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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
[ X ] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[No Fee Required] for the fiscal year ended DECEMBER 31, 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
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(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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant on March 9, 1998 was approximately $65,000,000 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 March 9, 1998 was 23,537,149.
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PART 1
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ITEM 1. BUSINESS.
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IBAH, Inc. - Company Overview
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IBAH, Inc. ("IBAH" or the "Company") is a worldwide leader in providing
comprehensive product development services to client companies in the
pharmaceutical, biotechnology, medical device, and diagnostics industries. IBAH
is a contract research organization ("CRO") which offers services for all stages
of drug development.
As of March 30, 1998, IBAH entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement") with Omnicare, Inc. ("Omnicare") under which
Omnicare will acquire IBAH in a stock-for-stock merger (the "Merger"). In the
Merger, each outstanding IBAH common share will be converted into $5.75 market
value of Omnicare common shares, subject to the terms of the Merger Agreement
including, among other things, obtaining the approval of the IBAH stockholders
and certain regulatory authorities. Omnicare expects to issue approximately
$169 million in Omnicare stock. The Merger is expected to be consummated in the
third quarter of 1998.
The Company provides its services through two primary operating divisions, the
U.S. and International Clinical Services Divisions (together defined as the
"Clinical Services Division") and IBAH Pharmaceutics Services (the
"Pharmaceutics Services Division"). As of December 31, 1997, the Company had a
worldwide staff of 908 full-time equivalents. On May 5, 1997, the Company
expanded its operations in Australia by acquiring Pharmaco Pty., Ltd. ("PPL"),
one of the leading CROs in Australia. The Company's existing office in
Australia has been integrated with the PPL offices.
The Company generates its revenues by providing services on a contractual
basis to its clients. All of the Company's services are designed to help client
companies accelerate products from discovery through development and
commercialization faster and more cost-effectively.
The Clinical Services Division, the core of IBAH, is a full-service
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international CRO that began operations in 1985. This division's primary
services are the design of product development programs, design and conduct of
clinical trials, clinical data management and biostatistical analysis, writing
reports of study findings, quality assurance consulting, health economics
analysis and post-marketing studies, and regulatory dossier filings.
This division earns its revenues by providing services on a contractual basis
to its clients. The division's worldwide staff is located in offices in the
U.S., Australia, Belgium, Denmark, Eastern Europe (hubbed in the Czech
Republic), Finland, France, Germany, the Netherlands, Spain, Sweden, Switzerland
and the United Kingdom. Through a joint venture with a Russian company, this
division also operates an office located in Russia.
Since its inception, the Company, through this division, has prepared 48 New
Drug Applications ("NDAs"), including one of the largest ever filed.
The Pharmaceutics Services Division provides traditional product formulation
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services, manufacturing process development, manufacture of drugs and placebos
for clinical trials, pilot plant manufacturing, analytical methods development,
analytical testing, and clinical trials drug packaging and distribution. The
division's services also include shelf life stability testing, process
validation, and analysis of other chemical and physical properties required in
regulatory submissions.
This division began in October 1993 and currently operates, in part, from a
20,000 square foot Good Manufacturing Practice ("cGMP") manufacturing facility
with full pilot plant capabilities. To accommodate rapid growth, the division
is also in the process of phasing into a lease for a 124,000 square foot
facility in the same area as its cGMP facility. Phase I of the build-out, for
40,000 square feet dedicated to packaging, stability testing, warehouse and
administration space was completed in July 1997. Phase II for 40,000 square
feet of analytical space is planned to be completed in 1998. The remaining
44,000 square feet is expected to be placed in service in 1999.
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Company History
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IBAH was originally Affinity Biotech, Inc., a New Jersey corporation (the "New
Jersey Corporation"), which was incorporated in January 1990. In April 1992,
the New Jersey Corporation was merged into Affinity Biotech, Inc., a Delaware
corporation ("Affinity"), which was incorporated in February 1992. In April
1992, Affinity completed its initial public offering of common stock.
On April 27, 1994, Bio-Pharm Clinical Services, Inc. ("Bio-Pharm"), a CRO, and
Affinity, a drug delivery and technology corporation, merged (the "Affinity
Merger") and simultaneous with the Affinity Merger, Affinity changed its name to
IBAH. Since the Merger resulted in the former Bio-Pharm shareholders having a
majority ownership of IBAH, the Affinity Merger was accounted for as an
acquisition of Affinity by Bio-Pharm.
Bio-Pharm was founded in December, 1985 by Geraldine A. Henwood, President of
Bio-Pharm from 1985 through April 1994, and President and Chief Executive
Officer of IBAH since April 1994.
In 1991, Bio-Pharm opened its first European operation based in Frankfurt,
Germany. Subsequently, an office was opened in Australia in 1993. In January
1994, Bio-Pharm purchased European Pharmaceutical Investigation Consultants
Limited ("EPIC"), a CRO headquartered in the United Kingdom with an office in
Switzerland. The EPIC acquisition was a major expansion step allowing the
Company to serve the United Kingdom and strengthen its position throughout
Europe. Since the EPIC acquisition, the Company has opened foreign offices in
Australia, France, Netherlands, Belgium, Finland, Spain, Denmark, Sweden and the
Czech Republic. Through a joint venture with a Russian company, IBAH also
operates an office located in Russia.
On July 28, 1995, the Company sold its Drug Delivery Services Division, the
part of Affinity which offered proprietary drug delivery services, to a
management group from that division.
On August 11, 1995, IBAH completed a private placement of convertible
preferred stock and warrants for a total investment in the Company of $7
million.
On April 19, 1996, the Company completed a public offering of 3,000,000 shares
of common stock of the Company to selected institutional investors, netting the
Company $18 million.
On July 18, 1996, IBAH acquired Resource Biometrics, Inc. ("RBI") based in the
San Francisco, California area. RBI was a provider of software products and
data services to the pharmaceutical, biotechnology, and medical device
industries. In June 1997, the Company closed the software commercialization
unit of RBI to focus its efforts on the contract services portion of its
business.
On October 1, 1996, IBAH acquired The Hardardt Group ("THG"), located in
northern New Jersey. THG provided clinical trials management and clinical
monitoring services to the pharmaceutical and biotechnology industries,
predominantly in the United States. The THG operation has been completely
integrated into the U.S. Clinical Services Division. This acquisition added
critical mass to the Company, enhancing its ability to obtain and perform large
clinical trials.
On May 5, 1997, the Company acquired Pharmaco Pty., Ltd. ("PPL"), an
Australian CRO based in Sydney. PPL provided clinical trial, regulatory, data
management and health economics services in Australia and New Zealand. At the
time of the acquisition, PPL was integrated into the Company's existing
Australian operations.
As of March 30, 1998, IBAH entered into the Merger Agreement with Omnicare
under which Omnicare will acquire IBAH in the Merger. In the Merger, each
outstanding IBAH common share will be converted into $5.75 market value of
Omnicare common shares, subject to the terms of the Merger Agreement including,
among other things, obtaining the approval of the IBAH stockholders and certain
regulatory authorities. Omnicare expects to issue approximately $169 million in
Omnicare stock. The Merger is expected to be consummated in the third quarter
of 1998.
Industry Background and Trends
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New pharmaceutical, biotechnology, medical device and diagnostic products
generally must undergo extensive testing to demonstrate their safety and
effectiveness in order to obtain regulatory approval for commercialization.
Companies seeking such approval are responsible for performing and analyzing the
results of multi-phase clinical trials that typically span two to five years and
involve hundreds to thousands of human
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participants. Historically, clinical trials were performed almost exclusively by
in-house personnel of the companies that owned the products under development.
For over a decade, there has been a growing trend for companies developing new
products to outsource certain activities by contracting with CROs for the
performance of clinical trials and related activities in the development and
approval process.
IBAH believes, based on its experience and reports from industry analysts,
that the following industry trends have increased and will continue to increase
the market for CRO services:
- - Pharmaceutical and biotechnology research and development expenditures
continue to increase. From 1996 to 1997, research and development spending for
major pharmaceutical companies and the outsourcing of this spending continued to
increase. Worldwide research and development expenditures were estimated at
approximately $38 billion for 1997. Increased emphasis on the development of
effective treatments for chronic disorders and life threatening, acute
conditions, such as stroke and infectious diseases, is contributing to this
trend. Requirements from regulatory agencies to conduct longer, more complex
trials to demonstrate effectiveness and potential long-term effects are also
factors in this spending growth.
- - Cost containment pressures continue to escalate as a result of various
influences, including efforts by governments and managed care organizations to
control prices, increased competition from generic drugs, and more stringent
regulatory requirements. As pharmaceutical companies continue experiencing
pressure on profit margins and attempt to hasten new product introductions
worldwide, they are increasingly outsourcing to take advantage of CROs'
expertise, speed, and global reach.
- - Maturation of the biotechnology industry has substantially increased the
number of biotechnology drugs in clinical development. Rather than build the
infrastructure necessary to handle the clinical development stages, many
biotechnology companies are choosing to outsource all or part of their
development work to CROs.
- - Emphasis on globalization has led pharmaceutical and biotechnology companies
to pursue product development simultaneously in multiple countries and conduct
programs which simultaneously satisfy the requirements of multiple regulatory
agencies. In addition, since 1992, guidelines for the conduct of clinical
research within Europe require more stringent standards. The emphasis on
globalization combined with escalating complexity of clinical trials has
increased manpower and resource requirements for these trials, which in turn has
resulted in an increase in the use of CRO services.
The Drug Development Process
- ----------------------------
Before a drug may be marketed, it must undergo extensive testing and
regulatory review to determine its safety and effectiveness. The following is a
brief description of the stages of U.S. and worldwide drug development. As a
full-service CRO, IBAH offers comprehensive services in every phase of this
process:
Regulatory Affairs - Full-service CROs, such as IBAH, offer regulatory affairs
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services which assist clients with the design of regulatory strategy and span
the development process from formulation development to preclinical and clinical
trials through regulatory filings, e.g., NDAs, Biological License Applications
("BLA"), and EU-multistate ("CPMP") or National filings. CROs also assist in
the actual preparation of filing and communications with the regulatory
agencies. These services are critical to every phase of the development process
and to a timely, successful completion of any product development project.
Preclinical Testing - The initial stage in the drug development process is
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preclinical research. In this stage, the drug is tested in vitro (test tube)
and in animals, generally over one to three years. Safety studies, including
toxicology, are a major portion of this phase along with metabolism, kinetics,
and clinical pathology.
Phase I - Phase I trials are conducted in healthy volunteers, typically 24-36
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per study, to develop basic safety data relating to toxicity, metabolism,
absorption and other pharmacological actions. In order to establish
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safe dosage ranges, single and multiple dose tolerance tests are conducted.
Phase I generally lasts from six months to one year.
Phase II - Phase II trials are conducted on small numbers of subjects,
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typically 100 to 200 patients, who suffer from the drug's targeted disease or
condition. Phase II trials last an average of six months to two years and
provide the first evidence of clinical efficacy (effectiveness) at different
doses, as well as additional safety data. These trials may include dose ranging
studies to establish optimal dosages wherein the drugs are usually tested
against a placebo or a currently marketed drug.
Phase III - Phase III trials are conducted on a significantly larger patient
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population, from hundreds to thousands of patients, who suffer from the targeted
disease. Conducted at numerous investigational sites including hospitals and
clinics, these trials are designed to establish safety and efficacy for the
optimal dosing regimen of the drug under study, as well as the reproducibility
of results across many study sites. During Phase III, which generally lasts
from one to three years, the new drug is compared with a placebo or with one or
more drugs with established safety and efficacy profiles in the same therapeutic
category.
Phase IV - As a condition of granting marketing approval, the Food and Drug
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Administration ("FDA") or other global regulatory agencies may require a client
to conduct additional clinical trials or post-approval trials of the product,
monitor long-term risks and benefits, study different dosage levels, or evaluate
different safety and efficacy parameters in target patient populations. Clients
also pursue Phase IV trials to enhance product profiles with new claims to gain
comparative marketing information or for health economics and outcomes research.
These trials generally last one to four years.
Regulatory Application - The regulatory filing which is submitted to a
----------------------
regulatory agency, such as the FDA, is a comprehensive filing that averages over
100,000 pages. It includes manufacturing and animal testing data as well as
clinical trial data.
Regulatory Reviews - FDA reviews of filings in the U.S. can last from several
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months to several years, while European regulatory review generally lasts 10-18
months in most countries. Regulatory approval is required prior to
commercialization of a drug. The FDA has been under increasing scrutiny and
pressure to shorten its approval process and has accelerated this process by
granting expedited approval of lifesaving drugs or drugs for conditions where
there is no current treatment.
Pharmaceutics Services - In parallel with the phases described above, the
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product dose form development process involves formulation development,
including placebo and active drug, clinical manufacturing and process
development for commercial manufacturing, the development of analytical
methodology, execution of a high number of analytical tests, as well as
stability testing. These services are also being outsourced more extensively as
companies increase their efforts to cut costs and time from the development
process.
IBAH's Services
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IBAH's services cover all phases of the drug development process. Available
services include formulation development, analytical methodology and stability
testing, preclinical through clinical trials, data management and biostatistical
services, quality assurance consulting, pharmacoeconomic studies, and regulatory
filings.
Preclinical Services
IBAH offers a full range of preclinical testing services through an alliance
with the Laboratory of Pharmacology and Toxicology ("LPT"), a well-established,
experienced, preclinical organization headquartered in Hamburg, Germany. These
services include toxicology, carcinogenicity, mutagenicity, reproduction, and
pathology studies.
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Clinical Program Management
IBAH provides a broad range of services related to the design and management
of clinical programs. These activities include program design strategy to meet
regulatory requirements and commercial objectives. Specifically, IBAH is focused
from the outset on speed to market at an efficient cost. Before beginning
clinical trials, IBAH assists clients in developing specific attributes or
design of the program to ensure that key product profile objectives are
incorporated into the program's design.
Once a clinical program has been designed, implementation of clinical studies
includes establishing study sites and monitoring the conduct of the studies.
IBAH recruits qualified investigators to carry out the trials in compliance with
applicable regulations and protocols designed for the specific trial. Clinical
monitoring includes regular visits to clinical trial sites by IBAH's clinical
research associates. The monitoring process focuses heavily on quality control
to assure the accuracy and reliability of the data collected and compliance with
all applicable requirements.
The Clinical Services Division's international project management team offers
experience in over 35 therapeutic areas and utilizes a Worldwide Operations
Database to track study progress.
Data Management, Analysis and Reporting
Critical to the success of any clinical trial is the assembly, analysis and
reporting of data collected. IBAH's cross-disciplinary teams -- skilled in data
management, biostatistics, computer programming, clinical writing, and
regulatory affairs -- utilize current data processing equipment and commercial
and proprietary software that enable the Company to process, analyze and present
vast amounts of data. The field data collected at the study sites is assembled
into a database and verified for accuracy of input. The information collected
is then analyzed and its statistical significance ascertained.
Considerable effort is directed toward the goal of having error-free data in
regulatory filings. This effort increases reliability of results and minimizes
delays in the approval process.
IBAH's expertise is applied to create formats, graphics and presentations to
meet regulatory requirements and other client needs. Experienced writers work
with other members of IBAH's staff to prepare comprehensive interpretive reports
on the test results. Proprietary software programs are designed for the
client's use so that the database can be supplemented, reorganized and accessed
by the client for its own purposes or as requested by the reviewing regulatory
agency. The Company also offers a Windows-based Remote Data Entry system which
provides flexibility, security and efficiency in managing data generated in
clinical studies.
Preparation of NDAs and comparable foreign regulatory filings is a major
undertaking involving complex analyses and presentation of voluminous amounts of
data. The time required for review by the FDA or comparable agencies in other
countries often depends on the manner in which the data is analyzed, organized,
and presented in the application. A well prepared filing increases the
likelihood for achieving a faster review.
IBAH has the experience and the resources to assist clients in preparing
regulatory filings and in responding to inquiries by the reviewing agency. The
regulatory review process normally involves frequent communication between the
applicant and the reviewing staff which IBAH can facilitate. IBAH believes that
its assistance in the preparation of filings and the completion of the approval
process has resulted on occasion in a significant reduction in the time that
would have been required for the clients to prepare the filing and complete the
review process using only internal staff and facilities.
Regulatory Affairs
Since Bio-Pharm's inception in 1985, the Company has assisted in the
preparation of 48 NDAs, including one of the largest ever filed.
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IBAH provides regulatory consulting services to clients at all stages of the
product development process, often beginning before the client has made the
initial filing for permission to begin human testing. Consulting engagements
focus on such topics as the development plan, protocol design and overall
strategy to meet regulatory requirements. In consulting engagements, as in many
other types of services, IBAH's personnel work closely with the client's staff
to complement the client's expertise and capabilities.
Increasingly, clients desire approvals in multiple countries. In such cases,
IBAH provides global regulatory affairs advice concerning the requirements in
each jurisdiction where an application will be made.
IBAH also consults with clients about manufacturing issues related to
regulatory approvals. The principal focus of such consultation is usually
compliance with regulatory requirements, including cGMP, product testing and
accountability.
Clients may enter into multiple contracts at different stages in the
development process. Sometimes IBAH's initial contract in connection with a new
product covers only consulting services. However, successful consulting
projects may lead to contracts for substantial additional services at later
stages of the development process.
Pharmaceutics Services
A fully equipped cGMP facility, specifically designed to carry out clinical
supplies manufacturing and formulation services, along with an experienced
clinical supply team, allows for efficient production of high quality supplies.
The Company also provides a full range of formulations services. These
services include formulation development, analytical methods development,
validation and testing, and stability storage and testing.
Complex logistics are required to package, distribute and account for the
large quantities of study drug supplies used in a clinical trial, especially for
double-blind studies. For example, IBAH often receives bulk quantities of a
study drug and is engaged to render pharmaceutical handling services, or to
label, package and distribute a study drug in individual patient packs,
sometimes in refrigerated form. In addition, the Company also has the
capability to encapsulate solid dosage forms for blinded clinical trials and
prepare matching placebos.
Independent Quality Assurance
IBAH has an extensive worldwide staff of experienced quality assurance
professionals. These professionals offer a full range of quality assurance
consulting at all stages of drug development. The services include auditing for
compliance with cGMP, Good Clinical Practices ("GCP") and Good Laboratory
Practices ("GLP") standards. The Company also assists clients with pre-
regulatory inspections, process assessments with a focus on compliance and
efficiency, development of Standard Operating Procedures ("SOPs") and compliance
education.
Clients and Marketing
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IBAH serves a broad range of clients, including most of the major
multinational pharmaceutical and many of the major biotechnology companies as
well as smaller companies in the pharmaceutical and biotechnology industries.
Medical devices and diagnostics increasingly are becoming subject to FDA
approval, and manufacturers of such products have been, and currently are, a
part of IBAH's clientele. IBAH strives to develop close ties with its clients
and has experienced a high degree of repeat business after a relationship is
established.
Over the last three years, two of IBAH's clients accounted for 10% or more of
its revenues in any given year. In 1997, no individual client accounted for
more than 10% of net service revenues. In 1996, one client accounted for 20.4%;
and in 1995, two clients accounted for 14.9% and 10.2% respectively. These two
clients are
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multinational pharmaceutical companies with annual revenues in the billions of
dollars. For further detail, see Notes 2 and 19 of the Notes to Consolidated
Financial Statements.
Historically, IBAH attracted new clients due to its reputation for speed and
quality, recommendations from established clients and the personal efforts of
its executives. These sources of attracting business remain. IBAH also relies
on and utilizes business development professionals in the Company's worldwide
locations to obtain new business.
Marketing efforts also include advertising through direct mail, professional
journals and trade publications; exhibiting at industry meetings; distributing
newsletters to industry professionals; and speaking engagements and publications
by key employees.
Contractual Arrangements
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Substantially all of the Company's revenues are earned by performing services
under contracts from various pharmaceutical, biotechnology, medical device and
diagnostics companies. Compensation for services is arranged on a combination of
fixed and variable costs. When the costs are variable, the unit price for a
particular task is fixed but the volume of such tasks is not. Typically,
projects have a budget that assumes a number of units for each task, but the
client retains the right to alter the scope of the project as it develops.
Generally, client contracts can be cancelled at any time for a variety of
reasons.
Substantially all revenues are earned by performing services under contracts
from various pharmaceutical, biotechnology, medical device and diagnostics
companies, based on contract terms. Most of the Company's contracts provide for
services to be performed on a units of service basis. These contracts
specifically identify the units of service and unit pricing. Under these
contracts, revenue is generally recognized upon the completion of units of
service, unless the unit of service is performed over an extended period of
time. For extended units of service, revenue is recognized based on labor hours
expended as a percentage of total labor hours expected to be expended. From time
to time, the Company is also a party to time-and-materials and fixed-price
contracts. For time-and-materials contracts, revenue is recognized at
contractual hourly rates and for fixed-price contracts revenue is recognized
using a method similar to that used for extended units of service. The Company's
contracts provide for price renegotiations upon scope of work changes. The
Company recognizes revenue related to these scope changes when the underlying
services are performed and realization is assured. In the event of contract
termination, contracts require payment for services rendered through the date of
termination. In a number of cases, clients are required to make termination
payments in addition to payments for services already rendered. Any anticipated
losses resulting from contract performance are charged to earnings in the period
identified. Billings and payments are specified in each contract. Revenue
recognized in excess of billings is classified as unbilled receivables, while
billings in excess of revenue are classified as deferred revenue.
Competition
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IBAH competes against other full-service CROs. The CRO industry is highly
fragmented, with a number of full-service CROs and many small, limited-service
providers, some of which serve only local markets. IBAH believes that it has
among the largest CRO staffs in the European market. International business
accounted for approximately 28% of the Company's 1997 CRO net revenue.
Clients choose a CRO based on several factors. These factors include
reputation, references from existing clients, the client's relationship with the
CRO, the CRO's experience with the particular type of project and/or therapeutic
area of clinical development, the CRO's ability to add value to the client's
development plan, the CRO's financial stability and the CRO's ability to provide
the full range of services required by the client. IBAH believes that it
competes favorably in these respects. While the fee structure is an important
consideration in the selection of a CRO, IBAH believes more important factors in
its business growth have been its experience, reputation and capability to
render a broad range of services worldwide in a timely and professional manner.
The Company believes it is price-competitive with the largest, full-service
CROs.
For many potential contracts, the client's threshold question is whether to
perform specific tasks internally or outsource them to a CRO. Various economic,
philosophic, cultural and organizational factors affect the decision to use a
CRO. IBAH believes that the trend toward greater outsourcing to CROs will
continue worldwide.
Foreign Currency
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The Company contracts with clients in various foreign currencies and typically
conducts its actual work with clients in multiple countries for each major
contract. Such activities can give rise to potential gains or losses on
specific transactions between countries where the work is conducted, which to
date have not been material. As
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the Company continues to grow internationally there will be a currency risk,
either favorable or unfavorable, when translating foreign results into U.S.
dollars. However, since the Company's service contracts are based in local
currency, typically in the country where the client contracts the work, there is
additional currency exposure either favorably or unfavorable within the
International Clinical Services Division in the form of transaction gains or
losses between currencies. For these types of transactions, the Company may
consider foreign currency hedging as a mechanism to protect exposures in a given
currency as they relate to foreign or U.S. dollar currency.
Potential Liability and Insurance
- ---------------------------------
To manage its potential liability, IBAH purchases insurance and seeks
indemnity provisions in its contracts with clients and, in some cases, with
investigators with whom it contracts on behalf of clients. The contractual
indemnities generally do not protect IBAH against certain of its own actions
such as those involving its negligence or misconduct. These indemnities are
subject to negotiation with individual clients and investigators, and their
terms and scope vary. While most of the Company's clients are large, well-
capitalized companies, the financial performance of these indemnities generally
is not secured. Therefore, IBAH bears the risk that an indemnifying party may
not have the financial ability to fulfill its obligations. In some
circumstances, IBAH indemnifies and holds harmless clients and investigators
against liabilities incurred by them due to IBAH's actions or inactions. The
Company currently maintains professional liability insurance which covers all
areas worldwide where IBAH does business. IBAH could be materially and
adversely affected if it were required to pay damages or incur defense costs in
connection with an indemnity claim against it or in connection with a claim that
is outside the scope of an indemnity in IBAH's favor, or beyond the level of
insurance coverage, or where an applicable indemnity in its favor is not
performed in accordance with its terms.
Each investigator retained by IBAH on behalf of a client must agree to
exercise independent medical judgment to serve the patient's interests and
medical needs, consistent with the patient's informed consent to participate in
the study. In some instances, this undertaking may obligate the investigator to
remove a patient from the study. IBAH does not assume the responsibility to make
medical determinations on patient management.
IBAH believes that the risk of liability from patients in clinical trials is
mitigated by various regulatory requirements, including the role of Ethics
Committees and Institutional Review Boards ("IRBs"), independent committees that
include both medical and non-medical personnel and the need to obtain each
patient's informed consent. The FDA, for example, requires clinical trials to
be reviewed and approved by an IRB. An IRB and an Ethics Committee are
obligated, among other duties, to protect the interests of patients enrolled in
a trial.
Employees
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As of December 31, 1997, IBAH had 908 full-time equivalents, most of whom were
employed on a full-time basis. IBAH's staff includes many experts with advanced
training in a wide variety of disciplines, including approximately 31 medical
doctors and 19 people holding Ph.D. degrees in the life sciences, biostatistics,
or other related fields. IBAH conducts its own training program for its
clinical research associates. The training includes both in-house activities
and supervised field training. Most of the executives and senior managers had
significant experience with pharmaceutical or biotechnology companies before
joining IBAH.
Forward-Looking Information
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Any statements made herein that relate to future plans, events or
performance, are "forward-looking statements." All such statements involve
risks and uncertainties that could cause actual results to differ materially
from those anticipated. Factors that might cause such a difference include, but
are not limited to, those relating to conducting operations in a competitive
environment; loss or delay of large contracts for regulatory or other reasons;
acquisition activities (including uncertainties associated with, among other
things, projecting the synergies to be gained by the 1996 and 1997
acquisitions); competition or consolidation within the pharmaceutical industry;
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ability to increase sales or revenue growth at or above market rates;
fluctuations in foreign currency; the degree of success in attracting and
obtaining new business; and the continued improvement of the performance of the
International Clinical Services Division.
ITEM 2. PROPERTIES.
- ------ ----------
IBAH's principal offices and facilities, which occupy approximately 92,000
square feet of space in Blue Bell, Pennsylvania, are leased for a term expiring
in 2000. The Clinical Services Division also has leases covering approximately
27,000 square feet of space near Frankfurt, Germany, approximately 24,000 square
feet (a small portion of which is subject to a long-term lease) in Chippenham,
England, and smaller offices in or near Basel, Switzerland; Paris, France;
Espoo, Finland; Maastricht, the Netherlands; Brussels, Belgium; Sydney,
Australia; Prague, the Czech Republic; Barcelona, Spain; Copenhagen, Denmark;
Durham, North Carolina; San Francisco, California; Chicago, Illinois;
Minneapolis, Minnesota; and Chester, New Jersey. IBAH considers its current
space to be adequate for its operations. Its leases generally reflect market
rates in their respective geographic areas.
The Pharmaceutics Services Division is headquartered in suburban Philadelphia,
where it leases approximately 20,000 square feet of office and laboratory space
pursuant to a five-year noncancelable operating lease that expires in December
1998. The lease contains three two-year options which may be exercised at the
Company's discretion. It is expected that the Company will exercise the first
such option to continue the lease through December 2000.
In addition, to accommodate rapid growth, the Pharmaceutics Services Division
is in the process of phasing into a lease for a 124,000 square foot facility in
the same area as its existing facility. Phase I of the build-out of the new
facility, for 40,000 square feet dedicated to packaging, stability testing,
warehouse and administration space, was completed in July 1997. Phase II for
40,000 square feet of analytical space, is planned to be completed in July
1998. The remaining 44,000 square feet is expected to be placed in service in
1999.
ITEM 3. LEGAL PROCEEDINGS.
- ------ -----------------
The Company is involved in various legal proceedings in the ordinary course of
its business, which are not anticipated to have a material adverse effect on the
Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
- ------ --------------------------------------------------
None.
11
<PAGE>
Item 4(a). DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- --------- --------------------------------------------------
Set forth below is information concerning directors and executive officers
of the Company.
Name Age Position
- ----------------------------------------- --- -------------------------------
Ernst-Gunter Afting, Ph.D., M.D. 55 Director
Victor J. Bauer, Ph.D. 62 Director
Edwin A. Bescherer, Jr. 64 Director
Mark K. Brunhofer 32 Corporate Controller
Winston J. Churchill, J.D. 57 Chairman of the Board and
Director
John H. Dillon, II 55 Executive Vice President,
Worldwide Corporate Development
Martyn D. Greenacre 56 Director
Geraldine A. Henwood 45 Chief Executive Officer and
Director
David Jackson, M.D. 51 Executive Vice President,
Global Corporate Research and
Development
Sidney Jevons, Ph.D. 55 Chairman, U.K., Executive Vice
President, International
Development and Director
Cornelius H. Lansing, II 40 Chief Financial Officer
Sandra Panem, Ph.D. 51 Director
John Santoro 42 President, Pharmaceutics
Services
Richard L. Sherman, J.D. 51 Director
Leonard F. Stigliano 50 President, U.S. CRO
Rudi Weekers 42 President, International CRO
12
<PAGE>
Certain Biographical and Other Information
------------------------------------------
Regarding Directors and Executive Officers of the Company
---------------------------------------------------------
Dr. Afting has served as a director since June 1996. From 1995 to the
present, Dr. Afting has been president of GSF - National Research Center for
Environmental health - in Munich, one of the largest governmental research
centers in Germany. He is a member of the advisory committee "Science,
Technology and Innovation (section biotechnology)" to the German Chancellor
Kohl. Dr. Afting has also served as a Professor and Member of the Medical
Faculty at the University of Gottingen from 1978 to the present. From 1993 to
1995, Dr. Afting was President and Chief Executive Officer of Roussel UCLAF in
Paris, France, a subsidiary of Hoechst AG, Frankfurt, Germany. Dr. Afting held
various positions within Hoechst AG from 1988 to 1993, including Head of
Pharmaceutical Division and Chairman of Divisional Board, and Head of Worldwide
Pharmaceutical Research and Member of Divisional Pharma Board. Dr. Afting
received an M.D. and Ph.D. in Chemistry from the University of
Freiburg/Breisgau. Dr. Afting is a member of the Board of Directors of Medigen;
Sequenome; and Titan Pharmaceuticals, Inc.
Dr. Bauer has served as a director since the Affinity Merger in April 1994.
Since February 1997, Dr. Bauer has been employed by Titan Pharmaceuticals, Inc.,
where he currently serves as Executive Director, Corporate Development. Before
he assumed his role at Titan, Dr. Bauer had been a self-employed consultant to
companies in the pharmaceutical and biotechnology industries since December
1992. Prior to that time, Dr. Bauer was with Hoechst-Roussel Pharmaceuticals
Inc. for 20 years, where he served as President from 1988 through 1992. Dr.
Bauer is a member of the Board of Directors of Titan Pharmaceuticals, Inc.,
Theracell, Inc., and AMDG, Inc. Dr. Bauer is a Trustee of the New Jersey
Symphony Orchestra, serving as Vice-Chairman of its Board. Dr. Bauer received a
Ph.D. in Organic Chemistry from the University of Wisconsin.
Mr. Bescherer has served as a Director since March 1996. He spent 17 years
at the Dun & Bradstreet Corporation ("D&B") where he was the Chief Financial
Officer for 14 years, including the last eight years as an Executive Vice
President. Prior to joining D&B, Mr. Bescherer spent 23 years at General
Electric in a variety of senior finance and management roles.
Mr. Brunhofer has been the Corporate Controller of IBAH since December 1995
serving as the Principal Accounting Officer as well from June 1996 to the
present. From the Affinity Merger in April 1994 through December 1995, Mr.
Brunhofer held the position of U.S. Controller of IBAH. From April 1993 through
the Affinity Merger, he was the Controller of Bio-Pharm Clinical Services, Inc.
From 1987 through 1993, he progressed from Staff Accountant, then Senior
Accountant to Audit Manager in the Philadelphia office of Arthur Andersen LLP.
Mr. Brunhofer is a certified public accountant.
Mr. Churchill has served as Chairman of the Company from its inception in
January 1990. He has been President of Churchill Investment Partners, Inc., a
private investment firm, since 1989. From 1984 to 1989, Mr. Churchill was a
general partner of Bradford Associates, a private investment firm in Princeton,
New Jersey. Prior to that time, he practiced law at the Philadelphia firm of
Saul, Ewing, Remick & Saul for 16 years and was a member of that firm's
Executive Committee. Mr. Churchill received an M.A. in Economics from Oxford
University, where he studied on a Rhodes scholarship, and a J.D. from Yale Law
School. Mr. Churchill is also Chairman of the Board of Directors of Central
Sprinkler Corporation; a Director of Geotek Communications, Inc.; and a director
of CinemaStar Luxury Theaters, Inc.
Mr. Dillon has served as Executive Vice President, Worldwide Corporate
Development since January 1997 and from June 1995 through December 1996 he
served as Executive Vice President, Worldwide Business Development. From June
1994 to June 1995 he served as Senior Vice President, Corporate Development.
Immediately prior to joining IBAH, Mr. Dillon served as CEO of Research Data
Corporation ("RDC"), a company providing data management and software
development services for the pharmaceutical industry. Mr. Dillon also served as
Senior Vice President, Corporate Development for RDC from 1991-1992. Prior to
joining RDC, Mr. Dillon was employed for 22 years at SmithKline Beecham
Corporation and its predecessors, most recently as Vice President, Worldwide
Business Development for the Pharmaceutical Division. Mr. Dillon received an
M.B.A. from the Wharton School at the University of Pennsylvania.
13
<PAGE>
Mr. Greenacre has served as a Director since the Affinity Merger in April
1994 and has been President and Chief Executive Officer of Delsys Pharmaceutical
Corp., a pharmaceutical formulation development and manufacturing company, since
June 1997. Prior to his current position, Mr. Greenacre was President and Chief
Executive Officer of Zynaxis, Inc., a therapeutics research firm, beginning in
March 1993. From 1989 through 1992, Mr. Greenacre was Chairman - Europe
Pharmaceuticals of SmithKline Beecham plc. Health Care. Mr. Greenacre serves on
the Board of Directors of Cephalon, Inc.; Delsys Pharmaceutical Corp.; Creative
Biomolecules, Inc.; and Genset, Inc.
Ms. Henwood has served as a director since July 1992 and has been the
President and Chief Executive Officer of IBAH since the Affinity Merger in April
1994. She was the founder, Chairman of the Board, Chief Executive Officer and
President of Bio-Pharm from its inception in 1985 until the date of the Affinity
Merger. Prior to founding Bio-Pharm, Ms. Henwood held a variety of management
positions with predecessors of SmithKline Beecham Corporation. Ms. Henwood is a
member of the Board of Directors of Immulogic Pharmaceutical Corporation.
Dr. Jackson has served as Executive Vice President, Global Research and
Development since January 1998. Prior to his current position, Dr. Jackson
served as President of the U.S. CRO since September 1996. From the date of the
Affinity Merger until he assumed the position of President, Dr. Jackson served
as the Chief Medical Officer of the Company. For a brief period before the
Affinity Merger he was President and Chief Executive Officer of Affinity. From
1988 to 1994, Dr. Jackson held the position of Vice President of Clinical
Research with Janssen Research Foundation.
Dr. Jevons has served as a Director since the Affinity Merger in April 1994.
Since the acquisition of EPIC by Bio-Pharm and the subsequent Affinity Merger,
Dr. Jevons has served the Company as President of European operations, Managing
Director, U.K. Operations, and, as of April 1996, Chairman, U.K. and Executive
Vice-President of International Development. Prior to that time, Dr. Jevons was
the Managing Director of EPIC, which he co-founded in 1989. From 1985 until
1989, he held senior management positions, including Chief Operations Officer,
at a Major International CRO, Institute of Clinical Pharmacology. Prior to that
time, he held senior positions in both Research and Product Development with
Pfizer, Inc. of the U.K. Dr. Jevons has a Ph.D. in biochemistry from the
University of Liverpool.
Mr. Lansing has served as Chief Financial Officer since joining the Company
in May 1997. Prior to joining IBAH, Mr. Lansing served as the Vice President of
Operations and Audit Services of ACNielsen, Inc. (a company previously operated
as a division of D&B) from January 1996 to May 1997. Prior to holding this
position, Mr. Lansing held various financial management positions with D&B from
July 1989 to January 1996, including serving as Vice President and Chief
Financial Officer for the Europe, Middle East and Africa business of its
ACNielsen division, and serving the team that spun D&B into three separate
publicly traded entities.
Dr. Panem has served as a director since July 1995. She is currently
President of Vector Fund Management, L.P., the asset management affiliate of
Vector Securities International, Inc., specializing in the emerging life
sciences and health care industries. Prior to joining Vector Fund Management in
1994, Dr. Panem served as Vice President and Portfolio Manager for the
Oppenheimer Global Biotech Fund. Prior to Oppenheimer, Dr. Panem was Vice
President at Salomon Brothers Venture Capital. She received a B.S. in
biochemistry and a Ph.D. in microbiology from the University of Chicago. Dr.
Panem serves as a director of Martek Biosciences Corp.; Synaptic Pharmaceutical
Inc.; and Healthtech Services Corp.
Mr. Santoro has been responsible for the Pharmaceutics Division of IBAH
since April 1994 and currently holds the position of President, IBAH
Pharmaceutics Services, Inc. Prior to the Affinity Merger, Mr. Santoro was Vice
President of Bio-Pharm Clinical Services. In that position he was responsible
for data management and computer systems. From 1976 to 1987, he held various
consulting positions with a number of Fortune 500 companies related to data
management and computer systems.
Mr. Sherman has served as a director since 1993. He is the founding
principal of QED Technologies, a business consulting group founded in November
1992. He is also a principal of CIP Capital Management, Inc., the general
partner of CIP Capital, L.P., a private investment fund. From 1976 through
June, 1989, Mr. Sherman held several positions with SmithKline Beecham
Corporation and its predecessors, including Deputy General Counsel.
14
<PAGE>
Before founding QED, Mr. Sherman was a partner with the firm of Pepper, Hamilton
& Scheetz, where his practice focused on international and domestic commercial
transactions, technology transfer and business counseling, with particular
expertise in pharmaceuticals, medical devices, biotechnology and other
healthcare technologies. Mr. Sherman is member of the Board Of Directors of
Sparta Pharmaceuticals, Inc.
Mr. Stigliano has served as President of the U.S. CRO since January 1998.
From May 1997 through December 1997, Mr. Stigliano held the position of Chief
Operating Officer of IBAH. From June 1995, when he joined the Company, through
May 1997, Mr. Stigliano served as IBAH's Chief Financial Officer. From 1991
until the time he joined the Company, Mr. Stigliano had been Chief Financial
Officer of Chemex Pharmaceuticals, Inc., a pharmaceutical development company
specializing in dermatology research. Prior to that time, Mr. Stigliano spent
nine years with Technicon Instruments Corporation, Inc., a diagnostic company
which developed and marketed blood analyzers for clinical laboratories where he
held several positions including Senior Vice President, Finance & Business
Development and President, North America.
Mr. Weekers has served as President of the International Clinical Services
Division since June 1997. From 1985 to 1997, Mr. Weekers held various financial
and management positions within Abbott Diagnostics. Most recently, beginning in
July 1995, Mr. Weekers held the position of Director, Eastern Europe, Middle
East and Africa for Abbott Diagnostika. Prior to holding that position, Mr.
Weekers served as Country Manager, Belgium, Abbott Diagnostic Division from 1993
to 1995.
15
<PAGE>
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- ------ ---------------------------------------------------------------------
The Company's Common Stock is traded in the NASDAQ National Market under the
symbol "IBAH." On March 9, 1998, the closing quotation for the Common Stock was
$3.5625. As of March 9, 1998, there were approximately 318 holders of record of
the Company's Common Stock and the Company estimates there were approximately
1,800 beneficial stockholders.
The following table sets forth the high and low bid quotations of the
Company's Common Stock in the over-the-counter market by quarter for 1996 and
1997, as reported by NASDAQ. These prices reflect inter-dealer quotation,
without retail mark-up, mark-downs or other fees or commissions, and may not
necessarily represent actual transactions.
BID QUOTATIONS
- -----------------------------------------------------------------------
1996 HIGH LOW
- ---- ---- ---
FIRST QUARTER 7 5 1/2
SECOND QUARTER 8 5/8 6 1/4
THIRD QUARTER 8 5 1/2
FOURTH QUARTER 8 1/4 5 3/4
1997
- ----
FIRST QUARTER 8 1/8 6
SECOND QUARTER 6 1/8 3 3/8
THIRD QUARTER 5 1/8 3
FOURTH QUARTER 4 11/16 2 7/8
The Company has never declared or paid a cash dividend on its Common Stock
and has no present plans to pay cash dividends to its stockholders. For the
foreseeable future the Company intends to retain all of its earnings for use in
its business. The declaration of any future dividends by IBAH is within the
discretion of its Board of Directors and will be dependent on the earnings,
financial condition and capital requirements of IBAH as well as any other
factors deemed relevant by its Board of Directors.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
- ------ -----------------------
IBAH, INC.
----------
SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1993 1994(1) 1995 1996(2) 1997(3)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operation Data:
Revenues $ 25,584 $ 50,132 $ 56,985 $ 82,573 $ 131,821
Less-Reimbursed Costs 7,799 16,512 14,119 20,453 43,770
---------- ---------- ---------- ---------- ----------
Net revenues 17,785 33,620 42,866 62,120 88,051
Operating expenses 19,042 53,503(4) 45,768 61,166(4) 86,510(5)
---------- ---------- ---------- ---------- ----------
Operating income (loss) (1,257) (19,883) (2,902) 954 1,541
Interest income (expense), net (263) (86) (111) 475 199
---------- ---------- ---------- ---------- ----------
Income (loss) before taxes (1,520) (19,969) (3,013) 1,429 1,740
Income taxes - - - 60 983
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations (1,520) (19,969) (3,013) 1,369 757
Loss from discontinued operations (6) - (1,245) (1,546) (389) (2,154)
---------- ---------- ---------- ---------- ----------
Net income (loss) (1,520) (21,214) (4,559) 980 (1,397)
Deemed dividend on preferred stock (7) - - (2,712) - -
---------- ---------- ---------- ---------- ----------
Net income (loss) to common stockholders $ (1,520) $ (21,214) $ (7,271) $ 980 $ (1,397)
========== ========== ========== ========== ==========
Income (loss) per common share--Basic (8)
Continuing Operations $ (0.15) $ (1.66) $ (0.40) $ 0.08 $ 0.03
Discontinued Operations - (0.10) (0.11) (0.03) (0.09)
---------- ---------- ---------- ---------- ----------
Income (loss) per common share--Basic $ (0.15) $ (1.76) $ (0.51) $ 0.05 $ (0.06)
========== ========== ========== ========== ==========
Income (loss) per common share--Diluted (8)
Continuing Operations $ (0.15) $ (1.66) $ (0.40) $ 0.05 $ 0.03
Discontinued Operations - (0.10) (0.11) (0.01) (0.08)
---------- ---------- ---------- ---------- ----------
Income (loss) per common share--Diluted $ (0.15) $ (1.76) $ (0.51) $ 0.04 $ (0.05)
========== ========== ========== ========== ==========
Year Ended December 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
Balance Sheet Data:
Cash, cash equivalents and investments $ 2,027 $ 4,357 $ 8,321 $ 20,823 $ 10,821
Working capital 1,985 2,122 4,640 9,206 8,509
Total assets 11,863 30,572 39,525 92,126 102,936
Long-term debt(9) 4,582 4,098 3,503 3,261 8,983
Retained earnings (accumulated deficit)(4,5) (1,064) (21,214) (25,773) (24,793) (26,061)
Stockholders' equity (deficit) (924) 8,882 11,473 49,556 50,110
</TABLE>
The Company has paid no cash dividends since its inception.
(1) Includes, for the year ended December 31, 1994, the acquisition of EPIC
which closed on January 4, 1994, and the merger with Affinity Biotech,
Inc., which took place on April 27, 1994.
(2) Includes, for the year ended December 31, 1996, the acquisition of RBI
which closed on July 18, 1996, and the acquisition of THG which closed on
October 1, 1996.
(3) Includes for the year ended December 31, 1997, the merger of PPL which
closed on May 5, 1997.
(4) Includes a non-recurring charge of $18.3 million for acquired research and
development in connection with the Affinity merger in 1994 and $510,000 of
acquired research and development in connection with the RBI acquisition in
1996.
(5) Includes non-recurring charges of $1,208,000 for the restructuring of the
International Clinical Services Division and $176,000 for merger costs
associated with the PPL transaction.
(6) Represents the divestiture of the Drug Delivery Services Division in 1994
and 1995 and the closure of the RBI software commercialization unit in 1996
and 1997. See Notes 6 and 7 of the Notes to Consolidated Financial
Statements.
(7) Restated to give effect to the change in accounting for its convertible
preferred stock having a beneficial conversion feature, of which $2,712,000
was recorded analogous to a deemed dividend. See Note 5 of the Notes to
Consolidated Financial Statements.
(8) See Note 2 of the Notes to Consolidated Financial Statements.
(9) Includes both current and long-term portions.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ---------------------------------------------------------------
RESULTS OF OPERATIONS.
---------------------
Overview
- --------
The Company began operations in December 1985, through its predecessor, Bio-
Pharm Clinical Services, Inc. ("Bio-Pharm"), and has achieved its growth through
internal development and acquisitions.
As of March 30, 1998, IBAH entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement") with Omnicare, Inc. ("Omnicare") under which
Omnicare will acquire IBAH in a stock-for-stock merger (the "Merger").
In the Merger, each outstanding IBAH common share will be converted into
$5.75 market value of Omnicare common shares, subject to the terms of the Merger
Agreement including, among other things, obtaining the approval of the IBAH
stockholders and certain regulatory authorities. Omnicare expects to issue
approximately $169 million in Omnicare stock. The transaction is structured as
a tax-free pooling of interests and, excluding transaction-related expenses, is
expected to be accretive to Omnicare's earnings per share in 1998.
In connection with the execution of the Merger Agreement, Omnicare and IBAH
entered into a Stock Option Agreement dated as of March 30, 1998 (the "Stock
Option Agreement") under which IBAH has granted Omnicare an option to purchase
up to 4,685,315 newly issued IBAH common shares (approximately 19.9% of the
outstanding IBAH common shares as of March 30, 1998) at $5.75 per share if
certain triggering events occur.
In addition, in connection with the Merger Agreement, certain holders of
IBAH common shares and IBAH preferred shares entered into Voting Agreements
dated as of March 30, 1998 (the "Voting Agreements") pursuant to which they have
agreed with Omnicare, subject to certain exceptions, to vote such holders' IBAH
stock in favor of the adoption of the Merger Agreement and approval of the
Merger, to vote against any contrary transaction, to grant to Omnicare an
irrevocable proxy to vote such IBAH stock and not to dispose of such IBAH stock.
IBAH preferred shares are entitled to vote on an as-converted basis with IBAH
common shares (giving the holders who agreed with Omnicare to vote in favor of
the Merger approximately 24.3% of the outstanding IBAH voting stock as of March
30, 1998). Additionally, the remaining holders of IBAH preferred shares have
agreed that they will not consent to or otherwise facilitate any transaction
that is inconsistent with the Merger, but are not otherwise restricted from
disposing of any IBAH stock held by them prior to stockholder vote on the Merger
to the extent such disposition is in accordance with applicable securities laws.
The IBAH preferred shares held by such holders represented approximately 4.6% of
the outstanding IBAH voting stock as of March 30, 1998.
The Company expects the Merger to be consummated, as contemplated by the
Merger Agreement, in the third quarter of 1998.
The Clinical Services Division, the core of IBAH, is a full-service contract
research organization ("CRO"), made up of the U.S. Clinical Services division
(the "U.S. CRO") and the International Clinical Services Division (the
"International CRO"). The Clinical Services Division serves the pharmaceutical,
biotechnology, medical device and diagnostics industries in accelerating the
development and commercialization of new products worldwide. This division's
primary services are the design of product development programs, managing pre-
clinical studies, design and conduct of clinical trials, clinical data
management and biostatistical analysis, writing reports of study findings,
quality assurance consulting, health economics analysis and post-marketing
studies, and regulatory affairs.
The Clinical Services Division began operations in December 1985 and derives
its revenues by providing services on a contractual basis to its clients. The
division's worldwide staff is based in offices in the U.S., Australia, Belgium,
the Czech Republic, Denmark, Finland, France, Germany, the Netherlands, Spain,
Sweden, Switzerland, and the United Kingdom. Through a joint venture with a
Russian company, IBAH also operates an office located in Russia. With its
current operations in Europe, the Company is positioned to service all of
Western and Eastern Europe, including Russia. Additional locations will be
evaluated based on client needs.
Overall, the Company has grown its international business over the past
several years. In 1997, the International CRO accounted for approximately 28%
of worldwide CRO net revenues. While the growth of its international
organization has taken significant management and financial resources, the
Company believes that global capabilities are required in order to obtain future
growth prospects in the CRO industry. Accordingly, the ability to perform
clinical trials and ancillary services on a global basis is a strategic focus of
the Company.
In October 1996, the Company acquired The Hardardt Group ("THG"), a CRO
focusing on clinical trials management and clinical monitoring. THG, which has
been fully integrated into the Clinical Services Division, added critical mass
and trials management talent to the Company, enhancing its ability to obtain and
perform large clinical trials. In July 1996, the Company acquired Resource
Biometrics, Inc. ("RBI"), a provider of data management services and software
products to the pharmaceutical and biotechnology industries. In June 1997, the
Company closed the software commercialization unit of RBI, deciding to
concentrate on expanding the contract services portion of that business. RBI has
been integrated into the Clinical Services Division.
In May 1997, the Company completed the acquisition of one of the leading
Australian CROs, Pharmaco Pty., Ltd. ("PPL"). the Company has integrated PPL's
operations with those of its previously existing Australian operations, adding
depth and strength to IBAH's Australian and Pacific Rim capabilities.
The Company's Pharmaceutics Services Division was acquired through the merger
with Affinity Biotech, Inc. In April 1994, and provides traditional product
formulation and analytical, stability and other manufacturing related services
(the manufacture of trial drugs and clinical trials packaging, among others) to
the same market as the Clinical Services Division. This division performs
process development for manufacturing, manufacture of dose forms for clinical
trials, testing of dose forms for shelf life stability and conformance with
product specifications and other chemical and physical properties required in
drug development and registration.
The Pharmaceutics Services Division operates from manufacturing and office
facilities located in suburban Philadelphia. The Company believes the demand
for this division's services will continue to grow as more companies look to
out-source pharmaceutical services. To accommodate this rapid growth, the
Company is currently proceeding with the second of three phases of build-out of
a 124,000 square foot facility. The Company expects to complete the build-out
of this facility during 1999.
18
<PAGE>
The Company contracts with clients in various foreign currencies and
typically conducts its actual work with clients in a number of different
countries for each major contract. Such activities can give rise to potential
gains or losses on specific transactions between countries where the work is
conducted, which to date, have not been material. The International CRO's
operations give rise to a currency risk, either favorable or unfavorable, when
translating results into U.S. dollars. However, since the Company's service
contracts are based in local currency, typically in the country where the client
contracts the work, there is additional currency exposure either favorable or
unfavorable within the International CRO in the form of transaction gains or
losses between currencies. For these types of transactions, the Company may
consider foreign currency hedging as a mechanism to protect exposures in a given
currency as they relate to foreign or U.S. dollar currency.
RESULTS OF OPERATIONS
- ---------------------
Year ended December 31, 1997 as compared to December 31, 1996
<TABLE>
<CAPTION>
IBAH, Inc.
Consolidated Statements of Operations For the Year Ended
(amounts in thousands) December 31,
--------------------------------------------------------
1996 1997
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenues $ 82,573 132.9% $ 131,821 149.7%
Less- Reimbursed costs 20,453 32.9% 43,770 49.7%
-------- -------- --------- -------
Net revenues 62,120 100.0% 88,051 100.0%
Operating expenses:
Direct 30,786 49.6% 48,106 54.6%
Selling, general and administrative 29,870 48.1% 37,020 42.0%
Restructuring costs - -% 1,208 1.4%
Merger costs - -% 176 0.2%
Acquired research and development 510 0.8% - -%
-------- -------- --------- -------
Operating income 954 1.5% 1,541 1.8%
Interest income, net of interest expense 475 0.8% 199 0.2%
-------- -------- --------- -------
Income from continuing operatings before taxes 1,429 2.3% 1,740 2.0%
Income taxes 60 0.1% 983 1.1%
-------- -------- --------- -------
Income from continuing operations 1,369 2.2% 757 0.9%
Loss from discontinued operations (389) (0.6%) (2,154) (2.4%)
-------- -------- --------- -------
Net income (loss) $ 980 1.6% $ (1,397) (1.6%)
======== ======== ========= =======
</TABLE>
Revenue is generally recognized upon the completion of units of service,
unless the unit of service is performed over an extended period of time. For
extended units of service, revenue is recognized based on labor hours expended
as a percentage of total labor hours expected to be expended. For clinical
studies, the CRO typically contracts on behalf of its clients with third party
independent investigators, usually physicians, and with other third party
providers of laboratory services or other specialized services. These costs are
passed through to clients, and in accordance with the Company's policy are
included in total revenues, but not in its net revenues.
19
<PAGE>
Total revenues in 1997 were $131,821,000, an increase of 59.6% over 1996
results. Net revenues were $88,051,000 for the year ended 1997, an increase of
41.7% over the comparable 1996 period. The larger rate of growth of total
revenues than that for net revenues is indicative of increases in reimbursed
costs. The Company's mix of contracts with significant reimbursed costs will
fluctuate, based on the size, type and duration of the trial. Excluding
acquisitions, internal revenue growth was 33.1%, while net revenue growth was
20.0%. The increase in net revenues was principally due to the growth of the
U.S. CRO's business (an increase of 59.8%, although net revenue in the U.S. CRO
grew by 20.9% excluding the effect of the THG and RBI acquisitions); continued
significant growth in the Pharmaceutics Services Division (an increase of
72.9%); and marginal growth in the International CRO (an increase of 2.4%). The
increase in net revenues from year to year reflects the continued growth in
outsourcing of CRO services by pharmaceutical and biotechnology companies,
improvement in the Company's sales and marketing function and the benefit of the
THG acquisition.
Direct expenses were $48,106,000, or 54.6% of net revenues, in 1997 as
compared to 49.6% of net revenues in 1996. Direct expenses increased by 56.3%
in 1997 over 1996. Excluding acquisitions, direct expenses increased 33.3%.
The increase in direct expenses as a percentage of net revenues results
primarily from two factors. First, the U.S. CRO has experienced a change in
revenue mix with the addition of the THG acquisition, and related integration
issues such as management structure, training and systems. Second, in the
International CRO, productivity was negatively impacted by the timing of revenue
growth. The Pharmaceutics Services Division also contributed to the increase in
direct costs as a percentage of net revenues as its initial phase of facility
expansion required bringing on direct expense slightly ahead of revenue. The
Company expects direct expenses as a percent of net revenues to decline in 1998.
Direct expenses are classified as those expenses that are directly related to
revenue producing departments.
Selling, general and administrative expenses were $37,020,000, or 42.0% of
net revenues, as compared to 48.1% in 1996. Selling, general and administrative
expenses increased by 23.9% over the comparable period for 1996. Excluding
acquisitions, selling, general and administrative expenses increased 10.5%.
Increased amortization of goodwill for business acquisitions accounted for 3.3%
of the 1997 increase. Total depreciation and amortization expenses included in
this figure were $4,658,000 in 1997, as compared to $2,968,000 in 1996. The
improvement in the ratio of selling, general and administrative expenses as a
percentage of net revenues was due to leveraging these expenses over a larger
business volume.
In June 1997, the Company implemented a restructuring plan for the
International CRO. Substantially, all of the termination benefits and lease-
related charges for this plan will be paid by the end of 1998. The Company has
recorded a one-time restructuring charge of $1,208,000, consisting primarily of
termination benefits for 14 employees and an accrual for lease-related charges.
As of December 31, 1997, 12 of these employees have been terminated and $296,000
of termination benefits have been paid. In addition, lease-related costs of
$111,000 have been paid.
In May 1997, the Company incurred $176,000 of costs associated with the
acquisition of PPL. As this transaction was accounted for as a pooling-of-
interests, all transaction related costs have been charged directly to the
Company's consolidated statement of operations.
Acquired research and development expense in 1996 was $510,000. This non-
cash charge was directly related to the acquisition of RBI, accounted for as a
purchase transaction. This charge represents the portion of the RBI purchase
price allocated to in-process software research and development.
Operating income was $1,541,000, a $587,000 (or 61.5%) improvement over
1996. Excluding all non-recurring charges for restructuring costs, merger costs
and acquired research and development, operating income was $2,925,000, a
$1,461,000 (or 99.8%) improvement over 1996. The substantial improvement in
operating results was principally due to the continued improvement in the U.S.
CRO and the Pharmaceutics Services Division, offset by additional losses in the
International CRO.
Interest income, net of interest expense, was $199,000 in 1997, as compared
to $475,000 in 1996. The decline in net interest income is principally due to a
decrease in cash and investments on hand during the year.
20
<PAGE>
Also contributing to the decline in net interest income is increased interest
expense related to borrowings under a new $7,000,000 term loan to finance the
initial phase of expansion in the Pharmaceutics Services Division.
Income taxes were $983,000 in 1997, compared to $60,000 in 1996. These
taxes relate primarily to state income taxes due from profitable operations in
the U.S. The increase in taxes is due to improved performance in the U.S. in
1997. There were no federal income taxes in 1997 or 1996 as the Company had
sufficient net operating loss carryforwards to offset any federal taxes due on
U.S. profits.
Loss from discontinued operations was $2,154,000 in 1997, compared to
$389,000 in 1996. The loss on discontinued operations relates to the closure of
RBI's software commercialization unit; all operating results of this business
unit have been reclassified from continuing operations to discontinued
operations. The increase in the loss in 1997 is primarily due to the loss on
disposal of this business unit totaling $1,547,000.
Excluding the losses from discontinued operations and the non-recurring
charges for restructuring costs, merger costs and acquired research and
development, net income for 1997 was $2,141,000, or $0.08 per share on a diluted
basis, as compared to $1,879,000, or also $0.08 per share on a diluted basis in
1996. Without these exclusions, net loss for 1997 was $1,397,000, or $0.05 per
share on a diluted basis, as compared to net income of $980,000, or $0.04 per
share on a diluted basis in 1996.
Divisional Statements of Operations
Comparison of 1996 and 1997 Results
(amounts in thousands)
<TABLE>
<CAPTION>
U.S. CRO (1) International CRO (2) Pharmaceutics Consolidated
------------------ -------------------- ------------------ ------------------
1996 1997 1996 1997 1996 1997 1996 1997
------- ------- --------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $35,224 $56,278 $20,895 $21,396 $ 6,001 $10,377 $62,120 $88,051
Operating Expenses:
Direct expenses 16,685 29,462 10,686 12,544 3,415 6,100 30,786 48,106
SG&A 14,981 19,964 12,897 14,086 1,992 2,970 29,870 37,020
Restructuring costs - - - 1,208 - - - 1,208
Merger costs - 95 - 81 - - - 176
Acquired R&D 510 - - - - - 510 -
------- ------- ------- ------- ------- ------- ------- -------
Operating Income
(Loss) $ 3,048 $ 6,757 $(2,688) $(6,523) $ 594 $ 1,307 $ 954 $ 1,541
======= ======= ======= ======= ======= ======= ======== =======
</TABLE>
The information presented in the above table does not purport to be indicative
of future results of operations.
(1) Includes the operating results of RBI since the July 18, 1996 acquisition
date and that of THG since the October 1, 1996 acquisition date. Excludes
the discontinued operations of the software commercialization unit of RBI.
(2) Includes the operating results of PPL since the May 5, 1997 acquisition
date.
Net revenues for the U.S. CRO were $56,278,000 in 1997, an increase of
59.8% over 1996. Internal growth in 1997 over 1996 was 20.9% (excluding the THG
and RBI acquisitions whose results are included only since acquisition). The
U.S. CRO experienced a change in revenue mix with the addition of the THG
acquisition, and related integration issues such as management structure,
training and systems. Indirect expenses improved as a percent of net revenue due
to the leveraging effect of incremental increases in revenue volume. As a
result, operating income, excluding the one-time RBI acquired research and
development charge and the PPL merger costs, improved to $6,852,000, an
improvement of $3,294,000, or 92.6%, over 1996.
21
<PAGE>
Net revenues of the International CRO were $21,396,000 in 1997, an increase
of 2.4% over 1996 results. The slight increase in net revenues in 1997 is a
result of a strong second half of the year. The second half improvement was due
to revenues earned under a major project re-initiated in March 1997, strong new
business sales and a restructuring of the operations. Net revenues in the first
half of 1997 were negatively impacted by the major project that was placed on
hold in 1996 and by a sequentially declining backlog. Results started to
improve after the major project was re-initiated in March 1997 and a concerted
business development effort improved the level of backlog. In June 1997, the
Company implemented a restructuring plan to reduce indirect costs in this
division by reducing administrative personnel and consolidating office space.
Productivity, both from a direct and indirect expense perspective, was
negatively impacted during the first half of 1997 as staff had been recruited
and dedicated to the major project. The improvements during the second half of
1997 were not sufficient to show an improvement for whole-year 1997 over 1996.
As a result, operating loss excluding restructuring costs and merger costs
increased from $2,688,000 in 1996 to $5,234,000 in 1997. Operating losses
excluding one-time charges during the first half of 1997 were $3,221,000,
improving to $2,013,000 for the second half of the year.
The Pharmaceutics Services Division's net revenues were $10,377,000 in
1997, an increase of 72.9% over 1996. This improvement resulted from the
continued demand for outsourcing of these services. The division was able to
accommodate the revenue growth by completing the initial phase of expansion into
its new facility during 1997. In July, 1997, the first 40,000 square feet of
laboratory and office space were occupied. During 1997, direct expenses as a
percent of net revenue increased to 58.8% from 56.9% in 1996. This increase is
a direct result of the increased costs related to the new facility. Indirect
costs were leveraged across the expanding revenue base. Therefore, indirect
costs were reduced from 33.2% of net revenues in 1996, to 28.6% in 1997. As a
result, the division's 1997 operating income increased 120% from 1996 to
$1,307,000.
22
<PAGE>
Year ended December 31, 1996 as compared to December 31, 1995
<TABLE>
<CAPTION>
IBAH, Inc.
Consolidated Statements of Operations For the Year Ended
(amounts in thousands) December 31,
----------------------------------------------
1995 1996
--------------------- --------------------
<S> <C> <C> <C> <C>
Revenues $ 56,985 132.9% $ 82,573 132.9%
Less-Reimbursed costs 14,119 32.9% 20,453 32.9%
---------- --------- --------- ---------
Net revenues 42,866 100.0% 62,120 100.0%
Operating expenses:
Direct 23,847 55.6% 30,786 49.6%
Selling, general and administrative 21,921 51.1% 29,870 48.1%
Acquired research and development - -% 510 0.8%
---------- --------- --------- ---------
Operating income (loss) (2,902) (6.8%) 954 1.5%
Interest income (expense), net (111) (0.3%) 475 0.8%
---------- --------- --------- ---------
Income (loss) from continuing operations before taxes (3,013) (7.0%) 1,429 2.3%
Income taxes - -% 60 0.1%
---------- --------- --------- ---------
Income (loss from continuing operations (3,013) (7.0%) 1,369 2.2%
Loss from discontinued operations (1,546) (3.6%) (389) (0.6%)
---------- --------- --------- ---------
Net income (loss) $ (4,559) (10.6%) $ 980 1.6%
========== ========= ========= =========
</TABLE>
Total revenues in 1996 were $82,573,000, an increase of 44.9% over 1995
results. Net revenues were $62,120,000 for the year ended 1996, an increase of
44.9% over the comparable 1995 period, the rate of growth being identical to
that of total revenues. Excluding acquisitions, internal revenue growth was
34.6%, while net revenue growth was 33.9%. The increase in net revenues was
principally due to the growth of the U.S. CRO's business (an increase of 50.5%,
although without the THG and RBI acquisitions the increase was 30.2%); dramatic
growth in the business of the Pharmaceutics Services Division (an increase of
131%); and growth in the International CRO (an increase of 24.1%). The increase
in net revenues from year to year reflects the continued growth in outsourcing
of CRO services by pharmaceutical and biotechnology companies as well as the
benefit of the THG and, to a lesser extent, the RBI acquisitions.
Direct expenses were $30,786,000, or 49.6% of net revenues in 1996, as
compared to 55.6% of net revenues in 1995. As a result, direct expenses
increased by 29.1% in 1996 over 1995. Excluding acquisitions, direct expenses
increased 19.5%. The improvement in the ratio of direct expenses was made in
all operating units, but principally in the Pharmaceutics Services Division,
where additional volume increased the utilization of capacity in this division,
improving margins.
Selling, general and administrative expenses were $29,870,000, or 48.1% of
net revenues, as compared to a 1995 ratio of selling, general and administrative
expenses to net revenues of 51.1%. Accordingly, selling, general and
administrative expenses increased by 36.3% over 1995. Excluding acquisitions,
selling, general and administrative expenses increased 26.0%. The amortization
of goodwill for the THG and RBI acquisitions accounted for 1.6% of the 1996
increase. Total depreciation and amortization expenses included in this figure
were $2,968,000 in 1996, as compared to $2,003,000 in 1995. The improvement in
the ratio of selling, general and administrative expenses as a percentage of net
revenues was principally due to spreading these expenses over a larger business
volume.
23
<PAGE>
Acquired research and development expense in 1996 was $510,000, versus no
equivalent expense in 1995. This non-cash charge incurred in 1996 was directly
related to the acquisition of RBI, accounted for as a purchase transaction.
This charge represents the portion of the RBI purchase price allocated to in-
process software research and development.
In 1996, the Company, for the first time since being a public company,
reported consolidated operating profit of $954,000 ($1,464,000 from continuing
operations if the acquired research from the acquisition of RBI is excluded), as
compared to an operating loss from continuing operations of $2,902,000 in 1995.
The substantial improvement in operating results was principally due to the
continued improvement in operating results for the U.S. CRO as well as the
maturation of the Pharmaceutics Services Division from a loss in 1995 to a
profit in 1996. Operating results from continuing operations improved once
again by quarter during 1996 as follows: first quarter-operating loss of
$242,000; second quarter-operating profit of $14,000; third quarter-operating
profit of $564,000 (excluding the $510,000 RBI acquired research and development
charge); and fourth quarter-operating profit of $1,128,000.
Interest income, net of interest expense, was $475,000 in 1996, as compared
to net interest expense of $111,000 in 1995. The improvement from a net
interest expense to a net interest income position from 1995 to 1996 was
principally due to the improvement in operating results from a loss in 1995 to a
profit in 1996, and the successful completion of a public equity offering in
April, 1996 which netted the Company $18 million. The net cash improvement due
to the public offering was partially offset in October 1996 by the $14 million
cash portion of the THG acquisition.
Loss from discontinued operations was $389,000 in 1996, compared to
$1,546,000 in 1995. The loss on discontinued operations in 1996 relates to the
closure of the RBI software commercialization unit, while that in 1995 relates
to the Drug Delivery Services Division that was divested in July 1995. All
operating results of these business units have been reclassified from continuing
operations to discontinued operations. The decrease in the loss in 1996 is
primarily because the 1995 amount includes the loss on disposal of the business
unit totaling $819,000.
Income taxes were $60,000 in 1996 and were related to state income taxes
due from profitable operations in the U.S. There were no federal income taxes
in 1996, as the Company had sufficient net operating loss carryforwards to
offset any federal taxes due on U.S. profits.
Net income for 1996 was $980,000, or $0.04 per share on a diluted basis, as
compared to a loss in 1995 of $4,559,000, or $0.32 per share on a diluted basis.
Excluding the losses from discontinued operations and the non-recurring charge
for acquired research and development, net income for 1996 was $1,879,000, or
$0.08 per share on a diluted basis, as compared to a loss of $3,013,000, or
$0.21 per share on a diluted basis in 1995.
24
<PAGE>
Divisional Statements of Operations
Comparison of 1995 and 1996 Results
(amounts in thousands)
<TABLE>
<CAPTION>
U.S. CRO (1) International CRO Pharmaceutics Consolidated
------------------ ------------------ ------------------ ------------------
1995 1996 1995 1996 1995 1996 1995 1996
------- ------- -------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $23,428 $35,224 $16,844 $20,895 $ 2,594 $ 6,001 $42,866 $62,120
Operating Expenses:
Direct expenses 11,794 16,685 9,088 10,686 2,965 3,415 23,847 30,786
SG&A 10,721 14,981 10,192 12,897 1,008 1,992 21,921 29,870
Acquired R&D - 510 - - - - - 510
------- ------- ------- ------- ------- ------- ------- -------
Operating Income
(Loss) $ 913 $ 3,048 $(2,436) $(2,688) $(1,379) $ 594 $(2,902) $ 954
======= ======= ======= ======= ======= ======= =======- =======
</TABLE>
The information presented in the above table does not purport to be indicative
of future results of operations.
(1) Includes the operating results of RBI since the July 18, 1996 acquisition
date and that of THG since the October 1, 1996 acquisition date. Excludes
the discontinued operations of the software commercialization unit of RBI
and the Drug Delivery business.
Net revenues for the U.S. CRO were $35,224,000 in 1996, an increase of
50.4% over 1995. Internal growth in 1996 over 1995 was 30.2% (excluding the THG
and RBI acquisitions whose results are included only since acquisition). Both
direct and indirect expenses improved as a percentage of net revenue due to
operational efficiencies, the completion of a major project, and the leveraging
effect of incremental increases in revenue volume. As a result, operating
income (excluding the one-time RBI acquired research and development charge)
improved to 10.1% of net revenues, an improvement of 290% over 1995.
Net revenues for the International CRO were $20,895,000 in 1996, an
increase of 24.1% over 1995 results. While revenue volume increased, the
operating loss of $2,688,000 of this division was essentially the same year over
year. The performance in 1996 was negatively impacted by the Company's largest
project being placed on hold during the middle of 1996. This hold status was
due to certain regulatory issues surrounding the drug and out of the control of
the Company. As a result, the Company was not able to earn significant revenues
from this project in the second half of 1996, while staff had been recruited and
dedicated to this project. In early January 1997 the project was taken off hold
status and the Company commenced work on this project in late first quarter of
1997.
The Pharmaceutics Services Division net revenues were $6,001,000 in 1996,
an increase of 131% over 1995. This improvement resulted from the continued
demand for outsourcing of these services and the fact that 1995 was the first
full year of operation. By utilizing more of its facility's capacity, the
division was able to record operating profit of $594,000, or 9.9% of net
revenues in 1996, as compared to an operating loss of $1,379,000 in 1995.
Year 2000 Compliance
The Year 2000 issue refers to the problems resulting from many existing computer
software programs and operating systems that use only two digits rather than
four to define the applicable year in a date field. The Company is in the
process of addressing the impact of the Year 2000 issue on the conduct of its
business, and has been implementing a plan to address potential exposure in this
area, which it expects will continue into 1999. Certain new software
applications to address Year 2000 compliance have been installed or are in the
implementation stage in the Company's information systems. In addition, the
Company is reviewing equipment with vendors and conducting internal tests on
critical equipment. The Company anticipates that it will repair or largely
replace non-compliant equipment before year-end 1998. The Company is contacting
government agencies, financial
25
<PAGE>
institutions, vendors and other service providers to determine their Year 2000
compliance programs and is seeking certification from all providers indicating
their completion of Year 2000 programs. The Company believes that it is
addressing all of the areas critical to its ability to conduct business in the
future without interruption due to the Year 2000 issues. Company personnel is
spending significant time installing compliant software, but in most instances,
such replacement or remediation would have been implemented even without the
need to address Year 2000 issues, due to the improved functionality of the
compliant applications. The Company is also using its internal resources in
other areas to carry out its Year 2000 program, and does not anticipate any
other significant costs related to these activities.
VALUATION ALLOWANCE
- -------------------
As indicated in Note 11 to the Financial Statements, the Company's deferred tax
assets include $4,855,000 attributable to loss carryforwards. Approximately $2.7
million of the deferred tax asset for net operating loss carryforwards at
December 31, 1997 relates to foreign operations, with the remainder related to
U.S. operations. A valuation allowance has been provided against the foreign net
operating loss carryforwards as these operations have incurred losses since
inception. The majority of the U.S. net operating loss carryforwards deferred
tax asset of $1.1 million relates to deductions generated by the exercise of
non-qualified stock options. The tax benefit of these deductions will be
recorded directly to additional paid-in-capital when realized, and, therefore,
will have no effect on operating results. A valuation allowance has also been
recorded against the remaining net operating loss carryforwards relating to U.S.
operations. Though the U.S. operations were profitable in 1996 and 1997, these
operations were unprofitable in 1993, 1994 and 1995. In addition, as of December
31, 1997, the Company considered its overall financial resources and other
factors which could affect future results. These factors included, but were not
limited to the risks associated with customer contract terminations or delays,
particularly with respect to three large projects, which have certain atypical
attributes. In management's view, these projects could have a substantial effect
(potentially as much as $8 million of operating income) in 1998 dependent upon
certain customer decisions. Given the lack of an established history of U.S.
profitability and the uncertainty of future operating results, the Company
believes that the weight of evidence available at December 31, 1997 indicates it
is more likely than not these carryforwards will not be realized. Additional
factors concerning trends and uncertainties are discussed at the end of the
Management Discussion and Analysis of Financial Condition and Results of
Operations section.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of December 31, 1997, the Company had cash and short-term investments of
$10.8 million, as compared to $20.8 million as of December 31, 1996. The
decrease in cash and short-term investments represents $9.8 million of investing
activities and $7.2 million used in the operations of the business offset by
increased cash of $7.4 million from financing activities. The investing
activities primarily represent the build-out of the Pharmaceutics Services
Division facility and the enhancement of the Company's information technology
infrastructure. These investments have been financed by a new bank term loan
facility (see below) and existing cash balances. Although cash flow from
operating activities has decreased $7.2 million, working capital has only
declined $700,000, from $9.2 million as of December 31, 1996, to $8.5 million at
December 31, 1997. The decline in cash but not working capital is a result of
the timing of cash items in the normal course of business.
During 1997, the Company added a $7 million term loan facility and renewed
its existing $5 million credit facility. The $7 million loan comprises four
term loans, bearing interest at 7.90% to 8.05%, with terms of 36 to 60 months.
As of December 31, 1997, the balance outstanding under these new loans was
$6,737,000. The Company used the term loan proceeds to finance new leasehold
improvements and new capital equipment for the Pharmaceutics Services Division
and to enhance the Company's information technology infrastructure. As of
December 31, 1997, the balance outstanding under the previously existing credit
facility was $938,000.
The Company anticipates capital expenditures of approximately $8 million in
1998. These expenditures relate primarily to the next phase of expansion at
the Pharmaceutics Services Division and continued investment in the Company's
technology infrastructure. In January 1998, the Company received a commitment
from its bank for a $5 million loan to finance the Pharmaceutics Services
Division's expansion. This loan will bear interest at 7.5% and will be
repayable in 47 equal monthly installments beginning six months after the first
draw under the loan.
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 purposes. 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.
Any statements made herein that relate to future plans, events or
performance, are "forward-looking statements." All such statements involve
risks and uncertainties that could cause actual results to differ materially
from those anticipated. Factors that might cause such a difference include, but
are not limited to, those relating to conducting operations in a competitive
environment; loss or delay of large contracts for regulatory or other reasons;
acquisition activities (including uncertainties associated with, among other
things, projecting the synergies to be gained by the 1996 and 1997
acquisitions); competition or consolidation within the pharmaceutical industry;
ability to increase sales or revenue growth at or above market rates;
fluctuations in foreign currency; the degree of success in attracting and
obtaining new business; and the continued improvement of the performance of the
International CRO.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------ -------------------------------------------
The audited consolidated financial statements of the Company appear
beginning on page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
None.
27
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------- --------------------------------------------------
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held six meetings during 1997. None of the
directors attended fewer than 75% of the meetings of the Board of Directors.
During 1997, none of the directors attended fewer than 75% of the meetings of
any committee of which he or she was a member which were held during the period
in which he or she was a member.
The Board of Directors has standing Executive, Audit/Compliance and
Compensation Committees. The Board of Directors does not have a standing
nominating committee, this function being performed on an ad hoc basis by the
Board of Directors as a whole. The Executive Committee consists of Mr.
Churchill, Chairman, Ms. Henwood, Dr. Panem and Mr. Bescherer and, to the extent
permitted under Delaware law, exercises all of the power and authority of the
Board of Directors in the management of the business and affairs of the Company
between meetings of the Board. The Executive Committee held meetings by
telephone or in person approximately once a month during 1997. The
Audit/Compliance Committee consists of Mr. Bescherer, Chairman, Mr. Greenacre
and Dr. Bauer. This committee reviews and makes inquiries, as it deems
appropriate, with respect to the scope and results of the audit by the Company's
independent auditors, the adequacy of the Company's system of internal
accounting controls and procedures and the internal controls with respect to
compliance with laws. This Committee held three meetings in 1997. The
Compensation Committee consists of Dr. Panem, Chair, Dr. Bauer and Mr.
Greenacre. This committee administers the Company's stock option plans and
reviews and approves the remuneration of executive officers and significant
employees of the Company. The Compensation Committee held four meetings in
1997.
Except as described below, directors are not compensated for their services
as directors. Directors are reimbursed for their travel expenses in attending
meetings. In addition, during the period 1995 through 1997, on the date of each
annual meeting at which directors of any class are elected or re-elected, each
non-employee director received options to acquire 10,000 shares of Common Stock
under the 1994 Non-Employee Director Stock Option Plan (the "Director Plan").
The exercise price per share is equal to the fair market value of the Common
Stock as determined in accordance with the terms of the Director Plan. All
options granted under the Director Plan will be exercisable 20% per year
beginning with the first anniversary of the date of grant. All options expire
ten years from the date of grant. In addition to the above and to take into
account the travel from Europe, Dr. Afting received $15,000 of compensation for
his service as a director in 1997.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers,
directors and persons who own more than 10% of the Company's outstanding Common
Stock to file reports of ownership and changes in ownership with the Commission.
Officers, directors and such stockholders are required by regulations under the
Exchange Act to furnish the Company with copies of all forms they file under
Section 16(a). Due to an administrative oversight, Mr. Santoro did not file a
Form 4 reflecting a sale of 10,000 shares in February 1997. This sale was
reported by Mr. Santoro on a Form 5 filed in February 1998. Also due to an
oversight, Mr. Weekers did not file a form reflecting 3,500 shares purchased by
his wife on May 20, 1997, prior to beginning his tenure with the Company, or
2,600 shares purchased by his wife on September 5, 1997.
Certain information regarding Directors and Executive Officers of the
Company is set forth in Item 4(a) of Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
- ------- ----------------------
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the Company's
Chief Executive Officer and the other four most highly compensated executive
officers of the Company (the "Named Executive Officers") for services in all
capacities to the Company or its subsidiaries for the fiscal year ended December
31, 1997 and the total compensation earned by such individual for the Company's
prior two fiscal years. The Company's business is conducted primarily through
its two primary operating divisions, the Clinical Services Division and the
Pharmaceutics Services Division.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
SECURITIES
NAME AND ANNUAL COMPENSATION UNDERLYING ALL OTHER
------------------------------
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION
------------------ ---- ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Geraldine A. Henwood 1997 $267,706 $25,000 32,500 $2,243/(1)/(2)/
----
Chief Executive Officer 1996 249,184 --- 20,000 150/(1)/
----
1995 250,000 --- 25,000 150/(1)/
----
David Jackson, M.D. 1997 259,992 31,200 57,500/(3)/ --- - (1)/
----
Executive Vice President, 1996 248,179 7,500 80,000 150/(1)/
----
Global Corporate Research and 1995 230,459 2,500 --- 150/(1)/
Development ----
Sidney Jevons, Ph.D. 1997 231,119 2,460 6,250 69,347/(5)/
----
Chairman, UK (4) 1996 227,958 3,270 7,500 65,227/(5)/
----
1995 196,875 --- --- 47,250/(5)/
----
John L. Santoro 1997 185,455 20,000 57,500/(3)/ 2,138/(1)/(2)/
----
President, Pharmaceutics 1996 176,901 4,500 12,500 450/(1)/
Services ----
1995 165,000 5,000 --- 450/(1)/
----
Leonard F. Stigliano 1997 222,604 25,000 57,500/(3)/ 2,850/(1)/(2)/
----
President, U.S. CRO 1996 176,144 20,000 30,000 56,170/(6)/
----
1995 86,154 --- 150,000 ---
----
</TABLE>
(1) These amounts consist of the Company's contributions to the officer's
account under the 401(k) Plan for its U.S. employees.
(2) The Company contributed to the 401(k) Plan in the form of IBAH stock. The
stock is valued at the average of the close bid and close ask on the date
prior to the contribution. These stock contributions vest 25% a year
based upon the length of service of the officer.
(3) If the Merger with Omnicare is consummated, an option to purchase 50,000
shares of the Company's common stock included in this amount will be
cancelled immediately prior to the Merger.
(4) Dr. Jevons' salary and bonus were calculated in British Pounds Sterling
using the average $/(Pounds Sterling) exchange rate for each year.
(5) These amounts consist of the Company's contribution to the officer's
account under the Company's Defined Contribution Plan in the U.K.
(6) This amount consists of a $450 contribution to the officer's account under
the Company's 401(k) Plan and $55,720 of relocation costs.
The following table sets forth certain information concerning grants of
stock options made during the year ended December 31, 1997 to the Named
Executive Officers.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (10 YEARS) (1)
--------------------------
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE 0% 5% 10%
- ---- ------- --------------- --------- ---- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Geraldine A. Henwood 7,500 0.5% 3.8750 06/16/07 $0 $ 18,277 $ 46,318
25,000 1.7% 3.7813 12/08/07 0 59,451 150,660
David Jackson, M.D. 7,500 0.5% 3.8750 06/16/07 0 18,277 46,318
50,000/(2)/ 3.3% 3.7813 12/08/07 0 118,902 301,321
Sidney Jevons, Ph.D. 6,250 0.4% 3.8750 06/16/07 0 15,231 38,598
John L. Santoro 7,500 0.5% 3.8750 06/16/07 0 18,277 46,318
50,000/(2)/ 3.3% 3.7813 12/08/07 0 118,902 301,321
Leonard F. Stigliano 7,500 0.5% 3.8750 06/16/07 0 18,277 46,318
50,000/(2)/ 3.3% 3.7813 12/08/07 0 118,902 301,321
</TABLE>
(1) The dollar amounts under these columns are the result of calculations at
0%, 5% and 10% rates set by the Securities and Exchange Commission (the
"Commission") and, therefore, are not intended to forecast possible future
appreciation of the price of the Common Stock. The Company did not use an
alternative formula for a grant date valuation, an approach which would
state gains at present, and therefore lower value. The Company is not aware
of any formula that will determine with reasonable accuracy a present value
based on future unknown or volatile factors.
(2) If the Merger with Omnicare is consummated, this option will be cancelled
immediately prior to the Merger.
The table below sets forth certain information regarding the number and
value of unexercised options held by the Named Executive Officers of the Company
at December 31, 1997. No options were exercised by the Named Executive Officers
during the fiscal year ended December 31, 1997.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997(1)
------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Geraldine A. Henwood 38,000 54,500 $ 13,125 $ 8,750
David Jackson, M.D. 45,210 126,800/(2)/ 3,684 2,450
Sidney Jevons, Ph.D. 9,010 14,750 5,259 3,500
John L. Santoro 454,919 69,000/(2)/ 1,616,648 3,500
Leonard F. Stigliano 70,010 167,500/(2)/ 93,766 140,625
</TABLE>
(1) Based on the closing price of the Common Stock on the NASDAQ National
Market on that date, $3.75, net of the exercise price.
(2) If the Merger with Omnicare is consummated, an option to purchase 50,000
shares of the Company's common stock included in this amount will be
cancelled immediately prior to the Merger. These 50,000 options are not in-
the-money as of December 31, 1997.
EMPLOYMENT ARRANGEMENTS
Geraldine A. Henwood, the Company's Chief Executive Officer, currently has
no employment agreement with the Company. However, under the terms of the Merger
Agreement with Omnicare, Ms. Henwood is expected to enter into an employment
agreement with the Company as of the date of closing of the Omnicare
transaction. It is expected that the agreement will be for a term of five years
and entitle Ms. Henwood to an annual base salary of $290,000, with a right to
annual increases. Ms. Henwood would also be entitled to receive bonus and
options as applicable under the Company's policies and plans. In addition, Ms.
Henwood is expected to enter into a Non-Competition Agreement pursuant to which
she will agree not to compete with the Company through another CRO or a Site
Management Organization for a fifteen year period after the termination of the
employment agreement.
On May 14, 1997, the Company entered into an employment agreement with
Cornelius H. Lansing, II, Chief Financial Officer of the Company. Under the
agreement, Mr. Lansing is entitled to an annual base salary of $170,000, a one
time stock option grant of 100,000 shares, granted at the then current market
price of $3.875 and vesting at 20% per year and bonus and options as applicable
under the Company's policies and plans. For fiscal year 1998 Mr. Lansing is
eligible for a bonus of up to 25% of his base salary upon achievement of certain
profit, revenue and performance objectives. If the agreement is terminated
without cause or due to a change in control, Mr. Lansing is entitled to receive
his base salary as severance for one year after termination.
On June 1, 1997 the Company entered into an employment agreement with Rudi
Weekers, President International CRO. Under the agreement, Mr. Weekers is
entitled to an annual base salary of DM 428,408, a one time stock option grant
of 75,000 shares granted at the then current market price of $3.875 and vesting
at 20% per year and to receive bonus and options as applicable under the
Company's policies and plans. For fiscal year 1998 Mr. Weekers is eligible for
a bonus of up to 25% of his base salary upon achievement of certain profit,
revenue and performance objectives. If this agreement is terminated without
cause by the Company, Mr. Weekers is entitled to receive his base salary through
the end of the calendar quarter of the termination notice plus an additional six
months. It is expected that this agreement will be terminated and a new
agreement entered into or the current agreement amended upon the closing of the
transaction with Omnicare to reflect a specified term and an additional non-
compete agreement.
On May 25, 1995 the Company entered into an employment agreement with
Leonard F. Stigliano. Under the agreement, Mr. Stigliano is entitled to an
annual base salary of $160,000 and has been eligible for merit increases each
year on the anniversary date of his employment. The agreement awarded Mr.
Stigliano options to purchase 150,000 shares of Common Stock at $2.1875 per
share. He is entitled to severance benefits of up to one year of his base
salary, reduced by payments received from a subsequent employer, if the Company
terminates the employment without cause and due to management changes, merger,
acquisition or incompatibility. It is expected that this agreement will be
terminated and a new agreement entered into or the current agreement amended
upon the closing of the transaction with Omnicare to reflect a specified term
and an additional non-compete agreement.
On September 11, 1996, the Company entered into an employment agreement
with David Jackson, M.D., President of the Company's U.S. CRO. Under the
agreement, Dr. Jackson is entitled to a base salary of $260,000 and is eligible
for merit increases on the anniversary date of the agreement. He is also
eligible for the standard bonus and option grants of the Company for an employee
at Dr. Jackson's level. Dr. Jackson is entitled to severance benefits of up to
one year of his base salary if the Company terminates the agreement without
cause.
On January 4, 1994, Bio-Pharm entered into a service agreement with Dr.
Sidney Jevons covering his employment from December 31, 1993 through December
31, 1996. Pursuant to the agreement, Dr. Jevons served as the President of the
Company's European operations and later, as Managing Director of the Company's
U.K. Operations. As of April 1, 1996, this agreement was amended to extend the
term of the agreement to March 31, 1999, to change Dr. Jevons' position with
the Company to Chairman, U.K. and Executive Vice President of International
Development and to increase his annual salary to (Pounds Sterling)138,000
($227,000 based on exchange rates on March 31, 1997). Dr. Jevons is also
eligible for the standard bonus and benefit plans of the Company and to
receive his base salary as severance for six months after termination without
cause. Additionally, the Company will contribute 30% of Dr. Jevons' base
salary to a retirement plan in the U.K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------- --------------------------------------------------------------
SECURITY OWNERSHIP
The following table sets forth certain information as of April 1, 1998, as
supplied to the Company, regarding the beneficial ownership of the Common Stock
by all persons known to the Company who own more than 5% of the outstanding
shares of the Company's Common Stock or the Series A Preferred Stock, each
director of the Company and each executive officer named in the Summary
Compensation Table included elsewhere herein and all executive officers and
directors as a group. Unless otherwise indicated, based upon information
provided to the Company by the directors, executive officers and principal
stockholders, the persons named in the table below have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF
SHARE PERCENT
BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED
- ---- --------- ---------
<S> <C> <C>
GREATER THAN 5% STOCKHOLDERS
Omnicare, Inc. (1) 4,685,315 19.9%
Geraldine A. Henwood (2) 3,086,113 13.1%
Thomas F. Henwood (3) 3,086,113 13.1%
Vector Later-Stage Equity Fund, L.P. (4) 2,143,904 8.3%
Sandra Panem, Ph.D. (5) 2,143,904 8.3%
Winston J. Churchill (6) 1,690,667 7.2%
H&Q Investment Funds (7) 1,557,096 6.3%
Dimensional Fund Advisors, Inc. (8) 1,338,300 5.7%
State of Wisconsin Investment Board (9) 1,335,300 5.7%
T. Rowe Price New Horizons Fund, Inc. (10) 1,285,140 5.2%
OTHER DIRECTORS
Ernst-Gunter Afting, Ph.D., M.D. (11) 2,000 *
Victor J. Bauer, Ph.D. (12) 13,000 *
Edwin A. Bescherer, Jr. (13) 11,000 *
Martyn D. Greenacre (11) 9,000 *
Sidney Jevons, Ph.D. (14) 549,409 2.3%
Richard L. Sherman, Esq. (15) 697,371 3.0%
OTHER NAMED EXECUTIVE OFFICERS
David Jackson, M.D. (16) 45,996 *
John L. Santoro (17) 829,804 3.5%
Leonard F. Stigliano (18) 73,672 *
All directors and executive officers
as group (16 persons)(19) 9,205,900 34.8%
</TABLE>
__________________
* Indicates less than 1%.
(1) In connection with the execution of the Merger Agreement between IBAH and
Omnicare an option to purchase up to 4,685,315 at $5.75 was granted to
Omnicare. This option is exercisable if certain triggering events occur.
The address of this option holder is 50 East Rivercenter Boulevard,
Covington, KY 41011.
(2) Includes 378,055 shares owned of record by Ms. Henwood's husband and 38,000
shares subject to exercisable options. Ms. Henwood disclaims beneficial
ownership of the shares owned by her husband. The address of this
stockholder is c/o IBAH, Inc., Four Valley Square, 512 Township Line Road,
Blue Bell, PA 19422.
(3) Includes 2,670,058 shares owned of record by Mr. Henwood's wife and 38,000
shares subject to options exercisable by Ms. Henwood. Mr. Henwood
disclaims beneficial ownership of the shares owned by his wife and those
that are subject to options. The address of this stockholder is 6 Jorrocks
Lane, Malvern, PA 19355.
(4) Includes 356,984 shares of Series A Preferred Stock, convertible into
1,070,952 shares of Common Stock, 1,070,952 shares subject to exercisable
warrants and 2,000 shares subject to options exercisable by Dr. Panem. The
address of this stockholder is 1751 Lake Cook Road, Suite 350, Deerfield,
IL 60015. See also footnote 5. Vector Securities International, Inc., an
affiliate of Vector Later-Stage Equity Fund, L.P. (the "Later-Stage Fund"),
is the owner of 40,000 warrants to purchase Common Stock of the Company.
The Later-Stage Fund disclaims beneficial ownership of these securities.
(5) Consists entirely of shares and warrants owned beneficially and of record
by the Later-Stage Fund. Includes 356,984 shares of Series A Preferred
Stock, convertible into 1,070,952 shares of Common Stock, 1,070,952 shares
subject to exercisable warrants and 2,000 shares subject to exercisable
options. Dr. Panem is the President of Vector Fund Management, L.P., the
General Partner of the Later-Stage Fund, and may be deemed to have voting
and investment power with respect to such shares. Dr. Panem disclaims
beneficial ownership of such shares. See also footnote 4.
(6) Includes 120,219 shares owned of record by Mr. Churchill's Retirement Plan;
449,327 shares that Mr. Churchill and his wife own as tenants by the
entireties; 35,000 shares owned by Mrs. Churchill as custodian for Mr.
Churchill's son; 159,750 shares owned by a trust for the benefit of Mr.
Churchill's son; 82,000 shares subject to exercisable options by Mr.
Churchill; 171,000 shares owned by Mr. Churchill's charitable foundation,
The Churchill Foundation; and 673,371 shares owned of record by Mr.
Churchill's affiliate, CIP Capital, L.P. The address of this stockholder
is c/o Churchill Investment Partners, 20 Valley Stream Parkway, Suite 265,
Malvern, PA 19355.
(7) Consists of two affiliated investment funds; H&Q Healthcare Investors,
which owns two-thirds of the amount stated and H&Q Life Sciences Investors,
which owns the balance. The amount shown includes 535,473 shares subject
to exercisable warrants and 178,491 shares of Series A Preferred Stock,
convertible into 535,473 shares of Common Stock. The address of these
stockholders is 50 Rowes Wharf, Boston, MA 02110.
(8) The address of this stockholder is 1299 Ocean Avenue, 11/th/ Floor, Santa
Monica, California 90401.
(9) The address of this stockholder is 121 E. Wilson Street, Madison, WI
53707.
(10) The address of this stockholder is 100 East Pratt Street, Baltimore, MD
21202. The amount shown includes 642,570 shares subject to exercisable
warrants and 214,190 shares of Series A Preferred Stock, convertible into
642,570 shares of Common Stock.
(11) Amount represents shares subject to exercisable options.
(12) Includes 4,000 shares owned by Dr. Bauer and his wife as tenants in common
and 9,000 shares subject to exercisable options.
(13) Includes 9,000 shares and 2,000 shares subject to exercisable options.
(14) Includes 540,399 shares and 9,010 shares subject to exercisable options.
(15) Amount represents 24,000 shares subject to exercisable options and 673,371
shares owned of record by Mr. Sherman's affiliate, CIP Capital, L.P.
(16) Includes 786 shares and 45,210 shares subject to exercisable options.
(17) Includes 374,885 shares and 454,919 shares subject to exercisable options.
(18) Includes 3,662 shares, of which 1,662 shares are 50% vested in the
Company's 401(k) Savings and Investment Plan and 70,010 shares subject to
exercisable options.
(19) Includes 788,205 shares subject to exercisable options, 1,070,952 shares
subject to exercisable warrants and 356,984 shares of Series A Preferred
Stock, convertible into 1,070,952 shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- ----------------------------------------------
None.
28
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- ------- -----------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------
The financial statements and financial statement information required by this
Item as well as the report of Independent Public Accountants are included on
pages F-1 through F-24 of this Report. All other schedules have been omitted
because they are inapplicable, not required, or the information is included
elsewhere in the financial statements or notes thereto.
REPORTS ON FORM 8-K
- -------------------
During 1997 the Company filed one report on Form 8-K, dated May 15, 1997, to
report on the acquisition of Pharmaco Pty., Ltd. No reports on Form 8-K were
filed during the fourth quarter of 1997.
On April 2, 1998 the Company filed a report on Form 8-K to report on the
Merger Agreement with Omnicare, Inc.
EXHIBITS
- --------
The following is a list of exhibits. Where so indicated, exhibits which were
previously filed are incorporated by reference. For exhibits incorporated by
reference, the location of the exhibit in the previous filing is indicated in
parentheses.
EXHIBIT
- -------
NUMBER DESCRIPTION
- ------ -----------
2.1 Agreement and Plan of Merger, dated March 30, 1998, by and among the
Registrant, Omnicare, Inc. and Impala Acquisition Corp. (Exhibit
2.1)(12)
3.1 Certificate of Incorporation, as amended (Exhibit 3.1)(10)
3.2* Bylaws, as amended.
3.3 Amended Certificate of Designation of Rights and Preferences of
Series A Convertible Preferred Stock. (Exhibit 3.3)(8)
10.1 Registration Rights Agreement, dated February 23, 1993, among Bio-
Pharm Clinical Services, Inc. ("Bio-Pharm") and certain
stockholders. (Exhibit 10.23)(1)
10.2 Subscription Confirmation, dated December 11, 1990, among Affinity
Biotech, Inc. ("Affinity") and Winston J. Churchill, Norman E.
Jackson, Philip L. Rice, M.D., Carl Sorenson and Walter C. Wojack.
(Exhibit 10.2)(2)
10.3 Registration Rights Agreement, dated as of February 21, 1992, among
Affinity and Winston J. Churchill and Barbara Churchill, Norman E.
Jackson, Philip L. Rice, M.D., Carl Sorenson and Walter C. Wojack.
(Exhibit 10.3)(2)
10.4+ 1992 Incentive Stock Plan. (Exhibit 10.10)(2)
10.5+ 1993 Incentive Stock Plan. (Exhibit 10.1)(3)
10.6+ 1994 Incentive Stock Plan. (Appendix D)(4)
29
<PAGE>
10.7+ Employment Agreement, dated October 1, 1996, between the Registrant
and Sherrin Baky. (Exhibit 10.8)(10)
10.8+ Employment Agreement, dated June 1, 1997, between the Registrant and
Rudi Weekers. (Exhibit 10.2)(11)
10.9+ Employment Agreement, dated May 14, 1997, between the Registrant and
Cornelius H. Lansing, II. (Exhibit 10.1)(11)
10.10+ Employment Agreement, dated May 25, 1995, between the Registrant and
Leonard F. Stigliano. (Exhibit 10.9)(8)
10.11 Lease Agreement, dated May 16, 1994, between Objektgesellschaft GbR
and Bio-Pharm Clinical Services, GmbH (in German with English
summary). (Exhibit 10.12)(6)
10.12* Amended and Restated Loan and Security Agreement, dated August 27,
1997, among the Registrant, The Hardardt Group, Inc. and CoreStates
Bank, N.A.
10.13* Letter, dated September 26, 1997, between the Registrant and
CoreStates Bank, N.A.
10.14 Lease Agreement, dated June 21, 1990, between Bio-Pharm and Four
Valley Square Associates. (Exhibit 10.27)(1)
10.15 Lease Agreement, dated December 15, 1993, between Bio-Pharm and
Valley Square Associates. (Exhibits 10.28 and 10.29)(1)
10.16+ Employee Stock Purchase Plan. (Exhibit 10.18)(5)
10.17+ 1994 Non-Employee Directors Stock Option Plan. (Exhibit 10.19)(5)
10.18 Sublease and Lease Agreement, dated August 19, 1993, among Affinity,
International Envelope Company and Summit Investment Corporation.
(Exhibit 10.2)(3)
10.19 Lease Agreement, dated October 26, 1993, and effective as of
December 1, 1993, between Affinity Pharmaceutics, Inc. and Rhone-
Poulenc Rorer Pharmaceuticals Inc. (Exhibit 10.3)(3)
10.20 Asset Purchase Agreement, dated July 28, 1995, between the
Registrant and LDS Technologies, Inc. (Exhibit 10.4)(7)
10.21 Warrant for the purchase of shares of Common Stock issued March 15,
1996 to Vector Securities International, Inc. (Exhibit 10.26)(8)
10.22 Preferred Stock and Warrant Purchase Agreement, dated August 10,
1995, among the Registrant and certain purchasers of Series A
Convertible Preferred Stock of the Registrant. (Exhibit 10.27)(8)
10.23 Form of Warrant issued by the Registrant to the purchasers pursuant
to the Preferred Stock and Warrant Purchase Agreement, dated August
10, 1995. (Exhibit 10.28)(8)
10.24+ Release and Settlement Agreement, dated February 28, 1997, between
the Registrant and Judith L. Hardardt. (Exhibit 10.23)(10)
10.25+ 1997 Equity Compensation Plan. (Exhibit 10.24)(10)
30
<PAGE>
10.26 Agreement and Plan of Merger, dated October 1, 1996, by and between
the Registrant, IBAH Acquisition Company and the stockholders of
HGB, Inc. (9)
10.27 Lease Agreement, dated December 3, 1996, between 525 Virginia Drive
Associates L.P. and Bio-Pharm Pharmaceutics Services, Inc. (Exhibit
10.27)(10)
10.28 Stock Purchase Agreement, dated February 28, 1997, among the
Registrant, Catapult Pty. Ltd., Phillip Altman and Juanita Altman.
(Exhibit 10.28)(10)
10.29 Registration Rights Agreement, dated February 28, 1997, by and
between the Registrant and Catapult Pty., Ltd. (Exhibit 10.29)(10)
10.30 Agreement and Plan of Merger, dated July 18,1996, by and among the
Registrant, IBAH Acquisition Company and Resource Biometrics, Inc.
(Exhibit 10.30)(10)
21.1* Subsidiaries of the Registrant.
23.1* Consent of Arthur Andersen LLP.
27.1* 1997 Financial Data Schedule.
27.2* 1996 Financial Data Schedule.
_______________________
+ Compensation plans and arrangements for executives and others.
* Filed herewith.
(1) Filed as an Exhibit to Affinity's Registration Statement on Form S-4
(File No. 33-74274) filed with the Securities and Exchange Commission
("SEC") on January 20, 1994.
(2) Filed as an Exhibit to Affinity's Registration Statement on Form S-1
(File No. 33-46027) initially filed with the SEC on March 4, 1992.
(3) Filed as an Exhibit to Affinity's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1993.
(4) Filed as Appendix D to the Joint Proxy Statement/Prospectus included
in Affinity's Registration Statement on Form S-4 (File No. 33-74274)
filed with the SEC on January 20, 1994.
(5) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994.
(6) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K/A
for the year ended December 31, 1994.
(7) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1995.
(8) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995.
(9) Filed as an Exhibit to the Registrant's Report on Form 8-K dated
October 1, 1996.
31
<PAGE>
(10) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996.
(11) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1997.
(12) Filed as an Exhibit to the Registrant's Quarterly Report on Form 8-K dated
April 2, 1998.
32
<PAGE>
IBAH, INC. AND SUBSIDIARIES
Consolidated Financial Statements
Comprising Item 8 of the
Annual Report on Form 10-K to the
Securities and Exchange Commission
YEAR ENDED DECEMBER 31, 1997
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants F - 2
Consolidated Balance Sheets F - 3
Consolidated Statements of Operations F - 4
Consolidated Statements of Stockholders' Equity F - 5
Consolidated Statements of Cash Flows F - 6
Notes to Consolidated Financial Statements F - 7
Consolidated Financial Statement Schedules
The Consolidated Financial Statement Schedules have been omitted as the
information is not required, is immaterial or is presented elsewhere in the
Consolidated Financial Statements or Notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To IBAH, Inc.:
We have audited the accompanying consolidated balance sheets of IBAH, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IBAH, Inc. and subsidiaries as
of December 31, 1996 and 1997, and the results of their operations and their
cash flow for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
As explained in Note 5 to the Consolidated Financial Statements, the Company has
given retroactive effect to the change in accounting for its convertible
security with a beneficial conversion feature.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 5, 1998 (except with respect
to the matter discussed in Note 20
as to which the date is March 30, 1998).
F-2
<PAGE>
IBAH, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS DECEMBER 31,
----- -------------------------------
1996 1997
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 15,588,000 $ 6,491,000
Short-term investments 5,235,000 4,330,000
Accounts receivable, net 27,614,000 42,850,000
Prepaid expenses and other 868,000 1,287,000
------------- ------------
Total current assets 49,305,000 54,958,000
PROPERTY AND EQUIPMENT, net 7,799,000 14,045,000
GOODWILL, net 34,571,000 33,587,000
OTHER ASSETS 451,000 346,000
------------- ------------
$ 92,126,000 $102,936,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,376,000 $ 3,122,000
Accounts payable 3,497,000 4,477,000
Accrued compensation and related costs 6,095,000 4,420,000
Other accrued expenses 3,734,000 6,051,000
Payable to independent investigators 2,585,000 7,638,000
Deferred revenue 22,812,000 20,741,000
------------- ------------
Total current liabilities 40,099,000 46,449,000
------------- ------------
DEFERRED RENT 586,000 516,000
------------- ------------
LONG-TERM DEBT 1,885,000 5,861,000
------------- ------------
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 December 31, 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 23,385,122 shares issued and
outstanding as of December 31, 1997 220,000 234,000
Additional paid-in capital 73,889,000 76,035,000
Accumulated deficit (24,793,000) (26,061,000)
Cumulative translation adjustment 233,000 (105,000)
------------- ------------
Total stockholders' equity 49,556,000 50,110,000
------------- ------------
$ 92,126,000 $102,936,000
============= ============
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
IBAH, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES $ 56,985,000 $ 82,573,000 $ 131,821,000
Less-Reimbursed costs 14,119,000 20,453,000 43,770,000
-------------- -------------- --------------
Net revenues 42,866,000 62,120,000 88,051,000
-------------- -------------- --------------
OPERATING EXPENSES
Direct 23,847,000 30,786,000 48,106,000
Selling,general and administrative 21,921,000 29,870,000 37,020,000
Restructuring costs - - 1,208,000
Merger costs - - 176,000
Acquired research and development - 510,000 -
-------------- -------------- --------------
Total operating expenses 45,768,000 61,166,000 86,510,000
-------------- -------------- --------------
Operating income (loss) (2,902,000) 954,000 1,541,000
INTEREST INCOME 234,000 796,000 616,000
INTEREST EXPENSE (345,000) (321,000) (417,000)
-------------- -------------- --------------
Income (loss) from continuing operations
before income taxes (3,013,000) 1,429,000 1,740,000
INCOME TAXES - 60,000 983,000
-------------- -------------- --------------
Income (loss) from continuing operations (3,013,000) 1,369,000 757,000
LOSS FROM DISCONTINUED OPERATIONS, including
loss on disposal of $819,000 in 1995 and $1,547,000 in 1997 (1,546,000) (389,000) (2,154,000)
-------------- -------------- --------------
NET INCOME (LOSS) (4,559,000) 980,000 (1,397,000)
DEEMED DIVIDEND ON PREFERRED STOCK (NOTE 5) (2,712,000) - -
-------------- -------------- --------------
NET INCOME (LOSS) TO COMMON STOCKHOLDERS $ (7,271,000) $ 980,000 $ (1,397,000)
============== ============== ==============
NET INCOME (LOSS) PER COMMON SHARE-BASIC
CONTINUING OPERATIONS $ (0.40) $ 0.08 $ 0.03
DISCONTINUED OPERATIONS (0.11) (0.03) (0.09)
-------------- -------------- --------------
$ (0.51) $ 0.05 $ (0.06)
============== ============== ==============
COMMON SHARES OUTSTANDING-BASIC 14,276,000 18,145,000 22,954,000
============== ============== ==============
NET INCOME (LOSS) PER COMMON SHARE--DILUTED
CONTINUING OPERATION $ (0.40) $ 0.05 $ 0.03
DISCONTINUED OPERATIONS (0.11) (0.01) (0.08)
-------------- -------------- --------------
$ (0.51) $ 0.04 $ (0.05)
============== ============== ==============
COMMON SHARES OUTSTANDING--DILUTED 14,276,000 25,006,000 28,200,000
============== ============== ==============
The accompanying notes are an integral part of these statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
IBAH, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Preferred Stock Common Stock
-------------------------- -------------------------
Shares Amount Shares Amount
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 - $ - 14,236,904 $ 142,000
Sale of convertible preferred stock, net of
expenses 999,554 10,000 - -
Deemed dividend on preferred stock (Note 5) - - - -
Issuance of common stock for stock option
exercises and Employee Stock Purchase Plan
purchases - - 154,358 2,000
Translation adjustments - - - -
Net loss - - - -
------------ ------------ ------------ -----------
BALANCE, DECEMBER 31, 1995 999,554 10,000 14,391,262 144,000
Public offering of common stock, net of
expenses - - 3,000,000 30,000
Issuance of common stock in conjunction with
the Resource Biometrics, Inc. acquisition - - 350,000 4,000
Issuance of common stock in conjunction with
the HGB, Inc. acquisition - - 2,719,999 27,000
Conversions of preferred stock into common
stock (249,889) (3,000) 749,667 7,000
Issuance of common stock for warrant exercises - - 297,223 3,000
Issuance of common stock for stock option
exercises and Employee Stock Purchase Plan
purchases - - 515,695 5,000
Translation adjustments - - - -
Net income - - - -
------------ ------------ ------------ -----------
BALANCE, DECEMBER 31, 1996 749,665 7,000 22,023,846 220,000
Issuance of common stock in conjunction with
the Pharmaco Pty. Ltd. merger - - 575,000 6,000
Issuance of common stock in conjunction with
the Outcomes Research Corp. acquisition - - 29,629 -
Issuance of common stock for warrant exercises - - 601,458 6,000
Issuance of common stock for stock option
exercises, employer savings plan matching
contribution and Employee Stock Purchase
Plan purchases - - 155,189 2,000
Translation adjustments - - - -
Net loss - - - -
------------ ------------ ------------ -----------
BALANCE DECEMBER 31, 1997 749,665 $ 7,000 23,385,122 $ 234,000
============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Retained
Additional Earnings Cumulative Total
Paid-in (Accumulated Translation Stockholders'
Capital Deficit) Adjustments Equity
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 29,850,000 $(21,214,000) $ 104,000 $ 8,882,000
Sale of convertible preferred stock, net of
expenses 6,925,000 - - 6,935,000
Deemed dividend on preferred stock (Note 5) - - - -
Issuance of common stock for stock option
exercises and Employee Stock Purchase Plan
purchases 195,000 - - 197,000
Translation adjustments - - 18,000 18,000
Net loss - (4,559,000) - (4,559,000)
------------ ------------ ------------ -----------
BALANCE, DECEMBER 31, 1995 36,970,000 (25,773,000) 122,000 11,473,000
Public offering of common stock, net of
expenses 17,981,000 - - 18,011,000
Issuance of common stock in conjunction with
the Resource Biometrics, Inc. acquisition 2,285,000 - - 2,289,000
Issuance of common stock in conjunction with
the HGB, Inc. acquisition 15,411,000 - - 15,438,000
Conversions of preferred stock into common
stock (4,000) - - -
Issuance of common stock for warrant exercises 764,000 - - 767,000
Issuance of common stock for stock option
exercises and Employee Stock Purchase Plan
purchases 482,000 - - 487,000
Translation adjustments - - 111,000 111,000
Net income - 980,000 - 980,000
------------ ------------ ------------ -----------
BALANCE, DECEMBER 31, 1996 73,889,000 (24,793,000) 233,000 49,556,000
Issuance of common stock in conjunction with
the Pharmaco Pty. Ltd. merger (6,000) 129,000 - 129,000
Issuance of common stock in conjunction with
the Outcomes Research Corp. acquisition 200,000 - 200,000
Issuance of common stock for warrant exercises 1,493,000 - - 1,499,000
Issuance of common stock for stock option
exercises, employer savings plan matching
contribution and Employee Stock Purchase
Plan purchases 459,000 - - 461,000
Translation adjustments - - (338,000) (338,000)
Net loss - (1,397,000) - (1,397,000)
------------ ------------ ------------ -----------
BALANCE DECEMBER 31, 1997 $76,035,000 $(26,061,000) $ (105,000) $50,110,000
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
IBAH, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------------------------------------------
1995 1996 1997
------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (4,559,000) $ 980,000 $ (1,397,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Acquired research and development - 510,000 -
Depreciation and amortization 2,003,000 2,968,000 4,658,000
Deferred rent 149,000 (101,000) (70,000)
Discontinued operations 1,546,000 389,000 2,154,000
Deferred taxes - (49,000) 45,000
Changes in assets and liabilities-
(Increase) decrease in-
Accounts receivable (5,512,000) (2,971,000) (16,347,000)
Prepaid expenses and other (46,000) 27,000 (389,000)
Increase (decrease) in-
Accounts payable and accrued expenses 2,586,000 2,252,000 (39,000)
Payables to independent investigators (2,428,000) 1,536,000 5,134,000
Deferred revenue 5,805,000 3,816,000 (951,000)
----------- ----------- -----------
Net cash provided by (used in) operating activitie (456,000) 9,357,000 (7,202,000)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption (purchases) of short-term investments 808,000 (4,411,000) 905,000
Purchases of property and equipment (1,907,000) (2,646,000) (9,229,000)
Proceeds from sale of discontinued operations 50,000 - -
Net cash paid in business acquisitions - (11,962,000) (109,000)
Net investing activity of discontinued operations (33,000) - (22,000)
Other (88,000) 207,000 (397,000)
----------- ----------- -----------
Net cash used in investing activities (1,170,000) (18,812,000) (8,852,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net of expenses 185,000 19,265,000 1,960,000
Proceeds from sale of preferred stock, net of expenses 6,947,000 - -
Proceeds from issuance of debt, net of expenses - - 7,029,000
Payments on long-term debt (919,000) (1,620,000) (1,581,000)
Net financing activity of discontinued operations (6,000) - -
----------- ----------- -----------
Net cash provided by financing activities 6,207,000 17,645,000 7,408,000
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 191,000 (166,000) (451,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,772,000 8,024,000 (9,097,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,792,000 7,564,000 15,588,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,564,000 $ 15,588,000 $ 6,491,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 339,000 $ 325,000 $ 397,000
=========== =========== ===========
Income taxes paid $ - $ - $ 623,000
=========== =========== ===========
Equipment acquired under capital lease obligations $ 292,000 $ 769,000 $ 327,000
=========== =========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
F-6
<PAGE>
IBAH, INC. AND SUBSIDIARIES
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. BACKGROUND
----------
IBAH, Inc. ("IBAH" or the "Company") provides a comprehensive range of product
development services worldwide for clients in the pharmaceutical, biotechnology,
medical device and diagnostics industries. The Company's principal activity is
to help its clients meet the complex regulatory requirements that must be
satisfied before a new product may be commercially marketed. The Company offers
clients access to extensive regulatory affairs and clinical development services
on an international scale through its Clinical Services Division. The Company
also provides pharmaceutical manufacturing and stability testing services
through its Pharmaceutics Services Division.
The Company was formed on April 27, 1994 as the result of a merger (the
"Affinity Merger") between Affinity Biotech, Inc. ("Affinity"), a drug delivery
and technology company, and Bio-Pharm Clinical Services, Inc. ("Bio-Pharm"), a
contract research organization. Simultaneous with the Affinity Merger, Affinity
changed its name to IBAH. Since the Affinity Merger resulted in the former Bio-
Pharm shareholders having a majority ownership of the merged entity, the
Affinity Merger was accounted for as a purchase transaction with Bio-Pharm
treated as the acquiror.
As of March 30, 1998, IBAH entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement") with Omnicare, Inc. ("Omnicare") under which
Omnicare will acquire IBAH in a stock-for-stock merger (the "Merger") (see Note
20).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Principles of Consolidation
The accompanying financial statements include the accounts of IBAH, Inc., and
its subsidiaries. All material intercompany balances and transactions have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ materially
from these estimates and assumptions.
Restatement
Reference is made to Note 5 regarding the 1995 Financial Statement restatement
to correct the accounting presentation of a deemed dividend.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation.
F-7
<PAGE>
Translation of Foreign Financial Statements
Assets and liabilities of the Company's foreign operations are translated at the
year-end rate of exchange, and the income statements are translated at the
average rate of exchange for the year. Gains or losses from translating foreign
currency financial statements are accumulated in a separate component of
stockholders' equity.
Cash, Cash Equivalents And Investments
The Company considers all highly liquid investments purchased with remaining
maturities of three months or less to be cash equivalents.
Investments are held at market value and at December 31, 1996 and 1997 were
classified as short-term. Cash, cash equivalents and investments consisted of
the following:
December 31,
-------------------------------
1996 1997
------------- -------------
CASH AND CASH EQUIVALENTS
Money market funds and demand
accounts $ 5,447,000 $ 3,485,000
U.S. government securities 6,313,000 846,000
Repurchase agreement 2,092,000 2,061,000
Commercial paper 1,736,000 99,000
------------- -------------
15,588,000 6,491,000
------------- -------------
INVESTMENTS:
U.S. government securities 3,497,000 2,850,000
Commercial paper 1,738,000 728,000
Corporate bond - 502,000
Bank certificate of deposit - 250,000
------------- -------------
5,235,000 4,330,000
------------- -------------
$ 20,823,000 $ 10,821,000
============= =============
The 1997 repurchase agreement matured on January 2, 1998 and was secured by U.S.
government securities. The short-term investments outstanding on December 31,
1997 all mature in 1998.
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
January 1, 1994. This statement requires the Company to classify its investment
securities as: (1) held to maturity, (2) available for sale or (3) held for
trading purposes. At December 31, 1996 and 1997, all of the Company's short-
term investments are classified as available for sale, therefore any unrealized
holding gains or losses should be presented in a separate component of
stockholders' equity. At December 31, 1996 and 1997, there were no significant
unrealized holding gains or losses.
F-8
<PAGE>
Supplemental Information Regarding Non-Cash Investing And Financing Activities
The following table presents the non-cash assets and liabilities that were
consolidated as a result of the acquisitions and mergers described in Note 3:
1996 1997
----------------- -----------------
Non-cash (assets) liabilities:
Short term investments $ (64,000) $ -
Accounts receivable (4,207,000) (241,000)
Prepaid expenses (78,000) (80,000)
Property and equipment (327,000) (35,000)
Goodwill (32,096,000) (350,000)
Other assets (369,000) (31,000)
Accounts payable 1,045,000 4,000
Accrued expenses 2,262,000 295,000
Deferred revenue and advances by clients 4,190,000 -
Long-term debt 465,000 -
----------------- -----------------
Net non-cash assets consolidated (29,179,000) (438,000)
Issuance of common stock 17,727,000 329,000
Acquired research and development (510,000) -
----------------- -----------------
Net cash paid in business acquisitions $ (11,962,000) $ (109,000)
================= =================
Accounts And Unbilled Receivables
The Company considers accounts and unbilled receivables as reported to be
collectible and realizable. As of December 31, 1996 and 1997, the allowance for
doubtful accounts was $524,000 and $611,000, respectively. Approximately
$400,000, $190,000 and $390,000 of write-offs were charged to this allowance
which was offset by approximately $200,000, $360,000 and $477,000 charged to
current year earnings in 1995, 1996 and 1997, respectively. If accounts or
unbilled receivables become uncollectible, the Company's policy is to charge
these write-offs against this allowance. The Company continually reviews the
realizability of its receivables and charges current period earnings for the
amount deemed unrealizable.
Property And Equipment
Property and equipment are carried at cost. Improvements and betterments are
capitalized, and maintenance and repairs are charged to expense as incurred.
The Company provides depreciation and amortization using principally the
straight-line method for financial reporting purposes using the following
estimated lives:
Computer equipment and software 3 - 5 years
Equipment 5 - 7 years
Furniture and fixtures 5 years
Leasehold improvements Remaining term of lease
The Company's assets are reviewed for impairment whenever events or
circumstances have occurred that indicate that the remaining useful lives of the
assets should be revised or that the remaining balance of such assets may not be
recoverable based upon expectations of future undiscounted cash flows. No such
revisions were required as of December 31, 1997.
F-9
<PAGE>
Goodwill
Goodwill, representing the excess of cost over the net tangible and identifiable
intangible assets of acquired businesses (see Note 3), is stated at cost and is
amortized over an estimated life of principally 25 years. As of December 31,
1996 and 1997, the accumulated amortization of goodwill was $845,000 and
$2,382,000, respectively. The Company continues to evaluate whether later
events and circumstances have occurred that indicate the remaining estimated
useful life might warrant revision or that the remaining balance of goodwill may
not be recoverable. When the Company concludes it is necessary to evaluate
goodwill for impairment, the Company will use an estimate of related
undiscounted cash flows as the basis to determine whether impairment has
occurred. If such a determination indicates an impairment loss has occurred,
the Company will utilize the valuation method, which measures fair value based
on the best information available in the circumstances. The Company believes
that there has been no impairment of goodwill as of December 31, 1997.
Revenue Recognition And Concentration of Credit Risk
Substantially all revenues are earned by performing services under contracts
from various pharmaceutical, biotechnology, medical device and diagnostics
companies, based on contract terms. Most of the Company's contracts provide for
services to be performed on a units of service basis. These contracts
specifically identify the units of service and unit pricing. Under these
contracts, revenue is generally recognized upon the completion of units of
service, unless the unit of service is performed over an extended period of
time. For extended units of service, revenue is recognized based on labor hours
expended as a percentage of total labor hours expected to be expended. From time
to time, the Company is also a party to time-and-materials and fixed-price
contracts. For time-and-materials contracts, revenue is recognized at
contractual hourly rates and for fixed-price contracts revenue is recognized
using a method similar to that used for extended units of service. The Company's
contracts provide for price renegotiations upon scope of work changes. The
Company recognizes revenue related to these scope changes when the underlying
services are performed and realization is assured. In the event of contract
termination, contracts require payment for services rendered through the date of
termination. In a number of cases, clients are required to make termination
payments in addition to payments for services already rendered. Any anticipated
losses resulting from contract performance are charged to earnings in the period
identified. Billings and payments are specified in each contract. Revenue
recognized in excess of billings is classified as unbilled receivables, while
billings in excess of revenue are classified as deferred revenue.
Over the last three years, two clients of the Clinical Services Division and six
clients of the Pharmaceutics Services Division accounted for 10% or more of the
respective division's net revenues in any given year. One client accounted for
15.4% and 22.6% of the Clinical Services Division's net revenues in 1995 and
1996, respectively. A second client accounted for 10.5% of this division's net
revenues in 1995. One client accounted for 23.6% and 10.2% of the Pharmaceutics
Services Division's net revenues in 1995 and 1996, respectively. A second
client accounted for 11.3% and 21.2% of this division's net revenues in 1995 and
1996, respectively. A third Pharmaceutics Services Division client accounted
for 12.6% of its net revenue in 1996, while three additional clients accounted
for 12.2%, 11.1% and 11.0% of its net revenues in 1997.
The concentration of credit risk is limited to trade accounts receivables and is
subject to the financial and industry conditions of the Company's clients. The
Company does not require collateral or other securities to support client
receivables.
Expense Recognition
A portion of expenses is incurred under contracts with investigators. These
contracts call for the investigators to perform certain procedures or tests on a
specified number of patients. Expenses are recognized based upon the status of
the work completed as of a given time as a percentage of the total procedures
required under the contract. Included in reimbursed costs in the accompanying
consolidated statements of operations are principally the contracted
investigators' costs. Billings and payments are specified in the contract.
F-10
<PAGE>
Income Taxes
On January 1, 1994, upon terminating its S Corporation status, the Company
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," ("SFAS 109") retroactively to inception. This statement requires
the use of the liability method in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities, and are
measured using enacted tax rates that are expected to be in effect when the
differences reverse. The adoption of SFAS 109 had no material impact on the
Company's financial statements.
Net Income (Loss) per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share," effective the year ended December 31, 1997. This
statement requires the disclosure of both basic and diluted earnings per share
as well as the retroactive restatement of prior years' per share disclosures.
The following tables reconcile the numerator and denominator of the basic and
diluted net income (loss) per share computations for continuing operations:
<TABLE>
<CAPTION>
Year Ended December 31, 1995 Year Ended December 31, 1996
----------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income (Loss) per Share--Basic:
Income (loss)- available to
common stockholders after
deemed dividend $ (5,725,000) 14,276,000 $ (0.40) $ 1,369,000 18,145,000 $ 0.08
========= =========
Efect of Dilutive Securities:
Convertible Preferred Stock - - - 2,338,000
Options - - - 2,095,000
Warrants - - - 2,428,000
------------- ------------- ---------- ----------- -------------- ----------
Income (Loss) per Share--Diluted:
Income (loss) available to
common stockholders after
deemed dividend + assumed
conversions $ (5,725,000) 14,276,000 $ (0.40) $ 1,369,000 25,006,000 $ 0.05
============== ========== ========= ============ =========== =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ----------
<S> <C> <C> <C>
Income (Loss) per Share--Basic:
Income (loss)- available to
common stockholders $ 757,000 22,954,000 $ 0.03
=========
Efect of Dilutive Securities:
Convertible Preferred Stock - 2,249,000
Options - 1,459,000
Warrants - 1,538,000
------------- -------------
Income (Loss) per Share--Diluted:
Income (loss) available to
common stockholders +
assumed conversions $ 757,000 28,200,000 $ 0.03
============== ========== =========
</TABLE>
F-11
<PAGE>
Options and warrants to purchase 4,750,000, 91,000 and 824,000 shares of the
Company's common stock at weighted average exercise prices of $2.03, $7.56 and
$6.52 per share were outstanding during 1995, 1996 and 1997, respectively, but
were not included in the computation of diluted net income (loss) per share
because they are antidilutive. Also not included in 1995 were 2,998,662 shares
of the Company's common stock issuable upon the conversion of preferred stock
due to antidilution. Of the options and warrants not included in the 1997
earnings per share computation, 777,000 shares are still outstanding at December
31, 1997 and have a weighted average life of approximately eight years before
they expire.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130
and SFAS 131 are effective for fiscal years beginning after December 15, 1997.
Therefore, the Company will adopt these standards on January 1, 1998. The
Company does not anticipate the adoption of SFAS 130 or SFAS 131 to result in
any substantive changes in its disclosures.
3. MERGERS AND ACQUISITIONS
------------------------
Acquisition of Resource Biometrics, Inc. ("RBI")
On July 18, 1996, the Company purchased all of the outstanding shares of stock
of RBI for 350,000 shares of the Company's common stock. At the time of
acquisition, RBI was a provider of both software products and data services to
the pharmaceutical, biotechnology and medical device industries. During 1997,
the Company closed the RBI software commercialization unit (see Note 6). This
acquisition was recorded using the purchase method of accounting. The total
purchase price of $2,463,000, including transaction costs of $174,000, was
allocated to the fair value of the assets acquired and liabilities assumed. The
$2,718,000 excess of purchase price over book value on the acquisition date was
allocated based on an independent appraisal as follows: (1) $510,000 to
acquired research and development, which is charged to the statement of
operations as a non-recurring item; (2) $160,000 to software technology being
amortized over 5 years; and (3) $2,048,000 to goodwill being amortized over 20
years.
Acquisition of HGB, Inc., Doing Business as The Hardardt Group ("THG")
On October 1, 1996, the Company purchased all of the outstanding shares of stock
of THG for $14 million in cash and 2,719,999 shares of the Company's common
stock. THG is a provider of clinical trial management and clinical monitoring
services to the pharmaceutical, biotechnology and medical device industries.
THG provides these services predominantly in the U.S. This acquisition was
recorded under the purchase method of accounting. The total purchase price of
$31,210,000, including estimated transaction costs of $1,772,000, has been
allocated to the fair value of assets acquired and liabilities assumed. The
book value of THG's assets and liabilities approximates their fair value. The
$30,251,000 excess of purchase price over book value on the acquisition date was
allocated to goodwill. Goodwill is being amortized on a straight-line basis
over 25 years, based on an independent appraisal obtained by the Company.
F-12
<PAGE>
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 acquisition was accounted for as
a pooling-of-interests transaction. 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
operating income.
Acquisition of Outcomes Research Corporation ("ORC")
On January 13, 1997, the Company acquired the business of ORC for 29,629 shares
of the Company's common stock and $150,000 in cash. ORC is a U.S. based health
economics consulting business. This acquisition has been recorded under the
purchase method of accounting and is immaterial to the Company's financial
statements taken as a whole.
The table below summarizes the unaudited pro forma combined results of
operations for the years ended December 31, 1995 and 1996. This table does not
include the merger with PPL or the acquisition of ORC due to materiality.
However, the table assumes that the acquisitions of RBI and THG and the closure
of the RBI software commercialization unit (see Note 6) and the divestiture of
the Drug Delivery Services Division (see Note 7) had occurred on January 1,
1995.
Year Ended December 31,
------------------------------
1996 1997
-------------- --------------
Revenues $ 74,380,000 $ 99,112,000
Net Revenues 57,902,000 73,430,000
Operating Income (Loss) (2,042,000) 2,617,000
Net Income (Loss) (3,549,000) 2,115,000
Net Income (Loss) Per Share-Basic (0.20) 0.10
Net Income (Loss Per Share-Diluted (0.20) 0.08
The above pro forma information excludes the $510,000 one-time charge to
earnings for acquired research and development related to the RBI acquisition in
1996. The pro forma information also excludes the 1995 operating loss of the
Drug Delivery Services Division of $1,546,000 and the operating losses of the
RBI software commercialization unit of $348,000 in 1995 and $554,000 in 1996 due
to the Company's decision to discontinue or to close these operations. The
shares used in computing pro forma net loss per share assumes that the
acquisitions of RBI and THG had occurred on January 1, 1995.
F-13
<PAGE>
4. 1996 PUBLIC OFFERING OF COMMON STOCK
------------------------------------
On April 19, 1996, the Company completed a public offering of 3,000,000 shares
of its common stock, par value $.01 per share, at an issuance price of $6.50 per
share, for a total of $19.5 million. The net proceeds to the Company, after all
issuance expenses, were $18,011,000. These shares were sold to selected
institutional investors.
5. 1995 PRIVATE EQUITY PLACEMENT
-----------------------------
On August 11, 1995, the Company completed a private equity placement (the "1995
Private Equity Placement") of 999,554 shares of convertible preferred stock, par
value $.01 per share, at a purchase price of $7.003125, per share for a total of
$6,935,000, net of transaction costs. Each share of convertible preferred stock
is convertible into three shares of common stock. Each share of convertible
preferred stock is entitled to three detachable and transferable warrants to
purchase shares of common stock for $2.33 per share on or before August 11,
2000. In addition, each share of convertible preferred stock is entitled to the
voting equivalent of three shares of common stock. The Company allocated
$5,174,000 of the net proceeds to preferred stock and $1,761,000 to warrants
based upon their relative estimated fair values. The fair value of the warrants
was based upon the Black-Scholes Method which utilizes the following
assumptions: dividend yield of 0%, expected volatility of 40%, risk-free
interest rate of 6.46% and an expected warrant life of 3 years. The convertible
preferred stock may be converted at the Company's option after August 11, 1998,
provided that the common stock has a trading price equal to or greater than $10
per share. On October 10, 1995, the Company filed a registration statement on
Form S-3 with the Securities and Exchange Commission for the common stock
underlying the convertible preferred stock and warrants. The registration of
these securities was declared effective on October 31, 1995. In the event the
Company sells or issues additional shares of common stock, warrants or other
rights to purchase stock, stockholders of convertible preferred stock are
entitled to certain anti-dilution protection. The holders of the convertible
preferred stock are entitled to one seat on the Company's Board of Directors,
which was filled in August 1995.
The 1995 results of operations have been restated to give effect to the
accounting treatment announced by the Staff of the Securities and Exchange
Commission at the March 13, 1997 meeting of the Emerging Issues Task Force
relative to the 1995 Private Equity Placement. Under this accounting treatment,
the beneficial conversion discount was recorded in the restated 1995 financial
statements as a deemed dividend, since the convertible preferred stock was
immediately convertible into common stock. The effect of this restatement was to
increase the 1995 net loss to common stockholders' equity by approximately $2.7
million. This restatement has no effect on total stockholders' equity or cash
flows of the Company.
In 1996, 249,889 shares of the convertible preferred stock were converted into
749,667 shares of common stock. As of December 31, 1995 and 1996, all of the
2,998,662 immediately exercisable warrants issued in this transaction were
outstanding. As of December 31, 1997, 2,784,471 of these warrants were
outstanding after 214,191 warrants were exercised in 1997. Subsequent to
December 31, 1997, an additional 214,191 warrants were exercised.
6. CLOSURE OF RBI SOFTWARE COMMERCIALIZATION UNIT
--------------------------------------------------
On June 30, 1997, the Company closed the software commercialization unit of RBI.
Accordingly, all operating results of this unit have been reclassified from
continuing operations to discontinued operations. This unit recorded a net loss
of $389,000 for 1996 and $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 reflected
in the 1997 consolidated statement of operations. The Company did not record an
income tax benefit on the loss from discontinued operations as the realization
of a corresponding deferred tax asset is uncertain. At the time of the
acquisition of RBI, approximately 25% of the purchase price was allocated to the
software commercialization 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 December 31, 1997 are $417,000
and are included in accrued compensation and related costs and other accrued
expenses on the accompanying consolidated balance sheet.
F-14
<PAGE>
7. DIVESTITURE OF DRUG DELIVERY SERVICES DIVISION
----------------------------------------------
On July 28, 1995, the Company entered into an agreement to sell its Drug
Delivery Services Division, effective July 1, 1995, to a management group from
that division. The Drug Delivery Services Division had recorded a net loss of
$727,000 for the six months ended June 30, 1995. In addition, a loss on
disposal of the division of $819,000, including accruals for severance payments
and future liabilities, has been reflected in the consolidated statement of
operations for 1995. The operating losses of the Drug Delivery Services
Division have been retroactively restated as losses from discontinued operations
in the accompanying consolidated statements of operations. The Drug Delivery
Services Division was a significant portion of Affinity Biotech, Inc. (see Note
1).
8. INTERNATIONAL RESTRUCTURING
---------------------------
In June 1997, the company implemented a restructuring plan for the International
CRO. The Company has recorded a one-time restructuring charge of $1,208,000,
consisting primarily of termination benefits for 14 employees and an accrual for
lease-related charges. As of December 31, 1997, 12 employees have been
terminated and $296,000 of termination benefits have been paid. In addition,
lease-related costs of $111,000 have been paid. Substantially all of the
termination benefits and lease-related charges will be paid by the end of 1998.
9. ACCOUNTS RECEIVABLE
-------------------
December 31,
------------------------------
1996 1997
-------------- --------------
Trade:
Billed $ 17,548,000 $ 23,547,000
Unbilled 10,590,000 19,914,000
Allowance for doubtful accounts (524,000) (611,000)
-------------- --------------
$ 27,614,000 $ 42,850,000
============== ==============
10. PROPERTY AND EQUIPMENT
----------------------
December 31,
------------------------------
1996 1997
-------------- --------------
Computer equipment and software
Equipment (see Note 13) $ 6,051,000 $ 9,451,000
Furniture and fixtures 4,479,000 6,519,000
Leasehold improvements 1,634,000 2,308,000
1,834,000 4,592,000
-------------- --------------
13,998,000 22,870,000
Less--Accumulated depreciation and amortization (6,199,000) (8,825,000)
-------------- --------------
$ 7,799,000 $ 14,045,000
============== ==============
F-15
<PAGE>
11. INCOME TAXES
------------
At December 31, 1997, the Company had net operating loss carryforwards for U.S.
income tax purposes of approximately $5,400,000 and for foreign income tax
purposes of approximately $6,900,000. If utilized, $3,200,000 of the U.S.
Federal net operating loss carryforward will not be benefited in the
consolidated statement of operations as it was generated by the exercise of
nonqualified stock options and will be recorded directly to additional paid-in
capital in accordance with SFAS 109. The Federal net operating loss
carryforwards will expire at various dates beginning in 2008, if not utilized.
Pursuant to the Tax Reform Act of 1986, annual use of the Company's U.S. Federal
net operating loss carryforwards may be limited if a cumulative change in
ownership of more that 50% has occurred within a three-year period. Upon
consummation of the Affinity Merger, the availability in any one year of
Affinity's net operating loss carryforward became limited due to a change in
ownership. Such limitation has not had an effect on the Company's ability
ultimately to utilize this carryforward. The Company believes that there has
been no such change in ownership since the Affinity Merger.
The components of income (loss) from continuing operations before income taxes
are as follows:
Year Ended December 31,
-------------------------------------------
1995 1996 1997
------------- ------------ ------------
Domestic $ (1,576,000) $ 4,278,000 $ 6,699,000
Foreign (2,983,000) (2,849,000) (4,959,000)
------------- ------------ ------------
$ (4,559,000) $ 1,429,000 $ 1,740,000
============= ============ ============
The income tax provisions for the years ended December 31, 1996 and 1997 relate
primarily to state income taxes due to profitable operations in the U.S. The
income tax provisions in 1996 and 1997 are composed of current provisions of
$109,000 and $938,000, respectively, offset by a deferred benefit of $49,000 in
1996 and a deferred provision of $45,000 in 1997.
Income taxes computed at the Federal tax rate of 34% are reconciled to the total
income tax provision for continuing operations as follows:
Year Ended December 31,
-------------------------------
1996 1997
-------------- -------------
United States Federal statutory
rate $ 486,000 $ 592,000
Effect of foreign losses not
benefited 484,000 1,466,000
State taxes 60,000 983,000
Nondeductible expenses 428,000 606,000
Net operating loss carryforward
utilized (1,686,000) (2,694,000)
Other 288,000 30,000
------------- -------------
Provision for income taxes $ 60,000 $ 983,000
============= =============
Effective tax rate 4.2% 56.5%
============= =============
F-16
<PAGE>
The tax effect of temporary differences as established in accordance with SFAS
109 that give rise to deferred income taxes are as follows:
December 31,
-----------------------------
1996 1997
------------- -------------
Deferred tax assets:
Net operating loss carryforwards $ 5,800,000 $ 4,855,000
Items deductible in future tax years 1,144,000 817,000
------------ ------------
Total deferred tax assets 6,944,000 5,672,000
Less-valuation allowance (5,818,000) (4,952,000)
------------ ------------
Net deferred tax assets 1,126,000 720,000
------------ ------------
Deferred tax liabilities:
Depreciation (497,000) (318,000)
Cash to accrual adjustment (677,000) (406,000)
------------ ------------
Total deferred tax liabilities (1,174,000) (724,000)
------------ ------------
Net deferred tax assets (liabilities) $ (48,000) $ (4,000)
============ ============
Items deductible in future tax years are as follows:
December 31,
-----------------------------
1996 1997
------------- -------------
Compensation and benefits $ 587,000 $ 374,000
Allowance for doubtful accounts 236,000 231,000
Other accruals 321,000 212,000
------- -------
$1,144,000 $ 817,000
========== =========
Approximately $2.7 million of the deferred tax asset for net operating loss
carryforwards at December 31, 1997 relates to foreign operations, with the
remainder related to U.S. operations. A valuation allowance has been provided
against the foreign net operating loss carryforwards as these operations have
incurred losses since inception. As indicated above, the majority of the U.S.
net operating loss carryforwards ($3.2 million of the net operating loss
carryforward or approximately $1.1 million of the deferred tax asset) relate to
deductions generated by the exercise of non-qualified stock options. The tax
benefit of these deductions will be recorded directly to additional paid-in-
capital when realized, and, therefore, will have no effect on operating results.
A valuation allowance has also been recorded against the remaining net operating
loss carryforwards relating to U.S. operations. Though the U.S. operations were
profitable in 1996 and 1997, these operations were unprofitable in 1993, 1994
and 1995. In addition, as of December 31, 1997, the Company considered its
overall financial resources and other factors which could affect future results.
These factors included, but were not limited to the risks associated with
customer contract terminations or delays, particularly with respect to three
large projects, which have certain atypical attributes. These projects could
substantial affect operating income in 1998. Given the lack of an established
history of U.S. profitability and the uncertainty of future operating results,
the Company believes that the weight of evidence available at December 31, 1997
indicates it is more likely than not these carryforwards will not be realized.
12. LINE OF CREDIT
--------------
The Company maintains a line of credit facility with its bank. In August 1996,
the Company negotiated an increase in its line of credit facility. The current
availability under the facility is equal to $5,000,000 minus the outstanding
balance on the non-revolving equipment loan (see Note 13), or $4,062,000 at
December 31, 1997. Prior to August 1996, the amount of this facility was
$2,000,000.
The line of credit facility, as amended during 1997, carries various terms and
conditions. Interest on amounts borrowed under this line of credit is at the
lender's prime rate (8.5% at December 31, 1997) effective October 1997. Prior
to October 1997, interest was at the lender's prime rate (8.5% and 8.25% at
December 31, 1995 and 1996, respectively) plus 0.25%. Indebtedness under this
facility is secured by substantially all of the Company's assets. The facility
contains financial and operational covenants to maintain specified levels of
working capital, cash level, debt service and debt-to-tangible net worth ratio.
There were no borrowings under the line of credit facility in 1995, 1996 or
1997.
F-17
<PAGE>
13. LONG-TERM DEBT
--------------
December 31,
------------------------------
1996 1997
-------------- --------------
Term loans with bank $ - $ 6,737,000
Non-revolving equipment loan 1,563,000 938,000
Note payable on leashold improvements 242,000 126,000
Note payable for THG shareholder buyout 273,000 115,000
Capital lease obligations 1,174,000 1,013,000
Other 9,000 54,000
-------------- --------------
3,261,000 8,983,000
Less--current portion (1,376,000) (3,122,000)
-------------- --------------
$ 1,885,000 $ 5,861,000
============== ==============
Aggregate maturities of long-term debt are as follows:
1998 $ 3,122,000
1999 2,593,000
2000 2,033,000
2001 977,000
2002 258,000
--------------
$ 8,983,000
==============
In August 1997, the Company entered into a new $7,000,000 term loan facility
with its bank. This facility comprises a series of four term loans bearing
interest at rates ranging from 7.90% to 8.05% with terms of 36 to 60 months.
Principal payments are made in equal monthly installments ranging from $25,000
to $62,500. The proceeds of this facility were used to finance new leasehold
improvements and new capital equipment for the Pharmaceutics Services Division
and to enhance the Company's information systems infrastructure. This facility
is subject to the same restrictive covenants as the line of credit discussed in
Note 12. Indebtedness under the facility is secured by substantially all of the
Company's assets and a purchase money security interest in the equipment
purchased.
The Company's non-revolving equipment loan is for capital expenditures made in
1994 and is payable in 48 equal payments of $52,083 plus interest beginning July
1995. It is subject to the same restrictive covenants as stated in Note 12.
Indebtedness under this facility is also secured by substantially all of the
Company's assets and a purchase money security interest in the equipment
purchased. After renegotiations in August 1997, this loan bears interest at the
lender's prime rate plus 0.25%, a decrease from the previous interest rate of
prime plus 0.75%. The lender's prime rate was 8.5%, 8.25% and 8.5% at December
31, 1995, 1996 and 1997, respectively.
The Company's note payable on leasehold improvements is for approximately
$483,000 of improvements made in Germany in 1994. It is payable in 60 equal
payments of approximately $10,000, which includes interest at 7.5%.
In 1993, THG entered into an agreement with a stockholder to terminate his
employment with THG. In conjunction with this termination, THG agreed to pay
$749,000 in 60 monthly payments based on interest at prime plus 2%. This amount
represents the remainder of this liability.
F-18
<PAGE>
Capital lease obligations mature from 1997 through 2001 and have interest rates
ranging from 9.0% to 12.2%. Equipment, including computer equipment, consists
of $2,776,000 and $2,495,000 of cost and $1,637,000 and $1,769,000 of
accumulated depreciation for assets held under capital leases at December 31,
1996 and 1997, respectively. At December 31, 1997, the aggregate remaining
lease payments were $1,153,000 including interest of $140,000.
In January 1998, the Company received a commitment from its bank for a
$5,000,000 loan to finance the next phase of expansion at the Pharmaceutics
Services Division. This loan will bear interest at 7.5% and will be repayable
in 47 equal monthly installments beginning six months after the first draw under
the loan.
14. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company maintains insurance coverage against possible liabilities that may
be incurred in connection with the conduct of its worldwide business. While the
Company believes it operates safely and prudently, there can be no assurance
that all possible types of liabilities that may be incurred by the Company are
covered by its insurance or that the dollar amount of such liabilities will not
exceed the Company's policy limits.
In the normal course of business, the Company is a party to various claims and
legal proceedings. Although the ultimate outcome of these matters is presently
not determinable, management of the Company, after consultation with legal
counsel, does not believe that the resolution of these matters will have a
material effect upon the Company's financial condition or results of operations.
However, because this is a forward-looking statement which contains risks and
uncertainties, the actual resolution may be material if, for example, facts are
uncovered which are not currently known by the Company or the Company is subject
to an unforeseen, unfavorable ruling by a court.
15. STOCK OPTIONS AND WARRANTS
--------------------------
In conjunction with the Affinity Merger (see Note 1), the Company's stockholders
approved the 1994 Incentive Stock Plan (the "1994 Plan") which authorizes the
granting of incentive and nonqualified stock options, stock appreciation rights
and stock awards (together the "Incentives") to officers, key employees,
directors and consultants. All previously issued Bio-Pharm options were
converted into the 1994 Plan. A maximum of 2,250,000 shares of common stock are
issuable pursuant to the 1994 Plan. The two predecessor plans of Affinity,
described below, have survived the Affinity Merger.
In January 1992, the Company established its 1992 Incentive Stock Plan (the
"1992 Plan"), which authorizes the granting of Incentives to officers, key
employees, directors and consultants. A maximum of 725,000 shares of common
stock are issuable pursuant to the 1992 Plan. On June 16, 1993, the
stockholders approved the Company's 1993 Incentive Stock Plan (the "1993 Plan").
The 1993 Plan authorizes the granting of Incentives to officers, key employees,
directors and consultants. A maximum of 750,000 shares of common stock are
issuable pursuant to the 1993 Plan. In February 1997, the Company's
stockholders approved the 1997 Equity Compensation Plan (the "1997 Plan"), which
authorizes the granting of Incentives to employees, directors and key advisors.
A maximum of 1,500,000 shares of common stock are issuable pursuant to the 1997
Plan.
The 1992, 1993, 1994 and 1997 Plans (collectively referred to as the "Plans")
are administered by a committee of the Board of Directors, the members of which
are ineligible to participate. The committee determines who will receive
Incentives, the types of Incentives to be granted and the terms and conditions
of such Incentives. To date, the Company has granted only nonqualified stock
options under the Plans, the exercise price of which was determined by the
committee at the time the options were granted. Options issued under the Plans
generally vest over five years, except for those issued under the 1997 Plan
which generally vest over four years. In addition, 350,000 options granted to
certain key employees in 1997 vest at the end of six years and contain a
provision which could accelerate vesting upon achieving individual performance
goals, as defined. All options expire no later than ten years from the date of
the grant.
F-19
<PAGE>
During 1995, the Company's stockholders approved the 1994 Non-Employee Director
Stock Option Plan (the "Directors' Plan") which authorizes the granting of
nonqualified stock options to non-employee members of the Board of Directors. A
maximum of 300,000 shares of common stock are issuable pursuant to the
Directors' Plan. Options are granted to eligible Board members each year based
on a formula, as defined in the Directors' Plan.
In addition to options issued under the Plans and the Directors' Plan, certain
other options have been issued. As of December 31, 1995, all options issued
other than pursuant to one of the plans indicated above have been exercised.
In October 1995, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Effective January 1, 1995, the Company has elected
to adopt the disclosure requirement of this pronouncement. The fair value of
Incentives granted to non-employees is charged to earnings in accordance with
SFAS 123. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under SFAS
123, the Company's net income (loss) and net income (loss) per share would have
been as follows:
Year Ended December 31,
---------------------------------------------
1995 1996 1997
-------------- ------------- ------------
Pro forma net income (loss) $(4,835,000) $ 552,000 $(1,993,000)
Pro forma net income (loss)
per share-basic: $ (0.53) $ 0.03 $ (0.09)
Pro forma net income (loss)
per share-diluted: $ (0.53) $ 0.02 $ (0.07)
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost, and
thus pro forma net income (loss), may not be representative of that to be
expected in future years. The weighted average fair value at the date of grant
for options granted during 1995, 1996 and 1997 is estimated as $1.51, $3.09 and
$2.03 per share, respectively, using the Black-Scholes option-pricing model.
The assumptions used in the Black-Scholes model are as follows: dividend yield
of 0%; expected volatility of 40% in 1995 and 1996 and 45% in 1997; risk-free
interest rate of 6.46%, 6.05% and 6.35% in 1995, 1996 and 1997, respectively;
and an expected option life of six years.
Information with respect to the nonqualified stock options granted under the
Plans and the Directors' Plan and options granted separately from any plan is
summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------------------------- --------------------------- ---------------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beg. of
year 2,774,780 $ 1.56 2,898,710 $ 1.78 3,082,839 $ 3.09
Granted 501,360 3.02 859,950 6.32 1,501,750 3.85
Exercised (132,866) 1.01 (500,396) 0.77 (74,896) 1.73
Cancelled (244,564) 2.30 (175,425) 3.85 (175,006) 5.32
------------- -------------- --------------
Outstanding at end of
year 2,898,710 1.78 3,082,839 3.09 4,334,687 3.29
============= ============== ==============
Exercisable at end of
year 1,858,886 1.21 1,943,014 1.83 2,107,448 2.17
============= ============== ==============
</TABLE>
F-20
<PAGE>
The following table summarizes information about options outstanding at December
31, 1997:
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Wtd. Avg.
Range of Remaining Wtd. Avg. Wtd. Avg.
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life in Years Price Exercisable Price
- ------------- ----------- ------------- ---------- ----------- ----------
$0.12-$1.87 1,134,767 3.2 $ 0.65 1,109,236 $ 0.62
$2.19-$3.78 1,603,710 7.8 3.28 597,562 2.91
$3.85-$6.25 1,283,260 8.3 4.71 341,690 5.08
$6.50-$8.13 312,950 8.5 7.06 58,960 7.07
----------- 6.8 3.29 ----------- 2.17
4,334,687 2,107,448
=========== ===========
As of December 31, 1997, 524,435 options were available for future grant under
the Plans and the Directors' Plan.
Upon the closing of the Affinity Merger (see Note 1), warrants to purchase
684,505 shares of common stock at $2.58 were issued to certain institutional
investors of Bio-Pharm in connection with their approval of the Affinity Merger.
In December 1996, warrants underlying 297,223 shares of common stock were
exercised, while the remaining 387,282 warrants were exercised in January
1997.
In connection with the execution of the Merger Agreement, Omnicare and IBAH
entered into a Stock Option Agreement dated as of March 30, 1998. Under this
agreement, IBAH has granted Omnicare an option to purchase up to 4,685,315
newly issued shares of IBAH common stock exercisable (approximately 19.9% of the
outstanding common shares of the Company on March 30, 1998) at $5.75 per share.
This option is exercisable if certain triggering events occur (see Note
20).
16. LEASES
------
The Company entered into a lease in 1989 for its corporate headquarters office
space, which included reduced rental payments in the initial years of the lease.
The accompanying financial statements reflect total rent expense on a straight-
line basis over the term of the lease. The Company also has leases for its
other 18 primary office and laboratory locations. Rent expense for all
operating leases was $2,732,000, $3,182,000 and $3,713,000 in 1995, 1996 and
1997, respectively. The future minimum lease payments as of December 31, 1997,
under the noncancelable operating leases for equipment and office space are as
follows:
1998 $4,284,000
1999 3,612,000
2000 2,175,000
2001 1,145,000
2002 1,006,000
2003 and thereafter 8,609,000
Included in the future minimum lease payments above is a 15 year lease for new
office, laboratory and manufacturing facilities for the Pharmaceutics Services
Division. This lease is for 124,000 square feet of space. During 1997, the
Company began the phase-in of operations in this new facility. The first 40,000
square feet of space has been converted to laboratory and office space. The
next 40,000 square feet of space are scheduled to be occupied in 1998 (see Note
13).
As of December 31, 1997, the Company issued a bank letter of credit for $300,000
to the landlord of its headquarters facility in lieu of a cash security deposit.
F-21
<PAGE>
17. EMPLOYEE RETIREMENT PLANS
-------------------------
In January 1991, the Company established a 401(k) Retirement Plan for all
qualified U. S. employees. The employer contributions credited to this plan
were charged to expense and were $91,000, $187,000 and $237,000 in 1995, 1996,
and 1997, respectively. This plan also provides for discretionary contributions
as approved by the Board of Directors. There were no discretionary
contributions in 1995, 1996, or 1997.
In the United Kingdom, the Company operates defined contribution pension plans.
The assets of these plans are held separately from those of the Company in eight
independently administered funds. The employer contributions credited to these
plans were charged to expense and were $132,000, $183,000 and $188,000 in 1995,
1996 and 1997, respectively.
Prior to acquisition, both RBI and THG maintained their own 401(k) Retirement
Plans for qualified employees. These plans have been merged into the IBAH plan
effective January 1, 1997. Since their acquisitions, $34,000 of employer match
contributions have been made to these Plans.
18. RELATED PARTY TRANSACTIONS
--------------------------
During 1997, the Company performed services for a company employing a member of
IBAH's Board of Directors. Revenues recognized during the year for these
services were $1,357,000.
At December 31, 1997, the Company had a mortgage receivable of $79,000 due from
a former stockholder of THG (see Note 3). During 1997 an additional mortgage
receivable of $66,000 from another former stockholder of THG was repaid. The
outstanding mortgage is secured by a personal residence and bears interest at
5.78%. Payments are in monthly installments of $773. This receivable is
included in other assets on the accompanying consolidated balance sheet.
On January 19, 1996, the Company entered into a one-year agreement with Vector
Securities International, Inc. ("Vector Securities"), an affiliate of Vector
Later-Stage Equity Fund, L.P., a fund managed by Sandra Panem, a member of the
Company's Board of Directors. Pursuant to the agreement, Vector Securities will
provide strategic advisory services to the Company in return for standard up-
front fees and fees related to any specific transactions consummated by the
Company. This contract was terminated in July 1997.
In January, 1992, Affinity entered into a five year contract for management
advisory services with an entity controlled by the Chairman of the Company's
Board. This contract provided for quarterly payments. The Company incurred
expenses under this contract of $87,000 in 1995 and $122,000 in 1996. This
contract was terminated effective December 31, 1996.
The Company had a $75,000 demand note from an employee. The demand note was
secured by 25,000 shares of the Company's common stock and bore interest at
prime. The note was repaid in 1995.
F-22
<PAGE>
19. OPERATIONS BY BUSINESS SEGMENT AND GEOGRAPHIC AREA
--------------------------------------------------
The Company operates in two business segments: the Clinical Services Division
and the Pharmaceutics Services Division (see Note 1). The following table
presents information about the Company's operations by segment:
Year Ended December 31,
----------------------------------------------
1995 1996 1997
------------- ------------- -------------
Net revenues
Clinical Services Division $ 40,272,000 $ 56,119,000 $ 77,674,000
Pharmaceutics Services
Division 2,594,000 6,001,000 10,377,000
------------- ------------- -------------
$ 42,866,000 $ 62,120,000 $ 88,051,000
============= ============= =============
Operating income (loss)
Clinical Services Division $ (1,523,000) $ 360,000 $ 234,000
Pharmaceutics Services
Division (1,379,000) 594,000 1,307,000
------------- ------------- -------------
$ (2,902,000) $ 954,000 $ 1,541,000
============= ============= =============
Depreciation and Amortization
Clinical Services Division $ 1,590,000 $ 2,411,000 $ 3,819,000
Pharmaceutics Services
Division 413,000 557,000 839,000
------------- ------------- -------------
$ 2,003,000 $ 2,968,000 $ 4,658,000
============= ============= =============
Capital Expenditures
Clinical Services Division $ 1,336,000 $ 2,504,000 $ 4,534,000
Pharmaceutics Services
Division 863,000 911,000 5,022,000
------------- ------------- -------------
$ 2,199,000 $ 3,415,000 $ 9,556,000
============= ============= =============
Identifiable Assets
Clinical Services Division $ 36,370,000 $ 87,510,000 $ 92,206,000
Pharmaceutics Services
Division 3,155,000 4,616,000 10,730,000
------------- ------------- -------------
$ 39,525,000 $ 92,126,000 $ 102,936,000
============= ============= =============
The operating income in the Clinical Services Division in 1996 includes the
$510,000 one-time charge to earnings for acquired research and development (see
Note 3). The operating income in the Clinical Services Division in 1997
includes the $1,208,000 restructuring charge (see Note 8) and merger costs of
$176,000 (see Note 3).
F-23
<PAGE>
The following table presents information about the Company's operations by
geographic area:
Year Ended December 31,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
Net revenues
United States $ 26,022,000 $ 41,225,000 $ 66,655,000
International 16,844,000 20,895,000 21,396,000
-------------- -------------- --------------
$ 42,866,000 $ 62,120,000 $ 88,051,000
============== ============== ==============
Operating income (loss)
United States $ (466,000) $ 3,642,000 $ 8,064,000
International (2,436,000) (2,688,000) (6,523,000)
-------------- -------------- --------------
$ (2,902,000) $ 954,000 $ 1,541,000
============== ============== ==============
Identifiable Assets
United States $ 19,097,000 $ 69,263,000 $ 83,254,000
International 20,428,000 22,863,000 19,682,000
-------------- -------------- --------------
$ 39,525,000 $ 92,126,000 $ 102,936,000
============== ============== ==============
The International operations are concentrated primarily in western Europe.
The operating income in the United States in 1996 includes the $510,000 one-time
charge to earnings for acquired research and development (see Note 3). The
operating loss in International in 1997 includes the $1,208,000 restructuring
charge (see Note 8). Operating income in the United States in 1997 includes
merger costs of $95,000, while operating loss in International includes $81,000
of merger costs for the same transaction (see Note 3).
20. MERGER WITH OMNICARE, INC. ("OMNICARE")
---------------------------------------
As of March 30, 1998, IBAH entered into the Merger Agreement with Omnicare under
which Omnicare will acquire IBAH in a stock-for-stock merger. In the Merger,
each outstanding IBAH common share will be converted into $5.75 market value of
Omnicare common shares, subject to the terms of the Merger Agreement. Omnicare
expects to issue approximately $169 million in Omnicare stock. The Merger is
contingent on, among other things, approval of IBAH stockholders and certain
regulatory authorities. The transaction is structured as a tax-free pooling of
interests. Omnicare is a leading geriatric pharmaceutical care company serving
approximately 443,000 residents in more than 5,500 long-term care facilities in
37 states. Omnicare is a provider of professional pharmacy and related
consulting and data management services for long-term care, assisted living and
other institutional health care facilities. Omnicare also provides
comprehensive clinical research services for the pharmaceutical and
biotechnology industries through its Coromed subsidiary, which offers clinical
research services in the United States, Canada and Argentina.
F-24
<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: May 22, 1998 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: May 22, 1998 By: /s/ Geraldine A. Henwood
------------------------
Geraldine A. Henwood
Chief Executive Officer
(Principal Executive Officer)
Date: May 22, 1998 By: /s/ Cornelius H. Lansing, II
----------------------------
Cornelius H. Lansing, II
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
Exhibit 3.2
BY-LAWS
OF
IBAH, INC.
________________________________
ARTICLE I
Offices
Section 1.1. Registered Office. The registered office of IBAH, Inc. (the
-----------------
"Corporation") shall be in the City of Wilmington, County of New Castle,
Delaware until otherwise established by a vote of a majority of the board of
directors in office, and a statement of such change is filed in the manner
provided by statute.
Section 1.2. Other Offices. The Corporation may also have offices at such
-------------
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
Meetings of Stockholders.
Section 2.1. Place. All meetings of the stockholders of the Corporation
-----
shall be held at such place either within or without the State of Delaware as
shall be designated by the Board of Directors and stated in the notice of such
meeting. If no place is so designated in the notice, the meeting shall be held
at the Corporation's then registered office.
Section 2.2. Annual Meeting. An annual meeting of stockholders shall be
--------------
held for the election of directors at such date, time and place as may be
designated by resolution of the Board of Directors from time to time. Any other
proper business may be transacted at the meeting, irrespective of whether the
notice of such meeting contains a reference thereto, except as otherwise
provided in these By-laws, or by statute.
Section 2.3. Special Meetings. Special meetings of the stockholders, for
----------------
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called at any time by the Chairman of the
Board, the President or shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors, or at the request in
writing of stockholders holding a majority of the entire capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 2.4. Notice of Meetings. Whenever stockholders are required or
------------------
permitted to take
<PAGE>
any action at a meeting, a written notice of the meeting stating the place, date
and hour of the meeting, and, in the case of a special meeting, the purpose of
purposes for which the meeting was called, shall be given to each stockholder of
record entitled to vote at such meeting not less than ten nor more than sixty
days before the date of the meeting. If mailed, such notice shall be deemed to
be given when deposited in the mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation.
Section 2.5. List of Stockholders. The Secretary shall prepare and make,
--------------------
at least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 2.6. Quorum. At each meeting of stockholders the presence in
------
person or by proxy of the holders of shares of stock having a majority of the
votes which could be cast by the holders of all outstanding shares of stock
entitled to vote at the meeting, shall be necessary and sufficient to constitute
a quorum for the transaction of business except as otherwise provided by
statute, by the Certificate of Incorporation or by these By-laws. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At any such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the original meeting as
originally notified. If the adjournment is for more than thirty days or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. Shares of its own stock belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
-------- -------
right of the Corporation to vote stock, including, but not limited, to its own
stock, held by it in a fiduciary capacity.
Section 2.7. Organization. Meetings of stockholders shall be presided over
------------
by the Chairman of the Board, if any, or in his or her absence, by the Vice
Chairman of the Board, if any, or in his or her absence by the President, or in
his or her absence by a Vice President, or in the absence of the foregoing
persons by a chairman designated by the Board of Directors. The Secretary shall
act as secretary of the meeting, but in his or her absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.8. Voting: Proxies. Except as otherwise provided by the
---------------
Certificate of Incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders may authorize another
person or persons to act for such stockholder by proxy, but no such proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or
<PAGE>
another duly executed proxy bearing a later date with the Secretary of the
Corporation. Voting at meetings of stockholders need not be by written ballot
and need not be conducted by inspectors of election unless so determined by the
holders of shares of stock having a majority of the votes which could be cast by
the holders of all outstanding shares of stock entitled to vote thereon which
are present in person or by proxy at such meeting. At all meetings of
stockholders for the election of directors a plurality of the votes cast shall
be sufficient to elect. All other elections and questions shall, unless
otherwise provided by law, the Certificate of Incorporation or these By-laws, be
decided by the vote of the holders of shares of stock having a majority of the
votes which could be cast by the holders of all shares of stock entitled to vote
thereon which are present in person or represented by proxy at the meeting.
Section 2.9. Action without Meeting. Unless otherwise restricted by the
----------------------
Certificate of Incorporation, any action required or permitted to be taken at
any annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Section 2.10. Fixing Date for Determination of Stockholders of Record. In
-------------------------------------------------------
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or to receive
payment of any dividend or other distribution or allotment of any rights, or to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
record date: (1) in the case of determination of stockholders entitled to vote
at any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty nor less than ten days before the date
of such meeting; (2) in the case of determination of stockholders entitled to
express consent to corporate action in writing without a meeting, shall not be
more than ten days from the date upon which the resolution fixing the record
date is adopted by the Board of Directors; and (3) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (1) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; (2) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting
when no prior action of the Board of Directors is required by law, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in accordance with
applicable law, or, if prior action by the Board of Directors is required by
law, shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action; and (3) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
-------- -------
date for the adjourned meeting.
<PAGE>
ARTICLE III
Board of Directors
Section 3.1. Number; Qualifications. The Board of Directors shall consist
----------------------
of not less than five nor more than eleven members, as shall be determined from
time to time by resolution of the Board of Directors, subject to the power of
the stockholders to change such action. At least three of the directors shall
be "Independent Directors". For purposes of these By-laws "Independent
Director" shall mean a person, other than an officer or employee of the
Corporation or its subsidiaries or any other individual who has a relationship
with the Corporation which, in the opinion of the Board of Directors, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. The directors need not be stockholders.
Section 3.2. Election and Terms of Directors; Board Action. The
---------------------------------------------
directors, other than those who may be elected pursuant to the Certificate of
Incorporation by the holders of any series of preferred stock voting separately
as a single class, shall be divided, with respect to the time for which they
severally hold office, into three classes with the initial term of office of the
first class to expire at the 1997 annual meeting of stockholders, the initial
term of office of the second class to expire at the 1998 annual meeting of
stockholders and the initial term of office of the third class to expire at the
1999 annual meeting of stockholders, with each such director to hold office
until his or her successor shall have been duly elected and qualified. At each
annual meeting of stockholders, commencing with the 1997 annual meeting of
stockholders, (i) directors elected to succeed those directors whose terms then
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election and until his or her
successor shall have been duly elected and qualified, and (ii) if authorized by
a resolution of the Board of Directors and except as otherwise provided in the
Certificate of Incorporation with respect to the rights of the holders of any
series of preferred stock to elect directors, directors may be elected to fill
any vacancy on the Board of Directors, regardless of how such vacancy shall have
been created. Any director who may be elected pursuant to the Certificate of
Incorporation by the holders of any series of preferred stock voting separately
as a single class, shall, at each annual meeting of stockholders, be elected for
a term of office to expire at the next annual meeting of stockholders and until
his or her successor shall have been duly elected and qualified or until such
director resigns or is removed from office by the holders of such series of
preferred stock; provided, however, that the term of office of any such director
-------- -------
shall expire at the next annual meeting that follows the date as of which any
such preferred stock shall no longer be outstanding.
Section 3.3. Newly Created Directorships and Vacancies; Resignation;
-------------------------------------------------------
Removal. Subject to applicable law and to the rights of the holders of any
- -------
series of preferred stock to elect directors as provided in the Certificate of
Incorporation, and unless the Board of Directors otherwise determines, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies on the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled only by a majority vote of the directors then in office, though
less than a quorum, and directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires and until such director's
successor shall have been duly elected and qualified. If there are no directors
in office, subject to the rights of the holders of any series of preferred stock
to elect directors as provided in the Certificate of Incorporation, then an
election of directors may be held in the manner provided by statute. If, at the
time of filling any newly created directorship or any vacancy, the directors
then in office shall constitute less than a majority of the whole Board (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding
<PAGE>
at least ten percent of the total number of shares at the time outstanding
having the right to vote for such directors, summarily order an election to fill
any such newly created directorships or vacancies, or to replace the directors
chosen by the directors then in office. No decrease in the number of authorized
directors constituting the entire Board of Directors shall shorten the term of
any incumbent director. If a director elected by the holders of any series of
preferred stock entitled to vote separately as a single class is removed by such
holders, and if the holders of such series of preferred stock for any reason
fail to elect anyone to fill any such directorship, such position shall remain
vacant until such time as the holders of such series of preferred stock elect a
director to fill such position and shall not be filled by resolution or vote of
the Corporation's Board of Directors or the Corporation's other stockholders.
Any director may resign at any time upon written notice to the Corporation. Any
director classified pursuant to Section 3.2, or all such directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 75 percent of the voting power of all of the
then outstanding shares entitled to vote generally in the election of directors,
voting together as a single class. Any director who may be elected pursuant to
the Certificate of Incorporation by the holders of any series of preferred stock
voting separately as a single class may be removed from office at any time, with
or without cause, by the affirmative vote of the holders of a majority of the
shares of such series of preferred stock voting separately as a single class.
Section 3.4. Powers. The business of the Corporation shall be managed by
------
or under the direction of its Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these By-laws directed or
required to be exercised or done by the stockholders.
Section 3.5. Meetings. The Board of Directors of the Corporation may hold
--------
meetings, both regular and special, either within or without the State of
Delaware.
Section 3.6. First Meeting. The first meeting of each newly elected Board
-------------
of Directors shall be held immediately following the annual meeting of
stockholders at which such directors are elected and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting.
Section 3.7. Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held without notice at such time and at such place within or without the
State of Delaware as shall from time to time be determined by the Board.
Section 3.8. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by the Chairman of the Board or President on two business days'
notice to each director, either personally or by mail, by telegram, facsimile or
telephone; special meetings shall be called by the President or Secretary in
like manner and on like notice on the written request of two directors.
Section 3.9. Quorum. At all meetings of the Board of Directors a majority
------
of the total number of directors shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 3.10. Conference Telephone. Members of the Board of Directors (or
--------------------
any committee designated by the Board) may participate in a meeting of the Board
or committee thereof by means of
<PAGE>
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section 3.10 shall constitute presence in person at
such meeting.
Section 3.11. Organization. Meetings of the Board of Directors shall be
------------
presided over by the Chairman of the Board, if any, or in his or her absence by
the Vice Chairman of the Board, if any, or in his or her absence by the
President, or in their absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 3.12. Unanimous Consent. Unless otherwise restricted by the
-----------------
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 3.13. Committees. The Board of Directors may, by resolution passed
----------
by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of any member of such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution
designating such committee, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors.
Section 3.14. Minutes. Each committee shall keep regular minutes of its
-------
meetings and report the same to the Board of Directors when requested.
Section 3.15. Fees and Expenses. The directors may be paid their expenses,
-----------------
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors and a
stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed additional
compensation for attending committee meetings.
ARTICLE IV
Notices
Section 4.1. Methods of Notice. Whenever, under the provisions of the laws
-----------------
of the State of Delaware or of the Certificate of Incorporation or of these By-
laws, notice is required to be given to any director or stockholder, notice may
be given by mail, addressed to such director or stockholder, at his or her
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Notice to directors may also be
given by telegram, facsimile or telephone.
<PAGE>
Section 4.2. Waiver. Whenever any notice is required to be given under the
------
provisions of the statutes or of the Certificate of Incorporation or of these
By-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance of a person, either in person or by proxy, at
any meeting, shall constitute a waiver of notice of such meeting, except where a
person attends a meeting for the express purpose of objecting to the transaction
of any business because the meeting was not lawfully called or convened.
ARTICLE V
Officers
Section 5.1. Election: Titles: Term of Office. The Board of Directors
--------------------------------
shall elect a President, a Vice-President, a Secretary and a Treasurer who shall
have such powers and duties as set forth herein and as from time to time be
determined by the Board of Directors. The Board of Directors may, if it so
determines, choose a Chairman of the Board and a Vice Chairman of the Board from
among its members. The Board of Directors may also elect or appoint additional
vice-presidents, one or more assistant secretaries and assistant treasurers, and
such other officers, agents, trustees and fiduciaries as it shall deem
necessary. Each such officer shall hold office until the first meeting of the
Board of Directors after the annual meeting of stockholders next succeeding such
officer's election, and until such officer's successor is elected and qualified.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-laws otherwise provide.
Section 5.2. Resignation; Removal. Any officer may resign at any time upon
--------------------
written notice to the Corporation. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of the
term by the Board of Directors at any regular or special meeting of the Board.
Section 5.3. Salaries. The salaries and other compensation of all officers
--------
of the Corporation shall be fixed by the Board of Directors.
Section 5.4 Chairman of the Board. The Chairman of the Board shall preside
---------------------
at all meetings of the Board of Directors and stockholders and shall have such
other powers and perform such other duties as may be specified from time to time
by the Board.
Section 5.5. President. Subject to the control of the Board of Directors,
---------
the President shall be the chief executive officer of the Corporation and in
addition shall perform such duties as from time to time may be assigned to him
or her by the Board. The President may execute on behalf of the Corporation all
contracts, deeds, bonds, mortgages, notes or other documents whether or not
requiring the seal of the Corporation. The President shall have responsibility
for the general and active management of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
Section 5.6. Vice-Presidents. In the absence of the President or in the
---------------
event of his or her inability or refusal to act, the Vice-President (or in the
event there be more than one Vice-President, the Vice-Presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice-Presidents shall perform such other duties
<PAGE>
and have such other powers as the Board of Directors may from time to time
prescribe.
Section 5.7. Secretary. The Secretary shall attend all meetings of the
---------
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or President, under whose supervision the Secretary shall
be. The Secretary shall have custody of the corporate seal of the Corporation
and shall have authority to affix the same to any instrument requiring it and
when so affixed, it may be attested by his or her signature. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his or her signature.
Section 5.8. Assistant Secretary. The Assistant Secretary, or if there be
-------------------
more than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 5.9. Treasurer. The Treasurer shall have the custody of the
---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his or her transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his or her office and for the
restoration to the Corporation, in case of his or her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his or her possession or under his or her
control belonging to the Corporation.
Section 5.10. Assistant Treasurer. The Assistant Treasurer or if there
-------------------
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there be no such determination, their in the order of
their election), shall, in the absence of the Treasurer or in the event of his
or her inability or refusal to act, perform the duties and exercise the powers
of the Treasurer and shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
ARTICLE VI
Indemnification
Section 6.1. Right to Indemnification. The Corporation shall indemnify and
------------------------
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding") by reason of the fact that he or she or a person for whom he or
she is the legal representative, is or was a director or officer of
<PAGE>
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, agent, fiduciary or other representative of another
corporation or of a partnership, joint venture, trust, enterprise or non-profit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees), judgments,
penalties, fines and amounts paid in settlement incurred by such person in
connection with such Proceeding to the full extent permissible under Delaware
law. The Corporation shall be required to indemnify a person in connection with
a Proceeding initiated by such person only if the Proceeding was authorized by
the Board of Directors of the Corporation.
Section 6.2. Discretionary Indemnification. The Corporation may, at the
-----------------------------
discretion and to the extent provided by general or specific action of the Board
of Directors or by contract, indemnify any person who neither is nor was a
director or officer of the Corporation, but who was or is made or is threatened
to be made a party or is otherwise involved in any Proceeding by reason of the
fact that he or she is or was an employee, agent or other representative of the
Corporation, against liability, loss suffered and expenses (including attorneys'
fees), judgments, penalties, fines and amounts paid in settlement incurred by
such person in connection with such Proceeding.
Section 6.3. Prepayment of Expenses. The Corporation shall pay the
----------------------
expenses incurred in any Proceeding in advance of its final disposition;
provided, however, that the person so indemnified pursuant to Section 6.1 or
- -------- -------
Section 6.2 shall have first delivered to the Corporation an undertaking to
repay all amounts advanced if it should ultimately be determined that such
person is not entitled to be indemnified under this Article VI or otherwise.
Section 6.4. Non-Exclusivity of Rights. The rights conferred on any person
-------------------------
by this Article VI shall not be exclusive of any other rights which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, these Bylaws, insurance, agreement, vote of stockholders or
disinterested directors or otherwise, and shall continue as to a person who has
ceased to be a director or officer, and shall inure to the benefit of the heirs,
executors and administrators of such person.
Section 6.5. Amendment or Repeal. Any appeal or modification of the
-------------------
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
Section 6.6. Insurance. The Board of Directors may authorize, by a vote of
---------
a majority of the full Board, the Corporation to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, agent, fiduciary or other representative of another
corporation, or of a partnership, joint venture, trust, enterprise or non-profit
entity, including service with respect to employee benefit plans, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of this Article VI.
ARTICLE VII
Certificates of Stock
Section 7.1. Right to Certificate. Every holder of stock in the
--------------------
Corporation shall be entitled to have a certificate, signed by or in the name of
the Corporation by the Chairman of the Board of
<PAGE>
Directors, or the President or a Vice President and the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by such stockholder in the
Corporation.
Section 7.2. Statements Setting Forth Rights. If the Corporation shall be
-------------------------------
authorized to issue more than one class of stock or more than one series of any
class, the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and rights shall
be set forth in full or summarized on the face or back of the certificate which
the Corporation shall issue to represent such class or series of stock; , that
-
except as otherwise provided in Section 202 of the General Corporation Law of
the State of Delaware, in lieu of the foregoing requirements, there may be set
forth on the face or back of the certificate which the Corporation shall issue
to represent such class or series of stock, a statement that the Corporation
will furnish without charge to each stockholder who so requests the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and rights.
Section 7.3. Facsimile Signature. Where a certificate is countersigned (1)
-------------------
by a transfer agent other than the Corporation or its employee, or, (2) by a
registrar other than the Corporation or its employee, the signatures of the
officers of the Corporation may be facsimiles. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if such person were such
officer at the date of issue.
Section 7.4. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors may delegate to its transfer agent the authority to issue without
further action or approval of the Board, a new certificate or certificates in
place of any certificate or certificates theretofore issued by the Corporation
alleged to leave been lost, stolen or destroyed, upon the receipt by the
transfer agent of an affidavit of that fact by the stockholder claiming the
certificate of stock to be lost, stolen or destroyed, and upon the receipt from
the owner of such lost, stolen or destroyed certificate, or certificates, or
such stockholder's legal representative of a bond as indemnity against any claim
that may be made with respect to the certificate alleged to have been lost,
stolen or destroyed.
Section 7.5. Transfers of Stock. Upon surrender to the Corporation or the
------------------
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and if such shares are not restricted as to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person or entity
entitled thereto, cancel the old certificate and record the transaction upon its
books.
Section 7.6. Registered Stockholders. The Corporation shall be entitled to
-----------------------
recognize the exclusive right of a person or entity registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person or entity, whether or not the
Corporation shall have express or other notice thereof, except as otherwise
provided by the laws of Delaware.
Section 7.7. Transfer Agents and Registrars. The Board of Directors may
------------------------------
appoint one or more corporate transfer agents and registrars.
<PAGE>
ARTICLE VIII
General Provisions
Section 8.1. Dividends. Dividends upon the capital stock of the
---------
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 8.2. Reserves. Before payment of any dividend, there may be set
--------
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 8.3. Annual Statement. The Board of Directors shall present to
----------------
stockholders, prior to each annual meeting, a full and clear statement of the
business and condition of the Corporation.
Section 8.4. Checks. All checks or demands for money and notes of the
------
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 8.5. Fiscal Year. The fiscal year of the Corporation shall be
-----------
fixed by resolution of the Board of Directors.
Section 8.6. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or in any other manner reproduced.
ARTICLE IX
Amendments
Section 9.1. Amendments. These By-laws may be altered or repealed at any
----------
regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration or repeal be contained in the notice of such special meeting.
***********************************************
Amendments
----------
July 14, 1992 (by the directors) -- Section 3.1 changed to provide for fourteen
members of the Board of Directors.
March 7, 1994 (by the directors) -- Section 3.1 changed to provide for nine
members of the Board of Directors (effective April 27, 1994).
April 27, 1994 (by the stockholders) -- Corporation's name changed from Affinity
Biotech,
<PAGE>
Inc. to IBAH, Inc.
March 15, 1996 (by the directors) -- Section 3.1 changed to provide for a
minimum of five and a maximum of eleven members of the Board of Directors, with
a minimum of three of the Directors being independent.
June 19, 1996 (by the stockholders) -- Sections 3.2 and 3.3 changed to provide
for the division of the Board of Directors into three classes.
March 16, 1998 (by the directors) -- Article VI changed to limit mandatory
indemnification to officers and directors, and to provide for discretionary
indemnification of employees and agents. Also numerous clerical, non-
substantive changes made throughout the Bylaws.
<PAGE>
Exhibit 10.12
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
-------------------------------------------------------
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made as of
the 27 of August, 1997, by and between CORESTATES BANK, N.A (formerly Meridian
Bank) ("Bank"), and IBAH, Inc., a Delaware corporation ("IBAH") and The Hardardt
Group, Inc. ("Hardardt", together with IBAH is referred to herein as "Debtor").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, on December 31, 1996, Bank and Debtor entered into an Amended
Loan and Security Agreement (the "Agreement") providing for (i) a revolving line
of credit loan in a maximum principal amount of $5,000,000.00 and (ii) an
amended and restated non-revolving equipment loan (the "Non-Revolving Equipment
Loan") in the original principal amount of $2,500,000.00; and
WHEREAS, the parties wish to further amend and restate the Agreement in
full, including the addition of three new term loans as defined herein
(collectively, the "Term Loans").
NOW, THEREFORE, in consideration of the benefits, conditions and covenants
contained or referred to herein, and for other good and valuable consideration
the receipt of which is hereby acknowledged, and INTENDING TO BE LEGALLY BOUND
HEREBY, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
1.01 Certain Defined Terms: As used in this Agreement, the following
---------------------
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Accounts", "Chattel Paper", "Documents", "Equipment", "General
-------- ------------- --------- --------- -------
Intangibles", "Goods", "Instruments", "Inventory" and "Money" have the same
----- ----------- --------- -----
respective meanings as are given to those terms in the Pennsylvania Uniform
Commercial Code. "Accounts" shall include "contracts" and "contract rights"
without respect to the definition of the latter terms under applicable laws, and
shall also include any rights to receive payment which may also be evidenced by
Instruments, Documents or Chattel Paper.
"Advance" shall include any sums advanced by Bank or credited by
-------
Bank to the account of Debtor, or for the account of Debtor to third parties,
including without limitation, advances of principal or to pay interest or fees,
or the incurring of expenses reimbursable by Debtor.
<PAGE>
"Affiliate" includes any corporation, partnership, association, joint
----------
venture, company, trust, individual or entity, which now or hereafter at any
time controls, is controlled by, or is under common control with, Debtor, and
each shareholder, officer and director of Debtor.
"Availability" shall mean, as to the Revolving Line of Credit Loan,
------------
an amount, varying from time to time, equal to the result of (1) $5,000,000 less
all amounts due Bank by Debtor under the Non-Revolving Equipment Loan minus (2)
-----
the sum of all Line of Credit Advances outstanding and unpaid, minus (3) the
-----
sum of all amounts committed under the Subline provided for in Section 2.07
hereof
"Bio-Pharm GmbH" means Euro Bio-Pharm Clinical Services GmbH, a
--------------
corporation organized under the laws of Germany and a Subsidiary of Debtor, of
which Debtor owns, through a subsidiary of Debtor, one hundred percent (100%) of
the ownership interests.
"Bio-Pharm GmbH Note" means a revolving line of credit note, dated
-------------------
December 31, 1996, in the amount of Seven Million Dollars ($7,000,000.00) made
by Bio-Pharm GmbH in favor of Debtor.
"Capital Lease" means any lease of property (real, personal or mixed)
-------------
which, in accordance with GAAP, should be capitalized on the lessee's balance
sheet or for which the amount of the asset and liability thereunder as if so
capitalized should be disclosed in a note to such balance sheet.
"Chief Executive Office" shall have the meaning ascribed to it under
----------------------
the Pennsylvania Uniform Commercial Code, 13 Pa. C.S. Section 9103(c)(4).
"Code" means the Internal Revenue Code of 1986, as the same may be
----
amended or supplemented from time to time, and any successor statute of similar
import, and the rules and regulations thereunder, as from time to time in
effect.
"Collateral" shall mean all real and personal property in which
----------
Debtor grants Bank a lien or security interest to secure the Obligations,
pursuant to this Agreement or any security agreement or other undertaking or
instrument related to the Loans or this Agreement.
"Collateral Assignment and Security Agreements" means each of the
---------------------------------------------
two (2) Collateral Assignment and Security Agreements to be executed by and
between Debtor and Bank, pursuant to which Debtor shall assign its rights in and
to each of the Euro Bio-Pharm GmbH Note and the Euro Bio-Pharm, Ltd. Note.
"Controlled Group Member" means each trade or business (whether or
-----------------------
not incorporated) which together with the Debtor is treated as a single employer
under Section 4001(b)(1) of ERISA or Sections 414(b) or 414(c) of the Code.
-2-
<PAGE>
"Credit" or "Credits" shall mean an irrevocable commercial or standby
------ -------
letter of credit or letters of credit to be issued by Bank, as provided in
Section 2.07 hereof, for the account of Debtor.
"Default Rate" means two percent (2.0%) (200 basis points) per annum
------------
in excess of the Loan Rate (calculated without references to any maximum or
minimum limitations on the Loan Rate) which would otherwise be in effect from
time to time for each Loan, but not in excess of the amount permitted under
applicable law. Each time the Loan Rate would change, the Default Rate shall
change contemporaneously without further notice to the Debtor. The Default Rate
shall also be payable upon any money judgment entered against the Debtor with
respect to any of the Loans, from and after the date of entry of the judgment
until satisfied in full.
"Designated Officer" means any person holding the office of
------------------
President, Chief Financial Officer, Chief Operating Officer or Controller for
Debtor, or any officer of Debtor designated in writing by any one or more of
them. Debtor hereby authorizes any Designated Officer of Debtor to act on behalf
of Debtor.
"Effective Date" means, as to the Revolving Line of Credit Loan,
--------------
December 31, 1996, as to the Non-Revolving Equipment Loan, July 8, 1994 and as
to the Term Loans, the later of the date on which this Agreement is signed or
the date this Agreement becomes effective after satisfaction of the conditions
set forth in Article 5 hereof. Unless otherwise agreed, the date of Bank's first
Advance shall be deemed the Effective Date.
"Environmental Laws" mean any Law relating to product safety,
------------------
occupational and health or safety, environmental protection or hazardous waste
or toxic substances management, handling or disposal, including, without
limitation, any restrictions, specifications or requirements pertaining to
products Debtor manufactures, processes or sells or pertaining to the services
it performs, the conduct of business and the use, maintenance or operation of
the real and personal properties owned or possessed by it.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and the regulations thereunder as in effect from time to time.
"Euro Bio-Pharm, Ltd." means Euro Bio-Pharm, Ltd., a corporation
--------------------
organized under the laws of the United Kingdom and a wholly-owned Subsidiary of
Debtor.
"Euro Bio-Pharm, Ltd. Note" means a revolving line of credit note
-------------------------
dated December 31, 1996, in the amount of Seven Million Dollars ($7,000,000.00)
made by Euro Bio-Pharm, Ltd. in favor of Debtor.
"Event of Default" means an event specified in Section 10 hereof
----------------
following any required notice and/or expiration of any applicable grace or cure
period.
-3-
<PAGE>
"GAAP" shall mean generally accepted accounting principles as in
----
effect from time to time consistently applied from period to period throughout
the term of this Agreement, both as to classification of items and amounts.
Opinions of the Financial Accounting Standards Board, or its predecessors or
successors, shall presumptively evidence generally accepted accounting
principles.
"Hazardous Materials" means (i) friable asbestos or asbestos-
-------------------
containing material, (ii) transformers or other equipment with contain dialectic
fluid containing levels of polychlorinated biphenyls in excess of 50 parts per
million, (ii) any flammable explosives, radioactive materials, hazardous
material, hazardous waste, hazardous or toxic substances or related materials,
(iv) any petroleum or petroleum byproducts, (v) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
Environmental Law, or similar substances now or hereafter subject to
environmental or occupational safety regulation.
"Indebtedness" means, as the context shall require, all items of
------------
indebtedness, obligation or liability, whether matured or unmatured, liquidated
or unliquidated, direct or contingent, joint or several, including, but without
limitation:
(1) All indebtedness guaranteed, directly or indirectly, in any
manner, or endorsed (other than for collection or deposit in the ordinary course
of business) or discounted with recourse;
(2) All indebtedness in effect guaranteed, directly or
indirectly, through agreements, contingent or otherwise: (i) to purchase such
indebtedness; or (ii) to purchase, sell or lease (as lessee or lessor) property,
products, materials or supplies or to purchase or sell services, primarily for
the purpose of enabling the debtor to make payment of such indebtedness or to
assure the owner of the indebtedness against loss; or (iii) to supply funds to
or in any manner invest in Debtor;
(3) All indebtedness secured by (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance upon property owned or acquired subject thereto, whether or not the
liabilities secured thereby have been assumed (if Indebtedness is not assumed,
the liability is limited to the fair market value of the assets pledged; and
(4) All indebtedness incurred as the lessee of goods or services
under Capital Leases or operating leases.
"International Facilities Agreement" means the agreement
----------------------------------
substantially in the form of Exhibit A attached hereto which may be entered into
---------
between Debtor and Bank, in the event that Debtor desires to open one or more
Credits or enter into foreign exchange contracts pursuant to the Subline
provided for in Section 2.07 hereof.
-4-
<PAGE>
"Laws" means all ordinances, statutes, rules, regulations, orders,
----
injunctions, writs or decrees of any government or political subdivision or
agency thereof, or any court or similar entity.
"Letter of Credit" means the Credit or Credits.
----------------
"Letter of Credit Documents" means the documents between Bank and
--------------------------
Debtor relating to a Letter of Credit, including without limitation, the
International Facilities Agreement attached hereto as Exhibit A and evidencing,
---------
inter alia, the agreement of Bank to issue such Letter of Credit and Debtor's
- ----------
reimbursement obligation with respect thereto, all of which Letter of Credit
Documents shall be in form and substance satisfactory to Bank.
"Lien" means any lien or encumbrance and includes, without
----
limitation, all mortgages, security interests, liens, chattel mortgages, capital
leases, trusts, charges, pledges, claims or other interests in property, legal
or equitable, whether consensual or nonconsensual, fixed, or contingent, choate
or inchoate, and whether given or implied by statute or common law or by
agreement or grant.
"Loans" means the Revolving Line of Credit Loan, the Non-Revolving
-----
Equipment Loan, the Term Loans, and the Advances made pursuant thereto.
"Loan Account" means the account or accounts on the books of Bank
------------
in which Bank may record Loans, Advances, payments made on the Loans, and other
appropriate debits and credits as provided by this Agreement.
"Loan Documents" means, individually and collectively, this
--------------
Agreement, the Notes, the Pledge Agreements, the Collateral Assignment and
Security Agreements and all other existing and future agreements, instruments,
documents, assignments, guaranties and undertakings (including amendments to any
of the foregoing) delivered by the Debtor or any other person or entity in
connection with any of the Loans.
"Loan Rate" shall mean (1) for the Revolving Line of Credit Loan and
---------
the Non-Revolving Equipment Loan, the rates as specified in Articles 2 or 3, per
annum in excess of the Prime Rate in effect from time to time. Each time the
Prime Rate changes the Loan Rate shall change automatically and
contemporaneously without further notice to Debtor; and (2) for the Term Loans,
the rates for the respective Term Loans as specified in Article 4.
"Locations" means any one or more of the places defined as such in
---------
Section 9.03(q).
"Maturity Date" shall mean, for each Loan, the earliest of (i) the
-------------
maturity dates for the respective Loans as specified in Articles 2, 3 or 4, or
elsewhere herein or in any Note, or (ii) the date of acceleration of such Loan
upon an Event of Default.
-5-
<PAGE>
"Non-Revolving Equipment Loan" means the Non-Revolving Equipment Loan
----------------------------
provided for in Article 3 hereof.
"Non-Revolving Equipment Note" means the Non-Revolving Equipment Note
----------------------------
dated July 8, 1994 in the face amount of Two Million Five Hundred Thousand
Dollars ($2,500,000.00), as amended and restated in full by that certain Amended
and Restated Non-Revolving Equipment Note dated as of December 31, 1996.
"Notes" means the Revolving Line of Credit Note, the Non-Revolving
-----
Equipment Note and the Term Loan Notes.
"Obligations" means the obligations (whether contingent or fixed, or
-----------
otherwise) of Debtor:
(1) To pay the principal of and interest on and other fees,
charges and expenses accruing with respect to the Advances, the Loans or any of
the Loan Documents, and to satisfy all other Indebtedness to Bank, whether
hereunder or otherwise, whether now existing or hereafter incurred, including
any extensions, modifications, renewals thereof and substitutions therefor;
(2) To repay to Bank all amounts advanced by Bank in connection
herewith, to any person or entity whatever, including without limitation
interest, fees or other charges or expenses, payments to prior secured parties,
mortgagees, or lienors, or for taxes, levies, insurance, rent, repairs to or
maintenance of any of the Collateral; and
(3) To reimburse Bank, on demand, for all of Bank's expenses and
costs, before or after closing hereon, including the reasonable fees and
expenses of its counsel, in connection with the preparation, administration,
amendment, modification, or enforcement of this Agreement and the documents
required hereunder, including, without limitation, prosecution or defense of any
proceeding brought, contemplated or threatened with respect to the obligations
referred to in the foregoing paragraphs (1) and (2) or any of the transactions
relating thereto.
"Patents" means any patents, all applications, registrations and
-------
recordings related to such patents in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any state
thereof, any political subdivision thereof or in any other countries and all
reissues, continuations-in-part, extensions and renewals and licenses thereof.
"Permitted Liens" means:
---------------
(1) Liens for taxes, assessments, or similar charges incurred in
the ordinary course of business that are not yet due and payable;
(2) Pledges or segregated deposits made in the ordinary course
of business to secure payment of workmen's compensation, or to participate in
any fund in
-6-
<PAGE>
connection with workmen's compensation, unemployment insurance, old-age pension
or other social security programs;
(3) Liens in favor of Bank;
(4) Purchase money security interests and Capital Leases for
acquisition of equipment or vehicles in the ordinary course of business but only
if the equipment or vehicle in question is not financed in part with monies
loaned hereunder and is trade fixtures or is not affixed to the realty;
(5) The following, if incurred in the ordinary course of
business and the validity or amount thereof is being contested in good faith by
appropriate and lawful proceedings, to the extent (i) levy and execution thereon
have been stayed and continue to be stayed, (ii) adequate reserves are set aside
therefor, (iii) they do not, singly or in the aggregate, materially detract from
the value of any material property of Debtor or materially impair the operation
of its business and (iv) they do not exceed the respective amounts (if any)
defining Events of Default provided in Section 10.01:
(a) Claims or liens for taxes or assessments,
(b) Claims or liens of mechanics, materialmen,
warehousemen, carriers or other like liens, and
(c) Adverse judgments; and
(6) Any Lien existing on the date of this Agreement and
described on Exhibit B hereof.
---------
"Person" means, any individual, corporation, partnership,
------
association, joint-stock company, trust, incorporated organization, joint
venture, court or government or political subdivision or agency thereof.
"Pharmaceutics" means Bio-Pharm Pharmaceutics Services, Inc., a
-------------
Delaware corporation and wholly owned Subsidiary of Debtor.
"Plan" means any employee pension benefit plan, as such term is
----
defined in Section 3(2) of ERISA to which Section 4021(a) of ERISA applies and
(i) which is maintained for employees of Debtor or any Controlled Group Member
with respect to the Debtor, or (ii) to which Debtor or Controlled Group Member
with respect to the Debtor made, or was required to make, contributions at any
time within the preceding five (5) years. "Multiemployer Plan" means any Plan
------------------
which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA.
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<PAGE>
"Pledge Agreements" means (i) the Pledge Agreement to be executed and
-----------------
delivered by Debtor to Bank, pledging certain stock and ownership interests of
Debtor in Affinity, EuroBioPharm and EPIC, Ltd., including all schedules and
exhibits thereto, and (ii) the Pledge Agreement to be executed by and between
Debtor and Bank, pledging certain ownership interests of Debtor in BioPharm
GmbH, and authenticated by a German Notar.
"Potential Default" means an event, circumstance, act, omission or
-----------------
state of affairs which would (with the passing of time or of any grace period,
or the giving of notice by the Bank or any third party, or any combination of
the foregoing) become an Event of Default.
"Prime Rate" means the floating annual rate of interest that is
----------
designed from time to time by the Bank as the "Prime Rate." The Prime Rate is a
pricing index, and is not and should not be considered to represent the lowest
or the best interest rate available to a borrower at any given time. If the
Prime Rate is discontinued or no longer quoted, Bank shall have the right to
substitute a new method in determining a comparable rate, and such method shall
constitute the Prime Rate hereunder.
"Profit" means, at any time, net income as reported on any financial
------
statements of Debtor prepared in accordance with GAAP, by Arthur Andersen & Co.
or any other public accounting firm with a national reputation.
"Rate" shall mean the Loan Rate or the Default Rate, as the case
----
may be, applicable hereunder to any Loans.
"Records" means correspondence, memoranda, tapes, data processing
-------
cards, discs, papers, tabulating runs, programs, books and other documents, or
manually or electronically recorded information (whether or not transcribed) of
any type, whether expressed in ordinary or machine or other language.
"Revolving Line of Credit Loan" means the revolving line of credit
-----------------------------
provided for in Article 2 hereof (including the Subline provided thereunder),
and the Advances made pursuant thereto.
"Revolving Line of Credit Note" means the Revolving Line of Credit
-----------------------------
Note dated as of December 31, 1996, in the face amount of Five Million Dollars
($5,000,000.00), as referred to in Article 2 hereof.
"Subline" means the Letter of Credit and foreign exchange subline
-------
provided for in Section 2.07 hereof.
"Subsidiary" of any Person at any time shall mean (i) any corporation
----------
or trust of which fifty percent (50%) or more (by number of shares of number of
votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute
-8-
<PAGE>
the voting rights) is at such time owned directly of indirectly by such Person
or one or more of such Person's Subsidiaries, or any partnership of which such
Person is a general partner or of which fifty percent (50%) or more of the
partnership interests is at the time directly or indirectly owned by such Person
or one or more of such Person's Subsidiaries, and (ii) any corporation, trust,
partnership or other entity which is controlled or capable of being controlled
by such Person or one or more of such Person's Subsidiaries.
"Term Loans" means the term loans provided for in Article 4 hereof.
----------
"Term Loan Notes" means the Term Loan Notes referred to in Section
---------------
4.01 hereof.
"Trademarks" means all trademarks, trade names, trade styles and
----------
service marks, all prints and labels on which such trademarks, trade names,
trade styles and service marks appear, have appeared or will appear, and all
designs and general intangibles of a like nature, now existing or hereafter
adopted or acquired; all applications, registrations and recordings relating to
the foregoing in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state thereof, any political
subdivision thereof or in any other countries, and all reissues, extensions and
renewals and licenses thereof.
1.02 Accounting Terms: All accounting terms not specifically defined
----------------
herein shall be construed, and all financial data submitted pursuant to this
Agreement shall be prepared, in accordance with GAAP.
ARTICLE 2 - THE REVOLVING LINE OF CREDIT LOAN
2.01 General Terms:
-------------
(a) Subject to the terms hereof, on the Effective Date the Bank will
establish the Revolving Line of Credit Loan in favor of Debtor under which the
Bank may thereafter make Advances from time to time up to an aggregate principal
amount at any one time outstanding not to exceed Five Million Dollars
($5,000,000.00), all subject to the further terms and conditions referred to
herein, including without limitation the provisions of Section 2.07 hereof
providing for the Subline. Advances under the Revolving Line of Credit Loan
will be used only to fund short-term borrowings and working capital needs of the
Debtor, with a foreign exchange and Letter of Credit Subline as provided in
Section 2.07 hereof. Until the Maturity Date, and except as otherwise provided
herein, any principal amount previously advanced or committed hereunder, and
repaid or otherwise extinguished, may be made available again by the Bank on a
revolving basis. Notwithstanding anything to the contrary herein or in any Loan
Document, the entire outstanding balance of principal, and any accrued and
unpaid interest thereon, shall be due and payable, and the Bank's commitment and
obligation to make Advances hereunder shall terminate, on the earliest of (i)
May 31, 1998, or (ii) acceleration upon an Event of Default (the "Revolving Loan
Commitment Period").
-9-
<PAGE>
(b) All advances shall bear interest at a variable rate of one
quarter percent (.25%) per annum (25 basis points) in excess of the Prime Rate,
in effect from time to time (except that interest shall accrue at the Default
Rate, so long as an Event of Default shall have occurred and be continuing
uncured).
2.02 Borrowing Procedures:
--------------------
(a) As of December 31, 1996, Debtor executed and delivered to Bank a
Revolving Line of Credit Note in the face amount of Five Million Dollars
($5,000,000.00), on terms and in form and substance satisfactory to Bank, which
evidences the aggregate of all Advances outstanding from time to time pursuant
to the Revolving Line of Credit Loan. Debtor hereby agrees to pay to Bank the
full amount of all Advances (including without limitation overadvances), whether
made, accepted or issued for the benefit of Debtor, together with all interest,
fees and other charges which may accrue hereunder from time to time, as provided
in the Revolving Line of Credit Note. Debtor agrees and acknowledges that its
liability is a material and fundamental inducement to Bank's continuing
willingness to make Advances.
(b) Advances may be available, subject to the conditions of this
Agreement, up to the amount of the Availability and subject to the limitations
of Sections 2.01 and 2.06, upon the request of any Designated Officer of Debtor.
If a request (which otherwise satisfies the conditions hereof) is received by
Bank by 2:00 p.m. on any business day, Bank will make an Advance on the same
business day; otherwise, the Advance will be made on the next business day. Bank
may make each Advance by crediting the amount of the Advance to the Loan
Account, or by depositing the amount of the Advance to the demand deposit bank
account of Debtor held at Bank according to instructions given Bank by Debtor,
or by otherwise disbursing to a third party upon terms and conditions mutually
agreeable to Bank and Debtor. No matter how or when an Advance is made, or into
what account or to or for the benefit of Debtor, or at Debtor's request, Debtor
shall immediately and automatically thereupon be obligated to Bank on account of
such Advance. Debtor may not disavow its obligations hereunder, whether for
Advances previously made or for Advances which may be made after any request
therefor and attempted disavowal.
2.03 Interest and Payments; Charging Debtor's Accounts:
-------------------------------------------------
(a) Interest shall be accrued, paid and calculated as follows:
(1) Interest will accrue and be payable on principal amounts
advanced by the Bank at the Loan Rate applicable to such Loan (except that
interest shall accrue at the Default Rate so long as an Event of Default shall
have occurred and be continuing uncured, and at all times after acceleration and
entry of any judgment), and shall be payable as accrued on the last day of each
calendar month, commencing immediately hereafter.
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<PAGE>
(2) Interest shall be calculated on the basis of a 360-day
year, counting the actual number of days elapsed. All accrued and then unpaid
interest shall nevertheless be payable upon the Maturity Date.
(b) If, at any time, the Rate shall be deemed by any competent court
of law, governmental agency or tribunal to exceed the maximum rate of interest
permitted by any applicable Laws, then, for such periods as the Rate would be
deemed excessive, its application shall be suspended and there shall be charged
instead the maximum rate of interest permissible under such Laws. Any payments
received by Bank during any such periods shall be recalculated first as payments
of interest at the maximum rate, and the balance of each payment, if any, shall
be deemed a payment (i) of any fees, charges, reimbursements of expenses, or
other items not treated as interest for purposes of determining compliance with
the maximum rate, and then (ii) of principal.
(c) All sums payable to Bank hereunder including repayments of
Advances, and payments of interest, fees and other charges shall be paid
directly to Bank on or before the date due. Bank is authorized to charge the
Loan Account, or any deposit account of Debtor, for interest, fees or charges as
they come due, or at Bank's option make an Advance to pay any of the same,
provided Bank bills Debtor for interest, fees or charges, and such bill remains
unpaid five (5) business days after billing. In any case, Bank shall send to
Debtor statements of all amounts due hereunder.
(d) Bank is authorized to charge the Loan Account, or any deposit
account of Debtor, at any time, without prior notice but with subsequent advice,
for any or all principal, interest, fees, charges and expense reimbursements
payable hereunder which is not otherwise paid when due.
(e) The Revolving Line of Credit is subject to an unused commitment
fee in the amount of .25% of the unused portion of the line on a quarterly
basis, as determined by the Bank's ledgers. The Bank will automatically charge
Debtor's checking account within seven days of sending a bill to Debtor.
2.04 Prepayment; Facility Fees:
-------------------------
(a) Debtor may, without penalty or premium, pay the principal of the
Revolving Line of Credit Loan in whole or in part at any time.
(b) So long as an Event of Default shall not have occurred and be
continuing uncured, Bank shall have the right to perform or have performed an
audit of Debtor once during any one (1) fiscal year period, and Debtor shall, on
demand, pay Bank for audits performed by Bank or its agents at a reasonable rate
(if performed by Bank's salaried personnel) to be determined, but in any event
not less than the actual fees charged to Bank therefor (if performed by others),
plus Bank's out-of-pocket expenses, such rates and fees subject to adjustment by
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<PAGE>
Bank. After an Event of Default, Bank shall be permitted to perform such audits
at any time upon reasonable notice.
(c) Debtor shall be required to pay standard issuance charges for
any Letter of Credit and all other routine transaction charges in connection
therewith, including for amendments, if any, and reasonable fees and expenses
provided for in the International Facilities Agreement, all subject to periodic
adjustments by the Bank.
2.05 Loan Account: Bank may, in its discretion, establish a Loan Account
------------
and enter therein Advances, interest, fees, other charges, expenses and other
items properly chargeable to Debtor under this Agreement; all payments made by
Debtor on account of Indebtedness relating to any Loans; all proceeds of
collateral which are finally paid to Bank at its offices in cash or solvent
credits; and any other appropriate debits and credits. Notwithstanding the
foregoing, the Bank shall bill for the items referred to in the foregoing
sentence unless and until an Event of Default occurs. Subaccounts may be
established for each Loan established hereunder. The aggregate of the debit
balances in the Loan Account shall reflect Debtor's aggregate Indebtedness to
Bank from time to time by reason of the Loans or otherwise with respect hereto.
2.06 Limits on Obligation of Bank to Make Advances Under Line of Credit
------------------------------------------------------------------
Loan: Notwithstanding any other provision hereof, the aggregate unpaid balance
- ----
of Debtor's Obligations, including without limitation all letters of credit
outstanding and all principal, interest, fees and other charges, under the
Revolving Line of Credit Loan at any time shall not exceed Five Million Dollars
($5,000,000.00) without Bank's consent; but if Bank consents, such consent shall
not bind Bank to continue to make any overadvance available thereafter. Debtor
agrees that it shall, immediately upon Bank's demand, pay or cause to be paid to
Bank the amount of any such excess, or, at Bank's option, deposit with Bank
liquid investment securities or money market instruments satisfactory to Bank
which have at deposit, and continue thereafter to have, a forced liquidation
value at least equal to such excess.
-12-
<PAGE>
2.07 Credits and Foreign Exchange Subline:
------------------------------------
(a) Subject to the terms and conditions of this Agreement, and
provided that no Default or Event of Default has occurred and is continuing,
Bank will, upon Debtor's request, open one or more Credits during the Revolving
Loan Commitment Period for the account of Debtor. During the Revolving Loan
Commitment Period, Debtor shall give Bank written notice executed on behalf of
Debtor by any Designated Officer of Debtor (the "Notice of Credit Issuance") of
any proposed issuance of a Credit. Each Notice of Credit Issuance, except with
respect to Credits to be opened on the Effective Date, shall be delivered to
Bank not less than five (5) business days before the requested issuance thereof.
Additionally, each Notice of Credit Issuance shall be accompanied by the Letter
of Credit Documents executed by Debtor relating to the subject Credit. Each
Credit shall be on substantially such terms as Debtor may specify in such Letter
of Credit Documents and must be in form and substance satisfactory to Bank and
shall have a fixed expiration date not later than the expiration of the
Revolving Loan Commitment Period.
(b) Subject to the terms and conditions of this Agreement, and
provided that no Default or Event of Default has occurred and is continuing,
Debtor may enter into foreign exchange contracts. The maximum amount of any
foreign exchange contract shall be equal to $1,000,000.00 minus any amounts
-----
committed under any Credits. Bank shall establish a reserve account equal to
twenty percent (20%) of the exposure in U.S. Dollars pursuant to such foreign
exchange contract so long as Debtor shall be indebted to Bank under such foreign
exchange contract. Bank shall not be required to deliver any foreign exchange
contract which has a delivery date exceeding twelve (12) months. Further, Bank
reserves the right in its sole discretion, not to honor certain foreign exchange
contract requests.
(c) In no event shall the aggregate maximum amount of the Letter of
Credit and foreign exchange Subline exceed the lesser of (i) $1,000,000.00 or
(ii) the Availability under the Revolving Line of Credit Loan.
(d) Debtor shall pay an annual commission, on or before June 30th of
each year, commencing June 30, 1996, in the amount of 1.25% per annum on all
outstanding Letters of Credit during the year ending on June 30th.
ARTICLE 3 - THE NON-REVOLVING EQUIPMENT LOAN
3.01 General Terms:
-------------
(a) Subject to the terms hereof, on and after the Effective Date,
until the close of business twelve (12) months after such date, but not
thereafter, Bank has advanced to Debtor the sum of up to Two Million Five
Hundred Thousand Dollars ($2,500,000.00), which shall be used to finance the
purchase price for certain items of equipment. During the period from the making
of each Advance of the Non-Revolving Equipment Loan, throughout the term of the
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<PAGE>
Takedown Period (as defined in the Non-Revolving Equipment Note), Debtor will
pay interest as it accrues on the Non-Revolving Equipment Loan, on the first day
of each calendar month, but shall not be obligated to make principal repayments.
Commencing on the first day of the month immediately following the expiration of
the Takedown Period, and on the first day of each calendar month thereafter,
Debtor shall pay to Bank forty-eight (48) equal monthly installments of
principal together with all unpaid interest as it shall have accrued on the Non-
Revolving Equipment Loan amortized over such forty-eight (48) months. The entire
outstanding balance of principal, and any accrued and unpaid interest thereon,
shall be due and payable in any event on the earliest of (1) the sixtieth (60th)
month following the Effective Date (July 1, 1999) or (2) the date of
acceleration of the Non-Revolving Equipment Note upon an Event of Default.
(b) Advances under the Non-Revolving Equipment Loan shall be
advanced by Bank from time to time to pay bona fide expenses for acquiring and
installing equipment, net of costs for delivery, maintenance and taxes, not
exceeding amounts shown on invoices for such purchases which shall be submitted
to Bank along with a completed Request for Non-Revolving Equipment Loan, along
with such other information as the Bank may request, and approved by Bank, prior
to payment. The borrowings on account of the Non-Revolving Equipment Loan shall
be evidenced by the Non-Revolving Equipment Note.
(c) The outstanding principal balance under the Non-Revolving
Equipment Loan shall bear interest at a variable rate of three quarters percent
(0.75%) per annum (75 basis points) in excess of the Prime Rate in effect from
time to time.
(d) As of the date hereof, Debtor shall execute and deliver to Bank
an Amended and Restated Non-Revolving Equipment Note in the face amount of Two
Million Five Hundred Thousand Dollars ($2,500,000.00), amending and restating
that certain Non-Revolving Equipment Note dated July 8, 1994 in the face amount
of Two Million Five Hundred Thousand Dollars ($2,500,000.00), as amended and
restated on December 21, 1995, on terms and in form and substance satisfactory
to Bank, which shall evidence the indebtedness under the Non-Revolving Equipment
Loan.
3.02 Interest Rate and Payments, Etc.: The provisions of Section 2.03
--------------------------------
shall also apply to the Non-Revolving Equipment Loan.
3.03 Prepayment: Debtor may, without penalty or premium, pay the
----------
principal of the Term Loan in whole or in part at any time.
ARTICLE 4 - THE TERM LOANS
4.01 General Terms:
-------------
(a) First Term Loan. Subject to the terms hereof, on and after the
---------------
Effective Date until the close of business on September 26, 1997 (the "First
Takedown Period"), Bank will advance Debtor the sum of up to Three Million
Dollars ($3,000,000.00), which shall be used to
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<PAGE>
finance the leasehold improvements made to that certain building located at 525
Virginia Drive, Fort Washington, Pennsylvania leased to Pharmaceutics (the
"First Term Loan"). Commencing on October 1, 1997, and on the first day of each
calendar month thereafter, Debtor shall pay to Bank forty-eight (48) equal
monthly installments of principal together with all unpaid interest as it shall
have accrued on the First Term Loan amortized over such forty-eight (48) months,
all as more fully provided herein and in the First Term Loan Note to be executed
by Debtor at the signing hereof. The entire outstanding balance of principal,
and any accrued and unpaid interest thereon, shall be due and payable in any
event on the earliest of (1) forty-eighth (48th) month following the Effective
Date (September 1, 2001) or (2) the date of acceleration of the First Term Loan
Note upon an Event of Default. The outstanding principal balance under the First
Term Loan shall bear interest at a rate of eight percent (8%) per annum (except
that interest shall accrue at the Default Rate, so long as an Event of Default
shall have occurred and be continuing uncured).
(b) Second Term Loan. Subject to the terms hereof, on and after the
----------------
Effective Date Bank will advance Debtor the sum of up to Two Million Five
Hundred Thousand Dollars ($2,500,000.00), which shall be used to finance the
purchase of computers and software for the CRO Division, as follows: until the
First Takedown Period, in an amount up to One Million Five Hundred Thousand
Dollars ($1,500,000.00) and until December 29, 1997 in an amount up to One
Million Dollars ($1,000,000.00). Debtor shall pay Bank interest only, at the
rate specified below, on the entire principal amount outstanding under the
Second Term Loan, commencing on the first day of the month immediately following
the first advance by Bank to Debtor thereunder, and on the first day of each
month thereafter until the date the full principal amount of the Second Term
Loan is advanced to Debtor by Bank or December 27, 1997, whichever occurs first
(the "Fixed Amortization Date"). Commencing on the first day of the month
immediately following the Fixed Amortization Date, and on the first day of each
month thereafter, Debtor shall pay to Bank thirty-six (36) equal monthly
installments of principal together with accrued interest at the rate set forth
below on the Second Term Loan amortized over such thirty-six (36) months, all as
more fully provided herein and in the Second Term Loan Note to be executed by
Debtor at the signing hereof. The entire outstanding balance of principal, and
any accrued and unpaid interest thereon, shall be due and payable on the
earliest of (1) thirty-six (36th) month following the Fixed Amortization Date or
(2) the date of acceleration of the Second Term Loan Note upon an Event of
Default. The outstanding principal balance under the Second Term Loan shall
bear interest at a rate of seven and nine-tenths percent (7.90%) per annum up to
$1,500,000.00 and eight and three one-hundredths percent (8.03%) for the
remaining $1,000,000.00 (except that interest shall accrue at the Default Rate,
so long as an Event of Default shall have occurred and be continuing uncured).
(c) Third Term Loan. Subject to the terms hereof, on and after the
---------------
Effective Date until the First Takedown Period, Bank will advance Debtor the sum
of up to One Million Five Hundred Thousand Dollars ($1,500,000.00), which shall
be used to finance new equipment for Pharmaceutics. Commencing on October 1,
1997, and on the first day of each calendar month thereafter, Debtor shall pay
to Bank sixty (60) equal monthly installments of principal together with all
unpaid interest as it shall have accrued on the Third Term Loan amortized over
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<PAGE>
such sixty (60) months, all as more fully provided herein and in the Third Term
Loan Note to be executed by Debtor at the signing hereof. The entire outstanding
balance of principal, and any accrued and unpaid interest thereon, shall be due
and payable in any event on the earliest of (1) sixtieth (60th) month following
the Effective Date (September 1, 2002) or (2) the date of acceleration of the
Third Term Loan Note upon an Event of Default. The outstanding principal
balance under the Third Term Loan shall bear interest at a rate eight and five
one-hundredths percent (8.05%) per annum (except that interest shall accrue at
the Default Rate, so long as an Event of Default shall have occurred and be
continuing uncured).
4.02 Advances. Advances under the Term Loans shall be advanced by Bank
---------
from time to time to pay bona fide expenses not exceeding amount shown on
invoices for such purchases which shall be submitted to Bank along with such
other information as the Bank may request, and approved by Bank, prior to
payment. The borrowings on account of the Term Loans shall be evidenced by the
Term Loan Notes.
4.03 Interest Rate and Payments, Etc.: The provisions of Section 2.03
--------------------------------
shall also apply to the Term Loan.
4.04 Prepayment: Any prepayment of principal (including any principal
----------
repayment as a result of acceleration by Bank of any of the Term Loan Notes)
shall require immediate payment to Bank of a prepayment fee equal to the amount,
if any, by which the aggregate present value of scheduled principal and interest
payments eliminated by the prepayment exceeds the principal amount being
prepaid. Said present value shall be calculated by application of a discount
rate determined by Bank in its reasonable judgment to be the yield-to-maturity
at the time of prepayment on U.S. Treasury securities having a maturity which
most closely approximates the final maturity date of the principal balance then
outstanding. Whether or not a prepayment fee is required hereunder, prepayment
shall be applied to scheduled installments of principal in the inverse order of
their maturity, shall be accompanied by payment of accrued interest on the
principal amount being prepaid and, unless the Term Loan Notes have been
accelerated by Bank, shall not be permitted in an mount less than the scheduled
principal installment immediately prior to final maturity of the outstanding
principal balance.
ARTICLE 5 - CONDITIONS PRECEDENT AND SUBSEQUENT
The obligation of Bank to enter into this Agreement and to make any Advance
hereunder is subject to the following conditions:
5.01 Documents Required for the Closing: Debtor shall have delivered or
----------------------------------
caused to be delivered to Bank, at the signing hereof, the following, in form
and substance satisfactory to Bank, executed by the applicable parties and
otherwise subject as follows:
(a) The Notes;
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<PAGE>
(b) All necessary releases, satisfactions, assignments,
subordinations and termination statements to cause the security interests
granted therein to be first priority security interests in the Collateral
(subject only to Permitted Liens);
(c) The Pledge Agreement required by Section 8.08 hereof, pursuant
to which Debtor shall pledge (i) one hundred percent (100%) of the capital stock
of its wholly-owned Subsidiary, Affinity, (ii) one hundred percent (100%) of the
capital stock of its wholly-owned Subsidiary, EuroBioPharm, and (iii) sixty-six
percent (66%) of the capital stock of its wholly-owned Subsidiary, EPIC, Ltd.,
together with all appropriate stock powers and certificates required to be
delivered in connection therewith;
(d) The financing statements required by Section 6.07 hereof,
necessary to perfect the security interests in the Collateral;
(e) Copies of the resolutions of the board of directors and
shareholders of Debtor (certified as of the Effective Date by the corporate
secretary or assistant secretary of Debtor) authorizing the execution, delivery
and performance of this Agreement, the Notes and each other Loan Document to be
delivered to Bank pursuant hereto;
(f) Copies (certified by the Secretary of State of the state of
incorporation and by authorized officers of Debtor) of the articles of
incorporation or constituent documents, as amended as of the Effective Date, and
any fictitious name registrations, for Debtor, together with a copy (certified
by the secretary or assistant secretary of Debtor) of the by-laws for Debtor and
a certificate (dated as of the date of the Closing) of each of such officer to
the effect that the foregoing documents have not been amended since the date of
the aforesaid certifications;
(g) A certificate (dated the Effective Date) of the secretary or
assistant secretary of Debtor as to the incumbency and signatures of the
officers thereof who are executing this Agreement on the behalf of Debtor and as
to the Designated Officers of Debtor;
(h) Certificates of good standing and subsistence with respect to
Debtor as of the most recent date practicable prior to the Effective Date, from
each state in which it is organized or qualified (or to be qualified) to
transact business;
(i) Evidence of the insurance coverages required by this Agreement
together with evidence of payment of all premiums which are due and payable as
of the Effective Date;
(j) Uniform Commercial Code, Judgment, Suits and Tax Lien Searches
satisfactory to Bank regarding Debtor;
(k) Written opinions of Debtor's legal counsel dated the Effective
Date and addressed to Bank, in form and substance satisfactory to Bank regarding
such legal matters as Bank shall request relating to the subject matter hereof;
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<PAGE>
(l) The Collateral Assignment and Security Agreements, assigning the
rights of Debtor in and to the Bio-Pharm GmbH Note and Euro Bio-Pharm, Ltd.
Note;
(m) The originally executed Bio-Pharm GmbH Note and Euro Bio-Pharm
Ltd. Note; and
(n) Such other undertakings, instruments and documents as Bank shall
require.
5.02 Other Conditions Precedent: The following additional conditions
--------------------------
shall have been satisfied:
(a) Payment of all expenses and legal fees and disbursements of Bank
and its counsel relating hereto (including without limitation lien search fees,
filings fees and appraisal costs), and other items provided in the Commitment,
shall have occurred no later than the Effective Date. If any such expenses and
fees are incurred post-closing, Debtor shall pay or reimburse them promptly upon
Bank's submission of a statement to Debtor.
(b) There shall have occurred no changes in the financial condition
or business of Debtor which are, in Lender's sole judgment, singly or
collectively materially adverse when compared with the financial condition and
business of Debtor since the date of its financial statements dated June 30,
1997.
(c) Debtor shall have opened an account or accounts with the Bank to
facilitate disbursement of Advances.
5.03 Condition Subsequent to Signing and Effective Date: The "Post-
--------------------------------------------------
Closing Items", if any, described on Exhibit C attached hereto and made part
---------
hereof, shall be delivered or completed within fifteen (15) days after the
execution of this Agreement, or else Bank shall not be obligated to make any
further Advances, and Bank shall have the option, at any time thereafter, to
declare that an Event of Default has occurred.
ARTICLE 6 - COLLATERAL SECURITY
6.01 The Collateral: The Collateral, together with all of the Debtor's
--------------
other property of any kind held by Bank or any of Bank's corporate affiliates
from time to time, in any capacity whatsoever, shall stand as one general,
continuing collateral security for the Obligations of Debtor.
6.02 Rights in Property Held by Bank: As security for the prompt
-------------------------------
satisfaction of all Obligations, including payment of the Indebtedness evidenced
by the Notes, Debtor hereby assigns, transfers, and sets over to Bank all of its
right, title, and interest in and to, and grants Bank a lien upon and security
interest in, all amounts that may be owing from time to time to Debtor by Bank
or any of Bank's corporate affiliates from time to time in any capacity,
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including, but without limitation, any balance or share belonging to it of any
deposit or other account with Bank, which lien and security interest shall be
independent of any right of set-off which Bank may have.
6.03 Rights in Property Held by Debtor: As further security for the
---------------------------------
prompt satisfaction of all Obligations, including without limitation payment of
the Indebtedness evidenced by the Notes and any future Advances by Bank, Debtor
hereby assigns, transfers, and sets over to Bank all of its right, title, and
interest in and to, and grants Bank a lien upon and continuing security interest
in, all of the following owned by Debtor now or hereafter, wherever located,
whether now owned or existing or hereafter acquired, together with all
replacements therefor and additions and accessions thereto, and all proceeds
(including, but without limitation, insurance proceeds) and products thereof:
(a) All Inventory including existing Inventory and all Inventory
hereafter coming into existence;
(b) All Accounts, both existing and hereafter coming into existence,
together with all documents, contracts, lien and security instruments and
guarantees relating thereto;
(c) All Goods, including Debtor's interests as lessee or lessor in
any leased Equipment;
(d) All Equipment, including without limitation vehicles, furniture,
tools and supplies, now owned or hereafter acquired, wherever located, including
Debtor's interests as lessee or lessor in any leased Equipment;
(e) All General Intangibles now existing or hereafter in existence;
(f) All notes, drafts, acceptances, Chattel Paper, Documents,
Instruments, policies and certificates of insurance (including, without
limitation, credit insurance), guaranties and securities (domestic and foreign)
now or hereafter received by Debtor or in which Debtor now or hereafter has or
acquires an interest;
(g) All other rights to the payment of money, including without
limitation, shareholder assessments, partner capital contributions and tax
refunds;
(h) All cash and non-cash proceeds, products and insurance proceeds
of the foregoing;
(i) All Records pertaining to the foregoing; and
(j) All other assets of Debtor.
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6.04 Security for Intercompany Loans. As security for any intercompany
-------------------------------
loan or advance by Debtor to any Subsidiary of Debtor, Debtor shall be required
to do each of the following:
(a) Execute, deliver and perform the Pledge Agreements and do any
and all other actions required to be performed or have performed by Debtor in
order to record and perfect the lien of Bank upon such collateral pledged
therein;
(b) Execute and deliver to Bank each of the Collateral Assignment
and Security Agreements; and
(c) Deliver to Bank the originally executed Euro Bio-Pharm GmbH Note
and Euro Bio-Pharm, Ltd. Note.
6.05 Additional Security: To further secure the Loans made hereunder and
-------------------
all other Obligations of Debtor to Bank, whether now in existence or hereinafter
incurred, Debtor shall cause to be delivered at or after closing hereon such
additional undertakings, collateral, instruments and documents as Bank may
reasonably request consistent with the general intent of this Agreement.
6.06 Priority of Liens: The foregoing liens shall be first priority
-----------------
perfected liens, subject only to Permitted Liens or as specified in Paragraph
6.10.
6.07 Financing Statements:
--------------------
(a) Debtor on Bank's request will:
(1) Execute and deliver to the Bank such financing statements
(including amendments thereto and continuation statements thereof), assignments,
certificates of title and applications and powers of attorney for transfer
thereof, conveyances, notices, instruments and other documents in form
satisfactory to Bank as Bank may specify to perfect or continue the perfection
of any security interest granted to Bank hereunder;
(2) Pay or reimburse Bank for all costs of filing or recording
the same in such public offices as Bank may designate; and
(3) Take such other steps as Bank may direct, to perfect Bank's
interest in the Collateral.
(b) In addition to the foregoing, and not in limitation thereof:
(1) A carbon, photographic, or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in any
appropriate office in lieu thereof, and Bank is authorized to add such
information to the filing copy of this Agreement to
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<PAGE>
qualify it for filing as a financing statement under applicable law, and to sign
Debtor's name hereto to the extent original signatures are required for filing;
and
(2) To the extent lawful, Debtor hereby appoints Bank and
Bank's attorneys and agents as its attorney-in-fact (without requiring Bank or
any of them to act as such) with full power of substitution, to execute and file
any financing statement (including amendments and continuation statements
thereto), and assignments and confirmatory mortgages, deeds of trust or other
conveyances for security purposes relating to real estate, in the name of
Debtor, or its successors or assigns, and to perform all other acts that Bank
deems appropriate to perfect and continue its security interest in, and to
protect and preserve, the Collateral. This power of attorney is irrevocable as
coupled with an interest.
6.08 Collecting on Accounts:
----------------------
(a) Upon the occurrence of an Event of Default, Bank shall have the
right to notify any and all obligors to make payment on Accounts or General
Intangibles directly to Bank, and to take control of the cash and non-cash
proceeds thereof, with full power to settle or compromise disputed claims
thereon. All such proceeds shall be applied in satisfaction of the Obligations,
including payment of the Indebtedness evidenced by the Notes, in such order as
Bank shall determine.
(b) Unless and until such time as Bank elects to notify obligors
pursuant to Section 6.08(a), Debtor is authorized to collect and enforce
Accounts in the ordinary course of business. The cost of such collection and
enforcement, including attorney's fees and out-of-pocket expenses, shall be
borne solely by Debtor whether the same is incurred by Bank or Debtor.
(c) The following provisions shall apply upon the occurrence of an
Event of Default. Debtor shall turn over to Bank all checks, drafts, cash and
other remittances in payment or on account of payment of the Accounts, and
whenever expressly required by Bank, the cash proceeds of any returned goods
from the sale of which any Account arose. Debtor shall deposit such collections
and cash proceeds with Bank within two (2) banking days of the receipt thereof,
and in precisely the form received, except for the appropriate endorsements
where necessary to permit the collection of the items, which endorsement Debtor
hereby agrees to make. If Debtor receives any such cash or collections
directly, it will not commingle any such checks, drafts, cash and other
remittances (including repayments) with any of its other funds or property, but
will hold them separate and apart therefrom expressly in trust for Bank. Debtor
will forward to Bank such statements and reports of collection and adjustments
as Bank may from time to time specify. Bank will apply the whole or any part of
the collected funds received by it against the then outstanding Loans and any
other of Debtor's Obligations, the order and method of such application to be in
the discretion of Bank or Bank may, if it so elects, release the whole or any
part of such funds to Debtor for use in the operation of such Debtor's business.
In the event that Bank elects to give Debtor immediate credit for such funds as
are yet uncollected, Debtor agrees that Bank may make a charge for the float
equal to two (2) days' collection time at the Rate,
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<PAGE>
payable monthly at the end of each month. Debtor hereby authorizes Bank to
charge to any deposit account of Debtor any item of payment credited against any
Obligations which is dishonored by the drawee or maker thereof or, if funds are
not available in a deposit account, then to make an Advance therefor and charge
the Loan Account accordingly.
(d) In addition to the foregoing, upon the occurrence of an Event of
Default, Bank may, in its sole discretion, require Debtor, at its own expense
and in the manner requested by Bank, to direct that remittances and all other
proceeds of Accounts and other Collateral shall be (i) sent to the post office
box designated by and/or in the name of Bank, or in the name of Debtor, but as
to which access is limited to Bank, (ii) deposited into a locked box at Bank,
and/or (iii) deposited into a bank account maintained in the name of Bank and/or
a blocked bank account under arrangements with the depository bank under which
all funds deposited to such blocked bank account are required to be transferred
solely to Bank. In connection therewith, Debtor shall execute such post office
box, locked box and/or blocked bank account agreements as Bank shall specify.
6.09 Verification of Accounts: Bank shall at all times have the right to
------------------------
confirm orders, and to verify all Accounts or Accounts Receivable or other
Collateral in which it has a security interest and to do so in any fictitious
accounting firm name used by Bank for verifications or through any public
accountants.
6.10 Collateral Sharing. Upon at least thirty (30) days prior written
------------------
notice by Debtor to Bank of a request by a new lender to Debtor ("new lender")
for a security interest in the Collateral, and provided that there has been no
Event of Default hereunder and further provided that, in the reasonable opinion
of Bank, Debtor has not experienced an adverse material change in its financial
condition, Bank shall enter into an agreement, on terms and in form acceptable
to Bank, with such new lender whereby Bank shall share with such new lender, in
pari pasu, its security interest in the Collateral in excess of the amount of
all Loans and any other amounts due Bank by Debtor.
ARTICLE 7 - DEBTOR'S AFFIRMATIVE COVENANTS
Debtor covenants and agrees that, from and after the date of this Agreement
and so long as Debtor shall be indebted to Bank hereunder or under any of the
Notes, unless Bank shall otherwise consent in writing, Debtor will comply with
the following covenants:
7.01 Reports: As long as no Event of Default has occurred and is
-------
continuing uncured, Bank shall have the right to request from Debtor once during
any one (1) fiscal year period, and Debtor will make available to Bank a copy of
the invoice for each Account and a copy of any written contract or order from
which an Account arose. After an Event of Default, Bank shall have the right to
request at any time and Debtor shall make available the foregoing information.
7.02 Equipment Reports and Landlord's Waivers: At execution of this
----------------------------------------
Agreement and, thereafter, at the request of Bank, Debtor will provide Bank with
a listing of the types, and
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<PAGE>
respective values of Equipment for each type, of all Equipment, indicating to
the extent applicable, and according to the Debtor's method of accounting, the
nature and type of the Equipment together with documentation showing the
location of the Equipment, whether the premises where the Equipment is located
is owned or leased by Debtor, or is owned by a third party and if so, the name
and address of the third party and, if owned by a third party, will promptly
furnish Bank with landlords' and mortgagees' waivers of lien in form and content
satisfactory to Bank; and in the case of Equipment located at third party
locations, take such steps as Bank may require to protect Inventory against
claims of third parties.
7.03 Customer Disputes: Debtor will promptly advise Bank of any dispute
-----------------
with a customer in any case where the dispute involves (i) an account or
accounts receivable aggregating $500,000.00 or more, or (ii) one of Debtor's ten
(10) largest customers by average monthly revenue and the customer has
threatened to terminate Debtor's services.
7.04 Service Agreements: Debtor will (without need of a prior request by
------------------
Bank) identify for Bank, and if requested provide copies to the Bank of, any
service contract or agreement for services provided to any Debtor's customer
which is not entered into, or the terms of which do not reflect terms granted,
in the ordinary course of business.
7.05 Account Receivables and Payable Agings: At anytime there are
--------------------------------------
Advances outstanding and unpaid under the Revolving Line of Credit Loan Debtor
will furnish quarterly within forty-five days after the end of each quarter (and
more frequently, at the Bank's prior request, or as required by the Bank when a
Potential Default or an Event of Default has occurred and is continuing)
listings and agings of its Accounts Receivable and its Accounts Payable.
7.06 Account Assignments: Debtor will give Bank upon request specific
-------------------
assignments of Accounts after they come into existence, and schedules of
Accounts, the form and content of such assignments and schedules to be
satisfactory to Bank, and will execute and deliver to Bank any instrument,
document, financing statement, assignment or other writing to carry out the
terms of this Agreement, to perfect Bank's security interest in the Accounts and
any other Collateral, or to enable Bank to enforce conveniently its security
interest in any of the foregoing.
7.07 Maintenance of Books and Records: Debtor will maintain, in
--------------------------------
accordance with GAAP, accurate records and books of account showing, among other
things, all Equipment and Accounts, the proceeds of the sale or other
disposition thereof and the collections therefrom; and hereby grants Bank the
right to call at Debtor's places of business during regular business hours, at
intervals to be determined by Bank, and, without hindrance or delay, to inspect,
audit, check and make extracts and copies from the books, records, journals,
orders, receipts, correspondence and other data relating to Equipment, Accounts,
or any other Collateral.
7.08 Notation of Security Interest: If requested by Bank, Debtor will
-----------------------------
mark its records concerning Equipment, Accounts, General Intangibles and other
Collateral in a manner satisfactory to Bank to show the latter's security
interest therein; and, if a Potential Default or an Event of Default shall have
occurred and be continuing uncured and unwaived, shall, at Bank's
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<PAGE>
request notify all purchasers, warehouses, warehousemen, agents, landlords,
processors, or others in possession of Equipment, of Bank's security interest in
the Collateral, and instruct them to hold Collateral for Bank's account and
subject to Bank's instructions.
7.09 Financial Statements, Reports:
-----------------------------
(a) Debtor will furnish Bank, within ninety (90) days after the
close of its fiscal year, annual consolidating financial statements, and the 10-
K report of Debtor. The financial statements will be audited by a certified
public accountant acceptable to the Bank and shall be prepared in accordance
with GAAP.
(b) Debtor will deliver to Bank copies of all reports, returns and
other documents filed with any federal, state or local regulatory agencies,
including without limitation quarterly 10-Q reports as filed with the Securities
and Exchange Commission, together with management prepared consolidating balance
sheet and income statements, within forty-five (45) days after the end of each
quarter. Debtor shall also provide such further information regarding the
operations, business, affairs, financial condition, commitments and
contingencies of Debtor as Bank may reasonably request, including without
limitation, contract status reports and backlog reports. In addition, together
with such quarterly reports, a Designated Officer of Debtor, on behalf of Debtor
shall deliver to Bank a Covenant Compliance Certificate substantially in the
form of Exhibit D attached hereto.
---------
(c) Debtor will furnish Bank, within thirty (30) days after the
close of its fiscal year, an annual budget and projected cash flow for the
succeeding year.
(d) Debtor shall each provide Bank, from time to time upon Bank's
request, such additional financial information as Bank may request from time to
time.
7.10 Existence, Properties, Etc.: Debtor will do or cause to be done all
---------------------------
things necessary to obtain, preserve, renew and keep in full force and effect
its existence and its qualification to do business and good standing in each
jurisdiction in which such qualification is necessary for the proper conduct of
its business, and conduct and operate its business in substantially the manner
in which same is presently conducted and operated; at all times maintain,
preserve and protect all material Patents, franchises, Trademarks, copyrights
and other General Intangibles; preserve the condition of all property useful in
the conduct of its business and keep the same in good repair, working order and
condition (reasonable wear and tear excepted) and from time to time make, or
cause to be made, all repairs, renewals, replacements, betterments and
improvements thereto, to the extent that the same are necessary for the proper
and advantageous conduct of its business; and comply with all present and future
regulatory and other Laws applicable to it in the operation of its businesses,
and with all material agreements to which it is subject.
7.11 Insurance: Debtor will keep its insurable properties adequately
---------
insured at all times, by financially sound and reputable insurers, with Bank
named as first lienholder and as a
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<PAGE>
loss payee on all such policies, and maintain such other insurance, to such
extent and against such risks, including fire, theft, vandalism, earthquake,
storm and flood, and other risks insured against by extended coverage, as is
acceptable to Bank from time to time (the amount of such insurance shall not be
less than the greater of (1) eighty percent (80%) of the insurable value of
Debtor's assets or (2) the lesser of one hundred percent (100%) of the insurable
value of Debtor's assets or the outstanding principal balance of the Loans), and
maintain in full force and effect public liability insurance against claims for
personal injury or death or property damage occurring upon, in, about or in
connection with the use of any Location or other real or personal property
belonging to it, and contractual liability insurance, in such amounts as are
satisfactory to Bank, and maintain workers compensation insurance, employers
liability insurance and such other insurance as may be required by law. Debtor
authorizes Bank to pay for Debtor's account any of the foregoing which Debtor
fails to pay, and any such payment by Bank shall constitute an item of Debtor's
Obligations. Debtor agrees to notify Bank in writing prior to any change in
insurance coverage which would cause such insurance to not meet the requirements
of this Agreement; to provide Bank upon demand copies of all insurance policies;
to assign to Bank all right to receive proceeds of any property casualty
insurance as to property owned by Debtor; to direct all property casualty
insurers to pay all proceeds directly to Bank; and Debtor hereby authorizes Bank
to endorse any draft for such proceeds. Notwithstanding the foregoing, the
property casualty insurance policies of Debtor shall contain a provision which
requires the insured to give Bank thirty (30) days prior written notice of
cancellation of any such policy.
7.12 Taxes and Assessments: Debtor will pay or cause to be paid, when
---------------------
due, all taxes, assessments and charges or levies imposed upon any of its
property, or which it is required to withhold and pay over, except where
contested in good faith by appropriate proceedings, promptly commenced and
diligently conducted, with adequate reserves therefor having been set aside on
its books (but it shall, in any event, pay or cause to be paid all such taxes,
assessments, charges or levies forthwith whenever a Lien against the property of
Debtor would arise, or when foreclosure on any Lien that attaches appears
imminent).
7.13 Financial Covenants: Debtor shall comply with the following at the
-------------------
respective times indicated:
(a) Debtor shall maintain a minimum debt coverage ratio of 1.35 x
(rolling four quarters) for the terms of all of the Loans, which covenant shall
be tested quarterly. As used herein, the term "debt coverage ratio" shall mean
-------------------
net income less dividends plus depreciation and amortization divided by the
current portion of long term debt and current portion of capital leases. For
the period ending September 30, 1997, December 31, 1997 and March 31, 1998, the
net income portion of the calculation will be annualized for the quarter or
quarters elapsed. From June 30, 1998, forward, the calculation will be on a
rolling four quarter basis.
(b) Debtor shall maintain a minimum funded debt coverage ratio of
1.25 x for the terms of all of the Loans, which covenant shall be tested
quarterly. As used herein, the term "funded debt ratio" shall mean cash and cash
-----------------
equivalents plus short-term investments plus billed accounts receivable divided
by short and long term debt.
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<PAGE>
7.14 Collection and Records of Accounts: Debtor will collect its Accounts
----------------------------------
only in the ordinary course of business, and will keep accurate and complete
Records of its Accounts, consistent with sound business practices.
7.15 Notice of Material Proceedings or Litigation: Debtor will give Bank
--------------------------------------------
immediate written notice of the commencement, existence or threat of any action,
suit or proceeding at law or in equity or by or before any governmental
instrumentality or other agency against or affecting Debtor or any Affiliate
which, if adversely determined, would impair either the Debtor's right or
ability to carry on its business substantially as now conducted or would
materially affect its business, operations, properties, assets or condition
(financial or otherwise) or would materially affect its ability to perform its
Obligations to the Bank under this Agreement or any of the Loan Documents, and,
if requested by Bank, deliver copies of all non-privileged documents relating
thereto. In addition, Debtor will give Bank prompt written notice of any
judgment obtained against it and will advise Bank of Debtor's action with
respect to responding to such judgment.
7.16 Notice of Default: If the chief executive officer, chief operating
-----------------
officer or chief financial officer of Debtor knows of any Potential Default or
Event of Default which shall have occurred, or knows of the occurrence of any
event which is an event of default or, upon notice or lapse of time or both,
would constitute an event of default under any other material agreement,
instrument or document, order, or decree, to which Debtor is a party or under
which it is bound, breach of which would have a material adverse effect on the
business, operations, properties or financial condition of Debtor or the ability
of Debtor to perform its Obligations under the Loan Documents, Debtor will
promptly furnish to Bank a written statement as to such event or occurrence,
specifying the nature and extent thereof.
7.17 Changes: Debtor will promptly notify Bank of any and all proposed
-------
material changes in its business practices or properties and of any changes in
the Designated Officers of Debtor.
7.18 Further Assurances: From time to time, upon the written reasonable
------------------
request of Bank, Debtor will do, execute, acknowledge and deliver or cause to be
done, executed, acknowledged, and delivered, all such further acts, deeds,
instruments, transfers, powers of attorney or assurances as may be required in
connection with the transactions contemplated by this Agreement or any other
Loan Documents.
7.19 Authorization To Accountants: Debtor hereby irrevocably authorizes
----------------------------
all accountants and auditors employed by Debtor at any time while there are any
sums owed to Bank during the term of this Agreement, and until all of the
Obligations have been fully paid and discharged, to cooperate with Bank and to
exhibit and deliver to Bank copies of Debtor's financial statements, tax
returns, trial balances, or other accounting or tax records or other information
of any sort which may be in their possession, all at Debtor's expense.
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<PAGE>
7.20 Depreciation of Equipment: Debtor will promptly notify Bank of any
-------------------------
event causing material loss or depreciation in the value of any Equipment and
the amount of such loss or depreciation.
7.21 Computer Reports: Debtor hereby irrevocably authorizes all of
----------------
Debtor's computer service bureaus or companies (if any) to give Bank full access
to and to deliver to Bank, at Debtor's expense, printouts and all information
respecting any and all financial records now or hereafter maintained by the same
for Debtor.
7.22 Places of Business; Location of Collateral and Records: Debtor will
------------------------------------------------------
notify Bank in writing thirty (30) days in advance of each change in its Chief
Executive Office, and of each change in any Location at which Inventory,
Equipment, any Records of Accounts, General Intangibles or other Collateral, is
or will be kept. However, at Bank's request from time to time, Debtor shall
provide Bank with a complete schedule of all Locations.
7.23 Visitation: Debtor shall permit such person as the Bank may
----------
designate to visit and inspect any of the properties of the Debtor and any
Subsidiaries, to examine their respective books and records and take copies and
extracts therefrom and to discuss their respective affairs with their respective
officers, at such times and as often as the Bank may reasonably request. Debtor
hereby authorizes such officers to discuss with the Bank the affairs of Debtor
and any Subsidiaries.
7.24 Notice of Pension-Related Events. Promptly after any Debtor, or any
--------------------------------
Controlled Group Member with respect to any Debtor, or any administrator of a
Plan:
(a) receives any notification referred to in subsections (i), (iv)
or (vii) of Section 10.01(m) hereof;
(b) has knowledge of (1) the occurrence of a Reportable Event as
defined in Section 4043 of ERISA with respect to a Plan; (2) any event which has
occurred or any action which has been taken to amend or terminate a Plan as
referred to in subsections (ii) and (vi) of Section 10.01(m) hereof; (3) any
event which has occurred or any action which has been taken which could result
in complete withdrawal, partial withdrawal, or secondary liability for
withdrawal liability payments with respect to a Multiemployer Plan as referred
to in subsection (vii) of Section 10.01(m) hereof; or (4) any action which has
been taken in furtherance of, any agreement which has been entered into for, or
any petition which has been filed with a United States district court for, the
appointment of a trustee for a Plan as referred to in subsection (iii) of
Section 10.01(m) hereof; or
(c) files a notice of intent to terminate a Plan with the Internal
Revenue Service or the PBGC; or files with the Internal Revenue Service a
request pursuant to Section 412(d) of the Code for a variance from the minimum
funding standard for a Plan; or files a return with the Internal Revenue Service
with respect to the tax imposed under Section 4971 of the Code for failure to
meet the minimum funding standards established under Section 412 of the
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<PAGE>
Code for a Plan; then, Debtor will furnish to the Bank a copy of any notice
received, request or petition filed, and agreement entered into; the most recent
Annual Report (Form 5500 Series) and attachments thereto for the Plan; the most
recent actuarial report for the Plan; any notice, return, or materials required
to be filed with the Internal Revenue Service in connection with the event,
action, or filing; and a written statement of the Chairman, President, or chief
financial officer of Debtor, as the case may be, describing the event or the
action taken and the reasons therefor.
7.25 Debtor will maintain Bank as its primary bank of account and
CoreStates Asset Management as its primary investment manager for the term of
the Agreement.
7.26 Compliance with Environmental and Other Laws:
--------------------------------------------
(d) Debtor shall comply in all material respects with all
Environmental Laws applicable to it.
(e) Debtor shall furnish to Bank, immediately upon receipt or
dispatch, a copy of any notice, summons, citation, directive, letter or other
written communication from or to any federal, state or local environmental
agency or department, which may evidence or result in a liability under any
Environmental Law such that the costs of correcting, or of paying penalties
assessed in connection with, such liability would have a material adverse effect
upon the business of Debtor as now conducted or upon Debtor's business,
operations, properties or condition, financial or otherwise. In such event,
Debtor shall use diligent efforts to complete all remediation which may be
required by such communication from any federal, state, county, municipal or
other administrative, investigative, prosecutorial or enforcement agency or
environmental or occupational safety regulatory agency ("Environmental
Regulator") and to obtain from all such Environmental Regulators having
jurisdiction thereof, and deliver to Bank as received, such approvals and
certifications as can be obtained from such agencies from time to time to
confirm the Debtor's completion of all remediation and Debtor's compliance with
all governmental requirements applicable thereto.
7.27 Information Regarding Environmental Matters: Debtor will provide
-------------------------------------------
Bank the following:
(a) Immediately upon receipt, with complete copies of all notices
from any Environmental Regulator notifying Debtor, or alleging, that there
exists or may exist a material violation or potential material violation by
Debtor of any federal or state law, now or hereafter in force, regulating the
handling labeling, custody, storing, transportation, discharge, disposal,
release, treatment, processing or other disposition of any Hazardous Material;
and
(b) Upon Bank's request from time to time, with complete copies of
(i) any or all documents required to be filed or in fact filed, by Debtor with
any Environmental Regulator, (ii) any or all material safety data sheets or
other documents or data which applicable law or any Environmental Regulator now
or hereafter requires Debtor to prepare, compile or maintain, and (iii) any and
all documents and other information which applicable law or any Environmental
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<PAGE>
Regulator requires to be made available to employees, contractors, transferees,
the local community, local government agencies or the public; (iv) any reports
of Debtor's employees, consultants, advisors, engineers or others relating to
Debtor's compliance with applicable environmental or occupational safety laws,
or to the status or manner of disposal, discharge or release of any petroleum
product or hazardous substance.
7.28 Maintenance of Patents, Etc. and Information Regarding Patents:
--------------------------------------------------------------
Debtor shall maintain in full force and effect all Patents, franchises,
licenses, permits and qualification necessary to own, lease and/or operate its
properties and business. Debtor will provide Bank immediately upon its receipt
complete copies of all notices from the United States Patent and Trademark
Office ("PTO") awarding any Patents to Debtor or the discontinuance of any
Patent filing or any communication or information in connection therewith.
Further, Debtor shall provide Bank copies of all correspondence and other
documentation delivered by Debtor to the PTO. In the event that Debtor is
awarded a Patent after the date hereof which is material to the operations and
business of Debtor, Debtor shall execute a patent assignment and any and all
other documents necessary to preserve and protect Bank's security interest in
such Patent.
ARTICLE 8 - NEGATIVE COVENANTS OF DEBTOR
Debtor hereby covenants and agrees that, from the date of this Agreement
and so long as Debtor shall be indebted to Bank hereunder or under any of the
Notes, it will comply with the following covenants, unless Bank shall consent
otherwise in writing, which consent shall not be unreasonably withheld:
8.01 Amendments, Mergers, etc.: Debtor shall not change its name, enter
-------------------------
into any merger, consolidation, reorganization or recapitalization or reclassify
its capital stock.
8.02 Sale of Assets: Debtor shall not sell, transfer, lease or otherwise
--------------
dispose of all or (except in the ordinary course of business) any material part
of its assets.
8.03 Liens: Except pursuant to Paragraph 6.10, Debtor shall not mortgage,
-----
pledge, grant or permit to exist any Lien or Liens upon, any of its assets, of
any kind, now owned or hereafter acquired, except for Permitted Liens, nor
hypothecate or grant a Lien on its capital, net worth, equity accounts, or any
capital stock, as the case may be. Debtor shall not mortgage, pledge, grant or
permit to exist any Lien or Liens upon any of the remaining thirty-four percent
(34%) of the capital stock or ownership interests of Debtor in any of Euro Bio-
Pharm, Ltd. or Bio-Pharm Clinical Service, GmbH which has not been pledged to
Bank pursuant to the Pledge Agreements, unless prior consent has been received
from the Bank.
8.04 Disposition of Right to Income: Debtor shall not mortgage or grant
------------------------------
or permit to exist any Lien or Liens in, any of the Collateral, (including,
without limitation, the Accounts), other than to Bank, except for Permitted
Liens. Further, Debtor shall not sell, discount, transfer, assign, factor or
otherwise dispose of its Collateral except in the ordinary course of business.
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8.05 Guarantor: Debtor shall not become liable, directly or indirectly,
---------
as guarantor or otherwise, for any obligation of any other Person, except for
the endorsement of negotiable instruments, including company checks of Debtor,
for deposit or collection in the ordinary course of business, or pursuant
hereto.
8.06 Indebtedness: Debtor shall not incur, create, or assume any
------------
Indebtedness, except: (1) the Loans; (2) Indebtedness secured only by Permitted
Liens; (3) trade Indebtedness or operating lease indebtedness (to the extent
approved) incurred in the ordinary course of business; (4) unsecured purchase
money Indebtedness for equipment acquired hereafter in the ordinary course of
business, and (5) any other Indebtedness existing as the date hereof and set
forth on Exhibit I.
---------
8.07 Dividends and Distributions: Debtor shall not declare or pay any
---------------------------
dividends, or make any capital or equity distributions to any shareholder which
would result in the occurrence of a Potential Default or Event of Default. Any
dividend or distribution made in violation of this covenant shall be deemed
subject to a resulting or constructive trust in favor of Bank.
8.08 Loans: Debtor shall not make any loan or advance to any officer,
-----
shareholder, director, partner, or other affiliated Person or Persons, or any
Person related to or affiliated with such Persons in excess of an aggregate
amount outstanding at any time of Two Hundred Fifty Thousand Dollars
($250,000.00). In addition, Debtor shall not make any intercompany loan or
advance to the Subsidiaries of Debtor in excess of an aggregate amount
outstanding at any time of Seven Million Dollars ($7,000,000.00). As security
for any intercompany loan, Debtor shall be required to do any and all actions
set forth in Section 6.04 hereof.
8.09 Statements Not Misleading, etc.: Debtor shall not knowingly, after
-------------------------------
reasonable inquiry, furnish Bank any certificate or other document that will
contain any untrue statement of material fact or that will omit to state a
material fact necessary to make it not misleading in light of the circumstances
under which it is furnished.
8.10 No Release of Hazardous Materials: Debtor shall not cause or permit
---------------------------------
to exist, as a result of an intentional or unintentional action or omission on
its part, or on the part of any third party, any disposal, releasing, spilling,
leaking, pumping, emitting, pouring, emptying or dumping of any Hazardous
Material in or onto any of the Locations except in compliance with Environmental
Laws.
8.11 Transactions with Affiliates, Etc.: Debtor shall not permit any
----------------------------------
transfers of property or payments to any present or former Affiliate,
shareholder, officer or employee of Debtor, or the successors, assigns or
transferees of such individuals or entities, except for: (i) normal salary and
compensation reasonable in amount under the circumstances in accordance with
past practices; (ii) purchases or sales of Inventory in the ordinary course of
business and on terms not less favorable to Debtor than arms-length market
terms; and (iii) payments required under bona fide written rental, franchise or
other operating agreements entered into in the ordinary course of business on
arms-length terms.
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8.12 Regulation U: Debtor shall not use the proceeds of any Loans
------------
hereunder directly or indirectly to purchase or carry any "margin stock" (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System) or to extend credit to others for the purpose of purchasing or carrying,
directly or indirectly, any such margin stock.
8.13 Acquisitions. Debtor will not acquire all or any portion of another
-------------
business, including but not limited to a Subsidiary, for a purchase price in
excess of $4,000,000 or a cash payment of over $2,000,000, unless Debtor shall
have cash and cash equivalents of at least $4,000,000 after consummation of the
acquisition and shall have obtained the prior written consent of the Bank, which
consent shall not be unreasonably withheld.
ARTICLE 9 - REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement, Debtor makes the following
continuing representations and warranties to Bank, which representations and
warranties shall be deemed renewed as of the date of each request for an Advance
and deemed incorporated in each such request:
9.01 Representations and Warranties as to Accounts Receivable: As to each
--------------------------------------------- ----------
Account Receivable carried on Debtor's financial statements or otherwise
reported to Bank as an Account: (a) the Account arose from a bona fide
outright sale of goods by Debtor or for services performed by Debtor and such
services have been performed for the respective obligors or their designees; (b)
the Account is based on an enforceable order or contract for services performed
and that the same were performed in accordance with such order or contract; (c)
the title of Debtor to the Account is absolute and is not subject to any prior
assignment, claim, lien or security interest, except a Permitted Lien; (d) the
amount shown on Debtor's books and on any invoice or statement delivered to Bank
is owing to Debtor and no partial payment has been made thereon by anyone; (e)
the Account, in the amount reported, is not subject to any contra, credit, claim
of reduction, counterclaim, set-off, recoupment, or any claim for credit,
allowances or adjustments by the obligor known to Debtor because of returned,
inferior or unsatisfactory services, or for any other reason, except for
customary discounts allowed for prompt payment; (f) the Account does not
represent progress or contract billings except for services actually performed;
(g) to the best knowledge of Debtor, the obligor is not bankrupt or insolvent
or the subject of receivership proceedings, nor has made an assignment for
benefit of creditors or a composition with creditors; and (h) at least 75% of
the account balances for all Accounts for the same obligor comply with these
representations and warranties.
9.02 Representations and Warranties as to Equipment: As to each item of
----------------------------------------------
Equipment shown on Debtor's financial statements:
(a) Such Equipment has been purchased and received by the Debtor, and
is held by the Debtor free and clear of all Liens and claims whatever except a
Permitted Lien;
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(b) Such Equipment is in merchantable condition, not obsolete, not
defective, usable for the purposes for which purchased, held and processed;
(c) The value at which the Equipment is carried is the cost of such
Equipment on an item by item basis.
9.03 Other Representations and Warranties:
------------------------------------
(a) Debtor is a business corporation, duly organized, validly
existing and in good standing under the state of its respective organization
first recited above, and in each other jurisdiction that requires such
qualification wherein it owns or leases any property or conducts any business,
except where the failure to qualify would have a material adverse effect on the
business, operations, properties and financial condition of Debtor;
(b) The making, delivery and performance of this Agreement, the
Notes, the Pledge Agreements, the Collateral Assignment and Security Agreements
and the other Loan Documents will not immediately, or with the passage of time,
the giving of notice, or both:
(1) Violate the charter or by-law provisions of Debtor or violate
any Laws or result in a default under any material contract, agreement, or
instrument to which Debtor is a party or by which it or its property is bound;
or
(2) Terminate or give any party the right to terminate any
material contract, agreement or instrument to which Debtor is a party or by
which its properties may be bound or affected; or
(3) Result in the creation or imposition of any Lien upon, any of
the assets of Debtor except in favor of the Bank;
(c) Debtor has the corporate power and authority to enter into and
perform this Agreement, the Notes, the Pledge Agreements, the Collateral
Assignment and Security Agreements and the other Loan Documents, and to incur
the Obligations herein and therein provided for, and has taken all action
necessary to authorize the execution, delivery, and performance of the same;
(d) This Agreement, the Notes, the Pledge Agreements, the Collateral
Assignment and Security Agreements and the other Loan Documents are and continue
to be valid, binding, and enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency and reorganization laws and general
equitable principles;
(e) Except as described on Exhibit E attached hereto, Debtor is not a
party to or, to its best knowledge, threatened with, any litigation, suit,
action, investigation, proceedings or controversy before any Court,
administrative agency or other governmental authority which, if adversely
determined, would result in any material adverse change in its business
operations,
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properties or assets or in its condition, financial or otherwise, or in any way
affect this Agreement or the transactions contemplated hereby, and Debtor is not
in violation of or in default with respect to any judgment, order, writ,
injunction, decree or rule of any court, administrative agency or governmental
instrumentality or in any material respect under any regulation of any
administrative agency or governmental instrumentality.
(f) Debtor has good and marketable title to all of its assets,
subject to no Lien or other claim of any third person except for Permitted
Liens;
(g) The financial statements, including any schedules and notes
pertaining thereto, of Debtor which have been provided to Bank prior to or on
the Effective Date have been prepared in accordance with GAAP, and fully and
fairly present the financial condition of Debtor at the dates thereof and the
results of operations for the periods covered thereby. There have been no
material adverse changes in the financial condition of Debtor since the date of
its financial statements dated December 31, 1993 which were delivered to Bank
prior to the date of the Commitment;
(h) Except as may be disclosed on Exhibit E or Exhibit F, Debtor has
--------- ---------
filed all federal, state, and local tax returns, and other reports which it is
required by Law to file prior to the date hereof and which are material to the
conduct of its business, has paid or caused to be paid all taxes, assessments
and other governmental charges that are due and payable prior to the date
hereof, has complied with all applicable Federal and State tax laws, and has
made adequate provision for the payment of such taxes, assessments or other
charges accruing but not yet payable, and Debtor has no knowledge of any
deficiency or additional assessment in a materially important amount in
connection with any taxes, assessments or charges not provided for on its books;
(i) Except as described on Exhibit L, Debtor is in compliance in all
---------
material respects with ERISA, Debtor does not sponsor, maintain or contribute to
or plan to sponsor, maintain or contribute to, or has not sponsored, maintained
or contributed to at any previous date, any "Defined Benefit Plans", as defined
in Section 3(35) of ERISA, and no Reportable Event, as defined in Section 4043
of ERISA, or Prohibited Transaction, as defined in Section 406 of ERISA, has
occurred with respect to any Plan; and
(j) Debtor is not in material violation of or subject to any
contingent liability on account of any Law (including but not limited to any
Environmental Law). No Lien arising under or in connection with any
Environmental Law has attached to any revenues or any real or personal property
owned, leased, occupied or operated by Debtor, nor does Debtor have any reason
to believe that any governmental agency has incurred any costs which may give
rise to any such lien hereafter.
(k) To the best of Debtor's knowledge, after reasonable inquiry, no
representation or warranty furnished pursuant hereto contains any untrue
statement of material
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fact or omits to state a material fact necessary to make such representation or
warranty not misleading in light of the circumstances under which it was made.
(l) Each consent, approval or authorization of, or filing,
registration or qualification with, any Person which is required to be obtained
or effected by Debtor in connection with the execution and delivery of this
Agreement, the Notes, the Pledge Agreements, the Collateral Assignment and
Security Agreements and the other Loan Documents, or the undertaking or
performance of any obligation hereunder or thereunder, has been duly obtained or
effected;
(m) Except as specifically disclosed in Exhibit F attached hereto,
---------
Debtor has no other material real property leases, employment agreements,
insurance and welfare agreements. Except for commitments to purchase equipment
to be financed by the Non-Revolving Equipment Loan and except as otherwise
disclosed on the financial statements for the period ended June 30, 1997, which
are attached as an annex to Exhibit K, Debtor has no other contingent or
---------
noncontingent liability, which is or are material in amount. To the best of
Debtor's knowledge, all parties to all such leases, contracts and other
commitments to which Debtor is or was party have complied with the provisions of
such leases, contracts and other commitments, no party is in default under any
thereof and no event has occurred which, but for the giving of notice or the
passage of time, or both, would constitute a default with respect thereto;
(n) Debtor has not made any agreement or has taken any action which
may cause anyone to become entitled to a commission or finder's fee as a result
of the making of the Loans;
(o) Debtor will take all necessary steps to preserve Debtor's
corporate existence, and all of its franchises and licenses, and will comply
with all present and future regulatory and other Laws applicable to it in the
operation of its business, and with all material agreements to which it is
subject;
(p) Debtor shall not make any borrowing hereunder for the purpose of
buying or carrying any "margin stock," as such term is used in Regulation U of
the Board of Governors of the Federal Reserve System, as amended from time to
time. Neither Debtor nor any Subsidiary owns any "margin stock". Debtor is not
engaged in the business of extending credit to others for such purpose, and no
part of the proceeds of any borrowing hereunder will be used to purchase or
carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock".
(q) For purposes of this Agreement, each of the following shall be
defined as a "Location": (i) Debtor's Chief Executive Office, (ii) the
locations of all Equipment and other Collateral, and (iii) the locations of each
office at which Debtor maintains Records concerning Accounts, General
Intangibles and other financial matters. All of Debtor's Locations are
identified on Exhibit G hereto.
---------
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<PAGE>
(r) Attached hereto as Exhibit H is a schedule setting forth all
---------
Indebtedness of Debtor (other than outstanding and unfilled orders to purchase
property, products, materials or supplies) where the principal amount of the
Indebtedness (in the case of Indebtedness classifiable as liabilities under
GAAP) or the present value of all future payments with respect to the
Indebtedness (in the case of all other Indebtedness) exceeds $100,000.00.
(s) No Debtor has Indebtedness to any Affiliate, or is owed anything
on account of indebtedness of an Affiliate to it, except subordinated
indebtedness and such Indebtedness (if any) shown on Exhibit I
---------
(t) The only Subsidiaries of Debtor are outlined on Exhibit J
attached hereto.
(u) The authorized and issued capital stock or ownership interests of
each Subsidiary of Debtor is as indicated on Exhibit J attached hereto. Exhibit
--------- -------
J attached hereto also sets forth the ownership of the issued and outstanding
- -
shares of capital stock or ownership interests of each Subsidiary of Debtor.
All of the issued and outstanding shares of capital stock or ownership interests
of each Subsidiary of Debtor have been validly issued and are fully paid and
nonassessable. There are no options, warrants or other rights outstanding to
purchase any such shares or ownership interests except as indicated on Exhibit J
---------
attached hereto. Debtor has good and marketable title to all of the issued and
outstanding shares of capital stock or ownership interests of each Subsidiary of
Debtor that it purports to own, free and clear in each case of any Lien except
for Liens created under the Pledge Agreements.
ARTICLE 10 - DEFAULT
10.01 Events of Default: The occurrence of any one or more of the
-----------------
following shall constitute an Event of Default hereunder:
(a) Debtor shall fail to pay, when due, any installment of principal
or any installment of interest payable hereunder or under any of the Notes or
other Loan Documents; or Debtor shall fail to pay any fee, charge or expense,
payable hereunder or under any of the Notes or other Loan Documents within ten
(10) days after notice from Bank; or
(b) Debtor shall fail to pay any Indebtedness (other than
Indebtedness under the Loan Documents) exceeding in the aggregate amount
outstanding at any one time the sum of One Hundred Thousand Dollars
($100,000.00), when due, to any Person and such failure shall continue beyond
any applicable grace period, or any other event of default shall arise under any
agreement evidencing any Indebtedness; and with respect to any defaults as are
not reasonably capable of cure within the applicable grace period, no Event of
Default shall be deemed to have occurred so long as Debtor shall have, in good
faith, commenced said cure within said initial grace period and thereafter shall
diligently pursue said cure to completion within such additional period of time
as shall be reasonably required, not to exceed thirty (30) days in any event.
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<PAGE>
(c) Any financial statement, representation or warranty made or
furnished by Debtor or its agents to Bank in connection with this Agreement, or
as an inducement to Bank to enter into this Agreement, or in any separate
statement or document to be delivered hereunder to Bank, shall be false,
incorrect, or incomplete when made as to any material fact or facts;
(d) Debtor shall generally not or shall be unable to or shall admit
or have admitted its inability to pay, or shall fail to pay, its debts as they
mature, or shall make an assignment for the benefit of its creditors;
(e) Proceedings in bankruptcy, or for reorganization of Debtor or for
the readjustment of debts, under the Bankruptcy Code, as amended, or any part
thereof, or under any other Laws, whether state or federal, for the relief of
debtors, now or hereafter existing, shall be commenced or shall have been
commenced by or against Debtor and if commenced against Debtor shall not be
stayed or discharged within sixty (60) days of commencement;
(f) A receiver or trustee shall be appointed or shall have been
appointed for Debtor or any substantial part of its assets, or any proceedings
shall be instituted for the dissolution or the full or partial liquidation of
Debtor and such receiver or trustee shall not be discharged within sixty (60)
days of initial appointment, or such proceedings shall not be stayed or
discharged within thirty (30) days of their commencement, or Debtor shall
discontinue business or materially change the nature of its business;
(g) Debtor shall suffer a final judgment for the payment of money
(other than Indebtedness under the Loan Documents) in excess of One Hundred
Thousand Dollars ($100,000.00), and shall not discharge the same within a period
of thirty (30) days unless execution thereon is effectively stayed or bonded
pending further proceedings;
(h) A judgment creditor of Debtor shall obtain possession of or any
attachment or other judicial process shall issue against, any of the Collateral
by any means, including, but without limitation, levy, distraint, replevin or
self-help or on a consensual basis, if such possession, attachment, process,
levy or distraint is, in Bank's reasonable opinion, material or if such
possession, attachment, process, levy or distraint shall not have been finally
stayed, enjoined or terminated within thirty (30) days after it was first
obtained;
(i) The validity or enforceability of this Agreement, the Notes, the
Pledge Agreements, the Collateral Assignment and Security Agreements or any of
the other Loan Documents shall be contested in any judicial forum by Debtor or
any Affiliate, or Debtor shall deny that it has any liability or obligation
hereunder or thereunder;
(j) Any default by Debtor with respect to any other Obligation to
Bank as to which any required notice has been given, any applicable grace period
has expired, and such default remains uncured and unwaived;
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<PAGE>
(k) Any event of default (or any event or condition which, with
notice or lapse of time or both, would become an event of default) shall arise
under any document relating to the Letter of Credit, including, without
limitation, the failure of Debtor to pay its obligations to Bank thereunder;
(l) Any financial statement, representation or warranty made or
furnished by Debtor under any of the Letter of Credit Documents to Bank in
connection with the Letter of Credit, or as an inducement to Bank to enter into
the Letter of Credit, or in any separate statement or document to be delivered
thereunder to Bank, shall be false, incorrect, or incomplete when made as to any
material fact or facts;
(m) Any one or more of the following events occurs which, in Bank's
reasonable opinion, when taken individually or collectively, have, or is or are
likely to have, a material, adverse effect on the financial condition or
business operations of Debtor and such event or circumstance continues for a
period of sixty (60) days after written notice to cure is given by Bank:
(i) The PBGC notifies a Plan pursuant to Section 4042 of ERISA
by service of a complaint, threat of filing a lawsuit, or otherwise of its
determination that an event described in Section 4042(a) of ERISA has occurred,
a Plan should be terminated, or a trustee should be appointed for a Plan; or
(ii) Any action is taken to terminate a Plan pursuant to its
provisions or the Plan administrator files with the PBGC a notice of intent to
terminate a Plan in accordance with Section 4041 of ERISA; or
(iii) Any action is taken by a plan administrator to have a
trustee appointed for a Plan pursuant to Section 4042 of ERISA; or
(iv) A return is filed with the Internal Revenue Service, or a
Plan is notified by the Secretary of the Treasury that a notice of deficiency
has been mailed, with respect to the tax imposed under Section 4971(a) of the
Code for failure to meet the minimum funding standards established under Section
412 of the Code; or
(v) A Reportable Event occurs with respect to a Plan; or
(vi) Any action is taken to amend a Plan to become an employee
benefit plan described in Section 4021(b)(1) of ERISA, causing a Plan
termination under Section 4041(e) of ERISA; or
(vii) Either Debtor or any member of the same controlled
group receives a notice of liability or demand for payment on account of
complete withdrawal under Section 4203 of ERISA, partial withdrawal under
Section 4205 of ERISA or on account of becoming
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<PAGE>
secondarily liable for withdrawal liability payments under Section 4204 of ERISA
(sale of assets);
(n) A material adverse change shall occur in the financial
condition, business or prospects of Debtor;
(o) Debtor shall fail to observe or perform any other obligation to
be observed or performed by it hereunder or under any of the Notes, Pledge
Agreements, Collateral Assignment and Security Agreements or the other Loan
Documents, which is not specifically enumerated in subsections (a)-(n) above,
and such failure shall continue uncured for a period of thirty (30) consecutive
days.
10.02 Acceleration: Immediately and without notice upon the occurrence of
------------
an Event of Default specified in subsection 10.01(e) or subsection 10.01(f), or
in other cases, at the option of Bank, upon notice by Bank or its agent or
attorney to Debtor of the occurrence of an Event of Default, all Obligations,
whether hereunder or otherwise, including without limitation those evidenced by
the Notes, shall immediately become due and payable, without further action or
notice of any kind.
10.03 Remedies: Upon the occurrence of an Event of Default, Bank shall
--------
have, in addition to the rights and remedies given it by this Agreement, the
Notes, the Pledge Agreements, the Collateral Assignment and Security Agreements
or any of the other Loan Documents and the remaining documents delivered
pursuant hereto, all those allowed by all applicable Laws, including, without
limitation, the Uniform Commercial Code.
Without limiting the generality of the foregoing, Bank may
immediately, without demand for performance and without other notice or demand
whatsoever to Debtor (except as specifically required by this Agreement or the
documents delivered pursuant hereto or as required by applicable laws), sell at
public or private sale or otherwise realize upon, at any place designated by
Bank in its sole discretion, including any place of business of Bank or any of
its affiliates, the whole or, from time to time, any part of the Collateral, or
any interest which Debtor may have therein. After deducting from the proceeds
of sale or other disposition of the Collateral all expenses (including all
expenses for legal services), Bank shall apply such proceeds toward the
satisfaction of the Obligations, in such order as it shall determine. Any
remainder of the proceeds after satisfaction in full of the Obligations shall be
distributed as required by applicable Laws. At any such sale or other
disposition, Bank may, to the extent permissible under applicable Laws, purchase
the whole or any part of the Collateral, free from any right of redemption on
the part of Debtor, which right is hereby waived and released. Notice of any
sale or other disposition shall be given to Debtor at the address hereinafter
set forth or such other address as may from time to time be shown on Bank's
records at least ten (10) days before the time of any intended public sale or of
the time after which any intended private sale or other disposition of the
Collateral is to be made, which Debtor hereby agree shall be reasonable notice
of such sale or other disposition. Debtor agrees to assemble, or to cause to be
assembled, at Debtor's own expense, the Collateral at such place or places as
Bank shall designate. Without
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limiting the generality of any of the rights and remedies conferred upon Bank
under this Section, Bank may, to the full extent permitted by applicable Laws do
any or all of the following:
(a) Enter upon any premises of Debtor, exclude Debtor therefrom,
and take immediate possession of the Collateral, either personally or by means
of a receiver appointed by a court of competent jurisdiction, or by other lawful
means;
(b) At Bank's option, use, operate, manage and control the
Collateral in any lawful manner;
(c) Collect and receive any or all rents, income, revenue,
earnings, issues, and profits (including the Accounts), and proceeds therefrom;
and
(d) Maintain, repair, renovate, alter or remove the Collateral as
Bank may determine in its discretion.
10.04 Application of Proceeds. Upon the occurrence of an Event of Default,
-----------------------
and so long as the Event of Default continues uncured or unwaived, Debtor
irrevocably waives the right to direct the application of all payments,
including proceeds of Collateral, that may be received by Bank or for the
benefit of Debtor. The proceeds of any sale or other disposition of all or any
part of the Collateral, or any interest which Debtor may have therein, shall be
applied by Bank in the following order:
(a) First, to payment of all costs and expenses incurred by Bank
under any of the Loan Documents including without limitation all costs and
expenses relating to disposition of Collateral or enforcement of the Debtor's
Obligations, and reasonable attorneys' fees,
(b) Second, to the payment in full of the unpaid principal balance
of, and all accrued and unpaid interest on, the Loans, the Notes, and other
Obligations all in accordance with the terms of the Notes, this Agreement, the
Pledge Agreements, the Collateral Assignment and Security Agreements and the
other Loan Documents, and
(c) Third, to the payment in full of all other Obligations of
Debtor to Bank, and
(d) Fourth, to the Debtor to the extent of any surplus. Debtor
shall remain liable to Bank for any deficiency in payment of the Obligations to
Bank after application of the proceeds in accordance with this Section 10.04.
10.05 Enforcement and Waiver by the Bank: Bank shall have the right at all
----------------------------------
times to enforce the provisions of this Agreement and the documents delivered
pursuant hereto in strict accordance with the terms hereof and thereof,
notwithstanding any conduct or custom on the part of Bank in refraining from so
doing at any time or times. The failure of Bank at any time or times to enforce
its rights under such provisions, strictly in accordance with the same, shall
not
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<PAGE>
be construed as having created a custom in any way or manner contrary to
specific provisions of this Agreement or as having in any way or manner modified
or waived the same. All rights and remedies of Bank are cumulative and
concurrent and the exercise of one right or remedy shall not be deemed a waiver
or release of any other right or remedy.
ARTICLE 11 - MISCELLANEOUS
11.01 Interpretation: The provisions of this Agreement shall be in
--------------
addition to those of any Letter of Credit Documents, security agreement, note or
other evidence of liability now or hereafter at any time held by Bank, all of
which shall be construed as complementary and supplementary to each other to the
extent possible. Nothing herein contained shall prevent Bank from enforcing any
or all other agreements in accordance with their respective terms.
11.02 Further Assurances: From time to time, Debtor will execute and
------------------
deliver to Bank such additional documents and will provide such additional
information as Bank may reasonably require, to carry out the terms of this
Agreement and be informed of the Debtor's status and affairs.
11.03 Power to Execute Documents: Upon and during the occurrence of an
--------------------------
Event of Default, and so long as any Obligations remain outstanding, Debtor
hereby irrevocably (this power being coupled with an interest) appoints,
constitutes and names Bank, or any of its attorneys or agents, the true and
lawful attorney for Debtor, with full power of substitution, to do any or all of
the following at any time (but this grant of authority shall not negate any
other grant of authority under this Agreement which may authorize other actions,
or similar actions under other circumstances, and Debtor shall not take any
actions to contest or reverse or negate Bank's actions hereunder):
(a) to receive mail at Bank's designated address and open the same,
endorse, sign and deliver, in the name of Debtor, or in Bank's name, all checks,
drafts, money orders and other instruments, for the payment of moneys which are
payable to Debtor;
(b) to sign the name of Debtor, and to receive for Debtor, on any
schedules, assignments, instruments, documents and Uniform Commercial Code
financing, amending or continuation statements which Debtor is obligated to give
Bank hereunder or any invoice, warehouse receipt, bill of lading or other
Document, Instrument or Chattel Paper, or any Accounts, statements therefor,
drafts against obligors or drawn or to be drawn under any letters of credit,
notices to obligors, certificates or other documents to be delivered or
presented under letters of credit or schedules or assignments of Accounts; and
(c) to take or bring at the Debtor's expense, in the name of
Debtor, or Bank, all steps, actions and suits that Bank considers necessary or
desirable to effect collections of Accounts, to enforce payment of any Account,
to settle, compromise, sell, assign, discharge or release, in whole or in part,
any amounts owing on Accounts, to extend the time of payment of any and all
Accounts and to make allowances and adjustments with regard to Accounts; and
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(d) to do such other and further acts and deeds in the name of
Debtor that Bank may deem necessary or desirable to enforce the rights of Debtor
against third parties with respect to any Collateral.
11.04 Cost, Expenses, and Fees Paid and Payable to Bank:
-------------------------------------------------
(a) All reasonable attorneys fees and other expenses incurred by
Bank as part of this transaction shall be a part of the Obligations hereunder
and shall be paid at the signing hereof or at such later time as the Bank may
specify.
(b) Debtor agrees that all costs, expenses, and reasonable
attorneys' fees of, or incidental to the custody, care, management, sale or
collection of, or realization upon, any of the Collateral or in any way relating
to the care, enforcement or protection of the Collateral or in the enforcement
of any and all rights of Bank either hereunder or under any applicable law or
custom, shall become part of the Obligations and entitled to the benefits of
this Agreement as if an Advance made hereunder upon the application of Debtor,
and Bank may at any time apply to the payment of all such costs and expenses all
moneys of Debtor or other proceeds arising from the possession or disposition of
all or any portion of the Collateral.
11.05 Notices: Any notices or consents required or permitted by this
-------
Agreement shall be in writing and shall be deemed delivered if personally
delivered or if sent by certified mail, postage prepaid, return receipt
requested or overnight courier service, as follows, unless such address is
changed by written notice hereunder:
If to Debtor: IBAH, Inc.
Four Valley Square
512 Township Line Road
Blue Bell, PA 19422
ATTN: Neil H. Lansing, II
Vice President and CFO
with a copy to: Jane H. Hollingsworth, Esquire
IBAH, Inc.
Four Valley Square
512 Township Line Road
Blue Bell, PA 19422
If to Bank: with a copy to: CoreStates Bank, N.A.
2240 Butler Pike
Plymouth Meeting, PA 19462
ATTN: Stasia H. Whiteman, Vice President
-41-
<PAGE>
Linda Ann Galante, Esquire
Stradley, Ronon, Stevens & Young, LLP
30 Valley Stream Parkway
Malvern, PA 19355
Any notice hereunder shall be deemed to have been given three (3) days
after mailing thereof, or upon actual delivery to an agent of the recipient
party, to the other party at such party's then effective address hereunder.
Notices by Bank may be given on its behalf by its agent or attorney.
11.06 Waiver and Release by Debtor: To the maximum extent permitted by
----------------------------
applicable Laws, Debtor:
(a) Waives demand, protest, presentment, and notice of dishonor of
all commercial paper at any time held by Bank on which Debtor is in any way
liable;
(b) Releases Bank and its officers, attorneys, agents and employees
from all claims for loss or damage caused by any act or omission on the part of
any of them except negligence.
11.07 JURISDICTION: DEBTOR CONSENTS TO THE PERSONAL JURISDICTION OF THE
------------
FEDERAL OR STATE COURTS LOCATED IN THE COMMONWEALTH OF PENNSYLVANIA AND AGREES
THAT VENUE SHALL BE PROPER AND THE FORUM SHALL BE CONVENIENT IN THE CITY OF
PHILADELPHIA OR IN CHESTER COUNTY, PENNSYLVANIA, IF SUIT IS FILED BY ANY PARTY
TO ENFORCE, INTERPRET OR CONSTRUE THIS AGREEMENT. DEBTOR AND BANK HEREBY
MUTUALLY AND RECIPROCALLY WAIVE ALL RIGHT TO JURY TRIAL.
11.08 Applicable Law: The internal substantive laws of the Commonwealth of
--------------
Pennsylvania shall govern the construction of this Agreement and the rights and
remedies of the parties hereto without regard to any laws relating to conflict
of laws or choice of law.
11.09 Indemnity: To the maximum extent permitted by applicable law,
---------
Debtor, for itself and its successors (herein, "Indemnifying Parties"), shall
jointly and severally indemnify, hold harmless, and upon request defend Bank and
its shareholders, officers, directors, employees, attorneys and agents, and
their respective successors and assigns (collectively, the "Indemnified
Parties") from and against any and all claims and liabilities asserted against
any Indemnified Party by any Indemnifying Party or any third party (including
without limitation for negligence or gross negligence) (herein, "Claims"), and
will pay and reimburse to the Indemnified Parties all losses, payments,
reasonable costs and expenses associated therewith, or with the defense of all
Indemnified Parties (including without limitation reasonable attorneys' fees)
which any Indemnified Party may suffer, incur or be exposed to by reason of or
in connection with or rising out of the transport, release, treatment,
processing, manufacture, deposit, storage, disposal, burial, dumping, injecting,
spilling, leaking or placement at any time heretofore or hereafter, by
-42-
<PAGE>
any person or entity, of any Hazardous Material (except in compliance with all
Environmental Laws), including but not limited to any of the following whether
incurred by an Indemnified Party, an Indemnifying Party or any third party: (1)
costs of or liability for investigation, monitoring, boring, testing and
evaluation; (2) costs or liabilities for abatement, correction, response,
cleanup, removal or remediation; (3) fines, damages, penalties and other
liabilities; (4) liability for personal injury or property damage.
11.10 Investigation and Cure of Environmental Matters: In the event of
-----------------------------------------------
failure of Debtor to comply with any provision of this Agreement or any other
Loan Document relating to Hazardous Materials, Environmental Laws or
Environmental Regulators, or if Bank shall have reason to believe that any
Hazardous Material has been or is likely to be released on, in or under any
Location (except in compliance with all Environmental Laws), Bank may do any or
all of the following: (i) Bank shall have the right to investigate, or to demand
that Debtor investigate and report to Bank on (in which case Debtor shall
investigate and report to Bank on) investigation of such Location, and if Bank
requests through an independent reputable environmental consulting or
engineering firm acceptable to Bank; (ii) without obligation to do so, to cure
such default or to comply or cause compliance, or to demand that Debtor cure
such default or comply or cause compliance, with any or all Environmental Laws.
All of the foregoing shall be at the expense of Debtor, and any expense incurred
by Bank in connection with any of the foregoing (including without limitation
its expenses relating to attorneys fees and any environmental consultants or
engineers) shall be additional obligation of Debtor hereunder which shall be
payable to Bank upon demand, with interest computed at the Default Rate from the
date(s) upon which said costs and expenses were incurred by Bank.
11.11 Merger of CoreStates Bank, N.A. and Meridian Bank: Debtor
-------------------------------------------------
acknowledges and understands that CoreStates Bank, N.A., is the successor by
merger to Meridian Bank. Debtor acknowledges and agrees that any of the Loan
Documents executed and delivered to Meridian Bank shall inure to the benefit of
and shall be enforceable by CoreStates Bank, N.A., as successor by merger.
Effective as of the date of the merger of Meridian Bank into CoreStates Bank,
N.A., all references in the Loan Documents to Meridian Bank shall be deemed to
refer to CoreStates Bank, N.A., and all references in the Loan Documents to the
National Commercial Rate shall be deemed to refer to the "Prime Rate", as
defined in this Second Amended and Restated Loan and Security Agreement.
11.12 Binding Effect, Assignment and Entire Agreement: This Agreement
-----------------------------------------------
shall become effective upon delivery of the Notes, and acceptance of this
Agreement by execution in, to Bank's main office in Malvern, Pennsylvania and
shall inure to the benefit of, and shall be binding upon, the respective heirs,
executors, administrators, successors and permitted assigns of the parties
hereto. Debtor has no right to assign any of its rights or obligations
hereunder without the prior written consent of Bank. This Agreement, and the
documents executed and delivered pursuant hereto, constitute the entire
agreement between the parties, and may be amended only by a writing signed on
behalf of each party.
-43-
<PAGE>
11.13 Severability: If any provision of this Agreement shall be held
------------
invalid under any applicable Laws, such invalidity shall not affect any other
provision of this Agreement which can be given effect without the invalid
provision. To this end, the provisions hereof are severable.
11.14 Counterparts: This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
under seal, as of the day and year first above written.
IBAH, INC.
Attest: \s\ Jane H. Hollingsworth By: \s\ Geraldine A. Henwood
------------------------------ --------------------------------
Name: Jane H. Hollingsowrth Name: Geraldine A. Henwood
Title: Secretary Title: CEO
CORESTATES BANK, N.A.
Attest: \s\ Ann Marie Janus By: \s\ Stasia Whiteman
------------------------------ --------------------------------
Name: Ann Marie Janus Name: Stasia Whiteman
Title: Title: Vice President
THE HARDARDT GROUP, INC.
Attest: \s\ Jane H. Hollingsworth By: \s\ Geraldine A. Henwood
----------------------------- --------------------------------
Name: Jane H. Hollingsowrth Name: Geraldine A. Henwood
Title: Secretary Title: President
-44-
<PAGE>
Exhibits:
--------
A - Form of International Facilities Agreement
B - Permitted Liens
C - Post-Closing Items
D - Form of Covenant Compliance Certificate
E - Litigation
F - Commitments and Contingencies
G - Locations
H - Indebtedness
I - Affiliate Indebtedness
J - Capitalization and Ownership of Subsidiaries
K - Financial Statements
L - ERISA Compliance
-45-
<PAGE>
EXHIBIT B
PERMITTED LIENS
1. Equipment liens in favor of Mitel Finance Corp.
2. Two Equipment liens in favor of Meridian Leasing, Inc.
3. Equipment liens in favor of Steelcase Financial Services, Inc.
4. Equipment lien in favor of CoreStates, Leasing, Inc.
-46-
<PAGE>
EXHIBIT C
POST-CLOSING ITEMS
1. Execution of the Pledge Agreement by and between Debtor and Bank, which is
in the form attached hereto as Annex 1, pledging sixty-six percent (66%) of
the ownership interests of Debtor in Euro Bio-Pharm Holdings, B.V.,
authentication by a German Notar and any and all other actions required to
be performed or have performed by Debtor in order to record and perfect the
lien of Bank upon such ownership interests.
2. Delivery of the originally executed Euro Bio-Pharm Clinical Services GmbH
Note, which is in the form attached hereto as Annex 2, and the Euro Bio-
Pharm, Ltd. Note, which is in the form attached hereto as Annex 3.
3. Delivery of executed Landlord's Waivers for each leased property.
4. Certificate of Good Standing and subsistence of Hardardt as of a recent
date from each state in which Hardardt is organized or qualified (or to be
qualified) to transact business.
5. Debtor acknowledges that Bank has requested certain lien searches on Debtor
and Hardardt but has not received the results of such lien searches as of
the date hereof. Debtor agrees to remove and discharge any and all liens,
judgments or encumbrances revealed by such lien searches (except Permitted
Liens) within fifteen (15) days of written notice of the search results
from Bank, and execute and deliver to Bank all necessary releases,
satisfactions, subordinations and terminations statements requested by
Bank.
6. Legal Opinion of Morgan, Lewis & Bockius in the form delivered on July 8,
1994.
7. Certificate of Incorporation of the Hardardt Group, Inc. certified by the
Secretary of State in the State in which it is organized.
8. Secretary's Certificate form the Secretary of The Hardardt Group, Inc. in
the form delivered by IBAH, Inc. on the date hereof.
9. Exhibit I to this Second Amended and Restated Loan and Security Agreement,
scheduling inter and intra company (affiliate) indebtedness.
-47-
<PAGE>
EXHIBIT D
COVENANT COMPLIANCE CERTIFICATE
I hereby certify that IBAH, Inc. has maintained the following financial
covenants in accordance with Generally Accepted Accounting Principles, as
measured at the end of the calendar quarter ended _______________ in accordance
with Article 7.13 of the Second Amended and Restated Loan and Security
Agreement dated August , 1997 (the "Loan Agreement"). All capitalized
terms shall have the meanings provided therefor in the Loan Agreement.
IBAH, INC.
By: ____________________________________
Designated Officer
Date: ______________________
-48-
<PAGE>
EXHIBIT E
LITIGATION
1. Claim by ex-employee of GmbH for bonus relating to sales commission at
600,000 D.M.
2. Claim by third party for payment for service allegedly performed in the
amount of approximately $200,000.
-49-
<PAGE>
EXHIBIT F
COMMITMENTS AND CONTINGENCIES
Material Employment Agreements
------------------------------
1. Sherrin Baky
2. Len Stigliano
3. David Jackson
4. Gerald Faich
5. Rudi Weaker
6. Cornelius Lansing
-50-
<PAGE>
EXHIBIT F
COMMITMENTS AND CONTINGENCIES
<TABLE>
<CAPTION>
Material Real Property Leases
-----------------------------
<S> <C>
Bio-Pharm Clinical Services Bio-Pharm Pharmaceutics Services, Inc.
512 Township Line Road 425 Delaware Drive
1 Valley Square, 3 Valley Square Fort Washington, PA 19034 USA
4 Valley Square, 5 Valley Square
Blue Bell, PA 19422 USA
Bio-Pharm Pharmaceutics Services, Inc. Bio-Pharm Regional
525 Virginia Drive 872 S. Milwaukee Avenue, #265
Fort Washington, PA 19034 USA Libertyville, IL 60048 USA
Bio-Pharm Clinical Services Pacific Bio-Pharm
3925 North Duke Street 19 Grosvenor Street
Durham, NC 27704 USA Neutral Bay, NSW
Australia 1089
Euro Bio-Pharm GmbH Euro Bio-Pharm
Konigsteiner Star. 10 2 Ter, Villa Thoreton
65812 Bad Soden a. Ts. 75015 Paris
Germany France
Euro Bio-Pharm Euro Bio-Pharm AG
Wessex Business Centre Muhlemattstrasse 22
Bumpers Way, Bumpers Farm 4104 Oberwil/Bael
Chippenham, Wiltshire Switzerland
England SN14 6NQ
Euro Bio-Pharm Euro Bio-Pharm A/S
Blv A. Reyers 161 Box 4 Kongens Nytorv 6, 4. Floor
1030 Bruseels KD 1050
Belgium Copenhagen
Bio-Pharm International, Inc. Ao De-Scor/ Ao Katuar
Betlem Palasi-Betlemesky palac Ulitsa Chaplygina
Husova 5 Dom 1-A, #45
11000 Prague 1 Moscow,
Czech Republic Russia 103062
Resource Biometrics, Inc. The Hardardt Group
5801 Christie Avenue, Suite 355 6 Century Drive
Emeryville, CA 94608-1928 USA Parsippany, NJ 07054 USA
The Hardardt Group
1000 4th Street, Suites 550 and 640
San Rafael, CA 94901 USA
</TABLE>
-51-
<PAGE>
EXHIBIT G
LOCATIONS
<TABLE>
<CAPTION>
<S> <C>
Bio-Pharm Clinical Services Bio-Pharm Phamaceutics Services, Inc.
512 Township Line Road 425 Delaware Drive
1 Valley Square, 3 Valley Square Fort Washington, PA 19034 USA
4 Valley Square, 5 Valley Square
Blue Bell, PA 19422 USA
Bio-Pharm Phamaceutics Services, Inc. Bio-Pharm Regional
525 Virginia Drive 872 S. Milwaukee Avenue, #265
Fort Washington, PA 19034 USA Libertyville, IL 60048 USA
Bio-Pharm Clinical Services Pacific Bio-Pharm
3925 North Duke Street 19 Grosvenor Street
Durham, NC 27704 USA Neutral Bay, NSW
Australia 1089
Euro Bio-Pharm GmbH Euro Bio-Pharm
Konigsteiner Str. 10 2 Ter, Villa Thoreton
65812 Bad Soden a. Ts. 75015 Paris
Germany France
Euro Bio-Pharm Euro Bio-Pharm AG
Wessex Business Centre Muhlemattstrasse 22
Bumpers Way, Bumpers Farm 4104 Oberwil/Bael
Chippenham, Wiltshire Switzerland
England SN14 6NQ
Euro Bio-Pharm Euro Bio-Pharm A/S
Blv A. Reyers 161 Box 4 Kongens Nytorv 6, 4. Floor
1030 Bruseels KD 1050
Belgium Copenhagen
Bio-Pharm International, Inc. Ao De-Scor/ Ao Katuar
Betlem Palasi-Betlemesky palac Ulitsa Chaplygina
Husova 5 Dom 1-A, #45
11000 Prague 1 Moscow,
Czech Republic Russia 103062
Resource Biometrics, Inc. The Hardardt Group
5801 Christie Avenue, Suite 355 6 Century Drive
Emeryville, CA 94608-1928 USA Parsippany, NJ 07054 USA
The Hardardt Group
1000 4th Street, Suites 550 and 640
San Rafael, CA 94901 USA
</TABLE>
-52-
<PAGE>
EXHIBIT H
INDEBTEDNESS
1. This Second Amended and Restated Loan and Security Agreement with
CoreStates Bank, N.A.
-53-
<PAGE>
EXHIBIT J
CAPITALIZATION AND OWNERSHIP OF MAJOR SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
1. Bio-Pharm Pharmaceutics Services, Inc.
Authorized Capital Stock 100 share s Common Stock
Issued and Outstanding Capital Stock 100 shares Common Stock, held by IBAH, Inc.
2. Euro Bio-Pharm Clinical Services, Inc.
Authorized Capital Stock 100 shares Common Stock
Issued and Outstanding Capital Stock 100 shares Common Stock, held by IBAH, Inc.
3. Euro Bio-Pharm, Ltd.
Authorized Capital Stock 300,000 ordinary shares, 100 B. ordinary shares
Issued and Outstanding Capital Stock 16,286 ordinary shares, held by Euro Bio-Pharm
Holdings, B.V.
4. Euro Bio-Pharm Clinical Services, GmbH
Authorized Capital Stock 100,000 shares
Fully paid Capital Stock 100,000 shares, held by Euro Bio-Pharm
Holdings, B.V.
5. Euro Bio-Pharm Holdings, B.V.
[Authorized Issued Capital?] 400 shares - authorized
400 shares - held by IBAH, Inc.
6. The Hardardt Group, Inc.
[Authorized Issued Capital?] 1,000 shares - authorized
1,000 shares - held by IBAH, Inc.
</TABLE>
-54-
<PAGE>
EXHIBIT K
FINANCIAL STATEMENTS
-55-
<PAGE>
EXHIBIT L
ERISA COMPLIANCE
-56-
<PAGE>
Exhibit 10.13
September 26, 1997
Mr. Mark K. Brunhofer
Controller
IBAH, Inc.
Four Valley Square
512 Township Line Road
Blue Bell, PA 19422
Dear Mark:
Confirming our conversation this morning, the floating interest rates for the $5
million working capital line of credit with $0 outstandings account # 139326-
31543 will be reduced from Prime plus .25% to Prime effective as of 9/30/97. In
addition, the interest rate on the older term loan with an approximate
outstanding of $1,093,750 as of 9/26/97 account # 139326-031544 will be reduced
from Prime plus .75% to Prime plus .25% effective 9/30/97.
We at CoreStates are happy to offer these reduced rates in recognition of the
Company's performance in 1996 and year to date and look forward to our continued
association with IBAH, Inc.
Sincerely,
/s/ Stasia H. Whiteman
Stasia H. Whiteman
<PAGE>
Exhibit 21.1
List of Subsidiaries of IBAH, Inc.
Company Where Incorporated
------- ------------------
Euro Bio-Pharm Clinical Services GmbH Germany
Euro Bio-Pharm Clinical Services, Inc. Delaware
Euro Bio-Pharm, Limited United Kingdom
IBAH N.V./S.A. Belgium
Bio-Pharm International, Inc. Delaware
Euro Bio-Pharm-ATS, Inc. Delaware
IBAH Pharmaceutics Services, Inc. Delaware
Eurobiopharm (Schweiz), AG Switzerland
Euro Bio-Pharm, S.L. Spain
Euro Bio-Pharm Holdings, BV The Netherlands
The Hardardt Group, Inc. Delaware
Resource Biometrics, Inc. California
Euro Bio-Pharm A/S Denmark
Euro Bio-Pharm, OY Finland
IBAH AB Sweden
Swish, Inc. Delaware
Catapharm Corp. Delaware
IBAH, Pty., Ltd. Australia
IBAH Accounts Receivable, Inc. Nevada
Swish Acquisition, Inc. Nevada
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-84738, 33-90700, 33-97898, 333-2832, 333-
17527, 333-74274, 333-24747 and 333-26789.
Philadelphia, Pa ARTHUR ANDERSEN LLP
May 22, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AS OF, AND
FOR THE YEAR ENDED, DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 4,330
<RECEIVABLES> 43,461
<ALLOWANCES> 611
<INVENTORY> 0
<CURRENT-ASSETS> 54,958
<PP&E> 22,870
<DEPRECIATION> 8,825
<TOTAL-ASSETS> 102,936
<CURRENT-LIABILITIES> 46,449
<BONDS> 5,861
0
7
<COMMON> 234
<OTHER-SE> 49,869
<TOTAL-LIABILITY-AND-EQUITY> 102,936
<SALES> 0
<TOTAL-REVENUES> 88,051
<CGS> 0
<TOTAL-COSTS> 48,106
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 417
<INCOME-PRETAX> 1,740
<INCOME-TAX> 983
<INCOME-CONTINUING> 757
<DISCONTINUED> (2,154)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,397)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.05)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AS OF, AND
FOR THE YEAR ENDED, DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 5,235
<RECEIVABLES> 28,138
<ALLOWANCES> 524
<INVENTORY> 0
<CURRENT-ASSETS> 49,305
<PP&E> 13,998
<DEPRECIATION> 6,199
<TOTAL-ASSETS> 92,126
<CURRENT-LIABILITIES> 40,099
<BONDS> 1,885
0
7
<COMMON> 220
<OTHER-SE> 49,329
<TOTAL-LIABILITY-AND-EQUITY> 92,126
<SALES> 0
<TOTAL-REVENUES> 62,120
<CGS> 0
<TOTAL-COSTS> 30,786
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 321
<INCOME-PRETAX> 1,429
<INCOME-TAX> 60
<INCOME-CONTINUING> 1,369
<DISCONTINUED> (389)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 980
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.04
</TABLE>
