hereunder; or
(iii) shall impose on the Bank any other condition (excluding
any tax of any kind whatsoever);
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and the result of any of the foregoing is to increase the cost to the Bank of
making or maintaining LIBOR Loans or to reduce any amount receivable hereunder
or under the Note, then, in any such case, the Borrower shall promptly pay the
Bank, within 15 days after its demand, any additional amounts necessary to
compensate the Bank for such additional cost or reduced amount receivable as
determined by the Bank with respect to its LIBOR Rate Loans. A certificate as to
any additional amounts payable pursuant to this subsection submitted by the
Bank, describing in reasonable detail the nature of such event and a reasonably
detailed explanation of the calculation thereof, to the Borrower shall be
conclusive in the absence of manifest error.
2.12 Indemnity. The Borrower hereby agree to indemnify the Bank and to
hold the Bank harmless from any funding loss or expense which the Bank may
sustain or incur (other than as a result of and to the extent the Bank's gross
negligence or willful misconduct) as a consequence of (a) default by the
Borrower in payment of the principal amount of or interest on any LIBOR Rate
Loan by the Bank in accordance with the terms hereof, (b) default by the
Borrower in accepting a LIBOR Rate Loan after the Borrower has given a notice in
accordance with the terms hereof, (c) default by the Borrower in making any
prepayment of a LIBOR Rate Loan after the Borrower has given a notice in
accordance with the terms hereof, and/or (d) the making by the Borrower of a
prepayment of a LIBOR Rate Loan, or the conversion thereof, on a day which is
not the last day of the Interest Period with respect thereto, in each case equal
to (i) the amount of interest which would have accrued on the amount so prepaid,
or not so paid, borrowed, converted or continued, for the period from the date
of such prepayment or of such failure to borrow, convert or continue to the last
day of such Interest Period (or, in the case of a failure to pay, borrow,
convert or continue, the Interest Period that would have commenced on the date
of such failure), in each case at the applicable rate of interest for such Loans
provided for herein (exclusive of any margin), over (ii) the amount of interest
(as reasonably determined by the Bank) which would have accrued to the Bank on
such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. A certificate as to any
additional amounts payable pursuant to this subsection submitted by the Bank, to
the Borrower shall be conclusive in the absence of manifest error.
2.13 Taxes. All payments made by the Borrower hereunder or under any
Note will be made free and clear of, and without deduction or withholding for,
any present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature now or hereafter imposed by any Governmental
Authority or by any political subdivision or taxing authority thereof or therein
with respect to such payments (but excluding (i) any tax imposed on or measured
by the net income or profits of a Lender pursuant to the laws of the
jurisdiction in which it is organized or the jurisdiction in which the principal
office or applicable lending office of the Bank is located or any subdivision
thereof or therein and (ii) any franchise taxes, branch taxes, taxes on doing
business or taxes on the overall capital or net worth of the Bank pursuant to
the laws of the jurisdiction in which it is organized or the jurisdiction in
which the principal office or its applicable lending office is located or any
subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect thereto (all such non-excluded taxes, levies, imposts,
duties, fees, assessments or other charges being referred to collectively as
"Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the
full amount of such Taxes, and such additional amounts as may be necessary so
that every payment of all amounts due under this Agreement or under any Note,
after withholding or deduction for or on account of any such Taxes, will not be
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less than the amount provided for herein or in such Note. The Borrower will
furnish to the Bank as soon as practicable after the date the payment of any
Taxes is due pursuant to applicable law certified copies (to the extent
reasonably available and required by law) of tax receipts evidencing such
payment by the Borrower. The Borrower agrees to indemnify and hold harmless, and
reimburse, the Bank upon its written request, for the amount of any Taxes so
levied or imposed and paid by the Bank. The agreements in this subsection shall
survive termination of this Agreement and payment of the Notes and all other
amounts payable hereunder.
2.14 Payments and Computations. Payments shall be made hereunder in
U.S. dollars in immediately available funds, without offset, deduction,
counterclaim or withholding of any kind at the offices of the Bank provided in
the notice section hereof. Payments received after 2:00 P.M. (Charlotte, North
Carolina time) will be given credit the next following Business Day.
Computations of interest hereunder shall be made on the basis of actual number
of days elapsed over a year of 360 days.
SECTION 3. GUARANTY
3.1 Guaranty. Each of the Guarantors hereby jointly and severally
guarantees to the Bank as hereinafter provided the prompt payment of the
Guaranteed Obligations in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration or otherwise and after giving effect to
any grace periods) strictly in accordance with the terms hereof. Each of the
Guarantors hereby further agrees that if any of the Guaranteed Obligations are
not paid in full when due (whether at stated maturity, as a mandatory
prepayment, by acceleration or otherwise and after giving effect to any grace
periods), the Guarantor will promptly pay the same, without any demand or notice
whatsoever, and that in the case of any extension of time of payment or renewal
of any of the Guaranteed Obligations, the same will be promptly paid in full
when due (whether at extended maturity, as a mandatory prepayment, by
acceleration or otherwise and after giving effect to any grace periods) in
accordance with the terms of such extension or renewal. This is a guaranty of
payment and not of collection.
Notwithstanding any provision to the contrary contained herein or in
any other of the Credit Documents, to the extent the obligations of any
Guarantor as guarantor hereunder shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or transfers)
then the obligations of such Guarantor hereunder shall be limited to the maximum
amount that is permissible under applicable law (whether federal or state and
including, without limitation, the Bankruptcy Code).
3.2 Obligations Unconditional. The obligations of the Guarantors under
Section 3.1 hereof are absolute and unconditional, irrespective of the value,
genuineness, validity, regularity or enforceability of this Agreement or the
Note, or any other agreement or instrument referred to herein or therein or
relating hereto or thereto, or any substitution, release or exchange of any
other guarantee of or security for any of the Guaranteed Obligations, and, to
the fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever which might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor, it being the intent of this
Section 3.2 that the obligations of the Guarantors hereunder shall be absolute
and unconditional under any and all
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circumstances. Each of the Guarantors agrees that it shall have no right of
subrogation, indemnity, reimbursement or contribution against the Borrower or
any other guarantor for amounts paid under this Guaranty until such time as the
Bank has been paid in full, all commitments, if any, have been terminated and no
Person or Governmental Authority shall have any right to request any return or
reimbursement of funds from the Bank in connection with monies received under
the Credit Documents. Without limiting the generality of the foregoing, it is
agreed that, to the fullest extent permitted by law, the occurrence of any one
or more of the following shall not alter or impair the liability of the
Guarantors hereunder which shall remain absolute and unconditional as described
above:
(i) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of
the Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of
this Agreement or the Note or any other agreement or instrument
referred to herein or therein or relating hereto or thereto shall be
done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall
be accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents or any other agreement or instrument referred to in
the Credit Documents shall be waived or any other guarantee of any of
the Guaranteed Obligations or any security therefor shall be released
or exchanged in whole or in part or otherwise dealt with;
(iv) any Lien granted to, or in favor of, the Bank as security
for any of the Guaranteed Obligations shall fail to attach or be
perfected or shall be released or discharged in whole or in part; or
(v) any of the Guaranteed Obligations shall be determined to
be void or voidable (including, without limitation, for the benefit of
any creditor of any Guarantor or any other guarantor) or shall be
subordinated to the claims of any Person (including, without
limitation, any creditor of any guarantor).
With respect to its obligations hereunder, each of the Guarantors hereby
expressly waives diligence, presentment, demand of payment, protest and all
notices whatsoever, and any requirement that the Bank exhaust any right, power
or remedy or proceed against any Person under this Agreement or the Note or any
other agreement or instrument referred to herein or therein or relating hereto
or thereto, or against any other Person under any other guarantee of, or
security for, any of the Guaranteed Obligations.
3.3 Reinstatement. The obligations of the Guarantors under this Section
3 shall be automatically reinstated if and to the extent that for any reason any
payment by or on behalf of any Person in respect of the Guaranteed Obligations
is rescinded or must be otherwise restored by any holder of any of the
Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each of the Guarantors agrees that it will
indemnify the Bank on demand for all reasonable costs and expenses (including,
without limitation, fees and expenses of counsel) incurred by the Bank in
connection with such rescission or restoration, including any such costs and
expenses incurred in defending
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against any claim alleging that such payment constituted a preference,
fraudulent transfer or similar payment under any bankruptcy, insolvency or
similar law.
3.4 Certain Additional Waivers. Without limiting the generality of the
provisions of this Section 3, each of the Guarantors hereby specifically waives
the benefits of N.C. Gen. Stat. Sec. 26-7 through 26-9, inclusive. Each of the
Guarantors agrees that it shall have no right of recourse to security for the
Guaranteed Obligations, except through the exercise of the rights of subrogation
pursuant to Section 3.2.
3.5 Remedies. Each of the Guarantors agrees that, to the fullest extent
permitted by law, as between the Guarantors, on the one hand, and the Bank, on
the other hand, the Guaranteed Obligations may be declared to be forthwith due
and payable as provided in Section 7.2 hereof (and shall be deemed to have
become automatically due and payable in the circumstances provided in said
Section 7.2) for purposes of Section 3.1 hereof notwithstanding any stay,
injunction or other prohibition preventing such declaration (or preventing the
Guaranteed Obligations from becoming automatically due and payable) as against
any other Person and that, in the event of such declaration (or the Guaranteed
Obligations being deemed to have become automatically due and payable), the
Guaranteed Obligations (whether or not due and payable by any other Person)
shall forthwith become due and payable by the Guarantors for purposes of said
Section 3.1.
3.6 Continuing Guarantee. The guarantee in this Section 3 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
3.7 Rights of Contribution. The Guarantors hereby agree, as among
themselves, that if any Guarantor shall become an Excess Funding Guarantor (as
defined below), each other Guarantor shall, on demand of such Excess Funding
Guarantor (but subject to the succeeding provisions of this Section), pay to
such Excess Funding Guarantor an amount equal to such Guarantor's Pro Rata Share
(as defined below and determined, for this purpose, without reference to the
properties, assets, liabilities and debts of such Excess Funding Guarantor) of
such Excess Payment (as defined below). The payment obligation of any Guarantor
to any Excess Funding Guarantor under this Section shall be subordinate and
subject in right of payment to the prior payment in full of the obligations of
such Guarantor under the other provisions of this Section 3, and such Excess
Funding Guarantor shall not exercise any right or remedy with respect to such
excess until payment and satisfaction in full of all of such obligations. For
purposes hereof, (i) "Excess Funding Guarantor" shall mean, in respect of any
obligations arising under the other provisions of this Section 3 (hereafter, the
"Guarantied Obligations"), a Guarantor that has paid an amount in excess of its
Pro Rata Share of the Guarantied Obligations; (ii) "Excess Payment" shall mean,
in respect of any Guarantied Obligations, the amount paid by an Excess Funding
Guarantor in excess of its Pro Rata Share of such Guarantied Obligations; and
(iii) "Pro Rata Share", for the purposes of this Section, shall mean, for any
Guarantor, the ratio (expressed as a percentage) of (a) the amount by which the
aggregate present fair saleable value of all of its assets and properties
exceeds the amount of all debts and liabilities of such Guarantor (including
contingent, subordinated, unmatured, and unliquidated liabilities, but excluding
the obligations of such Guarantor hereunder) to (b) the amount by which the
aggregate present fair saleable value of all assets and other properties of the
Borrower and all of the Guarantors exceeds the amount of all of the debts and
liabilities (including contingent, subordinated, unmatured, and unliquidated
liabilities, but excluding the obligations of the Borrower and the Guarantors
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hereunder) of the Borrower and all of the Guarantors, all as of the Closing Date
(if any Guarantor becomes a party hereto subsequent to the Closing Date, then
for the purposes of this Section such subsequent Guarantor shall be deemed to
have been a Guarantor as of the Closing Date and the information pertaining to,
and only pertaining to, such Guarantor as of the date such Guarantor became a
Guarantor shall be deemed true as of the Closing Date).
3.8 Joinder of Additional Guarantors. The Borrower may join additional
subsidiaries as Guarantors hereunder by way of execution of a Joinder Agreement,
a form of which is attached as Annex B.
SECTION 4 CONDITIONS TO CLOSING
4.1 Conditions. The effectiveness of this Agreement and extension of
the Loans hereunder are conditioned upon satisfaction of the following:
(a) Receipt of multiple executed counterparts of this
Agreement and the Note, in form and substance satisfactory to the Bank.
(b) Receipt of opinions of the general counsel for the
Borrower and the Guarantors in the form attached as Annex C hereto.
(c) Receipt of corporate documentation for the Credit Parties,
including resolutions, bylaws, articles of incorporation, certificates of good
standing and certificates of incumbency.
SECTION 5 REPRESENTATIONS AND WARRANTIES
5.1 Financial Condition. The consolidated balance sheet of the Company
and its consolidated subsidiaries dated as of September 30, 1998, together with
related consolidated statements of income and cash flows, is complete and
correct in all material respects and presents fairly the financial condition and
results from operations of the entities and for the periods specified, subject
in the case of interim company-prepared statements to normal year-end
adjustments.
5.2 No Change. Since the date of the financial statements identified in
Section 5.1, there have been no developments or events which have had, or are
likely to have, a material adverse effect on the condition (financial or
otherwise), operations, business or prospects of the Company and its
subsidiaries taken as a whole. There have been no developments or events which
have had, or are likely to have, a material adverse effect on the condition
(financial or otherwise), operations, business or prospects of the Borrower and
its subsidiaries taken as a whole.
5.3 Corporate Organization. Each of the Credit Parties is a corporation
duly organized, validly existing and in good standing under the laws of the
State of its incorporation, is qualified to do business in each jurisdiction
where failure to so qualify would have a material adverse effect on the Borrower
and its subsidiaries taken as a whole and is in compliance with all Requirements
of Law except to the extent that failure to be in compliance would not have a
material adverse effect on the Borrower and its subsidiaries taken as a whole.
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5.4 Enforceable Obligation. Each of the Credit Parties has the power
and authority and legal right to enter into, deliver and perform under this
Agreement and has taken all necessary action to authorize the execution,
delivery and performance by them of this Agreement. This Agreement constitutes a
legal, valid and binding obligation of each of the Credit Parties enforceable
against them in accordance with its terms except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
5.5 Legal Proceedings. No claim, litigation or proceeding before any
arbitrator or Governmental Authority is pending, or to the knowledge of the
Credit Parties, threatened which if adversely determined would reasonably be
expected to have a material adverse effect on the Borrower and its subsidiaries
taken as a whole.
5.6 No Default. No Event of Default or event or condition which with
notice or lapse of time, or both, would constitute an Event of Default,
presently exists.
5.7 Federal Regulations. No part of the proceeds of the Loans hereunder
will be used, directly or indirectly, for any purpose in violation of Regulation
U of the Board of Governors of the Federal Reserve System, as amended, modified
or replaced.
SECTION 6 COVENANTS
The Borrower and the Guarantors covenant and agree to:
6.1 Financial Statements. Furnish, or cause to be furnished, to the
Bank:
(a) Annual Audited Statements. As soon as available, but in
any event within 90 days after the end of each fiscal year, (i) audited
consolidated and company-prepared consolidating balance sheets of the
Borrower and its subsidiaries and related audited consolidated and
company-prepared consolidating statements of income, retained earnings
and cash flows, and (ii) audited consolidated and company-prepared
consolidating balance sheets of the Company and its subsidiaries and
related audited consolidated and company-prepared consolidating
statements of income, retained earnings and cash flows, in each case
audited by Pricewaterhouse Coopers, or other independent public
accounting firm reasonably acceptable to the Bank, setting forth
comparative information for the previous year, and reported without a
"going concern" or like qualification or exception, or qualification
indicating limitation of the scope of the audit; and
(b) Quarterly Statements. As soon as available, and in any
event within 45 days after the end of each fiscal quarter, (i) a
company-prepared consolidated and consolidating balance sheet of the
Borrower and its subsidiaries and related company-prepared consolidated
and consolidating statements of income, retained earnings and cash
flows for the quarter and for the portion of the year with comparative
information for the corresponding periods for the previous year and
(ii)
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a company-prepared consolidated and consolidating balance sheet of the
Company and its subsidiaries and related company-prepared consolidated
and consolidating statements of income, retained earnings and cash
flows for the quarter and for the portion of the year with comparative
information for the corresponding periods for the previous year.
All such financial statements to be complete and correct in all material
respects (subject, in the case of interim statements, to normal recurring
year-end audit adjustments) and to be prepared in reasonable detail and in
accordance with GAAP throughout the periods reflected therein (except as
approved by such accountants and disclosed therein) and further accompanied by a
description of, and an estimation of the effect on the financial statements on
account of, a change in the application of accounting principles from a prior
period.
(c) Other Information. Promptly upon request, such additional
financial and other information as the Bank may reasonably request from
time to time.
6.2 Certificates and Notices. Furnish, or cause to be furnished, and
give notice to the Bank:
(a) Officer's Certificate.
(i) Concurrently with the annual and quarterly
financial statements of the Borrower and its subsidiaries
referenced in Section 6.1 above, a certificate of a
responsible officer of the Borrower stating that to the best
of his knowledge and belief, (A) the financial statements
fairly present in all material respects the financial
condition of the parties to which such statements relate and
(B) the Borrower and the Guarantors are in compliance with the
provisions of this Agreement in all material respects and no
Event of Default, or event or condition which with notice or
lapse of time, or both, would constitute an Event of Default
exists hereunder, and
(ii) Concurrently with the annual and quarterly
financial statements of the Company and its subsidiaries
referenced in Section 6.1 above, a certificate of a
responsible officer of the Company stating that to the best of
his knowledge and belief, (A) the financial statements fairly
present in all material respects the financial condition of
the parties to which such statements relate and (B) the
Borrower and the Guarantors are in compliance with the
provisions of this Agreement in all material respects and no
Event of Default, or event or condition which with notice or
lapse of time, or both, would constitute an Event of Default
exists hereunder (together with a financial covenant
calculation worksheet demonstrating compliance therewith in
reasonable detail).
(b) Public and Other Information. Copies of reports and
information which the Borrower or its subsidiaries, or the Company or
its subsidiaries, sends to its stockholders or files with the
Securities and Exchange Commission, and any other financial or other
information as the Bank may reasonably request.
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(c) Notice of Default. Promptly, upon becoming aware thereof,
notice of the occurrence of an Event of Default hereunder.
6.3 Compliance with Laws. Comply will all Requirements of Law
applicable to them except to the extent that failure to comply therewith would
not have a material adverse effect on the Borrower and its subsidiaries taken as
a whole.
6.4 Books and Records. The Credit Parties will keep proper books and
records in conformity with GAAP and all Requirements of Law and permit the Bank
upon reasonable notice to visit and inspect such books and records.
6.5 Financial Covenants. The Company will comply with the following
financial covenants:
(a) Consolidated Tangible Net Worth. Consolidated Tangible Net
Worth shall not at any time be less than the sum of $75 million plus at the end
of each fiscal quarter occurring after March 31, 1997, 50% of Consolidated Net
Income (but not less than zero) for the fiscal quarter then ended, such
increases to be cumulative.
(b) Consolidated Fixed Charge Coverage Ratio. As of the last
day of each fiscal quarter, the Consolidated Fixed Charge Coverage Ratio shall
be not less than 2.0:1.0.
(c) Consolidated Debt to Total Capitalization Ratio. The
Consolidated Debt to Total Capitalization Ratio shall not at any time be greater
than .45:1.0.
6.6 Incurrence of Funded Debt. The Borrower will not, nor will it
permit any of its subsidiaries to, create, assume, incur or suffer to exist any
Funded Debt except:
(a) Funded Debt arising or existing under this Loan Agreement
and the other Credit Documents; and
(b) capital lease obligations and other Funded Debt incurred
to provide all or a portion of the purchase price or cost of
construction of an asset, provided that (i) such Debt when incurred
will not exceed the purchase price or cost of construction of the
asset, (ii) no such Debt shall be refinanced for a principal amount in
excess of the principal balance outstanding thereon at the time of such
refinancing, and (iii) the aggregate principal amount of such Debt
shall not exceed $1,000,000 at any time outstanding.
6.7 Restriction on Liens. The Borrower will not, nor will it permit any
of its subsidiaries to, create, assume, incur or suffer to exist any Lien on any
property or asset of any kind, real or personal, tangible or intangible, now
owned or hereafter acquired by it or assign or subordinate any present or future
right to receive assets except:
(a) Liens securing capital lease obligations and other
purchase money Funded Debt permitted under Section 6.6(a);
(b) Liens securing taxes, assessments or governmental charges
or levies or the claims or demands of materialmen, mechanics, carriers,
warehousemen,
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landlords and other like persons; provided that (A) with respect to
Liens securing state and local taxes, such taxes are not yet payable,
(b) with respect to Liens securing claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and the like, such liens
are unfiled and no other action has been taken to enforce the same, or
(C) with respect to taxes, assessments or governmental charges or
levies or claims or demand secured by such Liens, payment is not at the
time required;
(c) Liens not securing indebtedness which are incurred in the
ordinary course of business in connection with workmen's compensation,
unemployment insurance, unemployment insurance, social security and
other like laws;
(d) any Lien arising pursuant to any order of attachment,
distraint or similar legal process arising in connection with court
proceedings so long as the execution or other enforcement thereof is
effectively stayed and the claims secured thereto are being contested
in good faith by appropriate proceedings; and
(e) zoning restrictions, easements, licenses, reservations,
covenants, conditions, waivers, restrictions on the use of property or
other minor encumbrances or irregularities of title which do not
materially impair the use of any property in the operation or business
of the Borrower or such subsidiary or the value of such property for
the purpose of such business.
6.8 Mergers and Acquisitions. The Borrower will not, nor will it permit
any of its subsidiaries to, enter into a transaction of merger or consolidation,
nor will it acquire all or substantially all of the capital stock (or other
equity interest) or assets of any other Person.
6.9 Investments. The Borrower will not, nor will it permit any of its
subsidiaries to, make loans or advances or otherwise make an investment in or
capital contribution to, (collectively, an "Investment") any other Person,
except:
(a) cash and cash equivalents and other publicly traded equity
and debt instruments reasonably acceptable to the Bank;
(b) loans and advances to officers, directors, employees and
shareholders not to exceed $250,000;
(c) Investments in and to a Credit Party; and
(d) other Investments in an aggregate principal amount (on a
cost basis) at any time of up to $1,000,000.
SECTION 7 EVENTS OF DEFAULT
7.1 Event of Default. Each of the following shall constitute an "Event
of Default" hereunder: (i) the failure to make any payment of principal,
interest, fees or other amounts owing hereunder when due, (ii) any
representation or warranty made herein or in connection herewith shall prove to
be false or incorrect in any material respect, (iii) failure to observe or
comply with any covenants or provisions contained herein, (iv), the
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occurrence and continuance of an event of default under any other note or
agreement relating to indebtedness for borrowed money owing by the Borrower or
any Guarantor which results in, or would permit, acceleration of such
indebtedness, or would otherwise cause such indebtedness to become due prior to
its stated maturity, (v) the occurrence of an Event of Default (as defined in
the PPD Loan Agreement) under the PPD Loan Agreement; (vi) the filing of an
action in bankruptcy or insolvency by the Borrower or any Guarantor, (vii) the
filing of an action in bankruptcy or insolvency against the Borrower or any
Guarantor and (viii) the Borrower or any Guarantor shall fail within 30 days of
the due date to pay bond or otherwise discharge any judgment, settlement or
order.
7.2 Remedies. Upon the occurrence of an Event of Default, and at any
time thereafter, the Bank may by notice to the Borrower (i) terminate the
commitments hereunder and declare the unpaid principal of, and any accrued
interest owing on, the Loans and all other indebtedness or obligations owing
hereunder or under any of the other Credit Documents or in connection herewith
or therewith, immediately due and payable, whereupon the same shall be
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrower, and (ii) enforce
any other rights and interests available under the Credit Documents or at law,
including rights of set off. Notwithstanding the foregoing, in the case of an
Event of Default described in clauses (v) or (vi) of Section 7.1 relating to
bankruptcy and insolvency, the commitments hereunder shall immediately terminate
and the Loans and all accrued interest and all other indebtedness and other
amounts owing hereunder or under any of the other Credit Documents owing to the
Bank shall become immediately due and payable without presentment, demand,
protest or the giving of any notice or other action by the Bank, all of which
are hereby waived by the Borrower.
SECTION 8 MISCELLANEOUS
8.1 Notices. Notices and other communications shall be effective, and
duly given, (i) when received, (ii) when transmitted by telecopy or other
facsimile device to the numbers set out below if transmitted before 5:00 p.m. on
a Business Day, or otherwise on the next following Business Day, (iii) the day
following the day on which delivered prepaid to a reputable national overnight
air courier service, or (iv) the third Business Day following the day sent by
certified or registered mail postage prepaid, in each case to the parties at the
address shown below, or at such other address as may be specified by written
notice to the other parties:
Borrower: Pharmaceutical Product Development, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attn: Jimmy Sloan
Director of Corporate Finance
Phone: (910) 772-7168
Fax: (910) 772-7056
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Bank: FIRST UNION NATIONAL BANK
Corporate Banking, 6th Floor
150 Fayetteville Street Mall
Raleigh, North Carolina 27601
Attn: Mendel Lay
Phone: (919) 881-7003
Fax: (919) 881-7016
8.2 Right of Set-Off. In addition to other rights now or hereafter
available to the Bank under the Credit Documents or under applicable law, the
Bank may, after the occurrence of an Event of Default, exercise rights of
set-off and may appropriate and apply any and all deposits (general and
specific) or other amounts held or owing by the Bank to the Loans and other
amounts owing by the Borrower or any Guarantor hereunder or under the other
Credit Documents, regardless of whether the Loans or such other amounts are
contingent or unmatured, without presentment, demand, protest or notice of any
kind (any such rights of presentment, demand, protest or notice being hereby
waived).
8.3 Benefit of Agreement. This Agreement shall be binding upon, and
shall inure to the benefit of, successors and assigns of the parties hereto;
provided that neither the Borrower nor any Guarantor may assign or transfer any
its obligations or interests without prior written consent of the Bank.
8.4 No Waiver. No failure or delay on the part of the Bank in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Bank, on the one hand, and the
Credit Parties, on the other hand, shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege hereunder or
under any other Credit Document preclude any other or further exercise thereof
or the exercise of any other right, power or privilege hereunder or thereunder.
The rights and remedies provided herein are cumulative and not exclusive of any
rights or remedies which the Bank would otherwise have.
8.5 Payment of Expenses. The Borrower agrees to: (i) pay all reasonable
out-of-pocket costs and expenses of the Bank in connection with (A) negotiation,
preparation, execution and delivery of the Credit Documents (including
reasonable fees and expenses of Bank counsel, Moore & Van Allen, PLLC) and any
amendments, waivers or consents relating to the Credit Documents and (B)
enforcement of the Credit Documents and the documents and instruments referred
to therein (including, without limitation, in connection with any such
enforcement, the reasonable fees and disbursements of counsel for the Bank);
(ii) pay and hold the Bank harmless from and against any and all present and
future stamp and other similar taxes with respect to the foregoing matters and
save the Bank harmless from and against any and all liabilities with respect to
or resulting from any delay or omission (other than to the extent attributable
to the Bank) to pay such taxes; and (iv) indemnify the Bank, its officers,
directors, employees and representatives from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses incurred by
any of them as a result of, or arising out of, or in any way related to, or by
reason of any investigation, litigation or other proceeding (whether or not the
Bank is a party thereto) related to the entering into and/or performance of any
Credit Document or the use of proceeds of the Loans (including other extensions
of credit) hereunder or the consummation of any other transactions contemplated
in any Credit Document, including, without limitation, the
19
<PAGE>
reasonable fees and disbursements of counsel incurred in connection with any
such investigation, litigation or other proceeding (but excluding any such
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of gross negligence or willful misconduct on the part of the Person to be
indemnified).
8.6 Amendments. Neither this Agreement nor any of the other Credit
Documents may be amended or modified, nor shall consents or waivers be effective
except with the written consent of the parties hereto.
8.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same agreement. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
8.8 Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
8.9 Survival. The indemnities and payment obligations hereunder,
including those set out in Sections 2.8, 2.9, 2.10, 2.11, 2.12, 2.13 and 8.5,
and the representations and warranties made herein or in connection herewith
shall survive the making and repayment of the Loans and termination of
commitments hereunder.
8.10 Governing Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and construed in accordance with the
laws of the State of North Carolina.
8.11. Arbitration; Consent to Jurisdiction and Service of Process.
(a) UPON DEMAND OF ANY PARTY HERETO, WHETHER MADE BEFORE OR AFTER
INSTITUTION OF ANY JUDICIAL ACTION, ANY DISPUTE, CLAIM OR CONTROVERSY ARISING
OUT OF OR CONNECTED HEREWITH OR WITH THE CREDIT DOCUMENTS ("DISPUTES") SHALL BE
RESOLVED BY BINDING ARBITRATION AS PROVIDED HEREIN. DISPUTES MAY INCLUDE,
WITHOUT LIMITATION, TORT CLAIMS, COUNTERCLAIMS, CLAIMS BROUGHT AS CLASS ACTIONS
AND CLAIMS ARISING HEREFROM OR FROM CREDIT DOCUMENTS EXECUTED IN THE FUTURE.
ARBITRATION SHALL BE CONDUCTED UNDER THE COMMERCIAL FINANCIAL DISPUTES
ARBITRATION RULES (THE "ARBITRATION RULES") OF THE AMERICAN ARBITRATION
ASSOCIATION AND TITLE 9 OF THE U.S. CODE. ALL ARBITRATION HEARINGS SHALL BE
CONDUCTED IN CHARLOTTE, MECKLENBURG COUNTY, NORTH CAROLINA, OR SUCH OTHER PLACE
AS AGREED TO IN WRITING BY THE PARTIES. A JUDGMENT UPON THE AWARD MAY BE ENTERED
IN ANY COURT HAVING JURISDICTION, AND ALL DECISIONS SHALL BE IN WRITING. THE
PANEL FROM WHICH ALL ARBITRATORS ARE SELECTED SHALL BE COMPRISED OF LICENSED
ATTORNEYS HAVING AT LEAST TEN YEARS' EXPERIENCE REPRESENTING PARTIES IN SECURED
LENDING TRANSACTIONS. NOTWITHSTANDING THE FOREGOING, THIS ARBITRATION PROVISION
DOES NOT APPLY TO DISPUTES UNDER OR RELATED TO INTEREST PROTECTION AGREEMENTS.
20
<PAGE>
(b) Notwithstanding the preceding binding arbitration provision, the
Bank preserves certain remedies that may be exercised during a Dispute. The Bank
shall have the right to proceed in any court of proper jurisdiction or by self
help to exercise or prosecute the following remedies, as applicable: (i) all
rights to foreclose against any real or personal property or other security by
exercising a power of sale granted in the Credit Documents or under applicable
law, (ii) all rights of self help including peaceful occupation of real property
and collection of rents, set-off and peaceful possession of personal property,
(iii) obtaining provisional or ancillary remedies including injunctive relief,
sequestration, garnishment, attachment and appointment of receiver, (iv) when
applicable, a judgment by confession of judgment and (v) other remedies.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
(c) BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES
HERETO ACCEPTS, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION RELATING TO ANY ARBITRATION
PROCEEDINGS CONDUCTED UNDER THE ARBITRATION RULES IN CHARLOTTE, MECKLENBURG
COUNTY, NORTH CAROLINA AND IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT FROM WHICH NO APPEAL HAS BEEN
TAKEN OR IS AVAILABLE. Each of the parties hereto irrevocably agrees that all
process in any such arbitration proceedings or otherwise may be effected by
mailing a copy thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to it at its address set forth in
Section 8.1 or at such other address of which such party shall have been
notified pursuant thereto, such service being hereby acknowledged by each party
hereto to be effective and binding service in every respect. Each party hereto
irrevocably waives any objection, including, without limitation, any objection
to the laying of venue or based on the grounds of forum non conveniens which it
may now or hereafter have to the bringing of any such arbitration proceeding in
any jurisdiction. Nothing herein shall affect the right to serve process in any
other manner permitted by law or shall limit the right of any party to bring
proceedings against the Borrower or any party hereto in any court or pursuant to
arbitration proceedings in any other jurisdiction.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed this day by
duly authorized officers of the undersigned parties.
BORROWER: PPGx, Inc.,
a Delaware corporation
By: /s/ Natalie J. Warner
Name: Natalie J. Warner
Title: CEO & President
GUARANTORS: PHARMACEUTICAL PRODUCT DEVELOPMENT,
INC., a North Carolina corporation
By: /s/ Fred B. Davenport, Jr.
Name: Fred B. Davenport, Jr.
Title: Vice President & General Counsel
BANK: FIRST UNION NATIONAL BANK
By: /s/ Shannon Townsend
Name: Shannon Townsend
Title: Vice President
<PAGE>
Annex A
Form of Note
$8,000,000 February __, 1999
PPGx, Inc., a Delaware corporation (the "Borrower"), promises to pay to
the order of FIRST UNION NATIONAL BANK, its successor and assigns (the "Bank")
on or before the Termination Date the principal sum of EIGHT MILLION DOLLARS
($8,000,000) or, if less, the aggregate unpaid principal amount of all Loans
made by the Bank to the Borrower, in lawful money of the United States in
immediately available funds at the office of the Bank as provided in the Loan
Agreement referenced below or as otherwise directed by the Bank pursuant to the
terms of the Loan Agreement, together with interest, in like money and funds, on
the unpaid principal amount hereof at the rates and on the dates as set forth in
the Loan Agreement.
This Note is issued pursuant to, and is entitled to the benefits of,
the Loan Agreement dated as of the date hereof (as the same may be amended or
modified and in effect from time to time, the "Loan Agreement") among the
Borrower, the Guarantors identified therein and the Bank, to which Loan
Agreement reference is hereby made for a statement of the terms and conditions
under which this Note may be prepaid or its maturity date accelerated.
Capitalized terms used herein and not otherwise defined herein are used with the
meanings attributed to them in the Loan Agreement.
In the event payment of amounts due hereunder are accelerated under the
terms of the Loan Agreement, all such amounts shall become immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are hereby waived. Further, in the event this Note is not paid when due at
any stated or accelerated maturity, the Borrower agrees to pay, in addition to
principal and interest, all costs of collection, including reasonable attorneys'
fees.
This Note shall be governed by and construed in accordance with the
laws of the State of North Carolina.
PPGx, Inc.,
a Delaware corporation
By:______________________________
Name:
Title:
<PAGE>
Annex B
Form of Joinder Agreement
THIS JOINDER AGREEMENT (the "Agreement"), dated as of _____________,
19__, is by and between _____________________, a ___________________ (the
"Applicant Guarantor"), and FIRST UNION NATIONAL BANK under that certain Loan
Agreement dated as of February __, 1999 (as amended and modified, the "Loan
Agreement") by and among PPGx, Inc., a Delaware corporation, as Borrower, the
Guarantors identified therein and First Union National Bank. All of the defined
terms in the Loan Agreement are incorporated herein by reference.
The Applicant Guarantor has indicated its desire to become a Guarantor
in accordance with the provisions Section 3.8 of the Loan Agreement to become, a
Guarantor under the Loan Agreement.
Accordingly, the Applicant Guarantor hereby agrees as follows with the
Bank:
1. The Applicant Guarantor hereby acknowledges, agrees and confirms
that, by its execution of this Agreement, the Applicant Guarantor will be deemed
to be a party to the Loan Agreement and a "Guarantor" for all purposes of the
Loan Agreement and the other Credit Documents, and shall have all of the
obligations of a Guarantor thereunder as if it had executed the Loan Agreement
and the other Credit Documents. The Applicant Guarantor agrees to be bound by,
all of the terms, provisions and conditions contained in the Credit Documents,
including without limitation (i) all of the affirmative and negative covenants
set forth in Section 6 the Loan Agreement and (ii) all of the undertakings and
waivers set forth in Section 3 of the Loan Agreement. Without limiting the
generality of the foregoing terms of this paragraph 1, the Applicant Guarantor
hereby (A) jointly and severally together with the other Guarantors, guarantees
to the Bank as provided in Section 3 of the Loan Agreement, the prompt payment
and performance of the Guaranteed Obligations in full when due (whether at
stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise) strictly in accordance with the terms thereof.
and (B) agrees that if any of the Guaranteed Obligations are not paid or
performed in full when due (whether at stated maturity, as a mandatory
prepayment, by acceleration or otherwise), the Applicant Guarantor will, jointly
and severally together with the other Guarantors, promptly pay and perform the
same, without any demand or notice whatsoever, and that in the case of any
extension of time of payment or renewal of any of the Guaranteed Obligations,
the same will be promptly paid in full when due (whether at extended maturity,
as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise) in accordance with the terms of such extension
or renewal.
2. The Applicant Guarantor acknowledges and confirms that it has
received a copy of the Loan Agreement and the Schedules and Exhibits thereto.
The information on the Schedules to the Loan Agreement are amended to provide
the information shown on the attached Schedule A.
3. The Applicant Guarantor hereby waives acceptance by the Bank of the
guaranty by the Applicant Guarantor under Section 3 of the Loan Agreement upon
the execution of this Joinder Agreement by the Applicant Guarantor.
<PAGE>
4. This Agreement may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together shall
constitute one contract.
5. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the Applicant Guarantor has caused this Joinder
Agreement to be duly executed by its authorized officers, and the Administrative
Agent, for the benefit of the Lenders, has caused the same to be accepted by its
authorized officer, as of the day and year first above written.
APPLICANT GUARANTOR
By:___________________________
Name:
Title:
Address for Notices:
Attn: _______________________
Telephone:
Telecopy:
Acknowledged and accepted:
FIRST UNION NATIONAL BANK
By:____________________________
Name:
Title:
<PAGE>
Annex C
Form of Legal Opinion
February __, 1999
First Union National Bank
Raleigh, North Carolina
Re: $8 million Loan Agreement dated as of the date hereof (the
"Loan Agreement") among PPGx, Inc., a Delaware corporation,
the Guarantors identified therein and First Union National
Bank. Terms used but not otherwise defined shall have the
meanings provided in the Loan Agreement.
Ladies and Gentlemen:
I have acted as counsel to PPGx, Inc., Delaware corporation (the
"Borrower"), Pharmaceutical Product Development, Inc., a North Carolina
corporation, and those subsidiaries of the Borrower which are Guarantors under
the Loan Agreement identified on Schedule A attached hereto (collectively with
the Borrower, the "Credit Parties"), in connection with the execution and
delivery by them of the Loan Agreement.
This opinion is given in accordance with the requirements of Section
4.1(b) of the Loan Agreement.
We have participated in the preparation of the Loan Agreement and the
other Credit Documents, and have examined copies of each of the foregoing
documents executed by the Credit Parties. We have also examined such
certificates, documents and records, and have made such examination of law, as
we have deemed necessary to enable us to render the opinions expressed below. In
addition, we have examined and relied as to matters of fact upon representations
and warranties contained in the Credit Documents and in certificates, copies of
which have been furnished to you, in connection with the Credit Documents.
For purposes of paragraph 4 below, we have assumed that the Credit
Documents are the legal, valid and binding obligations of the parties thereto
other than the Credit Parties, enforceable against them in accordance with their
respective terms.
The opinions expressed below are limited to matters governed by the
internal laws of the State of North Carolina, the General Corporation Law of the
State of Delaware and the federal laws of the United States of America.
Whenever the phrase "to the best of our knowledge" is used herein, it
refers to the actual knowledge of the attorneys of this firm involved in the
representation of the Credit Parties without further investigation.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
<PAGE>
1. Each of the Credit Parties is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, as identified on Schedule A attached hereto, and is qualified to
carry on its business in the manner as contemplated under the Credit Documents
and as now conducted.
2. Each of the Credit Parties has all requisite corporate power and
authority, and the legal right, to make, execute, deliver and perform the Loan
Agreement and the other Credit Documents to which it is a party and to borrow
and accept extensions of credit or give a guaranty in respect thereof, as
appropriate, and has taken all necessary corporate action to authorize the
execution, delivery and performance of the Loan Agreement and the other Credit
Documents to which it is a party.
3. No consent or authorization of, filing with, notice to or other
similar act by or in respect of, any federal court or Governmental Authority or
any other Person is required to be obtained or made by or on behalf of any
Credit Party on or prior to the date hereof in connection with the execution,
delivery or performance of the Credit Documents, except for such consents,
approvals, authorizations or other actions as have been obtained or made.
4. To the best of our knowledge, no claim, litigation or proceeding
before any arbitrator or Governmental Authority is pending or threatened which
if adversely determined would reasonably be expected to have a material adverse
effect on the Borrower and its subsidiaries taken as a whole.
5. The Loan Agreement, and each of the other Credit Documents to which
it is a party, have been duly executed and delivered by each Credit Party and
constitute the legal, valid and binding obligations of each Credit Party,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforceability of creditors' rights
generally and by general equitable principles (whether enforcement is sought by
proceedings in equity or at law).
6. The execution, delivery and performance by each Credit Party of the
Loan Agreement and the other Credit Documents to which it is a party, the
borrowings and guaranties thereunder and the use of the proceeds thereof will
not violate or otherwise contravene the articles of incorporation or bylaws of
any of the Credit Parties or any Requirement of Law or, to the best of our
knowledge, any Contractual Obligation of any of the Credit Parties.
The opinions expressed herein do not purport to cover, and we express
no opinion with respect to, the applicability of Section 548 of the federal
Bankruptcy Code or any comparable provision of state law, including the
provisions relating to fraudulent conveyances. We call your attention to the
fact that certain cases have held that an obligation of a corporation incurred
to purchase such corporation's stock is subordinate to the claims of general
creditors upon the bankruptcy or insolvency of the corporation. In addition, we
express no opinion as to whether a subsidiary may guarantee, become a joint and
several obligor or otherwise become liable for, or pledge its assets to secure,
indebtedness incurred by its parent or another subsidiary of its parent except
to the extent
<PAGE>
such subsidiary may be determined to have benefited from the incurrence of such
indebtedness by its parent or such other subsidiary, or as to whether such
benefit may be measured other than by the extent to which the proceeds of the
indebtedness incurred by its parent or such other subsidiary are directly or
indirectly made available to such subsidiary for its corporate purposes.
This opinion is rendered solely for your benefit, and the benefit of
your successors and assigns, in connection with the transactions described
above. This opinion may not be used or relied upon by any other person without
our prior written consent.
Very truly yours,
/s/ Fred B. Davenport, Jr.
Counsel to the Borrower
And the Guarantor
AMENDMENT NO. 1
THIS AMENDMENT NO. 1 (the "Amendment") dated as of January 30, 1999, to
the Loan Agreement referenced below, is by and among PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC., a North Carolina corporation, the subsidiaries and affiliates
identified on the signature pages hereto and FIRST UNION NATIONAL BANK. Terms
used but not otherwise defined shall have the meanings provided in the Loan
Agreement.
W I T N E S S E T H
WHEREAS, a $50 million credit facility has been established in favor of
Pharmaceutical Product Development, Inc., a North Carolina corporation (the
"Borrower"), pursuant to the terms of that Loan Agreement dated as of June 25,
1997 (as amended and modified, the "Loan Agreement") among the Borrower, the
Guarantors identified therein and First Union National Bank (the "Bank");
WHEREAS, the Borrower has requested certain modifications to Loan
Agreement;
WHEREAS, the Bank has agreed to the modifications on the terms and
conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. The Loan Agreement is amended in the following respects:
1.1 In Section 1, the following definitions are amended to
read as follows:
"APBI" means APBI Environmental Sciences Group, Inc., a
Virginia corporation.
"Consolidated Tangible Net Worth" means, on any day
Consolidated Net Worth minus the aggregate amount of goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights,
service marks, brand names, organizational and developmental expenses,
covenants not to compete and other intangible assets, in each case as
determined in accordance with GAAP applied on a consistent basis. For
purposes hereof, Consolidated Tangible Net Worth shall not include that
certain seller financing promissory note from current management of
APBI in favor of the Company in an aggregate principal amount of up to
$18,000,000 in connection with the sale of APBI to current management
of APBI.
"Termination Date" means June 30, 2000, or such later date as
to which the Bank may agree in its sole discretion.
1.2 In Section 6.9, subsections (c) and (d) are renumbered as
(f) and (g), respectively, and new subsections (c), (d) and (e) are added to
read as follows:
(c) Investments in and to Digital Arts & Science in an
aggregate principal amount (on a cost basis) not to exceed $1,500,000
at any time;
(d) Investments in and to Axys Pharmaceuticals, Inc. and/or
PPGx, Inc. in an aggregate principal amount (on a cost basis) not to
exceed $3,500,000 at any time;
<PAGE>
(e) seller financing promissory note from current management
of APBI in favor of the Borrower in an aggregate principal amount not
to exceed $18,000,000 in connection with the sale of APBI to current
management of APBI;
1.3 In Section 6.6, subsections (a) and (b) are renumbered as
(b) and (c), respectively, and a new subsection (a) is added to read as follows:
(c) guaranty obligations of the Borrower in respect of Funded
Debt of PPGx, Inc. in an aggregate principal amount of up to $8,000,000
at any time;
2. The Bank consents to the release of APBI from all of its obligations
under the Loan Agreement, the Note and all other documents executed in
connection therewith upon consummation of the sale of APBI to current management
of APBI.
3. This Amendment shall be effective upon execution of this Amendment
by the Credit Parties and the Bank.
4. Except as modified hereby, all of the terms and provisions of the
Loan Agreement (including Schedules and Exhibits) shall remain in full force and
effect.
5. The Borrower agree to pay all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment, including without limitation the reasonable fees and expenses
of Moore & Van Allen, PLLC.
6. This Amendment may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original and it shall
not be necessary in making proof of this Amendment to produce or account for
more than one such counterpart.
7. This Amendment shall be deemed to be a contract made under, and for
all purposes shall be construed in accordance with the laws of the State of
North Carolina.
[Remainder of Page Intentionally Left Blank]
2
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date first above
written.
BORROWER: PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.,
a North Carolina corporation
By: /s/ Fredric N. Eshelman
Name: Fredric N. Eshelman
Title: CEO
GUARANTORS: PPD PHARMACO, INC.,
a Texas corporation
By: /s/ Fredric N. Eshelman
Name: Fredric N. Eshelman
Title: CEO
BANK: FIRST UNION NATIONAL BANK
By: /s/ Shannon Townsend
Name: Shannon Townsend
Title: Vice President
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Amendment") is
made as of the __30___ day of _January 1999______, 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, as amended pursuant to an
Amendment to Loan Agreement dated as of August 6, 1998 (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 certain modifications to the Loan
Agreement and the Bank is willing to modify 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 In Section 6.6, subsection (b) is hereby amended and
restated to read as follows:
"(b) other Consolidated Funded Debt not to exceed $50,000,000,
which includes the guaranty obligations of the Borrower in respect of
Funded Debt of PPGx, Inc. in an aggregate principal amount of up to
$8,000,000 at any time."
2.2 In Section 6.9 subsections (c) and (d) are re-lettered as
(f) and (g), respectively, and new subsections (c), (d), and (e) are hereby
added to Section 6.9 of the Loan Agreement to read as follows:
<PAGE>
"(c) Investments in and to Digital Arts & Science in an
aggregate principal amount (on a cost basis) not to exceed $1,500,000
at any time;
(d) Investments in and to Axys Pharmaceuticals, Inc. and/or
PPGx, Inc, in an aggregate principal amount (on a cost basis) not to
exceed $3,500,000 at any time;
(e) seller financing promissory note from current management
of APBI Environmental Sciences Group, Inc. in favor of the Borrower in
an aggregate principal amount not to exceed $18,000,000 in connection
with the sale of APBI Environmental Sciences Group, Inc. ("APBI") to
current management of APBI;"
2.3 Upon consummation of the sale of APBI to current
management of APBI, the Bank consents and agrees to the release of APBI from all
of its obligations under the Loan Agreement, the Note and all other documents
executed in connection therewith.
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
2
<PAGE>
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:
(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.
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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 other than those expressed herein in writing. All
changes, additions or deletions to this Amendment must be in writing and signed
by all parties.
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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 B. Davenport, Jr. By: /s/ Fredric N. Eshelman
Secretary Title: CEO
[CORPORATE SEAL]
BANK:
WACHOVIA BANK, N.A.
By: /s/ Keith Sherman
Title: SVP
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GUARANTORS:
ATTEST: PPD PHARMACO, INC.
/s/ Fred B. Davenport, Jr. By: /s/ Fredric N. Eshelman
Secretary Title: CEO
[Corporate Seal]
ATTEST: APBI ENVIRONMENTAL SCIENCES GROUP,
INC.
/s/ Fred B. Davenport, Jr. By: /s/ Fredric N. Eshelman
Secretary Title:CEO
[Corporate Seal]
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into effective as of this 1st day of February, 1999, by and between
PPGx, INC., a Delaware corporation whose mailing and notice address is 11099 N.
Torrey Pines Road, La Jolla, California 92037 Telephone: (619) and Facsimile:
(619) (hereinafter called the "Corporation"), and PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC., a North Carolina corporation whose mailing and notice address
is 3151 17th Street Extension, Wilmington, North Carolina 28412 Telephone: (910)
251-0081 and Facsimile: (910) 772-6951(hereinafter called "PPD").
RECITALS
A. The parties have reached an understanding with respect to
the issuance and sale of One Million Eight Hundred Thousand (1,800,000) shares
of Series A Preferred Stock, par value $.001 per share, and One Hundred Eighty
(180) shares of Common Stock, $.001 par value per share (collectively, the
"Shares"), of the Corporation to PPD.
B. The Corporation has agreed to issue and sell the Shares to
PPD and PPD has agreed to purchase the Shares, all upon and subject to the terms
and conditions set forth hereinafter.
NOW, THEREFORE, in consideration of the foregoing recitals,
the mutual covenants and agreements contained herein, and for other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties agree as follows:
1. Purchase and Sale of Shares. Subject to the terms and
conditions of this Agreement, the Corporation agrees to sell and issue to PPD
and PPD agrees to purchase the Shares. In connection with the issuance of the
Shares, PPD agrees to execute and have the Shares subject to the terms of an
Investors' Rights Agreement ("Investors' Rights Agreement") in the form of
Exhibit A attached hereto and incorporated herein by reference.
2. Purchase Price. The purchase price to be paid by PPD in
exchange for the issuance of the Shares shall be as follows:
a. Cash. Payment by PPD to the Corporation of One
Million Five Hundred Thousand Dollars ($1,500,000.00) in cash or other
immediately available funds at Closing (as hereinafter defined).
b. Intek Stock. Transfer by PPD to the Corporation of
all of the issued and outstanding shares of capital stock of Intek Labs, Inc., a
North Carolina corporation ("Intek"), owned by PPD. Such transfer shall be
pursuant to and in accordance with the terms of the PPD Technology Transfer
Agreement in the form of Exhibit B attached hereto and incorporated herein by
reference.
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c. Software License. Assignment by PPD to the
Corporation of all of PPD's rights, title and interest in and to that certain
Software License Agreement dated February 1, 1999 between PPD and Axys
Pharmaceuticals, Inc., a Delaware corporation ("Axys"). Such assignment shall be
pursuant to and in accordance with the terms of an Assignment and Assumption of
License Agreement in the form of Exhibit C attached hereto and incorporated
herein by reference.
3. Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall occur contemporaneously with the execution
of this Agreement and shall be effective as of the date of this Agreement (the
"Closing Date").
4. Representations, Warranties and Covenants of the
Corporation. The Corporation represents and warrants to PPD and covenants with
PPD that as of the date of Closing:
a. Organization and Standing of the Corporation. The
Corporation is duly organized and validly existing and has complied with all
requirements to continue its existence under the laws of the State of Delaware,
and has the corporate power and authority to own, lease and use its properties
and to transact its business where and as now conducted.
b. Capitalization. The authorized capital stock of
the Corporation consists of Fifteen Million shares (15,000,000) of common stock,
$.001 par value per share (the "Common Stock"), and Ten Million (10,000,000)
shares of Preferred Stock, $.001 par value per share (the "Preferred Stock"), of
which Ten Million (10,000,000) shares of the Preferred Stock have been
designated as Series A Preferred Stock. After giving effect to the sale and
issuance of the Shares to PPD as contemplated by this Agreement and after giving
effect to the sale and issuance of shares of Preferred Stock and Common Stock to
Axys pursuant to a Stock Purchase Agreement dated an even date herewith, both of
which are to be closed contemporaneously, one thousand (1,000) of the shares of
the Common Stock shall be issued and outstanding and all of the Preferred Stock
shall be issued and outstanding such that, upon issuance to PPD, the Shares
shall represent Eighteen percent (18%) of all of the issued and outstanding
shares of capital stock, both the Common Stock and Preferred Stock, of the
Corporation as of the Closing. None of the Shares are being issued in violation
of the preemptive or other rights of any person.
c. Execution and Delivery Authorized. The execution
and delivery of this Agreement, the issuance of the Shares to PPD, the adequacy
of the consideration paid in exchange for the Shares under applicable law and
the consummation of the transactions contemplated by this Agreement have been
duly authorized and approved by the board of directors of the Corporation.
d. Validity of Agreement. The execution and
performance of this Agreement and the actions provided for or contemplated
hereunder will not violate the provisions of any agreement, instrument or
obligation to which the Corporation is a party or by which it is bound. Assuming
due authorization, execution and delivery hereof by PPD, this Agreement
constitutes the valid and binding agreement of the Corporation, enforceable
against the Corporation
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in accordance with its terms, subject as to enforceability to general equitable
principles and to the laws of bankruptcy, insolvency or similar laws governing
the rights of creditors.
e. Title to Shares. Upon issuance to PPD, the Shares
shall be free and clear from any liens, claims, restrictions or encumbrances of
any kind or nature whatsoever, except for: (i) such restrictions contained in
the Certificate of Incorporation or the Bylaws of the Corporation, as now in
existence or hereafter amended in accordance with their respective terms, (ii)
the terms and restrictions contained in the Investors' Rights Agreement attached
hereto as Exhibit A, and (iii) any restrictions upon transfer arising under
federal or state securities laws. The Corporation is not a party to or bound by
any agreement, instrument, trust, proxy or understanding restricting or
otherwise binding the ownership, transfer or voting of any of the Shares other
than the Investors' Rights Agreement. Upon payment of the purchase price by PPD
and issuance of the Shares to PPD, the Shares will be validly issued and will be
fully paid and nonassessable.
f. Certificate of Incorporation and Bylaws. True and
complete copies of the Certificate of Incorporation and Bylaws of the
Corporation, as currently in force, have been delivered to PPD. The Certificate
of Incorporation and Bylaws have not been and will not be amended prior to the
Closing.
5. Representations, Warranties and Covenants of PPD. PPD
represents and warrants to the Corporation and covenants with the Corporation
that as of the date of Closing:
a. Organization and Standing of PPD. PPD is duly
organized and validly existing and has complied with all requirements to
continue its existence under the laws of the State of North Carolina, and has
the corporate power and authority to own, lease and use its properties and to
transact its business where and as now conducted.
b. Execution and Delivery Authorized. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by the board of
directors of PPD.
c. Validity of Agreement. The execution and
performance of this Agreement and the actions provided for or contemplated
hereunder will not violate the provisions of any agreement, instrument or
obligation to which PPD is a party or by which it is bound. Assuming due
authorization, execution and delivery hereof by the Corporation, this Agreement
constitutes the valid and binding agreement of PPD, enforceable against PPD in
accordance with its terms, subject as to enforceability to general equitable
principles and to the laws of bankruptcy, insolvency or similar laws governing
the rights of creditors.
d. Access and Information. PPD and its
representatives have been afforded full and free access to the Corporation's
financial statements and other information concerning the Corporation and PPD
has been afforded an opportunity to ask such questions of the Corporation's
officers, employees, agents, accountants and representatives concerning the
Corporation's business, prospects, operations, financial condition, assets,
liabilities and other
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<PAGE>
relevant matters, including the rights, preferences and limitations of the
Shares, as PPD deems necessary or desirable and has been given all such
information as has been requested, in order to evaluate the merits and risks
associated with holding the Shares. PPD has conducted its own "due diligence"
investigation of the Corporation and its management and business, and its own
analysis of the merits and risks of holding the Shares, and its own analysis of
the fairness and desirability of the terms governing the purchase of the Shares.
PPD is familiar with the business conducted by the Corporation and has such
knowledge and experience in financial and business matters that PPD is capable
of evaluating the merits and risks of the purchase of the Shares pursuant to the
terms of this Agreement and of protecting PPD's interests in connection
therewith.
e. Investment Intent of PPD. The Shares are being
acquired by PPD for its own account and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"). PPD
understands that the Shares have not been, and will not be, registered under the
Securities Act by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act, that the Corporation has no
present intention of registering the Shares, that the Shares must be held by PPD
indefinitely, and that PPD must therefore bear the economic risk associated with
holding the Shares indefinitely, unless a subsequent disposition thereof is
exempt from registration. PPD is able to bear the economic risk of holding the
Shares pursuant to the terms of this Agreement. In addition to any other legends
required by the Investors' Rights Agreement, each certificate evidencing the
Shares shall be endorsed with the following legend:
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
COVERING SUCH SHARES, AND ANY APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION THAT THE TRANSACTION SHALL NOT RESULT IN A
VIOLATION OF FEDERAL OR STATE SECURITIES LAWS.
PPD acknowledges that no public market now exists for the Shares and that there
can be no assurance that any public market will exist in the future. PPD
understands that the Shares will constitute "restricted securities", and under
the Securities Act and applicable regulations the Shares may be resold without
registration under the Securities Act only in certain limited circumstances. In
this connection, PPD represents that it is familiar with Rule 144 under the
Securities Act and understands the resale limitations imposed thereby and the
Securities Act.
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<PAGE>
f. Accredited Investor Status. PPD represents and
warrants that it is an "accredited investor" as defined in Rule 501 of
Regulation D promulgated under the Securities Act.
6. Additional Agreements. In addition to any other covenants
and agreements of the parties set forth in this Agreement, the parties hereby
agree as follows:
a. Transfer of Employees by PPD. PPD agrees to use
its reasonable best efforts to cause the full time employees with PPD Pharmaco,
Inc., a Texas corporation, listed on Schedule 6.a. to accept employment with the
Corporation as of the Closing Date and to cause all of the current employees of
Intek and Intek Labs Limited, a wholly owned subsidiary of Intek , (except for
Richard B. Sheridan III and Rosalee Chingara, both of whom shall resign as
employees of Intek or Intek Labs Limited, as applicable effective as of the
Closing and PPGx shall have no obligation to pay such employees any severance
payments or benefits) to continue employment with Intek or Intek Labs Limited,
as applicable, as of the Closing Date. The Corporation agrees to offer
employment to any of such employees willing to accept such offer of employment
(or to offer terms of continued employment with Intek, in the case of Intek
employees) upon such terms and conditions as are mutually acceptable to the
Corporation and each of such employees.
b. Distributor Agreement. At Closing, PPD, or an
affiliate of PPD, and the Corporation shall execute a Distributor Agreement in
the form of Exhibit D attached hereto and incorporated herein by reference.
c. Lease Assignments/Subleases. At Closing, PPD shall
cause its subsidiary, Belmont Research, Inc., to enter into a Sublease with the
Corporation for a portion of the building known as the Brickyard Office Park at
84 Sherman Street, Cambridge, Massachusetts (the "Sublease"). In addition, PPD
and the Corporation shall execute at Closing a letter agreement (the "Letter
Agreement") related to the leasing of space at Research Triangle Park, North
Carolina, Cambridge, United Kingdom and Philadelphia, Pennsylvania. The Sublease
and the Letter Agreement shall be upon terms and conditions mutually acceptable
to PPD and the Corporation.
7. Conditions to PPD's Obligation to Close. The obligations of
PPD under this Agreement are subject to the satisfaction, or the waiver thereof
by PPD, of the following express conditions precedent on or before the Closing
Date:
a. Correctness of Warranties. All of the
representations and warranties of the Corporation contained in this Agreement
were true and correct when made and shall be true and correct at and as of the
Closing Date (except such representations, warranties and matters which are
specifically limited by reference to an earlier date and were true and correct
as of such earlier date).
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b. Performance of Obligations. The Corporation has
performed and complied with all of the obligations, covenants and conditions
required to be performed or complied in all material respects with by it at or
prior to the Closing.
c. No Adverse Change. There shall have been no
material adverse change in the prospects for the business contemplated to be
conducted by the Corporation.
d. Documents to be Delivered by the Corporation at
Closing. The Corporation shall deliver, or cause to be delivered, to PPD before
or at the Closing the following documents:
(i) A certificate in the name of PPD
evidencing the Shares.
(ii) The Investors' Rights Agreement in the
form attached hereto as Exhibit A duly executed by the Corporation and Axys.
(iii) The PPD Technology Transfer Agreement
in the form attached as Exhibit B duly executed by the Corporation.
(iv) The Assignment and Assumption of
License Agreement in the form attached as Exhibit C duly executed by the
Corporation and Axys.
(v) The Distributor Agreement in the form
attached hereto as Exhibit D duly executed by the Corporation.
(vi) The Sublease and the Letter Agreement,
both duly executed by the Corporation.
(vii) Such other documents as PPD shall
reasonably request, duly executed by all parties thereto, including the Stock
Purchase Agreement between the Corporation and Axys, the Axys Technology
Transfer Agreement between the Corporation and Axys, the Most Favored Nations
Agreement between the Corporation and Axys, the Registration Rights Agreement by
and among the Corporation, PPD and Axys and the Equity Incentive Plan for the
benefit of the Corporation's employees and consultants.
8. Governing Law. This Agreement shall be governed by and
shall be construed in accordance with the laws of the State of Delaware.
9. Entire Agreement. This Agreement contains the entire
understanding between the parties and supersedes any prior understandings or
agreements between them affecting the subject matter. No changes, alterations,
amendments, modifications, additions or qualifications to the terms of this
Agreement shall be made or be binding unless made in writing and signed by each
of the parties.
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10. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at their respective addresses first set forth above (or at such other address
for a party as shall be specified by like notice.
11. Binding Effect. This Agreement shall be binding upon, and
inure to the benefit of, the parties, their heirs, legal representatives,
successors and permitted assigns.
12. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement.
13. Entire Agreement. This Agreement, together with the
recitals, exhibits and schedules, contains the entire understanding of the
parties hereto with respect to the transactions contemplated herein, and any
prior agreements or understandings, whether oral or written, are entirely
superseded hereby.
14. Documentation. The parties agree to execute and/or provide
any and all other documents, instruments, or other papers and to conduct such
transactions as may be reasonably necessary or desirable to effectuate the
provisions of this Agreement.
15. Provisions to Survive Closing. All of the representations,
warranties, covenants and agreements of the Corporation and PPD set forth in or
made pursuant to this Agreement shall survive the Closing and delivery of and
payment for the Shares.
IN WITNESS WHEREOF, the Corporation and PPD have caused this Agreement
to be executed through their duly authorized officers as of the date first
written above.
PHARMACEUTICAL PRODUCT DEVELOPMENT,
INC.
By: /s/ Fredric N. Eshelman
Name:Fredric N. Eshelman
Title:CEO
PPGx, INC.
By: /s/ Natalie J. Warner
Name:Natalie J. Warner
Title:CEO & President
SOFTWARE LICENSE AGREEMENT
This SOFTWARE LICENSE AGREEMENT (the "Agreement") is made and entered
into effective as of the 31st day of January, 1999 (the "Effective Date"), by
and between AXYS PHARMACEUTICALS, INC., a Delaware corporation having a
principal place of business at 180 Kimball Way, South San Francisco, California
94080 ("Axys"), and PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina
corporation having a place of business at 3151 17th Street Extension,
Wilmington, North Carolina 28412 ("Licensee"). Axys and Licensee may be referred
to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, Sequana Therapeutics, Inc., as a wholly-owned subsidiary of
Axys Pharmaceuticals, Inc., has developed certain software and data relating to
the sequencing and study of genes with applications in the field of
Pharmacogenomics; and
WHEREAS, Axys has licensed (with right of sublicense) all of the
intellectual property Controlled by Sequana Therapeutics, Inc., including
without limitation rights in the Axys Software (as defined below); and
WHEREAS, Licensee desires to obtain certain license rights to such
software and database for use in the field of Pharmacogenomics and Axys is
willing to grant such rights upon the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS.
1.1 "AXYS DERIVATIVES" means Derivative Works of the Axys Software or
Database created by or for Axys including, without limitation, bug fixes, error
corrections, new developments and improvements with respect thereto, but
specifically excluding any Licensee Derivatives. For clarity, the parties
acknowledge that, unless otherwise agreed in writing by the parties, any
software code written by Axys for Licensee pursuant to a software development
agreement between Axys and the Licensee shall not be deemed to be included
within the meaning of the term "Axys Derivatives" and shall not be subject to
this Agreement.
1.2 "AXYS SOFTWARE" means the software Controlled by Axys which is set
forth in Exhibit 1.3 including, without limitation, the Gene Trials Software,
LIMS Software, Target Validation System V.1 and Target Validation System V.2.
1.3 "CONFIDENTIAL INFORMATION" means any and all proprietary and
confidential information of either Party, whether technical or non-technical,
including patent, trade secret, and proprietary information, techniques,
sketches, drawings, models, inventions, know-how, processes, apparatus,
equipment, algorithms, software programs, software source documents, and
formulae related to the current, future and proposed products and services, and
includes, without limitation, each Party's respective information concerning
research, experimental work, development, design details and specifications,
engineering, financial information, procurement requirements, purchasing,
manufacturing, customer lists, business forecasts, sales and merchandising, and
marketing plans and information, whether in oral, written, graphic or electronic
form. Notwithstanding the foregoing, the Axys Software and Database shall be
deemed the
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Confidential Information of Axys. In addition, Axys Derivatives shall be deemed
the Confidential Information of Axys and Licensee Derivatives shall be deemed
the Confidential Information of Licensee.
1.4 "CONTROLLED" means, with respect to any material, information or
intellectual property right, that Axys owns, has a license to or otherwise has
lawful access to such material, information or intellectual property right, and
has the ability to grant to PPGx access, a license, or a sublicense to such
material, information or intellectual property right as provided for in the
Agreement without violating an agreement with a Third Party as of the Effective
Date.
1.5 "DATABASE" means (i) the compilation of data and other information
contained in Axys' proprietary Allele Frequency Database as of the date of the
initial delivery (as set forth in Section 5.1 (Initial Delivery)) including,
without limitation, genetic and associated data, including sequences, pertaining
to single nucleotide polymorphisms and medical and general demographic data on
reference populations, and (ii) raw uncompiled data collected, as of the date of
the initial delivery (as set forth in Section 5.1 (Initial Delivery)), in
connection with the compilation of data comprising such Allele Frequency
Database, whether collected by questionnaire or otherwise. For clarification,
"Database" does not include any Axys Software or Third Party Software. The
Database shall include, without limitation, the polymorphisms listed in the
schedules delivered to Licensee by Axys by confidential letters dated January 26
and 28, 1999.
1.6 "DERIVATIVE WORK" shall mean a work which is based on one or more
pre-existing software programs or other works of authorship, such as a revision,
enhancement, modification, translation, abridgement, condensation, expansion or
any other form in which such software or work may be recast, transformed, or
adapted, and which, if prepared without the authorization of the owner of the
copyright in the software, would constitute a copyright infringement.
1.7 "DOCUMENTATION" means any existing and available documentation of
Axys for the Axys Software and Database, whether in printed or electronic
format. By way of illustration, such Documentation may include a description of
the full development environment, revision history, source code control systems,
validation test plans, user manuals and all material SOP's in effect during the
development of the Axys Software and Database, but only to the extent that such
documents are existing and in Axys' possession or control as of the date of the
initial delivery (as set forth in Section 5.1 (Initial Delivery)).
1.8 "INTELLECTUAL PROPERTY RIGHTS" means any and all intellectual
property rights in any country or jurisdiction worldwide arising under statutory
law, common law or by contract and whether or not perfected, including without
limitation all (i) patents, patent applications, and patent rights; (ii) rights
associated with works of authorship including copyrights, copyright
applications, copyright registrations; (iii) rights relating to the production
of trade secrets and confidential information; (iv) any rights analogous to
these set forth in this Section 1.7 and any other proprietary rights relating to
intellectual property; and (v) divisions, continuations, renewals, reissues and
extensions of the foregoing (as and to the extent applicable) now existing,
hereafter filed, used or acquired.
1.9 "LICENSEE DERIVATIVES" means Derivative Works of the Axys Software
or Database created by or for Licensee or its sublicensees and including,
without limitation, bug fixes, error corrections, new developments and
improvements relating thereto, but specifically excluding the Axys Software, the
Database and any Axys Derivatives. A Derivative Work will not be considered a
Licensee Derivative if (i) a programmer, reasonably skilled in the art, could
not trace the Derivative Work to the Axys Software from either its literal form
or based upon its features or functionality; or (ii) the database does not
contain substantial elements or portions of the Database.
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1.10 "LIMS SOFTWARE" shall mean the LIMS Software, a component of the
Axys Software, as set forth in Exhibit 1.3.
1.11 "PHARMACOGENOMICS" shall have the meaning set forth in the
Technology Transfer and License Agreement executed by and between Axys
Pharmaceuticals, Inc. and PPGx, Inc. on February 1, 1999.
1.12 "TARGET VALIDATION SYSTEM V.1" means version 1 of a component of
the Axys Software including the human-readable source code, machine-executable
object code, compiled database and any related Documentation.
1.13 "TARGET VALIDATION SYSTEM V.2" means version 2 of a component of
the Axys Software currently under development by Axys including the
human-readable source code, machine-executable object code, compiled database
and any related Documentation.
1.14 "THIRD PARTY SOFTWARE" means the third party software required to
perform or operate the Axys Software or Database including, without limitation,
the third party software described in Exhibit 1.14 (Third Party Software).
2. LICENSE GRANTS AND RESTRICTIONS.
2.1 LICENSE GRANTS.
(A) AXYS SOFTWARE AND DATABASE. Subject to the terms and
conditions of this Agreement, Axys hereby grants to Licensee a restricted,
exclusive (except as set forth in Section 2.3 (Reservation of Rights)),
fully-paid, royalty-free, worldwide, nontransferable (except as set forth in
Section 12.9 (Assignment)), perpetual, irrevocable (except as set forth in
Section 11.2 (Axys Termination for Breach)) license to use, reproduce, perform,
display publicly, create Derivative Works of, distribute and sublicense (through
multiple tiers of sublicensees) the Axys Software and Database solely for use in
the field of Pharmacogenomics. Notwithstanding any contrary provision of this
Agreement, Licensee's right to use, reproduce, perform, display publicly, create
Derivative Works of, distribute and sublicense (through multiple tiers of
sublicensees) the LIMS Software and the Target Validation System V.1 and V.2
shall not be restricted to use in the field of Pharmacogenomics.
(B) THIRD PARTY SOFTWARE. Subject to the terms and conditions
of this Agreement and the applicable Third Party Software license agreement,
Axys hereby grants to Licensee a sublicense to such Third Party Software
consistent with the rights granted to, and obligations and restrictions imposed
on, Axys by the applicable Third Party Software licensor. In the event Axys does
not have the right to grant such sublicenses, Axys shall use commercially
reasonable efforts to assist Licensee in obtaining at Licensee's expense such
required licenses directly from the Third Party Software licensor.
2.2 LICENSE RESTRICTIONS. Licensee shall not, directly or indirectly,
use, distribute or sublicense the Axys Software, Database or Licensee
Derivatives (so long as they remain Licensee Derivatives) for use outside of the
field of Pharmacogenomics. All proprietary rights notices on the Axys Software
and Database shall be reproduced and applied to all authorized copies, including
Licensee Derivatives. In addition, Licensee's rights to sublicense the Axys
Software, Database and Licensee Derivatives shall be subject to the restrictions
imposed in Section 4 (Sublicensing of the Axys Software and Database).
2.3 RESERVATION OF RIGHTS. Notwithstanding any contrary provision of
this Agreement, the license of the LIMS Software and the Target Validation
System V.1 and V.2 to Licensee is nonexclusive. Axys also hereby expressly
reserves the right to use, reproduce,
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perform, display publicly, create Derivative Works of, distribute and license
(through multiple tiers of sublicensees) the Axys Software, Database and any
Axys Derivatives for any purpose or activity outside the field of
Pharmacogenomics and in Axys' internal drug discovery and development
activities. In no event shall Licensee's exclusive rights granted under Section
2.1 affect in any manner any licenses to the Axys Software, Database or Axys
Derivatives granted by Axys prior to the Effective Date, it being acknowledged
by the parties that Licensee is being granted such exclusive rights under
Section 2.1 only as Axys is able to grant as of the Effective Date. To the
extent that such information is not confidential, Axys shall identify such
licensees and provide to PPGx a summary description of the rights granted to
them by Axys, in Schedule 2.3 attached hereto. Any such information disclosed to
PPGx shall be deemed to be the Confidential Information (as such term is defined
in Article 10 herein) of Axys.
3. OWNERSHIP.
3.1 AXYS OWNERSHIP. Licensee agrees that Axys shall retain its sole and
exclusive ownership of all right, title and interest to the Axys Software,
Database and any Axys Derivatives, and including all Intellectual Property
Rights thereto, but specifically excluding any Third Party Software contained
therein. Except for the rights expressly enumerated herein, Axys does not grant
any Intellectual Property Rights or any other rights or licenses with respect to
the Axys Software and Database.
3.2 LICENSEE OWNERSHIP OF LICENSEE DERIVATIVES. Axys agrees that
Licensee shall retain the sole and exclusive ownership of all right, title and
interest to any Licensee Derivatives, and including any Intellectual Property
Rights thereto, but specifically excluding the Axys Software, Database and any
Third Party Software contained therein.
3.3 THIRD PARTY SOFTWARE. Both Parties acknowledge and agree that,
except for the licenses granted in the applicable Third Party Software license
agreement, the licensors of such Third Party Software shall retain all right,
title and interest including any Intellectual Property Rights, to its Third
Party Software.
4. SUBLICENSING OF THE AXYS SOFTWARE AND DATABASE.
4.1 LICENSEE SOURCE CODE SUBLICENSE. Licensee acknowledges and agrees
that in order to maintain the economic value of the Axys Software, any
sublicense entered into by Licensee of all or any portion of the source code of
the Axys Software in source code format (herein "Licensee Source Code"), and any
sublicense of the source code of the Licensee Derivatives (so long as they
remain Licensee Derivatives) where indicated, shall be restricted as follows:
(A) All such sublicenses shall be in writing and executed by
the third party sublicensee and shall provide, at a minimum, that (i) the
Licensee Source Code and any source code of the Licensee Derivatives is
licensed, not sold, to the sublicensee and, except for the LIMS Software and
Target Validation System V.1 and V.2, is for use solely in the field of
Pharmacogenomics; (ii) Axys, as the original licensor, retains ownership of all
copies of the Licensee Source Code; (iii) all rights not expressly granted to
sublicensee are reserved for Licensee and Axys; (iv) sublicensee shall not
sublicense, assign or otherwise transfer the Licensee Source Code to any third
party without the prior written consent of Licensee; (v) Licensee shall retain
the right to terminate the sublicense in the event the sublicensee materially
breaches any term or condition; and (vi) upon termination of the sublicense, the
sublicensee shall promptly destroy the Licensee Source Code and all copies.
(B) Axys shall be named a third party beneficiary of any
sublicenses of the Licensee Source Code;
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(C) The third party shall agree to use the Licensee Source
Code solely for its internal purposes and agrees to maintain written records of
the location of each copy of the Licensee Source Code and permit audit of such
records by Licensee;
(D) Except as related to the LIMS Software and Target
Validation System V.1 and V.2, the sublicenses shall restrict the use of the
Licensee Source Code, the source code of any Licensee Derivatives, and any
Derivative Works created by or for the third party, to the field of
Pharmacogenomics.
(E) Licensee shall provide Axys the names of all sublicensees
of the Licensee Source Code once every six (6) months and, upon Axys' request,
will send a copy of all such sublicenses to Axys, although Licensee may delete
information relating to the sublicense fees and other financial terms from such
copies. The names of the sublicensees and any sublicenses provided to Axys shall
be deemed the Confidential Information of Licensee. In the event any sublicensee
refuses to agree that Licensee can provide its name to Axys, Licensee shall not
be obligated to do so; provided that Licensee shall have to provide a copy of
the sublicense with such sublicensee upon any reasonable request of Axys
relating to the protection of its property or rights.
(F) Licensee agrees to report any violations by any third
party of the confidentiality, ownership and other provisions that are important
to maintain the value of the Intellectual Property Rights in the Axys Software
and agrees to assist Axys at Axys' expense in enforcing such provisions.
4.2 LICENSEE OBJECT CODE SUBLICENSE. Axys acknowledges and agrees that
Licensee may sublicense the machine-executable object code of the Axys Software
and/or Licensee Derivatives (so long as they remain Licensee Derivatives) in
object code format (herein "Licensee Object Code") to third parties in
accordance with its standard licensing practices; provided that such sublicenses
only grant the third parties sublicensees the right to use such Licensee Object
Code (except for the LIMS Software and Target Validation System V.1 and V.2) in
the field of Pharmacogenomics and such sublicenses include prohibitions on
obtaining the human-readable source code of the Axys Software through reverse
engineering. Such Licensee Object Code licenses may include a source code escrow
provision; provided that (i) a reputable source code escrow agency will maintain
the Licensee Source Code (as defined in Section 4.1 above); (ii) the license to
use the Licensee Source Code in the event the licensee rightfully receives the
source code from the escrow agent shall be restricted to maintaining the
Licensee Object Code (except for the LIMS Software and the Target Validation
System V.1 and V.2) for use in the field of Pharmacogenomics; and (iii) Licensee
agrees to promptly notify Axys of each release of the Licensee Source Code from
the escrow account.
4.3 LICENSEE DATABASE SUBLICENSE. Licensee acknowledges and agrees that
in order to maintain the economic value of the Database, any sublicense entered
into by Licensee of all or any portion of the Database, or any Licensee
Derivatives of the Database (so long as they remain Licensee Derivatives), shall
be restricted to use in the field of Pharmocogenomics and shall include
prohibitions on reproducing or distributing the Database, its contents, or any
part thereof, for other than internal use by the sublicensee. Notwithstanding
the restrictions set forth in this Agreement, data retrieved from the Database
may be manipulated, analyzed, reformatted, printed and, to the extent necessary
for patent applications and for publication in scientific journals, displayed
publicly and/or published by Licensee and its sublicensees; provided that the
foregoing prohibition shall not preclude Licensee from creating and
demonstrating marketing demos of the Database and Licensee Derivatives to third
parties under appropriate confidentiality agreements.
4.4 AXYS DATABASE LICENSE. In consideration of the amounts paid to Axys
by Licensee for the Axys Software and Database, Axys hereby acknowledges and
agrees that it shall
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not license, publish or otherwise disclose the contents of the Database, in
whole or in part, except as set forth in Section 2.3 (Reservation of Rights) and
subject to the confidentiality restrictions set forth in Section 10.2 (Axys
Software and Database Confidentiality). Any license of the Database by Axys
shall include prohibitions on reproducing or distributing the Database, its
contents, or any part thereof for any use that is inconsistent with Axys'
reserved rights set forth in Section 2.3. Notwithstanding the restrictions set
forth in this Agreement, data retrieved from the Database may be manipulated,
analyzed, reformatted, printed and, to the extent necessary for patent
applications and for publication in scientific journals, displayed publicly
and/or published by Axys and its licensees; provided that the foregoing
prohibition shall not preclude Axys from creating and demonstrating marketing
demos of the Database and Axys Derivatives to third parties under appropriate
confidentiality agreements.
4.5 NO OTHER TRANSFER OF RIGHT, TITLE OR INTEREST. Except as set forth
in Sections 4.1 (Licensee Object Code Sublicense), 4.2 (Licensee Source Code
Sublicense), Section 4.3 (Licensee Database Sublicense) and 12.9 (Assignment),
Licensee shall not grant any right, title or interest in or to the Axys Software
or the Database without the prior written consent of Axys, which consent shall
not be unreasonably withheld.
5. DELIVERY AND ACCEPTANCE.
5.1 INITIAL DELIVERY. Within thirty (30) days of the execution of this
Agreement or as otherwise agreed between Axys and Licensee, Axys shall provide
to Licensee: (i) one (1) copy of the Axys Software (excluding the Target
Validation System V.2) in machine-executable object code; (ii) one (1) copy of
the Axys Software (excluding the Target Validation System V.2) in human-readable
source code; (iii) one (1) copy of the Database; and (iv) one (1) copy of any
related Documentation. Such Axys Software, Database and Documentation shall be
provided electronically or in such other form as mutually agreed to by the
Parties.
5.2 DELIVERY OF TARGET VALIDATION SYSTEM V.2. Upon its availability for
public release, Axys shall deliver to Licensee: (i) one (1) copy of the Target
Validation System V.2, in machine-executable object code; (ii) one (1) copy of
the Target Validation System V.2, in human-readable source code; and (iii) one
(1) copy of any related Documentation. In addition for a period of six (6)
months after the delivery of the Target Validation System V.2, Axys shall
provide Licensee with bug fixes and error corrections to the Target Validation
System V.2 that are developed, at Axys' sole discretion, and publicly released
by Axys.
5.3 ACCEPTANCE. Licensee acknowledges and agrees that because Licensee
has had the opportunity to inspect the Axys Software, Database and related
Documentation prior to execution of this Agreement, the Axys Software, Database
and Documentation shall be deemed accepted upon delivery; provided, however,
that Axys delivers the Axys Software that is identified in Exhibit 1.3 and the
Database and Documentation that conforms to the description set forth herein.
Licensee shall have a period of thirty (30) days from the respective delivery
dates of the Axys Software, Database and Documentation to notify Axys, in
writing, of any discrepancies in the Axys Software, Database and Documentation
delivered by Axys to Licensee. Licensee's sole and exclusive remedy, and Axys'
sole and exclusive obligation, regarding any identified discrepancies in such
delivery shall be for Axys to promptly resolve the discrepancies and redeliver
as promptly as practical such of the Axys Software, Database and Documentation
to Licensee as is necessary to fulfill Axys' delivery obligations hereunder.
6. PAYMENT AND TAXES.
6.1 LICENSEE FEES. In consideration of the licenses and other rights
granted to Licensee herein, Licensee shall pay to Axys a one-time,
non-refundable license fee of Two Million Dollars ($2,000,000) immediately upon
the execution of this Agreement.
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6.2 TAXES. Licensee agrees to pay, and to indemnify and hold Axys
harmless from, any and all taxes, including without limitation sales taxes, use
taxes and filing fees, as well as the collection or withholding thereof, imposed
upon or arising out of the licenses granted to Licensee hereunder, but excluding
any taxes based on the net income of Axys.
7. REPRESENTATIONS AND WARRANTIES.
7.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party hereby represents
and warrants to the other Party that:
(A) it has the full corporate power and authority under the
laws of the state of its incorporation to enter into this Agreement and to carry
out the provisions hereunder;
(B) to its knowledge as of the date of this Agreement, the
performance by either Party of the activities under this Agreement will not
infringe any Intellectual Property Rights owned by a third party;
(C) it will not take any material action or fail to take any
material action which would be in conflict with its obligations under this
Agreement;
(D) this Agreement is a legal and valid obligation binding
upon it and is enforceable in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws affecting creditors' rights, and
subject to general equity principles and to limitations on availability of
equitable relief, including specific performance; and
(E) the execution, delivery and performance of this Agreement
by it does not materially conflict with any agreement, oral or written, to which
it is a Party or by which it may be bound, nor violate any law or regulation of
any court, governmental body or administrative or other agency having authority
over it.
7.2 AXYS REPRESENTATIONS AND WARRANTIES. Axys represents and warrants
to Licensee that:
(A) Axys has the full right to grant the licenses set forth in
Section 2 (License Grants and Restrictions) hereof, free and clear of any
adverse assignment, grant or other encumbrance inconsistent with such grant,
subject to Axys' reservation of rights set forth in Section 2.3 (Reservation of
Rights); and
(B) to Axys' knowledge as of the date of this Agreement, the
Axys Software and Database does not contain any Computer Virus and Axys shall
use due diligence in screening the Axys Software and Database prior to delivery
to Licensee to minimize the possibility of the introduction of an identified and
acknowledged Computer Virus into Licensee's systems. For purposes of this
Agreement, a "Computer Virus" is an undocumented and unauthorized program
designed to cause a loss of, or damage to, data files; or to gain access to,
and/or interfere with, the operations of, other programs or computer resources,
or any other results not intended by the user of the computer system on which
the virus resides.
(C) Prior to the Effective Date, Axys has not licensed, sold
or transferred, or agreed to license, sell or transfer, the Database to any
third party.
7.3 AXYS DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN
THIS SECTION 7 (REPRESENTATIONS AND WARRANTIES), THE AXYS SOFTWARE, DATABASE AND
DOCUMENTATION ARE PROVIDED TO LICENSEE ON AN "AS IS"
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BASIS AND AXYS HEREBY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS,
IMPLIED AND STATUTORY WHETHER ARISING FROM COURSE OF DEALING OR USAGE OF TRADE
INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE,
FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT. AXYS DOES NOT REPRESENT
OR WARRANT THAT THE AXYS SOFTWARE AND DATABASE WILL MEET THE LICENSEE'S NEEDS OR
WILL BE FREE FROM ERRORS OR OMISSIONS AND AXYS HEREBY EXPRESSLY DISCLAIMS ANY
WARRANTY OF SEQUENCE, ACCURACY OR COMPLETENESS OF THE DATA.
8. INDEMNIFICATION.
8.1 LICENSEE INDEMNITY. Licensee acknowledges that Axys is not directly
or indirectly engaged in the practice of medicine and that all medical-related
information in or provided by the Axys Software or Database is provided for
research and informational purposes only. Licensee further acknowledges that the
Axys Software and Database is not designed or intended for use in providing
advice or opinions on the treatment or care of an individual patient and that
all business, research and clinical decisions made using the Axys Software or
Database will be Licensee's exclusive responsibility. Licensee hereby agrees to
indemnify and defend Axys from any costs, damages, and reasonable attorneys'
fees resulting from all claims by third parties (i) arising from any act,
omission, failure to act, or misrepresentation by Licensee in its use or
sublicense of the Axys Software or Database; (ii) arising, directly or
indirectly, out of any medical, health care, clinical trial, drug discovery or
drug development decision made by Licensee or any of its sublicensees whether or
not such decision arose out of or relates to the use of the Axys Software or
Database, in whole or in part; or (iii) any intentional misconduct of Licensee
occurring after the Effective Date; provided that Axys gives Licensee prompt
written notice of any such claim, tenders to Licensee the defense or settlement
of such a claim at Licensee's expense, and cooperates with Licensee, at
Licensee's expense, in defending or settling such claim. The rights granted to
Axys under this Section 8.1 (Licensee Indemnity) shall be Axys' sole and
exclusive remedy and Licensee's sole obligation for any such third party claim.
8.2 AXYS INDEMNITY. Axys hereby agrees to indemnify and defend Licensee
from any costs, damages, and reasonable attorneys' fees resulting from all
claims by third parties arising from (i) any breach by Axys of any of the
representations and warranties made by Axys to Licensee under this Agreement or
(ii) any intentional misconduct of Axys occurring after the Effective Date;
provided that Licensee gives Axys prompt written notice of any such claim,
tenders to Axys the defense or settlement of such a claim at Axys' expense, and
cooperates with Axys, at Axys' expense, in defending or settling such claim. The
rights granted to Licensee under this Section 8.2 (Axys Indemnity) shall be
Licensee's sole and exclusive remedy and Axys' sole obligation for any such
third party claim.
8.3 LIMITATION ON INDEMNITY. Neither Party shall be entitled to
indemnification under this Article 8, notwithstanding any other provision hereof
to the contrary, to the extent that the events giving rise to the claim for
which indemnification is sought are due to the intentional misconduct or
negligence of the Party seeking indemnification, or any of its officers,
directors, employees or agents.
9. LIMITATION OF LIABILITY. Neither Party shall be liable to the other
Party or any third party for any loss of use, interruption of business or any
indirect, special, incidental or consequential damages of any kind (including
lost profits) regardless of the form of action whether in contract, tort
(including negligence), strict product liability or otherwise, arising out of
this Agreement or the existence, furnishing, functioning or use of or inability
to use the Axys Software or Database, or to any third party with respect
thereto, even if such Party has been advised of the possibility of such damages.
In no event shall either Party's liability under this
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Agreement, whether in contract, tort (including negligence) or otherwise, exceed
the license fee paid by Licensee hereunder. The foregoing limitations shall
apply even if the above stated warranties fail of their essential purpose.
Notwithstanding the foregoing, Licensee's limitation of liability hereunder
shall not apply to any breach of this Agreement related to the scope of the
licenses granted in Section 2 (License Grants and Restrictions) or ownership and
protection of Axys' proprietary rights set forth in Section 3.1 (Axys
Ownership).
10. CONFIDENTIALITY.
10.1 CONFIDENTIALITY. During the term of this Agreement and thereafter,
each Party hereto will maintain in confidence all Confidential Information
disclosed by the other Party hereto. Neither Party will use, disclose or grant
use of such Confidential Information except as expressly authorized by this
Agreement. To the extent that disclosure is authorized by this Agreement, the
disclosing Party will obtain prior agreement from its employees, agents or
consultants to whom disclosure is to be made to hold in confidence and not make
use of such information for any purpose other than those permitted by this
Agreement. Each Party will use at least the same standard of care as it uses to
protect its own Confidential Information to ensure that such employees, agents
or consultants do not disclose or make any unauthorized use of such Confidential
Information. Each Party will promptly notify the other Party upon discovery of
any unauthorized use or disclosure of the Confidential Information.
10.2 AXYS SOFTWARE AND DATABASE CONFIDENTIALITY. Axys hereby agrees to
(i) maintain the Axys Software and Database as its Confidential Information;
(ii) to obtain prior agreement from any third parties to whom disclosure is made
to hold such Confidential Information in confidence and not make use of such
Confidential Information for any unauthorized purpose; and (iii) to use at least
the same standard of care and due diligence Axys uses to protect its other
Confidential Information which Axys has disclosed to third parties to ensure
that such third parties do not disclose or make any unauthorized use of the Axys
Software and Database.
10.3 EXCEPTIONS. Notwithstanding the other provisions of this
Agreement, nothing received by the receiving Party will be considered to be the
Confidential Information of the other disclosing Party if:
(A) It has been published or is otherwise readily available to
the public other than by a breach of this Agreement;
(B) It has been rightfully received by the receiving Party
from a third party without confidential limitations;
(C) It has been independently developed for the receiving
Party by personnel or agents having no access to the disclosing Party's
Confidential Information; or
(D) It was known to the receiving Party prior to its first
receipt from the disclosing Party.
11. TERMINATION.
11.1 TERM. The term of this Agreement shall commence as of the
Effective Date and shall continue until terminated pursuant to Section 11.2
(Termination for Breach) below.
11.2 TERMINATION FOR BREACH.
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(A) Axys may terminate this Agreement and all licenses granted
by Axys hereunder upon thirty (30) days' written notice of a material breach of
this Agreement by Licensee that is likely to cause irreparable damage to Axys'
Intellectual Property Rights in the Axys Software or Database for which recovery
of money damages would be inadequate, if such breach is not cured within such
thirty (30) day period or, if such breach cannot reasonably be expected to be
cured within such thirty (30) day period, Licensee has not commenced within such
thirty (30) day period best efforts to effect such cure as promptly as possible
and has not continued to use its best efforts in the exercise of prudent
business judgment until such cure is effected; provided that in no event shall
the period in which to cure such breach exceed one hundred eighty (180) days
from Axys' written notice of a material breach of this Agreement.
(B) Licensee may terminate this Agreement upon thirty (30)
days' written notice of a material breach of this Agreement by Axys for which
recovery of money damages would be inadequate, if such breach is not cured
within such thirty (30) day period or, if such breach cannot reasonably be
expected to be cured within such thirty (30) day period, Axys has not commenced
within such thirty (30) day period best efforts to effect such cure as promptly
as possible and has not continued to use its best efforts in the exercise of
prudent business judgment until such cure is effected; provided that in no event
shall the period in which to cure such breach exceed one hundred eighty (180)
days from Licensee's written notice of a material breach of this Agreement.
11.3 EFFECTS OF TERMINATION.
(A) RETURN OF AXYS SOFTWARE, DATABASE AND CONFIDENTIAL
INFORMATION. Upon termination of this Agreement pursuant to Section 11.2 (Axys
Termination for Breach) above, Licensee will promptly return or destroy the Axys
Software and Database and all copies thereof, in its possession, and promptly
return to Axys any and all Confidential Information of Axys, existing in
tangible form. Upon termination of this Agreement pursuant to Section 11.2
above, Axys will promptly return to Licensee any and all Confidential
Information of Licensee, existing in tangible form.
(B) LICENSEE DERIVATIVES. Upon termination of this Agreement
pursuant to Section 11.2 above, Licensee shall discontinue all use of and shall
destroy all copies of the Licensee Derivatives, to the extent that such Licensee
Derivatives contain or incorporate the Axys Software, Database, or any component
thereof or information therein.
(C) EXISTING SUBLICENSES. Termination of this Agreement and
the licenses granted to Licensee shall not affect any sublicenses granted by
Licensee prior to the date of termination, so long as such sublicensees continue
to comply with the restrictions set forth in Section 4 (Sublicensing of Axys
Software and Database).
(D) NO LIABILITY. Each Party understands that the rights of
termination hereunder are absolute. Neither Party shall incur any liability
whatsoever for any damage, loss or expenses of any kind suffered or incurred by
the other arising from or incident to any termination of this Agreement, by such
Party or any expiration hereof which complies with the terms of the Agreement,
whether or not such Party is aware of any such damage, loss or expenses. In
particular, without in any way limiting the foregoing, neither Party shall be
entitled to any damages on account of prospective profits or anticipated sales.
(E) SURVIVAL. The provisions of Sections 1 (Definitions), 3
(Ownership), 4 (Sublicensing of the Axys Software and Database), 6 (Payment and
Taxes), 7 (Representations and Warranties), 8 (Indemnification), 9 (Limitation
of Liability), 10 (Confidentiality), 11.3 (Effects of Termination), and 12
(General Provisions) shall survive termination of this Agreement for any reason.
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12. GENERAL PROVISIONS.
12.1 NO AGENCY. Each Party shall act solely as an independent
contractor and nothing in this Agreement shall be construed to give either Party
the power or authority to act for, bind or commit the other Party in any way.
Nothing herein shall be construed to create the relationship of partnership,
principal and agent or joint venture between the Parties.
12.2 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware that apply to contracts negotiated, executed and performed
within the State of Delaware.
12.3 NOTICES. All notices permitted or required under this Agreement
shall be in writing and shall be delivered by registered or certified mail,
return receipt requested, to the address set forth in the first paragraph of
this Agreement or delivered by hand. All notices shall be deemed to have been
given two days after such notice is mailed, as evidenced by the postmark at the
point of mailing or on the date of personal delivery, if not mailed. If the
notice is to Axys, a copy shall also be sent to its General Counsel.
12.4 INJUNCTIVE RELIEF. It is understood and agreed that,
notwithstanding any other provision of this Agreement, breach of the provisions
of this Agreement regarding the protection of Confidential Information by
Licensee will cause Axys irreparable damage for which recovery of money damages
would be inadequate, and that Axys shall therefore be entitled to seek timely
injunctive relief to protect Axys' rights under this Agreement in addition to
any and all remedies available at law.
12.5 WAIVER. The failure of either Party to require performance by the
other Party of any provision hereof shall not affect the full right to require
such performance at any time thereafter; nor shall the waiver by either Party of
a breach of any provision hereof be taken or held to be a waiver of the
provision itself.
12.6 SEVERABILITY. If a court of competent jurisdiction declares any
provision of this Agreement invalid or unenforceable, or if any government or
other agency having jurisdiction over either Axys or Licensee deems any
provision to be contrary to any laws, then that provision shall be severed and
the remainder of the Agreement shall continue in full force and effect. The
Parties further agree to discuss in good faith an amendment to replace such
void, invalid, unenforceable, or unlawful provision with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such void, invalid, unenforceable or unlawful provision.
12.7 HEADINGS. The section headings appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or extent of such section, or in any way affect this
Agreement.
12.8 COMPLIANCE WITH LAWS; EXPORT CONTROLS. Each Party agrees to comply
with all applicable laws, rules and regulations in connection with its
activities under this Agreement. Each Party further agrees that it will comply
with all U.S. export control laws and the applicable regulations thereunder, as
well as any other applicable laws of the U.S. affecting the export of
technology.
12.9 ASSIGNMENT. Subsequent to the execution of this Agreement,
Licensee may assign this Agreement to PPGx, Inc. Upon such assignment, PPGx,
Inc. shall agree in writing to be bound by all of Licensee's obligations under
this Agreement; thereafter the term "Licensee" as used in this Agreement shall
be understood to mean PPGx, Inc., whose rights and obligations shall be governed
by this Agreement. Except as expressly set forth above, Licensee shall not
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assign any rights or obligations arising under this Agreement without the prior
written consent of Axys. Notwithstanding the foregoing, PPGx, Inc. may assign
this Agreement to a third party in the event of a merger, acquisition,
reorganization or recapitalization by or of PPGx, Inc., upon written notice to
Axys. Subject to the above restrictions on assignment, this Agreement shall
inure to the benefit of and bind the successors and assigns of the Parties. Any
attempted assignment in derogation of the foregoing shall be void.
12.10 U.S. GOVERNMENT SUBLICENSEES. The Axys Software and Database are
"commercial items," as defined at 48 C.F.R. 2.101 (Oct 1995), consisting of
"commercial computer software" and "commercial computer software documentation,"
as such terms are used in 48 C.F.R. 12.212 (Sep 1995). Consistent with 48 C.F.R.
12.212 and 48 C.F.R. 227.7202-1 through 227.7202-4 (Jun 1995), Licensee will
provide the Axys Software and Database to U.S. Government sublicensees (i) only
as a commercial end item and (ii) with only those rights as are granted to all
other sublicensees pursuant to the terms and conditions of this Agreement.
12.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
12.12 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto
constitute the entire, final and complete agreement and understanding between
the Parties, and replaces and supersedes all prior discussions and agreements
between them, with respect to the subject matter hereof. No amendment,
modification or waiver of any terms or conditions hereof shall be effective
unless made in writing and signed by a duly authorized officer of each Party.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their respective authorized representatives. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same original.
AXYS: LICENSEE:
AXYS PHARMACEUTICALS, INC. PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
/s/ John P. Walker /s/ Fredric N. Eshelman
- -------------------------- -------------------------------
Authorized Signature Authorized Signature
John P. Walker Fredric N. Eshelman
- -------------------------- -------------------------------
Printed Name Printed Name
Chairman / CEO CEO
- -------------------------- -------------------------------
Title Title
January 31, 1999 January 31,1999
- -------------------------- -------------------------------
Date Date
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EXHIBIT 1.3
AXYS SOFTWARE
1
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EXHIBIT 1.14
THIRD PARTY SOFTWARE
1
PPD TECHNOLOGY TRANSFER AGREEMENT
THIS PPD TECHNOLOGY TRANSFER AGREEMENT (the "Agreement") is
made and entered into effective as of this 1st day of February, 1999, by and
between PPGx, INC., a Delaware corporation whose mailing and notice address is
11099 N. Torrey Pines Road, La Jolla, California 92037 (hereinafter called the
"Corporation"), and PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina
corporation whose mailing and notice address is 3151 17th Street Extension,
Wilmington, North Carolina 28412 Telephone: (910) 251-0081 and Facsimile: (910)
772-6951(hereinafter called "PPD").
RECITALS:
A. The Corporation has agreed to issue to PPD One Million
Eight Hundred Thousand (1,800,000) shares of Series A Preferred Stock of the
Corporation and One Hundred Eighty (180) shares of the Common Stock of the
Corporation (collectively, the "Shares"), pursuant to the terms and conditions
set forth in that certain Stock Purchase Agreement dated February 1, 1999 (the
"Purchase Agreement") by and between the Corporation and PPD.
B. PPD presently owns all of the issued and outstanding shares
of capital stock of Intek Labs, Inc., a North Carolina corporation ("Intek").
C. Pursuant to the terms of the Purchase Agreement, PPD has
agreed to transfer to the Corporation all of its shares of Intek (the "Intek
Shares") in partial consideration and exchange for the Shares to be issued to
PPD.
D. The transfer of the Intek Shares shall be made upon and
subject to the terms and conditions set forth hereinafter.
NOW, THEREFORE, in consideration of the foregoing recitals,
the mutual covenants and agreements contained herein, and for other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties agree as follows:
1. Definitions. The terms used in this Agreement shall be
defined as follows, unless the context in which they are used requires
otherwise:
a. Benefit Plans. All employee and welfare benefit
plans maintained by Intek, including all qualified and nonqualified pension or
profit sharing plans, any deferred compensation, consultant, bonus or group
insurance contract, or any other incentive, welfare or employee benefit plan or
agreement maintained for the benefit of employees or former employees of Intek.
Benefit Plans specifically exclude all stock option, stock bonus or other
equity-based compensation plans of Intek.
b. General Losses of PPD. All losses, liabilities,
damages, deficiencies, costs or expenses (including interest, penalties and
reasonable attorneys' fees and
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disbursements) incurred by PPD and arising out of or based upon (i) a material
breach of the representations, warranties, covenants, conditions and agreements
of the Corporation set forth in this Agreement, or (ii) the operation of Intek's
business by the Corporation from and after the Transfer Date.
c. General Losses of the Corporation. All losses,
liabilities, damages, deficiencies, costs or expenses (including interest,
penalties and reasonable attorneys' fees and disbursements) incurred by the
Corporation and arising out of or based upon (i) a material breach of the
representations, warranties, covenants, conditions and agreements of PPD set
forth in this Agreement, or (ii) the operation of Intek's business on or before
the Transfer Date, but excluding liabilities and obligations reflected in
Intek's Financial Statements (as defined in Section 3.n. hereof) and liabilities
and obligations of Intek incurred in the ordinary course of its business from
and after the date of such Financial Statements of a nature and amount
consistent with those incurred historically by Intek.
d. [INTENTIONALLY OMITTED].
e. Intek Intellectual Property. All patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, mask works, schematics, technology, know- how, trade secrets,
inventory, algorithms, processes, computer software programs or applications (in
both source code and object code form), and tangible or intangible proprietary
information or material used in the Company's business as of the Transfer Date
other than off-the-shelf office software applications.
f. Intek Shares. Ten (10) shares of common stock, no
par value, of Intek owned by PPD and being transferred pursuant to this
Agreement. The Intek Shares represent all of the issued and outstanding shares
of capital stock of Intek.
g. Knowledge. A party's actual knowledge after due
inquiry of officers, directors and other employees of such party and its
subsidiaries reasonably believed to have knowledge of such matters.
h. Material Adverse Effect. With respect to any
entity or group of entities any event, change or effect that is materially
adverse to the condition (financial or otherwise), properties, assets,
liabilities, business, prospects, operations or results of operations of such
entity and its subsidiaries, taken as a whole.
i. Permits. All certificates, authorizations,
licenses and permits issued by federal, state or other regulatory authorities
that are necessary for the ownership and conduct of the business of Intek.
j. Tax. Any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real
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property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
k. Tax Return. All required Tax returns and
schedules, statements, reports, estimates, declarations, forms and information
returns, including any schedule or attachment thereto, and including any
amendment thereof, relating to Intek's business operations required by foreign,
federal, state and local governments and subdivisions or agencies thereof due on
or before the Transfer Date.
l. Transfer. The transfer of the Intek Shares
pursuant to the terms of this Agreement.
m. Transfer Date. The date the Transfer of the Intek
Shares occurs, which shall be contemporaneously with the execution of this
Agreement and the Transfer shall be effective as of the date of this Agreement.
2. Exchange of Intek Shares. Subject to the terms and
conditions of this Agreement, PPD hereby agrees on the Transfer Date to
irrevocably and unconditionally transfer and assign all of its right, title and
interest in and to the Intek Shares to the Corporation in partial consideration
and exchange for the Shares of the Corporation being issued to PPD pursuant to
the Purchase Agreement. On the Transfer Date, PPD shall cause a certificate
evidencing the Intek Shares to be prepared in the name of the Corporation and
shall deliver such certificate to the Corporation on such date.
3. Representations, Warranties and Covenants of PPD. PPD
represents and warrants to the Corporation and covenants with the Corporation
that as of the Transfer Date(except where the context otherwise requires in
Sections 3(a), 3(e) and 3(f), all references to "Intek" shall be deemed to be
references to Intek and its wholly-owned subsidiary, Intek Labs Ltd.):
a. Organization and Standing of PPD and Intek. PPD is
duly organized and validly existing and has complied with all requirements to
continue its existence under the laws of the State of North Carolina, and has
the corporate power and authority to own, lease and use its properties and to
transact its business where and as now conducted and is duly qualified as a
foreign corporation in each jurisdiction where the character of its properties
it owns, leases or licenses or the nature of its business makes such
qualification necessary. Intek is a duly organized and validly existing
corporation, and has complied with all requirements to continue its existence
under the laws of the State of North Carolina, and has the corporate power and
authority to own, lease and use its properties and to transact its business
where and as now conducted and is duly qualified as a foreign corporation in
each jurisdiction where the character of its properties it owns, leases or
licenses or the nature of its business makes such qualification necessary. Intek
Labs Ltd. ("Intek Labs") is duly organized and validly existing and has complied
with all the requirements to continue its existence under the laws of England
and has the corporate power and authority to own, lease and use its properties
and to transact its business where and as now conducted.
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b. Execution and Delivery Authorized. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by the board of
directors of PPD and by PPD as the sole shareholder of Intek. No approval of the
shareholders of PPD is required in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated by this
Agreement.
c. Validity of Agreement. Except for customer
contracts of Intek which contain provisions requiring consent to change of
control, the execution and performance of this Agreement and the actions
provided for or contemplated hereunder will not violate the provisions of any
agreement, instrument or obligation to which either PPD or Intek is a party.
Assuming due authorization, execution and delivery hereof by the Corporation,
this Agreement constitutes the valid and binding agreement of PPD, enforceable
against PPD in accordance with its terms, subject as to enforceability to
general equitable principles and to the laws of bankruptcy, insolvency or
similar laws governing the rights of creditors.
d. Title to Intek Shares. The Intek Shares are now
and shall be, upon the Transfer, free and clear from any liens, claims,
restrictions or encumbrances of any kind or nature whatsoever, except for such
restrictions contained in the Articles of Incorporation or the Bylaws of Intek,
as now in existence or restrictions upon transfer arising under federal or state
securities laws. Neither PPD nor Intek is a party to or bound by any agreement,
instrument, trust, proxy or understanding restricting or otherwise binding the
ownership, transfer or voting of any of the Intek Shares. Upon completion of the
Transfer, the Intek Shares shall be validly issued and will be fully paid and
nonassessable.
e. Capitalization of Intek. Intek's entire authorized
capital stock consists solely of One hundred thousand (100,000) shares of common
stock, no par value per share, of which ten (10) shares are presently issued and
outstanding. As of the date of this Agreement, the Intek Shares comprise all of
the issued and outstanding shares of Intek. All of the issued and outstanding
shares of Intek have been duly authorized and validly issued, are fully paid and
are nonassessable. None of the outstanding shares of Intek were issued in
violation of the preemptive rights of any shareholder and none will be subject
to any preemptive or similar rights. There are no outstanding subscriptions,
options, warrants, contracts or any other commitments or rights (including
rights to distributions or payments) of any character with respect to, or
obligating Intek to issue any of, the authorized capital stock of Intek
(including the Intek Shares). Intek Lab's entire authorized share capital
consists of 50,000 ordinary shares, of which 1,500 comprise all of the issued
and fully paid up shares. Said 1,500 shares have been duly authorized and
validly issued. There are not outstanding subscriptions, options, warrants,
contracts or other commitments or rights (including rights to distributions or
payments) on any character with respect to the authorized share capital of Intek
Labs. Said 1,500 shares are free and clear of all liens, encumbrances and other
claims.
f. Corporate Records. PPD previously has delivered to
the Corporation true and complete copies of the Articles of Incorporation of
Intek and all
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amendments thereto, the Bylaws of Intek as currently in effect, a copy of the
stock record of Intek, and true and complete copies of the minutes of Intek's
shareholders, board of directors and all committees thereof. All books of
account and other records (financial or otherwise) of Intek previously available
or provided to the Corporation are each true, correct and complete in all
material respects as of the date of such records. PPD has previously delivered
to the Corporation true and complete copies of the charter documents of Intek
Labs, of a copy of the stock records of Intek Labs and of the minutes of Intek
Lab's minutes of Board and shareholder meetings.
g. No Other Interests. Except as set forth on
Schedule 3.g., Intek has no subsidiaries and does not own any other direct or
indirect interest in any firm, corporation or other entity (including any joint
venture, limited liability company or partnership).
h. Compliance With Laws. Intek is now and will be at
all times through the Transfer Date conducting its business in compliance in all
material respects with all foreign, federal, state and local laws, regulations
or orders applicable to Intek or to the operation of its business, including,
without limitation, compliance with the Foreign Corrupt Practices Act. Intek is
not in default with respect to any material order, writ, injunction or decree
applicable to Intek, its properties or business.
i. Material Contracts. PPD has made available to the
Corporation copies of all of Intek's material notes, mortgages, licenses,
leases, subleases, documents, instruments, contracts and agreements to which
Intek is a party or by which it or its properties is bound. Each such note,
mortgage, document, instrument, contract or agreement is valid, in full force
and effect and binding upon Intek and, to the best of PPD's Knowledge, all other
parties thereto in accordance with its terms. Intek is not in default under nor
has any event occurred which, with a lapse of time or notice or both, could
result in a default under any outstanding note, mortgage, document, instrument,
contract or agreement to which Intek is a party or by which its properties may
be bound, and neither Intek nor PPD has received any notice from any other party
that a default exists under any of the foregoing. Set forth on Schedule 3.i. is
a list of all third party and governmental consents or approvals required in
connection with the transactions contemplated pursuant to this Agreement, other
than customer contracts entered into in the ordinary course of business for
which no consent of any customer, if required at all , will be obtained.
j. No Default Upon Execution and Performance of
Agreement. The execution, delivery and performance of this Agreement do not, and
the consummation of the transactions contemplated hereby will not: (i) result in
the creation of any lien, charge or encumbrance upon any of the Intek Shares or
any property or assets of Intek, (ii) except as otherwise disclosed in this
Agreement, conflict with, result in any default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under any material
note, mortgage, document, instrument, contract or agreement to which Intek is a
party or by which its properties are bound, or (iii) result in a violation of
any provision of the Articles of Incorporation or Bylaws of Intek.
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k. Litigation. Except as set forth on Schedule 3.k.,
there is no litigation, proceeding (including administrative proceeding) or
other action (including arbitration) pending or, to PPD's Knowledge, threatened
against or relating to Intek or its properties, nor does PPD have Knowledge of
any basis for any such action, or of any governmental investigation relative to
Intek, its properties or business.
l. Licenses, Permits, etc. Schedule 3.l. hereto
accurately lists and reflects all Permits, together with a description of each,
including the terms under which each is held, the date of issuance and the dates
during which each has been continuously in force. All the Permits are valid and
outstanding, and as of the Transfer Date Intek is in compliance in all material
respects with all of the terms and conditions of each Permit held by it. There
are no other Permits required by Intek to lawfully conduct its business. To
PPD's Knowledge, the Transfer of the Intek Shares shall not require that Intek
obtain new or amended Permits to conduct its business as presently being
conducted.
m. Tax Matters.
(1) Filings. Intek has filed all Tax Returns
required to be filed before the Transfer Date. All such Tax Returns were correct
and complete in all material respects. All Taxes owed by Intek (whether or not
shown on any Tax Return) have been paid when due. Intek is not the beneficiary
of any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where Intek does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There are
no security interests on any of the assets of Intek that arose in connection
with any failure (or alleged failure) to pay any Tax.
(2) Withholding. Except as described in
Schedule 3.m., Intek has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(3) Assessments and Disputes; Audit. There
are no assessments or additional Taxes owing for any period for which Tax
Returns have been filed. There is no dispute or claim concerning any Tax
liability of Intek either (i) claimed or raised by any authority in writing or
(ii) as to which any of PPD and the directors and officers (and employees
responsible for Tax matters) of Intek has Knowledge based upon personal contact
with any agent of such authority. PPD has delivered to the Corporation correct
and complete in all material respects copies of all income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by Intek for any Tax periods beginning on or after its incorporation on March
12, 1997.
(4) Statutes of Limitation. Intek has not
waived any statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
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(5) Unpaid Taxes. The unpaid Taxes of Intek
did not, as of November 30, 1998 exceed the estimate for Tax liability set forth
on the face of the November 30, 1998 balance sheet or in notes thereto.
n. Financial Statements. PPD has furnished the
Corporation with true and complete copies of Intek's financial statements for
the year ending December 31, 1997 and the balance sheet and income statement for
the year ending December 31, 1998 (collectively, the "Financial Statements")
which are attached hereto as Schedule 3.n. Intek's Financial Statements: (a)
were prepared from and in accordance with the books and records of Intek; (b)
present fairly the financial condition and results of operation of Intek at the
dates and for the periods indicated therein; and (c) were prepared in accordance
with generally accepted accounting principles applied on a consistent basis
except as otherwise disclosed on Schedule 3.n. There are not and will not be at
the Transfer Date any material adverse changes in the business or in the
condition (financial or otherwise) or the operations or prospects of Intek as a
whole not adequately disclosed on said Financial Statements.
o. Absence of Undisclosed Liabilities. Except as
disclosed on Schedule 3.o., Intek does not have any material liability or
obligation of any nature (whether accrued, fixed, contingent or otherwise),
including any liability to customers or suppliers, which is not fully disclosed,
reflected or adequately reserved against or otherwise provided for in its
Financial Statements. Except as specifically disclosed on Schedule 3.o., Intek
has not incurred since November 30, 1998 any material indebtedness, liabilities,
obligations or liens against its properties or assets.
p. Title to Properties. Except as disclosed in its
Financial Statements and except as listed on Schedule 3.p., Intek has good,
valid and marketable title to all of its respective properties and assets, real
and personal, tangible and intangible, which it purports to own and use in
conducting its business, free and clear of any liens, claims, charges, pledges,
security interests, options to purchase, encumbrances or equitable interests of
any nature whatsoever except for (i) liens for current year taxes not yet due
and (ii) de minimus liens that do not materially detract from or materially
impair the value of the properties, assets or operations of Intek.
q. Condition of Property. All buildings, offices, and
other structures and all machinery, equipment, fixtures, vehicles, and other
tangible personal property owned, leased or used by Intek are and will be on the
Transfer Date in good operating condition and repair, reasonable wear and tear
excepted, and are reasonably adequate and sufficient for all operations
presently conducted by it. Intek has the right to use its properties for all
operations presently conducted by Intek and, to the Knowledge of PPD, the
present uses of its properties are in conformity in all material respects with
applicable zoning provisions and in compliance in all material respects with all
applicable laws, ordinances and regulations, including without limitation,
building codes except where the failure to be in conformity does not result in a
Material Adverse Effect on Intek.
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r. Real Property. Schedule 3.r. accurately lists and
reflects as of the Transfer Date all real property owned, leased or subleased by
Intek, together with a description of the location of such property. PPD
previously has delivered to the Corporation copies of all leases, subleases and
agreements for the rental of real property to which Intek is a party (as lessor
or lessee) or by which its properties or assets may be bound, together with all
amendments and modifications thereto.
s. Personal Property. Schedule 3.s. hereto accurately
lists and reflects in all material respects as of the Transfer Date (i) all of
the equipment of Intek with a fair market value greater than $1,000 including,
without limitation, equipment, machinery, vehicles, office and plant furniture,
furnishings and fixtures, and leasehold improvements; (ii) all other items of
tangible personal property with a fair market value greater than $1,000 owned by
Intek; and (iii) all equipment, machinery, vehicles, office and plant furniture,
furnishings and fixtures, leasehold improvements and all other items of tangible
personal property with a fair market value greater than $1,000 leased by Intek
from or to any third party, together with the location and terms under which
each is leased.
t. Intellectual Property.
(1) Intek owns or is licensed or otherwise
possesses legally enforceable rights to use all Intek Intellectual Property that
is used in the business of Intek as currently conducted by Intek. Schedule 3.t.
lists (i) all patents and patent applications and all registered and
unregistered trademarks, trade names and service marks, registered and
unregistered copyrights, and mask works that are included in the Intek
Intellectual Property, including the jurisdictions in which each such Intek
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements as to which Intek is a party and
pursuant to which any person is authorized to use any Intek Intellectual
Property, and (iii) all licenses, sublicenses and other agreements as to which
Intek is a party and pursuant to which Intek is authorized to use any third
party patents, trademarks or copyrights, including software, which are
incorporated in, are, or form a part of any Intek product or service that is
material to its business.
(2) To the Knowledge of PPD, there is no
material unauthorized use, disclosure, infringement or misappropriation by any
third party (including employees and former employees of Intek) of any Intek
Intellectual Property rights. Intek has not entered into any agreement to
indemnify any other person against any charge of infringement of any Intek
Intellectual Property, other than standard indemnification provisions contained
in contracts arising in the ordinary course of business.
(3) All patents, registered trademarks,
service marks and copyrights held by Intek are valid and subsisting, and, to the
Knowledge of PPD, the marketing, licensing or sale of Intek's products or
services does not infringe any patent, trademark, service mark, copyright, trade
secret or other proprietary right of any third party. Intek has not brought any
action, suit or proceeding for infringement of Intek Intellectual Property or
breach of any license or agreement involving Intek Intellectual Property against
any third party.
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(4) Intek has secured from all consultants
and employees who contributed in a material manner to the creation or
development of Intek Intellectual Property valid written assignments of the
rights to such contributions that Intek does not already own by operation of
law.
(5) All use, disclosure or lawful
appropriation of any Intek Intellectual Property owned by Intek and licensed to
a third party has been licensed pursuant to the terms of a written agreement
between Intek and such third party. All use, disclosure or lawful appropriation
of such Intek Intellectual Property not owned by Intek and licensed from a third
party has been pursuant to the terms of a written agreement between Intek and
the owner of such Intek Intellectual Property, or is otherwise lawful.
u. Certain Employee Matters. Except as set forth on
Schedule 3.u., Intek has complied in all material respects with all applicable
laws, rules and regulations relating to the employment of labor, the violation
of which could have a Material Adverse Effect on Intek. Except as set forth on
Schedule 3.u., there are no controversies pending or, to the Knowledge of PPD,
threatened between Intek and any employee or former employee.
v. Labor Relations; Employee Benefit Plans. None of
the employees of Intek are represented by a labor union, and no petition has
been filed or proceeding instituted with any labor relations boards seeking
recognition of a bargaining representative.
w. Benefit Plans. Schedule 3.w. lists all Benefit
Plans of Intek and all of the Benefit Plans available to Intek employees. Intek
is not obligated to provide any post-retirement welfare benefits to its
employees, including post-retirement health or life insurance coverage. Intek
has fully complied in all material respects with all provisions of ERISA and any
and all other laws, rules, and regulations applicable to the Benefit Plans.
Intek has no material liability under any plan or arrangement that is not
reflected on the Financial Statements of Intek. To the Knowledge of PPD, each of
the Benefit Plans is and has been administered in accordance with its provisions
and applicable law. All contributions, premiums or payments required to be made
with respect to the Benefit Plans have been made on or before their due dates.
x. Environmental Matters. Schedule 3.x. lists all
environmental Permits and approvals related to the business and operations of
Intek. Intek has all necessary environmental Permits and approvals to conduct
its business. Intek has operated, and is presently operating, in compliance in
all material respects with all applicable federal, state, and local
environmental laws, rules and regulations. PPD has no Knowledge or notice of any
existing environmental regulatory requirement with a future compliance date that
will require operational changes or capital expenditure at the facilities owned
by or used by Intek in its business. Except for products and substances which
Intek is authorized by law to use in its business, all of which products and
substances have been and are being properly handled, stored, used and disposed
of in accordance with all applicable laws, regulations and rules, to the
Knowledge of PPD, no "hazardous substance", no petroleum or petroleum products
and no "solid waste", is present, has
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been leaked, spilled, deposited or otherwise released on the real property owned
or used by Intek in its business as a result of Intek's activities. To the
Knowledge of PPD, no "asbestos material", "PCBs" or underground storage tanks
are present on or in the real property owned or used by Intek in its business.
PPD has no Knowledge of any violation by Intek of any environmental laws, rules
and regulations as of the Transfer Date with respect to the real property owned
or used by Intek in its business.
y. Absence of Specified Changes. Since November 30,
1998, there has not been any:
(i) transaction by Intek except in the
ordinary course of business as conducted by Intek through that date;
(ii) capital expenditure or commitment to
make any capital expenditure exceeding $5,000;
(iii) destruction, damage to or loss of any
uninsured assets that are material to the business of Intek;
(iv) change in Intek's accounting methods or
practices;
(v) sale or transfer of any asset of Intek
except in the ordinary course of Intek's business;
(vi) execution, amendment or termination of,
or release or waiver of any right or claim under, any contract or agreement to
which Intek is a party except in the ordinary course of Intek's business;
(vii) increase in any salary or other
compensation payable or to become payable to any Intek officer, director or
employee, or the declaration, payment or commitment to pay any bonus or other
additional salary or compensation to any such person, except such increases,
payments or commitments made in the ordinary course of Intek's business
consistent with prior practices;
(viii) loan by Intek to any person or
guaranty by Intek of any loan;
(ix) mortgage, pledge or encumbrance of any
material assets of Intek;
(x) dividend, distribution or other
inter-company payment by Intek to PPD or any of its affiliates; or
(xi) other event or condition of any
character that has or might reasonably have a Material Adverse Effect on Intek.
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z. Employment Agreements. Schedule 3.z. to the
Agreement is a list of all employment contracts and all bonus, profit-sharing
stock option or other agreements or arrangements (other than Benefit Plans)
providing for employee remuneration or benefits to any and all Intek employees.
All such contracts are in full force and effect and neither Intek nor any
employee is in default thereunder. Intek has previously delivered to the
Corporation a true, correct and complete list stating the rates of compensation
and other material benefits (including stock options) presently being paid or
given to all Intek employees.
aa. Accounts. Schedule 3.aa. lists (i) the names and
addresses of all banks and other financial institutions in which Intek has an
account, deposit or safe-deposit box, together with the names of all persons
authorized to draw on these accounts or deposits or who have access to these
boxes, and (ii) the names and addresses of all persons holding a power of
attorney on behalf of Intek.
bb. No Disputes. There are no presently existing or
threatened disputes pertaining or related to PPD's acquisition of Intek.
cc. Full Disclosure. None of the representations and
warranties made by PPD contains or will contain any untrue statement of a
material fact or omits any material fact the omission of which would make the
statements made misleading.
dd. As of the Transfer Date, all of the directors of
Intek Labs have resigned and new directors of Intek Labs selected by the
Corporation have been duly and validly appointed.
4. Representations, Warranties and Covenants of the
Corporation. The Corporation represents and warrants to PPD and covenants with
PPD that as of the Transfer Date:
a. Organization and Standing of the Corporation. The
Corporation is duly organized and validly existing and has complied with all
requirements to continue its existence under the laws of the State of Delaware,
and has the corporate power and authority to own, lease and use its properties
and to transact its business where and as now conducted.
b. Execution and Delivery Authorized. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by the board of
directors of the Corporation.
c. Validity of Agreement. The execution and
performance of this Agreement and the actions provided for or contemplated
hereunder will not violate the provisions of any agreement, instrument or
obligation to which the Corporation is a party or by which it is bound. Assuming
due authorization, execution and delivery hereof by PPD, this Agreement
constitutes the valid and binding agreement of the Corporation, enforceable
against the Corporation in accordance with its terms, subject as to
enforceability to general equitable principles and to the laws of bankruptcy,
insolvency or similar laws governing the rights of creditors.
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d. Access and Information. The Corporation and its
representatives have been afforded full and free access to Intek's financial
statements and other information concerning Intek and the Corporation has been
afforded an opportunity to ask such questions of Intek's officers, employees,
agents, accountants and representatives concerning Intek's business, prospects,
operations, financial condition, assets, liabilities and other relevant matters,
including the rights, preferences and limitations of the Intek Shares, as the
Corporation deems necessary or desirable and has been given all such information
as has been requested, in order to evaluate the merits and risks associated with
holding the Intek Shares. The Corporation has conducted its own "due diligence"
investigation of Intek and its management and business, and its own analysis of
the merits and risks of holding the Intek Shares, and its own analysis of the
fairness and desirability of the terms governing the transfer of the Intek
Shares. The Corporation is familiar with the business conducted by Intek on and
has such knowledge and experience in financial and business matters that the
Corporation is capable of evaluating the merits and risks of the transfer of the
Intek Shares pursuant to the terms of this Agreement and of protecting the
Corporation's interests in connection therewith.
e. Investment Intent of the Corporation. The Intek
Shares are being acquired by the Corporation for its own account and not with a
view to, or for resale in connection with, any distribution or public offering
thereof within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). The Corporation understands that the Intek Shares have not
been, and will not be, registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act, that Intek has no present intention of registering the Intek
Shares, that the Intek Shares must be held by the Corporation indefinitely, and
that the Corporation must therefore bear the economic risk associated with
holding the Intek Shares indefinitely, unless a subsequent disposition thereof
is exempt from registration. The Corporation is able to bear the economic risk
of holding the Intek Shares pursuant to the terms of this Agreement. Each
certificate evidencing the Intek Shares shall be endorsed with the following
legend:
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT COVERING SUCH SHARES, AND APPLICABLE STATE
SECURITIES LAW, OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION THAT THE TRANSACTION DOES NOT
VIOLATE FEDERAL OR STATE SECURITIES LAWS.
The Corporation acknowledges that no public market now exists for the Intek
Shares and that there can be no assurance that any public market will exist in
the future. The Corporation understands
12
<PAGE>
that the Intek Shares will constitute "restricted securities", and under the
Securities Act and applicable regulations the Intek Shares may be resold without
registration under the Securities Act only in certain limited circumstances. In
this connection, the Corporation represents that it is familiar with Rule 144
under the Securities Act and understands the resale limitations imposed thereby
and the Securities Act.
f. Accredited Investor Status. The Corporation
represents and warrants that it is an "accredited investor" as defined in Rule
501 of Regulation D of the Securities Act.
5. Indemnification. Notwithstanding anything in this Agreement
to the contrary and subject to a time limit of eighteen (18) months following
the Transfer Date, PPD shall indemnify, defend, and hold harmless the
Corporation, its affiliates, successors and assigns from and against all General
Losses of the Corporation. Notwithstanding anything in this Agreement to the
contrary and subject to a time limit of eighteen (18) months following the
Transfer Date, the Corporation shall indemnify, defend, and hold harmless PPD,
its affiliates, successors and assigns from and against all General Losses of
PPD.
6. Governing Law. This Agreement shall be governed by and
shall be construed in accordance with the laws of the State of Delaware.
7. Entire Agreement. This Agreement contains the entire
understanding between the parties and supersedes any prior understandings or
agreements between them affecting the subject matter. No changes, alterations,
amendments, modifications, additions or qualifications to the terms of this
Agreement shall be made or be binding unless made in writing and signed by each
of the parties.
8. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at their respective addresses first set forth above (or at such other address
for a party as shall be specified by like notice.
9. Binding Effect. This Agreement shall be binding upon, and
inure to the benefit of, the parties, their heirs, legal representatives,
successors and permitted assigns.
10. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement.
11. Entire Agreement. This Agreement, together with the
recitals, exhibits and schedules, contains the entire understanding of the
parties hereto with respect to the transactions contemplated herein, and any
prior agreements or understandings, whether oral or written, are entirely
superseded hereby.
13
<PAGE>
12. Documentation. The parties agree to execute and/or provide
any and all other documents, instruments, or other papers and to conduct such
transactions as may be reasonably necessary or desirable to effectuate the
provisions of this Agreement.
13. Survival of Representations, Warranties, Covenants.
Notwithstanding any investigation by either party or any knowledge of facts
uncovered pursuant to any such investigation, each party shall have the right to
rely fully upon the representations, warranties, covenants, conditions and
agreements of the other party contained in this Agreement. All such
representations, warranties, covenants, conditions and agreements contained in
this Agreement shall survive the Transfer for a period of eighteen (18) months
from the Transfer Date.
IN WITNESS WHEREOF, the Corporation and PPD have caused this Agreement
to be executed and delivered by their respective officers, duly authorized, all
as of the date first written above.
PHARMACEUTICAL PRODUCT DEVELOPMENT,
INC.
By: /s/ Fredric N. Eshelman
---------------------------
Name: Fredric N. Eshelman
---------------------------
Title: CEO
---------------------------
PPGx, INC.
By: /s/ Natalie J. Walker
---------------------------
Name: Natalie J. Walker
---------------------------
Title: CEO & President
---------------------------
ASSIGNMENT AND ASSUMPTION OF LICENSE AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION OF LICENSE AGREEMENT
("Agreement") is made to be effective as of this 1st day of February, 1999, by
and between PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina
corporation ("PPD") and PPGx, INC., a Delaware corporation (the "Corporation").
This Agreement is made pursuant and subject to the terms, covenants and
conditions of that certain Stock Purchase Agreement dated February 1, 1999 by
and between PPD and the Corporation (the "Purchase Agreement"). All capitalized
terms used but not defined herein shall have the same meanings assigned to them
in the Purchase Agreement.
RECITALS
WHEREAS, PPD is a party to that certain Software License
Agreement as more fully described on Exhibit A attached hereto and incorporated
herein by reference (the "License Agreement"); and
WHEREAS, in partial consideration for the purchase price to be
paid to the Corporation for issuance of the Shares to PPD pursuant to the
Purchase Agreement, PPD has agreed to assign and transfer the License Agreement
to the Corporation, and the Corporation has agreed to accept such assignment and
to assume PPD 's obligations thereunder pursuant and subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual promises and covenants set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, PPD and the Corporation hereby covenant and agree
as follows:
1. Assignment of License Agreement. PPD hereby exchanges,
transfers, conveys and assigns unto the Corporation, its successors and assigns,
all of PPD 's right, title and interest in and to the License Agreement and all
of PPD's rights and benefits thereunder. PPD delivers herewith to the
Corporation the original License Agreement, or a true copy thereof, and all
amendments thereto.
2. Assumption of Obligations. The Corporation hereby
undertakes, assumes and agrees to perform, pay and discharge in a timely manner
all of the duties, responsibilities and obligations of PPD under the License
Agreement (collectively, the "Assumed Obligations").
3. No Representation or Warranty by PPD. Notwithstanding any
provision herein or in the Purchase Agreement to the contrary, PPD makes no
representation or warranty, express or implied, with respect to the License
Agreement or regarding the validity or enforceability of the License Agreement
or any of its rights or obligations thereunder.
<PAGE>
4. Consent to Transfer; Novation. Axys Pharmaceuticals, Inc.,
a Delaware Corporation, hereby joins as a party to this Agreement to evidence
its consent to the assignment and assumption of the License Agreement to and by
the Corporation pursuant to this Agreement. In consideration of such assumption
by the Corporation, Axys further hereby releases and discharges PPD from any
further liability under the License Agreement, it being understood that this
Agreement constitutes a novation as to PPD and a substitution of the Corporation
in place of PPD as a party to the License Agreement.
5. Miscellaneous. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware. The
obligations of the parties hereto shall be binding upon each of them and their
respective successors, legal representatives and assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered through their duly authorized officers effective as of
the day and year first written above.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
Name: Fredric N. Eshelman
Title: CEO
PPGx, INC.
By: /s/ Natalie J. Walker
Name: Natalie J. Walker
Title: CEO & President
AXYS PHARMACEUTICALS, INC.
By: /s/ John P. Walker
Name: John P. Walker
Title: Chairman / CEO
CREDIT AND SECURITY AGREEMENT
BETWEEN
APPLIED BIOSCIENCE INTERNATIONAL INC.
(LENDER)
AND
ENVIRON HOLDINGS, INC.,
AND
APBI ENVIRONMENTAL SCIENCES GROUP, INC.
(BORROWER)
DATED AS OF FEBRUARY 2, 1999
(EFFECTIVE DATE)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
ARTICLE I CONSTRUCTION AND DEFINED TERMS............................................................1
SECTION 1.01.Articles and Sections..............................................................1
SECTION 1.02.Exhibits and Schedules.............................................................1
SECTION 1.03.Credit Documents...................................................................1
SECTION 1.04.Discretionary Consents.............................................................1
SECTION 1.05.Accounting Terms...................................................................1
SECTION 1.06.Time...............................................................................1
SECTION 1.07.Defined Terms......................................................................1
ARTICLE II-A CREDIT FACILITY - REVOLVING CREDIT LOANS..............................................23
SECTION 2A.01. Revolving Credit Loans.......................................................23
SECTION 2A.02. Requests.....................................................................23
SECTION 2A.03. Covenant to Pay; Revolving Credit Notes.....................................24
SECTION 2A.04. Interest Payments............................................................24
SECTION 2A.05. Principal Payments...........................................................24
SECTION 2A.06. Collateral Account Payments..................................................24
SECTION 2A.07. Use of Revolving Credit Loan Proceeds........................................25
ARTICLE II-B CREDIT FACILITY - TERM LOAN...........................................................25
SECTION 2B.01. Term Loan....................................................................25
SECTION 2B.02. Covenant to Pay; Term Note..................................................25
SECTION 2B.03. Payment Schedule.............................................................25
SECTION 2B.04. Use of Term Loan Proceeds....................................................25
ARTICLE II-C CREDIT FACILITY - LETTERS OF CREDIT...................................................26
SECTION 2C.01. Letter of Credit Applications................................................26
SECTION 2C.02. Letter of Credit Expiry Dates................................................26
SECTION 2C.03. Letter of Credit Fees........................................................26
SECTION 2C.04. Letter of Credit Reserves....................................................26
SECTION 2C.05. Payments on Letters of Credit................................................26
SECTION 2C.06. Instruction to Pay; Indemnification..........................................27
SECTION 2C.07. Use of Letters of Credit.....................................................29
SECTION 2C.08. Letters of Credit Denominated in Other Than U.S. Dollars.....................29
ARTICLE II-D CREDIT FACILITY - GENERAL CREDIT PROVISIONS...........................................29
SECTION 2D.01. Lender Records...............................................................29
SECTION 2D.02. Computation of Interest......................................................29
SECTION 2D.03. Late Charges; Default Interest...............................................29
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SECTION 2D.04. Commitment Fee.....................................ERROR! BOOKMARK NOT DEFINED
SECTION 2D.05. Unused Credit Fee............................................................30
SECTION 2D.06. Mandatory Additional Payments................................................30
SECTION 2D.07. Prepayments..................................................................30
SECTION 2D.08. Manner of Payments...........................................................30
SECTION 2D.09. Application of Payments......................................................30
SECTION 2D.10. Capital Adequacy.............................................................31
SECTION 2D.11. Rate Adequacy................................................................31
SECTION 2D.12. Regulatory Change............................................................31
SECTION 2D.13. Designation of Agent and Attorney-in-Fact....................................32
SECTION 2D.14. Net Payments.................................................................32
ARTICLE II-E CREDIT FACILITY - CONDITIONS..........................................................33
SECTION 2E.01. Fulfillment of Conditions....................................................33
SECTION 2E.02. Conditions to all Loans and Letters of Credit................................33
SECTION 2E.03. Conditions to Term Loan......................................................34
SECTION 2E.04. Conditions to All Revolving Credit Including the Initial Revolving Credit....36
ARTICLE III REPRESENTATIONS AND WARRANTIES.........................................................37
SECTION 3.01.Conditions........................................................................37
SECTION 3.02.Existence.........................................................................37
SECTION 3.03.Action............................................................................38
SECTION 3.04.Approvals.........................................................................38
SECTION 3.05.Ownership.........................................................................38
SECTION 3.06.Subsidiaries......................................................................38
SECTION 3.07.Financial Statements..............................................................39
SECTION 3.08.Solvency..........................................................................39
SECTION 3.09.Investments.......................................................................39
SECTION 3.10.Deposit Accounts..................................................................39
SECTION 3.11.Indebtedness......................................................................39
SECTION 3.12.Liens.............................................................................40
SECTION 3.13.Material Agreements...............................................................40
SECTION 3.14.Legal Proceedings.................................................................40
SECTION 3.15.Accounts..........................................................................40
SECTION 3.16.Insurance.........................................................................40
SECTION 3.17.Intellectual Property.............................................................40
SECTION 3.18.Special Property..................................................................41
SECTION 3.19.Margin Stock......................................................................41
SECTION 3.20.Tax Identification Numbers........................................................41
SECTION 3.21.Business..........................................................................41
SECTION 3.22.Name, Structure...................................................................41
SECTION 3.23.Designated Locations..............................................................41
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SECTION 3.24.Labor Status......................................................................41
SECTION 3.25.ERISA Status......................................................................42
SECTION 3.26.Environmental Status..............................................................44
SECTION 3.27.Investment Company Act............................................................45
SECTION 3.28.Public Utility Holding Company Act.(Omitted)......................................45
SECTION 3.29.Commercial Loan...................................................................45
SECTION 3.30.No Broker.........................................................................45
SECTION 3.31.Obligor Information...............................................................46
SECTION 3.32.Independent Access................................................................46
SECTION 3.33.Taxes.............................................................................46
SECTION 3.34.Applicable Laws...................................................................46
SECTION 3.35.Risk Management Agreements........................................................46
SECTION 3.36.Year 2000 Issues..................................................................46
SECTION 3.37.Direct Obligation; Full Faith and Credit..........................................46
SECTION 3.38.No Recordation Necessary..........................................................47
SECTION 3.39.Wages, Severance Pay, Etc.........................................................47
SECTION 3.40.Stock Purchase Agreement..........................................................47
SECTION 3.41.On-Going Business. (Omitted).....................................................47
SECTION 3.42.Regulation O. (Omitted)........................................................47
ARTICLE IV AFFIRMATIVE COVENANTS...................................................................47
SECTION 4.01.Information.......................................................................47
SECTION 4.02.Reporting Notification Events.....................................................49
SECTION 4.03.Existence.........................................................................49
SECTION 4.04.Places of Business................................................................49
SECTION 4.05.Property..........................................................................49
SECTION 4.06.Insurance.........................................................................50
SECTION 4.07.Taxes.............................................................................50
SECTION 4.08.Compliance with Laws..............................................................51
SECTION 4.09.Material Agreements...............................................................51
SECTION 4.10.Permitted Indebtedness............................................................51
SECTION 4.11.Maintenance of Primary Account.(Omitted)..........................................51
SECTION 4.12.Credit Administration Costs; Brokers.............................................51
SECTION 4.13.Review and Audit..................................................................51
SECTION 4.14.Rate Hedging......................................................................51
SECTION 4.15.Use of Loan Proceeds..............................................................52
SECTION 4.16.ERISA and Related Matters.........................................................52
SECTION 4.17.Environmental Matters.............................................................52
SECTION 4.18.Year 2000 Compatibility...........................................................53
SECTION 4.19.Consolidated Funded Debt to EBITDA................................................53
SECTION 4.20.Senior Funded Debt to EBITDA......................................................53
SECTION 4.21.Net Worth.........................................................................53
SECTION 4.22.Debt Service Coverage.............................................................54
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SECTION 4.23.Negative Net Income...............................................................54
SECTION 4.24.Key Principals....................................................................54
ARTICLE IV-A ADDITIONAL SECURITY PROVISIONS........................................................54
SECTION 4A.01. Security Interest............................................................54
SECTION 4A.02. Chattel Paper and Instruments................................................56
SECTION 4A.03. Borrower's Collection Privileges.............................................57
SECTION 4A.04. Collateral Account...........................................................57
SECTION 4A.05. Lock-Box.....................................................................57
SECTION 4A.06 Additional Collateral........................................................57
SECTION 4A.07 Further Assurances of Collateral.............................................57
ARTICLE V NEGATIVE COVENANTS.......................................................................58
SECTION 5.01.Restricted Payments...............................................................58
SECTION 5.01.Investments.......................................................................58
SECTION 5.02.Indebtedness......................................................................58
SECTION 5.03.Maintenance of Permitted Indebtedness.............................................58
SECTION 5.04.Judgments.........................................................................58
SECTION 5.05.Selling Shareholder Transactions; Affiliate Transactions..........................58
SECTION 5.07.Line of Business; Name; Structure.................................................59
SECTION 5.08.Stock.............................................................................59
SECTION 5.09.Dividends; Distributions; Repurchases.............................................59
SECTION 5.10.Subsidiaries......................................................................59
SECTION 5.11.Control...........................................................................59
SECTION 5.12.Consolidations; Mergers; Dispositions; Acquisitions...............................59
SECTION 5.13.Liens; Bailments; Certain Sales...................................................60
SECTION 5.14.Risk Management Agreements........................................................60
ARTICLE VI EVENTS OF DEFAULT; CERTAIN REMEDIES UPON DEFAULT.......................................60
SECTION 6.01.Events of Default.................................................................60
SECTION 6.02.Acceleration......................................................................63
SECTION 6.03.Other Remedies....................................................................63
SECTION 6.04.Receiver..........................................................................65
SECTION 6.05.Waivers...........................................................................65
SECTION 6.06.Arbitration.......................................................................66
ARTICLE VII MISCELLANEOUS..........................................................................67
SECTION 7.01.Further Assurances................................................................67
SECTION 7.02.Successors and Assigns............................................................67
SECTION 7.03.Severability......................................................................67
SECTION 7.04.Governing Law.....................................................................68
SECTION 7.05.Jurisdiction; Venue; Service......................................................68
SECTION 7.06.Counterparts......................................................................68
SECTION 7.07.Survival..........................................................................68
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SECTION 7.08.Notices...........................................................................69
SECTION 7.09.Lender Appointed Attorney-in-Fact.................................................69
SECTION 7.10.Remedies Cumulative...............................................................70
SECTION 7.11.Amendments, Waivers and Consents..................................................70
SECTION 7.12.Waivers of Claims; Consequential and Punitive Damages.............................70
SECTION 7.13.No Third Party Beneficiaries......................................................70
SECTION 7.14.Entire Agreement..................................................................71
SECTION 7.16.WAIVER OF JURY TRIAL..............................................................71
SECTION 7.17.Judgment Currency.................................................................71
SECTION 7.18.Waiver of Immunity................................................................72
SECTION 7.19.Publicity.........................................................................72
</TABLE>
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<PAGE>
SCHEDULES
SCHEDULE 3.05 Ownership Disclosure
SCHEDULE 3.09 Investment Disclosure
SCHEDULE 3.10 Deposit Accounts Disclosure
SCHEDULE 3.11 Indebtedness Disclosure
SCHEDULE 3.12 Lien Disclosure
SCHEDULE 3.13 Material Agreements Disclosure
SCHEDULE 3.14 Proceedings Disclosure
SCHEDULE 3.16 Insurance Disclosure
SCHEDULE 3.17 Intellectual Property Disclosure
SCHEDULE 3.18 Special Property Disclosure
SCHEDULE 3.19 Margin Stock Disclosure
SCHEDULE 3.20 Tax Identification Number Disclosure
SCHEDULE 3.21 Business Disclosure
SCHEDULE 3.22 Name, Structure Disclosure
SCHEDULE 3.23 Designated Locations Disclosure
SCHEDULE 3.24 Labor Disclosure
SCHEDULE 3.25 ERISA Disclosure
SCHEDULE 3.25A UK Plan Disclosure
SCHEDULE 3.26 Environmental Disclosure
SCHEDULE 3.35 Risk Management Agreements Disclosure
SCHEDULE 3.39 Benefits Disclosure
SCHEDULE 3.43 Principals Disclosure
SCHEDULE I
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<PAGE>
CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT made as of the 2nd day of February, 1999, (the
"EFFECTIVE DATE") among APPLIED BIOSCIENCE INTERNATIONAL INC. , ("LENDER");
ENVIRON HOLDINGS, INC., a Delaware corporation ("EHI"); and APBI ENVIRONMENTAL
SCIENCES GROUP, INC.), a Virginia corporation ("US CORPORATION").
In consideration of the mutual promises herein contained, the parties
intending to be legally bound agree as follows:
ARTICLE I
CONSTRUCTION AND DEFINED TERMS
SECTION 1.01. ARTICLES AND SECTIONS. The Article and Section headings
and captions in this Agreement are for convenience only and shall not affect the
construction or interpretation of this Agreement. The references in this
Agreement to Articles and Sections shall be read as Articles or Sections of this
Agreement unless otherwise specifically provided.
SECTION 1.02. EXHIBITS AND SCHEDULES. The references in this Agreement
to specific Exhibits and Schedules shall be read as references to such specific
Exhibits and Schedules attached, or intended to be attached, to this Agreement
and any counterpart of this Agreement and regardless of whether they are in fact
attached to this Agreement, and including any amendments, supplements, and
replacements thereto from time to time.
SECTION 1.03. CREDIT DOCUMENTS. References in this Agreement to Credit
Documents, and any of the documents that are included within the definition of
Credit Documents, shall include such amendments, supplements, and replacements
as may be made thereto or therefor from time to time.
SECTION 1.04. DISCRETIONARY CONSENTS. Wherever a provision of this
Agreement or any other Credit Document provides for Lender's consent, any such
consent may be provided or withheld in Lender's reasonable discretion (unless
otherwise expressly provided herein or in such other Credit Document) and the
granting of consent in one instance shall not constitute or imply the granting
of consent in any similar or other instance.
SECTION 1.05. ACCOUNTING TERMS. Accounting terms used but not otherwise
defined in this Agreement shall have the meanings provided by, and be construed
in accordance with, GAAP.
SECTION 1.06. TIME. Time is of the essence of this Agreement.
SECTION 1.07. DEFINED TERMS. Unless otherwise expressly stated in this
Agreement, capitalized terms used in this Agreement shall have the following
meanings:
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<PAGE>
"ACCOUNT DEBTOR" Any Person as to whom any Borrower is a
creditor, and including any person obligated to any Borrower pursuant to any
Account, Instrument, Chattel Paper, General Intangible, Document, Investment
Property, charter or lease, and including any guarantor, endorser, or surety of
any of the foregoing Property, and any Person that provides security for any of
the foregoing Property, and any maker or endorser of any Item of Payment given
to Debtor other than cash.
"ACCOUNTS" As defined in Section 4A.01.
"ACQUISITION LOAN". The acquisition loan referred to in
Article II-B of this Agreement.
"ADDITIONAL LIBOR COSTS" Costs that Lender determines are
attributable to Lender's making or maintaining Loans based upon the LIBOR Rate
or its obligation to make Loans based upon the LIBOR Rate under this Agreement,
or any reduction in any amount receivable by Lender under this Agreement in
respect of any such Loans or such obligation.
"AFFILIATE" means, as to any Person, any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person, and including any Subsidiary of such Person.
For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such Person, whether through ownership of voting securities, by
agreement or otherwise; provided that legal or beneficial ownership of thirty
percent (30%) or more of the voting securities (or other ownership interests
other than limited partnership interests) of a Person shall in any event be
deemed to be control.
"APPLICABLE LAW" As to any Person, all Laws applicable to such
Person and all Laws applicable to any Property of such Person.
"APPLICABLE REVOLVING CREDIT LOAN INTEREST RATE" The floating
and fluctuating interest rate per annum at all times equal to the LIBOR Market
Index Rate plus the Applicable Revolving Credit Loan Margin. The Applicable
Revolving Credit Loan Interest Rate shall increase or decrease, as the case may
be, with increases and decreases in the LIBOR Market Index Rate.
"APPLICABLE REVOLVING CREDIT LOAN MARGIN" Two percent (2.00%)
per annum.
"APPLICABLE TERM LOAN INTEREST RATE" The floating and
fluctuating interest rate per annum at all times equal to the LIBOR Rate plus
the Applicable Term Loan Margin. At the commencement of each Interest period,
the Applicable Term Loan Interest Rate shall increase or decrease, as the case
may be, with increases and decreases in the LIBOR Rate.
-2-
<PAGE>
The Applicable Term Loan Interest Rate shall remain in effect, subject to the
provisions of this Agreement, from and including the first day of the Interest
Period to and excluding the last day of the Interest Period for which it is
determined.
"APPLICABLE TERM LOAN MARGIN" As set forth in the following
schedule:
-------------------------------------- ------------------------------------
CONSOLIDATED FUNDED DEBT TO EBITDA APPLICABLE TERM LOAN MARGIN
-------------------------------------- ------------------------------------
=> 4.0:1 235 basis points
-------------------------------------- ------------------------------------
=> 3.0:1, but < 4.0:1 225 basis points
-------------------------------------- ------------------------------------
=> 2.5:1, but < 3.0:1 215 basis points
-------------------------------------- ------------------------------------
<2.5:1 175 basis points
-------------------------------------- ------------------------------------
"ARTICLE 8" Article 8 of the UCC.
"ARTICLE 9" Article 9 of the UCC.
"ARTICLES OF INCORPORATION" As to any corporation, the
Articles of Incorporation or Certificate of Incorporation, or similar charter
document, and all amendments thereto.
"AVAILABLE LETTER OF CREDIT AMOUNT" The amount equal to the
lesser of (a) the Letter of Credit Maximum Amount, or (b) the Available
Revolving Credit Amount.
"AVAILABLE REVOLVING CREDIT AMOUNT" As of any date of
determination, the amount equal to (a) the Revolving Credit Committed Amount
less (b) the aggregate of the outstanding principal balances of any Revolving
Credit Loans and the aggregate face amounts of any outstanding Letters of
Credit.
"LENDER ACCOUNTS" As defined in Section 4A.01.
"BORROWER" or "BORROWERS" EHI and US Corporation, individually
or collectively.
"BORROWER GROUP" The Borrowers and their Consolidated
Subsidiaries.
"BORROWER GROUP AGENT" As defined in Section 2D.13.
"BUSINESS DAY" Any day other than a Saturday, Sunday or legal
holiday on which Lender is open for the transaction of a substantial part of its
business.
"CAPITAL ADEQUACY REQUIREMENT" Any law, rule, regulation or
guideline regarding capital adequacy (including any law, rule, regulation or
guideline adopted pursuant to or arising out of the report of the Basle
Committee on Lending Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards"
-3-
<PAGE>
dated July 1988 (as amended, modified and supplemented and in effect from time
to time or any replacement thereof)), or the adoption or implementation of any
Regulatory Change regarding capital adequacy, or any change in the
interpretation or administration of any thereof by any Governmental Authority
charged with the interpretation or administration thereof, or compliance by
Lender (or Lender's holding company) with any request or directive, regarding
capital adequacy (whether or not having the force of law) of any Governmental
Authority.
"CAPITAL EXPENDITURE" For any Person, expenditures (including
the aggregate amount of Capital Lease Obligations incurred during such period)
made by such Person to acquire, use, or construct fixed assets, plant or
equipment (including office equipment, software, hardware and other computer
equipment), or Real Estate Property and including renewals, improvements and
replacements, but excluding repairs, computed in accordance with GAAP.
"CAPITAL LEASE OBLIGATIONS" For any Person, all obligations of
such Person to pay rent or other amounts under a lease of Property, or other
agreement conveying the right to use Property, to the extent such obligations
are required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP, and, for purposes of this Agreement, the amount
of such obligations shall be the capitalized amount thereof, determined in
accordance with GAAP. Notwithstanding the foregoing, Capital Lease Obligations
shall also include so-called synthetic leases that would not otherwise be
classified as capital leases under GAAP and the amount of such obligations shall
be the capitalized amount thereof determined as though such obligations were
classified as capital leases under GAAP.
"CHANGE OF CONTROL" A change in the power to direct or cause
the direction of the management or policies of any Obligor, whether through
ownership of voting securities, by agreement or otherwise. Without limiting the
generality of the foregoing, each of the following shall be deemed to constitute
a Change in Control: (a) a change in the legal or beneficial ownership of fifty
percent (50%) or more of the voting securities (or other ownership interests
other than limited partnership interests) of any Obligor, or (b) except as
contemplated in the Shareholder Agreement, if any Obligor is a corporation, the
replacement of a majority of the Board of Directors of such Obligor from the
Directors who constituted the Board of Directors of such Obligor on the later of
(i) the date of election of the original Board of Directors of such Obligor, or
(ii) the Effective Date, or (c) if any Obligor is a partnership or limited
liability company, the replacement of the managing general partner or managing
member, as the case may be, or (d) the sale, transfer, or other disposition of
all or substantially all of such Obligor's assets in one or a series of
transactions to the extent such sale, transfer or other disposition constitutes
a material portion of Borrower Group's business..
"CHATTEL PAPER" As defined in Section 4A.01.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" As defined in Section 4A.01.
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"COLLATERAL ACCOUNT" A non-interest bearing deposit account,
or at Lender's election, an interest-bearing deposit account, , controlled by
Lender, into which Items of Payment processed through the Lock-Box or otherwise
received by any Borrower or Lender are to be deposited after an Event of Default
and demand by Lender.
"COLLECTION COSTS" All commercially reasonable costs and
expenses of administering and enforcing this Agreement and the other Credit
Documents, and including any and all costs and expenses of collecting the
Obligations and exercising Lender's rights and remedies under the Credit
Documents as against the Collateral and any other Property intended by this
Agreement and the other Credit Documents to be given to Lender as security for
the Obligations.
"CONSOLIDATED" When used with reference to the Consolidated
financial statements of the Borrower Group, shall mean the financial statements
of EHI and its Consolidated Subsidiaries as consolidated in accordance with
GAAP, after the elimination of inter-company items.
"CONSOLIDATED FUNDED DEBT" The sum of all indebtedness for
borrowed money, including, without limitation, capital lease obligations,
subordinated debt (including debt subordinated to Lender), and unreimbursed
drawings under letters of credit, or any other monetary obligation evidenced by
a note, bond, debenture or other agreement of that person or entity.
"CONSOLIDATED SUBSIDIARIES" Any Person the assets and
liabilities of which are required to be consolidated with those of any Borrower
in its consolidated financial statements in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" The sum of the following in
respect of the Borrower Group (on a consolidated basis and excluding
intercompany items): (i) the amount of issued and outstanding share capital,
plus (ii) the amount of additional paid-in-capital and retained income (or, in
the case of a deficit, minus the amount of such deficit), minus (iii) the sum of
the following (without duplication of deductions in respect of items already
deducted in arriving at surplus and retained earning): the book value of all
assets which would be treated as intangibles under the generally accepted
accounting principles and practices in the United States of America including,
without limitation, capitalized expenses, goodwill, trademarks, trade names,
franchises, copyrights, patents and unamortized debt discount and expenses.
"CREDIT COMMENCEMENT DATE" The Effective Date.
"CREDIT DOCUMENT" or "CREDIT DOCUMENTS" This Agreement, the
Notes, each Pledge Agreement, each Seller Subordination Agreement, each UK
Credit Document, and each and every other agreement (of any kind), promissory
note, instrument, allonge, letter of
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credit application, assignment, certificate, guaranty, indemnity, bond,
financing statement, annex, exhibit, schedule, notice, request or other document
that evidences, secures, guarantees or otherwise relates directly or indirectly
to the Obligations or Lender's rights and remedies with respect thereto, or that
is given to Lender to induce Lender to make, issue or extend the Obligations or
any thereof. "Credit Document" shall not include any swap agreement (as defined
in 11 U.S.C. ss.101.
"CREDIT TERMINATION DATE" March 1, 2002, as the same may be
extended with respect to the Revolving Credit Loans pursuant to this Agreement.
"DEFAULT" Any event, occurrence, circumstance, act, or failure
to act which is or with the giving of notice and/or the passage of time would
become an Event of Default.
"DEFAULT RATE" As applicable to any Loan, the interest rate
per annum that is three percent (3.00%) per annum greater than the interest rate
that would be applicable to such Loan prior to the occurrence of an Event of
Default.
"DEPOSITARY LENDER" The Lender and each other Lender or other
financial institution at which any Borrower has a deposit account or a
securities account or a Lender Account.
"DEPOSITARY LENDER AGREEMENT" A written agreement,
satisfactory to Lender in form and substance, among Borrower, Lender and a
Depositary Lender.
"DESIGNATED LOCATION" Any place of business or other location
for each Borrower Group member listed on Schedule 3.23.
"DISCLOSURE LETTER" The disclosure letter delivered by Selling
Shareholders to EHI pursuant to and concurrently with the Stock Purchase
Agreement.
"DOCUMENTS" As defined in Section 4A.01.
"DOLLARS" The lawful currency of the United States of America.
"EAGL" Environmental Assessment Group Limited, a private
company limited by shares incorporated in England and Wales, which, upon
consummation of the purchase of the Shares, shall be wholly owned by EHI.
"EBITDA" For any period, on a rolling four (4) quarter period
basis, the consolidated net income of the Borrower Group for such period, after
all expenses and other proper charges, except interest, depreciation,
amortization and income taxes, determined in accordance with GAAP, and net of
incentive compensation, and eliminating, without duplication: (i) all
intercompany items, (ii) all earnings attributable to equity interests in
persons that are not subsidiaries unless actually received by the Borrower
Group, (iii) all income arising from the forgiveness, adjustment, or negotiated
settlement of any indebtedness (except for the
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recovery of trade account receivables previously charged off directly against
income in the ordinary course of business not to exceed three percent (3%) of
EBITBA for such period), (iv) any extraordinary items of income or expense, (v)
any increase or decrease in income arising from any change in the Borrower
Group's method of accounting, and (vi) any interest income.
"EHI PRINCIPALS" Mitchell B. Smith, Joseph H. Highland, Ph.D.,
and the other individuals listed in Schedule 3.43, who are residents of the
United States and management employees of the U.S. Corporation as of the
Effective Date and are the sole shareholders of EHI.
"EIL" Environ International Limited, a private company limited
by shares incorporated in England and Wales, which, upon consummation of the
purchase of the Shares, shall be wholly owned by EHI.
"EFFECTIVE DATE" The Effective Date as set forth on the first
page of this Agreement.
"ENVIRONMENTAL AFFILIATE" As to any Person (referred to in
this definition as the "successor"), any other Person whose liability
(contingent or otherwise) for an Environmental Claim the successor has retained,
assumed or otherwise become or remained liable for, whether by contract,
operation of law or otherwise.
"ENVIRONMENTAL CLAIM" With respect to any Person, any written
notice, claim, suit, order, information request, demand or other communication
(referred to in this definition collectively as a "claim") by any other Person
alleging, asserting or relating to such first Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (i) the presence, release, or
threatened release into the environment, of any Regulated Substance at any
location, whether or not owned by such Person, or (ii) circumstances forming the
basis of any liability or violation under any Environmental Law. Environmental
Claim shall include any claim by any governmental authority or other person for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Regulated Substances or arising
from alleged injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAWS" Any statute, regulation, rule, permit,
code, common law, judicial decision, order or judgment of any applicable
federal, state, local or foreign jurisdiction relating to pollution, hazardous
substances, hazardous wastes, petroleum or otherwise relating to protection of
the environment, natural resources or human health, including, by way of example
and not by way of limitation, the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), the Toxic Substances
Control Act, and the Emergency Planning and Community Right-to-Know Act, all as
amended.
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"ENVIRONMENTAL PERMITS" All registrations, licenses, permits,
authorizations and approvals that are required by any Environmental Laws or any
Governmental Authority responsible for the administration of any Environmental
Laws, including any necessary National Pollution Discharge Elimination System
Permits.
"ERISA" The Employee Retirement Income Security Act of 1974
and the regulations promulgated and rulings issued thereunder, as amended from
time to time.
"ERISA AFFILIATE" Any trade or business (whether or not
incorporated) which is treated as a single employer with any Borrower under
Section 414 of the Code.
"ERISA EVENT" Any of the following: (i) a Reportable Event
with respect to a Qualified Plan or a Multiemployer Plan; (ii) any prohibited
transaction described in Section 406 of ERISA which is not exempt by reason of
Section 408 of ERISA, or any prohibited transaction described in Section 4975(c)
of the Code which is not exempt by reason of Section 4975(c) or (d) of the Code,
with respect to any Plan (other than a Multiemployer Plan); (iii) a complete or
partial withdrawal from a Multiemployer Plan by any Borrower or any ERISA
Affiliate; (iv) the complete or partial withdrawal of any Borrower or an ERISA
Affiliate from a Qualified Plan during a plan year in which the withdrawing
entity was, or was treated as, a "substantial employer" as defined in Section
4001(a)(2) of ERISA; (v) a failure to pay when due any amount which, under the
provisions of any Plan or applicable law relating to any Plan, Borrower or any
ERISA Affiliate is required to pay; (vi) the filing of a notice of intent to
terminate, or the treatment of a plan amendment as a termination, under Sections
4041 or 4041A of ERISA; (vii) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Qualified Plan or
Multiemployer Plan; (viii) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon Borrower or any ERISA Affiliate; (ix) a violation of Sections 404 or
405 of ERISA, or of the exclusive benefit rule under Section 403(c) of ERISA, by
any fiduciary (as defined in Section 3(21) of ERISA) or disqualified person (as
defined in Section 4975(e) of the Code) with respect to any Plan for which any
Borrower or any ERISA Affiliate may be directly or indirectly liable; (x) the
incurrence by any Borrower or any ERISA Affiliate of an obligation to pay
additional premiums to the PBGC under Section 4006(a)(3)(E) of ERISA with
respect to any Plan; and (xi) any lien on the assets of any Borrower arising in
connection with any Plan.
"EQUIPMENT" As defined in Section 4A.01.
"EVENT OF DEFAULT" An Event of Default set forth in Article VI
"FINANCIAL COVENANTS" The financial covenants of the Borrower
Group set forth in Section 4.19 through 4.23 of this Agreement.
"GAAP OR GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" Generally
accepted accounting principles in the United States of America as in effect from
time to time as set forth in
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the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board which are applicable
to the circumstances as of the date of determination consistently applied. For
Persons incorporated outside the United States, "GAAP" shall mean the accounting
principles that are generally accepted within the jurisdiction of such Person's
incorporation.
"GENERAL INTANGIBLES" As defined in Section 4A.01.
"GOVERNMENTAL AUTHORITY" Any executive, judicial, legislative
or other branch, department, office, commission, board, bureau, agency, or
instrumentality of the government of any jurisdiction, including the federal
government of the United States and any foreign country, and any state,
provincial, local or municipal government, and including any monetary authority,
and including the Persons holding or exercising the powers, privileges,
discretions, titles, offices or authorities of any thereof, and including any
central Lender or comparable authority or agency.
"GUARANTEE" A guaranty or endorsement of, contingent agreement
to purchase or to furnish funds for the payment or maintenance of, or otherwise
to be or become contingently liable under or with respect to, the Indebtedness,
other obligations, net worth, or an agreement to purchase, sell, lease (as
lessee or lessor), or license (as licensee or licensor) Property, products,
materials, supplies or services primarily for the purpose of enabling a debtor
to make payment of such debtor's obligations or an agreement to assure a
creditor against loss, and including causing a Lender or other financial
institution to issue a letter of credit or other similar instrument for the
benefit of another Person, but excluding endorsements for collection or deposit
in the ordinary course of business.
"GUARANTOR" Any Person other than Borrower who at any time
provides to Lender collateral security or other credit support for the
Obligations, including any co-borrower, endorser, guarantor, surety, or
accommodation party, any Person who furnishes, issues, confirms, or advises any
letter of credit for the benefit of Lender, any Person who furnishes any bond
for the benefit of Lender, any person who makes any guaranty, security
agreement, pledge agreement, negative pledge agreement, collateral assignment,
indemnity agreement, deed of trust, or similar collateral security arrangement
for the benefit of Lender, any Person who hypothecates, pledges or delivers any
Property to Lender to secure the Obligations.
"GUARANTY AGREEMENT" With regard to each Guarantor, a Guaranty
Agreement satisfactory to Lender in form and substance.
"HELD ITEMS" As defined in Section 4A.01.
"INCLUDE AND INCLUDING" Unless otherwise expressly limited
herein, the words "include" and "including" shall be read to mean "include,
without limitation," and "including, without limitation," as the case may be.
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"INDEBTEDNESS" As applied to any Person, and as measured
without duplication, all items (except items of capital stock, capital or
paid-in-surplus or of retained earnings) (a) which in accordance with GAAP,
would be included in determining total liabilities as shown on the liability
side of a balance sheet of such Person, and (b) to the extent not otherwise
included in clause (a) of this definition, all of such Person's (i) Indebtedness
for Borrowed Money, (ii) trade accounts payable, and (iii) indebtedness of
another Person secured by any Lien to which any Property owned or held by such
Person is subject, whether or not the indebtedness secured thereby shall have
been assumed, and (v) obligations under any Guarantee.
"INDEBTEDNESS FOR BORROWED MONEY" As applied to any Person,
and as measured without duplication, all of such Person's Indebtedness from (a)
obligations in respect of money borrowed, and including those evidenced by
bonds, debentures, notes and other debt instruments, (b) Capital Lease
Obligations, (c) Indebtedness on which interest is accrued or charged, (d)
reimbursement obligations under letters of credit, liquidated, contingent or
otherwise, (e) obligations of, or indebtedness issued or assumed by, such
Person, to pay the deferred purchase price or acquisition price of Property or
services, and including (i) Capital Expenditures, (ii) trade accounts that are
payable more than thirty (30) days after the date the respective goods are
delivered or the respective services are rendered, and (iii) trade accounts
payable that have been outstanding more than thirty (30) days, and (f)
obligations as a guarantor, surety, or accommodation party of items of another
Person that as to such other Person would constitute Indebtedness for Borrowed
Money of such other Person under the preceding clauses of this definition.
"INSTRUMENTS" As defined in Section 4A.01.
"INTELLECTUAL PROPERTY" Patents, trademarks, service marks,
collective marks, certification marks, trade names, commercial names, brand
names, copyrights, and mask works, and including other intangible Property with
respect to which a security interest in such Property would be subject to a
statute of the United States or any Law of any foreign jurisdiction (to the
extent that such statute or Law governs the rights of parties to, and third
parties affected by, transactions in such particular types of Property), and
rights relating to any of the foregoing, and applications, registrations,
re-applications, and re-registrations for any of the foregoing, and amendments,
reissues, renewals, or supplementations of, or substitutions or replacements
for, any of the foregoing, and including other rights or interests in any of the
foregoing, and rights to sue for past, present or future violations or
infringements of any of the foregoing, and including any agreements, rights,
options, or licenses to purchase or otherwise acquire or use or benefit from (or
to sell or otherwise permit any other Person to acquire or use or benefit from)
any of the foregoing, and goodwill associated with or related to any of the
foregoing or any Borrower or any Borrower's business. Intellectual Property
includes manufacturing formulas, trade secrets, know how, shop rights, designs,
logos, tags, labels, franchises, distributorships, customer lists, rights to
contract and/or insurance expirations and renewals, personal services contracts,
employment contracts, confidentiality agreements and similar covenants, rights
under agreements not to compete and similar covenants of any Person regarding
any of the foregoing, and including opinions and advice of counsel, consultants,
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advisors, and experts (including research materials, engineering reports and
other work product of employees), as memorialized in any form, regarding any of
the foregoing.
"INTEREST PERIOD" Initially, the period commencing on the date
hereof and ending on the first Payment Date, and thereafter, each period
commencing on the first day after the last day of the immediately preceding
Interest Period and ending on the next Payment Date, provided, (i) any Interest
Period that would otherwise end on a day that is not a New York business day
shall be extended to the next New York business day, unless such extension would
carry such Interest Period into the next month, in which event such Interest
Period shall end on the preceding New York business day; (ii) any Interest
Period that ends in a month for which there is no day which numerically
corresponds to the Payment Date shall end on the last New York business day of
such month, and (iii) any Interest Period that would otherwise extend past the
maturity date of the applicable Loan shall end on the maturity date of such
Loan.
"INVENTORY" As defined in Section 4A.01.
"INVESTMENT PROPERTY" As defined in Section 4A.01.
"INVESTMENTS" With respect to any Person: , (a) any
Indebtedness for Borrowed Money of any other Person owed to such Person; (b) the
acquisition (whether for cash, Property, services or securities or otherwise) of
capital stock, bonds, notes, debentures, partnership interests or other
ownership interests or other securities of any other Person or any agreement to
make any such acquisition (including any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (c) acquire by purchase or otherwise any of the outstanding
capital stock of, or all or substantially all of the business, property or
assets of, any Person, (d) the making of any deposit with, or advance, loan or
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person, but excluding trade credit
extended by a Person arising from inventory sold or services provided in the
ordinary course of such Person's business).
"ITEM OF PAYMENT" As to any Person, all checks, drafts, cash,
and other remittances of payment of, or on account of, any Accounts,
Instruments, Chattel Paper, Documents, or General Intangibles, or Investment
Property or received as proceeds of the sale or lease of any Property or as
payment for any services rendered.
"LAWS" At any time, all laws, statutes, regulations,
ordinances, rules, codes, decrees, orders, and other directives of any federal,
state, district, territorial, or local government within the United States of
America (or any national, state, provincial or local government outside the
United States), or any branch, department, agency or office thereof, applicable
to any party to any Credit Document, or to any Property (including any
Collateral) of any party to any Credit Document, or to any business, industry,
or other activity in which any party to the Credit Documents may be engaged from
time to time, including all Environmental Laws.
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"LETTER OF CREDIT" Any standby letter of credit issued by
Lender under this Agreement or any other Credit Document in a face amount
denominated in Dollars or British currency for Borrower's account.
"LETTER OF CREDIT APPLICATION" A letter of credit application
completed on Lender's customary form, or such other form that Lender may find
satisfactory in Lender's discretion, and executed and submitted to Lender by
Borrower, together with such other information, documents, and instruments as
Lender may request Borrower to submit to Lender with such application form.
"LETTER OF CREDIT COLLATERAL ACCOUNT" Any deposit account, at
and/or for the benefit of Lender, into which Borrower may be required by Lender,
from time to time, and in accordance with the terms of this Agreement, to make
cash deposits to be held by Lender as cash collateral to secure Borrower's
contingent and other reimbursement obligations to Lender under outstanding
Letters of Credit.
"LETTER OF CREDIT FEE" The amount equal to two percent (2.0%)
per annum of the face amount of each Letter of Credit (with a minimum fee of
Three Hundred Dollars ($300).
"LETTER OF CREDIT MAXIMUM AMOUNT" Five Hundred Thousand
Dollars ($500,000).
"LETTER OF CREDIT RESERVE AMOUNT" An amount reasonably
determined by Lender to reserve against fluctuations in conversion rates between
U.S. Dollars and Other Currency in the event Lender issues Letters of Credit in
Other Currency. Such amount shall reduce the Letter of Credit Maximum Amount and
shall be subject to recalculation from time to time in Lender's reasonably
discretion whenever there are outstanding Letters of Credit in Other Currency.
"LIBOR BUSINESS DAY" Any Business Day that is also a day for
trading by and between Lenders in Dollar deposits in the London interbank
market.
"LIBOR MARKET INDEX RATE" For any day, the rate for 1-month
U.S. dollar deposits as reported on Telerate page 3750 as of 11:00 a.m., London
time, on such day, or if such day is not a London business day, then the
immediately preceding London business day (or if not so reported, then as
determined by Lender from another recognized source or interLender quotation).
"LIBOR RATE" With respect to each day during each Interest
Period, the rate for U.S. dollar deposits of 1-month maturity as reported on
Telerate page 3750 as of 11:00 a.m., London time, on the second London business
day before the relevant Interest Period begins (or if not so reported, then as
determined by Lender from another recognized source or interLender quotation).
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"LIBOR RATE LOANS" Loans bearing interest at a rate determined
on the basis of the LIBOR Rate.
"LIBOR RESERVE REQUIREMENT" For any day as used in the
determination of the LIBOR Rate, the aggregate (without duplication) of the
rates (expressed as a decimal fraction) or reserve requirements in effect on
such day under any regulations of the Board of Governors of the Federal Reserve
System (or other Governmental Authority having jurisdiction with respect
thereto) prescribed for eurocurrency funding (currently referred to as
Eurocurrency liabilities in Regulation D) maintained by a member Lender of such
system.
"LIEN" means any security interest, security agreement, real
estate mortgage, chattel mortgage, deed of trust, title retention contract,
security title, factor's lien, assignment, pledge, grant or conveyance for
security purposes or in settlement of debt, or other arrangement for security
purposes, deed-in-lieu of foreclosure or to secure debt, judgment lien or other
lien, charge or encumbrance of any kind, or condemnation or other taking of
Property by any Governmental Authority (and including the commencement or
pendency of any proceedings relating to any proposed condemnation or other
taking) and including any of the foregoing arising by operation of statute or
other law or the application of equitable principles, whether perfected or
unperfected, avoidable or unavoidable, consensual or nonconsensual.
"LIEN NOTICE" means any instrument, document, agreement, or
notice given to, or filed, recorded, or registered with, any Person (including
any Governmental Authority), and regardless of whether required by any Law, for
the purpose of effecting, perfecting, protecting, maintaining, registering, or
giving notice of any Lien (or the possibility of a Lien and regardless of
whether any Lien other than the Lien Notice exists or the effect of the Lien
Notice) upon any of any Borrower's Property, or for any precautionary purposes,
including any of the following that may be given to, or filed, recorded, or
registered with, any Person (including any Governmental Authority) for any of
the foregoing purposes, financing statements, vehicle security interest or lien
filings, mortgages, deeds of trust, judgments, leases, indentures, security
agreements, collateral assignments, and notices of any of the foregoing.
"LOAN REQUEST" Any written request for a Revolving Credit Loan
substantially in the form of Exhibit A and executed and delivered to Lender by
Borrower.
"LOANS" Individually and collectively, the Revolving Credit
Loans, Term Loan and the Acquisition Loan made under this Agreement.
"LOCK-BOX" Any Obligor's lock-box administered by Lender, in
accordance with the terms of a lock-box agreement with such Obligor in form and
substance satisfactory to Lender, to which address such Obligor instructs
Account Debtors to mail or deliver Items of Payment.
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"MARGIN STOCK" means margin stock within the meanings of
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System (or any successor) as the same may be modified and supplemented and in
effect from time to time.
"MATERIAL ADVERSE EFFECT" A material adverse effect on (a) the
property, business, operations, financial condition, prospects, liabilities or
capitalization of the Obligors on a consolidated basis, (b) the ability of the
Obligors on a consolidated basis to perform their obligations under any of the
Credit Documents, (c) the validity or enforceability of any of the Credit
Documents, or (d) the rights and remedies of Lender under any Credit Documents.
"MATERIAL AGREEMENT" Any contract or agreement if the breach
of such contract or agreement by any Person or the modification or termination
of such contract or agreement by any Person would be likely to have a Material
Adverse Effect.
"MULTIEMPLOYER PLAN" A multiemployer plan as defined in
Sections 3(37) or 4001(a)(3) of ERISA or Section 414 of the Code in which
employees of any Borrower or an ERISA Affiliate participate or to which any
Borrower or any ERISA Affiliate contribute or are required to contribute.
"NET INCOME" For any period, as applied to any Person, the net
income (or deficit) of such Person for such period (taken as a cumulative
whole), after giving effect to deduction of or provision for all operating
expenses, all taxes and all other proper deductions, for such period, all as
determined in accordance with GAAP.
"NET WORTH" At any date, total assets minus total liabilities.
For the purposes of this computation, total liabilities shall include all
subordinated debt.
"NON-LOAN LENDER CREDIT RESERVE" A non-cash reserve required
by Lender in its reasonable discretion for indebtedness, liabilities and other
obligations to Lender arising out of automated clearing house transactions, cash
management transactions, swap agreements, or other non-loan credit risks.
"NOTES" The Term Note, Revolving Credit Notes and Seller Note
under this Agreement.
"NOTIFICATION EVENT" Any of the following events or
occurrences: (a) any Default or Event of Default; or (b) any Lien or Lien Notice
upon any Property of any Borrower other than Permitted Liens; or (c) any
Proceedings other than those disclosed on Schedule 3.13 are commenced or
Threatened if such pending or Threatened Proceeding could reasonably be expected
to have a Material Adverse Effect; or (d) any ERISA Event; or (e) the occurrence
of any event or condition that, with respect to any Borrower, gives rise to
unfunded pension liabilities or similar liabilities, severance liabilities,
unemployment liabilities, wage claims, or the like, in favor of any Person,
including without limitation, any tax authority or Governmental Authority, if
such claims or liabilities could, individually or in the aggregate, have a
Material
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Adverse Effect; or (f) any Environmental Claim; or (g) the occurrence of any
event or condition that constitutes a default or event of default under any
Indebtedness of any Borrower (other than the Obligations) if the acceleration of
such Indebtedness as a result of such default or event of default would have a
Material Adverse Effect; or (h) any event or fact (or change of fact) or any
circumstance (or change of circumstance) that warrants the revision of any
Obligor Information in order to cause such Obligor Information to be, and to
continue to be, true, accurate and complete in all material respects at all
times; or (i) any change in incumbency in one or more of the following offices
of any Borrower's management: Chief Executive Officer, Chief Operating Officer,
Treasurer, or Director of Finance; or (j) any occurrence, that would not
otherwise be a Notification Event within the scope of the foregoing clauses of
this definition of Notification Event, which has or reasonably may have a
Material Adverse Effect.
"OBLIGATIONS" All now existing and hereafter arising
obligations, indebtedness, and liabilities of any Borrower to Lender of any
kind, whether primary, secondary, contingent, direct or indirect, joint or
several, or for payment or for performance, and including any Borrower's
obligations to pay to Lender as and when due all principal, interest, costs and
expenses, and fees arising from or relating to loans made, or other credits
granted or created, or financial accommodations extended, by Lender to any
Borrower at any time and in any amount, and including such thereof as may arise
in respect of letters of credit issued, advised, confirmed, or paid by Lender on
any Borrower's application or for any Borrower's account, and including all of
any Borrower's obligations, indebtedness, and liabilities to Lender for payment
or performance under this Agreement and the other Credit Documents, and
including any other claims or judgments that Lender may have against any
Borrower at any time, and including all of each Borrower's now existing or
future obligations to Lender under or in connection with any swap agreements (as
defined in 11 U.S.C. Section 101), and including any of the foregoing arising
before, during, or after the initial or any renewal term of the Credit Documents
after the commencement of any case with respect to any Borrower under the United
States Lenderruptcy Code or any similar statute (including the payment of
interest and other amounts which would accrue and become due but for the
commencement and pendency of such case). Without limiting the generality of the
foregoing, the Obligations include the Loans.
"OBLIGOR INFORMATION" Any information furnished to Lender by
or on behalf of any Obligor at any time, including all such information
furnished to Lender in connection with Borrower's application for the credits
and other accommodations contemplated by this Agreement and the other Credit
Documents, including any information contained in any credit or loan
application, or letter of credit application, and in any financial statements,
tax returns, appraisals, environmental audits, reports, correspondence, opinion
letters, annexes, schedules, lists and exhibits relating to such application or
otherwise relating to the matters and transactions contemplated by the Credit
Documents, and including all representations and other information made to or
furnished to Lender in the Credit Documents and in the Exhibits, Schedules and
certificates relating thereto, and including any and all financial statements,
tax returns, reports, certificates, notices, annexes, schedules, lists and
exhibits, furnished to Lender
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from time to time in accordance with the terms of the Credit Documents or
otherwise relating to any Obligor.
"OBLIGORS" Each Borrower and any Guarantor.
"OPENING DAY BALANCE SHEETS" The opening day balance sheets of
each Borrowing Group member, which are more specifically described in Section
2E.03 and 4.01.
"OPERATING LEASE" Any lease of Property other than a lease
that is a Capital Lease Obligation.
"OPERATING LEASE OBLIGATIONS" For any Person, expenditures
made by such Person or any of its Subsidiaries to lease any Property, other than
expenditures under Capital Lease Obligations.
"ORIGINAL CURRENCY" As defined in Section 7.17.
"OTHER CURRENCY" As defined in Section 7.17.
"OTHER PERSONALTY" As defined in Section 4A.01.
"PAYMENT DATE" As defined in Section 2A.04.
"PAYMENT OFFICE" Lender's office at 3151 Seventeenth Street
Extension, Wilmington, North Carolina 28412, or such other location as may be
designated by Lender upon written notice to Borrower.
"PBGC" The Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED INDEBTEDNESS" Any of the following Indebtedness of
any Borrower: (a) Indebtedness arising in the ordinary course of business, other
than Indebtedness for Borrowed Money, that is classified as a current liability
under GAAP, (b) Indebtedness arising in the ordinary course of business, other
than Indebtedness for Borrowed Money, that is not classified as a current
liability under GAAP, (c) Permitted Indebtedness for Borrowed Money, (d)
Indebtedness under swap agreements (as defined in 11 U.S.C. ss.101) with Lender
or any of its Affiliates and any swap agreements (as defined in 11 U.S.C.
ss.101) executed in conformance with Section 4.14; (e) Indebtedness under the
Seller Note; (f) purchase of EHI stock pursuant to the Shareholder Agreement;
and (g) any other Indebtedness specifically listed on Schedule 3.11 on the
Effective Date.
"PERMITTED INDEBTEDNESS FOR BORROWED MONEY" Collectively, the
Obligations and any other Indebtedness for Borrowed Money specifically listed on
Schedule 3.11 on the Effective Date.
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"PERMITTED INVESTMENTS" With respect to any Borrower (a) any
Investment in any Person that is a direct wholly-owned Subsidiary of such
Borrower on the Effective Date; (b) loans in the ordinary course of business to
employees of any Borrower or any direct wholly-owned Subsidiary of any Borrower
for any Borrower's or such Subsidiary's business purposes and not to exceed Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate outstanding at any
time; (c) normal and customary advances of sales commissions to employees of any
Borrower; (d) endorsements of negotiable instruments and similar negotiable
documents in the ordinary course of any Borrower's business; (e) deposits with,
including certificates of deposit issued by, Lender or Lender's parent; (f)
Investments made through Lender, which must be reasonably acceptable to Lender;
(g) swap agreements (as defined in 11 U.S.C. ss.101) with Lender or any of its
Affiliates and any swap agreements (as defined in 11 U.S.C. ss.101) executed in
conformance with Section 4.14; (h) any Investments specifically listed on
Schedule 3.09 on the Effective Date; and (i) purchases of EHI stock pursuant to
the Shareholder Agreement; and (i) any Investments which, during any twenty-four
(24) month period, do not exceed in the aggregate Five Hundred Thousand Dollars
($500,000).
"PERMITTED LICENSE" With regard to any Obligor, the use by any
other Person of Intellectual Property of such Obligor in accordance with an
arms-length written license agreement pursuant to which royalties are paid to
such Obligor in the ordinary course of business.
"PERMITTED LIEN" Each Lien listed on Schedule 3.12 and any of
the following Liens: (i) any Lien in favor of Lender; (ii) Liens for taxes which
are not yet delinquent; (iii) security interests that secure the Seller Note
that are (1) by their terms expressly subordinate to the security interests of
Lender, (2) if recorded, subordinate of record to the security interests of
Lender, and (3) subject to the terms of the Seller Subordination Agreement; (iv)
on a consolidated basis, (1) Liens on equipment and other personal property
(which Liens secure only such purchase-money financing) or (2) capital leases,
the sum of which Liens on equipment and other personal property and capital
leases not to exceed in the aggregate Five Hundred Thousand Dollars ($500,000)
in any fiscal year or Two Million Dollars ($2,000,000) cumulatively between the
Effective Date and the maturity of the Loans; and (v) customary landlord Liens
under Operating Leases, which Liens are limited to tangible personal property on
the leased premises and security deposits.
"PERSON" Any natural person, corporation, limited liability
company, partnership, joint venture, entity, association, joint-stock company,
trust or unincorporated organization and any Governmental Authority.
"PLAN" An employee benefit plan (as defined in Section 3(3) of
ERISA) which any Borrower or any ERISA Affiliate sponsors or maintains or to
which any Borrower or any ERISA Affiliate is making or is obligated to make
contributions, including any Multiemployer Plan or Qualified Plan.
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"PLEDGE AGREEMENT" Any written pledge agreement in form and
substance satisfactory to Lender, given by any Person to pledge to Lender such
Person's capital stock in Borrower or any other Person to secure all or any part
of the Obligations.
"PPDI" Pharmaceutical Product Development, Inc., the parent
corporation of Selling Shareholders.
"PRIMARY RESPONSIBLE OFFICER" As to any Obligor, the Chief
Executive Officer, the President, the Treasurer and the Director of Finance of
such Obligor.
"PRIME RATE" The rate of interest announced by a bank
identified by Lender from time to time as its prime rate. Such Prime Rate is not
represented to be the lowest rate of interest offered by any such bank. The rate
of interest shall change automatically and immediately as of the date of any
change in the Prime Rate, without notice to Borrower or any endorser, surety or
guarantor.
"PRINCIPALS" Collectively, the EHI Principals and the UK
Principals.
"PROCEEDINGS" Any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving any Governmental Authority or arbitrator.
"PROCEEDS" As defined in Section 4A.01.
"PRODUCTS" As defined in Section 4A.01.
"PROPERTY" Any right or interest in or to property of any kind
whatsoever, whether real, personal, or mixed, and whether tangible or
intangible.
"PURCHASE PRICE" The purchase price payable by EHI to acquire
the Shares pursuant to the Stock Purchase Agreement.
"QUALIFIED PLAN" A pension plan (as defined in Section 3(2) of
ERISA) intended to be tax-qualified under Section 401(a) of the Code which any
Borrower or any ERISA Affiliate sponsors or maintains, or to which any such
person is making, or is obligated to make, contributions, or, in the case of a
multiple-employer plan (as described in Section 4064(a) of ERISA), has made
contributions at any time during the immediately preceding period covering at
least five (5) plan years, but excluding any Multiemployer Plan.
"QUARTERLY PAYMENT DATES" January 10, April 10, July 10, and
October 10 of each year prior to the Credit Termination Date.
"REAL ESTATE PROPERTY" As to any Person, any now owned or
hereafter acquired right, title or interest in, and any right to occupy or to
use, any Property that is land,
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improvements to land (and/or space in such improvements), any condominium unit
or cooperative unit, or fixtures, and any equipment and other personal property
used or useful in the connection with the occupancy, use, improvement or
operation thereof, including any fee interest and any leasehold interest, and
including all easements and other appurtenances relating thereto, and all rents,
incomes, and profits arising therefrom from time to time, and including any
rights (but not any duties) arising under any deeds, leases, contracts or other
instruments relating thereto.
"RECEIVER" Any receiver, trustee, custodian, liquidator or
similar fiduciary.
"RECORDS" As defined in Section 4A.01.
"REGULATED SUBSTANCE OR REGULATED SUBSTANCES" Any substance,
material, or waste that is regulated or listed under any Environmental Laws, and
such substances, materials, or wastes include, but are not limited to, any whose
release or threatened release may pose a risk to human health or the
environment, and also include (a) asbestos in any form, (b) urea formaldehyde
foam insulation, (c) paint containing lead, (d) transformers or other equipment
that contain dielectric fluid polychlorinated biphenyls at levels of fifty (50)
parts per million or more, (e) radioactive materials, and (f) petroleum or
petroleum hydrocarbons in any form.
"REGULATION D" means Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements
"REGULATORY CHANGE" Any change after the Effective Date in
United States federal, state or foreign law or regulation (including Regulation
D), including the issuance of any final regulations or guidelines, or the
adoption or making of any interpretation, directive or request applying to a
class of Lenders, including Lender, of or under any United States federal, state
or foreign law or regulations (whether or not having the force of law and
whether or not failure to comply therewith would be illegal) by any Governmental
Authority charged with the interpretation or enforcement thereof.
"REPORTABLE EVENT" Any event described in Section 4043 of
ERISA or in regulations of the PBGC (other than an event for which the thirty
(30) day notice to the PBGC is waived by regulations).
"RESPONSIBLE OFFICER" With respect to the subject matter of
any representation, warranty, covenant, agreement, obligation, notification
requirement, or certificate contained in or delivered to Lender pursuant to any
of the Credit Documents, the President, the Chief Financial Officer, or the
Treasurer of any Obligor, or any other corporate officer of such Obligor who in
the normal performance of his or her operational responsibilities should have
knowledge of such matter and the requirements with respect thereto.
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"RESPONSIBLE OFFICER'S CERTIFICATE" A certificate in form and
substance satisfactory to Lender and signed by a Responsible Officer to the
effect that to the best knowledge and belief of such Responsible Officer, after
due inquiry of each Primary Responsible Officer, no Default or Event of Default
exists, or if any Default or Event of Default does exist, specifying the nature
and extent thereof and what action Borrower proposes to take with respect
thereto, and which certificate shall also demonstrate compliance with the
financial covenants of this Agreement.
"REVOLVING CREDIT" Revolving Credit Loans and Letters of
Credit.
"REVOLVING CREDIT COMMITTED AMOUNT" The lesser of (a) Three
Million Five Hundred Thousand Dollars ($3,500,000) or (b) the sum of (X) Two
Million Dollars ($2,000,000) plus (Y) the amount equal to one-third (1/3) of the
amount of the principal payments made by Borrower to Lender on the Term Loan.
"REVOLVING CREDIT LOANS" The revolving credit loans referred
to in Section 2A.01.
"REVOLVING CREDIT NOTE" Any promissory note, in form and
substance satisfactory to Lender, executed and delivered to Lender by the
Borrowers to further evidence the Borrowers' agreement and obligation to repay
Revolving Credit Loans.
"RISK MANAGEMENT AGREEMENT" Any interest rate swap agreement,
basis swap, forward rate agreement, commodity swap, interest rate option,
forward foreign exchange agreement, rate cap agreement, rate floor agreement,
rate collar agreement, currency swap agreement, cross-currency rate swap
agreement, currency option, equity or equity index option, bond option, or any
similar agreement or derivative product (including any option to enter into any
of the foregoing and including any master agreement for any of the foregoing
together with all supplements) or similar arrangement between any Borrower and
one or more financial institutions or other intermediaries, counterparties or
participants.
"SELLER NOTE" The Promissory Note dated of even date from EHI
made payable to the Selling Shareholders in the amount of Eighteen Million
Dollars ($18,000,000). "SELLER SUBORDINATED OBLIGATIONS" All now existing and
hereafter arising indebtedness and other obligations of the Borrowers or the
Guarantors to the Lender under the Seller Note which are subordinated in
accordance with the terms of this Agreement upon and subject to the terms
generally set forth on Schedule 1 attached hereto. Lender agrees to subordinate
the Seller Note in accordance with terms and conditions to be set forth in the
Subordination Agreement, which terms and conditions must be reasonably
acceptable to Lender. The Subordination Agreement must contain provisions
reflective of the general terms set forth on Schedule 1 and such other terms and
conditions required by Lender.
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"SELLER SUBORDINATION AGREEMENT" The Subordination Agreement
described on Schedule 1 attached hereto.
"SELLING SHAREHOLDERS" Collectively, (1) Applied Bioscience
International, Inc., a Delaware corporation and seller of all of the shares in
the US Corporation and (2) PPD UK Holding Limited, a private company
incorporated in England and Wales and seller of all of the shares of the UK
Corporations.
"SHAREHOLDER AGREEMENT" The Shareholder Agreement dated as of
January 31, 1999 among the Principals.
"SHARES" Collectively, all of the capital stock in the US
Corporation and the UK Corporations.
"SOLVENT" (a) The fair market value of each Borrower's
Property is greater than the total amount of such Borrower's liabilities
(including such Borrower's contingent liabilities), (b) the present fair salable
value of each Borrower's assets is not less than the amount that will be
required to pay such Borrower's probable liabilities on its debts as they become
absolute and matured, (c) each Borrower does not intend to, and does not believe
that it will, incur debts or liabilities beyond such Borrower's ability to pay
as such debts and liabilities mature, and (d) each Borrower is not engaged in
business or a transaction for which such Borrower's assets would constitute
unreasonably small capital. For such purposes, any contingent liability
(including pending litigation, Guarantees, other off-balance-sheet liabilities,
unfunded vested liabilities under Plans and claims for federal, state, local and
foreign taxes, if any) is to be valued at the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"SPECIAL PROPERTY" Vehicles, trailers, rolling stock, shipping
containers, airplanes, ships, boats, barges and other vessels, broadcasting and
other communications transmission equipment, satellites, and any engines, parts,
components, or accessories to any of the foregoing, farm products, minerals, and
timber, goods that are or are to become fixtures, Intellectual Property, any
property with respect to which a security interest in such property would be
subject to any statute of the United States or any statute or other law of any
foreign jurisdiction, to the extent that such statute or law governs the rights
of parties to any third parties affected by transactions in particular types of
property, and any tangible personal property not located at a Designated
Location.
"STOCK PURCHASE AGREEMENT" The Stock Purchase Agreement dated
January 31, 1999 among the Selling Shareholders, as sellers, and EHI, as
purchaser.
"SUBSIDIARY" As to any Person, (i) any corporation or limited
liability company (A) that is directly or indirectly controlled by such Person
or any Subsidiary of such Person or (B) if more than fifty percent (50%) of the
voting and/or non-voting stock or other
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ownership shares of such corporation or limited liability company is owned by
such Person or any Subsidiary of such Person, (ii) any joint venture or
partnership (A) in which such Person or any Subsidiary of such Person is a
general partner or (B) if more than fifty percent (50%) of the partnership
interests in such venture or partnership are owned by such Person or any
Subsidiary of such Person, (iii) any trust for the benefit of such Person or any
Subsidiary of such Person, or any other organization, trust or other entity as
to which such Person or any Subsidiary of such Person is in control, and (iv) to
the extent not otherwise included by the preceding clauses, any Subsidiary of
any corporation, limited liability company, partnership, organization, trust or
other entity described in clauses (i), (ii), or (iii).
"TERM LOAN" The term loan referred to in Article II-B of this
Agreement.
"TERM NOTE" A term promissory note, in form and substance
satisfactory to Lender, executed and delivered to Lender by Borrower to further
evidence the Borrowers' agreement and obligation to repay the Term Loan.
"THREATENED" A claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made in writing or any notice has been given in writing, or if any other
event has occurred or any other circumstance exists, that would lead a prudent
Person to conclude that such a claim, Proceeding, dispute, action, or other
matter is likely to be asserted, commenced, taken, or otherwise pursued in the
future.
"UCC" The Virginia Uniform Commercial Code.
"UK CORPORATIONS" Collectively EAGL and EIL.
"UK CREDIT DOCUMENTS" The Guaranty Agreements executed by each
of the UK Corporations and any other documents executed by the UK Corporation in
connection with the Guaranty Agreements and for the benefit of Lender.
"UK PRINCIPALS" The individuals listed on Schedule 3.43, who
are residents of the United Kingdom and management employees of EHI or EAGL and
EIL upon and after the Effiective Date.
"UK TRANSACTION" The purchase of all of the Shares in the UK
Corporations by EHI pursuant to the Stock Purchase Agreement.
"UNFUNDED BENEFIT LIABILITY" The excess of a Plan's benefit
liabilities (as defined in Section 4001(a)(16) of ERISA) over the current value
of such Plan's assets, determined in accordance with the assumptions used by the
Plan's actuaries for funding the Plan pursuant to Section 412 of the Code for
the applicable plan year.
"UNUSED CREDIT FEE" A fee payable on the unused portion of the
Revolving Credit in accordance with the following schedule:
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- ---------------------------------------- --------------------------------------
CONSOLIDATED FUNDED DEBT TO EBITDA
UNUSED CREDIT FEE
- ---------------------------------------- --------------------------------------
=> 4.0:1 50 basis points
- ---------------------------------------- --------------------------------------
=> 3.0:1, but < 4.0:1 37.5 basis points
- ---------------------------------------- --------------------------------------
=> 2.5:1, but < 3.0:1 25 basis points
- ---------------------------------------- --------------------------------------
<2.5:1 25 basis points
- ---------------------------------------- --------------------------------------
"US TRANSACTION" The purchase of all of the Shares in the US
Corporation by EHI pursuant to the Stock Purchase Agreement.
"YEAR 2000 ISSUES" With respect to any Person, anticipated
costs, problems and uncertainties associated with the inability of certain
computer applications and imbedded systems to effectively handle data, including
dates, on and after January 1, 2000, as it affects the business, operations, and
financial condition of such Person, and such Person's customers, suppliers and
vendors.
ARTICLE II-A
CREDIT FACILITY - REVOLVING CREDIT LOANS
In the event Lender subordinates the Seller Note to a revolving credit
facility in accordance with Schedule 1 attached hereto, then the provisions of
this Article II-A shall cease to be of further force and effect, and in such
event all amounts outstanding under the Revolving Credit Loans and the Term Loan
shall be repaid in full prior to Lender's subordination of the Seller Note to
any revolving credit facility.
SECTION 2A.01. REVOLVING CREDIT LOANS. Lender shall, upon the terms and
subject to the conditions hereinafter set forth, and from time to time on or
after the Credit Commencement Date and before the Credit Termination Date, make
Revolving Credit Loans to the Borrower in an aggregate amount not to exceed, at
any time, the Revolving Credit Committed Amount less the sum of (a) the
aggregate face amounts of all outstanding Letters of Credit caused to be issued
by the Lender under this Agreement or any other Credit Documents, (b) the Letter
of Credit Reserve Amount, if any, and (c) the Non-Loan Lender Credit Reserve, if
any. With the written consent of each Borrower and each Guarantor, Lender may,
in Lender's sole and absolute discretion, extend the Credit Termination Date at
any time for up to an additional twelve (12) months.
SECTION 2A.02. REQUESTS. From time to time on or after the Credit
Commencement Date and before the Credit Termination Date, Borrower may request
Revolving Credit Loans by giving Loan Requests to Lender, provided that:
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(a) Borrower shall not request Revolving Credit Loans in an
amount which, if advanced, would cause the Available Revolving Credit Amount to
be less than One Dollar ($1.00);
(b) each Loan Request shall be given to Lender at least one
(1) Business Day prior to the proposed date of such Revolving Credit Loan and
shall state the proposed Business Day on which to make the Revolving Credit
Loan; and
(c) all Revolving Credit Loans shall be made in amounts of
even multiples of Fifty Thousand Dollars ($50,000).
SECTION 2A.03. COVENANT TO PAY; REVOLVING CREDIT NOTES. Borrower
jointly and severally covenants and agrees to repay the Revolving Credit Loans
to Lender, together with all accrued interest and late charges thereon, and all
out-of-pocket expenses of Lender and fees relating thereto, without set-off,
defense or counterclaim of any kind, in accordance with the terms of this
Agreement, the Revolving Credit Notes and the other Credit Documents. Borrower's
agreement and obligation to pay Revolving Credit Loans, together with all
accrued interest and late charges thereon, and all out-of-pocket expenses of
Lender and fees relating thereto, shall in Lender's discretion be further
evidenced by one or more Revolving Credit Notes, and each Revolving Credit Note
may evidence one or more Revolving Credit Loans, and Borrower shall promptly,
upon Lender's request from time to time, execute and deliver to Lender Revolving
Credit Notes as further evidence of Borrower's agreement and obligation to pay
the Revolving Credit Loans. Lender is irrevocably authorized but not obligated
to record the date and amount of each Revolving Credit Loan, and each payment
made to Lender on the Revolving Credit Loans, on the Revolving Credit Notes or
on schedules attached to the Revolving Credit Notes or otherwise in Lender's
discretion, provided that the failure to record such information shall not
affect the Borrower's obligation to repay the Revolving Credit Loans.
SECTION 2A.04. INTEREST PAYMENTS. Interest on the outstanding principal
balances of Revolving Credit Loans shall accrue and be payable at the Applicable
Revolving Credit Loan Interest Rate, and payments of accrued and unpaid interest
on the Revolving Credit Loans shall be made monthly in arrears on the first
(1st) day of each month (the "Payment Date").
SECTION 2A.05. PRINCIPAL PAYMENTS. Unless otherwise set forth in any
applicable Revolving Credit Note, and subject to acceleration upon the
occurrence of an Event of Default and such mandatory prepayments as may be
required in accordance with the terms of this Agreement, unless sooner paid in
full, the outstanding balances of all Revolving Credit Loans shall be due and
payable on the Credit Termination Date.
SECTION 2A.06. COLLATERAL ACCOUNT PAYMENTS. Upon and after the
occurrence of an Event of Default, Lender shall be entitled to apply the
collected balances in the Collateral Account, or any portion thereof, at any
time and from time to time, against the outstanding balance of any Loans, and/or
to make deposits to the Letter of Credit Collateral Account in
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accordance with the terms of this Agreement, in such order as Lender may
determine in Lender's discretion.
SECTION 2A.07. USE OF REVOLVING CREDIT LOAN PROCEEDS. The proceeds of
the Revolving Credit Loans shall be used solely to provide working capital to
the US Corporation in the ordinary course of its business. The proceeds of the
Revolving Credit Loans shall not be used for any acquisition-related costs or
expenses in connection with the acquisition of the Shares.
ARTICLE II-B
CREDIT FACILITY - TERM LOAN AND ACQUISITION LOAN
SECTION 2B.01. TERM LOAN. Lender agrees, upon the terms and subject to
the conditions of this Agreement, to make a Term Loan to Borrower in the amount
of up to Seven Million Dollars ($7,000,000). Bank further agrees, upon the terms
subject to the conditions of this Agreement, to make an Acquisition Loan to
Borrower in the amount of Eighteen Million Dollars ($18,000,000).
SECTION 2B.02. COVENANT TO PAY; TERM NOTE. Borrower jointly and
severally covenants and agrees to execute and deliver to Lender the Term Note
and the Seller Note immediately upon the execution and delivery of this
Agreement and to repay the Term Loan and Acquisition Loan to Lender, together
with all accrued interest and late charges thereon, and all expenses, costs and
fees relating thereto, without set-off, defense or counterclaim of any kind, in
accordance with the terms of this Agreement and the Term Note and the Seller
Note.
SECTION 2B.03. PAYMENT SCHEDULE. The Term Loan shall be repayable
beginning on March 1, 1999 in forty-seven (47) equal consecutive monthly
payments of principal in the amount of One Hundred Forty-Five Thousand Eight
Hundred Thirty-Three and 33/100 Dollars ($145,833.33) each, plus, on each
Payment Date, a payment of interest on the unpaid principal balance at the
Applicable Term Loan Interest Rate, and one final installment of the entire
unpaid principal balance and all accrued but unpaid interest thereon due and
payable on February 1, 2003. The Acquisition Loan shall be repayable in
accordance with the terms set forth in the Seller Note to be delivered upon
execution of this Agreement.
SECTION 2B.04. USE OF TERM LOAN AND ACQUISITION LOAN PROCEEDS. The
proceeds of the Term Loan and the Acquisition Loan shall be used solely to pay a
portion of the Purchase Price.
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ARTICLE II-C
CREDIT FACILITY - LETTERS OF CREDIT
SECTION 2C.01. LETTER OF CREDIT APPLICATIONS. Each Letter of Credit
issued under this Agreement shall be issued pursuant to a Letter of Credit
Application and shall be issued in form and substance satisfactory to Lender in
Lender's discretion. In the event of a conflict between the terms of this
Agreement and the terms of a Letter of Credit Application, the terms of this
Agreement shall control unless otherwise expressly stated in the Letter of
Credit Application accepted by Lender. Borrower may from time to time submit
Letter of Credit Applications to Lender in accordance with the terms of this
Agreement, and upon such applications Lender may cause to be issued Letters of
Credit for Borrower's account. Letter of Credit Applications shall be submitted
to Lender not later than 10:00 a.m., Eastern Time, at least five (5) Business
Days prior to the Business Day on which Borrower requests that the Letter of
Credit be issued. Borrower shall not submit any Letter of Credit Application to
Lender for a Letter of Credit in a face amount that, if issued, would cause the
aggregate face amounts of all outstanding Letters of Credit to exceed the
Available Letter of Credit Amount.
SECTION 2C.02. LETTER OF CREDIT EXPIRY DATES. Each Letter of Credit
shall expire on a date not more than one (1) year after the date that the Letter
of Credit is issued, provided that no Letter of Credit shall be issued with an
expiration date on or after the Credit Termination Date.
SECTION 2C.03. LETTER OF CREDIT FEES. Borrower shall pay to Lender a
Letter of Credit Fee for each Letter of Credit issued under this Agreement, and
such Letter of Credit Fee shall be due and payable at the time of issuance of
the Letter of Credit. Borrower shall also pay to Lender on demand such issuance,
amendment, and letter of credit transaction fees as may be announced by Lender
from time to time.
SECTION 2C.04. LETTER OF CREDIT RESERVES. If any change in any Law or
in the interpretation thereof by any court or other governmental authority
charged with administration thereof shall either (a) impose, modify or deem
applicable any reserve, special deposit or similar requirement against any
Letter of Credit, or (b) impose on Lender any other condition regarding this
Agreement or any Letter of Credit, and the result of any event referred to in
clauses (a) or (b) of this Section shall be to increase the cost to Lender of
issuing any Letter of Credit, then upon demand by Lender, Borrower shall pay to
Lender such additional amounts as may be necessary to compensate Lender for such
increased costs. A certificate submitted by Lender to Borrower, stating such
increased costs of issuing Letters of Credit, shall be conclusive, absent
manifest error, as to the amount of such increased costs.
SECTION 2C.05. PAYMENTS ON LETTERS OF CREDIT.
(a) Borrower covenants and agrees to immediately and without
demand, and without set-off, defense or counterclaim of any kind, reimburse
Lender in Dollars in immediately available funds all amounts drawn under Letters
of Credit.
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(b) Prior to the occurrence of an Event of Default, and unless
otherwise immediately reimbursed to Lender in Dollars in immediately available
funds by Borrower, but only to the extent that Revolving Credit Loans may be
made under this Agreement in the necessary amounts at such times, all amounts
drawn under Letters of Credit may be reimbursed to Lender with proceeds of
Revolving Credit Loans made by Lender to Borrower (and regardless of whether
Borrower shall have requested such Revolving Credit Loans) for the purpose of
making such reimbursements. All such amounts reimbursed with the proceeds of
Revolving Credit Loans shall be repayable in accordance with the terms of this
Agreement and the other Credit Documents.
(c) Upon the occurrence of an Event of Default, all of
Borrower's reimbursement obligations under Letters of Credit, including
Borrower's obligations to reimburse Lender for amounts drawn under Letters of
Credit and Borrower's contingent obligations for amounts not yet drawn under
outstanding Letters of Credit, whether then due or otherwise, shall be
immediately due and payable by Borrower. All amounts paid to Lender in respect
of such contingent obligations for amounts not yet drawn shall be held by Lender
in the Letter of Credit Collateral Account as cash collateral and applied by
Lender to reimburse Lender from time to time for amounts drawn under Letters of
Credit until all Letters of Credit have expired and Lender shall have been
reimbursed for all amounts drawn under Letters of Credit, and Borrower hereby
assigns to Lender and grants Lender a security interest in all amounts so held
in any Letter of Credit Collateral Account as cash collateral for Borrower's
reimbursement obligations under Letters of Credit. If Borrower fails to pay such
reimbursement obligations immediately, including such amounts as are required to
be held in the Letter of Credit Collateral Account, Lender may, in Lender's
discretion and without any obligation to do so, and regardless of whether
Borrower shall have requested such Revolving Credit Loans or given Lender
instructions to the contrary, make Revolving Credit Loans to Borrower and
directly apply the proceeds of such Revolving Credit Loans to the payment of
some or all of such reimbursement obligations and to the funding of some or all
such amounts to be held in, and disbursed to Lender from, the Letter of Credit
Collateral Account. All such amounts paid or held from the proceeds of Revolving
Credit Loans shall be repayable in accordance with the terms of this Agreement
and the other Credit Documents.
(d) Borrower's agreement and obligation to reimburse Lender
for amounts due and payable as set forth in the preceding clauses of this
Section (including all such amounts in respect of contingent obligations) shall
be absolute and unconditional under all circumstances and shall be paid without
set-off, counterclaim, or defense to payment that Borrower may have against the
beneficiary of any such Letter of Credit or Lender or any other Person,
including any set-off, counterclaim or defense based on any drawing documents
proving to be forged, fraudulent or invalid, or the legality, validity,
regularity or enforceability of such Letter of Credit or any Letter of Credit
Application, this Agreement, the Notes, or any other Credit Documents.
SECTION 2C.06. INSTRUCTION TO PAY; INDEMNIFICATION.
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(a) Borrower hereby irrevocably instructs Lender to pay any
draft complying with the terms of any Letter of Credit. Borrower assumes all
risks of the acts and omissions of the beneficiary and other users of any Letter
of Credit.
(b) Lender and its branches, affiliates and/or correspondents
shall not be responsible for and Borrower shall indemnify and hold Lender and
its branches, affiliates and correspondents harmless from and against all
liability, loss and expense (including reasonable attorney's fees and costs)
incurred by Lender or its branches, affiliates or correspondents relative to or
as a consequence of (i) any failure of Borrower to perform the agreements
hereunder and under any Letter of Credit Application, (ii) any Letter of Credit
Application, this Agreement, any Letter of Credit and any drafts and acceptances
under or purporting to be under any Letter of Credit, (iii) any action taken or
omitted by Lender or its branches, affiliates or correspondents at the request
of the Revolving Credit Loan Borrower Group, (iv) any failure or inability to
perform in accordance with the terms of any Letter of Credit by reason of any
control or restriction rightfully or wrongfully exercised by any de facto or de
jure government, group or individual asserting or exercising governmental
powers, and (v) any consequences arising from causes beyond the control of
Lender or its branches, affiliates or correspondents.
(c) Except for gross negligence and willful misconduct of
Lender, and its branches, affiliates and correspondents, Lender and its
branches, affiliates and correspondents, shall not be liable or responsible in
any respect for any (i) error, omission, interruption or delay in transmission,
dispatch or delivery of any one or more messages or advices in connection with
any Letter of Credit, whether transmitted by cable, telegraph, mail or otherwise
and despite any cipher or code which may be employed, or (ii) action, inaction
or omission which may be taken or suffered by it or them in good faith or
through inadvertence in identifying or failing to identify any beneficiary or
otherwise in connection with any Letter of Credit.
(d) Any Letter of Credit may be amended, modified or revoked
only upon the receipt by Lender from Borrower and the beneficiary (including any
transferees and assignees of the original beneficiary), of a written consent and
request for such amendment, modification or revocation, and then only on such
terms and conditions as Lender may prescribe in Lender's discretion.
(e) If any Laws, orders of court and/or rulings or regulations
of any governmental authorities of the United States, any state, or foreign
government permits the beneficiary under a Letter of Credit to require Lender or
its branches, affiliates or correspondents to pay drafts under or purporting to
be under a Letter of Credit after the expiration date of the Letter of Credit,
Borrower shall reimburse Lender for any such payment pursuant to Section 2C.05.
(f) Except as may otherwise be specifically provided in a
Letter of Credit or Letter of Credit Application, the laws of the Commonwealth
of Virginia and the Uniform Customs and Practice for Documentary Credits, 1993
Revision, International Chamber of Commerce Publication No. 500 shall govern the
Letters of Credit. In the event of a conflict
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between the Uniform Customs and Practice for Documentary Credits and the laws of
the Commonwealth of Virginia, the Uniform Customs and Practice for Documentary
Credits shall prevail.
SECTION 2C.07. USE OF LETTERS OF CREDIT. Each Letter of Credit shall be
used solely for a general corporate purposes of the US Corporation. In addition,
the US Corporation may have Letters of Credit issued on behalf of the UK
Corporations in other than U.S. Dollars.
SECTION 2C.08 LETTERS OF CREDIT DENOMINATED IN OTHER THAN U.S. DOLLARS.
For purposes of determining the outstanding balance of Letters of Credit, the
aggregate principal amount of Letters of Credit issued and outstanding in other
than U.S. Dollars shall be converted to the U.S. Dollar equivalent amount, as
calculated by Lender in Lender's reasonable discretion, on the date of such
determination.
ARTICLE II-D
CREDIT FACILITY - GENERAL CREDIT PROVISIONS
SECTION 2D.01. LENDER RECORDS. Absent manifest error, Lender's records
of Loans made and payments received in respect of Loans, including Lender's
entries on any Revolving Credit Notes or schedules that may be attached to
Revolving Credit Notes from time to time, and of Letters of Credit, and all
amounts drawn thereunder and all reimbursements thereof, shall be presumed
correct. Notwithstanding the foregoing, the absence of a Revolving Credit Note
or Lender's failure to record loan amounts or payments or other related
information (or any error in recording such amounts or other information) shall
not limit or affect any Borrower's agreement and obligation to repay the Loans,
and all accrued interest and other amounts on the Loans, in accordance with the
terms of this Agreement, the Notes, and the other Credit Documents.
SECTION 2D.02. COMPUTATION OF INTEREST. All interest shall accrue based
on a 360-day year for the actual number of days outstanding.
SECTION 2D.03. LATE CHARGES; DEFAULT INTEREST. If any payment of
principal or interest due on either of the Loans, or any payment under any
reimbursement obligation in respect of any Letter of Credit, is not paid to
Lender within ten (10) days after the date that such payment is due, then
Lender, in Lender's sole discretion, shall be entitled to impose on Borrower a
"late charge" equal to five percent (5%) of the amount not paid when due, and
Borrower and the Guarantors shall be obligated to pay each such late charge to
Lender immediately upon the imposition thereof by Lender. In Lender's
discretion, upon and after the occurrence of an Event of Default, interest on
the outstanding principal balances of all Loans shall accrue and be payable at
the Default Rate.
SECTION 2D.04. Omitted.
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SECTION 2D.05. UNUSED CREDIT FEE. Borrower shall pay to Bank the Unused
Credit Fee for each year or portion thereof prior to the termination of Bank's
obligations to extend Revolving Credit under this Agreement. The accrued portion
of the Unused Credit Fee shall be due and payable to Bank in arrears on each
Quarterly Payment Date. Borrower hereby authorizes Bank to debit Borrower's
account maintained with Bank to pay the Unused Credit Fee on each Quarterly
Payment Date. For purposes of the calculation of the Unused Credit Fee, the
unused portion of the Revolving Credit shall be the average daily Available
Revolving Credit Amount during the applicable quarter. The Unused Credit Fee
shall be based upon the Consolidated Funded Debt to EBITDA ratio for the
preceding fiscal quarter for which Bank shall have received quarterly financial
statements pursuant to this Agreement, E.G. the Unused Credit Fee for the period
from January through March of a particular year shall be based upon the
quarterly financial statements for the fiscal quarter ending the immediately
preceding December.
SECTION 2D.06. MANDATORY ADDITIONAL PAYMENTS. At any time that the
aggregate outstanding principal balance of Revolving Credit Loans, plus the
aggregate face amounts of outstanding Letters of Credit, exceeds the Revolving
Credit Committed Amount, Borrower shall immediately and without demand, and
without set-off, defense or counterclaim of any kind, make payments to Lender of
Revolving Credit Loans in the amount necessary in order to reduce the aggregate
outstanding balance of Revolving Credit Loans so that the aggregate outstanding
balance of Revolving Credit Loans, plus the aggregate face amounts of
outstanding Letters of Credit, will not exceed the Revolving Credit Committed
Amount.
SECTION 2D.07. PREPAYMENTS. Borrower may prepay Revolving Credit Loans,
the Term Loan and the Acquisition Loan in whole or in part at any time without
premium or penalty. All prepayments of the Term Loan or the Acquisition Loan
shall be applied in inverse order of the maturity of the scheduled payments. Any
prepayment of the Loans shall not affect Borrower's obligation to continue to
make payments under and in accordance with any swap agreement (as defined in 11
U.S.C. ss.101), which payments shall be governed exclusively by the term of such
swap agreement.
SECTION 2D.08. MANNER OF PAYMENTS. All payments to be made to Lender
shall be made in Dollars in immediately available funds without set-off,
defense, counterclaim or deduction of any kind, not later than 12:00 noon,
Eastern Time, at the Payment Office on the dates specified for such payments
under this Agreement, the Revolving Credit Notes, the Term Note, the Seller Note
or the other Credit Documents. Borrower's failure to make any such payments by
12:00 noon, Eastern Time, on the dates on which such payments are due shall not
be an Event of Default so long as such payments are made later on the day that
such payments are due provided that any such payments made after 12:00 noon,
Eastern Time, on the dates such payment are due shall be deemed to have been
made on the next Business Day thereafter for purposes of calculating interest on
amounts outstanding under the Loans. Payments made in other than Dollars shall
be accepted subject to collection.
SECTION 2D.09. APPLICATION OF PAYMENTS. Payments made by Borrower to
Lender shall be applied in such order as Lender may determine in Lender's
discretion.
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SECTION 2D.10. CAPITAL ADEQUACY. Borrower shall pay to Lender from time
to time upon Lender's demand such additional amounts as Lender may determine in
Lender's discretion to be necessary to compensate Lender for any reduction in
the rate of return on Lender's capital (or on the capital of Lender's holding
company, if any) due to the applicability of any Capital Adequacy Requirement,
as a consequence of the existence of Lender's obligations under this Agreement,
to a level below, by an amount reasonably deemed by Lender to be material, that
which Lender (or Lender's holding company) could have achieved but for such
Capital Adequacy Requirement.
SECTION 2D.11. RATE ADEQUACY. If Lender reasonably determines in
Lender's reasonable discretion that (a) deposits in Dollars (in the applicable
amounts) or quotations of interest rates for the relevant deposits are not being
offered to Lender in the relevant amounts or for the relevant maturities for
purposes of determining the rates of interest on LIBOR Rate Loans under this
Agreement, or (b) the applicable LIBOR Rate will not adequately and fairly
reflect Lender's cost of funding LIBOR Rate Loans for such Interest Periods,
then any obligation to make such LIBOR Rate Loans under this Agreement shall be
suspended until such time as the inadequacy or unavailability of LIBOR Rate
Loans no longer exists. In the event LIBOR Rate Loans are not available on
account of operation of this Section, Lender shall use the Prime Rate as an
alternate index or reference rate.
SECTION 2D.12. REGULATORY CHANGE. Borrower shall pay to Lender from
time to time, upon Lender's demand, such additional amounts as Lender may
determine in Lender's reasonable discretion to be necessary to compensate Lender
for any Additional LIBOR Costs resulting from any Regulatory Change that: (a)
subjects Lender to any tax, duty or other charge in respect of the LIBOR Rate
Loans (or the Notes evidencing LIBOR Rate Loans) or subjects the Lender to
changes in the basis of taxation of any amounts payable to Lender under this
Agreement (or the Notes) in respect of any LIBOR Rate Loans or Lender's
obligations to make LIBOR Rate Loans (excluding changes in the rate of tax on
the overall net income of Lender by the jurisdiction in which Lender has its
principal office); or (b) imposes, modifies, or deems applicable any reserve,
special deposit or similar requirements (other than the LIBOR Reserve
Requirements used in the calculation of the LIBOR Rate under this Agreement)
relating to any extensions of credit or against assets of, or any deposits with,
or other liabilities of, Lender (including any LIBOR Rate Loans or any deposits
referred to in the definition of LIBOR Base Rate in this Agreement), or Lender's
commitment to make LIBOR Rate Loans under this Agreement; or (c) imposes any
other condition affecting this Agreement or the Notes (or any of such extensions
or credit or liabilities) or Lender's commitment to make LIBOR Rate Loans under
this Agreement. Additionally, if any Regulatory Change or any event affecting
the United States money markets or the London interLender market, causes Lender
to either (X) incur Additional LIBOR Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of Lender that includes deposits by reference to which the interest
rate on LIBOR Rate Loans is determined as provided in this Agreement or a
category of extensions of credit or other assets of Lender that includes LIBOR
Rate Loans, or (Y) become subject to restrictions on the amount of such category
of liabilities or assets that it may hold, then, if Lender
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so elects, the obligation of Lender to make or renew LIBOR Rate Loans under this
Agreement shall be suspended until such Regulatory Change ceases to be in effect
or the effects of such other event cease.
SECTION 2D.13. DESIGNATION OF AGENT AND ATTORNEY-IN-FACT. Each Borrower
that is a party to any Credit Document hereby irrevocably appoints EHI (referred
to herein as the "BORROWER GROUP AGENT") as the agent and attorney-in-fact for
such Borrower with full power and authority to act on behalf of such Borrower in
all respects with respect to any actions, waivers, consents, payments, receipts,
or notices, whether or not required under this Agreement or the other Credit
Documents, or as the Borrower Group Agent may engage in, provide, give or take
in its sole and unfettered discretion. Each such Borrower agrees that all
actions taken, waivers or consents provided, payments made or received, or
notices given or received, by Lender, in each case by or to the Borrower Group
Agent, shall be effective as to such Borrower regardless of whether such action,
waiver, consent or notice was taken or approved by, or given or received by, any
Person other than the Borrower Group Agent. In all respects and circumstances,
Lender is entitled to rely without limitation on any and all actions, waivers,
consents, and notices of the Borrower Group Agent as actions, waivers, consents
or notices of all such Borrowers, including any and all agreements to modify or
amend in any respect, or grant any waiver or consent under, or to give or
receive any notice with respect to, this Agreement or any other Credit
Documents, and Lender is under no expectation or obligation whatsoever to
inquire as to whether any such action or waiver was approved or ratified by, or
notice given or received by, any such Borrower, and may act as if any such
action, waiver, consent, or notice was engaged in, provided, taken, given or
received by each such Borrower. In this respect, absent written notice to the
contrary with respect to a specified matter, it is agreed that, in each and
every circumstance insofar as Lender is concerned, any action taken, waiver or
consent given, or notice given or received by the Borrower Group Agent, shall be
deemed taken, given or received by each such Borrower even absent an express
indication that such action is taken, such waiver or consent is given, or such
notice is given or received by any such Borrower.
SECTION 2D.14. NET PAYMENTS. Any and all payments of principal,
interest, fees and other Obligations by Borrower hereunder and under the Notes
and the other Credit Documents shall be made free and clear of and without
deduction for any and all Taxes. As used herein, "TAXES" means (a) All present
or future taxes, levies, imposts, deductions, charges or withholding, and all
liabilities, imposed by any taxing authority in any jurisdiction (other than the
United States, except as otherwise provided in clause (b) of this sentence) by
reason of the payment of principal, interest, fees and other Obligations
hereunder, and (b) shall also include taxes imposed by any United States taxing
authority by reason of the payment of increased amounts pursuant to clause (i)
of the next sentence, but only to the extent attributable to such increase. If
any such Taxes shall be required by law to be deducted from or in respect of any
principal, interest, fees or other Obligations payable to Lender hereunder: (i)
the sum payable by Borrower shall be increased as necessary so that after taking
all such Taxes into account, Lender shall receive an amount equal to the sum it
would have received had no such deductions been made; (ii) the applicable
Borrower Group shall make all required deductions for such
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Taxes; and (iii) the applicable Borrower Group shall pay the full amount
deducted to the relevant taxing authority in accordance with applicable law and
shall furnish Lender with proof of such payment. The term "Taxes" shall not
include any taxes imposed on the income of the Lender.
ARTICLE II-E
CREDIT FACILITY - CONDITIONS
SECTION 2E.01. FULFILLMENT OF CONDITIONS. In requesting, applying for,
or taking the Term Loan or any Revolving Credit Loan or any Letter of Credit
from Lender, Borrower shall be deemed to have represented and warranted to
Lender that each of the following conditions in this Article have been
fulfilled. Borrower's failure to fulfill one or more of the following conditions
shall not be relieved by the making of any Loan or the issuance of any Letter of
Credit. Neither the making of any Loan nor the issuance of any Letter of Credit
shall constitute a waiver of any of the following conditions.
SECTION 2E.02. CONDITIONS TO ALL LOANS AND LETTERS OF CREDIT. The
following are conditions precedent to the making of the Term Loan and all
Revolving Credit and must be fulfilled to Lender's satisfaction:
(a) On and as of the date each Loan is made, and on and as of
the date each Letter of Credit is issued, each representation and each warranty
made in this Agreement and in any other Credit Documents shall be true,
accurate, and complete;
(b) On and as of the date each Loan is made, and on and as of
the date that each Letter of Credit is issued, no Default or Event of Default
shall have occurred and be continuing;
(c) All Credit Documents required by Lender from time to time
shall have been fully executed by the parties thereto and delivered to Lender;
stock certificates representing all of the Shares and stock powers for such
Shares signed in blank shall have been delivered to Lender; and all actions
necessary for the perfection and protection of Lender's security interests under
this Agreement and the other Credit Documents, and all actions necessary to
maintain the first priority of such security interests, shall have been taken
and completed; notwithstanding the foregoing, execution and delivery of the UK
Credit Documents shall not be required as a condition to funding of the Term
Loan;
(d) Borrower shall have paid to Lender in the manner described
herein all out-of-pocket expense of Lender and all fees then due and payable
through the date of the making of such Loan or the issuance of such Letter of
Credit;
(e) After the Effective Date, and as of the date each Loan is
made or Letter of Credit is issued, there shall not have occurred any material
and adverse change in the
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Obligors' consolidated financial position, nor any condition, event, or act
which would have a Material Adverse Effect; and
(f) Lender shall have received certificates of insurance,
satisfactory to Lender in form and substance with copies of each insurance
policy required under this Agreement or any of the other Credit Documents
endorsed in favor of Lender as required by the Credit Documents to be delivered
promptly following the Effective Date, and such insurance shall be in full force
and effect.
SECTION 2E.03. CONDITIONS TO TERM LOAN AND THE ACQUISITION LOAN. The
following are conditions precedent to the making of the Term Loan and the
Acquisition Loan and must be fulfilled to Lender's satisfaction:
(a) Lender shall have received the following:
(i) copies of resolutions of the Board of Directors
of each Borrower, authorizing the execution, delivery and performance of this
Agreement and the other Credit Documents, and the borrowing hereunder, and such
other matters as Lender may require, in form and substance satisfactory to
Lender, certified by the Secretary or Assistant Secretary of such Borrower;
(ii) a certificate of the Secretary or Assistant
Secretary of each Borrower as to the correctness and completeness of the copy of
the By-laws of such Borrower attached thereto and as to the incumbency and
signatures of the officers of such Borrowers who execute the Credit Documents;
(iii) a copy of the Articles of Incorporation of each
Borrower, certified by an officer of such Borrower as being correct and
complete, together with a certificate of the appropriate officer or department
of the state in which such Borrower is incorporated as to the good standing and,
if applicable, authority of such Borrower, with copies of the Articles of
Incorporation of such Borrower on file;
(iv) certificates of the appropriate officers or
departments of the states in which each Borrower is not incorporated but does
business as to such Borrower's qualification and good standing to conduct
business as a foreign corporation in such states;
(v) an opinion letter or opinion letters from counsel
(including Virginia counsel) to each Obligor in form and substance satisfactory
to Lender;
(vi) Omitted.
(vii) unless otherwise provided in accordance with
preceding clauses (i) through (vi), the corresponding certificates, documents,
and opinion letters required in the foregoing clauses (i) through (vi), as
applicable, for TAS; and
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(viii) such additional supporting certifications and
other documents as Lender may reasonably request.
(b) The US Transaction and the UK Transaction shall each have
occurred subject only to the funding of the Term Loan and the Acquisition Loan.
The Borrowers shall have delivered to Lender a complete copy of the fully
executed Stock Purchase Agreement, with complete copies of all exhibits
(executed, as applicable) and schedules, and complete copies of all documents,
letters, disclosures (including all Disclosure Letters referred to in the Stock
Purchase Agreement), certificates, instruments (including instruments or
certificates representing the Shares) and any other materials delivered to the
Obligors in connection with or pursuant to the terms of the Stock Purchase
Agreement, and Lender shall have found such items to be satisfactory in the
Lender's sole discretion. The Stock Purchase Agreement shall not have been
amended, nor shall any obligations, rights, or remedies thereunder have been
waived, without prior written notice to, and the prior written consent of,
Lender.
(c) The Collateral has a value acceptable to Lender.
(d) Omitted.
(e) Lender shall have received the estimated Opening Day
Balance Sheets prepared by Borrower.
(f) Lender shall have received such information regarding the
Principals as Lender may have requested. All information provided to Lender
regarding the Principals shall be subject to Lender's review and must be
satisfactory to Lender in Lender's sole discretion.
(g) Lender shall have received for each Borrower, and for each
of the Principals, copies of all shareholder agreements, employment agreements,
confidentiality agreements, information protection agreements and the like,
which shareholder agreements, employment agreements, non-competition agreements,
confidentiality agreements, information protection agreements and the like in
form and substance satisfactory to Lender.
(h) Omitted.
(i) Obligors' intangible assets shall include, without
limitation, on the Effective Date the worldwide trademark rights to the use (and
to license others to use) the names "Environ" and "Environ International" and
"Environ International Corporation" (and any related tradenames) in the same
manner in which they are currently used by the US Corporation and the UK
Corporations, which rights must be unencumbered except by the security interests
and collateral assignments in favor of Lender or by Permitted Liens. As used in
the preceding sentence, "worldwide" means the United States of America, and its
territories and possessions (and the Commonwealth of Puerto Rico), the United
Kingdom and any other jurisdictions in which any of the Obligors does business.
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(j) The Principals shall have made a minimum cash equity
contribution to EHI of One Million Dollars ($1,000,000) in the aggregate prior
to the purchase of the Shares and the funding of the Term Loan and the
Acquisition Loan.
SECTION 2E.04. CONDITIONS TO ALL REVOLVING CREDIT INCLUDING THE INITIAL
REVOLVING CREDIT. The following are conditions precedent to the making of all
Revolving Credit Loans and the issuance of all Letters of Credit and must be
fulfilled to Lender's satisfaction:
(a) The Term Loan and the Acquisition Loan shall not be in
default.
(b) With respect to the UK Corporations, Lender shall have
received each of the following:
(i) Guarantor Board Resolutions - In respect of each
Guarantor, a copy, certified as true, complete and up-to-date, of minutes of the
meeting(s) of the Board of Directors of such Guarantor at which valid
resolutions were adopted approving the Credit Documents to which it is party and
the assumption of its obligations thereunder and authorizing a person or persons
to execute and deliver such Credit Documents and all notices, communications or
documents to be given by such Guarantor or on its behalf pursuant to or in
connection therewith, together with certified copies of unanimous shareholders
resolutions approving and authorizing the execution of such Credit Documents;
(ii) Shareholder Resolutions - certified copies of
shareholder resolutions of the Guarantors [and their subsidiaries] resolving to
make such amendments to their Memoranda and Articles of Association as Lender
shall have specified prior to the Effective Date;
(iii) Legal Due Diligence Report - an original copy
of the legal due diligence report, if any, prepared by Allen & Overy on behalf
of the Borrowers and addressed to, among others, Lender;
(iv) Pension Report - an original copy of the
actuarial report prepared by an actuary (or other person in Lender's discretion)
acceptable to Lender on behalf of the Borrowers and addressed to, among others,
Lender;
(v) Accountant's Report - an original copy of the
accountant's financial due diligence report prepared by accountants acceptable
to Lender in respect of the Guarantors and addressed to, among others, Lender;
(vi) Membership of Board - confirmation of the
approval by Lender of the membership of the Board of Directors of the
Guarantors;
(vii) Statutory Declaration and Report - a certified
copy of the statutory declaration made in the prescribed form by all of the
directors of each Guarantor as
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required by Section 155(b) of the Companies Act 1985 and of the statutory report
of each of the Guarantor's auditors required under Section 156(4) of the
Companies Act 1985;
(viii) Net Asset Confirmation - a letter from the
auditors of each Guarantor, addressed to Lender and confirming that the
provisions of Section 155(2) of the Companies Act 1985 are not being breached by
any such Guarantor.
(c) Lender shall have received an opinion letter or opinion
letters from both United States and United Kingdom counsel to each UK
Corporation in form and substance satisfactory to Lender.
(d) Borrowers and Guarantors shall have executed and delivered
to Lender such Credit Documents and amendments to Credit Documents as Lender may
request.
(e) Immediately upon making the Revolving Credit Loan or
issuing the Letter of Credit, as the case may be, (i) the sum of (A) the
aggregate outstanding principal balances of the Revolving Credit Loans plus (B)
the aggregate of the face amounts of the outstanding Letters of Credit, if any,
will not exceed the Revolving Credit Committed Amount, and (ii) the aggregate of
the face amounts of the outstanding Letters of Credit, if any, will not exceed
the Letter of Credit Maximum Amount.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Borrower hereby makes the following representations and warranties
to Lender (a) on and as of the Effective Date, (b) at the time that each Loan is
made, and (c) at the time that each Letter of Credit is issued.
SECTION 3.01. CONDITIONS. All conditions precedent to the making of the
applicable Loan or Letter of Credit as set forth in Article II have been
satisfied in full.
SECTION 3.02. EXISTENCE. Each Borrower:
(a) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization;
(b) has all requisite corporate power, and has all material
governmental licenses, authorizations, consents and approvals to own its assets
and carry on its business as now being or as proposed to be conducted; and
(c) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify could (either
individually or in the aggregate) have a Material Adverse Effect.
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SECTION 3.03. ACTION.
(a) Each Borrower has all necessary corporate power, authority
and legal right to execute, deliver and perform Borrower's obligations under
each of the Credit Documents; and
(b) The execution, delivery and performance by each Borrower
of each of the Credit Documents have been duly authorized by all necessary
corporate or other action on Borrower's part (including any required shareholder
or like approvals); and
(c) This Agreement has been duly and validly executed and
delivered by each Borrower and constitutes, and the Term Note and other Credit
Documents, when executed and delivered by such Borrower, will constitute such
Borrower's, legal, valid and binding obligation, enforceable against such
Borrower, as the case may be, in accordance with its terms.
SECTION 3.04. APPROVALS. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency, or any securities exchange, are necessary for the execution, delivery
or performance of the Credit Documents by any Borrower or for the legality,
validity or enforceability thereof, except for financing statement filings in
respect of the security interests created in favor of Lender pursuant to this
Agreement and the other Credit Documents. The borrowings hereunder, and the
execution, delivery and performance of each of the Credit Documents will not (a)
contravene any applicable provision of law, any applicable order of any court or
other agency of government, or (b) contravene the Articles of Incorporation or
By-laws or any indenture, agreement or other instrument binding upon any
Borrower, or (c) be in conflict with, result in the breach of or constitute
(with due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument binding upon any Borrower, or (d) result in the
creation or imposition of any Lien, charge or encumbrance of any nature
whatsoever upon any of the property or assets of any Borrower, except pursuant
to this Agreement and the other Credit Documents.
SECTION 3.05. OWNERSHIP. Schedule 3.05 contains a true, accurate, and
complete description of the capital structure of each Borrower and identifies
each Person who owns or holds any equity right, title or interest in each
Borrower.
SECTION 3.06. SUBSIDIARIES. US Corporation has no Subsidiaries other
than TAS. EAGL has no Subsidiaries other than EAG, a private company limited by
shares incorporated in England and Wales. EIL has no Subsidiaries other than
Integrated Systems Assessment Limited, a private company limited by shares
incorporated in England and Wales. US Corporation, EAGL, EIL, EAG, TAS and
Integrated Systems Assessment Limited have and shall have no Affiliates other
than each other.
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SECTION 3.07. FINANCIAL STATEMENTS.
(a) The financial statements of the US Corporation and the UK
Corporation provided to Lender dated as of November 30, 1998, together with
related consolidated statements of income, stockholders' equity and changes in
financial position or cash flow are true, accurate, and complete in all material
respects and fairly represent the financial condition of such Persons (and their
Consolidated Subsidiaries, if any) as of such date; such financial statements
were prepared in accordance with GAAP applied on a consistent basis (except as
noted therein); and since the date of such financial statements there has been
no material adverse change in the financial condition of the US Corporation and
the UK Corporation (and their Consolidated Subsidiaries, if any). Since November
30, 1998 no dividends, distributions, loans or advancements of any kind have
been made or given to any Person holding any equity right, title or interest in
the US Corporation and the UK Corporation other than compensation in the
ordinary course of business, that, if this Agreement had been in effect during
the period from November 30, 1998 through the date of this Agreement, would not
conflict with any provision of this Agreement.
(b) The Opening Day Balance Sheets, which have been prepared
and certified by the treasurer or other officer of each member of the Borrower
Group, are true and correct.
SECTION 3.08. SOLVENCY. Each Borrower is, and after giving effect to
the consummation of this Agreement and the incurrence of any Obligations
incurred hereunder, will be, Solvent. No Borrower is contemplating either the
filing of a petition by such Borrower under any state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of such Borrower's
Property, and such Borrower has no knowledge of any Person contemplating the
filing of any such petition against such Borrower. No Borrower is currently the
subject of any bankruptcy or similar proceeding under any state or federal law
and none of such Borrower's Property is under the jurisdiction of any bankruptcy
court or other court having similar jurisdiction.
SECTION 3.09. INVESTMENTS. Schedule 3.09 contains a true, accurate, and
complete listing of each Investment of each Borrower. No Borrower has any
Investments other than Permitted Investments.
SECTION 3.10. DEPOSIT ACCOUNTS. Schedule 3.10 contains a true,
accurate, and complete listing of each deposit account of each Borrower.
SECTION 3.11. INDEBTEDNESS. Schedule 3.11 contains a true, accurate,
and complete listing of all Indebtedness of each Borrower. No Borrower has any
Indebtedness other than Permitted Indebtedness.
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SECTION 3.12. LIENS. Each Borrower has good and marketable title to its
Property free of all Liens, except for Permitted Liens. Schedule 3.12 contains a
true, accurate, and complete listing of each Lien on each Borrower's Property.
SECTION 3.13. MATERIAL AGREEMENTS. Schedule 3.13 contains a true,
accurate, and complete listing of each Material Agreement that burdens any
Borrower or from which any Borrower derives direct or indirect benefits. To each
Borrower's knowledge, no default or event of default by any Person under any
Material Agreement has occurred and is continuing. No Borrower is a party to, or
bound by, any contract or instrument, or subject to any charter or other
corporate restriction, materially and adversely affecting the business,
property, assets, operations or condition, financial or otherwise, of any
Borrower.
SECTION 3.14. LEGAL PROCEEDINGS. Except as set forth in Schedule 3.14,
there is no pending Proceeding that has been commenced by or against any Obligor
that relates to or may be reasonably expected to materially adversely affect on
a consolidated basis the business of or the Property owned by or used by the
Obligors and, to each Borrower's knowledge, no such Proceeding has been
Threatened.
SECTION 3.15. ACCOUNTS. All Accounts that may be listed on any accounts
aging or listing furnished to Lender by or on behalf of Borrower at any time,
and all Accounts included in Borrower's assets on any financial statement
furnished to the Lender by or on behalf of Borrower at any time (including,
without limitation, the Opening Day Balance Sheets), and unless otherwise
expressly and clearly stated on such aging, listing or financial statement and
thereby disclosed to the Lender: (a) shall have arisen from services performed
by Borrower for, or goods sold by Borrower to, the appropriate Account Debtor in
a commercial transaction; (b) the Account is based on an enforceable order or
contract, written or oral, for services performed or goods sold, and the same
were performed or sold in accordance with such order or contract; (c) Borrower's
title to the Account is good and marketable and is not subject to any Lien other
than Lender's security interest; (d) the amount shown on the books of Borrower
and on any invoice or statement delivered to Lender regarding the Account is
owing to Borrower.
SECTION 3.16. INSURANCE. Schedule 3.16 contains a true, accurate, and
complete listing of each insurance policy (including policies of worker's
compensation insurance, liability insurance, casualty insurance and business
interruption insurance) maintained in full force and effect by each Borrower.
SECTION 3.17. INTELLECTUAL PROPERTY. Each Borrower holds, owns, or is
licensed to use, all Intellectual Property necessary to conduct its businesses
as now conducted or intended to be conducted, free of burdensome restrictions,
and without known conflict with the rights of others. All of the Intellectual
Property held, owned by, used by, or licensed to, each Borrower, or in which any
Borrower has any right or interest, is listed on Schedule 3.17. Except as may be
expressly stated on Schedule 3.17, each Borrower holds, owns, and has the
exclusive right or license to use the Intellectual Property listed on Schedule
3.17, subject to no rights of any other Person.
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SECTION 3.18. SPECIAL PROPERTY. No Borrower uses, owns or otherwise has
rights to any Special Property, other than Special Property that is (a)
Intellectual Property listed on Schedule 3.17 or (b) Property listed on Schedule
3.18.
SECTION 3.19. MARGIN STOCK. No Borrower is engaged principally, or as
one of its activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying Margin Stock,
and no part of the proceeds of any extension of credit hereunder will be used to
buy or carry any Margin Stock. No Borrower owns Margin Stock except as disclosed
on Schedule 3.19, and as of the date hereof the aggregate value of all Margin
Stock owned by any Borrower does not exceed twenty-five percent (25%) of the
assets of such Borrower.
SECTION 3.20. TAX IDENTIFICATION NUMBERS. The tax identification number
for each Borrower and Guarantor is correctly set forth opposite its name on
Schedule 3.20. EHI does not have a tax identification number on the Effective
Date, but EHI has applied for it as of the Effective Date.
SECTION 3.21. BUSINESS. The business of each Borrower is as described
on Schedule 3.21.
SECTION 3.22. NAME, STRUCTURE. Except for the name change of the US
Corporation contemporaneously with the execution of this Agreement to Environ
International Corporation or as otherwise listed on Schedule 3.22, no Borrower
has changed its name or organizational structure within the two (2) year period
immediately preceding the Effective Date or purchased or acquired any Property
from any Person other than Property which in the hands of such Person was such
Person's inventory and was sold to Borrower in the ordinary course of such
Person's business.
SECTION 3.23. DESIGNATED LOCATIONS. The street address, and county and
state, of each place of business of each Borrower and each place where such
Borrower has, leases, maintains or stores Property, are listed on Schedule 3.23.
The mailing address of Borrower's chief executive office is 4350 North Fairfax
Drive, Suite 300, Arlington, Virginia 22203, which is in Arlington County,
Virginia. As of the Effective Date, and except as disclosed on Schedule 3.23,
Borrower does not own any interest, including any leasehold interest, in real
estate.
SECTION 3.24. LABOR STATUS. No Borrower has experienced a strike, labor
dispute, slowdown or work stoppage due to labor disagreements which could have a
Material Adverse Effect and there is no such strike, dispute, slowdown or work
stoppage threatened against any Borrower. Except as disclosed on Schedule 3.24,
no Borrower is a party to any labor, employment or management contracts between
such Borrower and any of its employees or any person or group that represents
any of its employees.
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SECTION 3.25. ERISA STATUS.
(a) Schedule 3.25 is a true, accurate, and complete listing of
each Plan. Each Plan is in compliance in all material aspects with the
applicable provisions of ERISA and the Code. Except as otherwise expressly
indicated on Schedule 3.25, each Qualified Plan and each Multiemployer Plan has
been determined by the Internal Revenue Service to qualify under Section 401 of
the Code, and the trusts created thereunder have been determined to be exempt
from tax under Section 501 of the Code, and nothing has occurred that would
cause the loss of such qualification or tax-exempt status. There are no
outstanding liabilities under Title IV of ERISA with respect to any Plan which
could reasonably be expected to have a Material Adverse Effect. No Plan subject
to Title IV of ERISA has any Unfunded Benefit Liability which could reasonably
be expected to have a Material Adverse Effect. Neither Borrower nor any ERISA
Affiliate has transferred any Unfunded Benefit Liability to a person other than
an ERISA Affiliate or has otherwise engaged in a transaction that could be
subject to Section 4069 or 4212(c) of ERISA which could reasonably be expected
to have a Material Adverse Effect. Neither any Borrower nor any ERISA Affiliate
has incurred nor reasonably expects to incur (x) any liability (and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in such liability) under Sections 4201 or 4243 of ERISA with respect to a
Multiemployer Plan, or (y) any liability under Title IV of ERISA (other than
premiums due but not delinquent under Section 4007 of ERISA) with respect to a
Plan, which could, in either event, reasonably be expected to have a Material
Adverse Effect. No application for a funding waiver or an extension of any
amortization period pursuant to Section 412 of the Code has been made with
respect to any Plan (other than a Multiemployer Plan). No ERISA Event has
occurred or is reasonably expected to occur with respect to any Plan which could
reasonably be expected to have a Material Adverse Effect. Each Borrower and each
ERISA Affiliate has complied in all material respects with the notice and
continuation coverage requirements of Section 4980B of the Code. Neither any
Borrower nor any ERISA Affiliate has any contingent liability for
post-retirement benefits under a welfare plan (as defined in Section 3(1) of
ERISA), other than liability for continuation of coverage described in Section
4980B of the Code, except as disclosed on the financial statements of each
Borrower prepared in accordance with GAAP applied on a consistent basis and
delivered to Lender.
(b) In respect of the UK Corporations, Schedule 3.25A contains
a true, accurate and complete listing of all agreements or arrangements for the
provision of pensions, allowances, lump sums or other similar benefits on
retirement, death or long term ill health for the benefit of any current or
former employee of either UK Corporation or their dependents, including ex
gratia arrangements (each a "UK PLAN"). To the best knowledge of Obligors:
(i) Full and accurate particulars of each UK Plan
have been disclosed including, without limitation, copies of the current trust
deed and rules plus any amending deeds or resolutions, members' booklets plus
any subsequent announcements to members, membership details, details of
contributions payable by and in respect of members, most recent actuarial report
and valuation, most recent scheme accounts, evidence of Inland Revenue approval
and contracting-out status and evidence of compliance with the Pensions Act 1995
and regulations.
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(ii) Other than as disclosed there are no other
Pension Schemes for current or past directors or employees of the Company.
(iii) In relation to each UK Plan within the three
years ending on the date of this agreement no power to augment benefits has been
exercised, no discretion has been exercised to admit an employee to membership
of the pension scheme who would not otherwise be eligible and no discretion has
been exercised to provide a benefit which would not otherwise be provided; all
benefits (other than a refund of contributions with interest where appropriate)
payable under each UK Plan on the death of a member while in an employment to
which the pension scheme relates are fully insured by a policy with an insurance
company of good repute; there are no contributions to a UK Plan which are due
but unpaid and have remained unpaid for more than one month and in any event
contributions have been paid which are at least equal to and by the due date
specified in any schedule of contributions or payments applicable under Section
58 or 87 of the Pensions Act 1995; no takeover protection provision will be
triggered by Completion; each UK Plan is sufficiently funded on an ongoing basis
using the assumptions used in the last actuarial valuation to secure at least
the benefits accrued to Completion (other than those which are insured) and in
addition is sufficiently funded to meet the minimum funding requirement as
defined in Section 56 of the Pensions Act 1995, and all information provided to
the Pension Scheme actuary for the purposes of the last actuarial valuation was
true, accurate and complete in all respects and there have been no events since
the date of that valuation which would show a deterioration of the funding
position of a UK Plan were such a valuation to be undertaken at the date of
Completion.
(iv) Each UK Plan is either approved by the Board of
Inland Revenue for the purposes of Chapter I Part XIV of the Income and
Corporation Taxes Act 1988 or is a scheme under which the benefits provided or
to be provided are consistent with the approval of the scheme by the Board of
Inland Revenue for such purposes and is a scheme in respect of which an
application for such approval has been made and has not been withdrawn or
refused and the Board of Inland Revenue have not given notice to the applicant
that they believe the application has been dropped; is established under
irrevocable trusts; has been administered in accordance with all applicable laws
(including Article 119 of the Treaty of Rome), regulations and requirements of
any competent governmental body or regulatory authority and the trusts and rules
of the UK Plan; has not been the subject of any report of wrongdoing or
irregularities to the Occupational Pensions Regulatory Authority nor are there
any circumstances which would justify such a report; is a scheme in respect of
which all actuarial, consultancy, legal and other fees, charges or expenses have
been paid and for which no services have been provided for which an account or
invoice has not been rendered; and has no investment in employer-related assets
as defined in Section 40 of the Pensions Act 1995.
(v) No claim has been threatened or made or
litigation commenced against the trustees or administrators of any UK Plan or
against UK Corporations or any other person whom either UK Corporation is or may
be liable to indemnify or compensate in respect of any matter arising out of or
in connection with any UK Plan. There are no circumstances which
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may give rise to any such claim or litigation. There are no unresolved disputes
under any UK Plan's internal dispute resolution procedure.
SECTION 3.26. ENVIRONMENTAL STATUS. Except as set forth in Schedule
3.26:
(a) Each Borrower has obtained and maintained all
Environmental Permits necessary to conduct its business, both as done currently
and as proposed except insofar as collectively any non-compliance would not have
a Material Adverse Effect..
(b) Each Borrower has complied with all Environmental Laws
(including Environmental Permits) except insofar as collectively any
non-compliance would not have a Material Adverse Effect.
(c) To the knowledge of each Borrower, neither any Borrower
nor any Environmental Affiliate known to it, whether actively or passively, has
released, emitted, buried, leaked, or disposed of Regulated Substances on any
Property ever owned, leased or operated by any of them.
(d) To the best knowledge of each Borrower, no one else,
whether actively or passively, has released, emitted, buried, leaked, or
otherwise disposed of Regulated Substances on any Property while owned, operated
or leased by any Borrower or any Environmental Affiliate known to it.
(e) To Borrower's knowledge, there are no asbestos containing
materials, polychlorinated biphenyls or radioactive substances located on
Property now owned, operated or leased by any Borrower.
(f) Neither any Borrower nor any Environmental Affiliate known
to it has operated a treatment, storage or disposal facility requiring a permit
or having interim status under the Resource Conservation and Recovery Act, as
amended, or any comparable state laws, nor, to Borrower's knowledge, has any
Property of any Borrower or any Environmental Affiliate known to it been used
for such purposes.
(g) To Borrower's knowledge, there have been no underground
storage tanks, pipelines or surface impoundments at any Properties ever owned,
leased or operated by Borrower or any Environmental Affiliate known to it which
was violative of any Environmental Law during such period of ownership, use or
operation.
(h) Neither any Borrower nor any Environmental Affiliate known
to it has received any Environmental Claim pursuant to any Environmental Law or
relating to any potential environmental liability which is not resolved and
which is likely to have a Material Adverse Effect.
(i) To the best knowledge of each Borrower, no other party has
received any Environmental Claim pursuant to any Environmental Law, including
CERCLA or any
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comparable state law or relating to any environmental liability relating to any
Borrower or any Environmental Affiliate known to it, any of their Property or
any property where wastes generated by any of them have been sent which is not
resolved and which is likely to have a Material Adverse Effect.
(j) To Borrower's knowledge, none of the Property ever owned,
operated or leased by any Borrower or any known Environmental Affiliate is
listed on any environmental regulatory list of contaminated properties,
including the National Priorities List promulgated pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, the CERCLIS or any
federal, state or local counterpart with respect to such period of Borrower's
ownership, operation and lease which is not resolved and which is likely to have
a Material Adverse Effect.
(k) To Borrower's knowledge, there are no conditions on any
adjacent or neighboring properties which threaten the Property of any Borrower.
(l) To Borrower's knowledge, no Liens exist under or pursuant
to any Environmental Laws on any Property owned, operated or leased by any
Borrower, and to Borrower's knowledge no government action has been taken or is
in process that could subject any such Property to such Liens and no Borrower
would be required to place any notice or restriction relating to the presence of
Regulated Substances at any Property owned or leased by it in any deed or lease
to such Property.
(m) Each Borrower has disclosed to Lender, prior to the date
of this Agreement, its waste practices, its use of regulated substances and all
potentially material environmental matters and has disclosed all reports,
assessments, remedial action plans or other similar documents relating to any
material environmental condition of Property or operations of any Borrower and
any Environmental Affiliates known to it.
SECTION 3.27. INVESTMENT COMPANY ACT. No Borrower is an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 3.28. Omitted.
SECTION 3.29. COMMERCIAL LOAN. The Loans made under this Agreement are
made solely for a business or commercial purpose and not for any personal,
family, or household purpose. The terms of this Agreement and Notes do not
violate any Laws that regulate credit, including any applicable Laws regarding
usury and the charging of interest, late charges, fees, or any costs and charges
under this Agreement.
SECTION 3.30. NO BROKER. No Borrower has made any agreement or taken
any action that may cause anyone to become entitled to a commission or finder's
fee or other compensation
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of any kind attributable to any extensions of credit or other matters or
transactions contemplated under this Agreement and the other Credit Documents.
SECTION 3.31. OBLIGOR INFORMATION. There is no fact or circumstance or
anticipated event known to any Responsible Officer that could have a Material
Adverse Effect that has not been disclosed to Lender in this Agreement, the
other Credit Documents, or in another writing furnished to Lender on or before
the Effective Date for use in connection with the transactions contemplated by
this Agreement and the other Credit Documents. The Obligor Information furnished
to Lender on or before the Effective Date is true, accurate, and complete in all
material respects, and does not omit any material fact or facts necessary to
make the Obligor Information not misleading, and all Obligor Information
furnished to Lender after the Effective Date shall be true, accurate and
complete in all material respects.
SECTION 3.32. INDEPENDENT ACCESS. Each Obligor has adequate means to
obtain from each other Obligor, on a continuing basis, information concerning
the condition, financial and otherwise, of all other Obligors, and the Obligors
are not relying on Lender to furnish such information either now or in the
future. Neither Lender, nor any Affiliate of Lender, nor any of its or their
employees, attorneys, accountants, appraisers or other consultants or advisers
have made any representations, warranties or agreements of any kind to or with
the Principals, EHI, or the other Obligors, regarding the Stock Purchase
Agreement or the matters and transactions contemplated thereby, or the
businesses and assets that are directly or indirectly the subject matter
thereof.
SECTION 3.33. TAXES. Each Borrower has filed and will continue to file
all United States income tax returns and all state income tax returns that are
required to be filed, and has paid, or made adequate provisions for the payment
of, all taxes which have or may become due pursuant to said returns or pursuant
to any assessment received by Borrower except such taxes, if any, as are being
contested in good faith and as to which adequate reserves have been provided.
SECTION 3.34. APPLICABLE LAWS. Each Borrower is in compliance, in all
material respects, with all Applicable Laws.
SECTION 3.35. RISK MANAGEMENT AGREEMENTS. No Borrower is a party to any
Risk Management Agreement, except as listed on Schedule 3.35.
SECTION 3.36. YEAR 2000 ISSUES. Each Borrower and its subsidiaries have
made a full and complete assessment of the Year 2000 Issues and have a realistic
and achievable program for remediating any applicable Year 2000 Issues on a
timely basis. Based on this assessment and program, each Borrower reasonably
believes that Year 2000 Issues cannot be expected to have a Material Adverse
Effect.
SECTION 3.37. DIRECT OBLIGATION; FULL FAITH AND CREDIT. This Agreement,
the Notes, and the other Credit Documents to which any Borrower is a party, and
each of the Obligations of each Borrower hereunder or thereunder, are direct,
unconditional and general obligations of each
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Borrower jointly and severally for the payment of which the full faith and
credit of each Borrower is pledged.
SECTION 3.38. NO RECORDATION NECESSARY. This Agreement and each of the
other Credit Documents are in proper form under Virginia law for the enforcement
hereof or thereof against each Borrower under Virginia law, and to ensure the
legality, validity, enforceability, priority or admissibility in evidence of
this Agreement and the other Credit Documents, it is not necessary that this
Agreement or any other Credit Document or any other document, except UCC
financing statements, be filed, registered or recorded with, or executed or
notarized before, any court or other authority in Virginia or that any
registration charge or stamp or similar tax be paid on or in respect of this
Agreement or any other Credit Document or any other document.
SECTION 3.39. WAGES, SEVERANCE PAY, ETC. No Borrower has pension
benefits, wages, severance pay or unemployment benefits unpaid and owing to any
employees currently employed or severed or retired, except as described on
Schedule 3.39.
SECTION 3.40. STOCK PURCHASE AGREEMENT. The Stock Purchase Agreement is
in full force and effect, complies with all Applicable Laws, has not been
modified or amended, and no obligations, rights, or remedies thereunder have
been waived.
SECTION 3.41. Omitted.
SECTION 3.42. Omitted.
SECTION 3.43. PRINCIPALS. All of the Principals are identified in
Schedule 3.43.
ARTICLE IV
AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that from the date hereof and until
the later of the Credit Termination Date or payment in full of all Obligations
owed by any Borrower to Lender, unless Lender shall otherwise consent in
writing:
SECTION 4.01. INFORMATION. Each Borrower shall deliver to Lender, or
cause to be delivered to Lender, the following:
(a) Omitted.
(b) as soon as available, but in any event within ninety (90)
days after the close of each fiscal year of each Borrower (and Guarantors),
audited financial statements reflecting their operations during such fiscal
year, including, without limitation, a balance sheet, profit and loss statement
and statement of cash flows, with supporting schedules, all on a
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consolidated and consolidating basis, and setting forth in comparative form
consolidated figures for the preceding fiscal year, all in reasonable detail and
audited by a certified public accountant of recognized national standing
reasonably acceptable to Lender, whose opinion shall be unqualified and shall be
to the effect that such consolidated financial statements have been prepared in
accordance with GAAP applied on a consistent basis (excepting changes noted
thereon with which such accountants concur);
(c) as soon as available, but in no event more than forty-five
(45) days after the end of each of the first three fiscal quarters, a balance
sheet of each Borrower (and Guarantors) and statements of income and retained
earnings and of cash flows for each Borrower (and the Guarantors) for such
quarterly period and for the portion of the fiscal year ending with such period,
all on a consolidated and consolidating basis, in each case setting forth in
comparative form consolidated figures for the corresponding period of the
preceding fiscal year (except that the balance sheet shall be compared to that
at prior year end), all in reasonable form and detail acceptable to Lender, and
accompanied by the certificate of the Director of Finance of the applicable
Borrower (and the Guarantors) to the best of his or her knowledge, information
and belief, as being true and correct in all material respects and as having
been prepared in accordance with GAAP applied on a consistent basis, subject to
changes resulting from normal year-end audit adjustments;
(d) at the time of the delivery of the financial statements
provided for in Sections 4.01 (a) and (b), a Responsible Officer's Certificate;
(e) within the period for delivery of the annual financial
statements provided in Section 4.01(a), a certificate of the accountants
conducting the annual audit stating that they have reviewed this Agreement and
stating further whether, in the course of their audit, they have become aware of
any Default or Event of Default existing on the date of such statements arising
as a result of a violation of any financial covenants of this Agreement, and if
any such Default or Event of Default exists, specifying the nature and extent
thereof;
(f) promptly upon transmission thereof, copies of any filings
and registrations with, and reports to, the Securities and Exchange Commission,
or any successor agency, by any Borrower or Guarantor, and copies of all
financial statements, proxy statements, notices and reports as such Borrower or
Guarantor shall send to its shareholders or to the holders of any other
Indebtedness of any Borrower or Guarantor in their capacity as holders;
(g) within the period for quarterly and annual financial
statements, summary agings of accounts receivable, and accounts payable
listings, for each Borrower and the Guarantors each current as of the last day
of the then most recently ended quarter, together with such other information as
Lender may reasonably request regarding the accounts receivable and accounts
payable;
(h) within thirty (30) days after each filing by each Borrower
and each Guarantor of any tax return or extension thereof pursuant to the taxing
authority of any
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Governmental Authority, a photocopy of each such tax return, with all related
forms, schedules, and related information signed and certified by the applicable
Borrower or Guarantor as true and complete;
(i) with reasonable promptness upon any such request, such
other information regarding the business, properties or financial or operating
condition of any Borrower or Guarantor as Lender may reasonably request.
SECTION 4.02. REPORTING NOTIFICATION EVENTS. Immediately upon any
Responsible Officer obtaining knowledge thereof, but in any event within five
(5) Business Days after any Responsible Officer obtains such knowledge, each
Borrower shall give Lender written notice of each Notification Event, which
written notice shall include (i) a description of the Notification Event
(including an estimate of any anticipated liability or Material Adverse Effect
that may arise from such Notification Event other than the occurrence of a
Default or Event of Default), (ii) the date of the Notification Event and the
date that the Responsible Officer first obtained knowledge of the Notification
Event, and (iii) a description of the manner in which any Borrower has addressed
or otherwise responded to the Notification Event or intends to address or
otherwise respond to the Notification Event.
SECTION 4.03. EXISTENCE. Each Borrower shall maintain its corporate or
other legal existence, in each jurisdiction in which it is incorporated or
otherwise formed, and in each jurisdiction where it is required to register or
qualify to do business except for failures to register or qualify which,
individually or in the aggregate, would not have a Material Adverse Effect.
SECTION 4.04. PLACES OF BUSINESS. Borrower shall give Lender at least
thirty (30) days' prior written notice of the intended opening of any new
location in addition to the Designated Locations. Prior to such opening, such
Borrower shall deliver to Lender a revised Schedule 3.26 adding such new
location as a Designated Location and shall execute and deliver, or cause to be
executed and delivered, to Lender such agreements, documents, and instruments as
Lender may deem necessary or desirable in Lender's discretion to protect
Lender's interest in the Collateral at such new location, including UCC
financing statements. Such Borrower shall provide to Lender such UCC financing
statement search reports as Lender may reasonably request to confirm the absence
of competing Lien Notices and to confirm the priority of Lender's UCC financing
statements. If Borrower closes for business at any Designated Location, such
Borrower shall give Lender at least thirty (30) days' prior written notice with
a written explanation of the reason for closing such Designated Location. Upon
and after the occurrence of an Event of Default which remains uncured, no
Borrower shall open or close any place of business without Lender's prior
written consent, which consent shall not be unreasonably withheld, delayed or
conditioned.
SECTION 4.05. PROPERTY. Each Borrower shall maintain, preserve and
protect all Property that is material to the business of such Borrower and keep
such Property in good repair, working order and condition, normal wear and tear
excepted, and from time to time as necessary make, or cause to be made, all
repairs, renewals, additions, improvements, and replacements
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thereto as necessary in order that the business carried on in connection
therewith may be properly conducted at all times in accordance with customary
and prudent business practices for similar businesses.
SECTION 4.06. INSURANCE. Each Borrower shall maintain in full force and
effect at all times insurance (including worker's compensation insurance,
liability insurance, casualty insurance and business interruption insurance) in
such amounts, covering such risks and liabilities, and with such deductibles as
are in accordance with normal industry practice unless higher limits or other
types of coverage are required by the terms of the other Credit Documents,
provided that the insurance coverages maintained by each Borrower shall at all
times be at least comparable in amount and in all other material respects, as
the coverages described on Schedule 3.16. Each Borrower shall provide to Lender
promptly upon Lender's request from time to time certificates, policies or
endorsements as Lender shall require as proof of such insurance, and if any
Borrower fails to do so, Lender is authorized, but not required, to obtain such
insurance at the expense of the Obligors. All insurance policies shall provide
for at least thirty (30) days' prior written notice to Lender of any
cancellation or reduction in coverage and Lender may act as attorney-in-fact for
any Borrower in obtaining, and at any time an Event of Default exists,
adjusting, settling, amending and canceling such insurance. Each Borrower shall
cause Lender to be named as a loss payee and an additional insured (but without
any liability for any premiums) under all such insurance policies as to which
such is obtainable at no or reasonable cost and shall cause each Borrower to
obtain non-contributory Lender's loss payable endorsements to all such insurance
policies in form and substance satisfactory to Lender. Such Lender's loss
payable endorsements shall specify that the proceeds of such insurance shall be
payable to Lender as its interests may appear and further specify that Lender
shall be paid regardless of any act or omission by any Borrower or any other
Person. To the extent Borrower defaults in regularly scheduled payments on the
Notes or other Credit Documents, all proceeds of such casualty insurance and
business interruption insurance not applied to repair and replacement of the
Property shall be paid to Lender for application to the Obligations in
accordance with the terms of this Agreement and the other Credit Documents or
otherwise. Lender shall not be responsible for any failure to collect any
insurance proceeds due under the terms of any policy regardless of the cause of
such failure.
SECTION 4.07. TAXES. Each Borrower shall pay and discharge, or cause to
be paid and discharged, promptly all taxes, assessments, and governmental
charges or levies imposed upon any Borrower or upon any Borrower's income and
profits, or upon any of its Property or any part thereof, before the same shall
become in default, as well as all lawful claims for labor, materials and
supplies or otherwise which, if unpaid, might become a Lien upon such Property
or any part thereof; PROVIDED, HOWEVER, THAT no Borrower shall be required to
pay and discharge or to cause to be paid and discharged any such tax,
assessment, charge, levy or claim so long as the validity thereof shall be
contested in good faith by appropriate proceedings and such Borrower shall have
set aside on its books adequate reserves with respect to any such tax,
assessment, charge, levy or claim, so contested.
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SECTION 4.08. COMPLIANCE WITH LAWS. Each Borrower shall comply, in all
material respects, with all Applicable Laws.
SECTION 4.09. MATERIAL AGREEMENTS. Each Borrower shall comply, in all
material respects, with all Material Agreements, and shall diligently preserve,
protect, and enforce such Borrower's rights and remedies under all Material
Agreements.
SECTION 4.10. PERMITTED INDEBTEDNESS. Each Borrower shall pay all of
its Permitted Indebtedness promptly and in accordance with the contractual terms
of such Permitted Indebtedness as set forth in the documentation for such
Permitted Indebtedness.
SECTION 4.11. MAINTENANCE OF PRIMARY ACCOUNT. Omitted.
SECTION 4.12. CREDIT ADMINISTRATION COSTS; BROKERS. Each Borrower shall
pay and cause all other Obligors to pay all out-of-pocket costs and expenses of
Lender in connection with the Loans promptly upon Lender's demand from time to
time. Each Borrower shall indemnify and hold harmless Lender from and against
any claim by any Person not contracted with by Lender for a commission or
finder's fee or other compensation of any kind attributable to any extensions of
credit or other matters or transactions contemplated under this Agreement and
the other Credit Documents, and shall pay Lender's attorney's fees, litigation
expenses and court costs in defending any such claims.
SECTION 4.13. REVIEW AND AUDIT. Each Borrower shall maintain its
financial books and records in accordance with GAAP. Lender shall be permitted
access to all Records at any location, including any Designated Location during
normal business hours on reasonable notice and shall be permitted to take
copies, at Borrower's expense, of such Records as Lender may request. Each
Borrower shall permit and authorize Lender through any Person designated by
Lender ("LENDER'S DESIGNEE"), at such times and as often as Lender may
reasonably request, to visit, inspect, examine, audit and verify any of the
properties and Records of each Borrower relevant to the subject matter of this
Agreement or any other Credit Documents or any Obligor Information or the
financial condition of each Borrower. The actions of Lender and Lender's
Designee pursuant to this Section shall be scheduled and conducted so as not to
be unreasonably disruptive to Borrower's operations.
SECTION 4.14. RATE HEDGING. Upon the request of Lender, Borrower shall
hedge the floating interest expense of the Term Loan for the full term of the
Term Loan by maintaining one or more interest rate swap transactions with Lender
or with another financial institution approved by Lender in writing in an
aggregate notional amount equal to at least fifty percent (50%) of the initial
amount funded under the Term Loan, with Borrower making fixed rate payments and
receiving floating rate payments to offset changes in the variable interest
expense of the Term Loan, all upon terms and subject to such conditions as shall
be acceptable to Lender (or if such transaction is with another financial
institution, all upon terms and subject to conditions as shall be approved by
Lender in writing).
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SECTION 4.15. USE OF LOAN PROCEEDS. The proceeds of the Loans shall be
used solely for the purpose expressly permitted in Article II.
SECTION 4.16. ERISA AND RELATED MATTERS. Each Borrower shall promptly
furnish to Lender copies prepared or received by such Borrower or any ERISA
Affiliate of: (i) at the request of Lender, each annual report (Internal Revenue
Service Form 5500 series) and all accompanying schedules, actuarial reports,
financial information concerning the financial status of each Plan, and
schedules showing the amounts contributed to each Plan by or on behalf of
Borrower or any ERISA Affiliates for the most recent three (3) plan years; (ii)
all notices of intent to terminate or to have a trustee appointed to administer
any Plan under Title IV of ERISA; (iii) all written demands by the PBGC under
Subtitle D of Title IV of ERISA; (iv) all notices required to be sent to
employees or to the PBGC under Section 302 of ERISA or Section 412 of the Code;
(v) all written notices received with respect to a Multiemployer Plan concerning
(x) the imposition or amount of withdrawal liability pursuant to Section 4202 of
ERISA, (y) a termination described in Section 4041A of ERISA, or (z) a
reorganization or insolvency described in Subtitle E of Title IV of ERISA; (vi)
any new Plan that is subject to Title IV of ERISA or Section 412 of the Code
adopted by Borrower or any ERISA Affiliate; (vii) any amendment to any Plan that
is subject to Title IV of ERISA or Section 412 of the Code, if such amendment
results in a material increase in benefits or Unfunded Benefit Liability; or
(viii) at the request of Lender, information regarding any unfunded pension
liabilities or similar liabilities, severance liabilities, unemployment
liabilities, wage claims, or the like, if favor of any Person including without
limitation, an tax authority or Governmental Authority; and, in respect of each
UK Plan copies of (ix) any actuarial report and valuation of that UK Plan, and
any other actuarial advice material to the funding of the UK Plan; (x) any
amending deeds or documents; (xi) notification of any decision to terminate the
UK Plan; (xii) and notification of any litigation commenced or threatened
against the UK Plan, its trustees or the applicable UK Corporation in respect of
the UK Plan including any complaint made to the Pensions Ombudsman.
SECTION 4.17. ENVIRONMENTAL MATTERS. Each Borrower shall cause all
Property owned or operated by Borrower to be kept free of contamination from
Regulated Substance and any other harmful or physical conditions except as
otherwise would be in compliance with applicable Environmental Laws. If any
Obligor receives notice or becomes aware of any Environmental Claim or any
violation of Environmental Laws or any contamination with Regulated Substances
that relates to any of them or their respective Properties, then Obligor shall
promptly provide written notice thereof to Lender and, upon written request of
Lender, shall provide Lender with such reports, certificates, engineering
studies or other written material or data as Lender may require so as to satisfy
Lender that Obligor reasonably is in compliance with its obligations under this
Agreement. In addition, if Lender shall at any time have reason to believe that
any of the representations and warranties contained in Section 3.26 of this
Agreement is not accurate in any respect, or that any Borrower is in breach of
its obligations under the foregoing provisions of this Section, Lender shall
have the right at any time and from time to time to employ, or to require any
Obligors at the Obligors' expense to employ, a qualified environmental
consultant acceptable to Lender to conduct a pertinent environmental review,
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audit, assessment or report concerning the pertinent Borrower's operations and
Property. Each Borrower shall cooperate fully with such consultant in any such
audits, including by providing such access to any Borrower's books, records,
Property, employees and agents and by furnishing such written and oral
information as such consultant may reasonably request in connection with any
such audits. Each Obligor (jointly and severally) shall indemnify and hold
harmless Lender (and Lender's employees, agents, officers, directors,
successors, and assigns) from all Environmental Claims directly or indirectly
relating to or arising out of or based upon any presence or threatened presence
of Regulated Substances at any Property owned or operated by any Borrower at any
time or based upon any conduct or omission of any Borrower at any time or upon
the breach by any Borrower of any covenant, agreement, representation, or
warranty contained in this Agreement or any other Credit Documents or upon the
violation of any Environmental Laws. This indemnity shall include (a) any
Environmental Claim for personal injury (including sickness, disease, or death
or the fear of any thereof), tangible property damage, nuisance, pollution,
contamination, leak, spill, release, or other effect on the environment, and (b)
the cost of any required, necessary, or appropriate response, investigation,
repair, clean-up, treatment, removal, remediation, or detoxification of any
Property or other properties affected by such release or threatened release, and
the preparation and implementation of any other required, necessary or
appropriate actions in connection with any Property or other properties affected
by such release or threatened release. The covenants, agreements,
representations, and warranties of Borrower contained in this Section shall
survive the payment of the Obligations and the termination of this Agreement.
SECTION 4.18. YEAR 2000 COMPATIBILITY. Each Borrower shall take all
action necessary to assure that such Borrower's computer based systems are able
to operate and effectively process data including dates on and after January 1,
2000. At the request of Lender, each Borrower shall provide Lender with
assurance acceptable to Lender of such Borrower's Year 2000 compatibility.
SECTION 4.19. CONSOLIDATED FUNDED DEBT TO EBITDA. The ratio of
Consolidated Funded Debt to EBITDA for the Borrower Group shall not exceed the
following:
- ----------------------------------------------- ---------------------------
APPLICABLE PERIOD RATIO
- ----------------------------------------------- ---------------------------
Effective Date through December 31, 1999 5.00:1
- ----------------------------------------------- ---------------------------
January 1, 2000 to December 31, 2000 4.50:1
- ----------------------------------------------- ---------------------------
January 1, 2001 to December 31, 2001 4.00:1
- ----------------------------------------------- ---------------------------
January 1, 2002 and thereafter 3.50:1
- ----------------------------------------------- ---------------------------
SECTION 4.20. SENIOR FUNDED DEBT TO EBITDA. The Borrower Group's ratio
of Senior Funded Debt to EBITDA shall not exceed 2.50:1.
SECTION 4.21. CONSOLIDATED TANGIBLE NET WORTH. Borrower Group's
Consolidated Tangible Net Worth shall increase by $1,000,000 each year by
December 31 of each year until
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the Seller Note and all Obligations to Lender have been repaid in full. For the
first year of the term of the Seller Note, the increase in Consolidated Tangible
Net Worth shall be determined as of December 31, 1999 (and calculated by
subtracting Borrower Group's Consolidated Net Worth as of December 31,1998). For
each year thereafter until the Seller Note and all Obligations to Lender are
paid in full, the increase in Borrower Group's Consolidated Tangible Net Worth
shall be determined as December 31 of each such succeeding year by subtracting
therefrom Borrower Group's Consolidated Tangible Net Worth as of December 31 of
the immediately preceding year.
SECTION 4.22. DEBT SERVICE COVERAGE. The Borrower Group's ratio of (a)
consolidated EBITDA, net of incentive compensation, to (b) the sum of (i)
consolidated portion of long term debt, (ii) consolidated current portion of
long term capital leases, and (iii) consolidated interest expense shall be at
least 1.30:1.
SECTION 4.23. NEGATIVE NET INCOME. At no time shall any Borrower or
Guarantor sustain losses (negative Net Income) in any two consecutive fiscal
quarters or for any fiscal year.
SECTION 4.24. PRINCIPALS. The Principals shall maintain in full force
and effect employment agreements and such other agreements that contain economic
disincentives to competition provisions covering at least one year after
termination of employment with any Borrower or Guarantor.
SECTION 4.25. Capital Contribution. As of the date of this Agreement,
the shareholders of EHI, as a group, have contributed to the capital of EHI cash
in an amount of not less than One Million Dollars ($1,000,000).
ARTICLE IV-A
ADDITIONAL SECURITY PROVISIONS
SECTION 4A.01. SECURITY INTEREST. To further secure the Obligations,
and without limiting the legal operation and effect of any other Credit
Document, each Borrower hereby collaterally assigns to Lender, and grants Lender
a security interest in, all of such Borrower's Property described below, now
owned and hereafter acquired, created or arising, and all of such Borrower's
Property listed on any Schedule to this Agreement, now owned and hereafter
acquired, created or arising, and in each case regardless of where such Property
may be located and whether such Property may be in the possession of any
Borrower, Lender, or a third party, and, if any of such Property may be held or
stored with any Person other than a Borrower, together with all of each
Borrower's rights now owned and hereafter acquired, created or arising relating
to the storage and retrieval thereof and access thereto (all of which Property
described below or listed on any such Schedule and all such rights of storage,
retrieval and access being referred to herein as "COLLATERAL"):
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(a) All of each Borrower's "accounts" (as defined in Article
9), and including all obligations for the payment of money arising out of each
Borrower's rendition of services, or sale, lease or other disposition of each
Borrower's goods or other property, and including all rentals, lease payments,
and other moneys earned and to be earned, due and to become due, under any
lease, and all rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party, and all guaranties or other contracts of suretyship with respect to any
of the foregoing property, and all deposits, letters of credit, and other
security for the obligation of any Account Debtor relating in any way to any of
the foregoing property, and all credit and other insurance for any of the
foregoing property and all contract rights ("ACCOUNTS"); and
(b) All of each Borrower's right, title and interest in any
and all depositary accounts, including any and all other demand, time, savings,
passbook and like accounts, and including any Lock-Box, collateral accounts,
cash management accounts, safe-keeping accounts, and safe-deposit boxes, and
including any and all amounts and contents therein and thereof and all of each
Borrower's rights under agreements relating thereto, and all of each Borrower's
rights relating to the storage and retrieval thereof and access thereto ("LENDER
ACCOUNTS"); and
(c) All of each Borrower's "chattel paper" (as defined in
Article 9) ("CHATTEL PAPER"); and
(d) All of each Borrower's "documents" (as defined in Article
9) ("DOCUMENTS"); and
(e) All of each Borrower's "equipment" (as defined in Article
9) and goods which are or are to become fixtures ("EQUIPMENT"); and
(f) All of each Borrower's "general intangibles" (as defined
in Article 9) of every kind and description, and including all (i)
advertisements in any medium (and other marketing and promotional materials in
any medium), brochures, signs, stationery, business forms, packaging and
shipping materials, telephone numbers, post office addresses, mailing addresses,
e-mail addresses, so-called "web" sites and addresses and all codes and rights
relating thereto, programs and software, licenses, permits, consents, and
approvals of any Governmental Authorities and other Persons, federal, state, and
local tax refund claims, financing statements in which any Borrower's interest
appears as a secured party or lessor, and things in action, (ii) Intellectual
Property, (iii) to the extent not otherwise included as Intellectual Property,
all goodwill associated with or related to any of the foregoing or each Borrower
or each Borrower's business, (iv) all obligations and indebtedness owing to any
Borrower (other than Accounts), and (v) all rights and claims in respect of
refunds for taxes paid ("GENERAL INTANGIBLES"); and
(g) All of each Borrower's moneys, securities and other
property, now or hereafter held or received by, or in transit to, Lender,
whether for safekeeping, pledge, custody, transmission, collection or otherwise,
and any balances, sums and credits of each Borrower held
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by Lender at any time existing and all of each Borrower's Lender Accounts at
Lender ("HELD ITEMS"); and
(h) All of each Borrower's promissory notes or other
instruments or agreements evidencing any Borrower's right to payment from any
Person or Persons, and including, without limitation, all of each Borrower's
"instruments" (as defined in Article 9), and letters of credit ("INSTRUMENTS");
and
(i) All of each Borrower's "inventory" (as defined in Article
9), including all raw materials, work in process, parts, components, assemblies,
supplies and materials used or consumed in any Borrower's business, all goods,
wares and merchandise, finished or unfinished, held for sale or lease or leased
or furnished or to be furnished under contracts of service or hire
("INVENTORY"); and
(j) All of each Borrower's "securities" (whether certificated
or uncertificated), "security entitlements," "securities accounts," "commodity
contracts," "commodity accounts" and other "investment property" (as defined in
Article 8A or Article 9, as the case may be) ("INVESTMENT PROPERTY"); and
(k) All of each Borrower's right, title and interest in any
tangible or intangible personal property that is not described within the other
defined terms included within the definition of Collateral ("OTHER PERSONALTY");
and
(l) All cash and non-cash "proceeds" (as the term is used in
Article 9) and all other amounts received in respect of any sale, exchange,
lease, license or other disposition of any Collateral, and including insurance
proceeds ("PROCEEDS"); and
(m) All products of Collateral ("PRODUCTS"); and
(n) All of each Borrower's books, records, documents, ledger
cards, invoices, bills of lading and other shipping evidence, credit files,
computer programs, tapes, discs, diskettes, and other data and software storage
medium and devices, customer lists, mailing lists, mailing labels, business
forms and stationery, and other property and general intangibles evidencing or
relating to each Borrower's Accounts, Inventory and/or other Collateral, or any
Account Debtor, (including any rights of any Borrower with respect to the
foregoing maintained with or by any other person) ("RECORDS").
SECTION 4A.02. CHATTEL PAPER AND INSTRUMENTS. Each Borrower shall mark
or stamp the first page and the signature page of all Chattel Paper with a
legend clearly and conspicuously stating that such Chattel Paper is subject to a
continuing security interest in favor of Lender, and promptly upon Lender's
request from time to time, and at each Borrower's sole cost and expense, and
without limiting the effect of any other provision of this Agreement or any
other Credit Document, each Borrower shall: (i) deliver to Lender such Chattel
Paper, and execute and deliver to Lender such assignments of Chattel Paper and
related endorsements of Chattel Paper,
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as Lender may request, and shall cause the makers of the Chattel Paper to
deliver to Lender such acknowledgments of the assignments of Chattel Paper as
Lender may request; and (ii) deliver to Lender such Instruments, and execute and
deliver to Lender such collateral assignments of Instruments and related
endorsements of Instruments, as Lender may request, and shall cause the makers
of the Instruments to deliver to Lender such acknowledgments of assignment of
Instruments as Lender may request.
SECTION 4A.03. BORROWER'S COLLECTION PRIVILEGES. To further secure the
Obligations, and in addition to Lender's other rights, powers, and remedies
under this Agreement, including those under Section 7.09, each Borrower agrees
that Lender shall have the exclusive right to collect from Account Debtors, in
the name of such Borrower or Lender, or in the name of Lender's designee, all
Accounts, Chattel Paper, Documents, General Intangibles, Instruments, Investment
Property and similar Collateral; PROVIDED, HOWEVER, THAT prior to the revocation
of the privilege by Lender in writing in Lender's discretion at any time after
the occurrence of a Default, each Borrower shall be privileged to collect such
Borrower's Accounts, Chattel Paper, Documents, General Intangibles, Instruments,
Investment Property and similar Collateral in the ordinary course of such
Borrower's business so long as such Borrower shall apply all proceeds of such
Collateral and collections in accordance with the terms of this Agreement.
Nothing in this Agreement shall be construed as obligating Lender to take any
actions to collect any Collateral.
SECTION 4A.04. COLLATERAL ACCOUNT. Following the occurrence of an Event
of Default and requirement by Lender that any Borrower maintain a Lock-Box, each
Borrower shall maintain a Collateral Account into which Items of Payment
received and processed through the Lock-Box, and any other payments received by
such Borrower from Account Debtors, shall be deposited on the date of such
Borrower's receipt thereof.
SECTION 4A.05. LOCK-BOX. Following the occurrence of an Event of
Default and notice from Lender that a Lock-Box shall be required, each Borrower
shall maintain a Lock-Box administered by Lender in accordance with Lender's
standard Lock-Box service and shall direct each Account Debtor to make payments
on Accounts to the Lock-Box address.
SECTION 4A.06 ADDITIONAL COLLATERAL. If any Borrower proposes to
acquire additional Property which would constitute Collateral, and if the
security interest of Lender would not be a first priority perfected security
interest upon acquisition of such Property, then except with respect to
Permitted Liens, as to which this Section shall not apply, such Borrower shall,
before acquiring such Property, take whatever actions Lender may require in
order that, upon the acquisition of such Property, Lender will have a first
priority perfected security interest therein.
SECTION 4A.07 FURTHER ASSURANCES OF COLLATERAL. Each Borrower shall
execute such further agreements, documents, financing statements and other
instruments as may reasonably be requested by Lender in order to perfect the
security interests granted herein. To the extent that possession of the
Collateral may be necessary or advisable to perfect the collateral assignment
and security interests granted hereby, each Borrower shall deliver such
Collateral to Lender upon the request of Lender; PROVIDED THAT before the
occurrence of an Event of Default, Lender shall
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not require physical possession of Collateral if such possession would
materially impair Borrowers' ability to transact business in a commercially
reasonably manner. Without limiting the generality of the foregoing, each
Borrower hereby covenants and agrees that all Liens granted to Lender under this
Agreement and/or any other Credit Documents, are, and shall at all times be,
first priority Liens, subject only to Permitted Liens, and that no Property of
any Borrower shall be subject to any Lien (regardless of priority) except for
Permitted Liens.
ARTICLE V
NEGATIVE COVENANTS
Each Borrower covenants and agrees that from the date hereof and until
the later of the Credit Termination Date or payment in full of all Obligations
owed by any Borrower or Guarantor to Lender, unless Lender shall otherwise
consent in writing:
SECTION 5.01. RESTRICTED PAYMENTS. No Obligor shall make any payment of
any incentive bonus or other incentive compensation (including the reasonable
value of non-cash compensation) at any time that a monetary Default or
non-monetary Event of Default exists under any of the Credit Documents or if
such bonus or other incentive compensation would cause the Borrower Group to
breach any of the Financial Covenants.
SECTION 5.02. INVESTMENTS. No Obligor shall make, acquire or hold any
Investments other than Permitted Investments.
SECTION 5.03. INDEBTEDNESS. No Obligor shall incur, create, assume or
suffer to exist any Indebtedness other than Permitted Indebtedness.
SECTION 5.04. MAINTENANCE OF PERMITTED INDEBTEDNESS. No Obligor shall
prepay any Permitted Indebtedness, excepting any prepayments of the Obligations.
No Obligor shall modify any agreement relating to any Permitted Indebtedness. No
Obligor shall make any payment on the Seller Subordinated Obligations except as
expressly permitted in the Seller Subordination Agreement.
SECTION 5.05. JUDGMENTS. No Obligor shall permit any judgment that is
not covered by insurance entered against such Obligor to remain unsatisfied for
a period of more than thirty (30) days after the judgment has become final.
SECTION 5.06. TRANSACTIONS WITH AFFILIATES AND SELLING SHAREHOLDERS.
Obligors may engage in transactions with Affiliates so long as such transactions
(a) are on terms and conditions comparable to third-party arms length
transactions; or (b) are employment or other compensation and benefit
arrangements, including bonuses, incentive compensation, and stock option plans,
which arrangements are entered into by such Obligor reasonably and in the
ordinary course of such Obligor's business; or (c) are between such Obligor and
an Obligor which is directly or indirectly wholly-owned by another Obligor.
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SECTION 5.07. LINE OF BUSINESS; NAME; STRUCTURE. No Obligor shall
engage in any business other than the business engaged in by such Obligor on the
Effective Date and described on Schedule 3.22. No Obligor shall refuse, or
divert or refer to any other Person any business or business opportunity that
such Obligor could profit from in the ordinary course of such Obligor's
business. No shareholder, officer, director or employee of any Obligor shall
divert from such Obligor, or refer to any person other than a Obligor, any
business or business opportunity that could be served by a Obligor in the
ordinary course of such Obligor's business. Except for the name change of US
Corporation to Environ International Corporation, no Obligor shall change its
name or organizational structure without the prior written consent of Lender.
SECTION 5.08. STOCK. Except for EHI which may issue additional shares
of capital stock subject to the Shareholders' Agreement, no Obligor shall issue
any additional shares of capital stock or other Equity Rights or Equity
Interests except for securities (a) in respect of which it has no absolute and
unqualified obligation to redeem or to pay cash distributions or dividends, and
(b) the issuance of which does not result in an Event of Default.
SECTION 5.09. DIVIDENDS; DISTRIBUTIONS; REPURCHASES. No Obligor shall
declare or pay any dividend on, or make any other distribution of assets on
account of, or redeem, purchase or otherwise acquire for value (other than
redemptions in accordance with the Shareholders Agreement as in effect on the
date hereof), any shares of any class of its capital stock, or any equity
interest in it held by any Person (other than one Obligor to another Obligor),
or any equity rights in it held by any Person if there is an existing Default or
if any of the foregoing would result in a violation of any of the Financial
Covenants or of any of the financial covenants set forth in the Seller Note or
credit agreement executed by Borrower in connection with the Seller Note.
SECTION 5.10. SUBSIDIARIES. Except as may be expressly permitted in
Section 3.06 on the Effective Date, no Obligor shall (a) be or become a
Subsidiary of any Person or (b) form or acquire or cause or permit any Person to
be, a Subsidiary of any Obligor. Notwithstanding the foregoing, Borrowers may
create new wholly owned Subsidiaries without the prior written consent of Lender
so long as (a) such Subsidiaries are in the same business as Borrowers, (b) each
such Subsidiary enters into a guaranty of the Loans on terms and conditions
reasonably satisfactory to Bank, and (c) such Subsidiary secures its guaranty
obligations by granting Lender a security interest in all of such Subsidiary's
assets.
SECTION 5.11. CONTROL. No Change of Control of any Obligor shall occur.
SECTION 5.12. CONSOLIDATIONS; MERGERS; DISPOSITIONS; ACQUISITIONS.
Except for Permitted Investments, no Obligor shall (i) enter into any
transaction of merger or consolidation, or reorganization, or liquidate, wind up
or dissolve itself, or suffer any liquidation or dissolution, or (ii) convey,
sell, lease, license, transfer or otherwise dispose of, in one transaction or a
series of transactions, all or any part of its business, Property or tangible or
intangible assets, whether now owned or hereafter acquired, or (iii) sell,
assign, convey, lease, license, abandon, transfer or otherwise dispose of, any
of its Property or assets except in the ordinary course of business, or
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(iv) acquire by purchase or otherwise any of the outstanding capital stock of,
or all or substantially all of the business, Property or assets of, any Person.
No Obligor shall sell, assign, convey, lease, license, abandon, transfer or
otherwise dispose of, any Collateral, except that any Obligor may make (i) sales
of Inventory in the ordinary course of such Obligor's business, (ii) sales for
fair consideration of Equipment that is obsolete or no longer useful in such
Obligor's business, and (iii) Permitted Licenses of Intellectual Property.
SECTION 5.13. LIENS; BAILMENTS; CERTAIN SALES. No Obligor shall (a)
create, incur, assume or suffer to exist any Lien or Lien Notice upon any
Property of any Obligor other than Permitted Liens (including any Lien Notices
that are Permitted Liens), or (b) license any Property of any Obligor to any
other Person unless such license is a Permitted License, or (c) directly or
indirectly, sell with or without recourse, or discount or factor, any Obligor's
Accounts, Chattel Paper, Instruments, General Intangibles, or Documents.
SECTION 5.14. RISK MANAGEMENT AGREEMENTS. No Obligor shall be a party
to any Risk Management Agreement, other than with an entity approved by Lender
except as listed on Schedule 3.35 or as may be expressly required by a provision
of this Agreement.
ARTICLE VI
EVENTS OF DEFAULT; CERTAIN REMEDIES UPON DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. Subject to Section 6.01(s), each of
the following events shall constitute an Event of Default attributable to all
Obligors:
(a) Any Obligor's failure to pay within ten (10) days after
the Payment Date any amount of principal or interest of any Loan due on such
Payment Date; or
(b) Any Obligor's failure to pay any late charges, Loan
related expenses or fees of Lender, or any other sums (other than principal and
interest) due under any of the Credit Documents within ten (10) days after
Lender's demand for such payments; or
(c) If any representation or warranty made by any Obligor in
any Credit Document is not true, accurate and complete in all material respects
when made; or
(d) If any Obligor shall fail to fulfill the requirements of
any insurance provisions of the Credit Documents; or
(e) Any Borrower's failure to notify Lender of any
Notification Event as required in accordance with the requirements of Section
4.02; or
(f) The Borrower Group's failure to satisfy any of the
Financial Covenants; or
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(g) The failure by Obligor to fulfill a covenant of this
Agreement or any other Credit Documents.
(h) If any statement, report, appraisal, certificate, opinion,
or other information furnished to Lender by any Person in connection with the
Borrowers' application for the Loans was not true, accurate and complete in all
material respects when so furnished to Lender and on the Effective Date; or
(i) If any statement, report, certificate, opinion, or other
information furnished to Lender with or in accordance with the terms of this
Agreement (including all annexes, schedules, and exhibits to the Credit
Documents and all materials delivered to Lender to satisfy any condition of this
Agreement) is not true, accurate and complete in all material respects when so
furnished to Lender; or
(j) The determination in good faith by Lender that a material
adverse change has occurred on a consolidated basis in the financial or
operating condition or business prospects of any Obligor from the condition set
forth in the most recent financial statement of such Obligor furnished to Lender
in connection with the Loans, or from the financial or operating condition or
business prospects of such Obligor as heretofore most recently disclosed to
Lender in writing by such Obligor, or the occurrence of any other fact, event or
circumstance which Lender reasonably believes is likely to have a Material
Adverse Effect on the Obligors on a consolidated basis; or
(k) If one or more judgments or decrees shall be entered
against any Obligor involving a liability of Two Hundred Fifty Thousand Dollars
($250,000) or more in the aggregate, or any judgment or decree entered against
any Obligor shall not have been satisfied, vacated, discharged or stayed or
bonded pending appeal within thirty (30) days from the entry thereof and which
is not covered by insurance; or
(l) The occurrence of a Change of Control of any Obligor; or
(m) If any Obligor shall default in any payment of any
Indebtedness to any Person, including any affiliate of Lender, (other than the
Obligations), or shall breach any other terms, representations, warranties,
covenants, conditions, or other provisions applicable to any such Indebtedness
if the occurrence of any such default or breach would entitle the holder of such
Indebtedness to accelerate such Indebtedness or exercise any other remedies (and
the acceleration thereof would have a Material Adverse Effect on Borrower Group,
and, if there is a cure period applicable to any such breach or default, such
breach or default shall not have been cured within the cure period applicable
thereto; or
(n) If any Obligor shall (i) apply for or consent to the
appointment of a receiver, trustee or liquidator of itself or any of its
property, (ii) admit in writing its inability to pay its debts as they mature,
(iii) make a general assignment for the benefit of creditors, (iv) be
adjudicated bankrupt or insolvent, (v) file a voluntary petition in Lenderruptcy
or a petition or an
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answer seeking reorganization or an arrangement with creditors or to take
advantage of any Lenderruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such law
or if corporate or other action shall be taken by such Obligor for the purposes
of effecting any of the foregoing, or (vi) consent to, approve of or
acquiescence in any such proceeding or the appointment of any receiver of or
trustee for any of its property, or suffer any such receivership, trusteeship or
proceeding to continue undischarged for a period of sixty (60) days; or
(o) Omitted.
(p) the net loss through death, disability or voluntary or
involuntary termination of employment within a fiscal year of Principals (after
taking into account the hiring of new Principals and the promotion to Principal
of existing employees) who are responsible for clients with average annual gross
revenues over the most recent two complete fiscal years equal to or greater than
twenty percent (20%) of the gross revenues of the US Corporation in the most
recent complete fiscal year; or
(q) Borrower shall default in any swap agreement (as defined
in 11 U.S.C. ss.101) with Lender or any Affiliate of Lender; or
(r) If (a) with respect to any Plan, there shall occur any of
the following which could reasonably be expected to have a Material Adverse
Effect: (i) the violation of any of the provisions of ERISA; (ii) the loss by a
Plan intended to be a Qualified Plan of its qualification under Section 401(a)
of the Code; (iii) the incurrence of liability under Title IV of ERISA; (iv) a
failure to make full payment when due of all amounts which, under the provisions
of any Plan or applicable law, any Borrower or any ERISA Affiliate is required
to make; (v) the filing of a notice of intent to terminate a Plan under Sections
4041 or 4041A of ERISA; (vi) a complete or partial withdrawal of Borrower or an
ERISA Affiliate from any Plan; (vii) the receipt of a notice by the plan
administrator of a Plan that the PBGC has instituted proceedings to terminate
such Plan or appoint a trustee to administer such Plan; (viii) a commencement or
increase of contributions to, or the adoption of or the amendment of, a Plan;
and (ix) the assessment against any Borrower or any ERISA Affiliate of a tax
under Section 4980B of the Code; or (b) the Unfunded Benefit Liability of all of
the Plans of Borrower, and each ERISA Affiliate shall, in the aggregate, exceed
an amount that could reasonably be expected to have a Material Adverse Effect on
Borrower Group.
(s) The provisions described in Section 6.01(c), (d) and (f)
through (j) shall not constitute Events of Default hereunder unless the events
described in such actions are not cured within thirty (30) days after notice
from Lender; provided that if Borrower commences a cure within the initial
thirty (30) day cure period and diligently pursues to cure the Default
thereafter, Borrower shall have up to sixty (60) days to cure such Default if it
is not capable of cure within thirty (30) days.
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SECTION 6.02. ACCELERATION. Upon the occurrence of an Event of Default,
and at any time thereafter unless and until such Event of Default has been
waived by Lender in writing or cured to the satisfaction of Lender as expressly
acknowledged by Lender in writing, Lender may take any or all of the following
actions against any or all Obligors: (a) declare the Credit Termination Date
accelerated (without the necessity of any notice) on any Loan; and/or (b)
declare the unpaid principal of, and all accrued and unpaid interest on, the
Loan and any and all other outstanding and unpaid Obligations to be due,
whereupon the same shall be immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
each Borrower and each other Obligor; and/or (c) enforce any and all rights and
interests created and existing under the Credit Documents and all rights of
set-off; provided, however, without limiting the generality of the foregoing,
upon the occurrence of an Event of Default described in Section 6.01(n) above,
(i) the Credit Termination Date shall be immediately accelerated (without the
necessity of any notice), and (ii) the unpaid principal of, and all accrued and
unpaid interest on, the Loan and any and all other outstanding and unpaid
Obligations shall be immediately due and payable to Lender without any action on
the part of Lender, and without presentment, demand, protest, or other notice of
any kind, all of which are hereby waived.
SECTION 6.03. OTHER REMEDIES. In addition to the foregoing, upon the
occurrence of an Event of Default, Lender may do any of the following:
(a) Collect and enforce payment of all of each Borrower's
Deposit Accounts, Accounts, General Intangibles, Chattel Paper, Instruments and
Documents and rights and remedies with respect to such Property as would
otherwise be exercised by any Borrower, including: the power to take possession
of and endorse in the name of such Borrower, any Items of Payment of any kind
and any other documents received; the power to extend the time of payment of,
the time to sue for, and the time to give acquittances for, monies due; and the
power to withdraw proceeds deposited in the name of the applicable Borrower in
any Lender or savings institution.
(b) Sell or otherwise dispose of the Collateral, or any part
thereof, at public or private sale (or at any broker's board or on any
securities exchange) or otherwise, for cash, upon credit or for future delivery
as Lender shall deem appropriate. Each such purchaser at any such sale shall
hold the property sold absolutely, free from any claim or right on the part of
any Borrower, and each Borrower hereby waives (to the extent permitted by law)
all rights of redemption, stay and appraisal which any Borrower now has or may
at any time in the future have under any rule of law or statute now existing or
hereafter enacted. Lender shall give each Borrower at least ten (10) days'
written notice (which each Borrower agrees is reasonable notice within the
meaning of Section 9-504(3) of the UCC) of Lender's intention to make any sale
of Collateral owned by any Borrower. Such notice, in the case of a public sale,
shall state the time and place for such sale and, in the case of a sale at a
broker's board or on a securities exchange, shall state the board or exchange at
which such sale is to be made and the day on which the Collateral, or portion
thereof, will first be offered for sale at such board or exchange. Any such
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public sale shall be held at such time or times within ordinary business hours
and at such place or places as Lender may fix and state in the notice of such
sale, and at any such sale, the Collateral, or portion thereof, to be sold may
be sold in one lot as an entirety or in separate parcels, as Lender may (in its
discretion) determine, and Lender shall not be obligated to make any sale of any
Collateral if Lender shall determine not to do so, regardless of the fact that
notice of sale of such Collateral shall have been given, and Lender may, without
notice or publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, to any Borrower or anyone else,
be made at the time and place to which the same was so adjourned. In case any
sale of all or any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by Lender until the sale price
is paid by the purchaser or purchasers thereof, but Lender shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and pay
for Collateral so sold and, in case of any such failure, such of the Collateral
may be sold again upon notice to Borrower as set forth in this Section. At any
public sale made pursuant to this Section, Lender may bid for or purchase, free
(to the extent permitted by law) from any right of redemption, stay or appraisal
on the part of Borrower (all said rights being also hereby waived and released
to the extent permitted by law), the Collateral or any part thereof offered for
sale and may make payment on account thereof by using any claim then due and
payable to Lender from Borrower as a credit against the purchase price, and
Lender may, upon compliance with the terms of sale, hold, retain and dispose of
such property without further accountability to any Borrower therefor. For
purposes hereof, a written agreement to purchase the Collateral or any portion
thereof shall be treated as a sale thereof; Lender shall be free to carry out
such sale pursuant to such agreement, and Borrower shall not be entitled to the
return of the Collateral or any portion thereof subject thereto, notwithstanding
the fact that after Lender shall have entered into such an agreement, all Events
of Default shall have been remedied and the Obligations paid in full. As an
alternative to exercising the power of sale herein conferred upon Lender, Lender
may proceed by a suit or suits at law or in equity to foreclose this Agreement
and to sell the Collateral or any portion thereof pursuant to a judgment or
decree of a court or courts having competent jurisdiction or pursuant to a
proceeding by a court-appointed Receiver. Upon any sale of Collateral by Lender
(including a sale pursuant to a power of sale granted by statute or under a
judicial proceeding), the receipt of Lender or of the officer making the sale
shall be a sufficient discharge to the purchaser or purchasers of the Collateral
being sold, and such purchaser or purchasers shall not be obligated to see to
the application of any part of the purchase money paid over to Lender or such
officer or be answerable in any way for the misapplication thereof. Borrower
agrees that in selling or otherwise disposing of the Collateral and in
exercising Lender's rights and remedies to the Collateral, Lender and/or any
Receiver and/or any designee of Lender and/or any Receiver shall have the
unrestricted and irrevocable right (so long as not violative of law) to
advertise, sell, lease, license or otherwise dispose of the Collateral under and
together with, and shall otherwise have the unrestricted and irrevocable right
to use, without limitation, in connection therewith, any and all of Borrower's
advertisements in any medium (and other marketing and promotional materials in
any medium), brochures, signs, stationery, business forms, packaging and
shipping materials, programs, software, licenses, permits, consents, approvals,
and Intellectual Property relating to such Collateral and/or Borrower's
business, and
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all agreements with employees and former employees relating to any of the
foregoing, and each Borrower shall indemnify and hold harmless Lender and any
Receiver, and their designees, shareholders, directors, officers, employees,
agents, attorneys, accountants, and other advisors, from and against any and all
claims (including claims for royalties and/or money damages and/or claims for
injunctive relief), liabilities, damages, royalties, and penalties of any
Person, and Lender's and any Receiver's costs and expenses (including attorney's
fees) and those of their designees, shareholders, directors, officers,
employees, agents, attorneys, accountants, and other advisors, incurred to
defend against any thereof.
(c) With regard to all Collateral so collected, sold or
otherwise disposed of, to the extent permitted by applicable law, Lender shall
have absolute discretion as to the time of application of any such proceeds,
moneys or balances in accordance with this Agreement, first, to the settlement
of all Liens on the Collateral prior to Lender's Lien; second, to the payment of
all Collection Costs; and third, to the payment of all Obligations, and, in case
of any deficiency, Lender may collect such deficiency from any Borrower
(provided however, nothing in this provision shall be construed in derogation or
limitation of any guaranty of payment or used to construe any guaranty of
payment as being merely a guaranty of collection).
(d) Notwithstanding anything in this Agreement or any other
Credit Document to the contrary, Lender's declaration of default and exercise of
remedies with respect to any swap agreement (as defined in 11 U.S.C. ss.101)
between an Obligor and Lender shall not be governed by this Agreement or any
other Credit Documents, but rather by the applicable swap agreement (as defined
in 11 U.S.C. ss.101).
SECTION 6.04. RECEIVER. If an Event of Default shall occur and be
continuing, Lender shall be entitled as a matter of right and to the extent
permitted by law, without notice to any Obligor, and without regard to the
adequacy of security, to the immediate ex parte appointment of a Receiver by a
court having jurisdiction in order to carry out all rights and remedies
available to Lender upon such Event of Default, and to manage, protect and
preserve the Collateral, and any other Property of any Borrower and continue to
operate or liquidate any Borrower's business and to collect all revenues and
profits thereof and apply the same to the payment of all expenses and other
charges of such receivership, custodianship or similar appointment, including
compensation of the Receiver and to the payment of the Obligations, and to the
payment of such other claims and expenses as may appear appropriate. If Lender
shall apply for the appointment of, or the taking of possession by, a Receiver,
to hold, operate or liquidate all or any substantial part of the properties or
assets of any Borrower, such Borrower hereby consents to any such appointment
and taking of possession. Each Borrower shall deliver to any Receiver so
appointed upon Lender's request all original Records, and any other records,
books, and other information regarding the Collateral, and any other Property of
such Borrower and the operations of the business of such Borrower.
SECTION 6.05. WAIVERS. Each Borrower waives presentment, demand, notice
of dishonor, and protest, and all demands and notices of any action taken by
Lender under this Agreement, except as otherwise provided herein, are hereby
waived, and any indulgence of
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Lender, substitution for, exchange of or release of collateral, or addition or
release of any person liable on the collateral is hereby assented and consented
to and shall not operate or be claimed to operate to release or exonerate any
other collateral or person or any claim of Lender.
SECTION 6.06. ARBITRATION.
(a) Upon demand of any party hereto, whether made before or
after institution of any judicial proceeding, any claim or controversy arising
out of, or relating to this letter or the Credit Documents between the parties
hereto (a "DISPUTE") shall be resolved by binding arbitration conducted under
and governed by the Commercial Financial Disputes Arbitration Rules (the
"ARBITRATION RULES") of the American Arbitration Association (the "AAA") and the
Federal Arbitration Act. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, or claims arising from documents executed in the
future. A judgment upon the award may be entered in any court having
jurisdiction. Notwithstanding the foregoing, this arbitration provision does not
apply to disputes under or related to swap agreements.
(b) Special Rules. All arbitration hearings shall be conducted
in the city in which the office of Lender first stated above is located. A
hearing shall begin within 90 days of demand for arbitration and all hearings
shall be concluded within 120 days of demand for arbitration. These time
limitations may not be extended unless a party shows cause for extension and
then for no more than a total of 60 days. The expedited procedures set forth in
Rule 51 ET SEQ. of the Arbitration Rules shall be applicable to claims of less
than $1,000,000. Arbitrators shall be licensed attorneys selected from the
Commercial Financial Dispute Arbitration Panel of the AAA. The parties do not
waive applicable Federal or state substantive law except as provided herein.
(c) Preservation and Limitation of Remedies. Notwithstanding
the preceding binding arbitration provisions, the parties agree to preserve,
without diminution, certain remedies that any party may exercise before or after
an arbitration proceeding is brought. The parties shall have the right to
proceed in any court of proper jurisdiction or by self-help to exercise or
prosecute the following remedies, as applicable: (i) all rights to foreclose
against any real or personal property or other security by exercising a power of
sale or under applicable law by judicial foreclosure including a proceeding to
confirm the sale; (ii) all rights of self-help including peaceful occupation of
real property and collection of rents, set-off, and peaceful possession of
personal property; and (iii) obtaining provisional or ancillary remedies
including injunctive relief, sequestration, garnishment, attachment, appointment
of receiver and filing an involuntary Lenderruptcy proceeding. Any claim or
controversy with regard to any party's entitlement to such remedies is a
Dispute. Each party agrees that it shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right or
claim to punitive or exemplary damages they have now or which may arise in the
future in connection with any Dispute, whether the Dispute is resolved by
arbitration or judicially. The parties acknowledge that by agreeing to binding
arbitration they have irrevocably waived any right they may have to a jury trial
with regard to a Dispute.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.01. FURTHER ASSURANCES. Each Borrower shall execute and
deliver to Lender such further assurances of this Agreement and the matters
contemplated by this Agreement and the other Credit Documents, including any
Lien Notices in favor of Lender, promptly from time to time upon Lender's
written request.
SECTION 7.02. SUCCESSORS AND ASSIGNS. This Agreement and the other
Credit Documents shall be binding upon and inure to the benefit of Lender and
its successors and assigns and any holders of the Notes. No Borrower shall,
without Lender's prior written consent, which consent may be withheld in
Lender's discretion, assign any of such Borrower's rights under this Agreement
or any of the other Credit Documents to any Person, and any attempt of such an
assignment by any Borrower without Lender's prior written consent shall be void.
Lender may sell or assign to any financial institution or institutions, and such
financial institution or institutions may further sell or assign a participation
interest (undivided or divided) in, Lender's rights and benefits under this
Agreement and the other Credit Documents, and to the extent of that assignment
such assignee or assignees shall have the same rights and benefits against each
Borrower under this Agreement and the other Credit Documents as it or they would
have had if such assignee or assignees were Lender making the Loans. Each
Borrower shall promptly upon Lender's request furnish confirmation in writing to
any such assignees such information as Lender or any such assignee may request
regarding any matters, or the status thereof, relating to the Loans, the Notes,
this Agreement, the other Credit Documents, or any Obligor Information. Lender
may from time to time in its discretion appoint agents for the purpose of
servicing and administering this Agreement and the transactions contemplated
hereby and enforcing or exercising any rights or remedies of Lender provided
under this Agreement and under the other Credit Documents or otherwise. In
furtherance of such agency, Lender may from time to time direct that each
Borrower and any other Obligor provide notices, certificates, reports, and other
Obligor Information contemplated by this Agreement (or duplicates thereof) to
such agent. Each Obligor consents to the appointment of any such agent and
agrees to provide all such notices, certificates, reports, and other Obligor
Information to such agent and to otherwise deal with such agent acting on behalf
of Lender in the same manner as would be required if dealing with Lender itself
and Lender agrees to give each Borrower notice of the appointment of any such
agent.
SECTION 7.03. SEVERABILITY. Any provision of this Agreement prohibited
by the laws of any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition, or modified to conform with such laws,
without invalidating the remaining provisions of this Agreement, and any such
prohibition in any jurisdiction shall not invalidate such provisions in any
other jurisdiction.
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SECTION 7.04. GOVERNING LAW. This Agreement and the other Credit
Documents and the rights and obligations of the parties hereunder and thereunder
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Virginia (excluding Virginia conflict of laws rules),
including all matters of construction, validity and performance, regardless of
the location of the parties or any Property, excepting, however, that the UCC
(or decisional law) of a jurisdiction other than Virginia may provide the method
of perfection of liens and security interests created under this Agreement and
the other Credit Documents.
SECTION 7.05. JURISDICTION; VENUE; SERVICE. Each Borrower irrevocably
consents to the non-exclusive personal jurisdiction of the courts of the
Commonwealth of Virginia and, if a basis for federal jurisdiction exists, the
non-exclusive jurisdiction of the United States District Court for the District
of Virginia. Each Borrower agrees that venue shall be proper in any circuit
court of the Commonwealth of Virginia selected by Lender or, if a basis for
federal jurisdiction exists, in any Division of the United States District Court
for the District of Virginia. Each Borrower waives any right to object to the
maintenance of any suit or claim in any of the state or federal courts of the
Commonwealth of Virginia on the basis of improper venue or of inconvenience of
forum. Any suit or claim brought by any Borrower against Lender that is based,
in whole or in part, directly or indirectly, on this Agreement or any matters
relating to this Agreement or the other Credit Documents, shall be brought in a
court only in the Commonwealth of Virginia. No Borrower shall file any
counterclaim against Lender in any suit or claim brought by Lender against such
Borrower in a jurisdiction outside of the Commonwealth of Virginia unless under
the rules of the court in which Lender brought such suit or claim the
counterclaim is mandatory, and not permissive, and would be considered waived
unless filed as a counterclaim in the claim or suit instituted by Lender against
such Borrower. Each Borrower agrees that any forum outside the Commonwealth of
Virginia is an inconvenient forum and that a suit brought by such Borrower
against Lender in any court outside the Commonwealth of Virginia should be
dismissed or transferred to a court located in the Commonwealth of Virginia.
Each of the parties hereto further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to it at the address set out for notices in this Agreement, such
service to become effective thirty (30) days after such mailing. Nothing herein
shall affect the right of Lender to serve process in any other manner permitted
by law or to commence legal proceedings or to otherwise proceed against any
Borrower or any other Person in any other jurisdiction.
SECTION 7.06. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
SECTION 7.07. SURVIVAL. All representations and warranties and
indemnities made by any Borrower herein shall survive delivery of the Notes and
the making of the Loan.
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<PAGE>
SECTION 7.08. NOTICES. Any notice required or permitted by or in
connection with this Agreement shall be in writing and shall be made by
telecopy, or by hand delivery, or by overnight delivery service, or by certified
mail, return receipt requested, postage prepaid, addressed to the parties at the
appropriate address set forth below or to such other address as may be hereafter
specified by written notice by the parties to each other. Notice shall be
considered given as of the earlier of the date of actual receipt, or the date of
the telecopy or hand delivery, one (1) calendar day after delivery to an
overnight delivery service, or three (3) calendar days after the date of
mailing, independent of the date of actual delivery or whether delivery is ever
in fact made, as the case may be, provided the giver of notice can establish
that notice was given as provided herein. Notwithstanding the aforesaid
procedures, any notice or demand upon any Obligor, in fact received by such
Obligor, shall be sufficient notice or demand. Each undersigned Obligor (other
than Borrower) hereby appoints Borrower as his, her or its agent for purposes of
receiving notices under this Agreement and the other Credit Documents, so that
notices given to Borrower shall be fully effective notice to Borrower and to
each such other undersigned Obligor (other than Borrower).
If to Lender: APPLIED BIOSCIENCE INTERNATIONAL INC.
3151 Seventeenth Street Extension
Wilmington, North Carolina 28412
Telecopy: (910) 772-6951
If to Obligors: Environ Holdings, Inc.
4350 North Fairfax Drive
Suite 300
Arlington, Virginia 22203
Attn: Mitchell B. Smith
Telecopy No. (703) 516-2462
SECTION 7.09. LENDER APPOINTED ATTORNEY-IN-FACT. Each Borrower hereby
appoints Lender as such Borrower's attorney-in-fact, with power of substitution,
which appointment is coupled with an interest and irrevocable but which
appointment shall not be exercised except during the continuance of any Event of
Default hereunder, to do each of the following in the name of such Borrower or
in the name of Lender or otherwise, for the use and benefit of Lender, but at
the cost and expense of such Borrower, and with or without notice to such
Borrower: (a) notify the Account Debtors to make payments directly to Lender,
and to take control of the cash and non-cash proceeds of any Collateral; (b)
compromise, extend, or renew any of the Collateral or deal with the same as it
may deem advisable; (c) release, make exchanges, substitutions, or surrender of
all or any part of the Collateral; (d) remove from such Borrower's place of
business all Records relating to or evidencing any of the Collateral or without
cost or expense to Lender, make such use of such Borrower's places of business
as may be reasonably necessary to administer, control and collect the
Collateral; (e) repair, alter or supply goods, if any, necessary to fulfill in
whole or in part the purchase order or similar order of any Account Debtor; (f)
demand, collect, receipt for and give renewals, extensions, discharges and
releases of any of the
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<PAGE>
Collateral; (g) institute and prosecute legal and equitable proceedings to
enforce collection of, or realize upon, any of the Collateral; (h) settle,
renew, extend compromise, compound, exchange or adjust claims with respect to
any of the Collateral or any legal proceedings brought with respect thereto; (i)
endorse the name of such Borrower upon any Items of Payment relating to the
Collateral or upon any proof of claim in Lenderruptcy against an Account Debtor;
(j) institute and prosecute legal and equitable proceedings to reclaim any of
the goods sold to any Account Debtor obligated on an Account at a time when such
Account Debtor was insolvent; and (k) receive and open all mail addressed to
such Borrower and notify the postal authorities to change the address for the
delivery of mail to such Borrower to such address as Lender may designate.
SECTION 7.10. REMEDIES CUMULATIVE. No failure or delay on the part of
Lender in exercising any right, power or privilege hereunder or under any other
Credit Document and no course of dealing between any Obligor and Lender shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights and remedies provided herein
are cumulative and not exclusive of any rights or remedies which Lender would
otherwise have. No notice to or demand on any Borrower in any case shall entitle
such Borrower or any Obligor to any other or further notice or demand in similar
or other circumstances or constitute a waiver of the rights of Lender to any
other or further action in any circumstances without notice or demand.
SECTION 7.11. AMENDMENTS, WAIVERS AND CONSENTS. Neither this Agreement
nor any other Credit Document nor any of the terms hereof or thereof may be
amended, changed, waived, discharged or terminated unless such amendment,
change, waiver, discharge or termination is in writing signed by Lender.
SECTION 7.12. WAIVERS OF CLAIMS; CONSEQUENTIAL AND PUNITIVE DAMAGES.
Each Borrower and Lender hereby waive to the fullest extent permitted by law all
claims to consequential and punitive damages in any lawsuit or other legal
action brought by either of them against the other of them in respect of any
claim between them arising under this Agreement, the other Credit Documents, or
any other agreement or agreements between them at any time, including any such
agreements, whether written or oral, made or alleged to have been made at any
time prior to the date hereof, and all agreements made hereafter or otherwise,
and any and all claims arising under common law or under any statute of any
state or the United States of America, whether any such claims be now existing
or hereafter arising, now known or unknown. In making this waiver Lender and
each Borrower acknowledge and agree that there shall be no claims for
consequential or punitive damages made by Lender against any Borrower and there
shall be no claims for consequential or punitive damages made against Lender by
any Borrower. Lender and each Borrower acknowledge and agree that this waiver of
claims for consequential damages and punitive damages is a material element of
the consideration for this Agreement.
SECTION 7.13. NO THIRD PARTY BENEFICIARIES. There shall be no third
party beneficiaries of this Agreement.
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<PAGE>
SECTION 7.14. ENTIRE AGREEMENT. Each Borrower agrees that the Credit
Documents are a complete and exclusive expression of all the terms of the Loans
and agrees that all prior agreements, statements, and representations, whether
written or oral, which relate in any way to the Loans are hereby superseded and
shall be given no force and effect, and that no promise, inducement, or
representation has been made to any Obligor which relates in any way to the
Loans, other than what is expressly stated in the Credit Documents. Each
Borrower has executed the Credit Documents in full, understands the terms
therein, and is executing this Agreement after the opportunity to have full
consultation with counsel of such Borrower's choice.
SECTION 7.16. WAIVER OF JURY TRIAL. EACH BORROWER AND LENDER HEREBY
WAIVE ALL RIGHT TO TRIAL BY JURY OF ANY AND ALL CLAIMS BETWEEN THEM OF ANY TYPE,
INCLUDING CLAIMS ARISING UNDER AND/OR RELATING IN ANY WAY TO THIS AGREEMENT
AND/OR THE OTHER CREDIT DOCUMENTS AND/OR THE TRANSACTIONS CONTEMPLATED BY THE
CREDIT DOCUMENTS. EACH BORROWER AND LENDER ACKNOWLEDGES THAT THIS IS A WAIVER OF
A LEGAL RIGHT AND THAT THIS WAIVER IS MADE KNOWINGLY AND VOLUNTARILY AFTER
CONSULTATION WITH COUNSEL OF ITS CHOICE. ALL CLAIMS ARISING UNDER THIS AGREEMENT
AND/OR THE OTHER CREDIT DOCUMENTS AND/OR THE TRANSACTIONS CONTEMPLATED BY THE
CREDIT DOCUMENTS SHALL BE TRIED BEFORE A JUDGE OF A COURT HAVING JURISDICTION,
WITHOUT A JURY.
SECTION 7.17. JUDGMENT CURRENCY. (a) If, for the purposes of obtaining
judgment in any court, it is necessary to convert a sum due hereunder or under
the Notes or any other Credit Document from a currency ("ORIGINAL CURRENCY") to
another currency ("OTHER CURRENCY"), the parties hereto agree to the fullest
extent they may effectively do so, that the rate of exchange used shall be that
at which Lender could in accordance with normal banking procedures purchase the
Original Currency with the Other Currency on the second Business Day preceding
that on which such final judgment is given.
(b) The obligation of any Borrower in respect of any sum due
in the Original Currency from any Borrower to Lender hereunder or under the
Notes shall, notwithstanding any judgment in any Other Currency, be discharged
only if and to the extent that on the Business Day following receipt by Lender
of any sum adjudged to be so due in such Other Currency, Lender may in
accordance with normal Banking procedures purchase such amount of the Original
Currency with such Other Currency which it could have purchased on the second
Business Day preceding that on which the final judgment referred to in clause
(a) above is given. If the amount of the Original Currency so purchased is less
than the amount of the Original Currency that Lender could have purchased on the
second Business Day preceding that on which such final judgment is given, each
Borrower agrees, as a new and separate obligation and notwithstanding any such
judgment, to indemnify Lender against, and pay Lender on demand, such
difference, and if the amount of the Original Currency so purchased exceeds the
amount of the Original Currency which Lender could have purchased on the second
Business Day
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<PAGE>
preceding that on which such final judgment is given, Lender agrees to remit to
such Borrower such excess.
SECTION 7.18. WAIVER OF IMMUNITY. Each Borrower hereby represents,
warrants and agrees that to the extent that any Borrower or any of such
Borrower's property and assets may have or hereafter acquire any right of
sovereign or other immunity from suit, court jurisdiction, attachment in aid of
execution of judgment, set-off, execution or other legal process, such Borrower
hereby irrevocably waives, to the fullest extent permitted by law, such right of
immunity with respect to such Borrower's obligations hereunder and with respect
to legal proceedings to enforce the same and to enforce any judgment rendered in
such proceedings.
SECTION 7.19. PUBLICITY. Lender may, in Lender's discretion and at
Lender's expense, publicize or otherwise advertise by so-called "tombstone"
advertising or otherwise Lender's financing transactions with Borrowers and
Guarantors. Lender may include references to Borrowers and Guarantors (and may
use any logo or other distinctive symbol associated with Borrowers or
Guarantors), and the transactions contemplated by this Agreement, in connection
with any advertising, promotion, or marketing undertaken by Lender.
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<PAGE>
IN WITNESS WHEREOF, Lender and each Borrower, intending to be legally
bound hereby, have caused this Agreement to be duly executed and delivered under
seal as of the date first above written.
WITNESS: LENDER:
APPLIED BIOSCIENCE INTERNATIONAL INC.
/s/ Elisa E. Tractman By: /s/ Fred B. Davenport, Jr.(SEAL)
Name: Fred B. Davenport, Jr.
Title: Vice President
BORROWERS:
ENVIRON HOLDINGS, INC.
a Delaware corporation
/s/ Elisa E. Tractman By: /s/ Mitchell B. Smith(SEAL)
Name: Mitchell B. Smith
Title: President
APBI ENVIRONMENTAL SCIENCES GROUP, INC.
a Virginia corporation
/s/ Elisa E. Tractman By: /s/ Jospeh Highland(SEAL)
Name: Joseph Highland
Title: Chairman
EXHIBIT 21
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., AND SUBSIDIARIES
SUBSIDIARIES
The subsidiaries of Pharmaceutical Product Development, Inc., as of February 16,
1999, are as follows:
<TABLE>
<CAPTION>
Jurisdiction of Incorporation
or
Name of Subsidiary Organized in
------------------ ------------
<S> <C> <C>
1. Applied Bioscience International Inc. Delaware
2. PPD Pharmaco, Inc. Texas
3. Pharmaco International Holdings, Inc. Delaware
4. Pharmaco Investments Inc. Delaware
5. PPD Pharmaco SNC France
6. Pharma Contracts Scandinavia AB Sweden
7. PPD Pharmaco Canada, Ltd. Canada
8. PPD Do Brazil-Suporte Brazil
9. Q & Q Brazil
10. Pharmaco International Holdings GmbH Germany
11. PPD Pharmaco GmbH Germany
12. PPD Pharmaco Sp. zo.o Poland
13. PI Praha, s.r.o. Czech Republic
14. PPD Pharmaco GmbH & Co. KG Germany
15. Pharmaceutical Product Development (Pty) Ltd. South Africa
16. PPD Pharmaco Hungary Research & Development Ltd. Hungary
17. PPD UK Holdings Ltd. United Kingdom
18. Pharmaco International Ltd. United Kingdom
19. Leicester Clinical Research Centre, Ltd. United Kingdom
20. Chelmsford Clinical Trials Unit Ltd. United Kingdom
21. Gabbay Ltd. United Kingdom
22. Data Analysis & Research (DAR) Ltd. United Kingdom
23. APBI Investor Relations Inc. New Jersey
24. Clinix International Inc. Delaware
25. APBI Finance Corporation Delaware
26. PPD Pharmaco Mexico S.A. de C.V. Mexico
27. PPD Pharmaco Pty Limited Australia
28. PPD Pharmaco SRL Italy
29. PPD Spain, S.L. Spain
30. PPD Pharmaco (Thailand) Co., Ltd. Thailand
31. Cambridge Applied Nutrition Toxicology and Bioscience Limited United Kingdom
32. Clinical Technology Centre (International) Limited United Kingdom
33. Genupro, Inc. North Carolina
34. Belmont Research, Inc. Massachusetts
35. PPD Discovery, Inc. North Carolina
36. Target Discovery, Inc. North Carolina
37. SARCO, Inc. Delaware
</TABLE>
<PAGE>
Subsidiaries 1, 30, 33, 34 and 35 are wholly owned subsidiaries of
Pharmaceutical Product Development, Inc.
Subsidiaries 2, 17, 23, 24 and 25 are wholly owned subsidiaries of Subsidiary 1.
Subsidiaries 3 and 4 are wholly owned subsidiaries of Subsidiary 2.
Subsidiary 5 is owned 99% by Subsidiary 3 and 1% by Subsidiary 23.
Subsidiaries 6, 7, 8, 10, 15, 27, 28 and 29 are wholly owned subsidiaries of
Subsidiary 3.
Subsidiary 9 is a wholly owned subsidiary of Subsidiary 8.
Subsidiaries 11, 12, 13 and 16 are wholly owned subsidiaries of Subsidiary 10.
Subsidiary 14 is owned 72% by Subsidiary 10 and 28% by Subsidiary 11.
Subsidiaries 18, 19, 20, 21 and 22 are wholly owned subsidiaries of Subsidiary
17.
Subsidiaries 31, and 32 are wholly owned subsidiaries of Subsidiary 18.
Subsidiaries 36 and 37 are wholly owned subsidiaries of Subsidiary 35.
Subsidiary 26 is owned 99% by Subsidiary 3 and 1% by Subsidiary 2.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Pharmaceutical Product Development, Inc. and its subsidiaries on Form S-8 (File
No. 333-20925) of our report dated February 2, 1999, on our audits of the
consolidated financial statements of Pharmaceutical Product Development, Inc.
and its subsidiaries as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998, which report is included in this
annual report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Raleigh, North Carolina
March 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 34,083
<SECURITIES> 0
<RECEIVABLES> 128,857
<ALLOWANCES> 2,042
<INVENTORY> 0
<CURRENT-ASSETS> 172,966
<PP&E> 102,126
<DEPRECIATION> 59,617
<TOTAL-ASSETS> 236,582
<CURRENT-LIABILITIES> 79,049
<BONDS> 0
0
0
<COMMON> 2,343
<OTHER-SE> 153,067
<TOTAL-LIABILITY-AND-EQUITY> 236,582
<SALES> 0
<TOTAL-REVENUES> 285,609
<CGS> 0
<TOTAL-COSTS> 156,810
<OTHER-EXPENSES> 100,132
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 414
<INCOME-PRETAX> 32,229
<INCOME-TAX> 12,461
<INCOME-CONTINUING> 15,155
<DISCONTINUED> 4,614
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,769
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85
</TABLE>
