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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 1-16119
 PHARMANET DEVELOPMENT GROUP, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    59-2407464(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 504 Carnegie Center
Princeton, NJ 08540  (Address of principal executive offices) (Zip Code)
 (609) 951-6800  (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, $0.001 par value per share
    
    The NASDAQ Stock Market, LLCSeries A Junior ParticipatingPreferred Stock Purchase Rights
 Securities registered pursuant to Section 12(g) of the Act:
None.
 Yes o No þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ
   Class
    
    Outstanding at March 16, 2009Common Stock, $.001 par value per share
    
    19,812,955 sharesSeries A Junior Participating Preferred Stock Purchase Rights
    
    19,812,955 rights




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##### 



PHARMANET DEVELOPMENT GROUP, INC.
 PagePART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    12Item 1B. Unresolved Staff Comments
    
    
    25Item 2. Properties
    
    
    25Item 3. Legal Proceedings
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    28Item 6. Selected Financial Data
    
    
    30Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    48Item 8. Financial Statements and Supplementary Data
    
    
    49Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    49Item 9A. Controls and Procedures
    
    
    50Item 9B. Other Information
    
    
    52PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    53Item 11. Executive Compensation
    
    
    58Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    72Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    74Item 14. Principal Accountant Fees and Services
    
    
    74PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    76Exhibit 21Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I
  
 Item 1. Business.
 General
  Early Stage Segment
  Late Stage Segment
  Transaction with Affiliates of JLL Partners
    3




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Industry Overview
   
    
    continued research and development investments,
 
    
    the expanding breadth of clinical trials development programs,
 
    
    the increasing complexity and globalization of clinical trials,
 
    
    increased focus on and requirements for post-marketing studies, and
 
    
    new drug entities from small pharmaceutical and biotechnology companies which typically
lack infrastructure, expertise and resources to conduct their own drug development
activities.
 The product development process
 Branded drugs
     
    
    Phase I involves testing a drug on a small number of healthy participants to determine
the drugs basic safety data, including tolerability, absorption, metabolism and excretion.
This phase, which lasts an average of six months to one year, is comprised of numerous
clinical trials of short duration,
 
    
    Phase II involves testing a small number of participants to determine the drugs safety
profile and effectiveness and how different doses work. This phase, which lasts an average
of one to two years, is comprised of several clinical trials of longer duration,
  4




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
    
    Phase III involves testing large numbers of participants to verify drug efficacy and
safety on a large scale. These trials usually involve numerous sites. After successfully
completing Phases I, II and III, a company submits a new drug application, or NDA,
to the FDA requesting that the drug be approved for marketing. The NDA is a comprehensive
filing that includes, among other things, the results of all pre-clinical studies and clinical
trials. In other countries in which we operate, a similar filing procedure is required with the
respective equivalent governmental authorities, and
 
    
    Phase IV clinical trials, which are conducted after drug approval, may also be required
by the FDA or equivalent foreign regulatory authorities. These additional trials are
required in order to monitor long-term risks and benefits, to study different dosage levels
or to evaluate different safety and efficacy parameters.
 Generic drugs
    505(b)(2) approval
  Medical devices
  Our Competitive Strengths
  Our ability to provide a comprehensive range of clinical development and complementary services
   5




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Our ability to recruit
   Our clinical trial facilities
  Our experience
  Our Strategy
  Leverage our global presence to provide a complete range of drug development services worldwide
  Expand our bioanalytical laboratory business
   6




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Augment our current range of services through strategic acquisitions, strategic alliances or joint
ventures
    Leverage complementary early clinical and late phase development services and client relationships
  Our Services
  Early stage clinical development services
     7




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Late stage clinical development services
    Clients and Marketing
    Our Competitors
   
    
    the quality of their staff and services,
 
    
    the range of services they provide,
 
    
    medical and scientific expertise in specific therapeutic areas,
  8




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
    
    the cost of the services they provide,
 
    
    the ability to recruit doctors and participants for clinical trials,
 
    
    the ability to organize and manage large-scale trials, and
 
    
    financial stability.
    Indemnification and Insurance
    
    
    indemnification provisions and provisions seeking to limit or exclude liability contained
in our contracts with clients and investigators,
 
    
    insurance maintained by clients, investigators and by us, and
 
    
    complying with various regulatory requirements, including the use of ethics committees
and the procurement of each participants informed consent to participate in the study.
   9




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Government Regulation
   
    
    selecting qualified investigators and sites,
 
    
    obtaining specific written commitments from investigators,
 
    
    obtaining approval and supervision of the clinical trials by an ethics committee,
 
    
    obtaining favorable opinion from regulatory agencies to commence a clinical trial,
 
    
    verifying that informed consents are obtained from participants,
 
    
    monitoring the validity and accuracy of data,
 
    
    verifying that we account for the drugs provided to us by our clients, and
 
    
    instructing investigators to maintain records and reports.
    10




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Backlog
    Backlog
    
    2008
    
    
    2007(In thousands)Early stage
    
    $
    54,063
    
    
    $
    69,485Late stage
    
    
    453,602
    
    
    
    387,904Total
    
    $
    507,665
    
    
    $
    457,389
  11




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Employees
  Available information
 www.pharmanet.com
 
 Item 1A. Risk Factors.
  Risks Related to Our Merger
 If our acquisition by JLL is not completed as expected, our stock price, business and results of
operations may suffer.
    
    
    activities related to the merger and related uncertainties may lead to a loss of
revenue and market position that we may not be able to regain if the proposed
transaction does not occur;
    
    the market price of our common stock could decline following an announcement that the
proposed transaction had been abandoned or delayed;
    
    because Purchaser would own a substantial majority of our common stock, there may not
be an active trading market for our remaining shares of common stock and we may not be
able to sustain our NASDAQ listing;
    
    we would remain liable for our costs related to the proposed transaction, including
substantial legal, accounting and investment banking expenses; and
    
    we may not be able to take advantage of alternative business opportunities or
effectively respond to competitive pressures.
  12




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Lawsuits have been filed against us, the PDGI Board, JLL and Purchaser arising out of our proposed
acquisition by JLL, and if the proposed settlement of those lawsuits does not receive final
judicial approval, they may result in additional costs and distraction.
      Risks Related To Our Business
 We may not have sufficient funds to repurchase our outstanding convertible notes that may be put to
us in August 2009, or to pay the principal due upon conversion of outstanding convertible notes or
to repurchase our outstanding notes on other repurchase dates.
   13




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We may be adversely affected by the current economic environment.
    14




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Our indebtedness may impact our financial condition or results of operations, and the terms of our
outstanding indebtedness may limit our activities.
  
    
    we may be required to use a portion of our cash flow from operations for the payment
of principal and interest due on our outstanding indebtedness,
    
    our outstanding indebtedness and leverage will increase the impact of negative
changes in general economic and industry conditions, as well as competitive pressures,
and
    
    the level of our outstanding indebtedness may affect our ability to obtain additional
financing for working capital, capital expenditures, acquisitions or general corporate
purposes.
  
    
    seek additional financing in the debt or equity markets,
    
    seek to refinance or restructure all or a portion of our indebtedness,
    
    sell selected assets or pursue other strategic options, or
    
    reduce or delay planned capital expenditures.
  We currently do not have a credit facility.
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We are currently subject to an ongoing SEC investigation. Depending upon the outcome, this
investigation could result in possible litigation which may lead to civil and/ or equitable relief,
including payment of a fine and civil monetary penalties and a possible restatement of our prior
financial statements.
  Our recently settled securities class action litigation, unrelated to the JLL transaction, exceeded
our directors and officers, or D&O, liability insurance coverage limits, and there is limited
additional coverage for our recently settled derivative actions and associated legal fees.
  As a public company, we face risks related to class action lawsuits, including threatened
litigation.
     16




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We are subject to on-going tax audits, which may exceed our tax reserves.
  If we do not continue to generate a large number of new client contracts, or if our clients cancel
or defer contracts, our profitability may be adversely affected.
  Our backlog may not be indicative of future results.
  
    
    the variable size and duration of the projects,
    
    the loss or delay of projects,
    
    the change in the scope of work during the course of a project, and
    
    the cancellation of such contracts by our clients.
  We may bear financial risk if we under-price our contracts or overrun cost estimates, and our
financial results can also be adversely affected by failure to receive approval for change orders
and by delays in documenting change orders.
   17




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A significant portion of our growth historically has come from acquisitions, and we may make more
acquisitions in the future as part of our growth strategy. This growth strategy subjects us to
numerous risks.
  
    
    we will identify suitable acquisition candidates,
    
    we can consummate acquisitions on acceptable terms,
    
    we can successfully integrate any acquired business into our operations or
successfully manage the operations of any acquired business, or
    
    we will be able to retain an acquired companys significant client relationships,
goodwill and key personnel or otherwise realize the intended benefits of any
acquisition.
 Our business is subject to international economic, political and other risks that could negatively
affect our results of operations or financial position.
  
    
    less stable political and economic environments and changes in a specific countrys
or regions political or economic conditions,
    
    potential negative consequences from changes in tax laws affecting our ability to
repatriate profits,
    
    unfavorable labor regulations,
    
    greater difficulties in managing and staffing foreign operations,
    
    the need to ensure compliance with the numerous regulatory and legal requirements
applicable to our business in each of these jurisdictions and to maintain an effective
compliance program to ensure compliance,
    
    currency fluctuations,
    
    changes in trade policies, regulatory requirements and other barriers,
    
    civil unrest or other catastrophic events, and
    
    longer payment cycles of foreign customers and difficulty collecting receivables in
foreign jurisdictions.
  We are subject to changes in outsourcing trends and regulatory requirements affecting the branded
pharmaceutical, biotechnology, generic drug and medical device industries which could adversely
affect our operating results.
   18




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If branded pharmaceutical, biotechnology, generic drug or medical device companies reduce their
expenditures, our future revenue and profitability may be reduced.
  Actions or inspections by regulatory authorities may cause clients not to award future contracts to
us or to cancel existing contracts, which may have a material and adverse effect on our results of
operations.
  We might lose business opportunities as a result of healthcare reform.
  At any given time, one or a limited number of clients may account for a large percentage of our
revenues, which means that we could face a greater risk of loss of revenues if we lose a major
client.
  We may incur significant taxes to repatriate funds.
   19




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Our operating results fluctuate from period to period.
  Our substantial non-U.S. operations expose us to currency risks.
  We could be adversely affected by tax law changes in Canada or in other foreign jurisdictions.
  Governmental authorities may question our inter-company transfer pricing policies or change their
laws in a manner that could increase our effective tax rate or otherwise harm our business.
  We may lack the resources needed to compete effectively with larger competitors.
  If we do not continue to develop new assay methods for our analytical applications, or if our
current assay methods are incorrect, we may be unable to compete with other entities offering
bioanalytical laboratory services.
   20




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We risk potential liability when conducting clinical trials, which could cost us large amounts of
money.
  
    
    adverse side effects and reactions resulting from administering these drugs to a
clinical trial participant,
 
    
    unintended consequences resulting from the procedures or changes in medical practice
to which a study participant may be subject as part of a clinical trial,
 
    
    improper administration of these drugs, or
 
    
    potential professional malpractice of our employees or contractors, including
physicians.
  We face a risk of liability from our handling and disposal of medical wastes, which could cause us
to incur significant costs or otherwise adversely affect our business.
  Failure to comply with applicable governmental regulations could harm our operating results and
reputation.
  If we lose the services of our key personnel or are unable to attract qualified staff, our business
could be adversely affected.
   21




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Our business depends on the continued effectiveness and availability of our information technology
infrastructure, and failures of this infrastructure could harm our operations.
  We self-insure our employees healthcare costs in the U.S., which exposes us to losses.
  If we are unable to attract suitable investigators and volunteers for our clinical trials, our
clinical development business might suffer.
  If we incur further instances of breakdowns in our internal controls, current and potential
stockholders could lose confidence in our financial reporting, which could harm our business and
the price of our common stock.
   We remain subject to risks and uncertainties associated with our discontinued Miami operations that
could further adversely impact our company.
   22




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Risks Related To Our Common Stock
 We may issue a substantial amount of our common stock which could cause dilution to current
investors, put pressure on earnings per share and otherwise adversely affect our stock price.
  Our stock price can be very volatile, and stockholders investments could suffer a decline in
value.
  
    
    operating performance of our competitors,
 
    
    changes in financial estimates by securities analysts,
 
    
    media articles,
 
    
    loss of a major client or contract,
 
    
    new service offerings introduced or announced by our competitors,
 
    
    changes in market valuations of other similar companies,
 
    
    actual or anticipated variations in quarterly operating results, including changes in
our guidance as to forecasted earnings and our failure to meet earnings guidance
published by us,
 
    
    announcement of significant acquisitions, strategic partnerships, joint ventures or
capital commitments,
 
    
    current market conditions;
 
    
    the need of our investors to potentially sell our stock to meet their own liquidity
needs;
 
    
    additions or departures of key personnel, and
 
    
    sales of our common stock, including short sales.
  Failure to satisfy NASDAQ Stock Market maintenance criteria could negatively impact the liquidity
and market price of our common stock.
   23




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Our common stock may not continue to qualify for exemption from the penny stock restrictions,
which may make it more difficult for you to sell your shares.
  Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of
us, which may be beneficial to our stockholders, more difficult, which could depress our stock
price.
    24




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Recent actions taken by the SEC in connection with the implementation of rules relating to
naked short selling may not effectively prevent security holders from engaging in short sales,
which could further contribute to downward pressure on the trading price of our common stock.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
   
 Item 3. Legal Proceedings.
     25




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26




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Item 4. Submission of Matters to a Vote of Security Holders.
   27




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
 Market Information
  High
    
    
    Low2008First Quarter
    
    $
    43.05
    
    
    $
    25.00Second Quarter
    
    $
    25.96
    
    
    $
    13.45Third Quarter
    
    $
    27.30
    
    
    $
    6.85Fourth Quarter
    
    $
    7.54
    
    
    $
    0.672007First Quarter
    
    $
    26.49
    
    
    $
    18.59Second Quarter
    
    $
    33.49
    
    
    $
    25.50Third Quarter
    
    $
    32.86
    
    
    $
    25.07Fourth Quarter
    
    $
    42.75
    
    
    $
    29.06
 Holders
  Dividend Policy
   28




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Comparative Stock Performance Graph
 The following Performance Graph and related information shall not be deemed soliciting
material or to be filed with the Securities and Exchange Commission, nor shall such information
be incorporated by reference into any future filing under the Securities Act of 1933 or Securities
Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by
reference into such filing.
 
  BasePeriod
    
    
    Years Ending December 31Company/Index
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008PharmaNet Development Group, Inc.
    
    $
    100
    
    
    $
    223.08
    
    
    $
    90.42
    
    
    $
    124.64
    
    
    $
    221.44
    
    
    $
    5.14Nasdaq Composite Index
    
    $
    100
    
    
    $
    108.41
    
    
    $
    110.79
    
    
    $
    122.16
    
    
    $
    134.29
    
    
    $
    79.25Nasdaq Health Services
    
    $
    100
    
    
    $
    117.00
    
    
    $
    159.04
    
    
    $
    151.34
    
    
    $
    199.08
    
    
    $
    145.73
  29




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Recent Sales of Unregistered Securities
    
 Item 6. Selected Financial Data.
  2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In thousands, except per share data)Total net revenue
    
    $
    451,453
    
    
    $
    470,257
    
    
    $
    406,956
    
    
    $
    361,506
    
    
    $
    111,894Total costs and expenses
    
    $
    695,582
    
    
    $
    448,770
    
    
    $
    393,950
    
    
    $
    331,662
    
    
    $
    96,864Net (loss) earnings from continuing operations
    
    $
    (251,093
    )
    
    $
    12,078
    
    
    $
    6,052
    
    
    $
    17,163
    
    
    $
    11,002Earnings (loss) from discontinued operations, net of tax
    
    $
    
    
    
    $
    838
    
    
    $
    (42,077
    )
    
    $
    (12,384
    )
    
    $
    8,657Net (loss) earnings
    
    $
    (251,093
    )
    
    $
    12,916
    
    
    $
    (36,025
    )
    
    $
    4,779
    
    
    $
    19,659(Loss) earnings per share from continuing operations:Basic
    
    $
    (12.96
    )
    
    $
    0.64
    
    
    $
    0.33
    
    
    $
    0.97
    
    
    $
    0.73Diluted
    
    $
    (12.96
    )
    
    $
    0.63
    
    
    $
    0.33
    
    
    $
    0.94
    
    
    $
    0.70Total assets
    
    $
    324,546
    
    
    $
    609,636
    
    
    $
    549,599
    
    
    $
    515,750
    
    
    $
    487,327Long-term obligations and capital leases, including current portion
    
    $
    149,207
    
    
    $
    152,946
    
    
    $
    159,002
    
    
    $
    168,223
    
    
    $
    157,517
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
    30




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Recent Events
    31




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Critical Accounting Estimates
   Revenue and Cost Recognition.
   Collectibility of Accounts Receivable.
 Income Taxes.
  32




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Goodwill.
 Impairment of Assets.
 Share-Based Compensation.
  33




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Results of Operations
 Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
  2008
    
    
    2007(In thousands, except per share data)Direct revenue
    
    $
    357,746
    
    
    
    100.0
    %
    
    $
    362,471
    
    
    
    100.0
    %Direct costs
    
    
    231,488
    
    
    
    64.7
    
    
    
    216,173
    
    
    
    59.6Selling, general and administrative expenses
    
    
    121,884
    
    
    
    34.1
    
    
    
    114,411
    
    
    
    31.6Impairment of goodwill and indefinite-lived assets
    
    
    248,503
    
    
    
    69.5
    
    
    
    
    
    
    
    Provision for settlement of litigation
    
    
    
    
    
    
    
    
    
    
    10,400
    
    
    
    2.9Total other expense
    
    
    (5,146
    )
    
    
    (1.4
    )
    
    
    (6,164
    )
    
    
    (1.7
    )(Loss) earnings from continuing operations before income taxes
    
    
    (249,275
    )
    
    
    (69.7
    )
    
    
    15,323
    
    
    
    4.2Income tax expense
    
    
    90
    
    
    
    
    
    
    
    2,340
    
    
    
    0.6(Loss) earnings from continuing operations before minority interest in joint venture
    
    
    (249,365
    )
    
    
    (69.7
    )
    
    
    12,983
    
    
    
    3.6Minority interest in joint venture
    
    
    1,728
    
    
    
    0.5
    
    
    
    905
    
    
    
    0.2Net (loss) earnings from continuing operations
    
    
    (251,093
    )
    
    
    (70.2
    )
    
    
    12,078
    
    
    
    3.3Earnings from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    838Net (loss) earnings
    
    $
    (251,093
    )
    
    
    (70.2
    )%
    
    $
    12,916
    
    
    
    3.6
    %(Loss) earnings per share from continuing operations:Basic
    
    $
    (12.96
    )
    
    
    
    
    
    $
    0.64Diluted
    
    $
    (12.96
    )
    
    
    
    
    
    $
    0.63
 Direct Revenue
     34




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Direct Costs
  Gross Profit Margins
      Selling, General and Administrative Expenses
   35




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Impairment of Goodwill and Indefinite-Lived Assets
   Provision for Settlement of Litigation
  Interest Income and Interest Expense
    36




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Foreign Currency Exchange Transactions
   Income Taxes
     37




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
    
    the relative profits generated primarily in the U.S., Canada and Europe,
 
    
    our ability to utilize Canadian tax credits,
 
    
    the applicable foreign tax rates in effect,
 
    
    transfer pricing, and
 
    
    our ability to generate U.S. taxable income to utilize net operating loss carryovers and
thereby decrease the valuation allowance.
  38




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Earnings (Loss) Per Share
  Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
  2007
    
    
    2006(In thousands, except per share data)Direct revenue
    
    $
    362,471
    
    
    
    100.0
    %
    
    $
    302,385
    
    
    
    100.0
    %Direct costs
    
    
    216,173
    
    
    
    59.6
    
    
    
    182,679
    
    
    
    60.4Selling, general and administrative expenses
    
    
    114,411
    
    
    
    31.6
    
    
    
    98,827
    
    
    
    32.7Impairment of goodwill and indefinite-lived assets
    
    
    
    
    
    
    
    
    
    
    7,873
    
    
    
    2.6Provision for settlement of litigation
    
    
    10,400
    
    
    
    2.9
    
    
    
    
    
    
    
    Total other expense
    
    
    (6,164
    )
    
    
    (1.7
    )
    
    
    (9,821
    )
    
    
    (3.2
    )Earnings from continuing operations before income taxes
    
    
    15,323
    
    
    
    4.2
    
    
    
    3,185
    
    
    
    1.0Income tax expense (benefit)
    
    
    2,340
    
    
    
    0.6
    
    
    
    (3,558
    )
    
    
    (1.2
    )Earnings from continuing operations before minority interest in joint venture
    
    
    12,983
    
    
    
    3.6
    
    
    
    6,743
    
    
    
    2.2Minority interest in joint venture
    
    
    905
    
    
    
    0.2
    
    
    
    691
    
    
    
    0.2Net earnings from continuing operations
    
    
    12,078
    
    
    
    3.3
    
    
    
    6,052
    
    
    
    2.0Earnings (loss) from discontinued operations, net of tax
    
    
    838
    
    
    
    
    
    
    
    (42,077
    )Net earnings (loss)
    
    $
    12,916
    
    
    
    3.6
    %
    
    $
    (36,025
    )
    
    
    (11.9
    )%Earnings per share from continuing operations:Basic
    
    $
    0.64
    
    
    
    
    
    
    $
    0.33Diluted
    
    $
    0.63
    
    
    
    
    
    
    $
    0.33
 Direct Revenue
    Direct Costs
    39




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Gross Profit
   Selling, General and Administrative Expenses
    Provision for Settlement of Litigation
  Interest Income and Interest Expense
     40




---



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Foreign Currency Exchange Transactions
   Income Taxes
      41




---



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Earnings (Loss) Per Share
  Effects of Inflation
  Liquidity and Capital Resources
     42




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43




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44




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Contractual Obligations
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(In thousands)Convertible notes (1)
    
    $
    143,750
    
    
    $
    143,750
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest on convertible notes (2)
    
    
    3,234
    
    
    
    3,234
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    5,710
    
    
    
    2,463
    
    
    
    3,061
    
    
    
    186
    
    
    
    Operating lease obligations
    
    
    127,272
    
    
    
    20,525
    
    
    
    34,202
    
    
    
    20,874
    
    
    
    51,671Purchase obligations
    
    
    1,476
    
    
    
    842
    
    
    
    592
    
    
    
    42
    
    
    
    Total
    
    $
    281,442
    
    
    $
    170,814
    
    
    $
    37,855
    
    
    $
    21,102
    
    
    $
    51,671
 
 (1)
    
    On each of August 15, 2009, 2014 and 2019, holders may require us to
repurchase all or a portion of their Notes at a purchase price in cash
equal to 100% of the principal amount, plus accrued and unpaid
interest. Since holders may require us to repurchase their Notes as
early as August 15, 2009, we reclassified the Notes from long-term to
short-term in our consolidated balance sheets as of December 31, 2008.
Further, as a result of the completion of the Tender offer by JLL, a
Fundamental Change has occurred, which requires us to repurchase all
or a portion of the Notes for cash at 100% of the principal amount,
plus accrued and unpaid interest and a make-whole premium, if
applicable. Such repurchase will be made on a date that we select but
cannot be later than 30 trading days and cannot be earlier than 20
trading days after the date on which we mail a notice of the
Fundamental Change to a holder. Such notice must be mailed within 30
days of the occurrence of the Fundamental Change.(2)
    
    Interest of $1,617 was paid on February 15, 2009. The remaining
interest payment up to a total amount of $1,617 will be paid on or
before August 15, 2009. Capital Expenditures and Commitments
  Off Balance Sheet Commitments
   (i)
    
    increase share capital to be subscribed by shareholders,(ii)
    
    borrowing from non-affiliated entities that do not require guarantee from shareholders,
or(iii)
    
    if such borrowing is not available or is not sufficient, loans from shareholders, in the
proportion deemed appropriate by them.
  Recently Issued Accounting Pronouncements
   45




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46




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Forward-Looking Statements
    47




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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  Market Risk
   Currency Risk
      48




---



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Interest Rate Risk
  
 Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
   49




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Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   Managements Report on Internal Control Over Financial Reporting
 Internal Control  Integrated Framework
   50




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal
Control-Integrated Framework
    Internal Control-Integrated Framework
   
  51




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Changes in Internal Control Over Financial Reporting
  Remediation Steps Subsequent to December 31, 2007
 Income taxes
  
    
    Re-evaluated the design of income tax accounting processes and controls and implemented
new and improved processes and controls, including the addition of tax personnel,
    
    Increased the level of review and discussion of tax reconciliations and supporting
documentation with our outside tax advisor and management, and
    
    Formalized a process for documenting decisions made based upon the review of tax packages
or any other supporting information provided.
 
 Item 9B. Other Information.
   52




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PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
 Directors and Executive Officers of the Company
  Names
    
    Age
    
    Position(s)Jeffrey P. McMullen
    
    
    57
    
    
    President and Chief Executive Officer, DirectorPeter G. Tombros
    
    
    66
    
    
    Chairman of the Board, DirectorRolf A. Classon
    
    
    63
    
    
    DirectorLewis R. Elias, M.D.
    
    
    83
    
    
    DirectorArnold Golieb
    
    
    74
    
    
    DirectorDavid M. Olivier
    
    
    65
    
    
    DirectorPer Wold-Olsen
    
    
    61
    
    
    DirectorJohn P. Hamill
    
    
    45
    
    
    Executive Vice President and Chief Financial OfficerMark Di Ianni
    
    
    58
    
    
    Executive Vice President and President, Early Stage DevelopmentThomas J. Newman, M.D.
    
    
    60
    
    
    Executive Vice President and President, Late Stage DevelopmentRobin C. Sheldrick
    
    
    54
    
    
    Senior Vice President, Human Resources
 Jeffrey P. McMullen
 Peter G. Tombros
 Rolf A. Classon
 Lewis R. Elias, M.D.,
  53




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##### Table of Contents



Arnold Golieb
 David M. Olivier
 Per Wold-Olsen
 John P. Hamill, C.P.A.,
 Mark Di Ianni
 Thomas J. Newman, M.D.,
 Robin C. Sheldrick
 Board of Directors and Corporate Governance Matters
    54




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##### Table of Contents



Director Independence
  Board of Directors Committees
  Audit Committee
  
    
    review our accounting policies and issues which may arise in the course of our
audit;
    
    select and retain our independent registered public accounting firm;
    
    approve all audit and non-audit services and review the audit and non-audit fees
of our independent registered public accounting firm;
    
    review the qualifications and independence of our independent registered public
accounting firm; and
    
    review the independence and the performance of our internal audit function.
    Compensation Committee
  
    
    approve the compensation of our President and Chief Executive Officer and all
other executive officers;
 
    
    approve all equity grants under our stock plans; and
 
    
    review and discuss with management the Compensation Discussion and Analysis which
is included in our Proxy Statement.
  55




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##### Table of Contents



Nominating and Corporate Governance Committee
  www.pharmanet.com
  
    
    develop and recommend to the Board of Directors a set of corporate governance
guidelines applicable to us and from time to time, review and reassess the adequacy of
such guidelines;
 
    
    oversee an annual self-evaluation of the Board of Directors to determine whether
it and its committees are functioning effectively;
 
    
    oversee the evaluation of senior executives from a corporate governance
perspective in conjunction with the Boards Compensation Committee;
 
    
    identify, review and recommend to the Board of Directors individuals qualified to
become members of the Board of Directors; and
 
    
    recommend to the Board of Directors nominating policies and procedures.
   56




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##### Table of Contents



Strategic Alternatives Committee
   
    
    engage in and facilitate discussions with any third-party regarding potential
strategic alternatives involving the Company;
 
    
    advise and periodically update the PDGI Board, as necessary, regarding any
material developments in discussions regarding strategic alternatives involving the
Company;
 
    
    periodically meet and discuss with any financial advisors retained to assist the
Company regarding potential strategic alternatives; and
 
    
    negotiate and approve on behalf of the Company a transaction or arrangement
involving the Notes, which transaction could take the form of a repayment, settlement or
prepayment of, or other exchange of cash for, all or a portion of the Notes, an exchange
of new securities for all or a portion of the Notes, a modification, amendment or waiver
of certain terms of the Notes, any other restructuring of the Notes or a similar
transaction or arrangement, and any and all such other terms and conditions as might be
necessary to consummate any of the foregoing.
 Corporate Governance Guidelines
  
    
    our Board of Directors appointed Peter G. Tombros as our Chairman of the Board,
and he interfaces with our management and legal counsel on a regular basis;
 
    
    we adopted a code of ethics that applies to all our employees and directors;
 
    
    we formed a Corporate Governance Committee in January 2007, which was combined
with the Nominating Committee in October 2007 to form the Nominating and Corporate
Governance Committee;
 
    
    we formed the Strategic Alternatives Committee in September 2008;
 
    
    we adopted a policy that our independent directors meet in executive sessions at
each Board meeting; and
 
    
    we adopted a policy that our Audit Committee must approve all related party hires
and related party transactions, subject to certain de minimis exceptions.
 Code of Ethics
   57




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Directors Attendance at Annual Meetings of Stockholders
  Communication with the Board of Directors
   Section 16(a) Beneficial Ownership Reporting Compliance
  
 Item 11. Executive Compensation.
 Compensation Discussion and Analysis
  Compensation Objectives and Philosophy
  
    
    to discharge the Board of Directors responsibilities relating to compensation of
our directors and named executive officers;
 
    
    to approve and evaluate our director and officer compensation plans, policies and
programs;
 
    
    to produce an annual report on executive compensation for inclusion in our Proxy
Statement; and
 
    
    to review and discuss with management the Compensation Discussion and Analysis
which is included in our Proxy Statement.
  58




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##### Table of Contents




    
    to motivate, recruit and retain executives capable of meeting our strategic
objectives;
 
    
    to provide incentives to ensure superior executive performance and successful
financial results for us; and
 
    
    to align the interests of executives with the long-term interests of our
stockholders.
  
    
    establishing a compensation structure that is market competitive, taking into
account the value of the position in the marketplace;
 
    
    linking a substantial portion of compensation to our achievement of short-term
and long-term financial objectives and the individuals contribution to the attainment
of those objectives;
 
    
    providing risk for underachievement and upward leverage for overachievement of
goals; and
 
    
    providing long-term equity-based incentives and encouraging direct share
ownership by executives with the intention of providing incentive-based compensation to
encourage a long-term focus on company profitability and stockholder value.
   Overview of Compensation Components and Their Purpose
  Base Salary
 In General
  59




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##### Table of Contents



Changes for 2009
 Name
    
    Title
    
    2008Salary
    
    
    2009Salary
    
    
    % IncreaseJeffrey P. McMullen
    
    President and Chief Executive Officer
    
    $
    743,312
    
    
    $
    743,312
    
    
    
    John P. Hamill
    
    Executive Vice President and Chief Financial Officer
    
    $
    431,796
    
    
    $
    449,068
    
    
    
    4
    %Mark Di Ianni
    
    Executive Vice President, Strategic Initiatives andPresident, Early Stage Development
    
    $
    419,125
    
    
    $
    435,890
    
    
    
    4
    %Thomas J. Newman
    
    Executive Vice President and President, Late StageDevelopment
    
    $
    535,844
    
    
    $
    557,278
    
    
    
    4
    %Robin C. Sheldrick
    
    Senior Vice President, Human Resources
    
    $
    279,807
    
    
    $
    291,000
    
    
    
    4
    %
 Annual Short-Term Cash Incentives
 In General
 2007 Performance Measures and Payouts
  60




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2008 Performance Measures and Payouts
 2009 Plan
 Long-Term Incentive Equity Awards
 In General
   2008 Awards
   61




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##### Table of Contents



2008 Awards
 Long-Term Incentive Distribution (number of units)Performance-Based
    
    
    Time-VestedLong-Term
    
    
    
    
    
    
    Restricted
    
    
    RestrictedIncentive
    
    
    Options
    
    
    Stock Units
    
    
    Stock UnitsName
    
    Title
    
    Value
    
    
    (Stock-settled)
    
    
    (Stock-settled)
    
    
    (Stock-settled)Jeffrey P. McMullen
    
    President and Chief Executive Officer
    
    $
    740,000
    
    
    
    16,696
    
    
    
    8,370
    
    
    
    8,370John P. Hamill
    
    Executive Vice President and Chief Financial Officer
    
    $
    361,840
    
    
    
    4,840
    
    
    
    2,426
    
    
    
    7,426
    (1)Mark Di Ianni
    
    Executive Vice President, Strategic
Initiatives and President, Early Stage Development
    
    $
    208,000
    
    
    
    4,963
    
    
    
    2,353
    
    
    
    2,353Thomas J. Newman
    
    Executive Vice President and
President, Late Stage Development
    
    $
    561,460
    
    
    
    6,019
    
    
    
    3,017
    
    
    
    13,017
    (2)Robin C. Sheldrick
    
    Senior Vice
President, Human Resources
    
    $
    129,200
    
    
    
    1,253
    
    
    
    628
    
    
    
    3,128
    (3)
 
 (1)
    
    Mr. Hamill received additional time-vested Restricted Stock Units in connection with his past
performance and contributions to the Company.(2)
    
    Dr. Newman received additional time-vested Restricted Stock Units in connection with his
promotion to serve as President, Late Stage Development.(3)
    
    Ms. Sheldrick received additional time-vested Restricted Stock Units in connection with her
appointment as an executive officer.  
    
    Except as set forth in the footnote above, the value of the amounts awarded
consisted of one-third stock options, one-third performance-based Restricted Stock Units
and one-third time-vested Restricted Stock Units.
 
    
    The options expire in seven years and vest in one-third increments on each
anniversary date of the grant.
 
    
    The performance-based Restricted Stock Units vest upon the achievement of certain
performance milestones if the Company meets or exceeds certain cumulative earnings
targets for 2008, 2009 and 2010.
 
    
    The time-vested Restricted Stock Units vest in one-fifth increments on each
anniversary date of the grant.
 Executive Benefits and Perquisites
 In General
 Retirement Benefits
 Other Benefits and Perquisites
  62




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Amount ofTotal Perquisites
    
    
    Amount ofName
    
    Title
    
    (2008)
    
    
    Tax Gross-Up(1)
    
    
    TotalJeffrey P. McMullen
    
    President and Chief Executive Officer
    
    $
    32,500
    (2)
    
    $
    24,411
    
    
    $
    56,911John P. Hamill
    
    Executive Vice President and Chief Financial Officer
    
    $
    25,000
    (3)
    
    $
    16,043
    
    
    $
    41,043Mark Di Ianni
    
    Executive Vice President, Strategic
Initiatives and President, Early Stage Development
    
    $
    12,000
    (4)
    
    $
    
    
    
    $
    12,000Thomas J. Newman
    
    Executive Vice President and
President, Late Stage Development
    
    $
    12,000
    (4)
    
    $
    
    
    
    $
    12,000Robin C. Sheldrick
    
    Senior Vice President Human Resources
    
    $
    12,000
    (4)
    
    $
    
    
    
    $
    12,000
 
 (1)
    
    The Committee also agreed to pay income taxes associated with such perquisites for
Messrs. McMullen and Hamill.(2)
    
    Mr. McMullens employment agreement awards him perquisites up to the amount of $32,500.(3)
    
    Mr. Hamills employment agreement awards him perquisites up to the amount of $25,000.(4)
    
    The executives employment agreement provides for a $12,000 car allowance. Executive Severance Plan
 Executive Severance
 Number of Months
    
    
    Number of Monthsof Severance for
    
    
    of Severance forTermination Upon
    
    
    TerminationName
    
    Title
    
    Change in Control
    
    
    Without CauseJeffrey P. McMullen
    
    President and Chief Executive Officer
    
    
    N/A
    (1)
    
    
    36John P. Hamill
    
    Executive Vice President and Chief Financial Officer
    
    
    24
    
    
    
    24Mark Di Ianni
    
    Executive Vice President, Strategic
Initiatives and President, Early Stage Development
    
    
    N/A
    (1)
    
    
    24Thomas J. Newman
    
    Executive Vice President and
President, Late Stage Development
    
    
    N/A
    (1)
    
    
    24Robin C. Sheldrick
    
    Senior Vice President, Human Resources
    
    
    N/A
    (1)
    
    
    24
 
 (1)
    
    Mr. McMullen, Mr. Di Ianni, Dr. Newman and Ms. Sheldrick do not automatically receive
severance in the event of a change in control, unless he/she is terminated without cause in
connection with a change in control.   63




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##### Table of Contents




    
    Bioscrip, Inc.
    
    
    
    Cambrex Corporation
    
    
    
    Charles River Laboratories, Inc.
    
    Covance, Inc.
    
    
    
    Dendrite International, Inc
    
    
    
    IDEXX Laboratories, Inc.
    
    Kendle International, Inc.
    
    
    
    Ligand Pharmaceuticals, Inc.
    
    
    
    MDS, Inc.
    
    Millipore Corp
    
    
    
    PAREXEL International Corporation
    
    
    
    Pharmaceutical Product Development, Inc.
    
    PRA International
    
    
    
    ThermoFisher Scientific
    
    
    
    Varian, Inc.
    
    Valeant Pharmaceuticals International
    
    
    
    Ventiv Health, Inc.
    
    
    
    Watson Pharmaceuticals
  Share Retention Policy
  
    
    three times the annual base salary for the Chief Executive Officer;
    
    one and a half times his or her annual base salary for each other named executive officer;
and
    
    three times their respective annual retainer received by each non-employee director.
  Accounting and Tax Consideration
 Share-Based Payment
  64




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IRC Section 162(m) Compliance
   65




---



##### Table of Contents



Summary Compensation Table
  Non-EquityStock
    
    
    Option
    
    
    Incentive Plan
    
    
    All OtherName and Principal Position
    
    Year
    
    
    Salary(1)
    
    
    Bonus(2)
    
    
    Awards(3)
    
    
    Awards
    
    
    Compensation
    
    
    Compensation(4)
    
    
    TotalJeffrey P. McMullen
    
    
    2008
    
    
    $
    741,932
    
    
    
    
    
    
    $
    719,174
    
    
    $
    145,738
    
    
    
    
    
    
    $
    77,860
    
    
    $
    1,684,704President and Chief
Executive
    
    
    2007
    
    
    $
    695,000
    
    
    $
    886,125
    
    
    $
    553,731
    
    
    $
    32,175
    
    
    
    
    
    
    $
    74,001
    
    
    $
    2,241,032Officer
    
    
    2006
    
    
    $
    663,531
    
    
    $
    975,000
    
    
    $
    494,475
    
    
    
    
    
    
    
    
    
    
    $
    72,098
    
    
    $
    2,205,104John P. Hamill
    
    
    2008
    
    
    $
    430,631
    
    
    
    
    
    
    $
    304,093
    
    
    $
    41,530
    
    
    
    
    
    
    $
    50,708
    
    
    $
    826,962Executive Vice President and
    
    
    2007
    
    
    $
    390,000
    
    
    $
    175,587
    
    
    $
    259,970
    
    
    $
    9,028
    
    
    
    
    
    
    $
    50,830
    
    
    $
    885,415Chief Financial Officer
    
    
    2006
    
    
    $
    320,294
    
    
    $
    210,047
    
    
    $
    182,981
    
    
    
    
    
    
    
    
    
    
    $
    46,879
    
    
    $
    760,201Mark Di Ianni
    
    
    2008
    
    
    $
    417,823
    
    
    
    
    
    
    $
    122,203
    
    
    $
    41,481
    
    
    
    
    
    
    $
    25,427
    
    
    $
    606,934Executive Vice President and
    
    
    2007
    
    
    $
    400,000
    
    
    $
    140,046
    
    
    $
    108,997
    
    
    $
    9,259
    
    
    
    
    
    
    $
    25,223
    
    
    $
    683,525President, Early Stage
    
    
    2006
    
    
    $
    275,400
    
    
    $
    98,925
    
    
    $
    121,900
    
    
    
    
    
    
    
    
    
    
    $
    19,734
    
    
    $
    515,959DevelopmentThomas J. Newman
    
    
    2008
    
    
    $
    534,867
    
    
    
    
    
    
    $
    305,053
    
    
    $
    52,148
    
    
    
    
    
    
    $
    36,034
    
    
    $
    928,102Executive Vice President and
    
    
    2007
    
    
    $
    494,000
    
    
    $
    172,985
    
    
    $
    231,809
    
    
    $
    11,436
    
    
    
    
    
    
    $
    26,367
    
    
    $
    936,597President, Late Stage
    
    
    2006
    
    
    $
    475,000
    
    
    $
    214,965
    
    
    $
    182,000
    
    
    
    
    
    
    
    
    
    
    $
    26,081
    
    
    $
    898,046DevelopmentRobin C. Sheldrick
    
    
    2008
    
    
    $
    278,937
    
    
    
    
    
    
    $
    124,653
    
    
    $
    10,964
    
    
    
    
    
    
    $
    23,264
    
    
    $
    437,818Senior Vice President, Human
    
    
    2007
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AResources
    
    
    2006
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AJohane Boucher-Champagne
    
    
    2008
    
    
    $
    389,391
    
    
    $
    26,089
    
    
    $
    157,179
    
    
    $
    14,708
    
    
    
    
    
    
    $
    16,197
    
    
    $
    603,564Executive Vice President,
Early
    
    
    2007
    
    
    $
    377,754
    
    
    $
    30,502
    
    
    $
    127,867
    
    
    $
    3,240
    
    
    
    
    
    
    $
    30,939
    
    
    $
    570,302Clinical Development(5)(6)
    
    
    2006
    
    
    $
    291,425
    
    
    $
    100,197
    
    
    $
    121,900
    
    
    
    
    
    
    
    
    
    
    $
    19,241
    
    
    $
    532,763
 
 (1)
    
    The amounts in this column represent actual salary paid in 2008, 2007 and 2006.(2)
    
    The amounts in this column were earned in 2007 and 2006 and paid in early 2008 and 2007,
respectively.(3)
    
    The amounts in this column are the compensation costs as defined by SFAS 123R and recognized
for financial statement purposes for the respective fiscal year. See the Companys notes to
its consolidated financial statements for a description of assumptions used in calculating the
expense recognized.(4)
    
    The following table sets forth by category and amount all compensation included in the All
Other Compensation column. Perquisites primarily include automobile allowances, financial
planning costs and healthcare costs not otherwise covered by insurance. We incur expenses and
reimburse employees for technology devices and services to ensure that our employees,
including our executive officers, are readily accessible to us and our customers at all times
in and out of the office as necessary. We do not view these costs as perquisites for executive
officers as they are essential to the efficient performance of their duties and are comparable
to the benefits provided to a broad-based group of our employees.  66




---



##### Table of Contents



Grossed-upTax
    
    
    Matching
    
    
    Life Insurance
    
    
    Value of aName
    
    Year
    
    
    Perquisites
    
    
    Gross Ups
    
    
    Contributions
    
    
    Premiums
    
    
    Watch
    
    
    Other
    
    
    TotalMr. McMullen
    
    
    2008
    
    
    $
    32,500
    (a)
    
    $
    24,411
    
    
    $
    11,275
    
    
    $
    9,674
    
    
    
    
    
    
    
    
    
    
    $
    77,8602007
    
    
    $
    32,500
    (a)
    
    $
    23,684
    
    
    $
    10,250
    
    
    $
    7,567
    
    
    
    
    
    
    
    
    
    
    $
    74,0012006
    
    
    $
    32,500
    (a)
    
    $
    22,565
    
    
    $
    10,000
    
    
    $
    5,267
    
    
    $
    1,766
    
    
    
    
    
    
    $
    72,098Mr. Hamill
    
    
    2008
    
    
    $
    25,000
    
    
    $
    16,043
    
    
    $
    8,525
    
    
    $
    1,140
    
    
    
    
    
    
    
    
    
    
    $
    50,7082007
    
    
    $
    25,000
    
    
    $
    15,966
    
    
    $
    7,750
    
    
    $
    2,114
    
    
    
    
    
    
    
    
    
    
    $
    50,8302006
    
    
    $
    22,050
    
    
    $
    14,250
    
    
    $
    7,561
    
    
    $
    1,209
    
    
    $
    1,809
    
    
    
    
    
    
    $
    46,879Mr. Di Ianni
    
    
    2008
    
    
    $
    12,000
    
    
    
    
    
    
    $
    8,525
    
    
    $
    4,902
    
    
    
    
    
    
    
    
    
    
    $
    25,4272007
    
    
    $
    12,000
    
    
    
    
    
    
    $
    10,000
    
    
    $
    3,223
    
    
    
    
    
    
    
    
    
    
    $
    25,2232006
    
    
    $
    8,769
    
    
    
    
    
    
    $
    10,000
    
    
    $
    965
    
    
    
    
    
    
    
    
    
    
    $
    19,734Dr. Newman
    
    
    2008
    
    
    $
    12,000
    
    
    
    
    
    
    $
    11,275
    
    
    $
    12,759
    
    
    
    
    
    
    
    
    
    
    $
    36,0342007
    
    
    $
    12,000
    
    
    
    
    
    
    $
    10,250
    
    
    $
    4,117
    
    
    
    
    
    
    
    
    
    
    $
    26,3672006
    
    
    $
    12,000
    
    
    
    
    
    
    $
    10,000
    
    
    $
    2,300
    
    
    $
    1,781
    
    
    
    
    
    
    $
    26,081Ms. Sheldrick
    
    
    2008
    
    
    $
    12,000
    
    
    
    
    
    
    $
    9,108
    
    
    $
    2,156
    
    
    
    
    
    
    
    
    
    
    $
    23,2642007
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A2006
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AMs. Boucher-Champagne
    
    
    2008
    
    
    $
    10,805
    
    
    
    
    
    
    $
    5,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    16,1972007
    
    
    $
    15,420
    
    
    
    
    
    
    $
    15,519
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    30,9392006
    
    
    $
    7,362
    
    
    
    
    
    
    $
    11,879
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,241
 
 (a)
    
    Pursuant to Mr. McMullens employment agreement he is entitled to receive $32,500 in
perquisites. Mr. McMullen has generally used these perquisites for auto allowances, medical
expenses and financial planning costs.(5)
    
    Compensation which was paid or received in Canadian dollars has been converted to U.S.
dollars based upon the annual exchange rate between the Canadian dollar and the U.S. dollar.(6)
    
    Effective February 2008, Ms. Boucher-Champagne, as a result of internal restructuring, was no
longer deemed an executive officer of the Company pursuant to Section 16 of the Exchange Act,
but her title and duties were not modified in any way. Grants of Plan-Based Awards
  All Other
    
    
    
    
    
    
    
    
    
    
    GrantStock
    
    
    All Other
    
    
    
    
    
    
    Date FairAwards:
    
    
    Option
    
    
    Exercise
    
    
    Value ofNumber
    
    
    Awards:
    
    
    or Base
    
    
    StockEstimated Future Payouts
    
    
    Estimated Future Payouts
    
    
    of Shares
    
    
    Number of
    
    
    Price of
    
    
    andUnder Non-Equity Incentive
    
    
    Under Equity Incentive
    
    
    of Stock
    
    
    Securities
    
    
    Option
    
    
    OptionGrant
    
    
    Plan Awards
    
    
    Plan Awards
    
    
    or Units
    
    
    Underlying
    
    
    Awards
    
    
    AwardsName
    
    Date
    
    
    Threshold
    
    
    Target
    
    
    Maximum
    
    
    Threshold
    
    
    Target
    
    
    Maximum
    
    
    (#)
    
    
    Options (#)
    
    
    (per share)
    
    
    (2)Jeffrey P. McMullen
    
    
    3/4/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,370
    
    
    
    16,696
    
    
    $
    29.47
    
    
    $
    493,3363/4/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,370
    
    
    
    (1
    )
    
    
    
    
    
    $
    246,664John P. Hamill
    
    
    3/4/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,426
    
    
    
    4,840
    
    
    $
    29.47
    
    
    $
    290,3563/4/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,426
    
    
    
    (1
    )
    
    
    
    
    
    $
    71,494Mark Di Ianni
    
    
    3/4/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,353
    
    
    
    4,693
    
    
    $
    29.47
    
    
    $
    138,6573/4/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,353
    
    
    
    (1
    )
    
    
    
    
    
    $
    69,343Thomas J. Newman
    
    
    3/4/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,017
    
    
    
    6,019
    
    
    $
    29.47
    
    
    $
    472,5493/4/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,017
    
    
    
    (1
    )
    
    
    
    
    
    $
    88,911Robin C. Sheldrick
    
    
    3/4/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,128
    
    
    
    1,253
    
    
    $
    29.47
    
    
    $
    110,6933/4/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    628
    
    
    
    (1
    )
    
    
    
    
    
    $
    18,507Johane
Boucher-Champagne(3)
    
    
    3/4/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    847
    
    
    
    1,689
    
    
    $
    29.47
    
    
    $
    49,9393/4/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    847
    
    
    
    (1
    )
    
    
    
    
    
    $
    24,961
 
 (1)
    
    The performance-based Restricted Stock Units vest upon the achievement of certain performance
milestones if the Company meets or exceeds certain cumulative earnings targets for 2007, 2008
and 2009.(2)
    
    Grant date fair value is calculated based upon the number of shares multiplied by the grant
date closing price and the number of options multiplied by the Black-Scholes value of $14.77
per share.(3)
    
    Effective February 2008, Ms. Boucher-Champagne, as a result of internal restructuring, was no
longer deemed an executive officer of the Company pursuant to Section 16 of the Exchange Act,
but her title and duties were not modified in any way.  67




---



##### Table of Contents



Outstanding Equity Awards at Year-End
  Option Awards
    
    
    Stock AwardsEquityEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity
    
    
    IncentiveIncentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Incentive
    
    
    Plan Awards:Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan Awards:
    
    
    Market orAwards:
    
    
    
    
    
    
    
    
    
    
    Number
    
    
    Market
    
    
    Number of
    
    
    Payout ValueNumber of
    
    
    Number of
    
    
    Number of
    
    
    
    
    
    
    
    
    
    
    of
    
    
    Value of
    
    
    Unearned
    
    
    of UnearnedSecurities
    
    
    Securities
    
    
    Securities
    
    
    
    
    
    
    
    
    
    
    Shares or
    
    
    Shares or
    
    
    Shares, Units
    
    
    Shares, UnitsUnderlying
    
    
    Underlying
    
    
    Underlying
    
    
    
    
    
    
    
    
    
    
    Units of
    
    
    Units of
    
    
    or Other
    
    
    or OtherUnexercised
    
    
    Unexercised
    
    
    Unexercised
    
    
    
    
    
    
    
    
    
    
    Stock That
    
    
    Stock That
    
    
    Rights That
    
    
    Rights ThatOptions
    
    
    Options
    
    
    Unearned
    
    
    Option
    
    
    Option
    
    
    Have Not
    
    
    Have Not
    
    
    Have Not
    
    
    Have Not(#)
    
    
    (#)
    
    
    Options
    
    
    Exercise
    
    
    Expiration
    
    
    Vested
    
    
    Vested
    
    
    Vested
    
    
    VestedName
    
    Exercisable
    
    
    Unexercisable
    
    
    (#)
    
    
    Price
    
    
    Date
    
    
    (#)
    
    
    (1)
    
    
    (#)
    
    
    (1)Jeffrey P. McMullen(6)
    
    
    103,800
    (2)
    
    
    
    
    
    
    
    
    
    $
    40.39
    
    
    
    12/22/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,593
    (2)
    
    
    
    
    
    
    
    
    
    $
    38.00
    
    
    
    5/17/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,385
    (2)
    
    
    10,770
    (3)
    
    
    
    
    
    $
    26.91
    
    
    
    8/3/2014
    
    
    
    6,888
    
    
    $
    6,268
    
    
    
    8,609
    (4)
    
    $
    7,834
    
    
    
    16,696
    (3)
    
    
    
    
    
    $
    29.47
    
    
    
    3/4/2015
    
    
    
    8,370
    
    
    $
    7,617
    
    
    
    8,370
    (4)
    
    $
    7,617John P. Hamill(6)
    
    
    895
    (2)
    
    
    
    
    
    
    
    
    
    $
    40.39
    
    
    
    12/22/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,571
    (2)
    
    
    
    
    
    
    
    
    
    $
    13.86
    
    
    
    12/19/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,500
    
    
    $
    3,185
    
    
    
    
    
    
    
    1,511
    (2)
    
    
    3,022
    (3)
    
    
    
    
    
    $
    26.91
    
    
    
    8/3/2014
    
    
    
    1,932
    
    
    $
    1,758
    
    
    
    2,415
    (4)
    
    $
    2,1984,840
    (3)
    
    
    
    
    
    $
    29.47
    
    
    
    3/4/2015
    
    
    
    7,426
    
    
    $
    6,758
    
    
    
    2,426
    (4)
    
    $
    2,208Mark Di Ianni
    
    
    1,550
    (2)
    
    
    3,099
    (3)
    
    
    
    
    
    $
    26.91
    
    
    
    8/3/2014
    
    
    
    1,982
    
    
    $
    1,804
    
    
    
    2,477
    (4)
    
    $
    2,254
    
    
    
    4,693
    (3)
    
    
    
    
    
    $
    29.47
    
    
    
    3/4/2015
    
    
    
    2,353
    
    
    $
    2,141
    
    
    
    2,353
    (4)
    
    $
    2,141Thomas J. Newman
    
    
    14,305
    (2)
    
    
    
    
    
    
    
    
    
    $
    40.39
    
    
    
    12/22/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,571
    (2)
    
    
    
    
    
    
    
    
    
    $
    13.86
    
    
    
    12/19/2010
    
    
    
    1,667
    
    
    $
    1,517
    
    
    
    
    
    
    
    10,000
    (2)
    
    
    
    
    
    
    
    
    
    $
    15.82
    
    
    
    12/22/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,914
    (2)
    
    
    3,828
    (3)
    
    
    
    
    
    $
    26.91
    
    
    
    8/3/2014
    
    
    
    2,448
    
    
    $
    2,228
    
    
    
    3,060
    (4)
    
    $
    2,785
    
    
    
    6,019
    (3)
    
    
    
    
    
    $
    29.47
    
    
    
    3/4/2015
    
    
    
    13,017
    
    
    $
    11,845
    
    
    
    3,017
    (4)
    
    $
    2,745Robin C. Sheldrick
    
    
    2,626
    (2)
    
    
    
    
    
    
    
    
    
    $
    40.39
    
    
    
    12/22/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,571
    (2)
    
    
    
    
    
    
    
    
    
    $
    13.86
    
    
    
    12/19/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    406
    (2)
    
    
    812
    (3)
    
    
    
    
    
    $
    26.91
    
    
    
    8/3/2014
    
    
    
    520
    
    
    $
    473
    
    
    
    649
    (4)
    
    $
    591
    
    
    
    1,253
    (3)
    
    
    
    
    
    $
    29.47
    
    
    
    3/4/2015
    
    
    
    3,128
    
    
    $
    2,846
    
    
    
    628
    (4)
    
    $
    571Johane
Boucher-Champagne(5)
    
    
    30,000
    (2)
    
    
    
    
    
    
    
    
    
    $
    15.93
    
    
    
    3/13/2012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,500
    (2)
    
    
    
    
    
    
    
    
    
    $
    13.86
    
    
    
    12/19/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    543
    (2)
    
    
    1,084
    
    
    
    
    
    
    $
    26.91
    
    
    
    8/3/2014
    
    
    
    694
    
    
    $
    632
    
    
    
    867
    (4)
    
    $
    7891,689
    (3)
    
    
    
    
    
    $
    29.47
    
    
    
    3/4/2015
    
    
    
    847
    
    
    $
    771
    
    
    
    847
    (4)
    
    $
    771
 
 (1)
    
    The amounts in this column are calculated by multiplying the number of shares in the previous
column by the closing price on December 31, 2008, of $0.91.(2)
    
    Such options are fully vested.(3)
    
    Such options vest in 1/3 increments on each anniversary from the date
of grant.(4)
    
    Such amounts consist of performance-based Restricted Stock Units which vest if the Company
meets or exceeds certain cumulative earnings targets for 2007, 2008 and 2009.(5)
    
    Effective February 2008, Ms. Boucher-Champagne, as a result of internal restructuring, was no
longer deemed an executive officer of the Company pursuant to Section 16 of the Exchange Act,
but her title and duties were not modified in any way.(6)
    
    Such amounts do not include 60,000 Restricted Stock Units for Mr. McMullen and 25,000
Restricted Stock Units for Mr. Hamill which were to vest only if PDGI met or exceeded the
non-GAAP earnings per share target for 2008. These Restricted Stock Units were deemed canceled
as of February 25, 2009.  68




---



##### Table of Contents



Option Exercises and Stock Vested
  Option Awards
    
    
    Stock AwardsNumber of Shares
    
    
    
    
    
    
    Number of SharesAcquired on Exercise
    
    
    Value Realized
    
    
    Acquired on Vesting
    
    
    Value Realized onName
    
    (#)
    
    
    on Exercise
    
    
    (#)
    
    
    Vesting(1)Jeffrey P. McMullen
    
    
    
    
    
    
    
    
    
    
    22,541
    
    
    $
    214,444John P. Hamill
    
    
    
    
    
    
    
    
    
    
    14,149
    
    
    $
    125,426Mark Di Ianni
    
    
    
    
    
    
    
    
    
    
    5,495
    
    
    $
    53,436Thomas J. Newman
    
    
    
    
    
    
    
    
    
    
    12,277
    
    
    $
    111,819Robin C. Sheldrick
    
    
    
    
    
    
    
    
    
    
    5,129
    
    
    $
    44,759Johane Boucher-Champagne(2)
    
    
    
    
    
    
    
    
    
    
    5,173
    
    
    $
    45,802
 
 (1)
    
    The amounts in this column were calculated by multiplying the number of shares by the closing
price on the date of vesting.(2)
    
    Effective February 2008, Ms. Boucher-Champagne, as a result of internal restructuring, was no
longer deemed an executive officer of the Company pursuant to Section 16 of the Exchange Act,
but her title and duties were not modified in any way. Executive Employment Agreements
         69




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##### Table of Contents



2008 Potential Payments upon Termination or Change of Control
  Jeffrey P.
    
    
    John P.
    
    
    Mark
    
    
    Thomas J.
    
    
    Robin C.
    
    
    Johane Boucher-McMullen(4)
    
    
    Hamill(5)
    
    
    Di Ianni(5)
    
    
    Newman(5)
    
    
    Sheldrick(5)
    
    
    Champagne(5)(6)$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Without Cause:Cash severance(1)
    
    
    2,229,936
    
    
    
    863,592
    
    
    
    838,250
    
    
    
    1,071,688
    
    
    
    559,614
    
    
    
    389,391Equity(2):Unvested Restricted
Stock Units
    
    
    29,336
    
    
    
    38,856
    
    
    
    8,340
    
    
    
    21,120
    
    
    
    4,482
    
    
    
    2,962Unvested stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Insurance benefits(3)
    
    
    
    
    
    
    47,311
    
    
    
    49,569
    
    
    
    36,593
    
    
    
    28,861
    
    
    
    Total
    
    
    2,259,272
    
    
    
    949,759
    
    
    
    896,159
    
    
    
    1,129,401
    
    
    
    592,957
    
    
    
    392,353Change in Control:Cash severance(1)
    
    
    
    
    
    
    863,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity(2):Unvested Restricted
Stock Units
    
    
    29,336
    
    
    
    38,856
    
    
    
    8,340
    
    
    
    21,120
    
    
    
    4,482
    
    
    
    2,962Unvested stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Insurance benefits(3)
    
    
    
    
    
    
    47,311
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    29,336
    
    
    
    949,759
    
    
    
    8,340
    
    
    
    21,120
    
    
    
    4,482
    
    
    
    2,962
 
 (1)
    
    A multiple of current base salary in the amounts of three times for Mr. McMullen, two times
for Mr. Hamill, Mr. Di Ianni, Dr. Newman and Ms. Sheldrick and one time for
Ms. Boucher-Champagne.(2)
    
    All values reflected in the table assume a termination date of December 31, 2008, and, where
applicable, the closing price of our common stock on that day of $0.91. All amounts reflect
the incremental value to each of the named officers in the event of a termination and do not
include the value of any equity vested and earned equity prior to December 31, 2008. The
equity value for the unvested options reflects the intrinsic value (market price less exercise
price) of such options.(3)
    
    Represents coverage for 24 months.(4)
    
    If Mr. McMullen is a disqualified individual (as defined in Section 280G(c) of the Internal
Revenue Code of 1986, also referred to as the Code) and the benefits provided for in his
employment agreement, together with any other payments and benefits which he has the right to
receive, would constitute a parachute payment (as defined in Section 280G(b)(2) of the
Code), then the benefits provided under his employment agreement (beginning with any benefit
to be paid in cash hereunder) shall be reduced (but not below zero) so that the present value
of such total amounts and benefits received by him will be $1.00 less than three times his
base amount (as defined in Section 280G of the Code) and so that no portion of such amounts
and benefits received by him shall be subject to the excise tax imposed by Section 4999 of the
Code. Accordingly, it is possible that the amount of severance benefits may be reduced.(5)
    
    In the event that any payments or benefits to which the executive becomes entitled to in
accordance with the provisions of his employment agreement (or any other agreement with us or
one of our affiliates) would otherwise constitute a parachute payment under Code
Section 280G(b)(2), then such payments or benefits will be subject to reduction to the extent
necessary to assure that the executive receives only the greater of or either (i) the amount
of those payments which would not constitute such a parachute payment or (ii) the amount which
yields the executive the greatest after-tax amount of benefits after taking into account any
excise tax imposed under Code Section 4999 on the payments or benefits provided the executive
under his employment agreement (or on any other payments or benefits to which the executive
may become entitled in connection with any change in control or ownership of the Company or
the subsequent termination of his employment).(6)
    
    Effective February 2008, Ms. Boucher-Champagne, as a result of internal restructuring, was no
longer deemed an executive officer of the Company pursuant to Section 16 of the Exchange Act,
but her title and duties were not modified in any way.  70




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##### Table of Contents



Compensation of Directors
  Fees Earned orName
    
    Paid in Cash
    
    
    Stock Awards(1)
    
    
    TotalPeter G. Tombros
    
    $
    97,000
    
    
    $
    173,077
    
    
    $
    270,077Rolf A. Classon
    
    $
    41,000
    
    
    $
    136,218
    (2)
    
    $
    177,218Lewis R. Elias, M.D.
    
    $
    48,000
    
    
    $
    115,385
    
    
    $
    163,385Arnold Golieb
    
    $
    69,333
    
    
    $
    115,385
    (2)
    
    $
    184,718David M. Olivier
    
    $
    64,458
    
    
    $
    115,385
    
    
    $
    179,843Per Wold-Olsen
    
    $
    48,000
    
    
    $
    115,385
    
    
    $
    163,385
 
 (1)
    
    Represents the expense recognized in accordance with SFAS 123R for Restricted Stock Units
granted in 2007 and 2008. As of 12/31/2008 there are 24,875 Restricted Stock Units unvested
and outstanding. See the Companys notes to its consolidated financial statements for a
description of assumptions used in calculating the expense recognized.(2)
    
    Mr. Classon and Mr. Golieb have elected to defer receipt of the shares underlying their
respective Restricted Stock Units for tax planning purposes. Compensation for Services as a Non-Employee Director
    
    
    Audit Committee$15,000.
 
    
    Compensation Committee$7,500.
 
    
    Nominating and Corporate Governance Committee$5,000.
 
    
    Strategic Alternatives Committee$5,000.
 Compensation Committee Interlocks and Insider Participation
   71




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##### Table of Contents



Report of the Compensation Committee
  David M. Olivier, Chairman
Lewis R. Elias
Arnold Golieb
 
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 Security Ownership of Certain Beneficial Owners and Management
    Number of Shares
    
    
    Percentage of SharesName and Address of Beneficial Owner(1)
    
    Beneficially Owned
    
    
    Beneficially Owned(1)Jeffrey P. McMullen (2)
    
    
    143,651
    
    
    
    *Peter G. Tombros (3)
    
    
    21,377
    
    
    
    *Rolf A. Classon (4)
    
    
    16,502
    
    
    
    *Lewis R. Elias (5)
    
    
    20,424
    
    
    
    *Arnold Golieb (6)
    
    
    26,771
    
    
    
    *David M. Olivier (7)
    
    
    14,998
    
    
    
    *Per Wold-Olsen (8)
    
    
    19,998
    
    
    
    *John P. Hamill (9)
    
    
    45,396
    
    
    
    *Mark Di Ianni (10)
    
    
    19,315
    
    
    
    *Thomas J. Newman (11)
    
    
    54,463
    
    
    
    *Robin C. Sheldrick (12)
    
    
    16,612
    
    
    
    *Glazer Capital Inc (13)
    
    
    991,840
    
    
    
    5.0
    %Invesco Ltd (14)
    
    
    1,660,687
    
    
    
    8.3
    %Pzena Investment Management Group, LLC (15)
    
    
    1,632,886
    
    
    
    8.1
    %All officers and directors as a group
    
    
    399,507
    
    
    
    2.0
    %
 
 *
    
    Less than one percent.(1)
    
    Except where indicated, each of the persons listed above has the address c/o PharmaNet
Development Group, Inc., 504 Carnegie Center, Princeton, New Jersey 08540. Also, please note
that this table assumes that the Offer and Merger are consummated, that the options are out of
the money and that the Restricted Stock Units are accelerated.(2)
    
    This amount represents 126,672 shares of common stock and 16,979 unvested Restricted Stock
Units.(3)
    
    Includes 15,637 shares of common stock and 5,740 shares of unvested Restricted Stock Units.  72




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##### Table of Contents



(4)
    
    Mr. Classon has elected to defer receipt of the 12,675 shares underling his Restricted Stock
Units for tax planning purposes. Additionally Mr. Classon has 3,827 shares of unvested
Restricted Stock Units, which will also be deferred.(5)
    
    Includes 16,597 shares of common stock and 3,827 shares of unvested Restricted Stock Units.(6)
    
    Includes 17,139 shares of common stock and 5,805 Restricted Stock Units, which Mr. Golieb has
elected to defer the receipt of for tax planning purposes. Additionally Mr. Golieb has 3,827
shares of unvested Restricted Stock Units, which will also be deferred. Also includes 800
shares held by the Brody Children Irrevocable Trust of which Mr. Golieb is the trustee.(7)
    
    Includes 11,171 shares of common stock and 3,827 shares of unvested Restricted Stock Units.(8)
    
    Includes 16,171 shares of common stock and 3,827 shares of unvested Restricted Stock Units.(9)
    
    This amount represents 39,963 shares of common stock, 592 shares of common stock which were
purchased pursuant to the Employee Stock Purchase Plan prior to Mr. Hamills employment as an
executive officer and 4,841 unvested Restricted Stock Units.(10)
    
    This amount represents 14,485 shares of common stock and 4,830 unvested Restricted Stock
Units.(11)
    
    This amount represents 48,386 shares of common stock and 6,077 shares of unvested Restricted
Stock Units.(12)
    
    This amount represents 15,335 shares of common stock and 1,277 unvested Restricted Stock
Units.(13)
    
    Based on information from a Schedule 13G/A filed with the SEC on March 13, 2009. Their
address is 237 Park Ave, Suite 900 New York, New York 10022.(14)
    
    Based on information from a Schedule 13G/A filed with the SEC on February 12, 2009. Their
address is 1555 Peachtree Street NE, Atlanta, Georgia 30309.(15)
    
    Based on information from a Schedule 13G/A filed with the SEC on February 17, 2009. Their
address is 120 West 45th Street, 20th Floor New York, New York 10036.  Equity Compensation Plans
  Number ofSecurities to beIssued upon
    
    
    Weighted AverageExercise of
    
    
    Price of
    
    
    Number ofOutstanding
    
    
    Outstanding
    
    
    SecuritiesOptions,
    
    
    Options,
    
    
    RemainingWarrants and
    
    
    Warrants and
    
    
    Available forPlan Category
    
    Rights
    
    
    Rights
    
    
    Future Issuance1999 Stock Option Plan approved by security
holders(1)
    
    
    1,016,213
    
    
    $
    21.91
    
    
    
    2004 Employee Stock Purchase Plan approved
by security holders
    
    
    700,000
    
    
    $
    
    
    
    
    2008 Incentive Compensation Plan approved
by security holders
    
    
    34,767
    
    
    $
    1.87
    
    
    
    679,207Stock Option Agreements not approved by
security holders
    
    
    14,388
    
    
    $
    20.05
    
    
    
    
 
 (1)
    
    Shares may be issued upon the exercise of options or stock appreciation rights through direct
stock issuances or pursuant to restricted stock awards or Restricted Stock Units that vest
upon the attainment of prescribed performance milestones or the completion of designated
service periods.  73




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accountant Fees and Services.
 Fees Paid to Grant Thornton LLP
  2008
    
    
    2007Audit Fees
    
    $
    2,631,923
    
    
    $
    2,244,416Audit-Related Fees
    
    
    69,822
    
    
    
    71,708Tax Fees
    
    
    90,198
    
    
    
    232,535All Other Fees
    
    
    
    
    
    
    Total
    
    $
    2,791,943
    
    
    $
    2,548,659
  Report of the Audit Committee
   
    
    the integrity of PDGIs financial statements;
 
    
    the qualifications and independence of our independent registered public
accounting firm;
 
    
    the performance of our internal audit function and our independent registered
public accounting firm; and
 
    
    our compliance with legal and regulatory requirements.
   74




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##### Table of Contents




    
    fulfilled its oversight responsibilities by reviewing and discussing with
management the audited financial statements in the annual report on Form 10-K;
 
    
    met privately with Grant Thornton LLP and discussed matters required to be
discussed by Statement on Auditing Standards No. 61 with Grant Thornton LLP, who is
responsible for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, relating to its judgments as
to the quality, not
just the acceptability, of our accounting principles, and such other matters as are
required to be discussed with the Audit Committee under generally accepted auditing
standards;
 
    
    discussed with Grant Thornton LLP its independence from management and PDGI. The
Audit Committee has received the written disclosures and the letter from Grant Thornton
LLP, which is required by Independence Standards Board Standard No. 1, and considered
whether the provision of non-audit services was consistent with maintaining Grant
Thornton LLPs independence; and
 
    
    recommended to the Board of Directors, in reliance on the reviews and discussions
with management and Grant Thornton LLP, that the audited financial statements for the
year ended December 31, 2008, be included in the Annual Report on Form 10-K for filing
with the SEC.
 Arnold Golieb, Chairman
David M. Olivier
Per Wold-Olsen
  75




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 ExhibitNumber
    
    Description2.1
    
    
    Agreement and Plan of Merger, dated February 3, 2009, among JLL PharmaNet Holdings, LLC, PDGI Acquisition Corp.
and PharmaNet Development Group, Inc. filed as an exhibit to the Companys Form 8-K which was filed on February
3, 2009.3.1
    
    
    Certificate of Incorporation filed as an exhibit to the Companys Form SB-2 which was filed on August 17, 1999.3.2
    
    
    First Amendment to Certificate of Incorporation filed as an exhibit to the Companys Form SB-2 which was filed
on August 17, 1999.3.3
    
    
    Certificate of Correction to Certificate of Incorporation filed as an exhibit to the Companys Form SB-2 filed
on October 5, 2000.3.4
    
    
    Second Amendment to Certificate of Incorporation filed as an exhibit to the Companys Form 10-K which was filed
on March 22, 2007.3.5
    
    
    Certificate of Correction to Second Amendment to Certificate of Incorporation filed as an exhibit to the
Companys Form 10-Q which was filed on August 4, 2004.3.6
    
    
    Certificate of Designation for Series A Junior Participating Preferred Stock filed as an exhibit to the
Companys Form 8-A which was filed on December 28, 2005.3.7
    
    
    Third Amendment to Certificate of Incorporation filed as an exhibit to the Companys Form 10-K which was filed
on March 22, 2007.3.8
    
    
    Second Amended and Restated Bylaws filed as an exhibit to the Companys Form 10-Q which was filed on November
9, 2007.4.1
    
    
    Form of Common Stock Certificate filed as an exhibit to the Companys Form 10-K which was filed on March 22,
2007.4.2
    
    
    Indenture relating to 2.25% Convertible Senior Notes due 2024 filed as an exhibit to the Companys Form S-3
which was filed on November 2, 2004.4.3
    
    
    Form of 2.25% Convertible Senior Notes due 2024 filed as an exhibit to the Companys Form S-3 which was filed
on November 2, 2004.4.4
    
    
    Registration Rights Agreement relating to 2.25% Convertible Senior Notes due 2024 filed as an exhibit to the
Companys Form S-3 which was filed on November 2, 2004.10.1
    *
    
    Jeffrey P. McMullen Employment Agreement, as amended and restated filed as an exhibit to the Companys Form 8-K
which was filed on February 11, 2009.10.2
    *
    
    David Natan Employment Agreement filed as an exhibit to the Companys Form 10-K which was filed on March 22,
2007.10.3
    *
    
    Lisa Krinsky Severance Agreement filed as an exhibit to the Companys Form 10-K which was filed on March 31,
2006.10.4
    *
    
    Arnold Hantman Severance Agreement filed as an exhibit to the Companys Form 10-K which was filed on March 31,
2006.10.5
    *
    
    Marc LeBel Employment Agreement filed as an exhibit to the Companys Form 10-KSB which was filed on April 1,
2002.10.6
    *
    
    Marc LeBel Amendment to Employment Agreement filed as an exhibit to the Companys Form 10-Q which was filed on
August 9, 2005.10.7
    *
    
    Arnold Hantman Employment Agreement filed as an exhibit to the Companys Form 10-Q which was filed on August 9,
2005.10.8
    *
    
    Lisa Krinsky, M.D. Employment Agreement filed as an exhibit to the Companys Form 10-Q which was filed on
August 9, 2005.10.9
    
    
    Amended and Restated Credit Agreement filed as an exhibit to the Companys Form 10-Q which was filed on August
9, 2005.10.10
    
    
    First Amendment to the Amended and Restated Credit Agreement filed as an exhibit to the Companys Form 10-K
which was filed on March 31, 2006.10.11
    
    
    Second Amendment to the Amended and Restated Credit Agreement filed as an exhibit to the Companys Form 10-K
which was filed on March 31, 2006.10.12
    
    
    Amended and Restated Security Agreement filed as an exhibit to the Companys Form 10-Q which was filed on
August 9, 2005.10.13
    
    
    Shareholder Rights Agreement filed as an exhibit to the Companys Form 8-A which was filed on December 28, 2005.
  76




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##### Table of Contents



ExhibitNumber
    
    Description10.14
    *
    
    2004 Acquisition Stock Option Plan filed as an exhibit to the Companys Form 8-K which was filed on December
27, 2004.10.15
    *
    
    Form of Stock Option Agreement filed as an exhibit to the Companys Form 10-K which was filed on March 8, 2005.10.16
    *
    
    Amended and Restated Stock Option Agreement (Jeffrey P. McMullen) filed as an exhibit to the Companys Form
10-K which was filed on March 8, 2005.10.17
    *
    
    Arnold Golieb Restricted Stock Agreement filed as an exhibit to the Companys Form 10-K which was filed on
March 31, 2006.10.18
    *
    
    Jack Levine Restricted Stock Agreement filed as an exhibit to the Companys Form 10-K which was filed on March
31, 2006.10.19
    
    
    New Drug Services Amended Agreement filed as an exhibit to the Companys Form 10-K which was filed on March 31,
2006.10.20
    *
    
    Confidential Separation Agreement and General Release by and between the Company and Gregory B. Holmes filed as
an exhibit to the Companys Form 10-Q which was filed on August 14, 2006.10.21
    
    
    Third Waiver and Third Amendment to the Amended and Restated Credit Agreement filed as an exhibit to the
Companys Form 10-Q which was filed on August 14, 2006.10.22
    
    
    Fourth Waiver to the Amended and Restated Credit Agreement filed as an exhibit to the Companys Form 10-Q which
was filed on August 14, 2006.10.23
    *
    
    Thomas J. Newman, MD Employment Agreement, as amended and restated filed as an exhibit to the Companys Form
8-K which was filed on February 11, 2009.10.24
    
    
    Fifth Waiver to the Amended and Restated Credit Agreement filed as an exhibit to the Companys Form 10-Q which
was filed on November 9, 2006.10.25
    (1)
    
    Fourth Amendment to the Amended and Restated Credit Agreement filed as an exhibit to the Companys Form 10-Q
which was filed on November 9, 2006.10.26
    
    
    Lease and Lease Agreement by and between 504 Carnegie Associates Limited Partnership and PharmaNet, Inc dated
May 1999 filed as an exhibit to the Companys Form 10-Q which was filed on November 9, 2006.10.27
    
    
    Amendment to No. 1 Lease and Lease Agreement by and between 504 Carnegie Associates Limited Partnership and
PharmaNet, Inc. dated May 1999 filed as an exhibit to the Companys Form 10-Q which was filed on November 9,
2006.10.28
    
    
    Amendment No. 2 to Lease and Lease Agreement by and between 504 Carnegie Associates Limited Partnership and
PharmaNet, Inc. dated March 30, 2001 filed as an exhibit to the Companys Form 10-Q which was filed on November
9, 2006.10.29
    
    
    Amendment No. 3 to Lease and Lease Agreement by and between 504 Carnegie Associated Limited Partnership and
PharmaNet, Inc. dated October 1, 2004 filed as an exhibit to the Companys Form 10-Q which was filed on
November 9, 2006.10.30
    *
    
    Mark Di Ianni Employment Agreement, as amended and restated filed as an exhibit to the Companys Form 8-K which
was filed on February 11, 2009.10.31
    
    
    Form of Director Indemnification Agreement filed as an exhibit to the Companys Form 10-K which was filed on
March 22, 2007.10.32
    
    
    Form of Executive Officer Indemnification Agreement filed as an exhibit to the Companys Form 10-K which was
filed on March 22, 2007.10.33
    *
    
    Form of Director Restricted Stock Unit Agreement filed as an exhibit to the Companys Form 10-K which was filed
on March 22, 2007.10.34
    *
    
    Form of Employee Restricted Stock Unit Agreement filed as an exhibit to the Companys Form 10-K which was filed
on March 22, 2007.10.35
    *
    
    John P. Hamill Employment Agreement, as amended and restated filed as an exhibit to the Companys Form 8-K
which was filed on February 11, 2009.10.36
    
    
    Transaction Release and Discharge by and between Marc LeBel and Anapharm, Inc. filed as an exhibit to the
Companys Form 8-K which was filed on March 30, 2007.10.37
    
    
    Fifth Amendment to the Amended and Restated Credit Agreement filed as an exhibit to the Companys Form 10-Q
which was filed on August 9, 2007.10.38
    
    
    Severance Agreement and General Release by and between the Company and David Natan filed as an exhibit to the
Companys Form 10-K which was filed on March 31, 2008.10.39
    
    
    Robin Sheldrick Employment Agreement, as amended and restated filed as an exhibit to the Companys Form 8-K
which was filed on February 11, 2009.10.40
    *
    
    Amended and Restated 1999 Stock Plan filed as an exhibit to the Companys Form 10-K which was filed on March
31, 2008.10.41
    
    
    Code of Ethics filed as an exhibit to the Companys Form 10-K which was filed on March 31, 2008.10.42
    
    
    Form of Equity Agreements (August 2007) filed as an exhibit to the Companys Form 10-K which was filed on March
31, 2008.10.43
    *
    
    2004 Employee Stock Purchase Plan, as amended and restated, filed as an exhibit to the Companys Form 10-Q
which was filed on August 6, 2008.
  77




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##### Table of Contents



ExhibitNumber
    
    Description10.44
    *
    
    2008 International Employee Stock Purchase Plan filed as an exhibit to the Companys Form 10-Q which was filed
on August 6, 2008.10.45
    *
    
    2008 Incentive Compensation Plan filed as an exhibit to the Companys Form 10-Q which was filed on August 6,
2008.10.46
    
    
    Sixth Amendment to the Amended and Restated Credit Agreement filed as an exhibit to the Companys Form 10-K
which was filed on March 31, 2008.10.47
    (1)
    
    Seventh Amendment to the Amended and Restated Credit Agreement filed as an exhibit to the Companys Form 10-Q
which was filed on August 6, 2008.10.48
    
    
    Amendment No. 1 to Rights Agreement, dated as of February 3, 2009, between PharmaNet Development Group, Inc.
and American Stock Transfer & Trust Company (as successor-in-interest to Wachovia Bank, N.A.), as rights agent
filed as an exhibit to the Companys Form 8-K which was filed on February 3, 2009.21
    
    
    Subsidiaries of PharmaNet Development Group, Inc. (filed herewith).23.1
    
    
    Consent of Grant Thornton LLP dated March 23, 2009 (filed herewith).31.1
    
    
    Certification of Chief Executive Officer (Section 302) (filed herewith).31.2
    
    
    Certification of Chief Financial Officer (Section 302) (filed herewith).32.1
    
    
    Certification of Chief Executive Officer (Section 1350) (furnished herewith).32.2
    
    
    Certification of Chief Financial Officer (Section 1350) (furnished herewith).
 
 *
    
    Compensation plan and arrangements for current and former executive officers and directors.(1)
    
    Portions of the exhibit have been omitted and have been filed separately pursuant to a
confidential treatment request that was granted by the SEC.  78




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##### Table of Contents



SIGNATURES
  PharmaNet Development Group, Inc.By:
    /s/ Jeffrey P. McMullenJeffrey P. McMullenPresident and Chief Executive Officer   /s/ Peter G. Tombros

Peter G. Tombros
    
    Chairman of the Board of Directors
    
    March 23, 2009/s/ Jeffrey P. McMullen

Jeffrey P. McMullen
    
    President and Chief Executive
Officer and Director (Principal
Executive Officer)
    
    March 23, 2009/s/ John P. Hamill

John P. Hamill
    
    Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
    
    March 23, 2009/s/ Rolf A. Classon

Rolf A. Classon
    
    Director
    
    March 23, 2009/s/ Lewis R. Elias, MD

Lewis R. Elias, MD
    
    Director
    
    March 23, 2009/s/ Arnold Golieb

Arnold Golieb
    
    Director
    
    March 23, 2009/s/ David M. Olivier

David M. Olivier
    
    Director
    
    March 23, 2009/s/ Per Wold-Olsen

Per Wold-Olsen
    
    Director
    
    March 23, 2009
  79




---



##### Table of Contents



CONTENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Financial Statements:Consolidated Balance Sheets
    
    
    F-3Consolidated Statements of Operations
    
    
    F-4Consolidated Statements of Cash Flows
    
    
    F-5Consolidated Statements of Stockholders Equity
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 
    Value Measurements Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement No. 109
  Internal Control  Integrated Framework
  
  F-2




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##### Table of Contents



PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2008 AND 2007
 2008
    
    
    2007(In thousands, except pershare data)ASSETSCurrent assetsCash and cash equivalents
    
    $
    63,812
    
    
    $
    77,548Investment in marketable securities
    
    
    
    
    
    
    2,650Accounts receivable, net
    
    
    125,357
    
    
    
    132,550Income taxes receivable
    
    
    4,391
    
    
    
    1,855Deferred income taxes
    
    
    201
    
    
    
    298Prepaid expenses
    
    
    9,537
    
    
    
    6,589Other current assets
    
    
    6,687
    
    
    
    5,274Assets from discontinued operations
    
    
    
    
    
    
    5,199Total current assets
    
    
    209,985
    
    
    
    231,963Property and equipment, net
    
    
    56,338
    
    
    
    67,506Goodwill
    
    
    29,960
    
    
    
    266,973Other intangible assets, net
    
    
    12,277
    
    
    
    26,442Deferred income taxes
    
    
    11,080
    
    
    
    14,111Other assets, net
    
    
    4,906
    
    
    
    7,840Total assets
    
    $
    324,546
    
    
    $
    614,835LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    9,070
    
    
    $
    13,843Accrued liabilities
    
    
    33,013
    
    
    
    47,978Client advances, current portion
    
    
    60,551
    
    
    
    79,312Income taxes payable
    
    
    2,656
    
    
    
    Capital lease obligations and notes payable, current portion
    
    
    2,589
    
    
    
    3,5622.25% Convertible senior notes payable, current portion
    
    
    143,750
    
    
    
    Deferred income taxes
    
    
    28
    
    
    
    31Other current liabilities
    
    
    
    
    
    
    154Liabilities from discontinued operations
    
    
    
    
    
    
    1,770Total current liabilities
    
    
    251,657
    
    
    
    146,650Client advances
    
    
    5,966
    
    
    
    2,602Deferred income taxes
    
    
    4,842
    
    
    
    8,518Capital lease obligations and notes payable
    
    
    2,868
    
    
    
    5,6342.25% Convertible senior notes payable
    
    
    
    
    
    
    143,750Other non-current liabilities
    
    
    17,246
    
    
    
    15,590Minority interest in joint venture
    
    
    1,580
    
    
    
    2,722Commitments and contingencies (Note G)Temporary
equity:Sale of unregistered common stock, subject to rescission
    
    
    1,092
    
    
    
    2,058Stockholders equity:Preferred stock, $0.10 par value, 5,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, $0.001 par value, 40,000 shares authorized, 19,585
shares and 19,017 shares issued and outstanding in 2008 and 2007,
respectively
    
    
    20
    
    
    
    19Additional paid-in capital
    
    
    259,019
    
    
    
    244,017Retained earnings (accumulated deficit)
    
    
    (228,477
    )
    
    
    22,616Accumulated other comprehensive income
    
    
    8,733
    
    
    
    20,659Total stockholders equity
    
    
    39,295
    
    
    
    287,311Total liabilities and stockholders equity
    
    $
    324,546
    
    
    $
    614,835
   F-3




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##### Table of Contents



PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 2008
    
    
    2007
    
    
    2006(In thousands, except per share data)Net revenue:Direct revenue
    
    $
    357,746
    
    
    $
    362,471
    
    
    $
    302,385Reimbursed out-of-pocket expenses
    
    
    93,707
    
    
    
    107,786
    
    
    
    104,571Total net revenue
    
    
    451,453
    
    
    
    470,257
    
    
    
    406,956Costs and expenses:Direct costs
    
    
    231,488
    
    
    
    216,173
    
    
    
    182,679Reimbursable out-of-pocket expenses
    
    
    93,707
    
    
    
    107,786
    
    
    
    104,571Selling, general and administrative expenses
    
    
    121,884
    
    
    
    114,411
    
    
    
    98,827Impairment of goodwill and indefinite-lived assets
    
    
    248,503
    
    
    
    
    
    
    
    7,873Provision for settlement of litigation
    
    
    
    
    
    
    10,400
    
    
    
    Total costs and expenses
    
    
    695,582
    
    
    
    448,770
    
    
    
    393,950(Loss) earnings from continuing operations
    
    
    (244,129
    )
    
    
    21,487
    
    
    
    13,006Other income (expense):Interest income
    
    
    1,494
    
    
    
    2,128
    
    
    
    1,636Interest expense
    
    
    (6,069
    )
    
    
    (6,332
    )
    
    
    (8,115
    )Foreign currency exchange transaction loss, net
    
    
    (848
    )
    
    
    (2,138
    )
    
    
    (3,342
    )Other income
    
    
    277
    
    
    
    178
    
    
    
    Total other expense, net
    
    
    (5,146
    )
    
    
    (6,164
    )
    
    
    (9,821
    )(Loss) earnings from continuing operations before income taxes
    
    
    (249,275
    )
    
    
    15,323
    
    
    
    3,185Income tax expense (benefit)
    
    
    90
    
    
    
    2,340
    
    
    
    (3,558
    )(Loss) earnings from continuing operations before minority interest in joint venture
    
    
    (249,365
    )
    
    
    12,983
    
    
    
    6,743Minority interest in joint venture
    
    
    1,728
    
    
    
    905
    
    
    
    691Net (loss) earnings from continuing operations
    
    
    (251,093
    )
    
    
    12,078
    
    
    
    6,052Earnings (loss) from discontinued operations, net of tax
    
    
    
    
    
    
    838
    
    
    
    (42,077
    )Net (loss) earnings
    
    $
    (251,093
    )
    
    $
    12,916
    
    
    $
    (36,025
    )Basic (loss) earnings per share:Continuing operations
    
    $
    (12.96
    )
    
    $
    0.64
    
    
    $
    0.33Discontinued operations
    
    $
    
    
    
    $
    0.05
    
    
    $
    (2.31
    )Net (loss) earnings
    
    $
    (12.96
    )
    
    $
    0.69
    
    
    $
    (1.98
    )Diluted (loss) earnings per share:Continuing operations
    
    $
    (12.96
    )
    
    $
    0.63
    
    
    $
    0.33Discontinued operations
    
    $
    
    
    
    $
    0.05
    
    
    $
    (2.28
    )Net (loss) earnings
    
    $
    (12.96
    )
    
    $
    0.68
    
    
    $
    (1.95
    )Weighted average common shares outstanding:Basic
    
    
    19,380
    
    
    
    18,790
    
    
    
    18,221Diluted
    
    
    19,380
    
    
    
    19,048
    
    
    
    18,447
   F-4




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##### Table of Contents



PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 2008
    
    
    2007
    
    
    2006(In thousands)Cash flows from operating activities:Net (loss) earnings
    
    $
    (251,093
    )
    
    $
    12,916
    
    
    $
    (36,025
    )(Earnings) loss from discontinued operations
    
    
    
    
    
    
    (838
    )
    
    
    42,077Adjustments to reconcile net (loss) earnings to net cash (used in) provided by
operating activities:Depreciation and amortization
    
    
    17,461
    
    
    
    15,477
    
    
    
    14,415Amortization of deferred debt issuance costs
    
    
    1,732
    
    
    
    1,578
    
    
    
    2,827Impairment of goodwill and indefinite-lived assets
    
    
    248,503
    
    
    
    
    
    
    
    7,873Provision for settlement of litigation
    
    
    
    
    
    
    10,400
    
    
    
    Loss on disposal of property and equipment
    
    
    401
    
    
    
    381
    
    
    
    160Minority interest
    
    
    (1,115
    )
    
    
    905
    
    
    
    691Provision for doubtful accounts
    
    
    1,977
    
    
    
    587
    
    
    
    2,279Non cash compensation  reduction of note receivable
    
    
    
    
    
    
    
    
    
    
    200Share-based compensation expense
    
    
    6,095
    
    
    
    5,119
    
    
    
    4,275Changes in assets and liabilities:Accounts receivable
    
    
    3,358
    
    
    
    (15,927
    )
    
    
    (20,020
    )Income taxes receivable
    
    
    (1,676
    )
    
    
    (1,141
    )
    
    
    6,688Prepaid expenses and other current assets
    
    
    (6,148
    )
    
    
    (1,085
    )
    
    
    2,777Deferred income taxes
    
    
    (3,477
    )
    
    
    (2,453
    )
    
    
    (8,717
    )Other assets
    
    
    338
    
    
    
    (749
    )
    
    
    (734
    )Accounts payable
    
    
    (7,783
    )
    
    
    (3,555
    )
    
    
    3,240Accrued liabilities
    
    
    (9,627
    )
    
    
    9,986
    
    
    
    8,802Client advances
    
    
    (15,279
    )
    
    
    9,812
    
    
    
    (597
    )Income taxes payable
    
    
    2,628
    
    
    
    
    
    
    
    Other current liabilities
    
    
    (154
    )
    
    
    154
    
    
    
    Other non-current liabilities
    
    
    3,498
    
    
    
    2,963
    
    
    
    Total adjustments
    
    
    240,732
    
    
    
    32,452
    
    
    
    24,159Net cash (used in) provided by operating activities  continuing operations
    
    
    (10,361
    )
    
    
    44,530
    
    
    
    30,211Net cash (used in) provided by operating activities  discontinued operations
    
    
    
    
    
    
    (792
    )
    
    
    1,737Net cash (used in) provided by operating activities
    
    
    (10,361
    )
    
    
    43,738
    
    
    
    31,948Cash flows from investing activities:Purchase of property and equipment
    
    
    (6,775
    )
    
    
    (15,014
    )
    
    
    (13,529
    )Purchase of property and equipment related to sale-leaseback transaction
    
    
    
    
    
    
    
    
    
    
    (7,272
    )Proceeds from the disposal of property and equipment
    
    
    3
    
    
    
    28
    
    
    
    13Purchase of intangible assets
    
    
    (105
    )
    
    
    
    
    
    
    Additional purchase price consideration paid relating to acquisitions
    
    
    
    
    
    
    
    
    
    
    (2,000
    )Net change in investment in marketable securities
    
    
    2,650
    
    
    
    7,378
    
    
    
    (257
    )Net cash used in investing activities  continuing operations
    
    
    (4,227
    )
    
    
    (7,608
    )
    
    
    (23,045
    )Net cash provided by investing activities  discontinued operations
    
    
    
    
    
    
    1,182
    
    
    
    233Net cash used in investing activities
    
    
    (4,227
    )
    
    
    (6,426
    )
    
    
    (22,812
    )Cash flows from financing activities:Borrowings on line of credit
    
    
    
    
    
    
    10,000
    
    
    
    8,000Payments on line of credit
    
    
    
    
    
    
    (19,400
    )
    
    
    (15,600
    )Payments on capital lease obligations and notes payable
    
    
    (2,621
    )
    
    
    (4,063
    )
    
    
    (2,712
    )Proceeds from sale-leaseback transaction
    
    
    
    
    
    
    
    
    
    
    9,800Debt issuance costs attributable to financing instruments
    
    
    
    
    
    
    
    
    
    
    (421
    )Net proceeds from stock issued under option plans, ESPP and restricted stock awards
    
    
    2,849
    
    
    
    2,358
    
    
    
    5,238Proceeds from sale of unregistered common stock, subject to rescission
    
    
    1,092
    
    
    
    2,058
    
    
    
    Net cash provided by (used in) financing activities
    
    
    1,320
    
    
    
    (9,047
    )
    
    
    4,305Net effect of exchange rate changes on cash and cash equivalents
    
    
    (468
    )
    
    
    3,952
    
    
    
    1,222Net (decrease) increase in cash and cash equivalents
    
    
    (13,736
    )
    
    
    32,217
    
    
    
    14,663Cash and cash equivalents at beginning of year
    
    
    77,548
    
    
    
    45,331
    
    
    
    30,668Cash and cash equivalents at end of year
    
    $
    63,812
    
    
    $
    77,548
    
    
    $
    45,331
   F-5




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##### Table of Contents



PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 2008
    
    
    2007
    
    
    2006(In thousands)Supplemental disclosures:Interest paid
    
    $
    4,732
    
    
    $
    4,662
    
    
    $
    5,300Income taxes paid
    
    $
    3,886
    
    
    $
    8,842
    
    
    $
    4,165Income taxes recovered
    
    $
    936
    
    
    $
    954
    
    
    $
    9,478Supplemental disclosures of non-cash investing and finance activities:Fair market value of restricted stock units granted as long-term incentive compensation
    
    $
    6,776
    
    
    $
    4,354
    
    
    $
    9,326Capital lease obligations incurred
    
    $
    437
    
    
    $
    5,858
    
    
    $
    1,467Settlement of class action litigation through issuance of common stock
    
    $
    4,000
    
    
    $
    
    
    
    $
    Common stock issued in connection with acquisition of a business or additional consideration
    
    $
    
    
    
    $
    
    
    
    $
    500Note receivable relieved in lieu of bonus payment
    
    $
    
    
    
    $
    
    
    
    $
    200
   F-6




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##### Table of Contents



PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 Retained
    
    
    
    
    
    
    Accumulated
    
    
    CommonAdditional
    
    
    Earnings
    
    
    
    
    
    
    Other
    
    
    StockCommon Stock
    
    
    Paid-In
    
    
    (Accumulated
    
    
    Deferred
    
    
    Comprehensive
    
    
    Held inShares
    
    
    Par Value
    
    
    Capital
    
    
    Deficit)
    
    
    Compensation
    
    
    Income (Loss)
    
    
    Treasury
    
    
    Total(In thousands)Balances  December 31, 2005
    
    
    18,493
    
    
    
    18
    
    
    
    242,352
    
    
    
    48,661
    
    
    
    (531
    )
    
    
    4,224
    
    
    
    (12,444
    )
    
    
    282,280Cumulative effect adjustments under SAB No. 108
    
    
    
    
    
    
    
    
    
    
    (2,851
    )
    
    
    
    
    
    
    
    
    
    
    2,701
    
    
    
    
    
    
    
    (150
    )Balances at January 1, 2006, as adjusted
    
    
    18,493
    
    
    
    18
    
    
    
    239,501
    
    
    
    48,661
    
    
    
    (531
    )
    
    
    6,925
    
    
    
    (12,444
    )
    
    
    282,130Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,025
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,025
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,959
    
    
    
    
    
    
    
    1,959Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,066
    )Issuance of common stock with exercise of stock options
    
    
    322
    
    
    
    1
    
    
    
    3,663
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,664Issuance of common stock to ESPP
    
    
    176
    
    
    
    
    
    
    
    2,332
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,332Issuance of common stock as additional purchase
consideration for earn out
    
    
    34
    
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500Issuance of common stock related to vesting of
restricted stock units
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repurchase and retirement of common stock related to
vesting of restricted stock units
    
    
    (43
    )
    
    
    
    
    
    
    (757
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (757
    )Share-based compensation expense recognized on
restricted stock and restricted stock units
    
    
    
    
    
    
    
    
    
    
    3,168
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,168Share-based compensation expense recognized with
adoption of SFAS 123R
    
    
    
    
    
    
    
    
    
    
    1,108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,108Adjustment required with adoption of SFAS 123R
    
    
    
    
    
    
    
    
    
    
    (531
    )
    
    
    
    
    
    
    531
    
    
    
    
    
    
    
    
    
    
    
    Retirement of common stock held in treasury
    
    
    (606
    )
    
    
    
    
    
    
    (12,444
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,444
    
    
    
    Balances  December 31, 2006
    
    
    18,546
    
    
    
    19
    
    
    
    236,540
    
    
    
    12,636
    
    
    
    
    
    
    
    8,884
    
    
    
    
    
    
    
    258,079Cumulative effect adjustments under FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,936
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,936
    )Balances at January 1, 2007, as adjusted
    
    
    18,546
    
    
    
    19
    
    
    
    236,540
    
    
    
    9,700
    
    
    
    
    
    
    
    8,884
    
    
    
    
    
    
    
    255,143Comprehensive income (loss):Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,916
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,916Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,775
    
    
    
    
    
    
    
    11,775Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,691Issuance of common stock with exercise of stock
options and vesting of restricted stock units
    
    
    376
    
    
    
    
    
    
    
    3,734
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,734Repurchase and retirement of common stock related to
vesting of restricted stock units
    
    
    (39
    )
    
    
    
    
    
    
    (1,376
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,376
    )Issuance of common stock to ESPP, subject to rescission
    
    
    134
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation expense recognized on
restricted stock and restricted stock units
    
    
    
    
    
    
    
    
    
    
    4,262
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,262Share-based compensation expense recognized on ESPP
and stock options
    
    
    
    
    
    
    
    
    
    
    857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    857Balances  December 31, 2007
    
    
    19,017
    
    
    $
    19
    
    
    $
    244,017
    
    
    $
    22,616
    
    
    $
    
    
    
    $
    20,659
    
    
    $
    
    
    
    $
    287,311Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (251,093
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (251,093
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,547
    )
    
    
    
    
    
    
    (11,547
    )Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (379
    )
    
    
    
    
    
    
    (379
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (263,019
    )Issuance of common stock with exercise of stock
options and vesting of restricted stock units
    
    
    351
    
    
    
    1
    
    
    
    2,198
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,199Issuance of common stock to ESPP
    
    
    126
    
    
    
    
    
    
    
    1,129
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,129Reclassification from temporary equity due to
expiration of ESPP rescission rights
    
    
    
    
    
    
    
    
    
    
    2,058
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,058Repurchase and retirement of common stock related to
vesting of restricted stock units
    
    
    (45
    )
    
    
    
    
    
    
    (478
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (478
    )Issuance of common stock related to settlement of
securities class action litigation
    
    
    136
    
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000Share-based compensation expense recognized on
restricted stock units
    
    
    
    
    
    
    
    
    
    
    4,561
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,561Share-based compensation expense recognized on ESPP
and stock options
    
    
    
    
    
    
    
    
    
    
    1,534
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,534Balances  December 31, 2008
    
    
    19,585
    
    
    $
    20
    
    
    $
    259,019
    
    
    $
    (228,477
    )
    
    $
    
    
    
    $
    8,733
    
    
    $
    
    
    
    $
    39,295
   F-7




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##### Table of Contents



PHARMANET DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization
  Principles of Consolidation
  Use of Estimates
  Revenue and Cost Recognition
      F-8




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##### Table of Contents



Cash and Cash Equivalents
  Investment in Marketable Securities
    Accounts Receivable and Allowance for Doubtful Accounts
  2008
    
    
    2007(In thousands)Accounts receivable  billed
    
    $
    59,179
    
    
    $
    63,829Accounts receivable  unbilled
    
    
    68,002
    
    
    
    69,594Less: allowance for doubtful accounts
    
    
    (1,824
    )
    
    
    (873
    )Accounts receivable, net
    
    $
    125,357
    
    
    $
    132,550
  F-9




---



##### Table of Contents



2008
    
    
    2007
    
    
    2006(In thousands)Balance at beginning of year
    
    $
    873
    
    
    $
    922
    
    
    $
    202Provisions
    
    
    1,977
    
    
    
    587
    
    
    
    2,279Write-offs, net of recoveries
    
    
    (1,026
    )
    
    
    (636
    )
    
    
    (1,559
    )Balance at end of year
    
    $
    1,824
    
    
    $
    873
    
    
    $
    922
 Property and Equipment and Depreciation
   Automobiles
    
    5 yearsBuildings
    
    25 yearsFurniture and fixtures
    
    7 yearsMachinery, equipment and software
    
    3-10 yearsLeasehold improvements
    
    Shorter of remaining life of asset or
remaining term of the lease (average
3.25 years)
 Goodwill and Intangible Assets
     F-10




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##### Table of Contents



(in thousands)Balance as of December 31, 2006 and 2007
    
    $
    266,973Impairment of goodwill
    
    
    (237,013
    )Balance as of December 31, 2008
    
    $
    29,960Goodwill by segment:Late stage
    
    $
    15,709Early stage
    
    
    14,251Total
    
    $
    29,960
  (in thousands)Balance as of December 31, 2007
    
    $
    26,442Purchase of intangible assets
    
    
    105Amortization of intangible assets
    
    
    (2,780
    )Impairment of indefinite-lived assets
    
    
    (11,490
    )Balance as of December 31, 2008
    
    $
    12,277Intangible assets by segment:Late stage
    
    $
    11,621Early stage
    
    
    656Total
    
    $
    12,277
  F-11




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##### Table of Contents



WeightedAverage
    
    
    2008
    
    
    2007Amortization
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    GrossPeriod
    
    
    Carrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    Accumulated(Years)
    
    
    Amount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    Net(in thousands)Intangible assets
subject to
amortization:Internally
developed
software
    
    
    5.0
    
    
    $
    479
    
    
    $
    (411
    )
    
    $
    68
    
    
    $
    454
    
    
    $
    (312
    )
    
    $
    142Methodologies
    
    
    4.1
    
    
    
    927
    
    
    
    (768
    )
    
    
    159
    
    
    
    847
    
    
    
    (582
    )
    
    
    265Technology
    
    
    5.0
    
    
    
    3,859
    
    
    
    (3,107
    )
    
    
    752
    
    
    
    3,859
    
    
    
    (2,335
    )
    
    
    1,524Contracts and
customer
relationships
    
    
    6.5
    
    
    
    12,389
    
    
    
    (7,651
    )
    
    
    4,738
    
    
    
    12,389
    
    
    
    (5,928
    )
    
    
    6,461Total
    
    
    
    
    
    
    17,654
    
    
    
    (11,937
    )
    
    
    5,717
    
    
    
    17,549
    
    
    
    (9,157
    )
    
    
    8,392Intangible assets
not subject to
amortization:Trade name
    
    
    
    
    
    
    6,560
    
    
    
    
    
    
    
    6,560
    
    
    
    18,050
    
    
    
    
    
    
    
    18,050Total
    
    
    
    
    
    $
    24,214
    
    
    $
    (11,937
    )
    
    $
    12,277
    
    
    $
    35,599
    
    
    $
    (9,157
    )
    
    $
    26,442
  (in thousands)2009
    
    $
    2,6462010
    
    
    1,6272011
    
    
    1,4282012
    
    
    16Total
    
    $
    5,717
 Impairment of Long-Lived Assets
  Financial Instruments
   F-12




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##### Table of Contents



Derivative Financial Instruments
   Fair Value Measurements
    SignificantQuoted prices
    
    
    Significant other
    
    
    unobservableTotal Carrying
    
    
    in active markets
    
    
    observable inputs
    
    
    inputsValue
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)2008Foreign currency
forward, option and
swap contracts
    
    $
    16
    
    
    $
    16
    
    
    $
    
    
    
    $
    
  Comprehensive Income (Loss)
  2008
    
    
    2007(in thousands)Foreign currency translation adjustments
    
    $
    9,112
    
    
    $
    20,659Pension liability
    
    
    (379
    )
    
    
    Total
    
    $
    8,733
    
    
    $
    20,659
  F-13




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##### Table of Contents



Income Taxes
    Earnings (Loss) Per Share
  2008
    
    
    2007
    
    
    2006(In thousands, except per share data)Net (loss) earnings from continuing operations
    
    $
    (251,093
    )
    
    $
    12,078
    
    
    $
    6,052Average shares of common stock outstanding for basic earnings (loss) per share
    
    
    19,380
    
    
    
    18,790
    
    
    
    18,221Contingently issuable shares related to:Stock options
    
    
    
    
    
    
    193
    
    
    
    212Restricted stock units
    
    
    
    
    
    
    65
    
    
    
    14Total
    
    
    
    
    
    
    258
    
    
    
    226Average shares of common stock for dilutive earnings (loss) per share
    
    
    19,380
    
    
    
    19,048
    
    
    
    18,447(Loss) earnings per share from continuing operations:Basic
    
    $
    (12.96
    )
    
    $
    0.64
    
    
    $
    0.33Dilutive
    
    $
    (12.96
    )
    
    $
    0.63
    
    
    $
    0.33
  Share-Based Compensation
   F-14




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##### Table of Contents



Advertising Expenses
  Foreign Currency Translation
  Reclassifications
  Staff Accounting Bulletin No. 108
     F-15




---



##### Table of Contents



New Accounting Pronouncements
       F-16




---



##### Table of Contents



NOTE B  MAJOR CUSTOMERS
   NOTE C  RELATED PARTY TRANSACTIONS
    2006(in thousands)Salaries and benefits
    
    $
    58Contract labor
    
    
    Total
    
    $
    58
   F-17




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##### Table of Contents



NOTE D  PROPERTY AND EQUIPMENT
  2008
    
    
    2007(In thousands)Automobiles
    
    $
    1,093
    
    
    $
    770Land and buildings
    
    
    6,348
    
    
    
    2,247Furniture and fixtures
    
    
    11,883
    
    
    
    13,865Leasehold improvements
    
    
    22,142
    
    
    
    28,074Machinery and equipment
    
    
    47,263
    
    
    
    51,654Computer hardware and software
    
    
    20,200
    
    
    
    23,222Total
    
    
    108,929
    
    
    
    119,832Less: accumulated depreciation
    
    
    (52,591
    )
    
    
    (52,326
    )Total
    
    $
    56,338
    
    
    $
    67,506
  2008
    
    
    2007
    
    
    2006(In thousands)Charged to direct costs
    
    $
    5,273
    
    
    $
    4,053
    
    
    $
    3,511Charged to selling, general and administrative expenses
    
    
    9,408
    
    
    
    8,669
    
    
    
    7,913Total
    
    $
    14,681
    
    
    $
    12,722
    
    
    $
    11,424
 NOTE E  ACCRUED LIABILITIES
  2008
    
    
    2007(In thousands)Salaries, bonuses and benefits
    
    $
    15,064
    
    
    $
    22,841Out-of-pocket expenses and grants
    
    
    6,265
    
    
    
    3,894Professional fees
    
    
    1,888
    
    
    
    1,994Rebates
    
    
    1,746
    
    
    
    2,146Interest
    
    
    1,661
    
    
    
    1,783Severance
    
    
    802
    
    
    
    1,529Deferred rent, current portion
    
    
    580
    
    
    
    747Office closures
    
    
    570
    
    
    
    Payable to 401(k) plan
    
    
    246
    
    
    
    213Provision for settlement of litigation
    
    
    206
    
    
    
    9,785Value added tax
    
    
    127
    
    
    
    131Other
    
    
    3,858
    
    
    
    2,915Total
    
    $
    33,013
    
    
    $
    47,978
  F-18




---



##### Table of Contents



NOTE F  DEBT
 Credit Facility
    Convertible Senior Notes Payable
        F-19




---



##### Table of Contents



long-term
    
    
    a person or entity becomes, indirectly or directly, the beneficial owner of 50% or more
of the Companys common stock
    
    certain persons on the Board of Directors cease to constitute a majority of the
directors,
    
    the Company merges with another entity,
    
    the Company sells substantially all of its assets, or
    
    the Company is forced to liquidate its assets.
     F-20




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##### Table of Contents



% of Make-Whole
    
    
    $ Amount of Make-Stock Price**
    
    
    
    
    Premium
    
    
    Whole Premium
    
    
    Accrued Interest*
    
    
    Principal Amount
    
    
    Total(In thousands)$
    30.43
    
    
    
    
    
    0.0
    %
    
    $
    
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    146,984$
    35.00
    
    
    
    
    
    4.4
    %
    
    $
    6,325
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    153,309$
    40.00
    
    
    
    
    
    11.5
    %
    
    $
    16,531
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    163,515$
    45.00
    
    
    
    
    
    10.3
    %
    
    $
    14,806
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    161,790$
    50.00
    
    
    
    
    
    7.6
    %
    
    $
    10,925
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    157,909$
    55.00
    
    
    
    
    
    5.6
    %
    
    $
    8,050
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    155,034$
    60.00
    
    
    
    
    
    4.2
    %
    
    $
    6,038
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    153,022$
    65.00
    
    
    
    
    
    3.2
    %
    
    $
    4,600
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    151,584$
    70.00
    
    
    
    
    
    2.5
    %
    
    $
    3,594
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    150,578$
    75.00
    
    
    
    
    
    2.0
    %
    
    $
    2,875
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    149,859$
    80.00
    
    
    
    
    
    1.7
    %
    
    $
    2,444
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    149,428$
    85.00
    
    
    
    
    
    1.4
    %
    
    $
    2,013
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    148,997$
    90.00
    
    
    
    
    
    1.3
    %
    
    $
    1,869
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    148,853$
    95.00
    
    
    
    
    
    1.1
    %
    
    $
    1,581
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    148,565$
    100.00
    
    
    
    
    
    1.0
    %
    
    $
    1,438
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    148,422$
    105.00
    
    
    
    
    
    0.9
    %
    
    $
    1,294
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    148,278$
    110.00
    
    
    
    
    
    0.9
    %
    
    $
    1,294
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    148,278$
    115.00
    
    
    
    
    
    0.8
    %
    
    $
    1,150
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    148,134$
    120.00
    
    
    
    
    
    0.8
    %
    
    $
    1,150
    
    
    $
    3,234
    
    
    $
    143,750
    
    
    $
    148,134
 
 *
    
    Annual interest amount, one half of which would have been paid on February 15, 2008.**
    
    Based on the $5.00 per share tender offer from JLL, the make-whole premium will not
be paid. Notes Payable
  NOTE G  COMMITMENTS AND CONTINGENCIES
 Leases
  2008
    
    
    2007(In thousands)Automobiles
    
    $
    876
    
    
    $
    770Equipment
    
    
    23,389
    
    
    
    28,191Less: accumulated depreciation
    
    
    (12,761
    )
    
    
    (11,778
    )Total
    
    $
    11,504
    
    
    $
    17,183
  F-21




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##### Table of Contents



(In thousands)2009
    
    $
    2,4632010
    
    
    1,8172011
    
    
    1,2442012
    
    
    1752013
    
    
    11Thereafter
    
    
    Total
    
    
    5,710Less: amount representing interest
    
    
    (494
    )Present value of minimum lease payments
    
    
    5,216Less: current portion
    
    
    (2,348
    )Total
    
    $
    2,868
   (In thousands)2009
    
    $
    20,5252010
    
    
    19,0272011
    
    
    15,1752012
    
    
    11,5402013
    
    
    9,334Thereafter
    
    
    51,671Total
    
    $
    127,272
 Sale-Leaseback Transaction
     F-22




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##### Table of Contents



Investing Activities
    
    
    Financing Activities(In thousands)As previously reported
    
    $
    (13,323
    )
    
    $
    15,851Non-cash adjustment
    
    
    6,051
    
    
    
    (6,051
    )As adjusted
    
    $
    (7,272
    )
    
    $
    9,800
 Litigation and Inquiries
      F-23




---



##### Table of Contents



Indemnification
   F-24




---



##### Table of Contents



NOTE H  EQUITY
 Preferred Stock
  Shareholder Rights Plan
   Employee Stock Purchase Plan
    F-25




---



##### Table of Contents



Share-Based Compensation
    1999 Stock Option Plan
 2008 Incentive Compensation Plan
  Stock Options 
  F-26




---



##### Table of Contents



2008
    
    
    2007
    
    
    2006(4)Risk-free rate(1)
    
    
    2.4
    %
    
    
    4.9
    %
    
    
    Expected term(2)
    
    
    4.5 years
    
    
    
    4.5 years
    
    
    
    Expected volatility(3)
    
    
    60
    %
    
    
    60
    %
    
    
    
 
 (1)
    
    The risk-free rate is based upon the rate on a zero coupon U.S.
Treasury bill, for periods within the contractual life of the option,
in effect at the time of grant.(2)
    
    The Company has significantly changed the terms of the stock options
granted to employees over the years such that historical exercise data
is not available. As a result, the expected term of the option is
determined using the simplified method provided by Staff Accounting
Bulletin No. 107, the vesting terms and a contractual life of the
respective option.(3)
    
    Expected volatility is based on the daily historical volatility of the
Companys stock price, over a period equal to the expected life of the
option.(4)
    
    There were no awards granted during 2006.  Weighted-Weighted-
    
    
    AverageAverage
    
    
    RemainingNumber of
    
    
    Exercise
    
    
    ContractualOptions
    
    
    Price
    
    
    Life(In thousands)Outstanding at beginning of year
    
    
    914
    
    
    $
    27.29
    
    
    
    3.27Granted
    
    
    109
    
    
    $
    27.99Exercised
    
    
    (171
    )
    
    $
    12.80Forfeited and expired
    
    
    (127
    )
    
    $
    27.40Outstanding at end of year
    
    
    725
    
    
    $
    30.82
    
    
    
    2.58Exercisable at end of year
    
    
    573
    
    
    $
    31.69
    
    
    
    1.67
   Options Outstanding
    
    
    Options ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    Remaining
    
    
    AverageContractual
    
    
    Exercise
    
    
    Aggregate
    
    
    
    
    
    
    Contractual
    
    
    Exercise
    
    
    AggregateNumber
    
    
    Life (in
    
    
    Price Per
    
    
    Intrinsic
    
    
    Number
    
    
    Life (in
    
    
    Price Per
    
    
    IntrinsicRange of Exercise Prices
    
    Outstanding
    
    
    Years)
    
    
    Share
    
    
    Value
    
    
    Exercisable
    
    
    Years)
    
    
    Share
    
    
    Value(In thousands)
    
    
    
    
    
    
    
    
    
    
    (In thousands)
    
    
    (In thousands)
    
    
    
    
    
    
    
    
    
    
    (In thousands)$1.76  $5.27
    
    
    7
    
    
    
    5.57
    
    
    $
    2.52
    
    
    $
    
    
    
    
    2
    
    
    
    0.98
    
    
    $
    5.27
    
    
    $
    $5.28  $7.90
    
    
    10
    
    
    
    3.20
    
    
    $
    7.18
    
    
    
    
    
    
    
    10
    
    
    
    3.19
    
    
    $
    7.18
    
    
    
    $7.91  $15.93
    
    
    143
    
    
    
    2.35
    
    
    $
    14.28
    
    
    
    
    
    
    
    143
    
    
    
    2.35
    
    
    $
    14.28
    
    
    
    $15.94  $23.67
    
    
    21
    
    
    
    3.01
    
    
    $
    21.75
    
    
    
    
    
    
    
    19
    
    
    
    2.58
    
    
    $
    21.37
    
    
    
    $23.68  $38.63
    
    
    226
    
    
    
    4.81
    
    
    $
    30.55
    
    
    
    
    
    
    
    81
    
    
    
    2.80
    
    
    $
    34.14
    
    
    
    $40.39
    
    
    318
    
    
    
    0.98
    
    
    $
    40.39
    
    
    
    
    
    
    
    318
    
    
    
    0.98
    
    
    $
    40.39
    
    
    
    725
    
    
    
    2.58
    
    
    $
    30.82
    
    
    $
    
    
    
    
    573
    
    
    
    1.67
    
    
    $
    31.69
    
    
    $
    
   F-27




---



##### Table of Contents



2008
    
    
    2007
    
    
    2006(In thousands)Cash proceeds from stock options exercised
    
    $
    2,198
    
    
    $
    3,733
    
    
    $
    3,663Tax benefits realized for stock options exercised
    
    $
    
    
    
    $
    
    
    
    $
    
 Restricted Stock and Restricted Stock Units 
   Weighted-AverageRestricted Stock and
    
    
    Grant-DateRestricted Stock Units
    
    
    Fair Value(In thousands)Non-vested at beginning of year
    
    
    282
    
    
    $
    23.62Granted
    
    
    266
    
    
    $
    24.10Vested
    
    
    (180
    )
    
    $
    18.08Forfeited
    
    
    (42
    )
    
    $
    27.03Non-vested at end of year
    
    
    326
    
    
    $
    25.07
  Common Stock Repurchases
   F-28




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##### Table of Contents



NOTE I  EMPLOYEE BENEFITS
 Employment Agreements
    Defined Contribution Plans
    F-29




---



##### Table of Contents



NOTE J  INCOME TAXES
  2008
    
    
    2007
    
    
    2006(In thousands)United States
    
    $
    (247,419
    )
    
    $
    2,780
    
    
    $
    (24,269
    )Foreign
    
    
    (1,856
    )
    
    
    12,543
    
    
    
    27,454Total
    
    $
    (249,275
    )
    
    $
    15,323
    
    
    $
    3,185
  2008
    
    
    2007
    
    
    2006(In thousands)Current:Federal
    
    $
    431
    
    
    $
    (743
    )
    
    $
    210State
    
    
    443
    
    
    
    2,604
    
    
    
    152Foreign
    
    
    5,277
    
    
    
    2,618
    
    
    
    6,168Total
    
    
    6,151
    
    
    
    4,479
    
    
    
    6,530Deferred:Federal
    
    
    (4,021
    )
    
    
    1,180
    
    
    
    (5,971
    )State
    
    
    (612
    )
    
    
    1,119
    
    
    
    (286
    )Foreign
    
    
    (1,428
    )
    
    
    (4,438
    )
    
    
    (3,831
    )Total
    
    
    (6,061
    )
    
    
    (2,139
    )
    
    
    (10,088
    )Total
    
    $
    90
    
    
    $
    2,340
    
    
    $
    (3,558
    )
  2008
    
    
    2007
    
    
    2006Federal taxes at U.S. statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes, net of federal benefit
    
    
    0.08
    
    
    
    6.0
    
    
    
    (3.0
    )Permanent
differences, primarily impairment of goodwill and indefinite-lived
assets
    
    
    (29.99
    )
    
    
    28.7
    
    
    
    1.3Foreign rate differential
    
    
    0.36
    
    
    
    (10.7
    )
    
    
    (149.5
    )Cumulative effect of statutory rate change
    
    
    (0.14
    )
    
    
    (7.4
    )
    
    
    (35.7
    )Foreign research and development tax credits
    
    
    2.77
    
    
    
    (56.7
    )
    
    
    (32.1
    )Other foreign tax credits
    
    
    
    
    
    
    (6.1
    )
    
    
    Change in domestic valuation allowance
    
    
    (4.99
    )
    
    
    (17.3
    )
    
    
    73.3Change in foreign valuation allowance
    
    
    (2.14
    )
    
    
    43.9
    
    
    
    (1.0
    )Other, net
    
    
    (0.99
    )
    
    
    (0.2).
    
    
    
    Total
    
    
    (0.04
    )%
    
    
    15.2
    %
    
    
    (111.7
    )%
   F-30




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##### Table of Contents



2008
    
    
    2007(In thousands)Current deferred tax assets (liabilities):Accounts receivable
    
    $
    449
    
    
    $
    345Prepaid expenses
    
    
    (1,131
    )
    
    
    (530
    )Accrued expenses
    
    
    1,463
    
    
    
    5,571Other
    
    
    36
    
    
    
    101Less: domestic valuation allowance
    
    
    (644
    )
    
    
    (5,220
    )Total current deferred tax asset, net
    
    $
    173
    
    
    $
    267Non-current deferred tax assets (liabilities):Foreign research and development tax carryforwards
    
    $
    31,015
    
    
    $
    33,023Depreciation and amortization
    
    
    (1,917
    )
    
    
    (11,783
    )Intangible assets
    
    
    (2,703
    )
    
    
    (7,336
    )Net operating loss carryforwards
    
    
    19,010
    
    
    
    7,277Deferred compensation
    
    
    708
    
    
    
    2,769Deferred rent
    
    
    1,959
    
    
    
    1,825Client advances
    
    
    1,493
    
    
    
    1,550Capital lease obligations
    
    
    472
    
    
    
    1,424Foreign tax credits
    
    
    504
    
    
    
    1,292Alternative minimum tax
    
    
    1,117
    
    
    
    828Deferred revenue
    
    
    109
    
    
    
    (32
    )Other
    
    
    28
    
    
    
    295Less: valuation allowance:
    
    
    
    
    
    
    Domestic
    
    
    (25,511
    )
    
    
    (8,043
    )Foreign
    
    
    (20,046
    )
    
    
    (17,496
    )Total non-current deferred tax asset (liability),
net
    
    $
    6,238
    
    
    $
    5,593Total deferred tax asset (liability), net
    
    $
    6,411
    
    
    $
    5,860
  Carryforwards and Allowances
     F-31




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##### Table of Contents



Undistributed Foreign Earnings
  Tax Audits
  FIN 48
    2008
    
    
    2007(In thousands)Balance at beginning of
year
    
    $
    7,212
    
    
    $
    6,110Additions for tax positions related
to the current year
    
    
    1,420
    
    
    
    1,688Additions for tax positions from
prior years
    
    
    474
    
    
    
    416Reductions for tax positions from
prior years
    
    
    690
    
    
    
    (1,188
    )Statue of limitations
expiration
    
    
    
    
    
    
    (649
    )Currency translation
adjustment
    
    
    (1,652
    )
    
    
    835Balance at end of
year
    
    $
    8,144
    
    
    $
    7,212
  F-32




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##### Table of Contents



NOTE K  DISCONTINUED OPERATIONS
    2007
    
    
    2006(In thousands, except pershare data)Net revenue:Direct revenue
    
    $
    2,185
    
    
    $
    7,490Reimbursed out-of-pocket expenses
    
    
    19
    
    
    
    957Total net revenue
    
    
    2,204
    
    
    
    8,447Costs and expenses:Direct costs
    
    
    2,398
    
    
    
    8,762Reimbursable out-of-pocket expenses
    
    
    19
    
    
    
    957Selling, general and administrative
    
    
    (26
    )
    
    
    18,886Impairment of long-lived assets
    
    
    
    
    
    
    18,963Impairment of goodwill
    
    
    
    
    
    
    4,051Total costs and expenses
    
    
    2,391
    
    
    
    51,619Other income
    
    
    941
    
    
    
    14Earnings (loss) before income taxes
    
    
    754
    
    
    
    (43,158
    )Income tax expense (benefit)
    
    
    (84
    )
    
    
    (1,081
    )Earnings (loss) from discontinued operations
    
    $
    838
    
    
    $
    (42,077
    )Earnings (loss) per share from discontinued operations:Basic
    
    $
    0.05
    
    
    $
    (2.31
    )Diluted
    
    $
    0.05
    
    
    $
    (2.28
    )Weighted average common shares outstanding:Basic
    
    
    18,790
    
    
    
    18,221Diluted
    
    
    19,048
    
    
    
    18,447
  F-33




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##### Table of Contents



NOTE L  GEOGRAPHIC INFORMATION
  Direct revenue
 2008
    
    
    2007
    
    
    2006(In thousands)United States
    
    $
    141,302
    
    
    $
    166,087
    
    
    $
    136,047Canada
    
    
    128,668
    
    
    
    108,070
    
    
    
    85,697Europe
    
    
    85,703
    
    
    
    84,825
    
    
    
    78,616Other
    
    
    11,055
    
    
    
    9,879
    
    
    
    6,854Total
    
    
    366,728
    
    
    
    368,861
    
    
    
    307,214Less: intercompany eliminations
    
    
    (8,982
    )
    
    
    (6,390
    )
    
    
    (4,829
    )Total
    
    $
    357,746
    
    
    $
    362,471
    
    
    $
    302,385
 Property and equipment, net
 2008
    
    
    2007(In thousands)United States
    
    $
    23,013
    
    
    $
    21,157Canada
    
    
    23,173
    
    
    
    33,569Europe
    
    
    9,144
    
    
    
    11,760Other
    
    
    1,008
    
    
    
    1,020Total
    
    $
    56,338
    
    
    $
    67,506
   F-34




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##### Table of Contents



NOTE M  SEGMENT REPORTING
     CorporateEarly Stage
    
    
    Late Stage
    
    
    Allocations
    
    
    Total(In thousands)Direct revenue2008
    
    $
    154,298
    
    
    $
    203,448
    
    
    $
    
    
    
    $
    357,7462007
    
    $
    137,818
    
    
    $
    224,653
    
    
    $
    
    
    
    $
    362,4712006
    
    $
    103,274
    
    
    $
    199,111
    
    
    $
    
    
    
    $
    302,385(Loss) earnings from continuing operations2008
    
    $
    (466
    )
    
    $
    (219,139
    )
    
    $
    (24,524
    )
    
    $
    (244,129
    )2007
    
    $
    22,260
    
    
    $
    34,092
    
    
    $
    (34,865
    )
    
    $
    21,4872006
    
    $
    12,116
    
    
    $
    21,934
    
    
    $
    (21,044
    )
    
    $
    13,006(Loss) earnings from continuing operations before income taxes2008
    
    $
    (7,633
    )
    
    $
    (226,428
    )
    
    $
    (15,214
    )
    
    $
    (249,275
    )2007
    
    $
    6,675
    
    
    $
    29,219
    
    
    $
    (20,571
    )
    
    $
    15,3232006
    
    $
    12,467
    
    
    $
    20,213
    
    
    $
    (29,495
    )
    
    $
    3,185Total assets2008
    
    $
    113,184
    
    
    $
    202,941
    
    
    $
    8,421
    
    
    $
    324,5462007
    
    $
    152,625
    
    
    $
    436,102
    
    
    $
    20,909
    
    
    $
    609,636
  2008
    
    
    2007(In thousands)Total assets for reportable segments, including corporate allocations
    
    $
    324,546
    
    
    $
    609,636Assets from discontinued operations
    
    
    
    
    
    
    5,199Total
    
    $
    324,546
    
    
    $
    614,835
  F-35




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##### Table of Contents



NOTE N  SELECTED QUARTERLY FINANCIAL DATA (unaudited)
  March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(In thousands, except per share data)2008Direct revenue
    
    $
    86,800
    
    
    $
    96,764
    
    
    $
    89,218
    
    
    $
    84,964Gross profit(1)
    
    $
    25,907
    
    
    $
    35,265
    
    
    $
    32,650
    
    
    $
    32,436Net (loss) earnings from continuing operations
    
    $
    (10,099
    )
    
    $
    2,183
    
    
    $
    (209,100
    )
    
    $
    (34,077
    )Earnings (loss) from discontinued operations, net of tax
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net (loss) earnings
    
    $
    (10,099
    )
    
    $
    2,183
    
    
    $
    (209,100
    )
    
    $
    (34,077
    )Net (loss) earnings per share:Basic
    
    $
    (0.53
    )
    
    $
    0.11
    
    
    $
    (10.73
    )
    
    $
    (1.75
    )Diluted
    
    $
    (0.53
    )
    
    $
    0.11
    
    
    $
    (10.73
    )
    
    $
    (1.75
    )2007Direct revenue
    
    $
    84,781
    
    
    $
    85,595
    
    
    $
    99,810
    
    
    $
    92,285Gross profit(1)
    
    $
    34,303
    
    
    $
    32,894
    
    
    $
    42,736
    
    
    $
    36,365Net earnings (loss) from continuing operations
    
    $
    5,992
    
    
    $
    (4,602
    )
    
    $
    6,887
    
    
    $
    3,801Earnings (loss) from discontinued operations, net of tax
    
    $
    640
    
    
    $
    82
    
    
    $
    (93
    )
    
    $
    209Net earnings (loss)
    
    $
    6,632
    
    
    $
    (4,520
    )
    
    $
    6,794
    
    
    $
    4,010Net earnings (loss) per share:Basic
    
    $
    0.36
    
    
    $
    (0.24
    )
    
    $
    0.36
    
    
    $
    0.21Diluted
    
    $
    0.35
    
    
    $
    (0.24
    )
    
    $
    0.36
    
    
    $
    0.21
 
 (1)
    
    Direct revenue less direct costs. NOTE O  SUBSEQUENT EVENTS
     F-36




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##### Table of Contents



PHARMANET DEVELOPMENT GROUP, INC.
 Schedule II
 Valuation and Qualifying Accounts
 Balance at
    
    
    Charged
    
    
    
    
    
    
    Balance atBeginning
    
    
    to Costs
    
    
    
    
    
    
    End ofDescription
    
    of Period
    
    
    and Expenses
    
    
    Deductions
    
    
    Period(In thousands)Deferred tax valuation allowance  Domestic:2008
    
    $
    13,263
    
    
    
    14,757
    
    
    
    (1,865
    )
    
    $
    26,1552007
    
    $
    15,309
    
    
    
    
    
    
    
    (2,046
    )
    
    $
    13,2632006
    
    $
    
    
    
    
    15,309
    
    
    
    
    
    
    $
    15,309Deferred tax valuation allowance  Foreign:2008
    
    $
    17,496
    
    
    
    6,742
    
    
    
    (4,192
    )
    
    $
    20,0462007
    
    $
    11,617
    
    
    
    5,930
    
    
    
    (51
    )
    
    $
    17,4962006
    
    $
    5,161
    
    
    
    6,503
    
    
    
    (47
    )
    
    $
    11,617
  F-37




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description21
    
    
    Subsidiaries of PharmaNet Development Group, Inc. (filed herewith).23.1
    
    
    Consent of Grant Thornton LLP dated March 23, 2009 (filed herewith).31.1
    
    
    Certification of Chief Executive Officer (Section 302) (filed herewith).31.2
    
    
    Certification of Chief Financial Officer (Section 302) (filed herewith).32.1
    
    
    Certification of Chief Executive Officer (Section 1350) (furnished
herewith).32.2
    
    
    Certification of Chief Financial Officer (Section 1350) (furnished
herewith).