SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ______________ to ______________.
Commission File Number 0-27570
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1640186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3151 South Seventeenth Street
Wilmington, North Carolina
(Address of principal executive offices)
28412
(Zip Code)
Registrants telephone number, including area code (910) 251-0081
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 24,629,036 shares of common
stock, par value $0.10 per share, as of October 29, 1999.
<PAGE>
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations for the Three and
Nine Months Ended September 30, 1999 and 1998........................ 3
Consolidated Condensed Balance Sheets as of September 30, 1999
and December 31, 1998................................................ 4
Consolidated Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998........................ 5
Notes to Consolidated Condensed Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk........... 16
Part II.OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................... 17
Signatures................................................................... 18
FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q 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; risks associated with
acquisitions; continued success in sales growth; dependence on personnel;
management of growth; and competition. Because a large percentage of the
Company's operating costs are relatively fixed variations in the timing and
progress of large contracts can materially affect results. See "Part I.
Financial Information. Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Potential Volatility of Quarterly
Operating Results and Stock Price".
2
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- ---------------
1999 1998 1999 1998
------ ------ ------ -----
<S> <C> <C> <C> <C>
Life sciences revenues, net of subcontractor costs of
$26,912, $27,666, $87,760 and $71,262, respectively $78,849 $61,357 $223,191 $170,786
Discovery sciences revenues, net of subcontractor costs of
$17, $10, $51 and $43, respectively 509 96 2,031 286
------- ------- ------- -------
Net revenue 79,358 61,453 225,222 171,072
------- ------- ------- -------
Direct costs - Life sciences 37,913 30,773 108,432 85,840
Direct costs - Discovery sciences 2,453 935 5,586 2,639
Selling, general and administrative expenses 24,182 20,130 70,285 57,634
Depreciation and amortization 3,848 3,019 10,905 9,041
Merger costs - - 218 -
Acquired in-process research and development costs - - - 3,163
------- ------- ------- -------
68,396 54,857 195,426 158,317
------- ------- ------- -------
Operating income 10,962 6,596 29,796 12,755
Interest income, net 877 330 2,334 832
Other income, net 246 394 997 2,100
Income from continuing operations before provision ------- ------- ------- -------
for income taxes 12,085 7,320 33,127 15,687
Provision for income taxes 4,689 2,892 12,853 6,156
------- ------- ------- -------
Income from continuing operations 7,396 4,428 20,274 9,531
------- ------- ------- -------
Income (loss) from operations of discontinued environmental
sciences segment, net of income taxes of $(171), $782,
$(250) and $2,289, respectively (270) 1,198 (395) 3,506
------- ------- ------- -------
Net income $ 7,126 $ 5,626 $19,879 $13,037
======= ======= ======= =======
Income from continuing operations per share:
Basic $ 0.30 $ 0.19 $ 0.83 $ 0.41
======= ======= ======= =======
Diluted $ 0.30 $ 0.19 $ 0.81 $ 0.41
======= ======= ======= =======
Income (loss) from discontinued operations per share:
Basic $ (0.01) $ 0.05 $ (0.02) $ 0.15
======= ======= ======= =======
Diluted $ (0.01) $ 0.05 $ (0.01) $ 0.15
======= ======= ======= =======
Net income per share:
Basic $ 0.29 $ 0.24 $ 0.81 $ 0.56
======= ======= ======= =======
Diluted $ 0.29 $ 0.24 $ 0.80 $ 0.56
======= ======= ======= =======
Weighted average number of common shares outstanding:
Basic 24,629 23,267 24,544 23,124
Dilutive effect of stock options 246 178 345 152
------- ------- ------- -------
Diluted 24,875 23,445 24,889 23,276
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
3
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 41,393 $ 34,083
Accounts receivable and unbilled services, net 120,223 125,065
Investigator advances 1,157 1,505
Prepaid expenses and other current assets 11,917 9,562
Deferred tax asset 3,054 2,751
------- -------
Total current assets 177,744 172,966
Property, plant and equipment, net 50,351 42,509
Goodwill, net 9,888 14,869
Other assets, net 27,249 6,238
------- -------
Total assets $265,232 $236,582
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 247 $ 3,580
Accounts payable 7,582 7,812
Payables to investigators 5,603 5,204
Other accrued expenses 25,623 28,007
Unearned income 39,643 34,446
------- -------
Total current liabilities 78,698 79,049
Long-term debt, less current maturities 145 161
Deferred rent and other 1,841 1,962
------- -------
Total liabilities 80,684 81,172
------- -------
Shareholders' equity
Common stock 2,463 2,343
Paid-in capital 134,012 123,709
Retained earnings 50,080 29,929
Accumulated other comprehensive loss (2,007) (571)
------- -------
Total shareholders' equity 184,548 155,410
------- -------
Total liabilities and shareholders' equity $265,232 $236,582
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
4
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $19,879 $13,037
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of CCCR - (1,071)
Acquired in-process research and development costs - 3,163
Depreciation and amortization 11,102 10,418
Change in operating assets and liabilities (5,670) (13,879)
------ ------
Net cash provided by operating activities 25,311 11,668
------ ------
Cash flows from investing activities:
Cash received from repayment of note receivable 500 -
Sales of investments - 8,000
Purchases of investments (3,500) -
Purchases of property and equipment (18,678) (15,568)
Net cash received from (paid for) acquisitions 738 (1,006)
Net cash paid for acquisition of in-process research
and development costs - (3,163)
Proceeds from sale of property and equipment 14 -
Net cash received in sale of businesses 3,421 5,285
------ ------
Net cash used in investing activities (17,505) (6,452)
------ ------
Cash flows from financing activities:
Proceeds from long-term debt 982 -
Repayment of long-term debt (6,246) (998)
Proceeds from issuance of common stock 6,203 5,222
Other - 49
------ ------
Net cash provided by financing activities 939 4,273
------ ------
Effect of exchange rate changes on cash (1,435) 810
------ ------
Net increase in cash and cash equivalents 7,310 10,299
Cash and cash equivalents, beginning of the period 34,083 15,879
------ ------
Cash and cash equivalents, end of the period $41,393 $26,178
====== ======
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
5
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. ACCOUNTING POLICIES
The significant accounting policies followed by Pharmaceutical Product
Development, Inc. and its subsidiaries, collectively (the Company), for interim
financial reporting are consistent with the accounting policies followed for
annual financial reporting. These unaudited consolidated condensed financial
statements have been prepared in accordance with Rule 10-01 of Regulation S-X,
and in management's opinion, all adjustments of a normal recurring nature
necessary for a fair presentation have been included. The accompanying
consolidated condensed financial statements do not purport to contain all the
necessary financial disclosures that might otherwise be necessary in the
circumstances and should be read in conjunction with the consolidated financial
statements and notes thereto in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. The results of operations for the three-month and
nine-month periods ended September 30, 1999 are not necessarily indicative of
the results to be expected for the full year or any other period. The amounts on
the December 31, 1998 consolidated condensed balance sheet have been derived
from the audited financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain 1998 financial statement amounts have been reclassified to conform
with the 1999 presentation.
FINANCIAL INSTRUMENTS
In the fourth quarter of 1999, the Company entered into a short sale and
repurchase of U.S. Treasury bonds with a face value of $520 million based on
management's expectations that interest rates will rise between the date the
transaction was entered into and its maturity date of May 15, 2000. The Company
will be required to record these financial instruments at their net fair value
on each reporting date, with any changes in the fair value recorded as either
interest income or interest expense. As a result of entering into this
transaction, the Company expects to generate a capital gain of approximately
$11,000,000, which will allow the Company to utilize its capital loss
carryforwards, which previously had been fully reserved. The Company was
required to make a margin deposit of $2.6 million related to this transaction.
2. PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated condensed financial statements
include the accounts and operations of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
3. ACQUISITIONS
Poolings
In March 1999, the Company acquired ATP, Inc. ("PPD ATP"), a health
information services company. PPD ATP provides customized inbound and outbound
telecommunications programs targeting consumers and health care providers. The
Company acquired PPD ATP in exchange for approximately 876,000 shares of the
Company's common stock. Outstanding PPD ATP options were exchanged for options
to acquire approximately 216,000 shares of the Company's common stock. This
acquisition was accounted for as a pooling of interests transaction. Results of
operations for PPD ATP are included in the consolidated results of operations of
the Company beginning January 1, 1999. Results of operations of the Company for
periods prior to January 1, 1999 were not restated as PPD ATP's results of
operations for the year ended December 31, 1998 were not material to the
Company's 1998 operating results.
6
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
3. ACQUISITIONS (continued)
Purchases
In January 1998, the Company acquired two environmental consulting businesses
for a total of $1,006,000 in cash and the potential for the former owners to
earn an additional amount depending on the profitability of the businesses for a
certain period after the acquisition. In connection with these acquisitions, the
Company recorded approximately $900,000 in goodwill. These businesses were
disposed of with the rest of the environmental sciences segment on January 31,
1999 (see Note 6 of Notes to Consolidated Condensed Financial Statements).
4. EARNINGS PER SHARE
The computation of basic income per share information is based on the
weighted average number of common shares outstanding during the period. The
computation of diluted income per share information is based on the weighted
average number of common shares outstanding during the period plus the effects
of any dilutive common stock equivalents at the end of the period.
5. SALE OF BUSINESS
In February 1998, the Company, through its subsidiary Clinix International
Inc., sold substantially all of the assets of the Chicago Center for Clinical
Research ("CCCR"). The consideration received by the Company for CCCR totaled
approximately $7,785,000, which was comprised of $5,285,000 in cash and a
promissory note of $2,500,000 payable over five years. The sale resulted in a
gain of approximately $1,071,000 that was recognized as other income during the
first quarter of 1998. As part of the sales agreement, the Company continued to
provide CCCR with certain clinical and administrative services for an agreed
upon amount through the first quarter of 1999.
6. DISCONTINUED OPERATIONS
Effective January 31, 1999, the Company sold its environmental sciences
segment to Environ Holdings, Inc., a new company formed by the management of the
environmental sciences segment, for total consideration of approximately
$26,244,000. The Company received cash of $1,244,000, a four-year note for
$7,000,000 and a 12-year note for $18,000,000. The sale resulted in no gain or
loss because the sales price was equal to the book value of the net assets sold.
In the first quarter of 1999, the Company received full pre-payment of the
four-year note. Results of operations for the three-month and nine-month periods
ended September 30, 1998 have been restated to reflect the environmental
services segment as discontinued operations.
The consolidated condensed balance sheet at December 31, 1998 includes the
following assets and liabilities of the environmental sciences segment (in
thousands):
Current assets $24,214
Total assets 32,527
Current liabilities 6,030
Total liabilities 6,209
------
Net assets of discontinued operations $26,318
======
7
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
7. COMPREHENSIVE INCOME
The Company's comprehensive income for the three-month periods ended
September 30, 1999 and 1998 was $8,028,000 and $6,706,000, respectively, and for
the nine-month periods ended September 30, 1999 and 1998 was $18,443,000 and
$13,847,000, respectively.
The Company's other comprehensive income (loss) consisted of changes in the
cumulative translation adjustment for the three-month periods ended September
30, 1999 and 1998 of $902,000 and $1,080,000, respectively, and for the
nine-month periods ended September 30, 1999 and 1998 of $(1,436,000) and
$810,000, respectively.
8. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES:
Accounts receivable and unbilled services consisted of the following:
September 30, December 31,
1999 1998
------------ -----------
Trade: (unaudited)
Billed $73,152 $75,405
Unbilled 47,970 51,702
Reserve for doubtful
accounts (899) (2,042)
-------- --------
$120,223 $125,065
======== ========
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPANY OVERVIEW
Pharmaceutical Product Development, Inc. and its subsidiaries (collectively
the Company) provide a broad range of research and development and consulting
services in the life sciences and discovery sciences segments. In the life
sciences segment we provide worldwide clinical research and development of
pharmaceutical products and medical devices, biostatistical analysis and
analytical laboratory services. Our discovery sciences services include target
identification and validation, compound creation, screening and compound
selection. The Company provides services under contract to clients in the
pharmaceutical, general chemical, agrochemical, biotechnology and other
industries. In addition, we perform discovery research on certain compounds for
which the Company holds a license. The Company markets its life sciences
services primarily in the United States and Europe. The Company's discovery
revenues have all been generated in the United States to date.
Prior to selling its environmental sciences segment on January 31, 1999 (see
Note 6 of Notes to Consolidated Condensed Financial Statements), the Company
also provided environmental sciences services. Environmental sciences services
included assessment and management of chemical and environmental health risk,
site investigation and remediation planning and litigation support. In addition
to the industries mentioned above, the environmental sciences segment also
marketed services to clients in the industrial, manufacturing and oil and gas
industries. The environmental sciences segment marketed its services primarily
in the United States and Europe.
Life Sciences Group
The Company's Life Sciences Group provides services through PPD Development,
Inc. and its wholly owned subsidiaries (collectively "PPD Development") in the
Americas (United States, Canada, and South America), Africa, Asia, Europe and
the Pacific Rim. PPD Informatics, a division of PPD Development, provides
software development and system integration services to the pharmaceutical and
biotechnology industries. PPD ATP, a division of PPD Development, provides
customized inbound and outbound telecommunications programs targeting consumers
and health care providers.
PPD Development provides its clients 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 those products. In addition, PPD Development's
integrated services offer its clients a variable cost alternative to the fixed
costs associated with internal drug development. PPD Development'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 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.
PPD ATP became a division of the Company through the acquisition of ATP, Inc.
in March 1999. PPD ATP manages telephone inquiries from consumers and health
care providers by utilizing on-line, licensed pharmacists and other health care
professionals who are available 24 hours a day, 365 days a year. PPD ATP creates
and implements customized inbound and outbound telecommunication programs for
pharmaceutical manufacturers, chain drug stores, managed care organizations and
other corporations with health care enhancing objectives.
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 pharmacogenetic 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
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. We believe that pharmacogenomics is becoming widely adopted as a drug
discovery and development tool and increasingly important as part of an
individuals diagnosis and treatment regimen. The Company owns a minority
position in PPGx, with the option to increase its ownership share. The Company
also has exclusive marketing rights to PPGx pharmacogenomics products and
services. For more detailed information on the Company's Life Sciences Group,
see the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
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 pharmaceutical 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 and performs the discovery research and
development of these compounds. For more detailed information on the Company's
Discovery Sciences Group, see the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
RESULTS OF OPERATIONS
GENERAL
During the third quarter of 1999, the Company reported net income of $7.1
million, or $0.30 per diluted share, compared to net income of $5.6 million, or
$0.24 per diluted share, during the third quarter of 1998. Net income from
continuing operations (excluding operations of the discontinued division) of
$7.4 million was 67.0% higher than net income from continuing operations for the
same period a year ago.
In March 1999, the Company acquired ATP, Inc. ("PPD ATP"), a health
information services company. PPD ATP provides customized inbound and outbound
telecommunications programs targeting consumers and health care providers. The
Company acquired PPD ATP in exchange for approximately 876,000 shares of the
Company's common stock. Outstanding PPD ATP options were exchanged for options
to acquire approximately 216,000 shares of the Company's common stock. This
acquisition was accounted for as a pooling of interests transaction. Results of
operations for PPD ATP are included in the consolidated results of operations of
the Company beginning January 1, 1999. Results of operations of the Company for
periods prior to January 1, 1999 were not restated as PPD ATP's results of
operations for the year ended December 31, 1998 were not material to the
Company's 1998 operating results.
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 stock of its subsidiary Intek and the
rights to a software license, 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 for $2.0 million. The
Company records this investment under the cost method. As of September 30, 1999,
the investment in PPGx was $4.2 million and was recorded in Other Assets, net on
the balance sheet. The Company acts as guarantor on a $8.0 million revolving
credit facility for PPGx. The Company has 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.
Effective January 31, 1999, the Company sold its environmental sciences
segment to Environ Holdings, Inc., a new company formed by the management of the
environmental sciences segment. The Company received cash of $1.2 million, a
four-year note in the amount of $7.0 million (which was paid in the first
quarter of 1999) 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 was fair from a financial standpoint. The Company did not recognize a
gain or loss as a result of the sale because the sales price was equal to the
book value of the net assets sold. The Company also entered into a three-year
consulting agreement to provide certain consulting services to Environ Holdings
for a fee of $0.5 million per year.
THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1998
Net revenue increased $17.9 million, or 29.1%, to $79.4 million in 1999 from
$61.5 million in 1998. The Life Sciences Group's operations accounted for 99.4%
of the Company's net revenue for the third quarter of 1999. The Life Sciences
Group generated net revenue of $78.8 million, up $17.5 million, or 28.5%, from
the 1998 third
10
<PAGE>
quarter. 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. In addition, PPD ATP contributed net revenue of
$3.7 million to the Life Sciences Group for the three months ended September 30,
1999. The Discovery Sciences Group generated net revenue of $0.5 million, an
increase of $0.4 million, from the 1998 third quarter. The growth in the
Discovery Sciences Group operations was primarily attributable to an increase in
the number of contracts in the combinatorial chemistry division and revenues
earned from a joint development and license agreement which was entered into by
the functional genomics division during the fourth quarter of 1998, which
extends through the second quarter of 2000.
Total direct costs increased 27.3% to $40.4 million from $31.7 million last
year and decreased as a percentage of net revenue to 50.9% from 51.6%. Life
Sciences Group direct cost increased to $37.9 million in 1999 as compared to
$30.8 million in 1998. The increased direct cost dollars resulted primarily from
increased personnel costs due to the increase in the size and number of
contracts in the Global CRO Phase II-IV division. In addition, PPD ATP
contributed direct costs of $1.9 million to the Life Sciences Group for the
three months ended September 30, 1999. Life Sciences Group direct costs
decreased as a percentage of related net revenue to 48.1% from 50.2%. This
decrease was principally due to a focused effort to control costs, while
revenues increased. Discovery Sciences Group direct costs increased to $2.5
million in 1999 as compared to $0.9 million in 1998. This increase was primarily
due to the $1.2 million in additional costs for a Phase II trial associated with
GenuPro in the 1999 period.
Selling, general and administrative ("SG&A") expenses increased 20.1% to
$24.2 million in 1999 from $20.1 million in the same period last year. The
increase is primarily attributable to an increase in administrative personnel to
support the Company's expanding operations. As a percentage of net revenue, SG&A
expenses decreased to 30.5% from 32.8% last year.
Total depreciation and amortization expense of $3.8 million in 1999 was $0.8
million, or 27.5%, higher than the same period last year. The increase was
related to the depreciation of the increased investment in property and
equipment due primarily to the acquisition of PPD ATP in March 1999 and the
Company's growth. The Company's capital expenditures were $5.4 million in the
third quarter of 1999. The expansion of existing operations of existing
operations accounted for approximately 61.0% of this capital investment, and the
enhancement and expansion of information technology capacities accounted for
approximately 33.2% of this capital investment.
Operating income improved 66.2% to $11.0 million for the three months ended
September 30, 1999, from $6.6 million for the three months ended September 30,
1998. As a percentage of net revenue, the quarterly operating income improved to
13.8% in 1999 from 10.7% for the same period last year. These increases were
primarily due to the Company's focus on controlling its costs, while revenues
increased.
Net interest and other income increased $0.4 million, rising to $1.1 million
for the three months ending September 30, 1999 from $0.7 million for the three
months ending September 30, 1998. The improvement was primarily the result of
the increase in interest income of $0.5 million. During the third quarter of
1999, the Company received $0.4 million in interest income related to the notes
receivable from CCCR and Environ Holdings. The Company expects to receive an
additional $0.4 million in interest income in the fourth quarter of 1999 from
these notes.
The Company recorded income from discontinued operations, net of income tax
expense, related to its environmental sciences segment, of $1.2 million in the
third quarter of 1998. The environmental sciences segment was sold on January
31, 1999.
The provision for income taxes increased $1.8 million to $4.7 million for the
three months ended September 30, 1999, as compared to $2.9 million for the three
months ended September 30, 1998 due primarily to the Company's increase in
earnings before income taxes. As a percentage of income before income taxes, the
provision for income taxes decreased slightly to 38.8% for 1999 from 39.5% for
1998.
The net income of $7.1 million in the third quarter of 1999 represents an
improvement of $1.5 million over the $5.6 million over the same quarter a year
ago. Net income per basic and diluted share of $0.29 for the third quarter of
1999 compares to $0.24 in the third quarter of 1998. Excluding non-recurring
items (results of operations of the discontinued environmental services), the
Company's third quarter 1999 income from continuing operations of $7.4 million
was 67.0% higher than income from continuing operations of $4.4 million for the
third quarter of 1998. On an equivalent earnings-per-share basis, net income per
diluted share (excluding non-recurring costs) of $0.30 compares to net income
per diluted share of $0.19 for the same period last year computed on 1.4 million
less shares outstanding.
11
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1998
Net revenue increased $54.1 million, or 31.7%, to $225.2 million in 1999 from
$171.1 million in 1998. The Life Sciences Group's operations accounted for 99.1%
of the Company's net revenue for the 1999 period as compared to 99.8% for the
1998 period. The Life Sciences Group generated net revenue of $223.2 million, up
$52.4 million, or 30.7%, 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. PPD ATP contributed
net revenue of $10.5 million to the Life Sciences Group for the nine months
ended September 30, 1999. The Discovery Sciences Group generated net revenue of
$2.0 million, an increase of $1.7 million, from the prior year. The growth in
the Discovery Sciences Group operations was primarily attributable to an
increase in the number of contracts in the combinatorial chemistry division and
a joint development and license agreement (signed during the fourth quarter of
1998, which extends through the second quarter of 2000) in the functional
genomics division.
Total direct costs increased 28.9% to $114.0 million from $88.5 million last
year and decreased as a percentage of net revenue to 50.6% from 51.7%. Life
Sciences Group direct cost increased to $108.4 million in 1999 as compared to
$85.8 million in 1998. The increase in direct cost dollars resulted primarily
from increased personnel costs due to the increase in size and number of
contracts in the Global CRO Phase II-IV division. PPD ATP contributed direct
costs of $5.2 million to the Life Sciences Group for the nine months ended
September 30, 1999. Life Sciences Group direct costs decreased as a percentage
of related net revenue to 48.6% from 50.3%. This decrease was principally due to
the different mix of contracts performed and a focused effort to control costs,
while revenues increased. Discovery Sciences Group direct costs increased to
$5.6 million in 1999 as compared to $2.6 million in 1998. This increase was
primarily due to the $2.6 million in additional costs associated with GenuPro in
the 1999 period.
SG&A expenses increased 22.0% to $70.3 million in 1999 from $57.6 million in
the same period last year. The increase is primarily attributable to investment
in additional personnel to support the Company's expanding operations. As a
percentage of net revenue, SG&A expenses decreased to 31.2% from 33.7% last
year.
Total depreciation and amortization expense of $10.9 million in 1999 was $1.9
million, or 20.6%, higher than the same period last year. The increase was
related to the depreciation of the increased investment in property and
equipment due primarily to the acquisition of PPD ATP in March 1999 and the
Company's growth. The Company's capital expenditures were $18.7 million in the
nine months ended September 30, 1999. Expanded capabilities in the Company's
labs accounted for approximately 33.5% of this capital investment, while the
enhancement and expansion of information technology capacities accounted for
approximately 29.7% of this capital investment. The remaining capital
expenditures were predominately incurred in connection with the expansion of
existing operations and the opening of new offices.
During the first quarter of 1999, the Company recorded merger costs of $0.2
million in connection with acquisition of PPD ATP. These costs were primarily
cash expenses, such as legal and accounting fees related to this transaction.
The Company recorded an acquired in-process research and development charge
of $3.2 million in the second quarter of 1998 as a result of the purchase of a
license to six genitourinary compounds. 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.
Operating income improved to $29.8 million for the nine months ended
September 30, 1999, from $12.8 million for the nine months ended September 30,
1998. Excluding merger costs and acquired in-process research and development
costs, the Company's adjusted operating income of $30.0 million in 1999 was
88.6% higher than adjusted operating income of $15.9 million for the same period
last year. As a percentage of net revenue, the adjusted operating income
improved to 13.3% in 1999 from 9.3% for the same period last year. These
increases were primarily due to the Company's focus on controlling its costs,
while revenues increased.
Net interest and other income increased $0.4 million, rising to $3.3 million
for the nine months ending September 30, 1999 from $2.9 million for the nine
months ending September 30, 1998. Excluding the gain related to the sale of CCCR
in 1998, net interest and other income of $3.3 million was $1.5 million higher
than the prior year for the same period. The improvement was primarily the
result of the increase in interest income of $1.4 million. During the first nine
months of 1999, the Company received $1.2 million in interest income related to
12
<PAGE>
the notes receivable from CCCR and Environ Holdings. The Company expects to
receive an additional $0.4 million in the fourth quarter of 1999 from these
notes.
The Company recorded a loss from discontinued operations, net of income tax
expense, related to its environmental sciences segment, of $0.4 million in 1999,
as compared to income of $3.5 million in the first nine months of 1998. The
environmental sciences segment was sold on January 31, 1999.
The provision for income taxes increased $6.7 million to $12.9 million for
the nine months ended September 30, 1999, as compared to $6.2 million for the
nine months ended September 30, 1998 due to the Company's increase in earnings
before income taxes. As a percentage of income before income taxes, the
provision for income taxes has remained relatively consistent at 38.8% for 1999
and 39.2% for 1998.
The net income of $19.9 million represents an improvement of $6.8 million
over the same period a year ago. Net income per diluted share of $0.80 compares
to net income per diluted share of $0.56 for the same period last year.
Excluding non-recurring items (merger costs, acquired in-process research and
development costs, the gain on sale of CCCR and operations of the discontinued
division), the Company's income from continuing operations of $20.3 million was
112.7% higher than last year's income from continuing operations of $9.5
million. On an equivalent earnings-per-share basis, net income per diluted share
(excluding non-recurring costs) of $0.81 compares to net income per diluted
share of $0.41 for the same period last year computed on 1.6 million less shares
outstanding.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had $41.4 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 sale of the Company's stock.
For the nine months ended September 30, 1999, the Company experienced a net
increase in cash from operating activities of $25.3 million. For the period, net
income of $19.9 million plus net noncash changes to net income for depreciation
and amortization of $11.1 million were partially offset by the net change of
$5.7 million in operating assets and liabilities (which included a $11.4 million
increase in billed and unbilled receivables, primarily as a result of growth in
net revenue). The number of days revenue outstanding in accounts receivable and
unbilled services, net of unearned income, were 65.7 and 75.8 days (excluding
operations and related balance sheet accounts of the discontinued division at
September 30, 1998) as of September 30, 1999 and September 30, 1998,
respectively. The decrease is a result of a focused effort by management on
collections.
For the nine months ended September 30, 1999, the Company's investing
activities used $17.5 million in cash. Capital expenditures of $18.7 million and
the investment in PPGx of $3.5 million were partially offset by net cash
received in the sale of business of $3.4 million, $0.7 million in cash received
with the acquisition of PPD ATP and $0.5 million from the repayment of note
receivable.
For the nine months ended September 30, 1999, the Company's financing
activities provided $1.0 million in cash, as net proceeds from stock option
exercises of $6.2 million and the proceeds from long-term debt of $0.9 million
related primarily to PPD ATP's building loan were partially offset by $6.2
million in net repayment of long-term debt.
Working capital as of September 30, 1999 was $99.0 million compared to $93.9
million at December 31, 1998. Excluding the environmental sciences segment from
the balance sheet as of December 31, 1998, the adjusted working capital would
have been $74.6 million. The increase in adjusted working capital was due
primarily to an increase in cash and cash equivalents of $7.3 million and an
increase in accounts receivable and unbilled services, net, of $13.5 million.
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 September 30,
1999, the Company had $11.5 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.
In August 1999, 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 0.625% per year.
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<PAGE>
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.
This credit facility expires in August 2000.
In the fourth quarter of 1999, the Company entered into a short sale and
repurchase of U.S. Treasury bonds with a face value of $520 million based on
management's expectations that interest rates will rise between the date the
transaction was entered into and its maturity date of May 15, 2000. The Company
will be required to record these financial instruments at their net fair value
on each reporting date, with any changes in the fair value recorded as either
interest income or interest expense. As a result of entering into this
transaction, the Company expects to generate a capital gain of approximately
$11,000,000, which will allow the Company to utilize its capital loss
carryforwards, which previously had been fully reserved. The Company was
required to make a margin deposit of $2.6 million related to this transaction.
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 sale of the Company's stock. The Company
believes that such sources of cash will be sufficient to fund the Company's
operations for at least the next 12 months. The Company is currently evaluating
a number of acquisitions and other growth opportunities which may require
additional external financing, and the Company may from time to time seek to
obtain funds from public or private issuances of equity or debt securities.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs having been written
using two digits, rather than four, to define the applicable year. As a result,
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 inventory and
assessment of affected equipment and software, 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 September 30, 1999, the assessment process was 100% complete for all
equipment (including computer hardware and software technology) used internally
by the Company as compared to 95% at December 31, 1998. As of September 30,
1999, remediation and testing was 100% complete for critical systems and 99%
complete for non-critical systems. All systems, regardless of whether they
require remediation, are being tested to ensure Year 2000 compliance. The
Company expects to continue this process for all-new equipment and software on
an ongoing basis. The Company has assessed 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. Although there can
be no assurance, 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 used for remediation was approximately 11% in 1998 and 5% in 1999. As of
September 30, 1999, the Company had spent approximately $1.70 million on Year
2000 compliance, and expects to spend an additional $0.05 million to complete
the compliance process. Of the total amount that the Company expects to spend,
approximately $1.25 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.
14
<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. 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 worst case scenario, which might
arise from material Year 2000 compliance failures. Business contingency plans
have been developed to minimize the impact of outages across our locations
worldwide. In addition, a plan has been developed to handle yearend activities
to ensure all critical functions are verified and operational prior to the start
of business in the new year. 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 has significantly reduced the level of uncertainty about Year
2000 problems and, in particular, about Year 2000 compliance and readiness of
its internal systems and key suppliers. The Company also believes that its
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.
INFLATION
The Company believes the effects of inflation have not had a material adverse
effect on its results of operations or financial condition.
EXCHANGE RATE FLUCTUATIONS AND EXCHANGE CONTROLS
The vast majority of the Company's contracts are entered into by the
Company's United States or United Kingdom subsidiaries. The contracts entered
into by the United States subsidiaries are almost always denominated in United
States dollars.
Contracts between the Company's United Kingdom subsidiaries and their clients
are generally denominated in pounds sterling. Substantially all of the United
Kingdom subsidiaries' expenses, such as salaries, services, materials and
supplies, are paid in pounds sterling. However, the Company's consolidated
financial statements are denominated in dollars and, accordingly, changes in the
exchange rate between the pound sterling and the dollar will affect the
translation of such subsidiaries' financial results into dollars for purposes of
reporting the Company's consolidated financial results, and also affect the
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 the next 12 months.
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.
15
<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. Because 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, 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 3. 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% of the Company's net revenues for both the
three-month periods ended September 30, 1999 and 1998 were derived 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 generated approximately 33% and 51% of the Company's revenue from
foreign operations for the three months ended September 30, 1999 and 1998,
respectively. 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 the next 12 months.
Because the Company's consolidated financial statements are denominated in
U.S. dollars changes in the exchange rates between the Company's subsidiaries
local currency and the U.S. dollar 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 as a
component of 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 might in
the future be material to the Company's financial statements.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 10.133 Fourth Amendment, dated July 6, 1999, to Lease Agreement
dated July 9, 1997 between PPD Development, Inc.
(formerly known as PPD Pharmaco, Inc.) and
Weeks Realty, L.P.
Exhibit 10.134 Pharmaceutical Product Development, Inc. Equity
Compensation Plan as amended and restated effective
May 12, 1999.
Exhibit 10.135 Amendment to Employment Agreement dated August 20, 1999
between PPD Development, Inc. and Mark A. Sirgo.
Exhibit 10.136 Termination of Employment Agreement dated September 14,
1999 between Pharmaceutical Product Development, Inc.
and Thomas D'Alonzo.
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1999.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
------------------------------------------
(Registrant)
By /s/ Rudy C. Howard
----------------------------------------
Chief Financial Officer, Vice President
of Finance and Treasurer
(Principal Financial Officer)
Date: November 15, 1999
18
EXHIBIT 10.133
FOURTH AMENDMENT TO LEASE AGREEMENT
THIS FOURTH AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made this
6th day of July, 1999 by and between PPD DEVELOPMENT, INC., a Texas corporation
formerly known as PPD Pharmaco, Inc. (hereinafter, the "Tenant"), and WEEKS
REALTY, L.P., a Georgia limited partnership (hereinafter, the "Landlord").
WITNESSETH:
WHEREAS, pursuant to a Lease Agreement dated July 9, 1997 by and
between Landlord and Tenant (the Lease Agreement, and all amendments thereto
shall be referred to herein collectively as the "Lease"), Landlord leased to
Tenant certain premises in a building located in Morrisville, Wake County, North
Carolina 27560 which had been provided the address of 4025 Paramount Parkway,
but is now known as 3900 Paramount Parkway, all as more particularly described
in the Lease; and
WHEREAS, pursuant to a First Amendment to Lease Agreement dated as of
January 28, 1998, Landlord and Tenant amended the Lease, among other things, to
correct and modify the square footage leased by Tenant in the Building, as
provided therein; and
WHEREAS, pursuant to Second Amendment to Lease Agreement dated as of
June 26, 1998, Landlord and Tenant amended the Lease, among other things, to
modify the Lease to revise the provisions of paragraph 8 of the Lease, as
provided therein; and
WHEREAS, pursuant to a First Amendment to Lease Agreement dated as of
February 18, 1999, Landlord and Tenant amended the Lease, among other things, to
modify its provisions regarding the termination of certain lease agreements
between Landlord and Tenant, as provided therein; the aforesaid amendment is
hereby modified to re-title said amendment "Third Amendment to Lease Agreement";
and
WHEREAS, the parties desire to modify the Lease, among other things, to
revise the rent schedule therein, as provided herein.
NOW, THEREFORE, in consideration of cash in hand paid and the promises
and the provisions contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Landlord and Tenant hereby agree to amend and modify the Lease as follows:
1. Base Rent.
(a) Paragraph 2(a) of the Lease is hereby deleted, and the following
new paragraph 2(a) inserted in lieu thereof:
1
<PAGE>
"(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
amount of Seventeen and 05/100 Dollars ($17.05) per rentable square
foot of the Premises, commencing on 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. Notwithstanding the foregoing, base rent shall be abated for
20,000 rentable square feet of the Premises only for the first eight
months of the term of this Lease, commencing upon the Commencement Date
and ending at the end of the eight month thereafter (the "Base Rent
Abatement"); provided, however, should Tenant default and fail to enter
into occupancy of the Premises, Tenant acknowledges that the damages of
Landlord for such failure shall include the recoupment by Landlord of
the amount of the Base Rent Abatement.
Base rent is comprised of two components, (i) rent for each
year, plus (ii) operating expenses (but not Additional Rent amounts),
as described below. In addition, as described below, Landlord shall
advise Tenant each year in accordance with the Lease of amounts due
under the Lease as Additional Rent (amounts in excess of the estimate
of operating expenses), and a revised estimate of operating expenses
for each year.
Base rent per rentable square foot, net of operating expenses,
shall be increased on each anniversary of the Commencement Date during
the term of this Lease by three percent over the base rent paid per
rentable square foot the previous lease year."
(b) The payment by Tenant of the increased base rent as described above
shall commence as of the Commencement Date under the Lease. Tenant shall remit
payment to Landlord for the increase in base rent due and owing by Tenant for
the period from the Commencement Date through June 30, 1999 in the amount of
$48,810.41 on the date hereof, and effective July 1, 1999, Tenant shall remit
the increased base rent amount shown above to Landlord in the manner provided in
the Lease.
2. Severability. In the event any term, covenant or condition of this
Amendment, the Lease, or any amendments thereto shall to any extent be invalid
or unenforceable, the remainder shall not be affected thereby and each term,
covenant or condition shall be valid and enforceable to the full extent
permitted by law.
3. Successors and Assigns. This Amendment shall apply to, inure to the
benefit of, and be binding upon the parties hereto and upon their respective
heirs, legal representatives, successors and permitted assigns, except as
otherwise provided herein.
2
<PAGE>
4. Authority of Tenant. Tenant certifies to Landlord that it is
authorized to enter into this Amendment, and that those persons signing below on
its behalf are authorized to do so, and shall promptly upon the request of
Landlord provide a resolution to this effect.
5. Interpretation. Although the printed provisions of this Amendment
were drafted by Landlord, such fact shall not cause this Amendment to be
construed either for or against Landlord or Tenant.
6. Full Force and Effect. Except as modified hereby, the Lease remains
unmodified and in full force and effect.
7. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of North Carolina.
8. Mutual Acknowledgment of Non-Existence of Claims. Landlord and
Tenant acknowledge and agree that as of the day hereof there are no known claims
by either party against the other party hereto arising from the relationship as
Landlord and Tenant, respectively, pursuant to the Lease, as amended.
9. Confidentiality. The terms and provisions of the Lease, and this
Amendment are strictly confidential, are to be shared by Tenant only with its
accountant, employees, and attorneys, and each of those parties shall be advised
of the confidential nature of the Lease, and this Amendment.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Amendment causing their respective seals to be affixed hereto the day and year
first above written.
LANDLORD:
WEEKS REALTY, L.P. (SEAL), a Georgia
limited partnership authorized to do
business in the State of North
Carolina as Weeks Realty Limited
Partnership
BY: WEEKS GP HOLDINGS, INC., a
Georgia corporation, its sole
general partner
By: /s/ Robert G. Cutlip
--------------------
Robert G. Cutlip,
Senior Vice President
TENANT:
PPD DEVELOPMENT, INC., a Texas
corporation qualified to do business
in North Carolina
ATTEST:
By: /s/ Rudy C. Howard By: /s/ Fred Eshelman
------------------ -----------------
Secretary CEO
[CORPORATE SEAL]
4
EXHIBIT 10.134
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
EQUITY COMPENSATION PLAN
Effective as of October 30, 1995
Amended and Restated
Effective May 12, 1999
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
EQUITY COMPENSATION PLAN
ARTICLE I - GENERAL PROVISIONS
1.1 The Plan is designed, for the benefit of the Company, to attract and
retain for the Company personnel of exceptional ability; to motivate such
personnel through added incentives to make a maximum contribution to greater
profitability; to develop and maintain a highly competent management team; and
to be competitive with other companies with respect to executive compensation.
1.2 Awards under the Plan may be made to Participants in the form of (i)
Incentive Stock Options; (ii) Nonqualified Stock Options; (iii) Stock
Appreciation Rights; (iv) Restricted Stock; (v) Deferred Stock; (vi) Stock
Awards; (vii) Performance Shares; and (viii) Other Stock-Based Awards and other
forms of equity-based compensation as may be provided and are permissible under
this Plan and the law.
1.3 The Plan shall be effective as of October 30, 1995 (the "Effective
Date"), subject to the approval of shareholders of the Company within 12 months
before or after such date.
ARTICLE II - DEFINITIONS
Except where the context otherwise indicates, the following definitions
apply:
2.1 "Acceleration Event" means the occurrence of an event defined in
Article XIII of the Plan.
2.2 "Act" means the Securities Exchange Act of 1934, as now in effect or as
hereafter amended. All citations to sections of the Act or rules
thereunder are to such sections or rules as they may from time to time
be amended. All citations to sections of the act or rules thereunder
are to such sections or rules as they may from time to time be amended
or renumbered.
2.3 "Agreement" means the written agreement evidencing each Award granted
to a Participant under the Plan.
2.4 "Award" means an award granted to a Participant in accordance with the
provisions of the Plan, including, but not limited to, a Stock Option,
Stock Right, Restricted Stock, Deferred Stock, Stock Awards,
Performance shares, Other Stock-Based Awards, or any combination of the
foregoing.
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2.5 "Board" means the Board of Directors of Pharmaceutical Product
Development, Inc.
2.6 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.
2.7 "Committee" means the Compensation Committee or such other committee
consisting of two or more members as may be appointed by the Board to
administer this Plan pursuant to Article III. To the extent required by
Rule 16b-3 under the Act, the Committee shall consist of individuals
who are members of the Board and who are Non-Employee Directors.
Committee members may also be appointed for such limited purposes as
may be provided by the Board.
2.8 "Company" means Pharmaceutical Product Development, Inc., a North
Carolina corporation, and its successors and assigns. The term
"Company" shall include any corporation which is a member of a
controlled group of corporations (as defined in Section 414(b) of the
Code, as modified by Section 415(h) of the Code) which includes the
Company; any trade or business (whether or not incorporated) which is
under common control (as defined in Section 414(c) of the Code, as
modified by Section 415(h) of the Code) with the Company; any
organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Section 414(m) of the Code)
which includes the Company; and any other entity required to be
aggregated with the Company pursuant to regulations under Section
414(o) of the Code. With respect to all purposes of the Plan,
including, but not limited to, the establishment, amendment,
termination, operation and administration of the Plan, Pharmaceutical
Product Development, Inc. shall be authorized to act on behalf of all
other entities included within the definition of Company.
2.9 "Deferred Stock" means the stock awarded under Article IX of the Plan.
2.10 "Disability" means disability as determines under procedures
established by the Committee or in any Award.
2.11 "Discount Stock Options" means the Nonqualified Stock Options which
provide for an exercise price of less than the Fair Market Value of the
Stock at the date of the Award.
2.12 "Non-Employee Director" shall have the meaning set forth in Rule 16b-3
under the Act.
2.13 "Early Retirement" means retirement from active employment with the
Company, with the express consent of the Committee, pursuant to the
early retirement provisions established by the Committee or in any
Award.
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2.14 "Eligible Participant" means any employee of the Company, as shall be
determined by the Committee, as well as any other person, including
directors, subject to such limitations imposed on a person designated
as a Non-Employee Director, whose participation the Committee
determines is in the best interest of the Company, subject to
limitations as may be provided by the Code, the Act or the Committee.
2.15 "Fair Market Value" means, with respect to any given day, the closing
price of the Stock reported on the stock exchange on which the Stock is
then listed for such day, as reported by such source as the Committee
may select, provided there was a sale of at least 100 shares of Stock
on such date. If there was not a sale of at least 100 shares of Stock
on such day, the Fair Market Value shall be determined based on the
closing price of the Stock reported on the stock exchange as of the
last date on which there was a sale of at least 100 shares of Stock.
The Committee may establish an alternative method of determining Fair
Market Value.
2.16 "Incentive Stock Option: means a Stock Option granted under Article
IV of the Plan, and as defined in Section 422 of the Code.
2.17 "Limited Stock Appreciation Rights" means a Stock Right which is
exercisable only in the event of a Change in Control and/or a Potential
Change in Control, as described in Section 6.9 of the Plan, which
provides for an amount payable solely in cash, equal to the excess of
the Stock Appreciation Right Fair Market Value of a share of Stock on
the day the Stock Right is surrendered over the price at which a
Participant could exercise a related Stock Option to purchase the share
of Stock.
2.18 "Nonqualified Stock Option" means a Stock Option granted under Article
V of the Plan.
2.19 "Normal Retirement" means retirement from active employment with the
Company on or after age 65, or pursuant to such other requirements as
may be established by the Committee or in any Award.
2.20 "Option Grant Date" means, as to any Stock Option, the latest of:
(a) The date on which the Committee grants the Stock Option by
entering into an Award Agreement with the Participant;
(b) The date the Participant receiving the Stock Option becomes an
employee of the Company, to the extent employment status is a
condition of the grant or a requirement of the Code or the
Act; or
(c) Such other date (later than the dates described in (i) and
(ii) above) as the Committee may designate.
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2.21 "Participant" means an Eligible Participant to whom an Award of
equity-based compensation has been granted and who has entered into an
Agreement evidencing the Award.
2.22 "Performance Share" means an Award under Article XI of the Plan of a
unit valued by reference to a designated number of shares of Stock,
which value may be paid to the Participant by delivery of such property
as the Committee shall determine, including without limitation, cash or
Stock, or any combination thereof, upon achievement of such Performance
objectives during the Performance Period as the Committee shall
establish at the time of such Award or thereafter.
2.23 "Plan" means the Pharmaceutical Product Development, Inc. Equity
Compensation Plan, as amended from time to time.
2.24 "Restricted Stock" means an Award of Stock under Article VIII of the
Plan, which Stock is issued with the restriction that the holder may
not sell, transfer, pledge, or assign such Stock and with such other
restrictions as the Committee, in its sole discretion, may impose,
including without limitation, any restriction on the right to vote such
Stock, and the right to receive any cash dividends, which restrictions
may lapse separately or in combination at such time or times, in
installments or otherwise, as the Committee may deem appropriate.
2.25 "Restriction Period" means the period commencing on the date an Award
of Restricted Stock is granted and ending on such date as the Committee
shall determine.
2.26 "Retirement" means Normal or Early Retirement.
2.27 "Stock" means shares of common stock of Pharmaceutical Product
Development, Inc., as may be adjusted pursuant to the provisions of
Section 3.11.
2.28 "Stock Appreciation Right" means a Stock Right, as described in Article
VI of this Plan, which provides for an amount payable in Stock and/or
cash, as determined by the Committee, equal to the excess of the Fair
Market Value of a share of Stock on the day the Stock Right is
exercised over the price at which the Participant could exercise a
related Stock Option to purchase the share of stock.
2.29 "Stock Appreciation Right Fair Market Value" means a value established
by the Committee for the exercise of a Stock Appreciation Right or a
Limited stock Appreciation Right.
2.30 "Stock Award" means an Award of Stock granted in payment of
compensation, as provided in Article X of the Plan
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2.31 "Stock Option" means an Award under Article IV or V of the Plan of an
option to purchase Stock. A Stock Option may be either an Incentive
Stock Option or a Nonqualified Stock Option.
2.32 "Stock Right" means an Award under Article VI of the Plan. A Stock
Right may be either a Stock Appreciation Right or a Limited Stock
Appreciation Right.
2.33 "Termination of Employment" means the discontinuance of employment of a
Participant with the Company for any reason. The determination of
whether a Participant has discontinued employment shall be made by the
Committee in its discretion. In determining whether a Termination of
Employment has occurred, the Committee may provide that service as a
consultant or service with a business enterprise in which the Company
has a significant ownership interest shall be treated as employment
with the Company. The Committee shall have the discretion, exercisable
either at the time the Award is granted or at the time the Participant
terminates employment, to establish as a provision applicable to the
exercise of one or more Awards that during the limited period of
exercisability following Termination of Employment, the Award may be
exercised not only with respect to the number of shares of Stock for
which it is exercisable at the time of the Termination of Employment
but also with respect to one or more subsequent installments for which
the Award would have become exercisable had the Termination of
Employment not occurred.
ARTICLE III - ADMINISTRATION
3.1 This Plan shall be administered by the Committee. A Committee member
who is not a Non-Employee Director, with respect to action to be taken
by the Committee, shall not be able to participate in the decision to
the extent prescribed by Rule 16b-3 under the Act. The Committee, in
its discretion, may delegate to one or more of its members such of its
powers as it deems appropriate. The Committee also may limit the power
of any member to the extent necessary to comply with Rule 16b-3 under
the Act or any other law. Members of the Committee shall be appointed
originally, and as vacancies occur, by the Board, to serve at the
pleasure of the Board. The Board may serve as the Committee, if by the
terms of the Plan all Board members are otherwise eligible to serve on
the Committee.
3.2 The Committee shall meet at such times and places as it determines. A
majority of its members shall constitute a quorum, and the decision of
the majority of those present at any meeting at which a quorum is
present shall constitute the decision of the Committee. A memorandum
signed by all of its members shall constitute the decision of the
Committee without necessity, in such event, for holding an actual
meeting.
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3.3 The Committee shall have the exclusive right to interpret, construe and
administer the Plan, to select the persons who are eligible to receive
an Award, and to act in all matters pertaining to the granting of an
Award and the contents of the Agreement evidencing the Award, including
without limitation, the determination of the number of Stock Options,
Stock Rights, shares of Stock or Performance Shares subject to an Award
and the form, terms, conditions and duration of each Award, and any
amendment thereof consistent with the provisions of the Plan. All acts,
determinations and decisions of the Committee made or taken pursuant to
grants of authority under the Plan or with respect to any questions
arising in connection with the administration and interpretation of the
Plan, including the severability of any and all of the provisions
thereof, shall be conclusive, final and binding upon all Participants,
Eligible Participants and their beneficiaries.
3.4 The Committee may adopt such rules, regulations and procedures of
general application for the administration of this Plan, as it deems
appropriate.
3.5 Without limiting the foregoing Sections 3.1, 3.2, 3.3 and 3.4, and
notwithstanding any other provisions of the Plan, the Committee is
authorized to take such action as it determines to be necessary or
advisable, and fair and equitable to Participants, with respect to an
Award in the event of an Acceleration Event as defined in Article XIII.
Such action may include, but shall not be limited to, establishing,
amending or waiving the forms, terms, conditions and duration of an
Award and the Award Agreement, so as to provide for earlier, later,
extended or additional times for exercise or payment, differing methods
for calculating payments, alternate forms and amounts of payment, an
accelerated release of restrictions or other modifications. The
Committee may take such actions pursuant to this Section 3.5 by
adopting rules and regulations of general applicability to all
Participants or to certain categories of Participants, by including,
amending or waiving terms and conditions in an Award and the Award
Agreement, or by taking action with respect to individual Participants.
3.6 The aggregate number of shares of Stock which are subject to an Award
under the Plan shall be Three Million Five Hundred Thousand (3,500,000)
shares. Such shares of Stock shall be made available from authorized
and unissued shares of the Company.
(a) If, for any reason, any shares of Stock or Performance Shares
awarded or subject to purchase under the Plan are not
delivered or purchased, or are reacquired by the Company, for
reasons including, but not limited to, a forfeiture of
Restricted Stock or termination, expiration or cancellation of
a Stock Option, Stock Right or Performance Share, or any other
termination of an Award without payment being made in the form
of Stock, whether or not Restricted Stock, such shares of
Stock or Performance Shares shall not be charged against the
aggregate number of
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shares of Stock available for Awards under the Plan, and may
again be available for Award under the Plan.
(b) For all purposes under the Plan, each Performance Share
awarded shall be counted as one share of Stock subject to an
Award.
(c) To the extent a Stock Right granted in connection with a Stock
Option is exercised without payment being made in the form of
Stock, whether or not Restricted Stock, the shares of Stock
which otherwise would have been issued upon the exercise of
such related Stock Option shall not be charged against the
aggregate number of shares of Stock subject to Awards under
the Plan, and may again be available for Award under the Plan.
(d) The aggregate number of shares of Stock which are awarded
pursuant to Awards made under the Plan to any "covered
employee", as said term is defined in Section 162(m) of the
Code, shall not exceed Five Hundred Thousand (500,000) shares
in any three-year period.
(e) The aggregate number of shares of Stock which are awarded
pursuant to Awards made under the Plan to Non-Employee
Directors as a group shall not exceed Two Hundred Fifty
Thousand (250,000) shares in any three-year period.
3.7 Each Award granted under the Plan shall be evidenced by a written Award
Agreement. Each Award Agreement shall be subject to and incorporate, by
reference or otherwise, the applicable terms and conditions of the
Plan, and any other terms and conditions, not inconsistent with the
Plan, required by the Committee.
3.8 The Company shall not be required to issue or deliver any certificates
for shares of Stock prior to:
(a) The listing of such shares on any stock exchange on which the
Stock may then be listed; and
(b) The completion of any registration or qualification of such
shares of Stock under any federal or state laws, or any ruling
or regulation of any government body which the Company shall,
in its discretion, determine to be necessary or advisable.
3.9 All certificates for shares of Stock delivered under the Plan shall
also be subject to such stop-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and
other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Stock is then
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listed and any applicable federal or state laws, and the Committee may
cause a legend or legends to be placed on any such certificates to make
appropriate reference to such restrictions. In making such
determination, the Committee may rely upon an opinion of counsel for
the Company.
3.10 Subject to the restrictions on Restricted Stock, as provided in Article
VIII of the Plan and in the Restricted Stock Award Agreement, each
Participant who receives an Award of Restricted Stock shall have all of
the rights of a shareholder with respect to such shares of Stock,
including the right to vote the shares to the extent, if any, such
shares possess voting rights and receive dividends and other
distributions. Except as provided otherwise in the Plan or in an Award
Agreement, no Participant awarded a Stock Option, Stock Right, Deferred
Stock, Stock Award or Performance Share shall have any rights as a
shareholder with respect to any shares of Stock covered by his or her
Stock Option, Stock Right, Deferred Stock, Stock Award or Performance
Share prior to the date of issuance to him or her of a certificate or
certificates for such shares of Stock.
3.11 If any reorganization, recapitalization, reclassification, stock
split-up, stock dividend, or consolidation of shares of Stock, merger
or consolidation of the Company or sale or other disposition by the
Company of all or a portion of its assets, any other change in the
Company's corporate structure, or any distribution to shareholders
other than a cash dividend results in the outstanding shares of Stock,
or any securities exchanged therefor or received in their place, being
exchanged for a different number or class of shares of Stock or other
securities of the Company, or for shares of Stock or other securities
of any other corporation, or new, different or additional shares or
other securities of the Company or of any other corporation being
received by the holders of outstanding shares of Stock, then equitable
adjustments shall be made by the Committee in:
(a) The limitations of the aggregate number of shares of Stock
that may be awarded as set forth in Section 3.6 of the Plan;
provided, however, that no equitable adjustment shall be made
as a result of any stock split-up, stock dividend or increase
in the authorized number of shares in connection with the
Company's initial public offering;
(b) the number and class of Stock that may be subject to an Award,
and which have not been issued or transferred under an
outstanding Award;
(c) the purchase price to be paid per share of Stock under
outstanding Stock Options and the number of shares of Stock to
be transferred in settlement of outstanding Stock Rights; and
(d) the terms, conditions or restrictions of any Award and Award
Agreement, including the price payable for the acquisition of
Stock; provided, however, that all adjustments made as the
result of the foregoing in respect
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of each Incentive Stock Option shall be made so that such
Stock Option shall continue to be an Incentive Stock Option,
as defined in Section 422 of the Code.
3.12 In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee
shall be indemnified by the Company against reasonable expenses,
including attorney's fees, actually and necessarily incurred in
connection with the defense of any actions, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be
a party by reason of any action taken or failure to act under or in
connection with the Plan or any Award granted thereunder, and against
all amounts paid by them in settlement thereof, provided such
settlement is approved by independent legal counsel selected by the
Company, or paid by them in satisfaction of a judgment or settlement in
any such action, suit or proceeding, except as to matters as to which
the Committee member has been negligent or engaged in misconduct in the
performance of his duties; provided, that within 60 days after
institution of any such action, suit or proceeding, a Committee member
shall in writing offer the Company the opportunity, at its own expense,
to handle and defend the same.
3.13 The Committee may require each person purchasing shares of Stock
pursuant to a Stock Option or other Award under the Plan to represent
to and agree with the Company in writing that he is acquiring the
shares of Stock without a view to distribution thereof. The
certificates for such shares of Stock may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
3.14 The Committee shall be authorized to make adjustment in
performance-based criteria or in the terms and conditions of other
Awards in recognition of unusual or nonrecurring events affecting the
Company or its financial statements or changes in applicable laws,
regulations or accounting principles. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan
or any Award Agreement in the manner and to the extent it shall deem
desirable to carry it into effect. In the event the Company shall
assume outstanding employee benefit-awards or the right or obligation
to make future such awards in connection with the acquisition of
another corporation or business entity, the Committee may, in its
discretion, make such adjustments in the terms of Awards under the Plan
as it shall deem appropriate.
3.15 The Committee shall have full power and authority to determine whether,
to what extent and under what circumstances, any Award shall be
cancelled or suspended. In particular, but without limitation, all
outstanding Awards to any Participant may be cancelled if (a) the
Participant, without the consent of the Committee, while employed by
the Company or after Termination of Employment, becomes associated
with, employed by, renders services to, or owns any interest in, other
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than any insubstantial interest, as determined by the Committee, any
business in which the Company has a substantial interest as determined
by the Committee; or (b) the Participant is terminated for cause as
determined by the Committee.
ARTICLE IV - INCENTIVE STOCK OPTIONS
4.1 Each provision of this Article IV and of each Incentive Stock Option
granted hereunder shall be construed in accordance with the provisions
of Section 422 of the Code, and any provision hereof that cannot be so
construed shall be disregarded.
4.2 Incentive Stock Options shall be granted only to Eligible Participants
who are in the active employment of the Company, each of whom may be
granted one or more such Incentive Stock Options for a reason related
to his employment at such time or times determined by the Committee
following the Effective Date until May 12, 2009, subject to the
following conditions:
(a) The Incentive Stock Option price per share of Stock shall be
set in the Award Agreement, but shall not be less than 100% of
the Fair Market Value of the Stock on the Option Grant Date.
If the Optionee owns more than 10% of the outstanding Stock
(as determined pursuant to Section 424(d) of the Code) on the
Option Grant Date, the Incentive Stock Option price per share
shall not be less than 110% of the Fair Market Value of the
Stock on the Option Grant Date.
(b) The Incentive Stock Option and its related Stock Right,
if any, may be exercised in whole or in part from time to time
within ten (10) years from the Option Grant Date (five
(5) years if the Optionee owns more than 10% of the Stock on
the Option Grant Date), or such shorter period as may be
specified by the Committee in the Award; provided, that in
any event, the Incentive Stock Option and any related
Stock Right shall lapse and cease to be exercisable upon,
or within such period following, a Termination of Employment
as shall have been determined by the Committee and as
specified in the Incentive Stock Option Award Agreement or
its related Stock Right Award Agreement; provided,
however, that such period following a Termination of
Employment shall not exceed three months unless employment
shall have terminated:
(i) as a result of death or Disability, in which
event, such period shall not exceed one year
after the date of death or Disability; and
(ii) as a result of death, if death shall have
occurred following a Termination of
Employment and while the Incentive Stock
Option or Stock Right was still exercisable,
in which event,
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such period shall not exceed one year after
the date of death; provided, further, that
such period following a Termination of
Employment shall in no event extend the
original exercise period of the Incentive
Stock Option or any related Stock Right.
(c) To the extent the aggregate Fair Market Value, determined as
of the Option Grant Date, of the shares of Stock with respect
to which Incentive Stock Options (determined without regard to
this subsection) are first exercisable during any calendar
year by any Eligible Participant exceeds $100,000, such
options shall be treated as Nonqualified Stock Options granted
under Article V.
(d) The Committee may adopt any other terms and conditions which
it determines should be imposed for the Incentive Stock Option
to qualify under Section 422 of the Code, as well as any other
terms and conditions not inconsistent with this Article IV as
determined by the Committee.
4.3 The Committee may at any time offer to buy out for a payment in cash,
Stock, Deferred Stock or Restricted Stock an Incentive Stock Option
previously granted, based on such terms and conditions as the Committee
shall establish and communicate to the Participant at the time that
such offer is made.
4.4 If the Incentive Stock Option Award Agreement so provides, the
Committee may require that all or part of the shares of Stock to be
issued upon the exercise of an Incentive Stock Option shall take the
form of Deferred or Restricted Stock, which shall be valued on the date
of exercise, as determined by the Committee, on the basis of the Fair
Market Value of such Deferred Stock or Restricted Stock determined
without regard to the deferral limitations and/or forfeiture
restrictions involved.
ARTICLE V - NONQUALIFIED STOCK OPTIONS
5.1 One or more Stock Options may be granted as Nonqualified Stock Options
to Eligible Participants to purchase shares of Stock at such time or
times determined by the Committee, following the Effective Date,
subject to the terms and conditions set forth in this Article V.
5.2 The Nonqualified Stock Option price per share of Stock shall be
established in the Award Agreement and may be less than 100% of the
Fair Market Value at the time of the grant, or at such later date as
the Committee shall determine.
5.3 The Nonqualified Stock Option and its related Stock Right, if any, may
be exercised in full or in part from time to time within such period as
may be specified by the Committee or in the Award Agreement; provided,
that, in any
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event, the Nonqualified Stock Option and any related Stock
Right shall lapse and cease to be exercisable upon, or within such
period following, Termination of Employment as shall have been
determined by the Committee and as specified in the Nonqualified Stock
Option Award Agreement or Stock Right Award Agreement; provided,
however, that such period following Termination of Employment shall not
exceed three months unless employment shall have terminated:
(a) As a result of Retirement or Disability, in which event, such
period shall not exceed one year after the date of Retirement
or Disability, or within such longer period as the Committee
may specify; and
(b) As a result of death, or if death shall have occurred
following a Termination of Employment and while the
Nonqualified Stock Option or Stock Right was still
exercisable, in which event, such period may not exceed one
year after the date of death, as provided by the Committee or
in the Award Agreement.
5.4 The Nonqualified Stock Option Award Agreement may include any other
terms and conditions not inconsistent with this Article V or in Article
VII, as determined by the Committee.
ARTICLE VI - STOCK APPRECIATION RIGHTS
6.1 A Stock Appreciation Right may be granted to an Eligible Participant in
connection with an Incentive Stock Option or a Nonqualified Stock
Option granted under Article IV or Article V of this Plan,
respectively, or may be granted independent of any related Stock
Option.
6.2 A related Stock Appreciation Right shall entitle a holder of a Stock
Option, within the period specified for the exercise of the Stock
Option, to surrender the unexercised Stock Option, or a portion
thereof, and to receive in exchange therefor a payment in cash or
shares of Stock having an aggregate value equal to the amount by which
the Fair Market Value of each share of Stock exceeds the Stock Option
price per share of Stock, times the number of shares of Stock under the
Stock Option, or portion thereof, which is surrendered.
6.3 Each related Stock Appreciation Right granted hereunder shall be
subject to the same terms and conditions as the related Stock Option,
including limitations on transferability, and shall be exercisable only
to the extent such Stock Option is exercisable when the related Stock
Option terminates or lapses. The grant of Stock Appreciation Rights
related to Incentive Stock Options must be concurrent with the grant of
the Incentive Stock Options. With respect to Nonqualified Stock
Options, the grant either may be concurrent with the grant of the
Nonqualified
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Stock Options, or in connection with Nonqualified Stock Options
previously granted under Article V, which are unexercised and
have not terminated or lapsed.
6.4 The Committee shall have sole discretion to determine in each case
whether the payment with respect to the exercise of a Stock
Appreciation Right will be in the form of all cash or all Stock, or any
combination thereof. If payment is to be made in Stock, the number of
shares of Stock shall be determined based on the Fair Market Value of
the Stock on the date of exercise. If the Committee elects to make full
payment in Stock, no fractional shares of Stock shall be issued and
cash payment shall be made in lieu of fractional shares.
6.5 The Committee shall have sole discretion as to the timing of any
payment made in cash or Stock, or a combination thereof, upon exercise
of Stock Appreciation Rights. Payment may be made in a lump sum, in
annual installments or may be otherwise deferred; and the Committee
shall have sole discretion to determine whether any deferred payments
may bear amounts equivalent to interest or cash dividends.
6.6 Upon exercise of a Stock Appreciation Right, the number of shares of
Stock subject to exercise under any related Stock Option shall
automatically be reduced by the number of shares of Stock represented
by the Stock Option or portion thereof which is surrendered.
6.7 Notwithstanding any other provision of the Plan, the exercise of a
Stock Appreciation Right is required to satisfy the applicable
requirements under Rule 16b-3 of the Act.
6.8 The Committee, in its sole discretion, may also provide that, in the
event of a change in Control and/or a Potential Change in Control, as
defined in Article XIII, the amount to be paid upon the exercise of a
Stock Appreciation Right or Limited Stock Appreciation Right shall be
based on the Change in Control Price, as defined in Section 13.9,
subject to such terms and conditions as the Committee may specify.
6.9 In its sole discretion, the Committee may grant Limited Stock
Appreciation Rights under this Article VI. Limited Stock Appreciation
Rights become exercisable only in the event of a Change in Control
and/or a Potential Change in Control, subject to such terms and
conditions as the Committee, in its sole discretion, may specify. Such
Limited Stock Appreciation Rights shall be settled solely in cash. A
Limited Stock Appreciation Right shall entitle the holder of the
related Stock Option to surrender such Stock Option, or any portion
thereof, to the extent unexercised in respect of the number of shares
of Stock as to which such Limited Stock Appreciation Right is
exercised, and to receive a cash payment equal to the difference
between (a) the Stock Appreciation Right Fair Market Value, at the date
of surrender, of a share of Stock for which the surrendered
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Stock Option or portion thereof is then exercisable, and (b) the price
at which a Participant could exercise a related Stock Option to
purchase the share of Stock. Such Stock Option shall, to the extent so
surrendered, thereupon cease to be exercisable. A Limited Stock
Appreciation Right shall be subject to such further terms and
conditions as the Committee shall, in its sole discretion, deem
appropriate, including any restrictions necessary to comply with
Section 16(b) of the Act.
ARTICLE VII - INCIDENTS OF STOCK OPTIONS AND STOCK RIGHTS
7.1 Each Stock Option and Stock Right shall be granted subject to such
terms and conditions, if any, not inconsistent with this Plan, as shall
be determined by the Committee, including any provisions as to
continued employment as consideration for the grant or exercise of such
Stock Option or Stock Right and any provisions which may be advisable
to comply with applicable laws, regulations or rulings of any
governmental authority.
7.2 A Stock Option or Stock Right shall not be transferable by the
Participant other than by will or by the laws of descent and
distribution, or, to the extent otherwise allowed by Rule 16b-3 under
the Act, or other applicable law, pursuant to a qualified domestic
relations order as defined by the Code or the Employee Retirement
Income Security Act, or the rules thereunder, and shall be exercisable
during the lifetime of the Participant only by him or by his guardian
or legal representative.
7.3 Shares of Stock purchased upon exercise of a Stock Option shall be paid
for in such amounts, at such times and upon such terms as shall be
determined by the Committee, subject to limitations set forth in the
Stock Option Award Agreement. Without limiting the foregoing, the
Committee may establish payment terms for the exercise of Stock Options
which permit the Participant to deliver shares of Stock, or other
evidence of ownership of Stock satisfactory to the Company, with a Fair
Market Value equal to the Stock Option price as payment.
7.4 No cash dividends shall be paid on shares of Stock subject to
unexercised Stock Options. The Committee may provide, however, that a
Participant to whom a Stock Option has been granted which is
exercisable in whole or in part at a future time for shares of Stock
shall be entitled to receive an amount per share equal in value to the
cash dividends, if any, paid per share on issued and outstanding Stock,
as of the dividend record dates occurring during the period between the
date of the grant and the time each such share Option or the related
Stock Right. Such amounts (herein called "dividend equivalents") may,
in the discretion of the Committee, be:
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(a) Paid in cash or Stock either from time to time prior to, or at
the time of the delivery of, such Stock, or upon expiration of
the Stock Option if it shall not have been fully exercised; or
(b) Converted into contingently credited shares of Stock, with
respect to which dividend equivalents may accrue, in such
manner, at such value, and deliverable at such time or times,
as may be determined by the Committee.
Such Stock, whether delivered or contingently credited, shall be
charged against the limitations set forth in Section 3.6.
7.5 The Committee, in its sole discretion, may authorize payment of
interest equivalents on dividend equivalents which are payable in cash
at a future time.
7.6 In the event of Disability or death, the Committee, with the consent of
the Participant or his legal representative, may authorize payment, in
cash or in Stock, or partly in cash and partly in Stock, as the
Committee may direct, of an amount equal to the difference at the time
between the Fair Market Value of the Stock subject to a Stock Option
and the option price in consideration of the surrender of the Stock
Option.
7.7 If a Participant is required to pay to the Company an amount with
respect to income and employment tax withholding obligations in
connection with exercise of a Nonqualified Stock option, and/or with
respect to certain dispositions of Stock acquired upon the exercise of
an Incentive Stock Option, the Committee, in its discretion and subject
to such rules as is may adopt, may permit the Participant to satisfy
the obligation, in whole or in part, by making an irrevocable election
that a portion of the total Fair Market Value of the shares of Stock
subject to the Nonqualified Stock Option and/or with respect to certain
dispositions of Stock acquired upon the exercise of an Incentive Stock
Option, be paid in the form of cash in lieu of the issuance of Stock
and that such cash payment be applied to the satisfaction of the
withholding obligations. The amount to be withheld shall not exceed the
statutory minimum federal and state income and employment tax liability
arising from the Stock Option exercise transaction. Notwithstanding any
other provision of the Plan, any election under this Section 7.7 is
required to satisfy the applicable requirements under Rule 16b-3 of the
Act.
7.8 The Committee may permit the voluntary surrender of all or a portion of
any Stock Option granted under the Plan to be conditioned upon the
granting to the Participant of a new Stock Option for the same or a
different number of shares of Stock as the Stock Option surrendered, or
may require such surrender as a condition precedent to a grant of a new
Stock Option to such Participant. Subject to the provisions of the
Plan, such new Stock Option shall be exercisable at the same price,
during such period and on such other terms and conditions as are
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specified by the Committee at the time the new Stock Option is granted.
Upon surrender, the Stock Options surrendered shall be cancelled and
the shares of Stock previously subject to them shall be available for
the grant of other Stock Options.
ARTICLE VIII - RESTRICTED STOCK
8.1 Restricted Stock Awards may be made to certain Participants as an
incentive for the performance of future services that will contribute
materially to the successful operation of the Company. Awards of
Restricted Stock may be made either alone, in addition to or in tandem
with other Awards granted under the Plan and/or cash payments made
outside of the Plan.
8.2 With respect to Awards of Restricted Stock, the Committee shall:
(a) Determine the purchase price, if any, to be paid for such
Restricted Stock, which may be equal to or less than par value
and may be zero, subject to such minimum consideration as may
be required by applicable law;
(b) Determine the length of the Restriction Period;
(c) Determine any restrictions applicable to the Restricted Stock
such as service or performance, other than those set forth in
this Article VIII;
(d) Determine if the restrictions shall lapse as to all shares of
Restricted Stock at the end of the Restriction Period or as to
a portion of the shares of Restricted Stock in installments
during the Restriction Period; and
(e) Determine if dividends and other distributions on the
Restricted Stock are to be paid currently to the Participant
or paid to the Company for the account of the Participant.
8.3 Awards of Restricted Stock must be accepted within a period of 60 days,
or such shorter period as the Committee may specify, by executing a
Restricted Stock Award Agreement and paying whatever price, if any, is
required. The prospective recipient of a Restricted Stock Award shall
not have any rights with respect to such Awards, unless such recipient
has executed a Restricted Stock Award Agreement and has delivered a
fully executed copy thereof to the Committee, and has otherwise
complied with the applicable terms and conditions of such Award.
8.4 Except when the Committee determines otherwise, or as otherwise
provided in the Restricted Stock Award Agreement, upon a Termination of
Employment of a Participant before the expiration of the Restriction
Period, all shares of Restricted Stock still subject to restriction
shall be forfeited by the Participant and shall be reacquired by the
Company.
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8.5 Except as otherwise provided in this Article VIII, no shares of
Restricted Stock received by a Participant shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period.
8.6 To the extent not otherwise provided in a Restricted Stock Award
Agreement, in cases of death, Disability or Retirement or in cases of
special circumstances, the Committee, if it finds that a waiver would
be appropriate, may elect to waive any or all remaining restrictions
with respect to such Participant's Restricted Stock.
8.7 In the event of hardship or other special circumstances of a
Participant whose Termination of Employment with the Company is
involuntary, the Committee may waive in whole or in part any or all
remaining restrictions with respect to any or all of the Participant's
Restricted Stock, based on such factors and criteria as the Committee
may deem appropriate.
8.8 The certificates representing shares of Restricted Stock may either:
(a) Be held in custody by the Company until the Restriction Period
expires or until restrictions thereon otherwise lapse, and the
Participant shall deliver to the Company a stock power
endorsed in blank relating to the Restricted Stock; and/or
(b) Be issued to the Participant and registered in the name of the
Participant, and shall bear an appropriate restrictive legend
and shall be subject to appropriate stop-transfer orders.
8.9 Except as provided in this Article VIII, a Participant receiving a
Restricted Stock Award shall have, with respect to the shares of
Restricted Stock covered by any Award, all of the rights of a
shareholder of the Company, including the right to vote the shares to
the extent, if any, such shares possess voting rights and the right to
receive any dividends; provided, however, the Committee may require
that any dividends on such shares of Restricted Stock shall be
automatically deferred and reinvested in additional Restricted Stock
subject to the same restrictions as the underlying Award, or may
require that dividends and other distributions on Restricted Stock
shall be paid to the Company for the account of the Participant. The
Committee shall determine whether interest shall be paid on such
amounts, the rate of any such interest, and the other terms applicable
to such amounts.
8.10 If and when the Restriction Period expires without a prior forfeiture
of the Restricted Stock subject to such Restriction Period,
unrestricted certificates for such shares shall be delivered to the
Participant.
8.11 In order to better ensure that Award payment actually reflect the
performance of the Company and the service of the Participant, the
Committee may provide, in its
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sole discretion, for a tandem performance-based or other Award designed
to guarantee a minimum value, payable in cash or Stock to the recipient
of a Restricted Stock Award, subject to such performance, future
service, deferral and other terms and conditions as may be specified
by the Committee.
ARTICLE IX - DEFERRED STOCK
9.1 Shares of Deferred Stock together with cash dividend equivalents, if so
determined by the Committee, may be issued either alone or in addition
to other Awards granted under the Plan in the discretion of the
Committee. The Committee shall determine the individuals to whom, and
the time or times at which, such Awards will be made, the number of
shares to be awarded, the price, if any, to be paid by the recipient of
a Deferred Stock Award, the time or times within which such Awards may
be subject to forfeiture, and all other conditions of the Awards. The
Committee may condition Awards of Deferred Stock upon the attainment of
specified performance goals or such other factors or criteria as the
Committee may determine.
9.2 Deferred Stock Awards shall be subject to the following terms and
conditions:
(a) Subject to the provisions of this Plan and the applicable
Award Agreement, Deferred Stock Awards may not be sold,
transferred, pledged, assigned or otherwise encumbered during
the period specified by the Committee for purposes of such
Award (the "Deferral Period"). At the expiration of the
Deferral Period, or the Elective Deferral Period defined in
Section 9.3, share certificates shall be delivered to the
Participant, or his legal representative, in a number equal to
the number of shares of Stock covered by the Deferred Stock
Award.
Based on service, performance and/or such other factors or
criteria as the Committee may determine, the Committee,
however, at or after grant, may accelerate the vesting of all
or any part of any Deferred Stock Award and/or waive the
deferral limitations for all or any part of such Award.
(b) Unless otherwise determined by the Committee, amounts equal to
any dividends that would have been payable during the Deferral
Period with respect to the number of shares of Stock covered
by a Deferred Stock Award if such shares of Stock had been
outstanding shall be automatically deferred and deemed to be
reinvested in additional Deferred Stock, subject to the same
deferral limitations as the underlying Award.
(c) Except to the extent otherwise provided in this Plan or in the
applicable Award Agreement, upon Termination of Employment
during the Deferral Period for a given Award, the Deferred
Stock covered by such Award shall be forfeited by the
Participant; provided, however, the Committee may
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provide for accelerated vesting in the event of Termination of
Employment due to death, Disability or Retirement, or in the
event of hardship or other special circumstances as the
Committee deems appropriate.
(d) The Committee may require that a designated percentage of the
total Fair Market Value of the shares of Deferred Stock held
by one or more Participants be paid in the form of cash in
lieu of the issuance of Stock and that such cash payment be
applied to the satisfaction of the federal and state income
and employment tax withholding obligations that arise at the
time the Deferred Stock becomes free of all restrictions. The
designated percentage shall be equal to the minimum income and
employment tax withholding rate in effect at the time under
applicable federal and state laws.
(e) The Committee may provide one or more Participants subject to
the mandatory cash payment with an election to receive an
additional percentage of the total value of the Deferred Stock
in the form of a cash payment in lieu of the issuance of
Deferred Stock. The additional percentage shall not exceed the
difference between 50% and the designated percentage cash
payment.
(f) The Committee may impose such further terms and conditions on
partial cash payments with respect to Deferred Stock as it
deems appropriate, including any restrictions necessary to
comply with Section 16(b) of the Act.
9.3 A Participant may elect to further defer receipt of Deferred Stock for
a specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee. Subject to any exceptions
adopted by the Committee, such election must generally be made at least
12 months prior to completion of the Deferral Period for the Deferred
Stock Award in question, or for the applicable installment of such an
Award.
9.4 Each Award shall be confirmed by, and subject to the terms of, a
Deferred Stock Award Agreement.
9.5 In order to better ensure that the Award actually reflects the
performance of the Company and the service of the Participant, the
Committee may provide, in its sole discretion, for a tandem
performance-based or other Award designed to guarantee a minimum value,
payable in cash or Stock to the recipient of a Deferred Stock Award,
subject to such performance, future service, deferral and other terms
and conditions as may be specified by the Committee.
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ARTICLE X - STOCK AWARDS
10.1 A Stock Award shall be granted only in payment of compensation that has
been earned or as compensation to be earned, including without
limitation, compensation awarded concurrently with or prior to the
grant of the Stock Award.
10.2 For the purposes of this Plan, in determining the value of a Stock
Award, all shares of Stock subject to such Stock Award shall be valued
at not less than 100% of the Fair Market Value of such shares of Stock
on the date such Stock Award is granted, regardless of whether or when
such shares of Stock are issued or transferred to the Participant and
whether or not such shares of Stock are subject to restrictions which
affect their value.
10.3 Shares of Stock subject to a Stock Award may be issued or transferred
to the Participant at the time the Stock Award is granted, or at any
time subsequent thereto, or in installments from time to time, as the
Committee shall determine. If any such issuance or transfer shall not
be made to the Participant at the time the Stock Award is granted, the
Committee may provide for payment to such Participant, either in cash
or shares of Stock, from time to time or at the time or times such
shares of Stock shall be issued or transferred to such Participant, of
amounts not exceeding the dividends which would have been payable to
such Participant in respect of such shares of Stock, as adjusted under
Section 3.11, as if such shares of Stock had been issued or transferred
to such Participant at the time such Stock Award was granted. Any
issuance payable in shares of Stock under the terms of a Stock Award,
at the discretion of the Committee, may be paid in cash on each date on
which delivery of shares of Stock would otherwise have been made, in an
amount equal to the Fair Market Value on such date of the shares of
Stock which would otherwise have been delivered.
10.4 A Stock Award shall be subject to such terms and conditions, including
without limitation, restrictions on the sale or other disposition of
the Stock Award or of the shares of Stock issued or transferred
pursuant to such Stock Award, as the Committee shall determine;
provided, however, that upon the issuance or transfer of shares
pursuant to a Stock Award, the Participant, with respect to such shares
of Stock, shall be and become a shareholder of the Company fully
entitled to receive dividends, to vote to the extent, if any, such
shares possess voting rights and to exercise all other rights of a
shareholder except to the extent otherwise provided in the Stock Award.
Each Stock Award shall be evidenced by a written Award Agreement in
such form as the Committee shall determine.
ARTICLE XI - PERFORMANCE SHARES
11.1 Awards of Performance Shares may be made to certain Participants as an
incentive for the performance of future services that will contribute
materially to the successful operation of the Company. Awards of
Performance Shares may be
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made either alone, in addition to or in tandem with other Awards
granted under the Plan and/or cash payments made outside of the Plan.
11.2 With respect to Awards of Performance Shares, which may be issued for
no consideration or such minimum consideration as is required by
applicable law, the Committee shall:
(a) Determine and designate from time to time those Participants
to whom Awards of Performance Shares are to be made;
(b) Determine the performance period (the "Performance Period")
and/or performance objectives (the "Performance Objectives")
applicable to such Awards;
(c) Determine the form of settlement of a Performance Share; and
(d) Generally determine the terms and conditions of each such
Award. At any date, each Performance Share shall have a value
equal to the Fair Market Value, determined as set forth in
Section 2.15.
11.3 Performance Periods may overlap, and Participants may participate
simultaneously with respect to Performance Shares for which different
Performance Periods are prescribed.
11.4 The Committee shall determine the Performance Objectives of Awards of
Performance Shares. Performance Objectives may vary from Participant to
Participant and between Awards and shall be based upon such performance
criteria or combination of factors as the Committee may deem
appropriate, including for example, but not limited to, minimum
earnings per share or return on equity. If during the course of a
Performance Period there shall occur significant events which the
Committee expects to have a substantial effect on the applicable
Performance Objectives during such period, the Committee may revise
such Performance Objectives.
11.5 The Committee shall determine for each Participant the number of
Performance Shares which shall be paid to the Participant if the
applicable Performance Objectives are exceeded or met in whole or in
part.
11.6 If a Participant terminates services with the Company during a
Performance Period because of death, Disability, Retirement or under
other circumstances in which the Committee in its discretion finds that
a waiver would be appropriate, that Participant, as determined by the
Committee, may be entitled to a payment of Performance Shares at the
end of the Performance Period based upon the extent to which the
Performance Objectives were satisfied at the end of such period and pro
rated for the portion of the Performance Period during which the
Participant was
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employed by the Company; provided, however, the Committee may provide
for an earlier payment in settlement of such Performance Shares in such
amount and under such terms and conditions as the Committee deems
appropriate or desirable. If a Participant terminates service with the
Company during a Performance Period for any other reason, then such
Participant shall not be entitled to any payment with respect to that
Performance Period unless the Committee shall otherwise determine.
11.7 Each Award of a Performance Share shall be paid in whole shares of
Stock, or cash, or a combination of Stock and cash as the Committee
shall determine, with payment to be made as soon as practicable after
the end of the relevant Performance Period.
11.8 The Committee shall have the authority to approve requests by
Participants to defer payment of Performance Shares on terms and
conditions approved by the Committee and set forth in a written Award
Agreement between the Participant and the Company entered into in
advance of the time of receipt or constructive receipt of payment by
the Participant.
ARTICLE XII - OTHER STOCK-BASED AWARDS
12.1 Other awards that are valued in whole or in part by reference to, or
are otherwise based on, Stock ("Other Stock-Based Awards"), including
without limitation, convertible preferred stock, convertible
debentures, exchangeable securities, phantom stock and Stock Awards or
options valued by reference to book value or performance, may be
granted either alone or in addition to or in tandem with Stock Options,
Stock Rights, Restricted Stock, Deferred Stock or Stock Awards granted
under the Plan and/or cash awards made outside of the Plan. Subject to
the provisions of the Plan, the Committee shall have authority to
determine the Eligible Participants to whom and the time or times at
which such Awards shall be made, the number of shares of Stock subject
to such Awards, and all other conditions of the Awards. The Committee
also may provide for the grant of shares of Stock upon the completion
of a specified Performance Period.
The provisions of Other Stock-Based Awards need not be the same with
respect to each recipient.
12.2 Other Stock-Based Awards made pursuant to this Article XII shall be
subject to the following terms and conditions:
(a) Subject to the provisions of this Plan and the Award
Agreement, shares of Stock subject to Awards made under this
Article XII may not be sold, assigned, transferred, pledged or
otherwise encumbered prior to the date on which the shares are
issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.
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(b) Subject to the provisions of this Plan and the Award Agreement
and unless otherwise determined by the Committee at the time
of the Award, the recipient of an Award under this Article XII
shall be entitled to receive, currently or on a deferred
basis, interest or dividends or interest or dividend
equivalents with respect to the number of shares covered by
the Award, as determined at the time of the Award by the
Committee, in its sole discretion, and the Committee may
provide that such amounts, if any, shall be deemed to have
been reinvested in additional Stock or otherwise reinvested.
(c) Any Award under this Article XII and any Stock covered by any
such Award shall vest or be forfeited to the extent so
provided in the Award Agreement, as determined by the
Committee, in its sole discretion.
(d) Upon the Participant's Retirement, Disability or death, or in
cases of special circumstances, the Committee may, in its sole
discretion, waive in whole or in part any or all of the
remaining limitations imposed hereunder, if any, with respect
to any or all of an Award under this Article XII.
(e) Each Award under this Article XII shall be confirmed by, and
subject to the terms of an Award under this Article XII.
(f) Stock, including securities convertible into Stock, issued on
a bonus basis under this Article XII may be issued for no cash
consideration.
12.3 Other Stock-Based Awards may include a phantom stock Award, which is
subject to the following terms and conditions:
(a) The Committee shall select the Eligible Participants who may
receive phantom stock Awards. The Eligible Participant shall
be awarded a phantom stock unit, which shall be the equivalent
to a share of Stock.
(b) Under an Award of phantom stock, payment shall be made on the
dates or dates as specified by the Committee or as stated in
the Award Agreement and phantom stock Awards may be settled in
cash, Stock, or some combination thereof.
(c) The Committee shall determine such other terms and conditions
of each Award as it deems necessary in its sole discretion.
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ARTICLE XIII - ACCELERATION EVENTS
13.1 For the purposes of the Plan, an Acceleration Event shall occur in the
event of a "Potential Change in Control", or "Change in Control" or a
"Board-Approved Change in Control", as those terms are defined below.
13.2 A "Change in Control" shall be deemed to have occurred if:
(a) Any "Person" as defined in Section 3(a)(9) of the Act,
including a "group" (as that term is used in Sections 13(d)(3)
and 14(d)(2) of the Act), but excluding the Company and any
employee benefit plan sponsored or maintained by the Company,
including any trustee of such plan acting as trustee, who:
(i) makes a tender or exchange offer for any shares of
the Company's Stock (as defined below) pursuant to
which any shares of the Company's Stock are purchased
(an "Offer"); or
(ii) together with its "affiliates" and "associates" (as
those terms are defined in Rule 12b-2 under the Act)
becomes the "Beneficial Owner" (within the meaning of
Rule 13d-3 under the Act) of at least 20% of the
Company's Stock (an "Acquisition");
(b) The Shareholders of the Company approve a definitive agreement
or plan to merge or consolidate the Company with or into
another corporation, to sell or otherwise dispose of all or
substantially all of its assets, or to liquidate the Company
(individually, a "Transaction"); or
(c) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who constitute the
Board (the "Incumbent Directors") at the beginning of such
period cease for any reason other than death to constitute at
least a majority thereof; provided, however, that a
director who was not a director at the beginning of such
24-month period shall be deemed to have satisfied such
24-month requirement, and be an Incumbent Director, if
such director was elected by, or on the recommendation of or
with the approval of, at least two-thirds of the
directors who then qualify as Incumbent Directors either
actually, because they were directors at the beginning of
such 24-month period, or by prior operation of this Section
13.2(c).
13.3 A "Board-Approved Change in Control" shall be deemed to have occurred
if the Offer, Acquisition or Transaction, as the case may be, is
approved by a majority of the Directors serving as members of the Board
at the time of the Potential Change in Control or Change in Control.
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13.4 A "Potential Change in Control" means the happening of any one of the
following:
(a) The approval by shareholders of an agreement by the Company,
the consummation of which would result in a Change in Control
of the Company, as defined in Section 13.2; or
(b) The acquisition of Beneficial Ownership, directly or
indirectly, by any entity, person or group, other than the
Company or any Company employee benefit plan, including any
trustee of such plan acting as such trustee, of securities of
the Company representing five percent or more of the combined
voting power of the Company's outstanding securities and the
adoption by the Board of a resolution to the effect that a
Potential Change in Control of the Company has occurred for
the purposes of this Plan.
13.5 Upon the occurrence of an Acceleration Event, subject to the approval
of the Committee if the Acceleration Event results from a
Board-Approved Change in Control, all then outstanding Performance
shares with respect to which the applicable Performance Period has not
been completed shall be paid as soon as practicable as follows:
(a) All Performance Objectives applicable to the Award of
Performance Shares shall be deemed to have been satisfied to
the extent necessary to result in payment of 100% of the
Performance Shares covered by the Award; and
(b) The applicable Performance Period shall be deemed to have
ended on the date of the Acceleration Event;
(c) The payment to the Participant shall be the amount determined
either by the Committee, in its sole discretion, or in the
manner stated in the Award Agreement. This amount shall then
be multiplied by a fraction, the numerator of which is the
number of full calendar months of the applicable Performance
Period that have elapsed prior to the date of the Acceleration
Event, and the denominator of which is the total number of
months in the original Performance Period; and
(d) Upon the making of any such payment, the Award Agreement as to
which it relates shall be deemed canceled and of not further
force and effect.
13.6 Upon the occurrence of an Acceleration Event, subject to the approval
of the Committee if the Acceleration Event results from a
Board-Approved Change in Control, the Committee in its discretion may
declare any or all then outstanding Stock Options, and any or all
related Stock Rights outstanding for at least six
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months, not previously exercisable and vested as immediately
exercisable and fully vested, in whole or in part.
13.7 Upon the occurrence of an Acceleration Event, subject to the approval
of the Committee if the Acceleration Event results from a
Board-Approved Change in Control, the Committee in its discretion, may
declare the restrictions applicable to Awards of Restricted Stock,
Deferred Stock or Other Stock-Based Awards to have lapsed, in which
case the Company shall remove all restrictive legends and stop-transfer
orders applicable to the certificates for such shares of Stock, and
deliver such certificates to the Participants in whose names they are
registered.
13.8 The value of all outstanding Stock Options, Stock Rights, Restricted
Stock, Deferred Stock, Performance Shares, Stock Awards and Other
Stock-Based Awards, in each case to the extent vested, shall, unless
otherwise determined by the Committee in its sole discretion at or
after grant but prior to any Change in Control, be cashed out on the
basis of the "Change in Control Price" (as defined in Section 13.9) as
of the date such Change in Control or such Potential Change in Control
is determined to have occurred or such other date as the Committee may
determine prior to the Change in Control.
13.9 For purposes of Section 13.8, "Change in Control Price" means the
highest price per share of Stock paid in any transaction reported on
the exchange on which the Stock is then traded, or paid or offered in
any bona fide transaction related to a Potential or actual Change in
Control of the Company at any time during the 60-day period immediately
preceding the occurrence of the Change in Control, or, where
applicable, the occurrence of the Potential Change in Control event, in
each case as determined by the Committee except that, in the case of
Incentive Stock Options and Stock Appreciation Rights, or Limited Stock
Appreciation Rights relating to such Incentive Stock Options, such
price shall be based only on transactions reported for the date on
which the optionee exercises such Incentive Stock Options, Stock
Appreciation Rights, or Limited Stock Appreciation Rights.
ARTICLE XIV - AMENDMENT AND TERMINATION
14.1 The Board, upon recommendation of the Committee, or otherwise, at any
time and from time to time, may amend or terminate the Plan. To the
extent required by Rule 16b-3 under the Act, no amendment, without
approval by the Company's shareholders, shall:
(a) alter the group of persons eligible to participate in the
Plan;
(b) except as provided in Section 3.6, increase the maximum number
of shares of Stock or Stock Options or Stock Rights which are
available for Awards under the Plan;
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(c) extend the period during which Incentive Stock Option Awards
may be granted beyond May 12, 2009;
(d) limit or restrict the powers of the Committee with respect to
the administration of this Plan;
(e) change the definition of an Eligible Participant for the
purpose of an Incentive Stock Option or increase the limit or
the value of shares of Stock for which an Eligible Participant
may be granted an Incentive Stock option;
(f) materially increase the benefits accruing to Participants
under this Plan;
(g) materially modify the requirements as to eligibility for
participation in this Plan; or
(h) change any of the provisions of this Article XIV.
14.2 No amendment to or discontinuance of this Plan or any provision thereof
by the Board or the shareholders of the Company shall, without the
written consent of the Participant, adversely affect, as shall be
determined by the Committee, any Award theretofore granted to such
Participant under this Plan; provided, however, the Committee retains
the right and power to:
(a) annul any Award if the Participant is terminated for cause as
determined by the Committee;
(b) provide for the forfeiture of shares of Stock or other gain
under an Award as determined by the Committee for competing
against the Company; and
(c) convert any outstanding Incentive Stock Option to a
Nonqualified Stock Option.
14.3 If an Acceleration Event has occurred, no amendment or termination
shall impair the rights of any person with respect to an outstanding
Award as provided in Article XIII.
ARTICLE XV - MISCELLANEOUS PROVISIONS
15.1 Nothing in the Plan or any Award granted hereunder shall confer upon
any Participant any right to continue in the employ of the Company, or
to serve as a director thereof, or interfere in any way with the right
of the Company to terminate his or her employment at any time. Unless
specifically provided otherwise, no Award granted under the Plan shall
be deemed salary or compensation for the purpose of computing benefits
under any employee benefit
27
<PAGE>
plan or other arrangement of the Company for the benefit of its
employees unless the Company shall determine otherwise. No Participant
shall have any claim to an Award until it is actually granted under the
Plan. To the extent that any person acquires a right to receive
payments from the Company under the Plan, such right shall, except as
otherwise provided by the Committee, be no greater than the right of an
unsecured general creditor of the Company. All payments to be made
hereunder shall be paid from the general funds of the Company, and no
special or separate fund shall be established and no segregation of
assets shall be made to assure payment of such amounts, except as
provided in Article VIII with respect to Restricted Stock and except as
otherwise provided by the Committee.
15.2 The Company may make such provisions and take such steps as it may deem
necessary or appropriate for the withholding of any taxes which the
Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to
withhold in connection with any Stock option or the exercise thereof,
any Stock Right or the exercise thereof, or in connection with any
other type of equity-based compensation provided hereunder or the
exercise thereof, including, but not limited to, the withholding of
payment of all or any portion of such Award or another Award under this
Plan until the Participant reimburses the Company for the amount the
Company is required to withhold with respect to such taxes, or
canceling any portion of such Award or another Award under this Plan in
an amount sufficient to reimburse itself for the amount it is required
to so withhold, or selling any property contingency credited by the
Company for the purpose of paying such Award or another Award under
this Plan, in order to withhold or reimburse itself for the amount it
is required to so withhold.
15.3 The Plan and the grant of Awards shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by
any United States government or regulatory agency as may be required.
Any provision herein relating to compliance with Rule 16b-3 under the
Act shall not be applicable with respect to participation in the Plan
by Participants who are not subject to Section 16(b) of the Act.
15.4 The terms of the Plan shall be binding upon the Company, and its
successors and assigns.
15.5 Neither a Stock Option, Stock Right, nor any other type of equity-based
compensation provided for hereunder, shall be transferable except as
provided for herein. In addition to any other restrictions upon
transferability herein, Incentive Stock Options shall be subject to
such further restrictions as required by federal or state securities
and tax laws or provided by the Committee or in an Award Agreement. If
any Participant makes such a transfer in violation hereof, any
obligation of the Company shall forthwith terminate.
28
<PAGE>
15.6 This Plan and all actions taken hereunder shall be governed by the laws
of the State of North Carolina, except to the extent preempted by the
Employee Retirement Income Security Act of 1974, as amended.
15.7 The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any
such Participant any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver shares of Stock or
payments in lieu of or with respect to Awards hereunder; provided,
however, that, unless the Committee otherwise determines with the
consent of the affected Participant, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of the
Plan.
15.8 Each Participant exercising an Award hereunder agrees to give the
Committee prompt written notice of any election made by such
Participant under Section 83(b) of the Code, or any similar provision
thereof.
15.9 If any provision of this Plan or an Award Agreement is or becomes or is
deemed invalid, illegal or unenforceable in any jurisdiction, or would
disqualify the Plan or any Award Agreement under any law deemed
applicable by the Committee, such provision shall be construed or
deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the Award
Agreement, it shall be stricken and the remainder of the Plan or the
Award Agreement shall remain in full force and effect.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fred Eshelman
-----------------
Chief Executive Officer
[CORPORATE SEAL]
Attest: /s/ Fred B. Davenport, Jr.
------------------------------------------
Secretary
EXHIBIT 10.135
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT, made this 20th day of August, 1999 (the
"Execution Date"), by and between PPD Development, Inc., formerly PPD Pharmaco,
Inc. ("PPD Development") and Mark A. Sirgo ("Employee"), amends that certain
Employment Agreement dated January 1, 1998 between PPD Development and Employee
(the "Employment Agreement").
FOR AND IN CONSIDERATION OF the mutual promises, covenants and
conditions contained herein, and other good and valid consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereby amend the
Employment Agreement as follows:
1. The Employment Agreement is deemed to have renewed for an additional
one-year period beginning January 1, 1999, and ending December 31, 1999 (the
"Renewal Period").
2. Employee's base salary for the Renewal Period is $190,000.00.
3. During the Renewal Period, Employee shall be entitled to a Quarterly
Bonus if the Businesses (as defined in the Employment Agreement, as amended)
attain a certain level of Authorizations for the applicable quarter, as set
forth in Appendix I attached to this Amendment. Employee shall also be entitled
to an annual bonus for the Renewal Period as provided for in Appendix I
attached. Such annual bonus, if any, shall be paid to Employee at the same time
annual bonuses, if any, for calendar year 1999 are or would have been paid to
other senior executives of PPD Development. In addition, Employee shall be
entitled to awards of non-qualified stock options under the Pharmaceutical
Product Development, Inc. ("PPD") Equity Compensation Plan if Authorizations for
the Businesses attain certain Annual Targets for the Renewal Period, as set
forth in Appendix I to this Amendment. Any award of stock options shall have an
exercise price equal to the NASDAQ closing price on December 31, 1999, and shall
contain such other terms and conditions, including a three-year vesting
schedule, as included in stock option awards generally for other senior
executives of PPD Development.
4. The first sentence of Section 4 of the Employment Agreement is
rewritten as follows: "Employee shall have overall responsibility for business
development of (a) PPD Development, Inc. and all of its subsidiaries as of the
Execution Date, except Pharmaco Investments, Inc. and ATP, Inc., (b) PPD Global
Ltd., (c) Leicester Clinical Research Centre Ltd. and (d) Chelmsford Clinical
Trials Unit Ltd. (collectively, the "Businesses").
5. Unless the context clearly requires otherwise, all references to
Appendix I in the Employment Agreement shall, with respect to the Renewal
Period, be deemed to refer to Appendix I attached to this Amendment.
<PAGE>
The Employment Agreement, as herein amended, shall continue in full
force and effect.
IN WITNESS WHEREOF, this Amendment is executed as of the Execution
Date, but shall be effective as of January 1, 1999.
PPD DEVELOPMENT, INC.
By: /s/ Fred Eshelman
--------------------------
Name: Fred Eshelman
--------------------------
Title: Chief Executive Officer
--------------------------
/s/ Mark A. Sirgo (SEAL)
-----------------------------
Mark A. Sirgo
2
EXHIBIT 10.136
TERMINATION OF EMPLOYMENT AGREEMENT
THIS TERMINATION OF EMPLOYMENT AGREEMENT, made this 14th day of
September, 1999, by and between Pharmaceutical Product Development, Inc.,
("PPD"), and Thomas D'Alonzo ("Employee").
WHEREAS, PPD and Employee entered into that certain employment
agreement dated October 5, 1996 (the "Employment Agreement"); and
WHEREAS, the parties desire to terminate the Employment Agreement
pursuant to the terms and conditions more specifically set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
considerations contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Termination of Employment Agreement. The Employment Agreement shall
be deemed terminated as of the close of business on October 5, 1999 (the
"Termination Date").
2. Rights and Obligations. Neither party hereto shall have any further
rights or obligations under the Employment Agreement, except (a) such rights and
obligations as shall have accrued prior to the Termination Date and (b) such
rights and obligations which by the terms of the Employment Agreement survive
the Termination date.
3. Miscellaneous.
a. This agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and may not be altered or
amended except by writing signed by the parties.
b. This agreement shall be governed by the laws of State of
North Carolina.
c. This agreement shall inure to the benefit of and be binding
upon PPD Development, its successors and assigns, and Employee, his heirs,
successors, assigns and personal representatives.
<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: Chief Executive Officer
/s/ Thomas D'Alonzo (SEAL)
- ----------------------------------------------
Thomas D'Alonzo
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Pharmaceutical Product Development Inc. Consolidated Balance Sheet and Statement
of Operations included within this Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 41,393
<SECURITIES> 0
<RECEIVABLES> 121,122
<ALLOWANCES> 899
<INVENTORY> 0
<CURRENT-ASSETS> 177,744
<PP&E> 105,219
<DEPRECIATION> 54,868
<TOTAL-ASSETS> 265,232
<CURRENT-LIABILITIES> 78,698
<BONDS> 0
0
0
<COMMON> 2,463
<OTHER-SE> 182,085
<TOTAL-LIABILITY-AND-EQUITY> 265,232
<SALES> 0
<TOTAL-REVENUES> 225,222
<CGS> 0
<TOTAL-COSTS> 114,018
<OTHER-EXPENSES> 81,408
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237
<INCOME-PRETAX> 33,127
<INCOME-TAX> 12,853
<INCOME-CONTINUING> 20,274
<DISCONTINUED> (395)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,879
<EPS-BASIC> 0.81
<EPS-DILUTED> 0.80
</TABLE>
