<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarter ended June 30, 1997
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from to
--------- ---------
Commission File No. 0-19892
IBAH, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1670189
-------- ----------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number)
Four Valley Square, 512 Township Line Road, Blue Bell, Pennsylvania 19422
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 283-0770
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The aggregate market value of the voting stock held by non-affiliates of
the Registrant on August 7, 1997 was $60,000,000. For purposes of making this
declaration only, the Registrant has defined affiliates as including all
directors.
The number of outstanding shares of the Registrant's Common Stock, par value
$.01 per share, on August 7, 1997 was 23,103,562
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
IBAH, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(unaudited)
<TABLE>
<CAPTION>
ASSETS December 31, June 30,
------ 1996 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $15,588,000 $ 7,200,000
Short-term investments 5,235,000 1,642,000
Accounts receivable, net 27,614,000 34,341,000
Prepaid expenses and other 868,000 1,246,000
------------ ------------
Total current assets 49,305,000 44,429,000
PROPERTY AND EQUIPMENT, net 7,799,000 8,812,000
GOODWILL, net 34,571,000 34,271,000
OTHER ASSETS 451,000 257,000
------------ ------------
$92,126,000 $87,769,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $1,376,000 $1,398,000
Accounts payable 3,497,000 2,574,000
Other accrued expenses 9,829,000 10,723,000
Payable to independent investigators 2,585,000 3,507,000
Deferred revenue 22,812,000 19,425,000
------------ ------------
Total current liabilities 40,099,000 37,627,000
------------ ------------
DEFERRED RENT 586,000 559,000
------------ ------------
LONG-TERM DEBT 1,885,000 1,487,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 2,000,000 shares authorized,
749,665 shares issued and outstanding as of
December 31, 1996 and June 30, 1997 7,000 7,000
Common stock, $.01 par value, 50,000,000 shares authorized,
22,023,846 shares issued and outstanding as of
December 31, 1996 and 23,098,010 shares issued and
outstanding as of June 30, 1997 220,000 231,000
Additional paid-in capital 73,889,000 75,274,000
Accumulated deficit (24,793,000) (27,367,000)
Cumulative translation adjustment 233,000 (49,000)
------------ ------------
Total stockholders' equity 49,556,000 48,096,000
------------ ------------
$92,126,000 $87,769,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
-2-
<PAGE>
IBAH, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1996 1997 1996 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
REVENUES $18,978,000 $29,358,000 $35,512,000 $57,938,000
Less- Reimbursed costs 5,019,000 8,370,000 8,933,000 17,633,000
------------ ------------ ------------ -----------
Net revenues 13,959,000 20,988,000 26,579,000 40,305,000
------------ ------------ ------------ -----------
OPERATING EXPENSES:
Direct 7,445,000 11,156,000 13,761,000 21,815,000
Selling, general and administrative 6,500,000 9,457,000 13,046,000 17,586,000
Restructuring costs - 1,078,000 - 1,078,000
------------ ------------ ------------ -----------
Total operating expenses 13,945,000 21,691,000 26,807,000 40,479,000
------------ ------------ ------------ -----------
Operating income (loss) 14,000 (703,000) (228,000) (174,000)
MERGER COSTS - (176,000) - (176,000)
INTEREST INCOME, net of
interest expense 138,000 141,000 138,000 293,000
------------ ------------ ------------ -----------
Income (loss) from continuing
operations before income taxes 152,000 (738,000) (90,000) (57,000)
INCOME TAXES - 256,000 - 492,000
------------ ------------ ------------ -----------
Income (loss) from continuing
operations 152,000 (994,000) (90,000) (549,000)
LOSS FROM DISCONTINUED OPERATIONS,
including loss on disposal
of $1,547,000 - (1,854,000) - (2,154,000)
------------ ------------ ------------ -----------
NET INCOME (LOSS) $ 152,000 $ (2,848,000) $ (90,000) $(2,703,000)
============ ============ ============ ===========
NET INCOME (LOSS) PER SHARE--
CONTINUING OPERATIONS $ 0.01 $ (0.04) $ (0.01) $ (0.02)
DISCONTINUED OPERATIONS - (0.08) - (0.10)
------------ ------------ ------------ -----------
NET INCOME (LOSS) PER COMMON
SHARE $ 0.01 $ (0.12) $ (0.01) $ (0.12)
============ ============ ============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 24,801,000 22,875,000 16,288,000 22,665,000
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
IBAH, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (90,000) $(2,703,000)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 1,126,000 2,114,000
Deferred rent (47,000) (27,000)
Discontinued operations - 2,154,000
Changes in assets and liabilities-
(Increase) decrease in-
Accounts receivable 1,815,000 (7,477,000)
Prepaid expenses and other (68,000) (335,000)
Increase (decrease) in-
Accounts payable and accrued expenses (1,505,000) (1,521,000)
Payables to independent investigators (52,000) 964,000
Deferred revenue (3,032,000) (2,447,000)
----------- -----------
Net cash used in operating activities (1,853,000) (9,278,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption (Purchases) of short-term investments (28,000) 3,593,000
Purchases of property and equipment (1,157,000) (2,376,000)
Net cash paid in business acquisitions - (209,000)
Net investing activity of discontinued operations - (146,000)
Other 36,000 (295,000)
----------- -----------
Net cash provided by (used) in investing
activities (1,149,000) 567,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net of expenses 18,261,000 1,195,000
Proceeds from issuance of debt, net of expenses 27,000 -
Payments on long-term debt (669,000) (468,000)
----------- -----------
Net cash provided by financing activities 17,619,000 727,000
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (160,000) (404,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,457,000 (8,388,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,564,000 15,588,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $22,021,000 $ 7,200,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 157,000 $ 132,000
=========== ===========
Equipment acquired under capital lease obligations $ - $ 129,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
IBAH, INC. AND SUBSIDIARIES
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION:
---------------------
There have been no material changes in accounting policies from those
stated in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. The statements for the periods ended June 30, 1996 and 1997
are unaudited. However, in the opinion of the Company, the statements reflect
all adjustments of a normal and recurring nature necessary for a fair
presentation for such periods. Results of operations for the three month periods
are not necessarily indicative of the results to be expected for any other
interim period or for the year.
NOTE 2. PRINCIPLES OF CONSOLIDATION:
---------------------------
The consolidated financial statements include the accounts of IBAH, Inc.
and its subsidiaries. All material intercompany balances and transactions have
been eliminated.
NOTE 3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
-------------------------------------------------
Cash and cash equivalents include highly liquid investments which have
original remaining maturities of less than ninety days. At June 30, 1997 and
December 31, 1996, all of the Company's short-term investments are classified as
available for sale. Therefore, any unrealized gains or losses should be
presented in a separate component of stockholders' equity. At both June 30, 1997
and December 31, 1996 there were no significant unrealized gains or losses.
Investments are held at market value and at June 30, 1997 and December 31,
1996 were classified as short-term. Cash, cash equivalents and investments,
consisted of the following:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
----------------------- ------------------
CASH AND CASH EQUIVALENTS:
<S> <C> <C>
Money market funds and demand accounts $ 5,447,000 $5,577,000
U.S. government securities 6,313,000 347,000
Repurchase agreement 2,092,000 980,000
Commercial paper 1,736,000 296,000
----------- ----------
15,588,000 7,200,000
----------- ----------
INVESTMENTS:
U.S. government securities 3,497,000 1,392,000
Bank Certificate of Deposit _ 250,000
Commercial paper 1,738,000 -
----------- ----------
5,235,000 1,642,000
----------- ----------
$20,823,000 $8,842,000
=========== ==========
</TABLE>
-5-
<PAGE>
NOTE 4. ACCOUNTS RECEIVABLE:
--------------------
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------------- --------------
Trade:
<S> <C> <C>
Billed $17,548,000 $22,345,000
Unbilled 10,590,000 12,551,000
Allowance for doubtful accounts (524,000) (555,000)
-------------- --------------
$27,614,000 $34,341,000
============== ==============
</TABLE>
NOTE 5. EARNINGS PER SHARE ("EPS"):
---------------------------
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share," which supersedes Accounting Principles Board Opinion No. 15 ("APB
15"), "Earnings per Share," was issued February, 1997. SFAS 128 requires dual
presentation of basic and diluted EPS for complex capital structures on the face
of the income statement. Basic EPS is computed by dividing income by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution from the exercise or conversion of securities
into common stock, such as stock options. SFAS 128 is required to be adopted for
year-end 1997; earlier application is not permitted. For the six months ended
June 30, 1997 and 1996, and for the three months then ended, the basic and
diluted EPS measured under SFAS 128 is not materially different from primary and
fully-diluted EPS calculated under APB 15.
For the six and three months ended June 30, 1997 and the six months ended
June 30, 1996, common stock equivalents are antidilutive and have not been
considered in the net loss per share computations. For the three months ended
June 30, 1996, shares used in calculating earnings per share include dilutive,
common stock equivalents--options, warrants and convertible preferred stock.
NOTE 6. MERGER WITH PHARMACO PTY., LTD. ("PPL"):
-----------------------------------------
On May 5, 1997, the Company acquired all of the outstanding shares of stock
of PPL in exchange for 575,000 shares of the Company's common stock. PPL is a
provider of clinical trial, regulatory, data management and health economics
services in Australia and New Zealand. PPL has been integrated with the
Company's existing Australian operations. This merger was accounted for as a
pooling of interests. Upon final analysis, it has been determined that this
transaction is not material to the Company's financial results taken as a whole,
and as such, prior period financial statements have not been retroactively
restated in conformity with Accounting Principles Board Opinion No. 16,
"Business Combinations." The results of operations of PPL have been included in
the consolidated operating results from the effective date of the merger. The
$176,000 of costs associated with this merger have been charged to earnings as a
separate component of continuing operations.
NOTE 7. BANK LOANS:
-----------
The Company is currently renegotiating its banking relationship. The
Company anticipates adding a $7,000,000 term loan facility as well as renewing
the existing $5,000,000 credit facility. As of June 30, 1997, the balance
outstanding under the existing credit arrangement was $1,250,000. The Company
anticipates using the additional term loan facility to finance new leasehold
improvements and new capital equipment for the Pharmaceutics Division and to
enhance the Company's information systems infrastructure.
-6-
<PAGE>
NOTE 8. DISCONTINUED OPERATIONS:
------------------------
On June 21, 1997, the Company closed the software commercialization
business unit of Resources Biometrics, Inc. ("RBI"), a wholly-owned subsidiary
of the Company. Accordingly, all operating results have been reclassified from
continuing operations to discontinued operations. This unit recorded a net loss
of $307,000 for the three months ended June 30, 1997 and a net loss of $607,000
for the six months ended June 30, 1997. In addition, a loss on the disposal of
this unit of $1,547,000 has been recorded in the three months ended June 30,
1997. At the time of the acquisition of RBI, approximately 25% of the purchase
price was allocated to the software commercialization business unit. The
majority of the purchase price allocation was to the service portion of this
business, which has given the Company a viable and active CRO presence on the
West Coast. The loss on disposal is comprised mainly of severance, software
asset write-offs, contract completion costs and future rent related to abandoned
office space. The remaining liabilities related to the loss on disposal at June
30, 1997 are $894,000 and are included in "Other accrued expenses" on the
consolidated balance sheet.
NOTE 9. RESTRUCTURING CHARGES:
----------------------
In June, 1997, the Company implemented a restructuring plan for the
International CRO. The Company has recorded a one-time restructuring charge of
$1,078,000, consisting primarily of termination benefits for fourteen employees
and an accrual for lease-related charges. As of June 30, 1997, seven employees
have been terminated and an immaterial amount of termination benefits has been
paid.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
Three months ended June 30, 1997 versus the three months ended June 30, 1996
IBAH, Inc.
Consolidated Statement of Operations
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
-------------------------------------------------------
1997 (1)
1996 1997 (As Restated)
-------------- ------------- ------------------
<S> <C> <C> <C>
Revenues $18,978 $29,358 $ 29,358
Less-Reimbursed costs 5,019 8,370 8,370
-------------- ------------- ------------------
Net revenues 13,959 20,988 20,988
Operating expenses:
Direct 7,445 11,156 11,156
Selling, general and administrative 6,500 9,457 9,457
Restructuring costs - 1,078 -
-------------- ------------- ------------------
Operating income (loss) 14 (703) 375
Merger costs - (176) -
Interest income (expense), net 138 141 141
-------------- ------------- ------------------
Income (loss) from continuing operations before taxes 152 (738) 516
Income taxes - 256 256
-------------- ------------- ------------------
Income (loss) from continuing operations 152 (994) 260
Loss from discontinued operations - (1,854) -
-------------- ------------- ------------------
Net income (loss) $ 152 $(2,848) $ 260
============== ============= ==================
</TABLE>
(1) Restated to exclude one-time charges for the cost to restructure the
operations of the International CRO, for costs related to the PPL merger
and for the disposal of the RBI software commercialization business unit.
Revenues
- --------
Revenues for the three months ended June 30, 1997 were $29,358,000, an
increase of 54.7% over the same period in 1996. Approximately half of the
increase was due to organic growth in all business segments, with the remainder
principally due to The Hardardt Group ("THG") acquisition on October 1, 1996.
Reimbursed costs
- ----------------
Reimbursed costs were $8,370,000 for the first quarter ended June 30, 1997,
or 28.5% of total revenues as compared to 26.4% for the comparable period in
1996. The increase as a percentage of total revenues is a result of a change of
mix in the business from period to period, whereby more revenue was recognized
from contracts where pass-through costs are reimbursed by clients. The THG
acquisition increased the services performed by the Company in clinical trials
management; and therefore, increased the associated reimbursed costs related to
independent investigator payments and travel costs for monitoring these
investigational sites.
-8-
<PAGE>
Net revenues
- ------------
Net revenues for the second quarter of 1997 were $20,988,000, an increase
of 50.4% as compared to the second quarter of 1996, of which 20.3% was due to
internal growth without acquisitions. Increases in revenues were recorded in the
US CRO (up 100.8%, 35.9% of which was organic growth) and Pharmaceutics (up
64.0%) being partially offset by a decrease in International CRO revenues (down
14.5%). Sequentially, net revenues for the second quarter increased by 8.7%
over first quarter of 1997, due principally to the International CRO where net
revenues increased by 17.3% over the first quarter net revenues.
Direct expenses
- ---------------
Direct expenses for the second quarter of 1997 were $11,156,000, or 53.2%
of net revenues, as compared to 53.3% in the second quarter of 1996. Direct
expenses include all compensation and other direct expenses associated with
revenue producing departments.
Selling, general & administrative
- ---------------------------------
Selling, general and administrative expenses for the second quarter of 1997
were $9,457,000, or 45.1% of net revenues, as compared to 46.6% for the same
period in 1996. The improvement was due principally to the US CRO business
where selling, general and administrative expenses as a percentage of net
revenues decreased from 42.2% in 1996 to 37.0% in 1997. The US CRO showed this
improvement because the revenue volume for this business has continued to grow
more quickly than its infrastructure needs.
Restructuring Costs
- -------------------
In June 1997, as part of a full review of International CRO operations,
the Company implemented a restructuring plan to reduce the indirect costs in the
Division. These changes have not adversely affected clients or staff assigned
to projects, but have reduced administrative personnel and, in some cases, have
allowed for consolidation of office space to more favorable lease situations.
It is anticipated that this restructuring will enhance opportunities for
profitable revenue growth in the future, and will reduce the existing indirect
expense annual run-rate between $700,000 and $1,000,000. The Company recorded a
one-time restructuring charge of $1,078,000 consisting primarily of severance
and lease related expenses.
Merger Costs
- ------------
The merger costs incurred during the three months ended June 30, 1997
relate entirely to the merger with Pharmaco Pty. Ltd. ("PPL"), an Australian
based CRO. The costs related to this transaction have been charged to earnings
as this merger is accounted for as a pooling of interests.
Interest income, net of interest expense
- ----------------------------------------
Net interest income for the second quarter of 1997 was $141,000 as compared
to $138,000 in the comparable 1996 period.
Discontinued Operations
- -----------------------
RBI's software commercialization business unit was closed on June 21, 1997.
Accordingly, all operating results have been reclassified from continuing
operations to discontinued operations. This unit has recorded a net loss of
$307,000 for three months ended June 30, 1997. In addition, a loss on the
disposal of this unit of $1,547,000 has been recorded in the three months ended
June 30, 1997. This loss on disposal is comprised mainly of severance, software
asset write-offs, contract completion costs and
-9-
<PAGE>
future rent related to abandoned office space. The strategic decision to close
this unit allows the Company to move from a focus on software commercialization
towards developments that contribute directly to internal process improvements
and speed. Although there are some one-time costs associated with this decision,
the Company believes that focusing on its core competencies in service delivery
will enhance business performance going forward There were no charges to
discontinued operations for the second quarter of 1996.
Net Income (loss)
- -----------------
Net loss for the quarter ended June 30, 1997 was $2,848,000 or $.12 per
share as compared to a profit in the comparable 1996 period of $152,000 or $.01
per share. Net income, excluding the one-time charges for the discontinued RBI
software commercialization business unit, the PPL merger costs and the
International CRO restructuring, was $260,000 or $.01 per share for the quarter
ended June 30, 1997.
Six months ended June 30, 1997 versus the six months ended June 30, 1996
IBAH, Inc.
Consolidated Statement of Operations
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------------------------------------------------------
1997 (1)
1996 1997 (As Restated)
-------------- ------------- ------------------
<S> <C> <C> <C>
Revenues $35,512 $57,938 $ 57,938
Less-Reimbursed costs 8,933 17,633 17,633
-------------- ------------- ------------------
Net revenues 26,579 40,305 40,305
Operating expenses:
Direct 13,761 21,815 21,815
Selling, general and administrative 13,046 17,586 17,586
Restructuring costs - 1,078 -
-------------- ------------- ------------------
Operating income (loss) (228) (174) 904
Merger costs - (176) -
Interest income (expense), net 138 293 293
-------------- ------------- ------------------
Income (loss) from continuing operations before taxes (90) (57) 1,197
Income taxes - 492 492
-------------- ------------- ------------------
Income (loss) from continuing operations (90) (549) 705
Loss from discontinued operations - (2,154) -
-------------- ------------- ------------------
Net income (loss) $ (90) $(2,703) $ 705
============== ============= ==================
</TABLE>
(1) Restated to exclude one-time charges for the cost to restructure the
operations of the International CRO, for costs related to the PPL merger
and for the disposal of the RBI software commercialization business unit.
-10-
<PAGE>
Revenues
- --------
Revenues for the six months ended June 30, 1997 were $57,938,000, an
increase of 63.2% over the same period in 1996.
Reimbursed costs
- ----------------
Reimbursed costs were $17,633,000, or 30.4% of total revenues for the six-
month period in 1997 as compared to 25.2% for the six month period in 1996. The
increase as a percentage of total revenues is a result of a change of mix in the
business from period to period, whereby more revenue was recognized from
contracts where pass-through costs are reimbursed by clients. The THG
acquisition increased the services performed by the Company in clinical trials
management; and therefore, increased the associated reimbursed costs related to
independent investigator payments and travel costs for monitoring these
investigational sites.
Net revenues
- ------------
Net revenues for the six-month period ended June 30, 1997 were $40,305,000,
an increase of 51.6% over the six month period in 1996, of which 19.9% was due
to internal growth without acquisitions. Increases in revenues were recorded in
the US CRO (up 109.0%, 36.7% of which was organic growth) and Pharmaceutics (up
71.8%) being partially offset by a decrease in International CRO revenues (down
19.3%).
Direct expenses
- ---------------
Direct expenses for the six months of 1997 were $21,815,000, or 54.1% of
net revenues, as compared to 51.8% for the same period in 1996. The increase in
direct expenses as a percentage of net revenues from year to year was due
principally to the mix effect in the US CRO where clinical trials revenues
increased as a percentage of revenues, and the impact of the International CRO
performance where revenues declined from 1996 to a point where productivity was
negatively impacted. Direct expenses include all compensation and other direct
expenses associated with revenue producing departments.
Selling, general & administrative
- ---------------------------------
Selling, general and administrative expenses for the six months ended June
30, 1997 were $17,586,000 or 43.6% of net revenues, as compared to 49.1% for the
same period in 1996. The improvement was due principally to the US CRO business
where selling, general and administrative expenses as a percentage of net
revenues decreased from 46.3% in 1996 to 36.2% in 1997. The US CRO showed this
improvement because the revenue volume for this business has continued to grow
more quickly than its infrastructure needs.
Restructuring Costs
- -------------------
In June 1997, as part of a full review of International CRO operations,
the Company implemented a restructuring plan to reduce the indirect costs in the
Division. These changes have not adversely affected clients or staff assigned
to projects, but have reduced administrative personnel and, in some cases, have
allowed for consolidation of office space to more favorable lease situations.
It is anticipated that this restructuring will enhance opportunities for
profitable revenue growth in the future, and will reduce the existing indirect
expense annual run-rate between $700,000 and $1,000,000. The Company recorded a
one-time restructuring charge of $1,078,000 consisting primarily of severance
and lease related expenses.
-11-
<PAGE>
Merger Costs
- ------------
The merger costs incurred during the six months ended June 30, 1997 relate
entirely to the merger with Pharmaco Pty. Ltd. ("PPL"), an Australian based CRO.
The costs related to this transaction have been charged to earnings as this
merger is accounted for as a pooling of interests.
Interest income, net of interest expense
- ----------------------------------------
Net interest income for six months ended June 30, 1997 was $293,000 as
compared to $138,000 in the comparable 1996 period. The change was entirely due
to changes in cash balances.
Discontinued Operations
- -----------------------
RBI's software commercialization business unit was closed on June 21, 1997.
Accordingly, all operating results have been reclassified from continuing
operations to discontinued operations. This unit has recorded a net loss of
$607,000 for six months ended June 30, 1997. In addition, a loss on the
disposal of this unit of $1,547,000 has been recorded in the six months ended
June 30, 1997. This loss on disposal is comprised mainly of severance, software
asset write-offs, contract completion costs and future rent related to abandoned
office space. The strategic decision to close this unit allows the Company to
move from a focus on software commercialization towards developments that
contribute directly to internal process improvements and speed. Although there
are some one-time costs associated with this decision, the Company believes that
focusing on its core competencies in service delivery will enhance business
performance going forward There were no charges to discontinued operations for
the first six months of 1996.
Net Income (loss)
- -----------------
Net loss for the six months ended June 30, 1997 was $2,703,000 or $.12 per
share as compared to a net loss in the comparable 1996 period of $90,000 or
$.01 per share. Net income, excluding the one-time charges for the discontinued
RBI software commercialization business unit, the PPL merger costs and the
International CRO restructuring, was $705,000 or $.02 per share for the six
months ended June 30, 1997.
Project backlog
- ---------------
The Company is having success in acquiring new business in the US CRO,
International CRO and Pharmaceutics Divisions. However, due to the uncertainty
and fluctuations that may occur in contract backlog, the Company, consistent
with other major CROs, no longer reports contract backlog.
Divisional Breakdown (second quarter 1997 versus second quarter 1996)-(See Page
- -------------------------------------------------------------------------------
15)
- ---
Net revenues of the US CRO increased by 100.8%, (35.9% without
acquisitions), on a comparable quarter basis. Operating income, before one-time
charges, for this Division was $1,599,000 for the second quarter of 1997, a 368%
increase over the comparable quarter of 1996, reflecting increased revenue
growth and productivity improvements for this Division. The US CRO continues
its trend of obtaining strong new business commitments.
-12-
<PAGE>
The operating results of this Division exclude the results of the
discontinued RBI software commercialization business unit. All operating
results for this unit have been reclassified from continuing operations to
discontinued operations. The Company anticipates an annual savings in excess of
$800,000 related to discontinuing this unit. A one-time charge of $1,854,000 for
discontinued operations is included in the second quarter 1997 statement of
operations. This charge is comprised of $1,547,000 related to the disposal of
the software commercialization business unit and operating losses for this unit
of $307,000 during the quarter. The loss on disposal is comprised mainly of
severance, software asset write-offs, contract completion costs and future rent
related to abandoned office space.
International net revenues decreased by 14.5% from the second quarter of
1996 to the second quarter of 1997. However, on a sequential quarter basis ,
net revenue increased 17.3% from the first quarter. Additionally, operating
losses before one-time charges decreased quarter over quarter due to improved
revenue volume.
The International CRO had another improved quarter of new business
commitments. While not yet at an ideal level, the level of new business was
better than the fourth quarter of 1996 and is building on an improving trend
established late in the first quarter.
Pharmaceutics net revenues increased to $2,283,000 a 64.0% increase over
the second quarter of 1996. The continued increase in revenue volume favorably
impacted operating income which improved 174.4% to $354,000 in the quarter ended
June 30, 1997 over the comparable quarter of 1996. Early in the third quarter,
to support future revenue growth, the Division moved to its new facility. The
new facility will allow for additional production capacity. The Company is
committed to expanding this new facility over the next two years to enhance the
growth prospects for this business. The outlook for this Division continues to
be very robust, and in spite of the additional costs of facility and staff
expansion, the Pharmaceutics Division will continue to be a strong profit
contributor.
Pharmaceutics has continued to obtain larger and longer commitments from
its clients, and its backlog continues to more than replace its growing revenue
earning capacity.
Liquidity and Capital Resources
- -------------------------------
As of June, 1997, the Company had cash, cash equivalents and short-term
investments of $8,842,000 as compared to $20,823,000 as of December 31, 1996.
The decline in cash from December 31, 1996 to June 30, 1997 was due to the
timing of collections of accounts receivable, net of customer deposits and the
capital investment related to the new Pharmaceutics facility. Working capital
as of June 30, 1997 was $6,802,000 as compared to $9,206,000 as of December 31,
1996. The decline in working capital from year-end 1996 to June 30, 1997 was
due principally to increased capital spending for the new Pharmaceutics facility
and the impact of the one-time restructuring and discontinued operations charges
The Company is currently renegotiating its banking relationship. The
Company anticipates adding a $7,000,000 term loan facility as well as renewing
the existing $5,000,000 credit facility. As of June 30, 1997, the balance
outstanding under the existing credit arrangement was $1,250,000. The Company
expects to use the additional term loan facility to finance new leasehold
improvements and new capital equipment for the Pharmaceutics Division and to
enhance the Company's information systems infrastructure.
Although the Company does not believe that it requires financing for
working capital purposes, it may seek additional cash infusions for expansion of
operations, for strategic acquisitions or for competitive reasons. The Company
intends to reinvest any positive cash flow from operations to support operations
through additional capital spending to improve its competitive position.
-13-
<PAGE>
Based on the foregoing and other factors, and while there can be no
assurance that external financing will be available on terms acceptable to the
Company, the Company believes that it has, or has access to, adequate working
capital to meet its strategic objectives and fund its operations for the
foreseeable future.
This document may contain "forward-looking" statements. These statements
carry risks and uncertainties that could cause the Company's actual results to
differ materially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to;
risks associated with acquisitions; the degree of success of the strategic
decision to discontinue the RBI software commercialization business unit; the
inability to increase sales or revenue growth at or exceeding market rates; the
degree of success of the International CRO restructuring; the loss or delay of
large contracts for regulatory or other reasons; a letter of intent on a
substantial project that does not materialize into a signed contract for all or
a material portion of that project; fluctuations in foreign currencies; and the
competition or consolidation within the pharmaceutical industry.
-14-
<PAGE>
For purposes of the following discussion, the following table presents the
results of operations on a divisional level (in thousands):
IBAH, Inc.
<TABLE>
<CAPTION>
Divisional Statement of
Operations US Clinical
Services International Clinical Services Pharmaceutics IBAH, Inc. Consolidated
----------------- ---------------------------------- ----------------- -------------------------------
(unaudited) Three Months Ended June 30,
--------------------------------------------------------------------------------------------------------
1997 (2) 1997 (2)
1996 1997 1996 1997 (1) (As Restated) 1996 1997 1996 1997 (1) (As Restated)
------- -------- -------- -------- ------------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $6,902 $ 13,860 $5,665 $4,845 $ 4,845 $1,392 $2,283 $ 13,959 $ 20,988 $20,988
----------------- --------------------------------- ----------------- -------------------------------
Operating expenses:
Direct expenses 3,648 7,136 2,972 2,849 2,849 825 1,171 7,445 11,156 11,156
Selling, general
& administrative 2,912 5,125 3,150 3,574 3,574 438 758 6,500 9,457 9,457
Restructuring costs _ _ _ 1,078 - - _ _ 1,078 _
----------------- --------------------------------- ----------------- -------------------------------
Operating income (loss) $ 342 $1,599 $ (457) $ (2,656) $(1,578) $ 129 $354 $ 14 $ (703) $ 375
================= ================================= ================= ===============================
</TABLE>
The information presented in the above table does not purport to be
indicative of future results of operations.
(1) Amounts include the operations of Pharmaco Pty. Ltd from the date of the
Merger on May 5, 1997.
(2) Excludes one-time charges for the cost to restructure the operations of the
International CRO. Amounts include the operations of Pharmaco Pty. Ltd from
the date of the Merger on May 5, 1997.
-15-
<PAGE>
For purposes of the following discussion, the following table presents the
results of operations on a divisional level (in thousands):
IBAH, Inc.
<TABLE>
<CAPTION>
Divisional Statement of US Clinical
Operations Services International Clinical Services Pharmaceutics IBAH, Inc. Consolidated
----------------- -------------------------------- ------------------- --------------------------------
(unaudited) Six Months Ended June 30,
---------------------------------------------------------------------------------------------------------
1997 (2) 1997 (2)
1996 1997 1996 1997 (1) (As Restated) 1996 1997 1996 1997 (1) (As Restated)
-------- -------- --------- -------- ------------- --------- --------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 12,882 $ 26,917 $ 11,130 $8,977 $8,977 $2,567 $4,411 $ 26,579 $ 40,305 $40,305
----------------- -------------------------------- ------------------- --------------------------------
Operating expenses:
Direct expenses 6,692 13,742 5,552 5,649 5,649 1,517 2,424 13,761 21,815 21,815
Selling, general &
administrative 5,964 9,752 6,227 6,549 6,549 855 1,285 13,046 17,586 17,586
Restructuring costs _ _ _ 1,078 _ _ _ _ 1,078 _
----------------- -------------------------------- ------------------- --------------------------------
Operating income (loss) $ 226 $ 3,423 $ (649) $(4,299) $(3,221) $ 195 $ 702 $ (228) $ (174) $ 904
================= ================================ =================== ================================
</TABLE>
The information presented in the above table does not purport to be
indicative of future results of operations.
(1) Amounts include the operations of Pharmaco Pty. Ltd from the date of the
Merger on May 5, 1997.
(2) Excludes one-time charges for the cost to restructure the operations of the
International CRO. Amounts include the operations of Pharmaco Pty. Ltd from
the date of the Merger on May 5, 1997.
-16-
<PAGE>
Part II - Other Information
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment Agreement dated May 14, 1997 between the Registrant and
Cornelius Hill Lansing.
10.2 Employment Agreement dated June 1, 1997 between the Registrant and
Rudi Weekers.
10.3 Letter acknowledging new financial convenants to the Amended and
Restated Loan and Security Agreement, dated December 31, 1996,
between the Registrant and Corestates Bank.
11 Computation of Net Income (Loss) per Common Share.
27 Financial Data
(b) Reports on Form 8-K
The Company filed one report on Form 8-K dated May 16, 1997 to report on
the merger with Pharmaco Pty. Ltd.(see Note 6 of the consolidated financial
statements.) No other reports on Form 8-K were filed during the second
quarter of 1997.
-17-
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
IBAH, INC.
Date: August 8, 1997 By /s/ Geraldine A. Henwood
------------------------
Geraldine A. Henwood
Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Date: August 8, 1997 By: /s/ Geraldine A. Henwood
------------------------
Geraldine A. Henwood
Chief Executive Officer
(Principal Executive Officer)
Date: August 8, 1997 By: /s/ Cornelius H. Lansing
------------------------
Cornelius H. Lansing
Chief Financial Officer
(Principal Financial Officer)
-18-
<PAGE>
EMPLOYMENT AGREEMENT
---------------------
THIS AGREEMENT, made this 14th day of May, 1997, is by and between
Cornelius H. Lansing (hereinafter "Employee") and IBAH, Inc., a Delaware
corporation with a principal place of business at 512 Township Line Road, Blue
Bell, Pennsylvania 19422 (hereinafter "Employer").
WHEREAS, Employer desires to employ Employee, and Employee desires to be
employed by Employer; and
WHEREAS, both parties wish clearly to define and clarify all terms and
conditions of the employment relationship; and
WHEREAS, both parties wish to avoid any disputes over any terms and
conditions of the employment relationship, and to insure that any such disputes
are resolved expeditiously and inexpensively through arbitration instead of
litigation; and
NOW THEREFORE, INTENDING TO BE LEGALLY BOUND, in consideration of the
mutual covenants contained herein, it is hereby agreed as follows:
1. Position. Employer agrees to employ Employee in the position of Chief
--------
Financial Officer. Employee shall perform such duties and accept all
responsibilities incidental to and commensurate with his position with Employer
or as may be assigned to him by Employer. Employee shall cooperate fully with
his Employer and not perform any duties or responsibilities which would in any
manner, directly or indirectly, limit or affect the ability of Employee to
perform the duties and responsibilities assigned to Employee by Employer.
2. Compensation. Employer agrees that for performing the duties of Chief
------------
Financial Officer, it will pay Employee a base salary of $170,000 per year, less
any applicable withholdings or deductions (the "base salary"). Employee shall
be eligible for merit increases of his base salary on the anniversary date of
his employment. Employee shall also be eligible to participate in the
Employer's bonus and option plan for management employees (the "Plan"),
according to its terms and as may be modified from year to year by the Board of
Directors.
3. Housing and Moving. Employer agrees to provide Employee with (i)
------------------
reasonable mutually agreed upon rental costs of an apartment or home in
Pennsylvania, before Employee closes on the purchase of a home in Pennsylvania,
for up to six (6) months; and (iii) reasonable and mutually agreed upon closing
costs on his home in Connecticut and new home in Pennsylvania.
4. Options. In addition to any stock options Employee may receive under the
-------
Plan, Employee shall be entitled to a one-time grant of stock options for
100,000 shares of the Employer's stock, subject to the approval of the Board of
Directors.
<PAGE>
5. Additional Benefits. In addition to the compensation set forth above,
-------------------
Employee shall be entitled to three (3) weeks of vacation per calendar year,
with additional days for years of service pursuant to the standard policy of the
Employer. Employee shall also be entitled to participate in any of the
Employer's standard benefit policies or plans according to their terms. These
policies and plans may be modified or terminated from time to time by the
Employer, but not retroactively. The written terms of the policies or plans
shall govern any questions of eligibility, coverage, or duration of coverage.
6. Employment-at-Will/Notice. This employment shall be on an at-will basis.
-------------------------
Either the Employer or the Employee may terminate the employment for any legal
reason or no reason during the term of this Agreement. If the Employer
terminates the employment without cause (fraud, theft or misconduct) and due to
a change in control of the Employer, including merger or acquisition, the
Employer shall pay the Employee his base salary for twelve months after the
termination of employment (the "Severance Payments"), provided however, that
Employee shall execute a release of all claims against Employer prior to being
entitled to the Severance Payments.
7. No Prior Restriction. Employee warrants that he is not restricted by any
--------------------
restrictive covenant or confidentiality agreement from any prior employment from
performing all of the duties required by this Agreement. Should a prior
employer assert that Employee is so restricted, the Employee shall indemnify,
defend, and hold harmless the Employer from any reasonable attorneys' fees or
costs incurred in defending such claims and any damages resulting either from
final judgment or reasonable settlement of any such claims.
8. Covenant Not to Compete. Employee agrees that during the period of
-----------------------
employment and for one (1) full year after termination thereof for any reason,
he will not, directly or indirectly, engage in or be connected to as an officer,
director, employee, consultant, partner, principal, agent or representative,
any Clinical Research Organization ("CRO") in any capacity similar or related to
the Employee's duties for the Employer. The Employee further agrees that any
breach of this clause shall be deemed to have caused Employer immediate and
irreparable injury, and the Employer shall have the right to proceed directly to
any court of competent jurisdiction and seek both injunctive relief and damages
notwithstanding paragraph 12 hereof. It is recognized by Employee that the
business of Employer, and Employee's connection therewith, is or will be
international in scope, and that geographical limitations on this Covenant Not
To Compete are therefore not appropriate.
9. Confidentiality. Employee will not at any time, whether during or after
---------------
the termination of his employment, reveal to any person or entity any of the
trade secrets or confidential information concerning the organization, business,
or finances of the Employer. Confidential information or trade secrets
includes, but is not limited to, operating procedures, salary
structure/compensation information, pricing strategies, investigator lists,
budgets and other related data, computer software, databases and programming,
data files, client lists and related information, financial information and
<PAGE>
projections, inventions, know-how, products, services, techniques and any other
information which, if divulged to a third party could have an adverse impact on
the Employer, or on any third party to which the Employer owes a confidentiality
obligation, except as may be required in the ordinary course of performing his
duties as an employee of the Employer.
Further, Employee understands that client companies disclose confidential
information to the Employer and that the Employer agrees, in writing, to
maintain the confidentiality of this information. Employee will not at any
time, whether during or after the termination of his employment, reveal to any
person or entity any trade secrets or confidential information concerning the
organization, business or finances of any third party or client to which the
Employer owes a confidentiality obligation.
10. Developments. If at any time or times during his employment, the Employee
------------
(either alone or with others) makes, conceives, creates, discovers, invents or
reduces to practice any invention, modification, discovery, design, development,
improvement, process, software program, work of authorship, documentation,
formula, data, whether or not patentable or registrable under copyright,
trademark or similar statutes (including but not limited to the Semiconductor
Chip Protection Act or subject to analogous protection) (herein called
"Developments") that (a) relates to the business of the Employer or any customer
of or supplier to the Employer or any of the products or services being
developed, manufactured or sold by the Employer or which may be used in
relation therewith, (b) results from tasks assigned me by the Employer or (c)
results from the use of premises or personal property (whether tangible or
intangible) owned, leased or contracted for by the Employer, such Developments
and the benefits thereof are and shall immediately become the sole and absolute
property of the Employer and its assigns, as "work made for hire" or otherwise,
and Employee shall promptly disclose to the Employer (or any persons designated
by it) each such Development and, as may be necessary to ensure the Employer's
ownership of such Developments, Employee hereby assign any rights (including,
but not limited to, any copyrights and trademarks) he may have or acquire in the
Developments and benefits and/or rights resulting therefrom to the Employer and
its assigns without further compensation and shall communicate, without cost or
delay, and without disclosing to others the same, all available information
relating thereto (with all necessary plans and models) to the Employer.
Employee will, during his employment and at any time thereafter, at the
request and cost of the Employer, promptly sign, execute, make and do all such
deeds, documents, acts and things as the Employer and its duly authorized agents
may reasonably require:
(a) to apply for, obtain, register and vest in the name of the Employer
alone (unless the Employer otherwise directs) letters patent, copyrights,
trademarks or other analogous protection in any country throughout the world and
when so obtained or vested to renew and restore the same; and
<PAGE>
(b) to defend any judicial, opposition or other proceedings in respect of
such applications and any judicial, opposition or other proceedings or petitions
or applications for revocation of such letters patent, copyright, trademark or
other analogous protection.
In the event the Employer is unable, after reasonable effort, to secure his
signature on any application for letters patent, copyright or trademark
registration or other documents regarding any legal protection relating to a
Development, whether because of the physical or mental incapacity of Employee or
for any other reason whatsoever, Employee hereby irrevocably designates and
appoints the Employer and its duly authorized officers and agents as his agent
and attorney-in-fact, to act for and in his behalf and stead to execute and file
any such application or applications or other documents and to do all other
lawfully permitted acts to further the prosecution and issuance of letters
patent, copyright or trademark registrations or any other legal protection
thereon with the same legal force and effect as if executed by the Employee.
11. Debarment. Employee represents that he has never been (i) debarred or
---------
convicted of a crime for which a person can be debarred under 21 U.S.C. (S)335a
((S)"335a") nor (ii) threatened to be debarred or indicted for a crime or
otherwise engaged in conduct for which a person can be debarred under (S)335a.
Employee will promptly notify the Employer in the event of any such debarment,
conviction, threat or indictment occurring during the term of his employment
with the Employer.
12. Arbitration of Disputes. All disputes arising out of or concerning the
-----------------------
interpretation or application of this Agreement, including without being limited
to any claims that the application of this Agreement or the termination of the
employment relationship established by this Agreement violates any federal,
state, or local law, regulation, or ordinance shall be resolved timely and
exclusively by arbitration pursuant to the rules of the American Arbitration
Association, except as provided below. Arbitration must be demanded within one
hundred and twenty (120) calendar days of the time when the demanding party
knows or should have known of the event or events giving rise to the claim. The
arbitration opinion and award shall be final and binding on the parties and
enforceable by any court of competent jurisdiction. The parties shall share
equally all costs of arbitration excepting their own attorneys fees (unless and
to the extent ordered by the arbitrator(s) to pay the attorneys' fees of
prevailing party).
The parties recognize that this paragraph means that certain claims will be
tried before an impartial arbitrator or panel of arbitrators instead of before a
court and/or a jury, but desire the many benefits of arbitration over court
proceedings, including speed of resolution, lower costs and fees,and more
flexible rules of evidence. The arbitrator or arbitrators duly selected
pursuant to the AAA Rules shall have the same power and authority to order any
remedy for violation of a statute, regulation, or ordinance, as a court would
have; and shall have the same power to order discovery as a federal district
court has under the Federal Rules of Civil Procedure.
This clause is intended by the parties to be enforceable under the Federal
Arbitration Act. Should it be determined by any court of competent jurisdiction
that the Act does not apply,
<PAGE>
then it shall be enforceable under the arbitration statute of the Commonwealth
of Pennsylvania.
13. Employer Property. All documents and other materials made, compiled by or
-----------------
made available to Employee during the course of his employment and all copies
thereof in any form, whether or not they contain confidential information, are
and shall be the exclusive property of the Employer and shall be
returned/delivered to the Employer immediately upon termination of his
employment.
14. Direct Court Access. Notwithstanding paragraph 12 above, the Employer may
-------------------
proceed directly to any court of competent jurisdiction should the Employee
breach paragraphs 8, 9 or 10 above and that breach cause irreparable injury to
the Employer.
15. Integration/Modification. This Agreement constitutes the entire integrated
------------------------
agreement between the parties, and supersedes any prior or contemporaneous
statements, representations, warranties, understandings or inducements of any
kind. This Agreement may be modified only by a writing signed by the parties
and stating that it modifies this Agreement.
16. Applicable Law. This Agreement shall be interpreted and enforced under the
--------------
laws of the Commonwealth of Pennsylvania, except where otherwise provided.
17. Severability/Survival. Should any paragraph or portion thereof be found
---------------------
illegal or unenforceable to any extent or degree by any court of competent
jurisdiction, this shall not effect the validity and enforceability of the
remaining paragraphs hereof. The obligations of this Agreement shall survive
and continue even after the termination of the employment covered by it.
IBAH, Inc.
By: /s/ Geraldine A. Henwood /s/ Cornelius H. Lansing
-------------------------- --------------------------
Geraldine A. Henwood Cornelius H. Lansing
Chief Executive Officer
<PAGE>
EMPLOYMENT AGREEMENT
---------------------
THIS AGREEMENT, made this 1st day of June, 1997, is by and between Rudi
Weekers (herinafter "Employee") and Euro Bio-Pharm Holdings B.V., with a
registered office at Parnassusweg 126, 1076AT Amsterdam, The Netherlands
(hereinafter "Employer").
WHEREAS, Employer desires to employ Employee, and Employee desires to be
employed by Employer; and
WHEREAS, both parties wish to define and clarify all terms and conditions
of the employment relationship; and
WHEREAS, both parties wish to avoid any disputes over any terms and
conditions of the employment relationship, and to insure that any such disputes
are resolved expeditiously and inexpensively through arbitration instead of
litigation; and
NOW THEREFORE, INTENDING TO BE LEGALLY BOUND, in consideration of the
mutual covenants contained herein, it is hereby agreed as follows:
1. Position. Employer agrees to employ Employee in the position of
--------
President, International CRO. Employee shall perform such duties and accept all
responsibilities incidental to and commensurate with his position with Employer
or as may be assigned to him by Employer. Employee shall cooperate fully with
his Employer and not perform any duties or responsibilities which would in any
manner, directly or indirectly, limit or affect the ability of Employee to
perform the duties and responsibilities assigned to Employee by Employer.
Employee agrees to devote his entire skills and knowledge to Employer.
During the term of this Agreement and his employment with Employer, Employee
shall not undertake, directly or indirectly, any paid or unpaid secondary
activities for any firm, institution or company, whether as an employee,
consultant or in any other manner, without the prior written approval of the
Employer. Breach of this provision is a basis for termination of the Employee's
employment for cause.
It is understood by Employee and Employer that in order for Employee to
carry out his responsibilities as President, International CRO that Employee is
expected to allocate his time and energy between and among various countries and
operations where Employee and its affiliates operate, including Germany, France
and the United Kingdom. Employee agrees and consents to being named a Director
of the Employer.
2. Remuneration. Employer agrees that for performing his duties and
------------
responsibilities, it will pay Employee a base salary of DM 425,000 (four hundred
and twenty five thousand deutsche marks) per year, less any applicable
withholdings or deductions, with annual merit increases as mutually agreed to by
Employee and Employer (the "base salary"). Employee will also be eligible for
annual bonus and stock option awards according to the applicable bonus and
option plan for management employees (the "Plan"), which Plan may be changed
from year to year at the
<PAGE>
discretion of the Employer. The Plan for 1997 contains a maximum bonus of 22.5%
of the base salary of Employee if all criteria and goals are met for the
calendar year.
Employee agrees and acknowledges that, consistent with his international
responsibilities, Employee's remuneration may be allocated among the entities
and countries in and for which Employee performs services pursuant to this
Agreement, and that Employee may be responsible for filing tax returns and
paying taxes in such countries.
3. Options. If approved by the Board of Directors, Employee shall be
-------
entitled to receive options for 75,000 shares of stock of IBAH, Inc., the parent
corporation of the Employer ("IBAH"), effective the date of the next scheduled
meeting of the Board of Directors of IBAH. Employer will endeavor to grant such
options in the most tax effective method permissable under the applicable plan
documents and local law.
4. Transportation. Employee shall be entitled to a receive a company car
--------------
equivalent to a BMW 528e class or a car allowance to cover the expenses
associated with leasing an equivalent car.
5. Vacation. Employee shall be entitled to vacation as per the statutory
--------
requirements in Belgium. Employee shall plan his vacation in coordination with
the remaining members of the Employer's management team in a way that shall not
affect the interests of the Employer.
In case Employee cannot take his vacation in total or in part during any
calendar year, he may use his vacation during the first three months of the next
consecutive calendar year. Vacation of the preceding year shall be forfeited on
March 31 of the following calendar year.
6. Additional Benefits. In addition to the remuneration set forth above,
-------------------
Employee shall be entitled to participate in any of the Employer's standard
benefit policies or plans, including the pension plan, according to their terms.
These policies and plans may be modified or terminated from time to time by the
Employer, but not retroactively. The written terms of the policies or plans
shall govern any questions of eligibility, coverage or duration of coverage.
In addition to the Employer's standard benefit plans and policies, Employee
shall be entitled to receive up to an additional DM 3,408 per year to cover the
cost of a private life insurance policy of Employee.
7. Relocation. Employee shall be entitled to receive up to three months
----------
rent, at a rate of DM 2,090 per month, for his apartment in Germany, if
required, with the understanding that Employee agrees to terminate the lease of
that apartment as soon as practicable. Employee shall also be entitled to
receive reimbursement from Employer for documented reasonable and customary
costs of moving household goods to Belgium from Germany.
2
<PAGE>
Employer will pay the reasonable, documented costs of professional advice
required by Employee for his annual tax filings, provided that Employee hires
the tax advisors used by the Employer, unless the Employer approves in writing
the consultation with another advisor.
8. Term and Termination. The effective date of this Agreement is June 1,
--------------------
1997 (the "Effective Date"). This Agreement shall continue for an
indeterminate period of time.
Either party may terminate this Agreement at any time, with effect as of
the end of a calendar quarter, by giving six months prior written notice.
Without any notice being required, the employment shall terminate at the
end of the month during which the Employee shall attain age sixty-five (65).
In the case of a notice of termination, Employer shall be entitled to
release the Employee from his duties to render comparable services for Employer,
while continuing to pay his contractual remuneration through the end of the
applicable notice period. Such period of release shall be offset from the
Employee's pro rata vacation entitlement.
Any such release shall not affect or in any way diminish the obligations of
the Employee under this Agreement.
The right to terminate the Employee's employment immediately for cause
shall not be affected by the provisions above. Should a termination for cause
be legally invalid, it shall be regarded as an ordinary notice of termination
with effect to the earliest possible date.
9. No Prior Restriction. Employee warrants that he is not restricted by
--------------------
any restrictive covenant or confidentiality agreement from any prior employment
from performing all of the duties required by this Agreement. Should a prior
employer assert that Employee is so restricted, the Employee shall indemnify,
defend, and hold harmless the Employer from any reasonable attorneys' fees or
costs incurred in defending such claims and any damages resulting either from
final judgment or reasonable settlement of any such claims.
10. Covenant Not to Compete. For a period of 12 months after the
-----------------------
termination of this Agreement, the Employee shall not render any services to any
contract research organization ("CRO") or company in competition to Employer's
business activities in any part of the territory in which the International CRO
of Employer operates (the "Territory") or in competition to the business
activities of any subsidiary or division of Employer in the Territory, whether
as an agent, employee, consultant or in any other manner, and he shall not run a
respective enterprise on his own or participate in such an enterprise. This
obligation of the Employee shall be related to any such competitive activities
in the Territory. It is also understood and agreed that the provisions of this
section shall not prevent Employee from undertaking future responsibilities as a
regular, full-time employee of a pharmaceutical company engaged in research and
development, manufacturing, marketing and sales or licensing of its own
proprietary products, but not in a CRO, directly or
3
<PAGE>
through any subsidiary or division.
The parties hereto agree that any rights and duties of Employer under this
non-competition agreement may be transferred to any subsidiary or division of
Employer.
11. Confidentiality. Employee will not at any time, whether during or
---------------
after the termination of his employment, reveal to any person or entity any of
the trade secrets or confidential information concerning the organization,
business, or finances of the Employer or any of the affiliates of Employer.
Confidential information or trade secrets includes, but is not limited to,
operating procedures, salary structure/compensation information, pricing
strategies, investigator lists, budgets and other related data, computer
software, databases and programming, data files, client lists and related
information, financial information and projections, inventions, know-how,
products, services, techniques and any other information which, if divulged to a
third party could have an adverse impact on the Employer or its affiliates, or
on any third party to which the Employer or its affiliates owes a
confidentiality obligation, except as may be required in the ordinary course of
performing his duties as an employee of the Employer.
Further, Employee understands that client companies disclose confidential
information to the Employer and that the Employer agrees, in writing, to
maintain the confidentiality of this information. Employee will not at any
time, whether during or after the termination of his employment, reveal to any
person or entity any trade secrets or confidential information concerning the
organization, business or finances of any third party or client to which the
Employer owes a confidentiality obligation.
12. Developments. If at any time or times during his employment, the
------------
Employee (either alone or with others) makes, conceives, creates, discovers,
invents or reduces to practice any invention, modification, discovery, design,
development, improvement, process, software program, work of authorship,
documentation, formula, data, whether or not patentable or registrable under
copyright, trademark or similar statutes (including but not limited to the
Semiconductor Chip Protection Act or subject to analogous protection) (herein
called "Developments") that (a) relates to the business of the Employer or any
customer of or supplier to the Employer or any of the products or services being
developed, manufactured or sold by the Employer or which may be used in
relation therewith, (b) results from tasks assigned me by the Employer or (c)
results from the use of premises or personal property (whether tangible or
intangible) owned, leased or contracted for by the Employer, such Developments
and the benefits thereof are and shall immediately become the sole and absolute
property of the Employer and its assigns, as "work made for hire" or otherwise,
and Employee shall promptly disclose to the Employer (or any persons designated
by it) each such Development and, as may be necessary to ensure the Employer's
ownership of such Developments, Employee hereby assign any rights (including,
but not limited to, any copyrights and trademarks) he may have or acquire in the
Developments and benefits and/or rights resulting therefrom to the Employer and
its assigns without further compensation and shall communicate, without cost or
delay, and without disclosing to others the same, all available information
relating thereto (with all necessary plans and models) to the Employer.
4
<PAGE>
Employee will, during his employment and at any time thereafter, at the
request and cost of the Employer, promptly sign, execute, make and do all such
deeds, documents, acts and things as the Employer and its duly authorized agents
may reasonably require:
(a) to apply for, obtain, register and vest in the name of the
Employer alone (unless the Employer otherwise directs) letters patent,
copyrights, trademarks or other analogous protection in any country throughout
the world and when so obtained or vested to renew and restore the same; and
(b) to defend any judicial, opposition or other proceedings in
respect of such applications and any judicial, opposition or other proceedings
or petitions or applications for revocation of such letters patent, copyright,
trademark or other analogous protection.
In the event the Employer is unable, after reasonable effort, to secure his
signature on any application for letters patent, copyright or trademark
registration or other documents regarding any legal protection relating to a
Development, whether because of the physical or mental incapacity of Employee or
for any other reason whatsoever, Employee hereby irrevocably designates and
appoints the Employer and its duly authorized officers and agents as his agent
and attorney-in-fact, to act for and in his behalf and stead to execute and file
any such application or applications or other documents and to do all other
lawfully permitted acts to further the prosecution and issuance of letters
patent, copyright or trademark registrations or any other legal protection
thereon with the same legal force and effect as if executed by Employee.
13. Debarment. Employee represents that he has never been (i) debarred or
---------
convicted of a crime for which a person can be debarred by the U.S. Food and
Drug Administration ("FDA") under 21 U.S.C. '335a ('"335a") or by any other
regulatory agency nor (ii) threatened to be debarred or indicted for a crime or
otherwise engaged in conduct for which a person can be debarred by the FDA under
'335a or by any other regulatory agency. Employee will promptly notify the
Employer in the event of any such debarment, conviction, threat or indictment
occurring during the term of his employment with Employer.
14. Arbitration of Disputes. Any claims based on this Agreement shall be
-----------------------
raised in writing with the Employer within a period of six months after (i) the
due date of such claims or (ii) the termination of this employment, whichever
first occurs.
All disputes arising out of or concerning the interpretation or application
of this Agreement, including without being limited to any claims that the
application of this Agreement or the termination of the employment relationship
established by this Agreement violates any federal, state, or local law,
regulation, or ordinance shall be resolved timely and exclusively by arbitration
pursuant to the rules of the American Arbitration Association, except as
provided below. Arbitration must be demanded within thirty (30) days of the
rejection of any claim raised with the Employer pursuant to this section. The
arbitration opinion and award shall be final and binding on the parties and
enforceable by any court of competent jurisdiction. The parties shall share
equally
5
<PAGE>
all costs of arbitration excepting their own attorneys fees (unless and
to the extent ordered by the arbitrator(s) to pay the attorneys' fees of
prevailing party).
The parties recognize that this paragraph means that certain claims will be
tried before an impartial arbitrator or panel of arbitrators instead of before a
court and/or a jury, but desire the many benefits of arbitration over court
proceedings, including speed of resolution, lower costs and fees,and more
flexible rules of evidence. The arbitrator or arbitrators duly selected
pursuant to the AAA Rules shall have the same power and authority to order any
remedy for violation of a statute, regulation, or ordinance, as a court would
have; and shall have the same power to order discovery as a U.S. federal
district court has under the U.S. Federal Rules of Civil Procedure.
This clause is intended by the parties to be enforceable under the U.S.
Federal Arbitration Act. Should it be determined by any court of competent
jurisdiction that the Act does not apply, then it shall be enforceable under the
arbitration statute of the Commonwealth of Pennsylvania.
15. Employer Property. All documents and other materials made, compiled
-----------------
by or made available to Employee during the course of his employment and all
copies thereof in any form, whether or not they contain confidential
information, are and shall be the exclusive property of the Employer and shall
be returned/delivered to the Employer immediately upon termination of his
employment.
16. Direct Court Access. Notwithstanding Section 14 above, the Employer
-------------------
may proceed directly to any court of competent jurisdiction should the Employee
breach Sections 10,11,12 or 15 above and that breach cause irreparable injury to
the Employer.
17. Integration/Modification. This Agreement constitutes the entire
------------------------
integrated agreement between the parties, and supersedes any prior or
contemporaneous letters, statements, representations, warranties, understandings
or inducements of any kind. This Agreement may be modified only by a writing
signed by the parties and stating that it modified this Agreement.
18. Severability/Survival. Should any paragraph or portion thereof be
---------------------
found illegal or unenforceable to any extent or degree by any court of competent
jurisdiction, this shall not effect the validity and enforceability of the
remaining paragraphs hereof. The obligations of Sections
6
<PAGE>
9,10,11,12,14,15 and 16 of this Agreement shall survive and continue even after
the termination of the employment or this Agreement.
Euro Bio-Pharm Holdings B.V.
By: /s/ Geraldine A. Henwood /s/ Rudi Weekers
-------------------------- ------------------------
Geraldine A. Henwood Rudi Weekers
Managing Director
7
<PAGE>
EXHIBIT 10.3
------------
LETTER ACKNOWLEDGING NEW FINANCIAL COVENANTS TO THE AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENTS, DATED DECEMBER 31, 1996
BETWEEN THE REGISTRANT AND CORESTATES BANK, N.A.
July 17, 1997
Mr. Neil H. Landing, II
Chief Financial Officer
IBAH, Inc.
Four Valley Square
512 Township Line Road
Blue Bell, PA 19422
Re: New Financial Covenants
Dear Neil:
This letter is written in reference to the Amended and Restated Loan and
Security Agreement dated 12/31/96 ("Agreement") between CoreStates Bank, N.A.
(formerly Meridian Bank) ("Bank"), and IBAH, Inc., a Delaware corporation
("Debtor").
The Bank hereby amends and restates section 7.13 Financial Covenants (in its
entirety) of the Agreement as of 7/1/97:
7.13 Financial Covenants: Debtor shall comply with the following at the
-------------------
respective times indicated:
(A) Debtor Coverage Ratio: Debtor to maintain a minimum debt coverage ratio of
---------------------
1.35x (rolling for quarters) for the term of the loan(s). Covenant to be tested
quarterly. Debt coverage ratio defined as net income less dividend plus
depreciation/amortization dividend by current portion of long term debt and
current portion of capital leases. For the periods ending 9/30/97; 12/31/97 and
3/31/98 the net income portion of the calculation will be annualized for the
quarter or quarters elapsed. From 6/30/98, forward the calculation will be
on a rolling four quarter basis.
(B) Fund Debt Ratio: Debtor to maintain a minimum funded debt coverage ratio of
---------------
1.25x for the term of the loan(s). Covenant to be tested quarterly. Funded debt
ratio defined as cash and cash equivalents plus short-term investments plus
billed accounts receivable divided by funded debt (short-term and long-term).
Sincerely,
/s/ Stasia H. Whiteman
Stasia H. Whiteman
Vice President
Accepted and agreed this 21st day of July, 1997.
IBAH, Inc.
By: /s/Neil H. Lansing, II
----------------------
Neil H. Lansing, II
Chief Financial Officer
<PAGE>
EXHIBIT 11
IBAH, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(unaudited)
A calculation for the six and three months period ended June 30, 1997 and for
the six months ended June 30, 1996 has not been presented since the effect of
any preferred stock conversion, and the effect of option and warrant exercises
would be anti-dilutive.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
COMPUTATION OF PRIMARY JUNE 30,
NET INCOME (LOSS) PER SHARE: 1996
- ---------------------------- -------------
<S> <C>
Net Income Applicable to Common Stockholders $ 152,000
=============
Weighted Average Number of Common Shares Outstanding 17,643,000
Assumed Conversion of Preferred Stock 2,309,000
Assumed Conversion of Options and Warrants 4,849,000
-------------
24,801,000
=============
Primary Net Income per Share $ 0.01
=============
</TABLE>
Fully-diluted net income per common share for the three months ended June 30,
1996 is the same as primary net income per common share calculated above.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
UNAUDITED INFORMATION FOR 2ND QUARTER 10-Q THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND
CONSOLIDATED STATEMENT OF OPERATIONS AS OF, AND FOR THE THREE-MONTH PERIOD
ENDED, JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 1,642
<RECEIVABLES> 34,896
<ALLOWANCES> 555
<INVENTORY> 0
<CURRENT-ASSETS> 44,429
<PP&E> 16,854
<DEPRECIATION> 8,042
<TOTAL-ASSETS> 87,769
<CURRENT-LIABILITIES> 37,627
<BONDS> 1,487
0
7
<COMMON> 231
<OTHER-SE> 47,858
<TOTAL-LIABILITY-AND-EQUITY> 87,769
<SALES> 0
<TOTAL-REVENUES> 20,988
<CGS> 0
<TOTAL-COSTS> 11,156
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> (738)
<INCOME-TAX> 256
<INCOME-CONTINUING> (994)
<DISCONTINUED> (1,854)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,848)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
