<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
U.S. LABORATORIES INC.
(Exact name of registrant as specified in its charter)
Delaware 8734 33-0586167
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization Classification Code Number) Identification No.)
7895 Convoy Court, Suite 18
San Diego, California 92111
(619) 715-5800
(Address and telephone number of small business issuers principal
executive offices)
Dickerson Wright, Chief Executive Officer
U.S. Laboratories Inc.
7895 Convoy Court, Suite 18
San Diego, California 92111
(619) 715-5800
(Name, address, and telephone number of agent for service)
Copies to:
Evelyn Arkebauer, Esq. David B. Stocker, Esq.
Joseph Lesko, Esq. 4745 North Seventh Street
Foley & Lardner Suite 234
402 Broadway, Suite 2300 Phoenix, Arizona 85014
San Diego, California 92101 (602) 235-9080
(619) 234-6655
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering under
Rule 462(b) under the Securities Act of 1933, please check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed under Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed under Rule 462(d) under the
Securities Act of 1933, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made under Rule
434, please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per aggregate offering registration fee
unit (1) price(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 1,380,000(2) $5.00 $6,900,000 $2,036
- -----------------------------------------------------------------------------------------------------------
Common Stock 1,380,000(2) $ .01 $ 13,800 (5)
Purchase Warrants
- -----------------------------------------------------------------------------------------------------------
Common Stock underlying 1,380,000(2) $6.50 $8,970,000 $2,646
Common Stock
Purchase Warrants(3)
- -----------------------------------------------------------------------------------------------------------
Underwriter's Warrants(4) 120,000 $ .01 $ 1,200 (5)
- -----------------------------------------------------------------------------------------------------------
Common Stock underlying 120,000 $ .01 $ 1,200 $ 1
Underwriter's
Warrants(3)
- -----------------------------------------------------------------------------------------------------------
Warrants underlying 120,000 $ .01 $ 1,200 (5)
Underwriter's Warrants(4)
- -----------------------------------------------------------------------------------------------------------
Common Stock underlying 120,000 $ .01 $ 1,200 $ 1
Warrants underlying
Underwriter's
Warrants(3)
- -----------------------------------------------------------------------------------------------------------
Total Registration Fee $4,684
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Assumes the Underwriter's over-allotment option to purchase up to 180,000
additional Units.
(3) Under Rule 416, there are also being registered an indeterminable amount of
additional shares of Common Stock as may become issuable under
anti-dilution provisions contained in the Warrants and the Underwriter's
Warrants. The Registrant will receive no additional consideration upon
issuance of these additional securities.
(4) Represents warrants to be issued by the Company to the Underwriter at the
time of delivery and acceptance of the Units to be sold by the Company to
the public hereunder.
(5) None, under Rule 457(g).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING UNDER SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION DATED OCTOBER , 1998
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECT. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
U.S. LABORATORIES INC.
1,200,000 UNITS
[LOGO]
1,200,000 SHARES OF COMMON STOCK AND
REDEEMABLE WARRANTS TO PURCHASE 1,200,000 SHARES
OF COMMON STOCK $5.00 PER UNIT
U.S. Laboratories Inc.
7895 Convoy Court, Suite 18
San Diego, California 92111
Telephone number (619) 715-5800
THE OFFERING
<TABLE>
<CAPTION>
PER UNIT TOTAL
----------- ------------
<S> <C> <C>
Public Price $ 5.00 $ 6,000,000
Underwriting discounts $ .50 $ 600,000
Proceeds to US Labs $ 4.50 $ 5,400,000
</TABLE>
The Underwriter has the option to purchase an additional 180,000 Units, subject
to certain terms and conditions. See "Underwriting."
US Labs is an engineering services holding company that offers engineering and
design services, project management, construction quality control, geotechnical
engineering, structural engineering and design, environmental engineering, and
inspection and testing.
This is our initial public offering, and no public market currently exists for
our shares or warrants. The offering price may not reflect the market price of
our shares after the offering.
Proposed Trading Symbols NASDAQ SmallCap Market
Common Stock--USLB
Warrants--USLBW
------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE UNITS
ONLY IF YOU CAN AFFORD A COMPLETE LOSS. PROSPECTIVE UNIT BUYERS SHOULD CAREFULLY
CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE .
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
JANDA & GARRINGTON LLC
October , 1998
<PAGE>
Inside Cover Page
U.S. Laboratories Inc. was founded as an engineering services holding
company with three subsidiaries nationwide, the first of which opened for
business over 50 years ago. U.S. Laboratories offers engineering and design
services, construction quality control, structural engineering and design,
construction materials inspection and testing, and nondestructive inspection and
testing.
The Company's mission is to be a nationally recognized, highly profitable,
full-service engineering and testing firm. U.S. Laboratories' growth strategy is
two-fold: first, increase market share and growth by acquiring regional
engineering services firms; and, second, continue the growth of existing
operating units.
Numerous major national accounts are included in the U.S. Laboratories
client list. Private sector clients include Wal-Mart, Disney, Home Depot,
Walgreens, Nordstrom, and Marriott. Public sector clients include the U.S.
Military, the City of San Diego, the New Jersey Turnpike Authority, and numerous
universities, school districts, and hospitals.
Superior quality, competitive pricing, an aggressive acquisition strategy,
and procuring national accounts are the cornerstones of U.S. Laboratories'
business. U.S. Laboratories seeks to build upon its successful track record and
to attain ever greater successes in the future.
A PICTURE OF FLORIDA PANTHER ARENA, SUNRISE, FLORIDA--WITH THE NAME AND
LOCATION UNDERNEATH THE PICTURE.
A PICTURE OF QUALCOMM STADIUM, SAN DIEGO, CALIFORNIA--WITH THE NAME AND
LOCATION UNDERNEATH THE PICTURE.
A PICTURE OF PRINCETON STADIUM, PRINCETON, NEW JERSEY--WITH THE NAME AND
LOCATION UNDERNEATH THE PICTURE.
<PAGE>
The upper-right hand corner has the Company's logo, which consists of the
Company's name in the outer circle and a picture of a skyline in the inner
circle.
A picture of the Yacht Club at Highland Beach, Florida with a label
underneath.
A picture of the Raymond F. Kravis, West Palm Beach, Florida with a label
underneath.
A picture of the San Diego Convention Center, San Diego, California with a
label underneath.
A picture of the San Diego skyline with the following caption "The current
management team of Testing Engineers/Wyman has been responsible for the testing
and inspection of over 85% of the structures in this photo."
<TABLE>
<S> <C>
PRIVATE COMMERCIAL CLIENTS
Wal-Mart Walt Disney
Saks Fifth Avenue Lord & Taylor
Hilton Hotels Nordstrom
Sea World San Diego Lockheed Martin
Rite-Aid Claridge Casino Atlantic City
Home Depot Circuit City
Marriott Neiman Marcus
Bally's Park Place Universal Studios Orlando
Sports Authority Target Stores
PUBLIC INTEREST CLIENTS
Scripps Memorial Hospital Broward Cty Community College
Orange County Florida California State Universities
Princeton University University of California
Florida Atlantic University San Diego Convention Center
PUBLIC SECTOR CLIENTS
City of Los Angeles New Jersey Transit Authority
New Jersey Sports &
United States Navy Expositions
San Diego County New Jersey Turnpike Authority
Port Authority of New York City of San Diego
CalTrans Port Authority of San Diego
Los Angeles County
</TABLE>
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER THAN THAT INFORMATION
AND THOSE REPRESENTATIONS SPECIFIED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
CAUTIONARY STATEMENT FOR PURPOSES
OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE LITIGATION REFORM ACT OF 1995
THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS OF THE COMPANY'S MANAGEMENT.
FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE HAPPENING OF FUTURE
EVENTS, ARE NOT BASED ON HISTORICAL FACT AND ARE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "MAY", "WILL", "EXPECT", "SHOULD", "COULD", "ESTIMATE",
"ANTICIPATE", "POSSIBLE", "PROBABLE", "CONTINUE", OR SIMILAR TERMS, VARIATIONS
OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE "RISK FACTORS" SET FORTH IN
THIS DOCUMENT CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS
DOCUMENT HAVE BEEN COMPILED BY THE COMPANY'S MANAGEMENT ON THE BASIS OF
ASSUMPTIONS MADE BY MANAGEMENT AND CONSIDERED BY MANAGEMENT TO BE REASONABLE.
FUTURE OPERATING RESULTS OF THE COMPANY, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND
NO REPRESENTATION, GUARANTY, OR WARRANTY IS TO BE INFERRED FROM THOSE
FORWARD-LOOKING STATEMENTS. THEREFORE, PROSPECTIVE PURCHASERS OF THE UNITS ARE
URGED TO CONSULT WITH THEIR ADVISORS (THE OPINIONS OF WHICH MAY DIFFER FROM
THOSE SPECIFIED IN THOSE FORWARD-LOOKING STATEMENTS) WITH RESPECT TO THOSE
ASSUMPTIONS OR HYPOTHESES.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THIS PROSPECTUS REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO
UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER
CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND
OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND
AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. IF THE ASSUMED
EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM ANTICIPATED OR
PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON THE
ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS.
THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS PROSPECTUS HAVE BEEN COMPILED
AS OF THE DATE OF THIS PROSPECTUS AND SHOULD BE EVALUATED WITH CONSIDERATION OF
ANY CHANGES OCCURRING AFTER THE DATE OF THIS PROSPECTUS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS
SPECIFIED IN THIS PROSPECTUS ARE ACCURATE OR THAT THEY WILL PROVE TO BE
APPLICABLE TO A PARTICULAR PURCHASER OF THE UNITS. IT IS THE RESPONSIBILITY OF
THE PURCHASERS OF THE UNITS AND THEIR ADVISORS TO REVIEW THOSE FORWARD-LOOKING
STATEMENTS TO CONSIDER THE ASSUMPTIONS ON WHICH THOSE FORWARD-LOOKING STATEMENTS
ARE BASED AND TO ASCERTAIN THEIR REASONABLENESS.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
MORE DETAILED INFORMATION AND THE COMPANY'S FINANCIAL STATEMENTS (INCLUDING THE
NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE
INDICATED HEREIN, ALL INFORMATION CONTAINED IN THIS PROSPECTUS (I) GIVES EFFECT
TO A 20,324-FOR-ONE SPLIT OF THE COMMON STOCK, PAR VALUE $.01 PER SHARE (THE
"COMMON STOCK"), OF THE COMPANY, AND (II) ASSUMES NO EXERCISE OF THE
UNDERWRITER'S OVER-ALLOTMENT OPTION. INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."
THE COMPANY
U.S. Laboratories Inc., a Delaware corporation ("US Labs" or the
"Company"), is an engineering services holding company that offers engineering
and design services, project management, construction quality control,
geotechnical engineering, structural engineering and design, environmental
engineering, and inspection and testing. The services are provided on a "start
to finish" basis designed to guide clients through each phase of a construction
project. The Company thereby becomes an integral part of the client's project
team and offers a comprehensive quality control program. US Labs creates value
by delivering quality control and problem solving in a cost effective manner to
meet clients' time and budget requirements.
Since 1993, the Company has been implementing a strategy, the key
elements of which are designed to establish a national infrastructure of offices
and diversify its service offerings. Management believes that the Company is
achieving these strategic and structural objectives by pursuing strategic
acquisitions, targeting premium national accounts, increasing infrastructure
accounts, balancing public sector and private sector services, expansion of
international services, and expansion of domestic geographic markets.
THE OFFERING
<TABLE>
<S> <C>
Units Offered (1)...................1,200,000 Units consisting of one share of
common stock and one warrant to purchase one
share of common stock for $6.50 per share
Common Stock Offered................1,200,000 shares
Common Stock to be
outstanding after the Offering......3,815,000 shares(2)
Warrants Offered....................1,200,000
Exercise terms..................Exercisable, at any time, each to purchase
one share of Common Stock at a price of
$6.50, subject to adjustment in certain
circumstances. See "Description of
Securities."
Expiration date.................October __, 2003 (five years following the
date of this Prospectus)
Redemption......................The Warrants are redeemable by the Company,
at any time, upon notice of not less than 30
days, at a price of $.01 per Warrant, if
the closing bid quotation of the Common Stock on
all 20 trading days ending on the third
trading day prior to the day on which the
Company gives notice (the "Call Date") has
been at least 200% (currently $10, subject to
adjustment) of the Public Price. The
Warrants will be exercisable until the close
of business on the date fixed for redemption.
See "Description of Securities."
Use of Proceeds.....................Repay lines of credit, current and long-term
portions of notes payable, acquisitions, and
working capital. See "Use of Proceeds."
3
<PAGE>
NASDAQ SmallCap
Symbols.............................USLB for the Common Stock and USLBW for the
Warrants
</TABLE>
- ----------------
(1) Assumes no exercise of the Underwriter's over-allotment
option. See "Underwriting."
(2) Based on shares outstanding as of July 31, 1998. Does not
include (i) 1,200,000 shares of Common Stock issuable upon
the exercise of warrants issued to the purchasers of the
Units in the Offering at an exercise price of $6.50 and (ii)
120,000 shares of Common Stock issuable upon the exercise of
the Underwriter's Warrants at an exercise price equal to
120% of the initial public offering price of the Common
Stock offered hereby. See "Capitalization" and "Description
of Securities."
RISK FACTORS
The Units offered hereby involve a high degree of risk and prospective
purchasers should carefully consider the factors described under the heading
"Risk Factors."
SUMMARY FINANCIAL INFORMATION
The following tables set forth, for the periods and at the dates
indicated, certain summary financial information for the Company. This data
is derived from, and should be read in conjunction with, the financial
statements of the Company, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this Prospectus.
4
<PAGE>
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Seven Months Ended
July 31,
Years Ended December 31, (unaudited)
------------------------------------------------------ ---------------------------------
Pro
Forma
1996 1997 1997(1) 1997 1998
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue...................... $4,963,090 $7,766,414 $10,968,403 $4,049,518 $6,255,944
Cost of Goods Sold........... 2,635,263 4,476,952 6,158,775 2,387,194 3,218,557
------------ ------------ ------------- ------------ -----------
Gross Profit................. 2,327,827 3,289,462 4,809,628 1,662,324 3,037,387
Selling, General &
Administrative Expenses...... 1,853,318 2,531,770 3,811,161 1,416,734 2,442,815
------------ ------------ ------------- ------------ -----------
Income from Operations....... 474,509 757,692 998,467 245,590 594,572
------------ ------------ ------------- ------------ -----------
Interest Expense............. (84,390) (130,605) (160,026) (66,007) (80,991)
Interest Income.............. 8,430 7,277 7,277 2,997 9,252
Forgiveness of Note
Receivable................... (9,976) --- --- 1,738 ---
Forgiveness of Debt.......... --- 100,000 100,000 100,000 ---
Gain (Loss) on Sale of
Fixed Asset.................. (3,873) 4,912 16,912 --- ---
Rental Income................ 4,598 25,160 25,160 16,857 13,048
Gain on Sale of Minority
Interest..................... --- 25,229 25,229 25,229 ---
Income Before Provision
for Income Taxes and
Minority Interest............ 389,298 789,665 1,013,019 326,404 535,881
Provision for Income
Taxes........................ 202,921 345,256 381,902 143,464 222,560
------------ ------------ ------------- ------------ -----------
Income Before Minority
Interest..................... 186,377 444,409 631,117 182,940 313,321
Minority Interest............ (33,664) (80,253) --- (31,574) ---
------------ ------------ ------------- ------------ -----------
Net Income................... $ 152,713 $ 364,156 $ 631,117 $ 151,366 $ 313,321
------------ ------------ ------------- ------------ -----------
------------ ------------ ------------- ------------ -----------
Basic Income per Share....... $ 0.06 $ 0.14 $ 0.24 $ 0.06 $ 0.12
------------ ------------ ------------- ------------ -----------
------------ ------------ ------------- ------------ -----------
Diluted Income per Share..... $ 0.06 $ 0.14 $ 0.24 $ 0.06 $ 0.12
------------ ------------ ------------- ------------ -----------
------------ ------------ ------------- ------------ -----------
Weighted Average Shares
Outstanding.................. 2,615,000 2,615,000 2,615,000 2,615,000 2,615,000
------------ ------------ ------------- ------------ -----------
------------ ------------ ------------- ------------ -----------
</TABLE>
- ---------------
(1) Pro Forma Statement of Operations Data presents the accounts
of U.S. Laboratories Inc. and Wyman Testing Laboratories,
Inc. as if the acquisition took place on January 1, 1997 and
as if the purchase of the minority interest took place on
January 1, 1997.
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
Actual As Adjusted (1)
----------- ---------------
<S> <C> <C>
Cash....................................................... $ 44,243 $3,135,583
Working Capital............................................ 411,659 4,271,659
Total Assets............................................... 5,702,709 8,794,049
Total Long-Term Debt....................................... 1,466,872 406,872
Retained Earnings.......................................... 582,733 582,733
Total Stockholders' Equity................................. 1,574,985 6,494,985
</TABLE>
- --------------------
(1) Gives effect to the sale of 1,200,000 Units offered by the Company in the
Offering at the assumed offering price of $5.00 per share and the
application of the net proceeds therefrom, after deducting the
underwriting discount and estimated offering expenses payable by the
Company. See "Use of Proceeds."
5
<PAGE>
THE COMPANY
BACKGROUND
The Company was incorporated on October 12, 1993 in Delaware. The
Company is an engineering services holding company that offers engineering and
design services, project management, construction quality control, structural
engineering and design, environmental engineering, and inspection and testing.
The Company currently services the northeast, southwest, and southeast
regional engineering and building construction inspection markets through its
subsidiaries. In California, the Company operates San Diego Testing Engineers,
Inc., a Delaware corporation, incorporated on October 16, 1996 ("TESD"), which
recently merged with another subsidiary of the Company, Wyman Testing
Laboratories, Inc., a Delaware corporation, incorporated on March 25, 1998,
("Wyman Testing"). In Florida, the Company operates Professional Engineering &
Inspection Company, Inc., a Florida corporation incorporated on March 4, 1987
("PEICO"). In New Jersey, the Company operates U.S. Engineering Laboratories,
Inc., a Delaware corporation, incorporated on October 12, 1993 ("USEL"). The
Company wholly owns all its Subsidiaries reflected in the table below. See "The
Company - Recent Developments."
----------------------------
U.S. LABORATORIES INC.
----------------------------
/ | \
/ | \
- --------------------------- ------------------- -------------------
PROFESSIONAL ENGINEERING & U.S. ENGINEERING SAN DIEGO TESTING
INSPECTION COMPANY, INC. LABORATORIES, INC. ENGINEERS, INC.
- --------------------------- ------------------- -------------------
The Company's principal executive office is located at 7895 Convoy
Court, Suite 18, San Diego, California 92111 and its telephone number is
(619) 715-5800.
RECENT DEVELOPMENTS
On January 1, 1998, the Company purchased all of the remaining issued
and outstanding stock of PEICO, TESD, and USEL held by certain employees and
managers of the Company or its subsidiaries in exchange for shares of the
Company's Common Stock. As a result of these transactions, 522,600 shares of the
Company's Common Stock were issued to these employees and managers, and the
Company increased its percentage ownership of PEICO, TESD, and USEL to 100%.
On March 25, 1998, a subsidiary of the Company, Wyman Testing, acquired
substantially all the assets and certain liabilities of Wyman, an engineering
inspection and testing business in Southern California, for a purchase price of
$830,620. As part of the transaction, the Company guaranteed the performance of
the obligations and the satisfaction of the liabilities assumed by its
subsidiary.
In May 1998, Wyman Testing merged into TESD, with each share of Wyman
Testing stock being converted into 1/2 share of TESD stock.
The Company also split its Common Stock by converting the 100 shares of
Common Stock that were issued and outstanding prior to the purchase into
2,032,400 shares of Common Stock.
Finally, the directors and stockholders of the Company approved an
amended and restated Certificate of Incorporation, increasing the number of
authorized shares of the Company's Common Stock from 3,000 shares to 50,000,000
shares and authorizing 5,000,000 shares of "blank-check" preferred stock.
6
<PAGE>
RISK FACTORS
A PURCHASE OF THE UNITS INVOLVES A SIGNIFICANT AND SUBSTANTIAL NUMBER
OF SIGNIFICANT RISKS, WHICH EACH PROSPECTIVE PURCHASER OF THE UNITS SHOULD
CONSIDER PRIOR TO MAKING A DECISION TO PURCHASE THE UNITS. EACH PROSPECTIVE
PURCHASER OF THE UNITS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS
WELL AS OTHER RISK FACTORS, WHICH MAY BE SPECIFIED BY THE PROVISIONS OF THIS
DOCUMENT. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE ACTUAL RESULTS OF THE COMPANY AND ITS SUBSIDIARIES MAY
DIFFER MATERIALLY FROM THE RESULTS SPECIFIED IN THE FORWARD-LOOKING STATEMENTS
BECAUSE OF CERTAIN FACTORS, INCLUDING THOSE SPECIFIED IN THE FOLLOWING RISK
FACTORS AND ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE PURCHASERS OF THE UNITS
MUST BE PREPARED FOR THE POSSIBLE LOSS OF THEIR ENTIRE INVESTMENT IN THE
COMPANY.
GROWTH AND ACQUISITION RISKS
One of the Company's primary strategies is to pursue the acquisition of
other companies or assets that either complement or expand its existing
business. The Company completed three acquisitions in the first half of 1998 and
one acquisition in 1996. The Company has also had preliminary acquisition
discussions with, or has evaluated the potential acquisition of, numerous other
companies over the past several years. The Company is unable to predict the
likelihood of a material acquisition being completed in the future. If the
Company is unable to identify and complete acquisitions in the future, this may
have an adverse affect on the Company's future operations and financial results.
If the Company proceeds with an acquisition for cash, the Company may use a
portion of the proceeds the Company receives from the Offering to consummate the
transaction. See "Use of Proceeds." The Company may also seek to finance any
such acquisition through additional debt or equity financing.
The Company anticipates that one or more potential acquisition
opportunities, including those that would be material, may become available in
the near future. If appropriate acquisition opportunities become available, the
Company intends to pursue them actively. Although the Company has successfully
completed several acquisitions, there can be no assurance that the Company will
be able to identify, acquire, or profitably manage additional companies or
successfully integrate these additional companies into the Company's operations
without substantial costs, delays, or other problems. In addition, there can be
no assurance that acquisitions will be profitable at the time of the acquisition
or will achieve sales and profitability that justify the investment.
Acquisitions may involve a number of special risks, including adverse effects on
the Company's reported operating results, diversion of management's attention,
dependence on retention and hiring of key personnel, risks associated with
unanticipated problems or legal liabilities, and amortization of acquired
intangible assets, some or all of which could have a material adverse effect on
the Company's operations and financial performance. The expansion of the
Company's operations, whether through acquisitions or internal growth, may place
substantial burdens on the Company's management resources and financial
controls. There is no assurance that the increased burdens on the Company's
management resources and financial controls will not have an adverse effect on
the Company's operations.
POTENTIAL LIABILITY AND INSURANCE
The Company is engaged in a wide range of engineering advisory
services. Due to the nature of the Company's services, the Company is exposed to
a risk of professional liability for structural failure, property damage,
personal injury, or economic loss that may substantially exceed the fees derived
from these services. The Company has secured a "claims made" professional
liability insurance policy covering a two-year term, including contractor's
pollution liability coverage, with a two-year, per-claim, and aggregate limit of
$2 million and a deductible of $20,000, although increased limits may be
obtained on a specific endorsement basis to meet the needs of particular clients
or contracts. A "claims made" policy only insures against claims filed during
the period in which the policy is in effect. This policy covers both errors and
omissions and products/completed operations. The Company also carries occurrence
form general liability insurance in the amount of $2 million with a $5 million
umbrella. The Company's policy has been renewed in each of the last several
years that the policy has been in effect. The relatively low dollar amount of
the policy limit currently offered, the possible future unavailability or
modification of this insurance, or any significant increase in insurance rates
could have a material adverse effect on the Company's operations. Further,
because customers may require that the Company maintain liability insurance, the
possible future unavailability of such insurance could adversely affect the
Company's ability to compete effectively. The Company currently has no
professional liability claims pending and management is unaware of any other
claims that will have a material adverse
7
<PAGE>
effect of the operations or financial condition of the Company. Although
various claims have been made in the past against the Company's professional
liability policy, to date no such claim has ever resulted in an insured loss.
ATTRACTION AND RETENTION OF PROFESSIONAL PERSONNEL
The Company's ability to attract and retain qualified engineers,
scientists, and other professionals, either through direct hiring or acquisition
of other firms employing such professionals, will be an important factor in
determining the Company's future success. There is significant competition for
employees with the skills required to perform the services offered by the
Company. There can be no assurance that the Company will be successful in
attracting a sufficient number of highly skilled employees in the future, or
that it will be successful in training, retaining, and motivating employees. The
Company's inability to attract, train, and retain skilled employees or the
Company's employees' inability to achieve expected levels of performance could
impair the Company's ability to adequately manage and complete its existing
projects and to bid for or obtain new projects, which could have an adverse
effect on the Company's business, financial condition, and results of
operations.
FIXED-PRICE CONTRACTS AND OTHER PROJECT RISKS
In 1997, approximately 15% of the Company's revenue was generated on a
fixed-price, fixed-delivery-schedule ("fixed-price") basis, rather than on a
time and materials basis. This percentage may significantly change from time to
time in the future. The Company's failure to accurately estimate the resources
required for a fixed-price project or its failure to complete its contractual
obligations in a manner consistent with the project plan upon which its
fixed-price contract was based could adversely affect the Company's results of
operations and could have a material adverse effect on the Company's business
and financial condition. The Company may be required to commit unanticipated
additional resources to complete certain projects, which may negatively affect
the profitability generated on such projects. The Company may find it necessary
to revise project plans during the project or to change project managers to
ensure projects are completed on schedule. Failure to anticipate these needs
could have a material adverse effect on the Company's business, financial
condition, and results of operations. In addition, the Company may establish a
price before the design specifications are finalized, which could result in a
fixed price that turns out to be too low and therefore adversely affects the
Company's business, financial condition, and results of operations. The Company
has undertaken and may in the future undertake projects in which the Company
guarantees performance based upon defined operating specifications or guaranteed
delivery dates or both. Unsatisfactory performance or unanticipated difficulties
in completing these projects may result in client dissatisfaction and a
reduction in payment to, or payment of damages by, the Company, any of which
could have a material adverse effect on the Company's business, financial
condition, and results of operations. Certain contracts involving government
agencies are priced at cost or agreed upon labor rates plus overhead. The
Company's overhead rates are subject to audit and could result in price
reductions associated with disallowed overhead costs of methods used to derive
overhead rates.
COMPETITION
The engineering consulting industries in which the Company operates are
subject to intense competition. In addition to the thousands of small consulting
and testing firms operating nationally, the Company competes with several
national engineering and consulting firms including Law Company Group, Inc.;
Harding Lawson Associates Group, Inc.; Dames & Moore, Inc.; and Professional
Service Industries, Inc. Many of the Company's present and future competitors
may have greater financial, technical, and personnel resources than the Company.
Management can not predict the extent of competition that the Company will
encounter in the future as the engineering services industry continues to mature
and consolidate. Historically, competition has been based primarily on the
quality, timeliness, and costs of services. The ability of the Company to
compete successfully will depend upon its marketing efforts, its ability to
accurately estimate costs, the quality of the work it performs, its ability to
hire and train qualified personnel, and the availability of insurance.
FLUCTUATIONS IN OPERATING RESULTS AND SEASONALITY
Seasonal factors such as weather-related shutdowns in major markets,
vacation days, total business days in a quarter, or the business practices of
clients (such as deferring commitments on new projects until after the end of
the calendar or the client's fiscal year) could require the Company to maintain
under-utilized employees and could therefore have a material adverse effect on
the Company's business, financial condition, and results of operations. Any
8
<PAGE>
shortfall in revenue or earnings from expected levels or other failure to meet
expectations of securities analysts or the market in general regarding results
of operations could have an immediate and significant adverse effect on the
market price of the Company's Common Stock and Warrants. Given the possibility
of such fluctuations, the Company believes that comparisons of its results of
operations for preceding quarters are not necessarily meaningful and that such
results for one quarter should not be relied upon as an indication of future
performance.
RELIANCE ON MANAGEMENT
All decisions regarding management of the Company's affairs will be
made exclusively by the officers and directors of the Company and not by
purchasers of the Units. Accordingly, no person should purchase Units unless
that person is willing to entrust all aspects of management to the officers and
directors of the Company, or their successors. Potential purchasers of the Units
must carefully evaluate the personal experience and business performance of the
officers and directors of the Company.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the efforts and abilities of its senior
management, particularly those of Dickerson Wright and the key officers of the
Company's subsidiaries. The loss of any of these key officers could have a
material adverse affect on the business and prospects of the Company. Management
believes that all commercially reasonable efforts have been made to minimize the
risk attendant with such dependence on key personnel and the loss or departure
of key personnel. The Company has obtained key person life insurance policies on
Mr. Wright and the key officers of the Company's subsidiaries. However, the
proceeds from such policies might not fully compensate the Company for the loss
of these officers, but, as owners of a significant portion of the issued and
outstanding Common Stock, these officers have an incentive to remain with the
Company.
LIMITATION ON LIABILITY OF OFFICERS AND DIRECTORS OF THE COMPANY
Section 145 of the Delaware General Corporation Law specifies that the
certificate of incorporation of a Delaware corporation may include a provision
eliminating or limiting the personal liability of a director or officer to that
corporation or its stockholders for damages for breach of fiduciary duty as a
director or officer, but such a provision may not eliminate or limit the
liability of a director or officer for (a) acts or omissions that involve
intentional misconduct, fraud, or a knowing violation of law; or (b) unlawful
distributions to stockholders. The Company's amended and restated certificate of
incorporation includes a provision eliminating or limiting the personal
liability of the Company's officers and directors to the Company and its
stockholders for damages for breach of fiduciary duty as a director or officer.
Moreover, the Company's bylaws provide certain indemnity to a controlling
person, director, or officer that affects such a person's liability while acting
in a corporate capacity. Accordingly, the Company's officers and directors may
have no liability to the Company's stockholders for any mistakes or errors of
judgment or for any act or omission, unless such act or omission involves
intentional misconduct, fraud, or a knowing violation of law or results in
unlawful distributions to the Company's stockholders.
DISCLOSURE OF THE SECURITIES AND EXCHANGE COMMISSION'S POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS, OR PERSONS CONTROLLING THE
COMPANY UNDER THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN
THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT OF 1933 AND IS,
THEREFORE, UNENFORCEABLE.
RISK OF LIMITATION ON ACQUISITION AND CHANGE IN CONTROL
The Company's amended and restated certificate of incorporation
authorizes the Company's Board of Directors to issue shares of preferred stock
and to establish the preferences and rights of any preferred stock issued. The
issuance of preferred stock could have the effect of delaying or preventing a
change in control of the Company, even if a change in control were in the
stockholders' best interests.
9
<PAGE>
POTENTIAL PRICE VOLATILITY
There may be significant volatility in the market price of the
Company's Common Stock and Warrants. Fluctuations in the Company's revenues and
financial results may have a significant impact on the perceived value of the
Company and, thus, on the market price of the Company's securities. Although the
Company has applied for listing on NASDAQ's SmallCap Market, there is no
assurance that the Company will be listed. Even if the Company is listed, a
SmallCap Market listing provides no assurance that an active, liquid trading
market will develop for the Company's securities or, if developed, will be
sustained. The price of the Company's Common Stock and Warrants may be
significantly affected by such factors as the financial results and operating
performance of the Company. Additionally, in recent years, the stock market has
experienced a high level of price and volume volatility and market prices for
many companies, particularly small and emerging growth companies, have
experienced significant price fluctuations not necessarily related to the
operating performance of those companies. The market price for the Company's
Common Stock and Warrants may be affected by general stock market volatility.
LIMITED PUBLIC MARKET
Prior to the Offering, there has been no public trading market for the
Company's Common Stock or Warrants and no assurance is given that a market will
develop or be sustained after the closing of the Offering. The Company plans to
facilitate trading of the Common Stock and the Warrants by soliciting securities
brokers to become market-makers of the Common Stock and the Warrants, but, no
assurance is given that the Company will be successful in obtaining
market-makers.
GENERAL ALLOCATION OF PROCEEDS
The Company's officers and directors have complete discretion in the
allocation of proceeds of the Offering; therefore, purchasers of the Units must
entrust the ultimate allocation of those proceeds to the judgment of these
officers and directors. Management anticipates that proceeds of the Offering
will be used as set forth under the caption "Use of Proceeds" in this
Prospectus. Management, however, will have broad discretion regarding the
application of the proceeds of the Offering.
REMUNERATION OF DIRECTORS, OFFICERS, AND SENIOR MANAGEMENT
Compensation received by officers, directors, and management personnel
of the Company will be determined periodically by the Company's Board of
Directors. The Company's officers, directors, and management personnel will be
reimbursed for any out-of-pocket expenses incurred on behalf of the Company.
RECEIPT OF COMPENSATION REGARDLESS OF PROFITABILITY
The Company's officers, directors, and employees may receive
significant compensation, payments, and reimbursements regardless of whether the
Company operates at a profit or at a loss.
LIMITED RESOURCES OF THE COMPANY
The Company believes it has the financial resources to satisfy its
obligations to its stockholders, including the Company's commitment to meet its
ongoing business expenses. A significant financial reversal for the Company
could adversely affect the Company's ability to meet and satisfy typical
business obligations and to conduct its businesses.
ABILITY OF THE COMPANY TO IMPLEMENT ITS BUSINESS STRATEGY
Although the Company is committed to its growth strategy through
acquisitions and internal business growth, these strategies will depend in large
part on the Company's ability to (i) identify and acquire companies that fit
into the Company's acquisition model; (ii) hire, train, and retain skilled
employees; (iii) continue to operate profitably in the face of increasing
competition; and (iv) obtain adequate financing on favorable terms to fund the
Company's business and growth strategies. The Company's inability to obtain or
maintain any or all of these factors could impair the successful implementation
of its business strategy, which could have a material adverse effect on the
Company's
10
<PAGE>
results of operations and financial condition. This could also have a
material adverse affect on the price of the Common Stock and the Warrants.
ADDITIONAL FINANCING MAY BE REQUIRED
The Company believes that there will be adequate funds available from
the proceeds of the Offering and from cash from the Company's operations to fund
its business operations and obligations at least through December 31, 1999.
There is no assurance that any required additional funds will be available from
any source should they be needed by the Company; and, if not available, the
Company may not be able to conduct the operations of the Company as effectively
as the Company could if such financing were available. The proceeds from the
sale of the Units are expected to be sufficient for the Company's purposes.
However, additional financing may be acquired by additional securities offerings
or from bank financing. If additional shares of the Company's Common Stock are
issued to obtain financing, purchasers of the Units will suffer a dilutive
effect on their percentage of ownership in the Company's Common Stock.
DETERMINATION OF OFFERING PRICE
The purchase price of the Units has been determined by mutual agreement
between the Company and the Underwriter after consideration of a number of
objective and subjective factors, and does not necessarily relate to the assets,
book value, results of operations, or other established criteria of the
Company's value. Among the factors considered in determining the initial public
offering price were the future prospects of the Company, and its business in
general, sales, earnings, the capital requirements of the Company, certain other
financial and operating information of the Company in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities, and
certain other financial and operating information of companies engaged in
activities similar to those of the Company. The price of the Units does not
necessarily indicate current market value for the Company's assets. No valuation
or appraisal has been prepared for the business and potential business expansion
of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,815,000 shares
of Common Stock outstanding (assuming no exercise of options, warrants,
underwriter's overallotment option, or other convertible securities or issuances
of Common Stock subsequent to July 31, 1998). The 1,200,000 shares of Common
Stock sold in the Offering will be freely tradable without restriction or
further registration under the Securities Act, except that any shares purchased
by "affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Affiliates'), may generally be sold only in compliance with
certain limitations of Rule 144 described below. The remaining approximately
2,615,000 shares of Common Stock are deemed "Restricted Shares" under Rule 144.
None of the Restricted Shares are eligible for sale in the public market
immediately after the Offering under Rule 144(k) under the Securities Act.
Restricted Shares in the amount of 2,017,400 may be eligible for sale in the
public market in accordance with Rule 144 under the Securities Act beginning 90
days after the date of this Prospectus. The holder of these Restricted Shares
has agreed not to sell or otherwise dispose of any of his shares for a period of
18 months after the date of this Prospectus without the prior written consent of
Janda & Garrington, LLC. Janda & Garrington LLC may, in their sole discretion,
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements.
Upon expiration of the lock-up agreements 18 months after the date of
this Prospectus, approximately 3,026,360 shares of Common Stock (including
shares issued or issuable upon the exercise of vested options and warrants
outstanding as of July 31, 1998) will become available for sale in the public
market; the remaining 133,640 shares will become eligible for sale under Rule
144 at various dates thereafter as the holding period provisions of Rule 144 are
satisfied. In general, under Rule 144 as recently amended, beginning
approximately 90 days after the effective date of the Registration Statement of
which this Prospectus is a part, a stockholder, including an Affiliate, who has
beneficially owned his or her restricted securities (as that term is defined in
Rule 144) for at least one year from the later of the date such securities were
acquired from the Company or (if applicable) the date they were acquired from an
Affiliate, is entitled to sell, within any three-month period, a number of such
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock (approximately 38,150 immediately after the Offering) or the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public
11
<PAGE>
information, manner of sale and notice of sale are satisfied. In addition,
under Rule 144(k), if a period of at least two years has elapsed between the
later of the date restricted securities were acquired from the Company or (if
applicable) the date they were acquired from an Affiliate of the Company, a
stockholder who is not an Affiliate of the Company at the time of sale and
has not been an Affiliate of the Company for at least three months prior to
the sale is entitled to sell the shares immediately without compliance with
the foregoing requirements under Rule 144.
Prior to the Offering, there has been no public market for the Common
Stock or the Warrants. No prediction can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price of the Common Stock, or the Warrants prevailing from time to time.
The Company is unable to estimate the number of shares that may be sold in the
public market under Rule 144, since this will depend on the market price of the
Common Stock, the personal circumstances of the sellers, and other factors.
Nevertheless, sales of significant amounts of the Common Stock of the Company in
the public market could adversely affect the market price of the Common Stock or
the Warrants and could impair the Company's ability to raise capital through an
offering of its equity securities.
CONCENTRATION OF OWNERSHIP
The Company's current executive officers and directors and their
affiliates will beneficially own or have voting control over approximately 69%
of the outstanding Common Stock following the Offering. Accordingly, these
individuals will have the ability to influence the election of the Company's
directors and effectively to control most corporate actions. This concentration
of ownership may also have the effect of delaying, deterring, or preventing a
change in control of the Company.
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends on its Common Stock in the foreseeable
future.
DILUTION
Assuming the issuance of the 1,200,000 shares of Common Stock in the
Offering, and the receipt of the estimated net proceeds therefrom, the Company's
existing stockholders will experience an immediate increase in net tangible book
value of approximately $1.29 per share and purchasers of Common Stock will
experience immediate dilution in net tangible book value of approximately $3.711
per share.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Warrants are redeemable by the Company, at any time, upon notice of
not less than 30 days, at a price of $.01 per Warrant, provided that the closing
bid quotation of the Common Stock on all 20 trading days ending on the third
trading day prior to the day on which the Company gives notice (the "Call Date")
has been at least 200% (currently $10, subject to adjustment) of the Price to
Public. The Warrants will be exercisable until the close of business on the date
fixed for redemption. Since it is the Company's present intention to call the
Warrants at the earliest possible date, holders of the Warrants should assume
that the Company will call the Warrants for redemption if the criteria are met.
This right will, if exercised, force holders of Warrants to either exercise
their Warrants at a possibly unfavorable time or to lose the benefits that may
accrue to them as a result of the increase, if any, in the market price of the
Company's Common Stock. See "Description of Securities."
STOCK ISSUABLE UNDER UNDERWRITER'S WARRANTS AND OPTIONS
At the completion of the Offering, the Underwriter will receive the
Underwriter's Warrants to purchase up to 120,000 Units at a price equal to 120%
of the offering price of the Units, or $6.00 per Unit. The holders of the
Underwriter's Warrants have the right to require the Company to register, under
the Act, both the Underwriter's Warrants and the securities underlying them. The
Company has also reserved 500,000 shares of Common Stock under the Company's
1998 Stock Option Plan. The Company granted warrants and options to purchase
545,000 shares of Common Stock. See "Management - 1998 Stock Option Plan" and
"Underwriting."
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<PAGE>
Under the terms of the Underwriter's Warrants and the stock options,
the holders are given the opportunity to profit from a rise in the market price
of the Common Stock, and their exercise may dilute the book value per share of
the Common Stock. The existence of the Underwriter's Warrants and the stock
options may adversely affect the terms on which the Company may obtain
additional equity financing. Moreover, the holders are likely to exercise their
warrants and options at a time when the Company would otherwise be able to
obtain capital on terms more favorable than would be obtained through the
exercise of such warrants and options.
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO
EXERCISE WARRANTS
The Company has undertaken to maintain a current registration statement
that will permit the public sale of the Common Stock underlying the Warrants
upon exercise of the Warrants. The maintenance of a current registration
statement could result in substantial expense to the Company. There is no
assurance that the Company will maintain a current prospectus covering the
shares of Common Stock underlying the Warrants. Holders of the Warrants will
have the right to exercise the Warrants for the purchase of shares of Common
Stock only if a current prospectus relating to such shares is then in effect and
only if the shares are qualified for sale under the securities laws of the
applicable state or states. Although the Company intends to seek to qualify the
shares of Common Stock underlying the Warrants for sale in those states where
the securities are offered (except when to do so would require the Company to
qualify as a foreign corporation), there is no assurance that the Company will
obtain these qualifications. Moreover, even if such qualifications are obtained,
if a holder of the Warrants subsequently moves to a state in which shares of
Common Stock underlying the Warrants are not qualified, the holder of the
Warrants may not have the right to exercise the Warrants. Consequently, holders
of the Warrants may be deprived of any value if a current prospectus covering
the shares underlying the Warrants is not kept effective or if such underlying
shares are not or cannot be registered in the applicable states. See
"Description of Securities."
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ
The Company's Common Stock and Warrants are eligible for listing on the
NASDAQ SmallCap Market immediately upon the closing of the Offering. While the
Company meets NASDAQ's initial SmallCap Market listing criteria, if it is
subsequently unable to satisfy the less stringent maintenance criteria for
continued listing, its securities could be delisted. If delisted, trading, if
any, in the Company's securities would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or the NASD's "Bulletin
Board." As a consequence of a delisting, an investor would likely find it more
difficult to dispose of, or to obtain accurate quotations as to the price of the
Company's securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure in connection with trades in any stock defined as a penny
stock. The Commission recently adopted regulations that generally define a penny
stock to be any equity security that has a price of less than $5.00 per share,
subject to certain exceptions (such exceptions including an equity security
listed on NASDAQ) and an equity security issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for three years, (ii) net tangible assets of at least $5,000,000, if
such issuer has been in continuous operation for less than three years, or (iii)
average annual revenue of at least $6,000,000, if such issuer has been in
continuous operation for less than three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.
In addition, in the absence of the securities being quoted on NASDAQ or
the Company having $2,000,000 in net tangible assets, trading in the Company's
securities would be covered by Rule 15c2-6 promulgated under the Securities
Exchange Act of 1934 for securities not quoted on NASDAQ listed on a national
exchange. Under the rule, brokers or dealers who recommend these securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities also
are exempt from this rule if the market price is at least $5.00 per share.
Although the Company believes that its securities will, as of the date
of this Prospectus, be outside the definitional scope of a penny stock, as they
will be listed on the NASDAQ SmallCap Market, in the event the Common Stock were
subsequently to become characterized as a penny stock, the market liquidity for
the Company's securities could be adversely affected. Then, the regulations on
penny stocks could limit the ability of brokers or dealers to sell
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<PAGE>
the Company's securities and thus the ability of purchasers in the Offering
to sell their securities in the secondary market.
INFORMATION SYSTEMS AND THE YEAR 2000
Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. Beginning in the
year 2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems or software used by many companies or both may
need to be upgraded to comply with "Year 2000" requirements. The Company has
assessed its management information systems and does not currently expect that
any material expenditures will be required in connection with the modifications
that will be required for these systems. Moreover, the Company has recently
implemented or is in the process of implementing new systems that are already
Year 2000 compliant, and it does not believe that the total cost of any
potential modification of such management information systems will be material.
There can be no assurance that the Company or its vendors will be able to
successfully modify on a timely basis their respective management information
systems to comply with Year 2000 requirements. See "Business - Information
Systems and the Year 2000."
USE OF PROCEEDS
The net cash proceeds to the Company from the Offering, after
deducting the underwriting discounts and commissions and all expenses of the
Offering payable by the Company, are expected to be approximately $4,920,000.
The Company has two lines of credit and a note payable from two separate
lenders with commitments in the aggregate of $2,200,000. The $500,000 bank
line of credit is due in May 1999 and the $1,200,000 note payable is due over
five years beginning in January 1999. The proceeds from this loan were used
to repay two separate credit facilities in the amount of $1.55 million, and
the balance was used for working capital. The Company also has a line of credit
with another bank of $500,000 that is due July 2000. All of the borrowings
accrue interest at prime rate. The proceeds of the Offering will be used to
repay outstanding balances on these borrowings as well as to pay $225,000
that was incurred in connection with the acquisition of substantially all of
the assets and certain liabilities of Wyman. Of this amount, approximately
$37,500 is owed to an individual who is an officer and director. A portion of
this loan matures the earlier of the following: October 1, 1999; January 1,
1999 if the Offering occurs prior to that date; or 30 days following the
Offering if it occurs on or after January 1, 1999. The balance is due March
1999. This loan is non-interest bearing. Pending application of the proceeds,
the Company intends to invest the net proceeds in short-term,
interest-bearing investment grade securities. In general, the net proceeds
will be used as described below.
<TABLE>
<CAPTION>
Use Dollar Amount Percentage
- ---- ------------- ----------
<S> <C> <C>
Lines of Credit $ 725,000 15%
Notes Payable $ 1,425,000 29%
Acquisitions $ 2,000,000 41%
Working Capital $ 770,000 15%
----------- -----
Total $ 4,920,000 100%
----------- -----
----------- -----
</TABLE>
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock.
The Company does not anticipate paying any cash dividends in the foreseeable
future. Payments of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs, and plans for expansion. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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<PAGE>
CAPITALIZATION
The following table sets forth, at July 31, 1998, (i) the actual
capitalization of the Company and (ii) as adjusted to give effect to the sale by
the Company of 1,200,000 Units offered hereby, at an assumed offering price of
$5.00 per Unit and the application of the estimated net proceeds therefrom after
deducting the estimated underwriting discounts and commissions and other
estimated offering expenses. See "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
July 31, 1998
-------------------------------------------
Actual As Adjusted
---------------- ----------------
<S> <C> <C>
Lines of Credit $ 403,660 $ 0
Current portion of notes payable............................................ 383,993 18,933
Notes payable, net of current portion....................................... 1,285,000 225,000
------------- -------------
Stockholders' equity
Preferred Stock, $0.01 par value;
5,000,000 shares authorized, none issued
and outstanding, actual or as adjusted...................................... -- --
Common Stock, $0.01 par value, 50,000,000
shares authorized; 2,615,000 actual shares
issued and outstanding; 3,815,000 as
adjusted shares issued and outstanding(1)................................... 26,150 38,150
Additional Paid-in Capital.................................................. 966,102 5,874,102
Retained Earnings........................................................... 582,733 582,733
Total Stockholders' Equity.................................................. 1,574,985 6,494,985
------------- -------------
Total Capitalization........................................................ $3,647,638 $6,738,978
------------- -------------
------------- -------------
</TABLE>
- ---------------
(1) Excludes (i) 150,000 warrants issued to various employees of the Company,
exercisable at $5.00 per share; (ii) 395,000 shares of common stock subject
to outstanding options under the Company's 1998 Stock Option Plan,
exercisable at $5.00 or $5.50 per share; (iii) 105,000 shares of common
stock reserved for issuance under the Company's 1998 Stock Option Plan;
(iv) the exercise of the Underwriter's over-allotment option; and (v)
120,000 shares of Common Stock subject to the Underwriter's Warrants,
exercisable at 120% of the initial Price to Public of the Common Stock.
15
<PAGE>
DILUTION
The negative net tangible book value of the Company as of July 31, 1998
was ($1,977), or ($0.001) per share. Net tangible book value per share of Common
Stock represents the amount of total tangible assets of the Company less total
liabilities divided by the number of shares of the Common Stock outstanding.
After giving effect to the sale of the 1,200,000 shares of the Common Stock
offered hereby at an assumed public offering price of $5.00 per share, and after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company, the Company's net tangible book value as of July 31,
1998 would be $4,918,023 or $1.289 per share of Common Stock. This represents an
immediate increase in net tangible book value per share of Common Stock of
$4,920,000 or $1.29 per share to existing stockholders and immediate dilution in
net tangible book value of $3.711 per share to new investors purchasing Units in
the Offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $ 5.00
Negative Net tangible book value per share of
Common Stock at July 31, 1998............................. $ (0.001)
Increase per share attributable to new investors............ $ 1.290
-------------
Net tangible book value per share of Common Stock
after the Offering.......................................... $1.289
---------
Dilution per share to new investors(1)...................... $3.711
---------
---------
</TABLE>
- --------------------
(1) If the Underwriter's over-allotment option is exercised in full, dilution
per share to new investors would be $3.57.
The following table summarizes, as of July 31, 1998, the number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price per share paid by the existing stockholders and by new
investors purchasing shares in the Offering (before deduction of underwriting
discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------------------------- --------------------------------------
Average Price
Number Percent Amount Percent per Share
----------------- -------------- ------------------ --------------- --------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders 2,615,000 68% $ 992,252 14% $0.38
New investors 1,200,000 32% $6,000,000 86% $5.00
----------------- -------------- ------------------ --------------- --------------------
Total 3,815,000 100% $6,992,252 100%
----------------- -------------- ------------------ ---------------
----------------- -------------- ------------------ ---------------
</TABLE>
All of the above computations assume no exercise of outstanding options
or warrants to purchase Common Stock. As of July 31, 1998, options to purchase
395,000 shares of Common Stock were outstanding at a weighted average exercise
price of approximately $5.18 per share under the Company's 1998 Stock Option
Plan. To the extent these options become vested and are exercised, there will be
further dilution to new investors. As of July 31, 1998, the Company also had an
additional 105,000 shares of Common Stock available for grant under the
Company's 1998 Stock Option Plan. As of July 31, 1998, the Company had 150,000
warrants to purchase Common Stock at an exercise price of $5.00. Further
dilution may result from the exercise of such outstanding options. See
"Management - Executive Compensation" and "Description of Securities."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
U.S. Laboratories Inc., a Delaware corporation ("US Labs" or the
"Company"), is an engineering services holding company that offers engineering
and design services, project management, construction quality control,
geotechnical engineering, structural engineering and design, environmental
engineering, and inspection and testing. The services are provided on a "start
to finish" basis designed to guide clients through each phase of a construction
project. The Company thereby becomes an integral part of the client's project
team and offers a comprehensive quality control program. US Labs creates value
by delivering quality control and problem solving in a cost effective manner to
meet clients' time and budget requirements.
The engineering services industry is highly fragmented. There are
usually several small to mid-sized private firms serving each major city in the
United States. US Labs seeks to identify and acquire profitable regional
companies with excellent client relationships. Since inception, US Labs' primary
growth in market share and earnings has been due to its ability to successfully
acquire profitable regional engineering services firms. The immediate financial
objective of each acquisition has been, and continues to be, to increase
revenues and earnings per share.
Management believes there are significant advantages to sellers in
acquisitions made by the Company. For example, the Company provides enhanced
marketing capability, allowing smaller firms to quote larger projects.
Additionally, owners of the acquisitions may receive the Company's publicly
traded stock, which will provide liquidity to the sellers. Also, key executives
of the acquisitions are provided incentives to remain with the Company.
The Company intends to continue to grow through internal expansion and
acquisitions. US Labs acquires businesses that have a history of positive
performance and have experienced key management personnel operating the
business. This allows the Company to obtain a foothold in the marketplace and
add competent professionals to its staff. After an acquisition, US Labs
immediately begins providing executive administrative support in the area of
sales, human resources, and accounting functions. In some cases, the acquisition
is integrated into another operating unit of the Company. Historically, the
Company's acquisitions have contributed increased sales volume, and in many
cases, the acquisitions have not increased the Company's fixed costs. This has
resulted in substantial increases in the Company's incremental profit margin.
For example, Wyman had a net loss of $22,000 in the three-month period preceding
the acquisition of its assets by the Company. In April 1998, the first month
after the assets were acquired, Wyman Testing, the Company's subsidiary that
held the assets, had a net profit of $28,000. In June 1998, the Company
consolidated Wyman Testing and TESD into one operating facility, which further
reduced Wyman Testing's fixed overhead by approximately $20,000 a month.
In addition to growing through acquisitions, US Labs plans to continue
to grow internally by increasing its market share in different geographical
areas of the United States, as well as internationally (especially in Latin
America), and by balancing the percentage of its services provided between the
government sector and private industry. With this diverse geographical market
and customer base, US Labs attempts to insulate itself against economic
downturns. Management also believes the Company is well positioned to take
advantage of the estimated $165 billion Congressional funding for highway
construction and remediation.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the Company's Consolidated Statement of Operations, expressed as a
percentage of revenue. There can be no assurance that the trends in revenue
growth or operating results shown below will continue in the future.
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED JULY 31,
YEARS ENDED DECEMBER 31, (UNAUDITED)
------------------------------------------------ --------------------------------
PRO
FORMA
1996 1997 1997 1997 1998
-------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenue............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold................. 53.1 57.6 56.2 58.9 51.4
-------- -------- --------- ----------- -----------
Gross Profit....................... 46.9 42.4 43.8 41.1 48.6
Selling, General &
Administrative Expenses............ 37.3 32.6 34.7 35.0 39.0
-------- -------- --------- ----------- -----------
Income from Operations............. 9.6 9.8 9.1 6.1 9.6
Interest Expense................... 1.7 1.7 1.5 1.6 1.3
Interest Income.................... .2 .1 .1 0.1 0.1
Forgiveness of Note
Receivable......................... (.2) -- -- 0.1 --
Forgiveness of Debt................ -- 1.3 .9 2.5 --
Gain (Loss) on Sale of
Fixed Asset ....................... (.1) .1 .2 -- --
Rental Income...................... .1 .3 .2 0.3 0.2
Gain on Sale of
Minority Interest.................. -- .3 .2 0.5 --
Income Before Provision
for Income Taxes and
Minority Interest.................. 7.9 10.2 9.2 8.0 8.6
Provision for Income
Taxes.............................. 4.1 4.5 3.5 3.5 3.6
Income Before Minority
Interest........................... 3.8 5.7 5.7 4.5 5.0
Minority Interest.................. .7 1.0 -- 0.8 --
-------- -------- --------- ----------- -----------
Net Income......................... 3.1% 4.7% 5.7% 3.7% 5.0%
-------- -------- --------- ----------- -----------
-------- -------- --------- ----------- -----------
</TABLE>
AMORTIZATION OF GOODWILL
On January 1, 1998, the Company issued 522,600 shares of the Company's
Common Stock to minority interest holders in exchange for all of their shares in
the Company's subsidiaries. In connection with this purchase, the Company
recorded additional goodwill of $194,924.
On March 25, 1998, the Company acquired all of the assets and certain
liabilities of Wyman for $830,620. The Company recorded $511,200 in excess of
cost over fair value of net assets acquired, which is being amortized on a
straight-line basis over fifteen years.
The net affect of these two transactions is to increase the
amortization of goodwill, which is a non-cash charge, and which will reduce
future net income after depreciation and amortization by $47,075 annually over
the next fifteen years.
SEVEN MONTHS ENDED JULY 31, 1998 AND 1997
REVENUE. Revenue for the seven months ended July 31, 1998 was
$6,255,944, an increase of 54% over the same period last year. The increase was
primarily attributable to internal growth and marketing, and to a lesser extent,
to the acquisition of Wyman in late March 1998.
18
<PAGE>
GROSS PROFIT. The gross profit margins for the seven months ended July
31, 1998 were $3,037,387, an increase of 83% over the same period last year, 12%
of which was attributable to the acquisition of Wyman and the balance of which
as due to increased volume through internal growth and marketing. The Company's
gross margins were up for the seven months ended July 31, 1998 as a result of
the economies associated with the higher sales volume.
INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST. The
income before provision for income taxes and minority interest for the seven
months ended July 31, 1998 was $535,881, up 64% from the same period last year.
The income before provision for income taxes and minority interest was 8.6% of
sales versus 8% for the same period in the prior year. This percentage became
more favorable during the summer and fall months before dropping off again in
the holiday season.
INTEREST EXPENSE. Interest expense was $80,991 for the seven months
ended July 31, 1998 or a 23% increase over the same period in the prior year.
This increase was due primarily to increased debt associated with business
acquisitions and the use of operating lines of credit.
NET INCOME. Net income for the seven months ended July 31, 1998 was
$313,321, a 107% increase over the same period ended July 31, 1997. The increase
was due primarily to the higher sales volume and the efficiencies associated
thereof. A portion of the increase in sales volume was attributable to the
acquisition of Wyman. The operation of Wyman Testing, the Company's subsidiary
that held the assets of Wyman, during April and May 1998 accounted for
approximately 10% of the increase in net income for the Company.
YEARS ENDED 1997 AND 1996
REVENUE. The Company had revenues of $7.77 million for 1997, an
increase of 56% over 1996. This increase of revenues was due primarily to the
recognition of a full year's revenues of TESD in 1997, which was acquired in
late 1996. Other factors contributing to the increase in revenues were internal
growth through its own marketing efforts and the favorable business climate.
GROSS PROFIT. The Company had gross profit of $3.3 million for 1997, an
increase of 41% over 1996. This increase in gross profit was due primarily to
the recognition of revenues from TESD in 1997. The gross profit margin was down
approximately 4% as a percentage of sales due to more aggressive marketing and
pricing tactics employed in 1997 as well as costs associated with the startup of
new operations in Florida. Although the gross margins were down as a result of
these tactics, the operating income was up as a percentage of sales due to the
economies of scale associated with the increased volume.
INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST. Income
before provision for income taxes and minority interest in 1997 was $789,665, an
increase of 103% over 1996. The increase in profits was due primarily to the
economies associated with the higher sales volume as well as to the recognition
of revenues from TESD for the full year in 1997.
INTEREST EXPENSE. Interest expense was $130,605 in 1997, an increase of
55% over 1996. This increase was due primarily to increased debt associated with
business acquisitions and the use of operating lines of credit.
NET INCOME. Net income for 1997 was $364,156, an increase of 138% over
1996. The increase was due primarily to the recognition of net income from TESD
for the full year in 1997 and to the greater sales volume and the resulting
economies of scale.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the seven months ended July 31, 1998, the Company's net cash
provided by operating activities was $260,576, an increase of 109% over the same
period in 1997. In 1997, the Company's net cash provided by operating activities
was $267,586, an increase of 400% over 1996. The increase in cash provided by
operations in the seven months ended July 31, 1998, compared to the same period
in 1997 was due primarily to the Company's higher earnings and improved working
capital. The increase in fiscal 1997 compared to 1996 was due primarily to the
same factors. The improved working capital primarily reflected an improvement in
the days sales held in receivables, including collections of retentions on
certain federal projects nearing completion, and, to a lesser extent, higher
trade payables.
The Company entered into a $1.7 million line of credit with a
commercial bank in May 1998. In October 1998, the $1.7 million line of credit
was refinanced into a $1,200,000 note payable and a $500,000 line of credit. The
$500,000 line of credit expires in May 1999. The note payable is due over a
sixty month period, beginning in January 1999, with principal reductions
scheduled at the rate of $20,000 per month. At December 31, 1997, the Company
had borrowings under other lines of credit that were paid in full with this new
line of credit in May 1998. There was approximately $260,000 available to the
Company under the new line of credit as of July 31, 1998. This new credit
agreement is personally guaranteed by Dickerson Wright and his spouse, and
secured by the Company's assets, including its accounts receivable. The maximum
amount of the loan may not exceed 75% of the Company accounts receivable that
are less than 90 days old. Interest on the loan is payable on a monthly basis at
the prime rate. Further, the loan provides that the Company must meet certain
covenants relating to, among other things, financial performance and the
maintenance of certain financial ratios.
The Company also has a line of credit with another commercial bank in
the amount of $500,000. This line of credit is guaranteed by Dickerson Wright
and his spouse. It is an unsecured note that is all due in July 2000. The note
bears interest at the prime rate. There is $335,000 available on this line as of
July 31, 1998.
As set forth in Use of Proceeds, the Company plans to pay down its
interest-bearing lines of credit to zero. This will reduce the Company's
interest expense by approximately $125,000 annually, which will positively
impact income before provision for income taxes.
The Company also has commercial debt that is collateralized by certain
equipment in the amount of $203,258 and $267,740 at December 31, 1997 and July
31, 1998, respectively.
During the seven months ended July 31, 1998, the Company invested
$830,620 in cash and notes and in the purchase of capital assets, including
acquisitions. The Company did not purchase any capital assets or make any
acquisitions in 1997. The Company invested $62,500 in the purchase of capital
assets, including acquisitions, in 1996.
During the seven months ended July 31, 1998, the Company's net cash
provided by financing activities was $196,951, which primarily consisted of
drawing down an operating line of credit. For the same period in 1997, the
Company used net cash of $1,891 for financing activities, which primarily
consisted of repaying an operating line of credit. In 1997, the Company used net
cash of $123,947 for financing activities, which again primarily consisted of
repaying an operating line of credit. The Company's net cash provided by
financing activities was $67,422 in fiscal 1996, which primarily consisted of
drawing down an operating line of credit.
The Company currently intends to use approximately $2 million of the
proceeds to fund acquisitions. Additionally, the Company intends to make
acquisitions through other financing mechanisms such as notes and similar
instruments. Historically, the Company has been able to make acquisitions with
approximately 20-50% of the purchase price in cash and the balance in
non-interest bearing purchase notes over extended time frames.
The Company believes that its available cash and cash equivalents as
well as cash generated from operations and its available credit line will be
sufficient to meet the Company's cash requirements through December 31, 1999.
During 1998, the Company intends to actively continue its search for
acquisitions to expand its geographical representation and enhance its technical
capabilities. The Company expects to utilize a portion of its liquidity over the
next 12 to 18 months for acquisitions.
20
<PAGE>
YEAR 2000 COMPLIANCE
Management believes that the software packages currently in use and
expected to be in use prior to the year 2000 are year 2000 compliant. Management
does not expect the financial impact of required modifications to this software
will be material to the Company's financial position, cash flows, or results of
operations.
INFLATION
The Company's operations have not been, and in the foreseeable future
are not expected to be, affected materially by inflation.
ANY FORWARD LOOKING STATEMENTS OF MANAGEMENT CONTAINED IN THIS DOCUMENT HAVE
BEEN COMPILED ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND CONSIDERED TO
BE REASONABLE. FUTURE OPERATING RESULTS OF THE COMPANY, HOWEVER, ARE IMPOSSIBLE
TO PREDICT AND NO REPRESENTATION OR WARRANTY REGARDING FUTURE OPERATING RESULTS
OF THE COMPANY IS TO BE INFERRED FROM ANY FORWARD LOOKING STATEMENTS CONTAINED
IN THIS DOCUMENT.
21
<PAGE>
BUSINESS
OVERVIEW
U.S. Laboratories Inc., a Delaware corporation ("US Labs" or the
"Company"), is an engineering services holding company that offers a wide range
of engineering, inspection, construction materials testing, documentation,
building inspections, and design services to clients. The Company's core service
groups are construction materials testing and engineering, infrastructure
engineering, and geotechnical engineering and consulting. Other non-core
services offered by the Company include building condition surveys, construction
management services, and environmental assessment services.
The Company provides services on an integrated "start to finish" basis
designed to guide clients through each phase of a construction project. The
Company thereby becomes an integral part of the client's project team, and
offers a comprehensive quality control program. US Labs creates value by
delivering quality control and problem solving in a cost effective manner to
meet clients' time and budget requirements.
The Company provides services for a full range of residential
development projects; commercial buildings; government facilities; and the
transportation network including highways, bridges, piers, tunnels, and
airports; dams, drainage basins, and storm water facilities; waste treatment
facilities; and utility transfer systems. Generally, before construction, US
Labs evaluates construction sites, building plans, and designs to assure
compliance with the approved construction documents for the proposed project. US
Labs performs site assessments, including soils engineering, materials
engineering, and environmental assessments to detect any potential problems with
the proposed site that could prevent or complicate the successful completion of
the project. In addition, US Labs evaluates the onsite building conditions and
recommends optimum methods and materials for building foundations, site
preparation, and excavation. During construction, the Company will inspect each
phase of the construction project, including excavation, foundations, structural
framing, mechanical heating and air conditioning systems, electrical systems,
underground utilities, and roofing. Where applicable, US Labs may use additional
methods to test materials and work quality. When a project is complete, US Labs
prepares an evaluation report of the project and certifies the inspections for
the client. The Company also performs final inspections to determine the
moisture resistance of windows, doors, foundations, and roofing. After
construction of buildings, the Company offers periodic inspection services to
assure that the building is being maintained in accordance with applicable
building codes to assure maximum building life. US Labs may also perform indoor
air and water quality tests during this period.
Since 1993, the Company has followed a strategy of controlled growth
through acquisitions to build the current infrastructure and to broaden its
range of technical services. The Company has created this infrastructure through
the completion of five acquisitions since the fall of 1993. The Company has also
expanded its service mix by adding building condition surveys, construction
administrative services, and environmental assessment services.
INDUSTRY OVERVIEW
Numerous specialty services are provided to the construction and the
related engineering and architectural design industries. The Company provides
services in the areas of construction materials testing and engineering,
geotechnical engineering and consulting services, and infrastructure engineering
services, and to a lesser extent, environmental assessment services.
Construction of a significant structure or building improvement
represents a major permanent investment for any owner, whether commercial or
governmental. The primary driver for materials testing, inspection services, and
geotechnical services (soil and earth analysis) is an owner's concern to protect
his or her investment through quality construction materials and workmanship
that meet design specifications. Government agencies, architects, and
engineering firms require that the quality of construction materials and on-site
soil conditions be monitored in order to verify compliance with the project
design conditions.
Government agencies, owners, contractors, architects, and engineers
hire materials testing and geotechnical consultants to test materials such as
concrete, structural and reinforcing steel, and soil and aggregate both prior to
commencing design and during the construction phase of a project. The quality of
materials and their ability to conform to design specifications are critical to
the future life and constructability of the facility. Three common types of
22
<PAGE>
construction materials and geotechnical tests are (i) soil tests for moisture
content and compaction density, (ii) concrete tests for compressive strength,
and (iii) structural and reinforcing steel tests for tensile strength and
connection strength.
The construction materials testing and engineering industry is driven
by national and local economic conditions. Most of the construction materials
testing and engineering services provided by the Company are for projects
generally within 100 miles of the office. Geotechnical engineering and
consulting services are less sensitive to geographical constraints. Construction
activities can develop from commercial, industrial, institutional, and
governmental entities. Construction materials testing and engineering services
and geotechnical engineering and consulting services are considered mature
markets, and a project award is generally based on service reputation, price,
client relationship, and local competition. Delivery of services on a national
basis through a network of offices is a factor considered by national clients.
Expansion of construction materials testing and engineering services and
geotechnical engineering and consulting services to new markets can be achieved
through acquisitions of local service firms.
In general, independent third party materials testing and inspection
services and geotechnical engineering and consulting services for construction
projects are required by owners on all new commercial and public construction
projects over $1 million. Frequently, testing and inspection requirements also
apply to renovation and repair projects as well. Select markets in the United
States are experiencing strong growth in commercial, residential, and government
construction. In particular, Southern California and Florida are currently
experiencing an annual growth in construction spending in excess of 20%. Since
1992, total construction revenues have increased by 9% annually. This growth is
expected to continue with total construction forecasted for 1998 at $355.7
billion. Typically, testing, inspection, and geotechnical services equate to
approximately 2% of total construction costs, or $7 billion.
The infrastructure market includes public projects in numerous areas,
including the construction or remediation of highways, public transportation
systems, railroads, bridges, dams, and airports. The Company currently offers
infrastructure engineering services to highway construction and remediation
projects. Local, state, and federal government spending heavily influence the
market for engineering services in the infrastructure sector. Recently, the
federal government enacted the Transportation Equity Act for the 21st Century
(the "TEA-21"), which authorized approximately $204 billion for transportation
infrastructure projects over the next six years. Of this amount, approximately
$165 billion has been earmarked for highway improvements. Management estimates
that approximately 3% percent of this $165 billion, or $4.9 billion, will be
spent on engineering services. There is some risk that the Congress may not
appropriate the funds designated in the TEA-21, but the legislation contains
provisions that are designed to prevent future Congresses from not spending the
funds authorized in the TEA-21. Additionally, the amount appropriated may change
due to fluctuations in revenue flow into the Highway Trust Fund.
Demand for environmental services is currently driven by economic and
liability management considerations. Asset preservation, liability, and health
related considerations have increasingly driven demand in the environmental
services industry, while regulation has decreased as a factor. As a result of
these market dynamics, environmental administration has become an integral
component of day-to-day property management activities. Today many companies
insist that environmental improvement expenditures not only satisfy regulatory
compliance, but also be justifiable on other grounds, such as protecting assets,
increasing workplace safety, reducing health risks, improving public relations,
minimizing waste, preventing pollution, and reducing financial liabilities.
Management believes that the Company is well positioned to take advantage of
certain rapidly growing sectors of the approximately $16 billion environmental
services industry. In addition, this industry segment is highly fragmented and
management believes that the industry presents many favorable opportunities for
growth through acquisitions.
BUSINESS STRATEGY
The Company's strategic goal is to be a leading provider of
construction materials testing and engineering services, geotechnical
engineering and consulting services, and infrastructure engineering services
through the consolidation of independent companies and internal growth. US Labs
is achieving its business objectives through strategic acquisitions, emphasis on
premium national accounts, expansion of infrastructure engineering services, the
balance of public sector and private industry clients, expansion of
international services, and expansion of domestic geographic markets.
23
<PAGE>
PURSUE STRATEGIC ACQUISITIONS. Management believes that the industry
for engineering services is fragmented and that there are opportunities to
acquire local engineering services companies. Management estimates that there
are 3,500 companies whose businesses are complementary to those of the Company.
Management further believes that its existing infrastructure provides a platform
for "tuck in" acquisitions of regional and local companies. A "tuck in"
acquisition is where the Company integrates the acquisition with its existing
regional management. Management believes that the expertise it has developed in
identifying, completing, and integrating acquisitions provides the Company with
a competitive advantage in entering new geographical markets. The Company plans
to apply its expertise in assimilating acquired companies' personnel and branch
operations into the Company's existing infrastructure and expanding acquired
companies' service and product offerings to existing clients. This will
strengthen its position as an industry consolidator through acquisitions that
meet its operating, financial, and geographic criteria.
For example, in 1998, the Company made a "tuck in" acquisition in
Jupiter, Florida. The net acquisition cost $35,000 in return for a client base
that management anticipates will generate in excess of $500,000 in annual sales.
Additionally, the Company was able to secure the services of a key employee to
run that satellite operation. In New Jersey, the Company made an acquisition of
two satellite offices from a national competitor in May 1998. Management
estimates that the client base acquired in this transaction should generate in
excess of $750,000 in annual sales and annual net profits of $75,000 to
$110,000.
In analyzing new acquisitions, the Company normally pursues
acquisitions that either provide the critical mass to function as a profitable,
stand-alone operation, or are geographically situated so that they can be
integrated into existing Company locations. If a stand-alone operation, the
acquired company must possess an experienced management team thoroughly
committed to going forward with the Company. Management also must identify how
the profitability of a new acquisition can be improved as part of the Company's
operations through the integration of the new personnel into the Company's
management systems as well as the expansion of the service and product offerings
to existing clients. The Company believes it can improve the operations of its
acquisitions by providing superior marketing and sales support, customer
service, cash management, financial controls, and human resources support.
Since 1993, the Company has been implementing this strategy, the key
elements of which are designed to establish a national infrastructure of branch
office locations and diversify its service offerings. US Labs currently operates
facilities serving San Diego, Riverside, San Bernardino, Orange, and Los Angeles
counties in Southern California; the New York City metropolitan area and
northern New Jersey; Atlantic City and central New Jersey; Philadelphia and
southwest New Jersey; and Miami, Fort Lauderdale, Palm Beach, Jupiter, and
Orlando, Florida.
TARGET PREMIUM NATIONAL ACCOUNTS. As a result of its acquisition
strategy, the Company has expanded its service offerings and client base. This
has resulted in the ability of the Company to attract premium national accounts
such as Home Depot, Marriott, Target, Wal-Mart, Disney, and Nordstroms.
Management expects these opportunities to continue at an accelerated rate.
INCREASE INFRASTRUCTURE ACCOUNTS. The successful implementation of
strategies designed to increase service offerings has resulted in the
Company's ability to capitalize on certain high-growth market opportunities.
Because of the Company's recent expansion into infrastructure engineering
services, the Company is well positioned to take advantage of the
approximately $165 billion authorized under the TEA-21 for highway
construction and related services.
BALANCE PUBLIC SECTOR AND PRIVATE INDUSTRY SERVICES. The Company
continues to be successful in maintaining a balance between business from the
public sector and private industry clients. The private industry sector allows
the Company to take advantage of increases in private construction during times
of economic expansion. The public sector clients provide the Company a continued
revenue source during times of economic slowing because public sector projects
are not as sensitive to downturns in the economy as private industry projects.
EXPAND INTERNATIONAL SERVICES. In the Latin America markets, the
Company is in the early stages of its long-term effort to take advantage of a
developing demand for quality services that meet American standards in the
construction industry. The Company is presently working for large international
clients providing services along the Mexican border regions. Current or recently
completed projects include services for Rockwell International, Sanyo, Sony,
Sherwood Medical, and Security Capital Industrial Trust. The Company intends to
use these and other
24
<PAGE>
relationships to pursue new opportunities in the Latin America region. As
part of its acquisition strategy, the Company will also consider acquisitions
with existing operations or business relationships in attractive
international markets.
EXPAND DOMESTIC GEOGRAPHIC MARKETS. The Company is targeting ten
geographical areas for expansion. Management believes that one key executive can
efficiently manage an operation with $10 million in annual sales. The Company
intends to identify and develop ten managers through its internal training
programs and from key managers of acquisitions. As each operating division
grows, it will continue to reduce overhead as a percentage of sales. Further,
because US Labs provides ancillary administrative support necessary to run each
division, the division level executives are encouraged to manage these
operations in a more decentralized fashion. Consequently, the division level
managers can react to regional business practices and traditions. The Company is
committed to future expansion and has targeted the West Coast and the
Mid-Atlantic regions for expansion.
DESCRIPTION OF ENGINEERING SERVICES
The Company's service to clients begins before an actual construction
project commences. US Labs evaluates construction sites, building plans, and
designs to assure compliance with the approved construction documents for the
proposed facility. US Labs' licensed engineers perform structural evaluations
with a licensed engineer. US Labs performs site assessments, including soils
engineering, materials engineering, and environmental assessments to detect any
potential problems with the proposed site that could prevent or complicate the
successful completion of the project. In addition, US Labs evaluates the onsite
building conditions and recommends optimum methods and materials for building
foundations, site preparation, and excavation.
When construction commences, the Company begins its onsite consulting
by monitoring construction quality control. US Labs will visually inspect each
phase of the construction project, including excavation, foundations, structural
framing, mechanical heating and air conditioning systems, electrical systems,
underground utilities, and roofing. Where applicable, US Labs may use additional
methods to test materials and work quality. Testing of the metals, concrete, and
other materials used in construction continues through each phase of the
project. US Labs maintains a comprehensive involvement during the construction
phase to assure compliance with the design specifications and to monitor the
overall quality of work.
During construction, the Company actively maintains contact with client
project managers. Problems detected or anticipated are identified, and US Labs
assists its clients in determining appropriate, cost effective solutions. The
Company periodically provides construction progress inspections and assessment
reports. When a project is complete, US Labs prepares an evaluation report of
the project and certifies the inspections for the client. The Company will also
perform final inspections to determine the moisture resistance of windows,
doors, foundations, and roofing. After construction, the Company offers periodic
building inspection services to assure that the building is being maintained in
accordance with applicable building codes to assure maximum building life. US
Labs may also perform indoor air and water quality tests during this period.
CONSTRUCTION MATERIALS TESTING AND ENGINEERING SERVICES. The Company
provides testing and client representative services related to concrete and
steel materials used in the construction industry. From the preconstruction
stage of evaluating materials to the completion of the project, the Company's
range of services supporting construction projects include quality assurance and
quality control, construction specifications, test evaluations, materials
performance documentation, and problem solving. The Company conducts these
services in its laboratories prior to and during construction, in the
fabrication plant, and at the construction site.
The Company's expertise in these areas provide valuable assistance to
clients in the construction of major buildings of all types and sizes including
industrial, office, retail, medical, school, military, and governmental, as well
as highways, railroads, dams, bridges, transmission towers, airports runways,
water supply facilities, wastewater treatment facilities, dock and waterway
facilities, solid waste landfills, power plants, and many other structures.
Potential clients include architects, engineers, contractors, commercial
developers, local, state, and federal government agencies, corporations, and
other user-owners.
The Company provides testing of concrete and structural and reinforcing
steel through proven systematic methods and procedures of quality control
management. The Company customizes project work to meet the specific needs of
the client. The Company is able to deliver materials testing services on-site
for the duration of a construction
25
<PAGE>
project, giving it a competitive advantage over other providers. Concrete is
tested during and after placement to measure the consistency and strength of
concrete. Specifications are developed by the architect or engineer for the
design of the structure or foundation, and are verified during construction
by the Company. Steel structures are tested for compliance. While many steel
tests and inspections are performed at the project site, tests and
inspections are also done at the steel fabrication plant, where the process
can be monitored and imperfections can be corrected before shipment to the
project. Concrete and steel samples collected in the field are transported
back to the local Company laboratory for analysis. Field representatives are
deployed to the job site from the nearest area office providing these
services. Typically, within a 100-mile radius is the most economically
feasible distance for providing these services. Therefore, the Company only
provides these services in areas with construction activities to support the
necessary operational resources. Periodically, field offices are established
to accommodate large projects.
All field personnel work directly under the supervision of licensed
civil/geotechnical engineers. These engineers actively participate in
American Society of Civil Engineers, American Council of Independent
Laboratories, American Public Works Association, and other similar
professional groups in order to remain current with changes in the industry.
As members of the International Conference of Building Officials, the
Company's personnel receive notification of all code changes. All field
personnel must maintain and renew licenses in their respective areas of
inspection. All laboratories are inspected biannually by the Cement and
Concrete Reference Laboratory (CCRL) of the National Institute of Standards
and Measures. Additionally, the Company's laboratories participate in
proficiency programs conducted by CCRL and the American Association of State
Highway and Transportation Officials.
INFRASTRUCTURE ENGINEERING SERVICES. The Company provides inspection
and testing services similar to those provided to the Company's construction
materials testing and engineering services and geotechnical engineering services
clients. These services are provided to support the planning and construction of
the transportation network including highways, bridges, piers, tunnels,
airports, and other similar structures; dams, drainage basins, and storm water
facilities; waste treatment facilities; and utility transfer systems.
The Company believes that these services will be in increasing demand
in the future as the country moves to repair its deteriorating infrastructure
and as funding becomes available as a result of Congress' recent TEA-21 funding
package authorizing approximately $165 billion for highway and infrastructure
improvements. Having recently become active in providing infrastructure
engineering services, the Company is well positioned to take advantage of the
substantially increased expenditures projected for transportation construction.
GEOTECHNICAL ENGINEERING AND CONSULTING SERVICES. The Company's
geotechnical engineering and consulting services involve the analysis of soil
data and design of structures supported on or within the earth. Geotechnical
services begin with the project planning and design phase of a project, extend
through construction, and often continue through the service life of a
structure. Geotechnical engineers, geologists, and earth scientists conduct
geotechnical, subsurface explorations to ascertain the behavior of soil, rock,
and groundwater as affected by existing geologic features and new construction
activities. The Company's professionals have expertise in soil and rock
mechanics, geophysics, and earthquake engineering. The design of a subsurface
program requires familiarity with local geology and a thorough knowledge of
economical construction methods. The Company provides expertise to customers
through its offices staffed by professionals with local expertise in a wide
variety of soil conditions.
Soil tests are performed to determine soil compaction characteristics
both before foundation design and after excavation or soil placement have taken
place. The purpose of these tests is to determine the stability and load-bearing
characteristics of a soil before, during, and after construction. The Company
uses the expertise of its geotechnical engineers, geologists, and experienced
field drilling personnel to design a field exploratory program. The field data
and samples are brought to the Company's soil laboratories for further testing
and evaluation. The information obtained during the field exploration and
laboratory testing is used to provide the client with cost-effective designs for
high-rise building foundations, site improvements, tunnels, dams, manufacturing
facilities, landfills, bridges, and many other structures. The Company also
provides specific recommendations to avoid delays and cost overruns during
construction, particularly in the weather-dependent site preparation phase of a
project. An engineering report is prepared under the direction and review of a
licensed professional engineer familiar with the particular geologic conditions
and engineering requirements for the project.
26
<PAGE>
OTHER SERVICES AND PRODUCTS
In addition to the core services described above, the Company maintains
specialized services that can be integrated with the overall needs of its
clients. This is part of the Company's overall business strategy to build and
maintain client relationships while adjusting to the market demand for
professional services. Most of these services have either developed within the
last five years or been obtained through recent acquisitions. The following is a
description of some of the non-core services offered by the Company to
complement its core business.
BUILDING CONDITION SURVEYS. As part of its integrated service strategy
for commercial and industrial clients, the Company also offers building
condition surveys. As a general rule, building condition surveys involve an
evaluation of the facility's heating, ventilation, and lighting systems, water
services, roofing system, and structural or architectural construction or both.
This service is frequently associated with the purchase of real estate where the
purchaser requires an evaluation of operation and maintenance exposures of
property prior to closing. These services are also integrated with other US Labs
commercial and industrial project services such as Phase I and Phase II
environmental assessments, asbestos assessments, and indoor air quality
consulting. The Company is in the process of promoting and developing building
condition surveys on a national level.
CONSTRUCTION ADMINISTRATIVE SERVICES. Through its effort to serve its
clients' needs and generate additional profitable revenue sources, the Company
extends its services to include construction administrative services. These
services range from acting as the client's field representative during
construction to overall responsibility for the project's quality issues. The
client representative assures that the construction is done according to the
plans and specifications developed by either the architect or engineer. These
services are typically billed on either daily rates or hourly rates plus expense
reimbursement. An example of these services is a recent long-term contract to
act as the Orange County, Florida's school district field representative for all
of its new construction and building maintenance. In the case of this school
district, which encompasses the entire city of Orlando, the Company is acting
like a building department: issuing permits, conducting inspections, and
certifying compliance with codes. This form of outsourcing by municipalities,
schools, and other governmental agencies is a growing trend, which bodes well
for the type of services US Labs provides.
ENVIRONMENTAL ASSESSMENT SERVICES. The majority of the Company's
project activities within this segment focus on identifying potential
environmental hazards and risk exposures. The Company provides environmental
consulting services to corporate and governmental clients. Many of these clients
are large regional and national corporations with multi-site consulting needs.
Client relationships and quality of service delivery primarily drive the market
for these services.
CONTRACTUAL ARRANGEMENTS
The Company often provides services for its major clients under
arrangements involving continuing service agreements. These arrangements are
usually on a "time-and-materials," "cost-plus-fixed-fee," or a "fixed-price"
basis, and are usually terminable on advance notice by either party. In 1997,
approximately 60% of the Company's projects were on a time-and-materials basis,
under which the Company billed its clients at fixed hourly rates plus
subcontracted services and materials used. In 1997, an additional 25% of the
Company's work was performed under cost-plus-fixed-fee agreements where the
Company and the client agreed to a budgeted contract, but the client covered
overruns and was credited for any savings realized under budget.
Fixed-price arrangements, under which the Company agrees to perform a
stated service for a set price regardless of the time and materials cost
involved, represented approximately 15% of the Company's business in 1997.
Although this type of contract does carry the risk that the cost to the Company
for performing the agreed-upon services may exceed the set price, a fixed-price
also has the benefit of potentially higher profit created by all savings under
the contract amount. With military projects, the Company has used fixed-price
contracts very successfully where very detailed project plans and specifications
are available. When quoting a fixed-price contract, the Company marketing
personnel provide detailed breakdowns of all phases of the work specified
including man-hours, tests, and construction schedule assumptions. The
fixed-price contract is thus based upon a clearly defined scope of work and
contract duration. During the course of the project this scope of work and
contract duration is constantly monitored, and any expansion of the scope of
work or contract duration is billed as an extra to the contract.
27
<PAGE>
MARKETING AND SALES
The Company provides its professional consulting, engineering, and
testing services in the construction industry to Fortune 500 companies,
ENGINEERING NEWS RECORD (ENR) top 400 contractors and construction engineering
firms, small companies, real estate property owners and managers, and federal,
state, and local governments. The Company's contracts are obtained by its sales
staff through relationship building followed by proposals and bidding. The
current sales staff consists of one to two sales representatives in each Company
location, and estimators as well as clerical staff back up these sales
personnel. Referrals from existing and former clients, architects, and engineers
are a significant source of contract leads. The Company has been able to sell
both construction materials testing and engineering services, geotechnical
services, and environmental services, to the same clients.
The Company presently markets its services through its subsidiaries.
Direct marketing is accomplished by technical sales representatives, technical
personnel, and management personnel who routinely call on prospective clients.
The Company also utilizes government and industry publications to identify
potential services and requests for project proposals for submission of
competitive bids.
Recent trends in the engineering and consulting market require that a
service provider commit considerable resources toward maintaining and developing
client relationships. This shift from project-specific to long-term client
relationship partnering requires a service provider to dedicate both technical
and marketing resources toward tailoring services for a client. It also requires
the provider to maintain a broad range of responsive, quality services. The
rewards of this client relationship partnering and quality, service-focused
programs are continued revenues from repeat customers and, in many instances,
sole source solicitation and award of work to the firm.
INTERNATIONAL SERVICES
In the Latin America markets, the Company is in the early stages of its
long-term effort to take advantage of a developing demand for quality services
that meet American standards in the construction industry. The Company is
currently working for large international clients providing services in the
border regions of Mexico primarily for the construction of office and industrial
facilities. New construction is booming in the Tijuana/Ensenada area as well as
Mexicali, which is located 100 miles inland from the Tijuana/Ensenada area.
Current or recently completed projects include facilities for Rockwell
International, Sherwood Medical, Samsung, Sanyo, and Sony. The work the Company
has performed in Mexico to date has been contracted for by U. S. companies and
paid for by these companies in U.S. dollars. The Company intends to use these
and other relationships to pursue new opportunities in the Latin America region.
KEY CLIENTS AND PROJECTS
US Labs' services and products are applicable to a full range of
business, manufacturing, institutional, and government sectors. However, based
on demand for its services, existing relationships, and revenue generation
potential, the Company has targeted real estate management and development
firms, large general contracting firms, large construction management firms,
national corporate owners/users, state transportation agencies, municipalities,
public school systems, public housing authorities, and the U.S. Department of
Defense as key client sectors for development under its sales activities.
28
<PAGE>
US Labs' client list is comprised of hundreds of different customers.
The Company serves the private commercial market, the public sector, and a
variety of "public interest" or non-profit organizations. In 1997, no single
customer accounted for more than 5% of the Company's revenues. The following is
a representative list of the Company's clients.
PRIVATE COMMERCIAL CLIENTS
Wal-Mart Nordstroms
Neiman Marcus Home Depot
Saks Fifth Avenue Circuit City
Lord & Taylor Marriott
Hilton Hotels Walt Disney
Claridge Casino Atlantic City Bally's Park Place
Sea World San Diego Universal Studios Orlando
Lockheed Martin Sports Authority
Rite-Aid Target Stores
PUBLIC INTEREST CLIENTS
Giants Meadowlands California State Universities
San Diego Qualcomm Stadium Princeton University
Florida Panthers Ice Hockey University of California
PUBLIC SECTOR CLIENTS
New Jersey Turnpike Authority Port Authority New York
New Jersey Transit Authority Port Authority New Jersey
New Jersey Sports & Expositions CalTrans
City of Los Angeles City of San Diego
San Diego County Los Angeles County
United States Navy Port Authority of San Diego
One marketing and operational goal the Company has worked towards is an
equal balance between private industry and public sector work. The Company has
maintained this goal although the percentage breakdown in the three regional
areas the Company serves has varied. In Southern California, the split between
private industry and public sector work has been evenly split. In the New Jersey
area, approximately 25% of the work has been private industry and 75% public
sector. In Florida, the Company's market has been approximately 75% private
industry and 25% public sector.
The following is a representative list of the projects for which the
Company has provided engineering services.
<TABLE>
<CAPTION>
NEW JERSEY FLORIDA SOUTHERN CALIFORNIA
<S> <C> <C>
OFFICE BUILDINGS/HIGH-RISES
Hoffman-LaRoche IBM Sony
Merck & Company Motorola Uniden
Liberty Plaza Kemper Insurance Johnson & Johnson
REGIONAL SHOPPING MALLS
Monmouth Mall Plantation Fashion Mall Fashion Valley Mall
Sheridan Plaza Hollywood Mall Horton Plaza
Garden State Plaza Sawgrass Mills Mall Seaport Village
Paramus Park Pembroke Lakes Mall University Towne Centre
29
<PAGE>
NEW JERSEY FLORIDA SOUTHERN CALIFORNIA
<S> <C> <C>
Jersey Garden Mall North County Fair
HOTELS/AMUSEMENT PARKS
Bally's Park Place Universal Studios Sea World
Caesar's Hotel/Casino Disney World Marriott Towers
Six Flags Great Adventure Marriott Inns Hyatt Regency Adventine
Claridge Hotel & Casino Loew's Miami Beach Sheraton Torrey Pines
UNIVERSITIES
Princeton University Palm Beach College California State University
Farleigh Dickenson University Broward Community College University of California
Rutgers University Florida Atlantic University University of San Diego
GOVERNMENT/MUNICIPALITIES/SCHOOL DISTRICTS
FAA Homestead Air Force Base MCAS Miramar
Casino Development Authority Florida Department of Transportation NAS North Island
New Jersey Transit Orange County Schools MCS Camp Pendleton
New Jersey Veterans Administration Ft. Lauderdale Museum San Diego Unified Schools
New Jersey Water District Miami/Dade County Schools Coronado Schools
Plantation City Hall
Kravis Center Performing Arts
HOSPITALS
Englewood Hospital Kendall Reg. Center Children's Hospital
Hackensack University Hospital Holy Cross Cancer Kaiser Hospital
Passaic General Hospital Sunrise Medical Center Scripps Clinic
Palisades General Hospital Holy Redeemer Hospital UCSD Hospital
Morristown Memorial Hospital Balboa Naval Hospital
Scripps Memorial Hospital
PUBLIC FACILITIES
Princeton Stadium Florida Panther Arena San Diego Qualcomm Stadium
Giants Meadowlands Stadium San Diego Convention Center
</TABLE>
EXAMPLE OF CLIENT ENGAGEMENT
One of the Company's recent high profile projects was the expansion and
redevelopment of Fashion Valley Regional Shopping Mall, a $200 million, two-year
project in San Diego. The client was the owner of the shopping center, a
partnership between Lend Lease Development, an international real estate
conglomerate, and Equitable Life. The Company provided geotechnical services,
and construction materials inspections and testing for seven parking structures
and the construction of a second retail level over the existing shopping mall.
Geotechnical services involved compaction testing for foundations and footings,
trenches, and driveways. The parking structures were poured in place concrete
and precast concrete panel construction over driven concrete piles. Not only
were concrete quality control inspection and compression testing required, but
masonry and structural steel inspections were also necessitated. The second
story mall was of steel frame construction, and therefore sophisticated welding
and structural steel inspections were required as well as concrete, masonry,
fireproofing, roofing and waterproofing inspection and testing.
Because the existing business within the mall remained open for
business during construction, much of the concrete and structural steel work was
completed between 10:00 p.m. and when the stores opened the following
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<PAGE>
morning. In addition to providing services for the parking structures and the
mall expansion, the Company was also contracted with Nordstroms to provide
similar services for the reconstruction of this anchor tenant. The Company's
total fees on the project approached one million dollars. All work was
performed on a time and materials basis at negotiated rate levels and
estimated budgets. On peak activity days as many as eight Company inspectors
or technicians worked at Fashion Valley supported by the engineering and
laboratory staffs.
INFORMATION SYSTEMS AND THE YEAR 2000
Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. Beginning in the
year 2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems or software used by many companies or both may
need to be upgraded to comply with "Year 2000" requirements. The Company has
assessed its management information systems and does not currently expect that
any material expenditures will be required in connection with the modifications
that will be required for these systems. Moreover, the Company has recently
implemented or is in the process of implementing new systems that are already
Year 2000 compliant and it does not believe that the total cost of any potential
modification of such management information systems will be material. There can
be no assurance that the Company or its vendors will be able to successfully
modify on a timely basis their respective management information systems to
comply with Year 2000 requirements.
The Company is in the process of addressing Year 2000 issues. The
Company is currently converting its accounting and management information
systems to a system consisting of new hardware and packaged software recently
purchased from a large recognized industry vendor, State of the Art (MAS 90),
who has represented that these systems are Year 2000 compliant. The Company's
remaining operations are generally dependent only on personal computers and
off-the-shelf commercial word processing, drafting, spreadsheet and engineering
software. Year 2000 compliant versions of these systems are currently available,
and the Company will convert to these compliant systems over the next year and a
half as the Company upgrades its operational personal computer systems in the
ordinary course to the most recently issued software releases.
The Company has expanded substantially over the past several years,
primarily as a result of acquisitions. The process of integrating acquired
businesses has placed significant demands on the Company's management
information systems. To address these demands, the Company is in the process of
upgrading and replacing its management information systems. This process of
upgrading and replacing its management information systems has required, and
will continue to require, substantial attention from members of senior
management. The Company is within 90 days of completing systems upgrades to its
management information systems, and the upgrade is 60% complete, but no
assurance can be given that such system upgrade will be completed successfully.
The failure by the Company to successfully upgrade its management information
systems could have a material adverse effect on its results of operations.
OFFICE AND SUPPORT SERVICES
US Labs operates through eight offices located in three states. The
office is the basic economic and functional unit of the Company through which
all services are provided. Personnel located in each office are experienced in
developing and implementing solutions, which meet the requirements of local
regulations. The Company monitors all branches through a subsidiary president.
Each subsidiary of US Labs is responsible for introducing new services to
customers, managing projects within budget, and meeting pre-established quality
control standards. Each subsidiary also has dedicated sales and marketing staff.
The Company provides each subsidiary with accounting, administration, and human
resources support.
BACKLOG
The Company often provides services on major long-term contracts or
continuing service agreements that provide for authorization of funding on a
task or fiscal period basis. The Company's marketing staff submits new bids and
proposals each day, and almost every day call in work is received at all Company
locations. At July 31, 1998, the Company had approximately $7.2 million of gross
revenue backlog compared to $4.2 million at July 31, 1997. The
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<PAGE>
July 31, 1997 includes the backlog of Wyman before the acquisition of all of
its assets and certain of its liabilities. The gross revenue backlog consists
of uncompleted contracts, work-in-progress, and continuing contracts. This
level of backlog will also be supplemented by a minimum of 10% of additional
work, which will be undertaken during the remainder of 1998.
The Company bills for its services monthly for work completed during
the previous month. All billing is done on the regional level, and all accounts
receivable responsibilities are also handled on the regional level with overall
supervision from the Company's headquarters. Collection periods for the
Company's receivables range between 70 and 75 days. An allowance for doubtful
accounts is typically established equivalent to one percent of gross revenues.
SEASONAL FACTORS
Due primarily to more holidays and inclement weather conditions, the
Company's operating results during January, February, and December are generally
lower in comparison to other months. Because all field and most lab personnel
are paid on an hourly basis, the Company can reduce its expenses for direct
labor as the workload decreases. Historically enough work exists during the slow
months to keep the hourly work force in tact at reduced levels until volume
increases after the winter months.
COMPETITION
The services that the Company provides are subject to intense
competition. In addition to the thousands of small consulting and testing firms
operating in the United States, the Company competes with several national
engineering and consulting firms including Law Companies Group, Inc.; Harding
Lawson Associates Group, Inc.; Dames & Moore, Inc.; and Professional Service
Industries, Inc.
Certain of the Company's present and future competitors may have
greater financial, technical, and personnel resources than the Company. It is
not possible to predict the extent of competition that the Company will
encounter in the near future as construction materials testing and engineering,
infrastructure, geotechnical, environmental services industries continue to
mature and consolidate. Historically, competition has been based primarily on
the quality, timeliness, and costs of services. The ability of the Company to
compete successfully will depend upon its marketing efforts, its ability to
accurately estimate costs, the quality of the work it performs, its ability to
hire and train qualified personnel, and the availability of insurance.
ORGANIZATION
US Labs was established in 1993 to acquire regional engineering
services firms. Currently, the Company is comprised of four operating units and
the holding company.
PEICO was founded in 1984 and is located in South Florida. PEICO's core
business is to provide geo-technical engineering, construction testing and
inspection, structural engineering and design services. Over the past ten years
PEICO has successfully provided professional services on over 2,000 projects
with construction budgets from $500,000 to $200,000,000. US Labs acquired PEICO
in 1994.
USEL has three locations in New Jersey and was founded 1993 to provide
construction engineering, inspection, and testing services to northeast clients.
At present USEL is one of the largest operations of its type serving the
Metropolitan New York, New Jersey, and Philadelphia region.
TESD was founded in 1946 and has provided engineering and consulting
services to the Southern California construction industry for over 50 years.
TESD was acquired by U.S. Labs in 1996 and provides engineering, testing, and
inspection services identical to those provided by PEICO and USEL. Wyman was
founded in 1973, and currently serves the Southern California and Mexican border
market and is licensed in Nevada. Substantially all the assets and certain of
the liabilities of Wyman were acquired by Wyman Testing, a subsidiary of the
Company, in 1998, and Wyman Testing was subsequently merged into the operations
of TESD.
In August 1998, the Company formed another subsidiary for a new office
in Irvine, California.
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<PAGE>
INSURANCE
The Company has secured a "claims made" professional liability
insurance policy, including contractor's pollution liability coverage. The
professional liability insurance policy has a two-year term, ending on January
1999, which is subject to biennial renewal, with a two-year, per-claim, and
aggregate limit of $2 million, and a deductible of $20,000 per claim. Increased
limits have been obtained on a specific endorsement basis to meet the needs of
particular clients or contracts. A "claims made" policy only insures against
claims filed during the period in which the policy is in effect. This policy
covers both errors and omissions. To date no insured losses have been
experienced.
The Company also carries an occurrence form general liability insurance
policy in the amount of $2 million, with a $5 million umbrella. This coverage
includes products/completed operations. The general liability insurance policy
has a one-year term, ending in January 1999 and is subject to annual renewal.
The Company's policies have been renewed in each of the years that they have
been in effect.
In addition, the Company is currently negotiating a claims made
directors and officers' liability insurance policy with an aggregate limit of $2
million, which will increase to $6 million prior to the initial public offering.
This policy has a one-year term that expires in October 1999. The Company can
make no assurance that insurance coverage will continue to be renewed or
available in the future or offered at rates similar to those under the current
policies.
In August 1998, the Company obtained key person life insurance policies
on the lives of Dickerson Wright, Martin Lowenthal, Mark Baron, Christopher
O'Malley, and Gary Elzweig. According to the provisions of those policies, the
Company is the beneficiary in the amount of $3,650,000, $650,000, $300,000,
$300,000, and $1,000,000, on the lives of Messrs. Wright, Lowenthal, Baron,
O'Malley, and Elzweig, respectively.
GOVERNMENT REGULATION
Except for state licensure requirements for the engineering component,
there is limited regulation of the construction materials testing and
engineering or geotechnical consulting service industries. Industry standards
are set by agencies, including the American Society of Testing Material, the
American Association of State Highway & Transportation Officials, the American
Concrete Institute, and the American Welding Society. State and local building
codes, the stringency of which varies by location, however, govern construction
projects themselves.
PERSONNEL
The Company employs approximately 200 regular, full-time employees,
including 170 engineers, inspector and field lab technicians and 30
administrative personnel. None of the Company's employees are presently
represented by a labor union. The Company believes it has good employee
relations.
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<PAGE>
FACILITIES
The Company owns no real estate, and all of its locations are leased as
follows:
<TABLE>
<CAPTION>
LOCATION FOOTAGE LEASE EXPIRATION
- --------- ------- -----------------
<S> <C> <C>
South Coast Florida Office: 7,600 July 2000
4350 West Sunrise Boulevard
Plantation, Florida
Central Coast Florida Office: 1,600 June 2000
1001 Jupiter Park Drive
Jupiter, Florida
Central Florida Office: 3,000 Month-to-month
6220 South Orange Blossom Trail
Orlando, Florida
North New Jersey Office: 7,000 June 1999
903 E. Hazelwood Avenue
Rahway, New Jersey
New Jersey Coast Office: 2,000 March 1999
2511 Fire Road
Egg Harbor, New Jersey
South New Jersey Office: 3,700 May 2001
443 Commerce Lane
West Berlin, New Jersey
Southern California Offices: 11,000 May 2003
7895 Convoy Court
San Diego, California
17905 Skypark Circle 3,200 August 2001
Irvine, California
</TABLE>
LEGAL PROCEEDINGS
As of the date of this Prospectus, the Company is not a party to any
material legal proceedings. Notwithstanding this, from time to time, the Company
may be involved in material litigation.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers, and key employees of the Company and
their ages and positions held with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ----------
<S> <C> <C>
Dickerson Wright(1).......................... 51 Chief Executive Officer,
President, and Chairman of the
Board of Directors
Gary H. Elzweig.............................. 42 Executive Vice President and
Director
Donald C. Alford............................. 54 Executive Vice President and
Director
Mark Baron................................... 43 Executive Vice President and
Director
Martin B. Lowenthal.......................... 41 Executive Vice President and
Director
James D. Wait................................ 44 Chief Financial Officer,
Secretary, and Director
Thomas H. Chapman............................ 68 Director *
James L. McCumber(2)......................... 50 Director
Robert E. Petersen(1)(2) .................... 52 Director
Noel Schwartz(1)............................. 70 Director
Irving Fuchs................................. 72 Director
</TABLE>
- ----------------------------
*Mr. Chapman is a vice president of TESD, a subsidiary of the Company.
(1) Member of Compensation Committee
(2) Member of Audit Committee
Each of the Company's directors is elected at the annual meeting of
stockholders and serves until the annual meeting and until his or her
successor is elected and qualified, or until his or her earlier death,
resignation, or removal. The Underwriter has the right to observe Board
meetings until February 18, 2001. No compensation is currently paid to
directors for their service on the Board.
Dickerson Wright, P.E., is founder of the Company and has served as
Chairman of the Board of Directors and President of the Company since its
incorporation in October 1993. Mr. Wright is a registered Professional
Engineer with a strong track record of building and managing engineering
service companies and over 25 years experience in the independent testing and
inspection industry. From September 1990 to September 1993, he was the
co-owner and Executive Vice President of American Engineering Laboratories, a
company that reached sales of $13 million annually before it was sold. Mr.
Wright also served as President and Chief Executive Officer of Western State
Testing, as National Group Vice President of United States Testing Company,
and as Executive Vice President of Professional Service Industries during
this period of time.
Gary H. Elzweig, P.E., is a co-founder of PEICO and has served as
President of PEICO since its incorporation in March 1987. Mr. Elzweig has
served as Executive Vice President and a director of the Company since May
1998. He is a registered professional engineer with over 20 years of
experience in engineering, design, and testing. Mr. Elzweig earned his
Bachelor's Degree from Columbia University, School of Engineers in 1977. Mr.
Elzweig also serves as Chairman of Broward County's Board of Rules and
Appeals Foundations Subcommittee, and Building Envelope Subcommittee.
Donald C. Alford has served as Executive Vice President and a director
of the Company since May 1998. Mr. Alford was an owner of Wyman and served as a
Vice President and Chief Financial Officer from April 1996 until its
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<PAGE>
acquisition by US Labs. Mr. Alford continued to work for US Labs as an
officer of Wyman Testing after the acquisition of Wyman. Mr. Alford was
co-founder of Cornerstone Development, a real estate company that developed
approximately 20 major projects in the San Diego area from 1983 to 1991. From
October 1991 to June 1994, Mr. Alford served as President of Procom Supply
Corporation, a wholesale distributor of telephone equipment that achieved
revenues of $20 million before being sold in 1994. Mr. Alford also served as
Managing Partner of S.A. Assets, LLC, a real estate development company, from
July 1994 to September 1996.
Mark Baron has been President and director of Testing Engineers - San
Diego since May 1998 and has served as Executive Vice President and a director
of the Company since May 1998. Mr. Baron also was employed in the position of
Manager of Business Development with Professional Services Industries from
November 1989 to October 1996. He has over 20 years experience in the
construction industry. Mr. Baron is a certified OSHPD Class A Construction
Inspector.
Martin B. Lowenthal is President and a director of USEL and has served
as Executive Vice President and a director of the Company since May 30, 1998.
Mr. Lowenthal has served as President and director of USEL since November 1994
and as Secretary of USEL since its incorporation in October 1993. Mr. Lowenthal
has 16 years of management experience in the engineering and testing industry.
He has overseen engineering and testing operations in six states, including New
Jersey, New York, Delaware, Pennsylvania, Maryland and Virginia.
James D. Wait has served as Chief Financial Officer, Vice President -
Finance and Treasurer and a director of the Company since May 1998. Prior to his
joining the Company, Mr. Wait served as President of Tayside Development, a real
estate consulting firm, from January 1993 to December 1996. Mr. Wait also served
as Treasurer of Horizon Communities, Inc., a real estate development company,
from December 1996 to October 1997 and as Treasurer of The Encinas Group, a real
estate development company, from November 1997 to April 1998. Prior to 1993, Mr.
Wait acted as the Chief Financial Officer and Treasurer for 16 years for R.B.
McComic, Inc. and The Gentry Company. Mr. Wait is a Certified Public Accountant,
licensed in the State of California since 1981.
Thomas H. Chapman, R.C.E., has served as a director of Testing
Engineers - San Diego since March 1997 and has served as a director of the
Company since May 1998. Mr. Chapman previously served as President of TESD from
March 1997 to May 1998 and has been employed by TESD since May 1997. Mr. Chapman
originally joined the predecessor to TESD in 1968 and eventually left TESD in
1989 when he went to work for Law Engineering. He served as the Office Manager
for Law until he rejoined TESD in 1997. Mr. Chapman has been involved in several
notable projects, including the San Diego Convention Center, the Hyatt Regency
Hotel, the City Front Terrace, and One Harbor Drive. Mr. Chapman earned his
degree in Civil Engineering from San Diego State University and is a California
Registered Civil Engineer.
James L. McCumber is the Chairman, Chief Executive Officer, and founder
of McCumber Golf, an internationally recognized firm noted for the design and
construction of landmark golf courses. McCumber Golf was founded in 1971. Mr.
McCumber has been a director of the Company since May 1998. Additionally, he
serves as a senior official with the Professional Golf Association.
Robert E. Petersen has served as a director of the Company
since May 1998. Mr. Petersen has served as President of Asset
Management Group, a retail and industrial property management
firm, since October 1983. Mr. Petersen has also served as Senior
Vice President and Chief Financial Officer of Collins Development
Co. and Vice President of La Jolla Development Co., both of which
of are real estate development companies, since October 1983.
Noel Schwartz is a Registered Professional Engineer (retired). Mr
Schwartz has been a director of the Company since July 1998. Mr. Schwartz has
served in the engineering and research industry since 1952. Between 1952 and his
retirement in 1988, Mr. Schwartz held positions with United States Testing
Company such as Consumer Research Division Manager, Director of Research, Vice
President of Operations-Laboratory Group, Senior Vice President-Laboratory
Services Division and finally, President-Laboratory Services Division. During
his tenure at United States Testing Company, a publicly traded corporation, he
was a member of the Board of Directors.
Irving Fuchs is a Registered Professional Engineer (retired). Mr Fuchs
has been a director of the Company since July 1998. Mr. Fuchs has served in the
engineering and research industry since the early 1950's. Before his retirement
in 1992, Mr. Fuchs held several positions with United States Testing Company,
including Division
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<PAGE>
Manager-Engineering Services, Division Manager-Commercial Engineering and
Testing, Senior Vice President-Engineering Services Group, and
President-Engineering Services Group. During his tenure at United States
Testing Company, a publicly traded corporation, he was a member of the Board
of Directors.
DIRECTOR COMPENSATION
The Company intends to reimburse its directors for all reasonable and
necessary travel and other incidental expenses incurred in connection with their
attendance at meetings of the Board and to compensate all non-employee directors
$500 for each board meeting attended. Directors are not currently compensated
for serving on the Board. However, under the 1998 Stock Option Plan each
non-employee director who is first elected to the Board will automatically
receive an option to purchase 5,000 shares of Common Stock for the first year of
the director's Board term. The Board has not yet determined the number of shares
of Common Stock that each director will receive for each additional year the
director remains on the Board. These options will have an exercise price equal
to 100% of the fair market value of the Common Stock on the grant date.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Compensation Committee currently composed
of Messrs. Wright, Petersen, and Schwartz. The Compensation Committee reviews
and acts on matters relating to compensation levels and benefit plans for
executive officers and key employees of the Company, including salary and
stock options. The Committee is also responsible for granting stock awards,
stock options and stock appreciation rights and other awards to be made under
the Company's existing incentive compensation plans. The Company also has a
standing Audit Committee composed of Messrs. McCumber and Petersen. The Audit
Committee assists in selecting the Company's independent auditors and in
designating services to be performed by, and maintaining effective
communication with, those auditors.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Amended and Restated Certificate of Incorporation
provides that directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law (relating
to unlawful payment of dividends or unlawful stock purchase or redemption) or
(iv) for any transaction from which the director derived any improper personal
benefit.
The Company's Amended and Restated Certificate of Incorporation also
provides that the Company will indemnify the Company's directors, officers,
employees and agents to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Wright,
Elzweig, Alford, Baron, Lowenthal, and Wait. Each of these agreements has a term
of three years, provided that the Company may terminate any of the agreements
with or without cause. These Employment Agreements also provide for 12 months of
severance pay at the rate of 50% of the applicable executive's compensation in
the event the executive is terminated other than for cause prior to the end of
the three-year term.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation paid or accrued for the fiscal year ended December 31, 1997 by the
Company to or for the benefit of the Company's Chief Executive Officer and the
only executive officer of the Company whose total annual compensation for 1997
exceeded $100,000 (the "Named Executive Officer").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL POSITION SALARY ($)
- ------------------ ----------
<S> <C>
Dickerson Wright, $155,518
Chief Executive Officer
Gary H. Elzweig, $181,067
Executive Vice President(2)
</TABLE>
- ------------------
(1) In accordance with Instruction to Item 402(b) of Regulation S-B promulgated
by the Securities and Exchange Commission (the "Commission"), information
with respect to fiscal years prior to 1997 has not been included because
the Company was not a reporting company under Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, and the information has not
been previously reported to the Commission in response to a filing
requirement.
(2) During 1997, Mr. Elzweig was not an employee of the Company, but
provided management services for the Company as an independent
contractor. Mr. Elzweig received 5% of the net sales of PEICO
in exchange for these management services, and the amounts set
forth above represents this management services fee.
In 1998, the Company will pay Mr. Wright an annual salary of $175,000
and Mr. Elzweig an annual salary of $125,000.
STOCK OPTION PLAN. On May 30, 1998, the Board of Directors of the
Company adopted the U.S. Laboratories Inc. 1998 Stock Option Plan (the "1998
Stock Option Plan"), under which the Board or the Compensation Committee may
issue incentive stock options and non-qualified stock options to purchase an
aggregate of 500,000 shares of Common Stock. Options may be issued under the
plan to employees, officers, directors, advisors, or consultants of the
Company and its subsidiaries. The 1998 Stock Option Plan is administered by
the Compensation Committee. On May 30, 1998, the Board of Directors
authorized the issuance, under the terms of the 1998 Stock Option Plan, of:
(a) incentive stock options to purchase an aggregate of 145,000 shares of
Common Stock for an exercise price of $5.50 to Dickerson Wright and Gary
Elzweig; (b) incentive stock options to purchase an aggregate of 205,000
shares of Common Stock for an exercise price of $5.00 to certain officers and
employees of the Company and its subsidiaries; and (c) non-qualified stock
options to purchase an aggregate of 45,000 shares of Common Stock for an
exercise price of $5.00 to certain non-employee directors of the Company and
its subsidiaries and certain other non-employees who have provided services
to the Company. All of these stock options are subject to vesting schedules
described in stock option agreements between the Company and the recipients
of the stock options.
WARRANTS. The Board of Directors on May 30, 1998 also authorized the
issuance to certain of the Company's officers and employees warrants to purchase
an aggregate of 150,000 shares of Common Stock for an exercise price of $5.00
per share.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of July 31, 1998, and
as adjusted to reflect the sale of the Units offered hereby by the Company,
by (i) each person who is known to own beneficially more than 5% of the
outstanding shares of the Company's Common Stock, (ii) each of the Company's
directors, (iii) the Named Executive Officer, and (iv) all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
Name and Address of Number of Prior to After
Beneficial Owner(1) Shares Offering Offering
- ------------------- ------ -------- --------
<S> <C> <C> <C>
Dickerson Wright.............................. 2,095,580(2) 70.1% 50.0%
Gary H. Elzweig............................... 423,180(3) 14.1% 10.1%
Martin B. Lowenthal........................... 96,000(4) 3.2% 2.3%
Donald C. Alford.............................. 90,000(5) 3.0% 2.1%
Mark Baron.................................... 70,000(6) 2.3% 1.7%
Thomas H. Chapman............................. 53,600(7) 1.8% 1.3%
James D. Wait................................. 30,000(8) 1.0% *
James L. McCumber............................. 5,000(9) * *
Robert E. Petersen............................ 5,000(10) * *
Noel Schwartz................................. 5,000(11) * *
Irving Fuchs.................................. 5,000(12) * *
All current directors and officers as a group
(11 persons).................................. 2,878,360 96.2% 68.7%
</TABLE>
- ---------------------
* Represents less than 1%
(1) Such persons have sole voting and investment power with
respect to all shares of Common Stock shown as being
beneficially owned by them, subject to community property
laws, where applicable, and the information contained in the
footnotes to this table. The address of all stockholders is
c/o the Company, 7895 Convoy Court, Suite 18, San Diego,
California 92111.
(2) Includes 18,180 shares issuable upon exercise of options exercisable
within 60 days of July 31, 1998 awarded to Mr. Wright under the Company's
1998 Stock Option Plan and 60,000 shares issuable upon exercise of
warrants exercisable within 60 days of July 31, 1998 granted by the
Company to Mr. Wright. See "Management - Executive Compensation."
(3) Includes 18,180 shares issuable upon exercise of options exercisable
within 60 days of July 31, 1998 awarded to Mr. Elzweig under the Company's
1998 Stock Option Plan and 30,000 shares issuable upon exercise of
warrants exercisable within 60 days of July 31, 1998 granted by the
Company to Mr. Elzweig. See "Management - Executive Compensation."
(4) Includes 20,000 shares issuable upon exercise of options exercisable
within 60 days of July 31, 1998 awarded to Mr. Lowenthal under the
Company's 1998 Stock Option Plan and 10,000 shares issuable upon exercise
of
39
<PAGE>
warrants exercisable within 60 days of July 31, 1998 granted by the
Company to Mr. Lowenthal. See "Management - Executive Compensation."
(5) Includes 20,000 shares issuable upon exercise of options exercisable
within 60 days of July 31, 1998 awarded to Mr. Alford under the Company's
1998 Stock Option Plan and 10,000 shares issuable upon exercise of
warrants exercisable within 60 days of July 31, 1998 granted by the
Company to Mr. Alford. See "Management - Executive Compensation."
(6) Includes 20,000 shares issuable upon exercise of options exercisable
within 60 days of July 31, 1998 awarded to Mr. Baron under the Company's
1998 Stock Option Plan and 10,000 shares issuable upon exercise of
warrants exercisable within 60 days of July 31, 1998 granted by the
Company to Mr. Baron. See "Management - Executive Compensation."
(7) Includes 20,000 shares issuable upon exercise of options exercisable
within 60 days of July 31, 1998 awarded to Mr. Chapman under the Company's
1998 Stock Option Plan and 5,000 shares issuable upon exercise of warrants
exercisable within 60 days of July 31, 1998 granted by the Company to
Mr. Chapman. See "Management - Executive Compensation."
(8) Includes 20,000 shares issuable upon exercise of options exercisable
within 60 days of July 31, 1998 awarded to Mr. Wait under the Company's
1998 Stock Option Plan and 10,000 shares issuable upon exercise of
warrants exercisable within 60 days of July 31, 1998 granted by the
Company to Mr. Wait. See "Management - Executive Compensation."
(9) Includes 5,000 shares issuable upon exercise of options exercisable within
60 days of July 31, 1998 awarded to Mr. McCumber under the Company's 1998
Stock Option Plan. See "Management - Executive Compensation."
(10) Includes 5,000 shares issuable upon exercise of options exercisable within
60 days of July 31, 1998 awarded to Mr. Petersen under the Company's 1998
Stock Option Plan. See "Management - Executive Compensation."
(11) Includes 5,000 shares issuable upon exercise of options exercisable within
60 days of July 31, 1998 awarded to Mr. Schwartz under the Company's 1998
Stock Option Plan. See "Management - Executive Compensation."
(12) Includes 5,000 shares issuable upon exercise of options exercisable within
60 days of July 31, 1998 awarded to Mr. Fuchs under the Company's 1998
Stock Option Plan. See "Management - Executive Compensation."
RELATED TRANSACTIONS
All ongoing present and future transactions with affiliates of the
Company have been, and will continue to be, on terms no less favorable to the
Company than could have been obtained from unaffiliated parties, and will be
approved by a majority of the Company's independent directors who do not have an
interest in those transactions and who have access, at the Company's expense, to
the Company's counsel, or independent legal counsel.
At December 31, 1997 and July 31, 1998, the Company had amounts due to
Dickerson Wright, the Chief Executive Officer and majority stockholder, of
$584,281 and $98,386, respectively. The amounts due to the Mr. Wright were
loaned to the Company by Mr. Wright through the use of his personal line of
credit that was personally guaranteed by Mr. Wright and his spouse. In May 1998,
a portion of that line of credit was repaid by the Company through borrowing
under a new $1.7 million line of credit that is also personally guaranteed by
Mr. Wright and his spouse. In October 1998, the $1.7 million line of credit was
refinanced into a $1,200,000 note payable and a $500,000 line of credit, both of
which are guaranteed by Mr. Wright and his spouse. In July 1998, the Company
also entered into a $500,000 line of credit that is personally guaranteed by
Mr. Wright and his spouse. This $500,000 line of credit was used by the Company
to repay in full to the bank the $480,000 loan made to the Company through the
use of Mr. Wright's personal line of credit.
As part of the consideration for the acquisition of the assets of
Wyman, the Company issued a non-interest bearing note payable to Donald C.
Alford in the amount of $150,000. The note payments are due in four equal annual
installments of $37,500 beginning in March 1999.
During the years ended December 31, 1997 and 1996 and the seven months
ended July 31, 1998 and 1997, the Company paid $181,067, $169,594, $106,116, and
$92,052, respectively, in management fees to Gary Elzweig. The
40
<PAGE>
management fees were based on 5% of net sales of a subsidiary.
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting
Agreement ("Underwriting Agreement") Janda & Garrington LLC (the "Underwriter"),
has agreed to purchase from the Company, and the Company has agreed to sell to
the Underwriter, 1,200,000 Units (the "Firm Units"), each consisting of one
share of Common Stock and one Warrant to purchase one share of Common stock at
$6.50 per share, with the Underwriter's overallotment option to purchase an
additional 180,000 Units (the "Option Units"), subject to certain terms and
conditions, some of which are specified below.
The Underwriter is committed to take and pay for all of the Firm Units,
if any are taken. The Underwriter has advised the Company that it proposes to
offer the Units to the public at the initial public offering price of $5.00 per
Unit. The Underwriter will purchase the Units at a concession (discount) of 90%.
The Underwriter initially proposes to offer part of the Units directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and part to certain dealers at a price that represents a concession
not in excess of 6.5% of the initial public offering price. The Underwriter may
change the initial public offering price, concession, and discount to dealers
after the Units are released for sale to the public. The Underwriter has
informed the Company that it does not intend to confirm sales to any account
over which it exercises discretionary authority. The Company will also pay the
Underwriter a 3% non-accountable expense allowance, of which to date $25,000 has
been paid.
Upon completion of the Offering, the Company will grant to the
Underwriter warrants to purchase 120,000 Units (10% of the Firm Units). These
warrants will entitle the Underwriter to purchase shares of Common Stock at a
price equal to 120% of the Offering Price for a period commencing one year after
the Effective Date and ending 5 years after that date. The Company has agreed to
pay all costs and expenses incident to the registration and qualification of the
Units with the Commission, the NASD, and such state securities regulatory
agencies as the Underwriter may reasonably request.
The Company has agreed to use Janda & Garrington LLC as its
non-exclusive financial adviser until February 18, 2000 for any future mergers,
acquisitions, or strategic partnership transactions entered into by the Company
with entities introduced to the Company by Janda & Garrington LLC. The Company
will compensate Janda & Garrington LLC based on the "Lehman formula." The
Company paid Janda & Garrington LLC $22,500 in fees for services rendered in the
acquisition of Wyman.
The Company has filed an application with the NASD to obtain a SmallCap
Market listing for the Common Stock and the Warrants.
The Underwriting Agreement provides that the obligations of the
Underwriter to pay for and accept delivery of the Units are subject to the
approval of certain legal matters by counsel and to certain other conditions.
In connection with the Offering, the Underwriter may engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing, or maintaining
the price of the Common Stock.
If the Underwriter creates a short position in the Common Stock in
connection with the Offering, the Underwriter may reduce that short position by
purchasing Common Stock in the open market. The Underwriter may also elect to
reduce any short position by exercising all or part of the overallotment option.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriter makes any representation that the
Underwriter will engage in such transaction or that such transactions, once
commenced, will not be discontinued without notice.
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<PAGE>
The Company has granted to the Underwriter, for a period of 45 days
following the Effective Date, an overallotment option to purchase any or all of
the Option Units at the initial public offering price set forth on the cover
page hereof, less underwriting discounts and commissions. The Underwriter may
exercise this option to purchase solely for the purpose of covering
over-allotments, if any, incurred in the sale of the Units.
The purchase price of the Units has been determined by mutual agreement
between the Company and the Underwriter. The offering price has no direct
relationship to any established criteria of value, such as book value or
earnings per share or any combination thereof. The price of the Units does not
necessarily indicate current market value for the assets owned by the Company.
No valuation or appraisal has been prepared for the business and potential
business of the Company. See "Risk Factors - Determination of Offering Price."
The Company has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act. See "Disclosure of Commission
Position on Indemnification for Securities Act Liabilities."
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK OR THE WARRANTS, INCLUDING OVER-ALLOTMENT, STABILIZING AND
SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY
BID, IN CONNECTION WITH THE OFFERING.
DESCRIPTION OF SECURITIES
UNITS
Each Unit being offered by the Company consists of one share of Common
Stock, $.01 par value per share, and one redeemable Warrant to purchase one
share of Common Stock at an exercise price of $6.50. The Common Stock and the
Warrant comprising each Unit will be separately transferable upon issuance.
COMMON STOCK
The Company is authorized to issue up to 50,000,000 shares of Common
Stock, par value $.01 per share. As of the date of this Prospectus, there were
2,615,000 shares of Common Stock issued and outstanding, held of record by ten
stockholders. The holders of the Common Stock are entitled to one vote for each
share held of record on each matter submitted to a vote at a meeting of
stockholders, and except as provided by resolutions of the Company's Board of
Directors providing for the issuance of any class or series of preferred stock,
the exclusive voting power for all purposes is vested in the holders of Common
Stock.
Subject to the preferential rights of holders of preferred stock as
provided by resolutions of the Company's Board of Directors authorizing the
issuance of any class of Preferred Stock, holders of Common Stock are entitled
to receive their pro rata share, based upon the number of shares held by them,
of such dividends or other distributions as may be declared by the Board of
Directors. In the event of a liquidation, dissolution, or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after the payment or provision of the Company's debts and other
liabilities and the liquidation preference of any outstanding preferred stock.
Holders of Common Stock have no preemptive rights and have no rights to convert
their Common Stock into any other securities. The outstanding shares of Common
Stock are, and the shares of Common Stock offered hereby will be, when issued,
validly issued, fully paid, and nonassessable.
After completion of the Offering, 3,815,000 shares of Common Stock will
be issued and outstanding (assuming no exercise of the Underwriter's
overallotment option, the Warrants, the Underwriter's Warrant and other
outstanding rights to acquire the Common Stock).
WARRANTS
GENERAL. The following is a brief summary of certain provisions of the
Warrants included in the Units offered hereby. Such summary does not purport to
be complete and is qualified in all respects by reference to the actual terms
and provisions of the Warrant Agency Agreement between the Company and U.S.
Stock Transfer Corporation (the "Warrant Agent"). A copy of the Warrant
Agreement is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
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<PAGE>
EXERCISE PRICE AND TERMS. Each Warrant entitles the registered holder
thereof to purchase at any time over a five-year period commencing on the
effective date of the Registration Statement of which this Prospectus is a part,
one share of Common Stock at a price of $6.50, subject to adjustment in
accordance with the anti-dilution and other provisions referred to below. The
exercise price of the Warrants bears no relation to any objective criteria of
value, and should in no event be regarded as an indication of any future market
price of the securities offered hereby. Holders of Warrants have the right to
exercise their Warrants for the purchase of shares of Common Stock only if a
current prospectus relating to such shares is then in effect and only if such
shares are qualified for sale, or deemed to be exempt from qualification, under
applicable state securities laws. The Company will use its best efforts to
maintain a current prospectus relating to such shares of Common Stock at all
times when the market price of the Common Stock exceeds the exercise price of
the Warrants until the expiration date of the Warrants, although there can be no
assurance that the Company will be able to do so.
In order to exercise the Warrants, the registered holder of such
Warrants must surrender the Warrant certificate evidencing such Warrants,
complete, execute and deliver to the Warrant Agent the exercise form on the
reverse side of the Warrant certificate, together with payment to the Company of
the exercise price with respect to the Warrants then being exercised and an
amount equal to any applicable transfer tax and, if requested by the Company,
any other taxes or governmental charges which the Company may be required by law
to collect. Payment of the exercise price and other amounts may be made in cash,
or by certified or official bank check to the order of the Company. No
adjustment shall be made for any cash dividends, whether paid or declared, on
any securities issuable upon exercise of a Warrant. If the registered holder of
any Warrant certificate exercises fewer than all of the Warrants evidenced by
the Warrant certificate, the Warrant Agent will deliver to the registered holder
a new Warrant certificate evidencing the number of Warrants not exercised.
ANTI-DILUTION ADJUSTMENTS. If the Company issues a stock dividend,
engages in a stock split or reverse stock split, or reclassifies the Common
Stock, the number of shares of Common Stock purchasable upon exercise of the
Warrant will be adjusted so that the holder of the Warrant will be entitled to
receive the same number of securities that it would have been entitled to
receive if the Warrant had been exercised before the stock dividend, stock split
or reverse stock split, or reclassification. No adjustment will be made,
however, unless the adjustment would result in a 1% change in the number of
shares of Common Stock issuable under the Warrant. If an adjustment is made, the
exercise price of the Warrant will be adjusted so that the total price for
exercising the Warrant will be the same after the adjustment as it was before
the adjustment. For example, if the anti-dilution adjustment increases the
number of shares issuable under the Warrant from one share to two shares, the
exercise price will decrease from $6.50 per share to $3.25 per share. Whenever
the number of shares of Common Stock issuable under the Warrants is adjusted as
described above, the Company will file with the Warrant Agent a certificate of
certain of the Company's officers setting forth the adjusted number of shares
purchasable and adjusted per share purchase price, certifying compliance with
the terms of the Warrant Agreement and setting forth a brief description of the
adjustments. After filing such certificate, the Company or the Warrant Agent
will deliver a brief summary of the adjustments to the registered holders of the
outstanding Warrants.
REDEMPTION PROVISIONS. Outstanding Warrants can be redeemed in whole
at any time or in part from time to time at the option of the Company, on not
more than 60 days' nor less than 30 days' written notice to the registered
holders of the Warrants at a price equal to $0.01 per Warrant so long as the
closing price for the Common Stock on NASDAQ exceeds 200% of the Price to
Public of Units under the Offering for 20 consecutive trading days ending on
the third trading day prior to the day on which the Company gives notice of
redemption. The registered holders of the Warrant will have the right to
exercise the Warrants under the terms described above until the redemption
date. On the redemption date, the registered holders of unexercised Warrants
are entitled to payment of the redemption price upon surrender of such
redeemed Warrants to the Company at the stock transfer office of the Warrant
Agent. If the Company redeems fewer than all of the outstanding Warrants, the
Company will designate those Warrants to be redeemed pro rata or by lot.
After the redemption date, all rights of the holders of Warrants except
the right to receive the redemption price terminates, but only if (a) on or
prior to the redemption date the Company has irrevocably deposited with the
Warrant Agent a sufficient amount to pay the redemption price for all Warrants
called for redemption, and (b) the notice of redemption has stated the name and
address of the Warrant Agent and the intention of the Company to deposit this
amount with the Warrant Agent on or before the redemption date.
43
<PAGE>
PREFERRED STOCK
The Company's amended and restated certificate of incorporation
authorizes the Board of Directors to provide by resolution for the issuance from
time to time of up to 5,000,000 shares of preferred stock in one or more class
or series, with such special rights and preferences, including but not limited
to dividend or liquidation preferences, voting rights and redemption rights,
anti-dilution rights or conversion rights, as the Board may specify.
As of the date of this prospectus, the Board of Directors has not
authorized the issuance of any class or series of preferred stock and no shares
of preferred stock are issued or outstanding.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is
U.S. Stock Transfer Corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,815,000 shares
of Common Stock outstanding (assuming no exercise of options or other
convertible securities or issuances of Common Stock subsequent to July 31,
1998). The 1,200,000 shares of Common Stock sold in the Offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act ("Affiliates'), may generally be
sold only in compliance with certain limitations of Rule 144 described below.
The remaining approximately 2,615,000 shares of Common Stock are deemed
"Restricted Shares" under Rule 144. None of the Restricted Shares are eligible
for sale in the public market immediately after the Offering under Rule 144(k)
under the Securities Act. Restricted Shares in the amount of 2,017,400 may be
eligible for sale in the public market in accordance with Rule 144 under the
Securities Act beginning 90 days after the date of this Prospectus. The holder
of these Restricted Shares has agreed not to sell or otherwise dispose of any of
his shares for a period of 18 months after the date of this Prospectus without
the prior written consent of Janda & Garrington. Janda & Garrington may, in
their sole discretion, and at any time without notice, release all or any
portion of the securities subject to lock-up agreements.
Upon expiration of the lock-up agreements 18 months after the date of
this Prospectus, approximately 3,026,360 shares of Common Stock (including
shares issued or issuable upon the exercise of vested options and warrants
outstanding as of July 31, 1998) will become available for sale in the public
market; the remaining 133,640 shares will become eligible for sale under Rule
144 at various dates thereafter as the holding period provisions of Rule 144 are
satisfied. In general, under Rule 144 as recently amended, beginning
approximately 90 days after the effective date of the Registration Statement of
which this Prospectus is a part, a stockholder, including an Affiliate, who has
beneficially owned his or her restricted securities (as that term is defined in
Rule 144) for at least one year from the later of the date such securities were
acquired from the Company or (if applicable) the date they were acquired from an
Affiliate, is entitled to sell, within any three-month period, a number of such
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock (approximately 38,150 immediately after the Offering) or the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at the time of sale and has not been an Affiliate of
the Company for at least three months prior to the sale is entitled to sell the
shares immediately without compliance with the foregoing requirements under Rule
144.
Securities issued in reliance on Rule 701 (such as shares of Common
Stock that may be acquired under the exercise of certain options granted prior
to the Offering) are also restricted securities and, beginning 90 days after the
date of this Prospectus, may be sold by stockholders other than an Affiliate of
the Company subject only to the manner of sale provisions of Rule 144 and by an
Affiliate under Rule 144 without compliance with its one-year holding period
requirement.
Prior to the Offering, there has been no public market for the Common
Stock or the Warrants. No prediction can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
44
<PAGE>
market price of the Common Stock or the Warrants prevailing from time to time.
The Company is unable to estimate the number of shares that may be sold in the
public market under Rule 144, since this will depend on the market price of the
Common Stock, the personal circumstances of the sellers, and other factors.
Nevertheless, sales of significant amounts of the Common Stock of the Company in
the public market could adversely affect the market price of the Common Stock or
the Warrants and could impair the Company's ability to raise capital through an
offering of its equity securities.
EXPERTS
The consolidated financial statements of U.S. Laboratories Inc. at
December 31, 1996 and 1997 and for each of the two years in the period ended
December 31, 1997 appearing in this Prospectus and the Registration Statement
have been audited by Singer Lewak Greenbaum Goldstein LLP, independent auditors,
as set forth in their report thereon appearing elsewhere herein and in the
Registration Statement and are included in reliance upon this report given upon
the authority of this firm as experts in accounting and auditing.
The financial statements of Wyman Testing Laboratories, Inc. at
December 31, 1997 and for the year then ended appearing in this Prospectus and
the Registration Statement have been audited by Singer Lewak Greenbaum Goldstein
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement and are included in reliance
upon this report given upon the authority of this firm as experts in accounting
and auditing.
LEGAL MATTERS
Foley & Lardner, San Diego, California and Chicago, Illinois will pass
upon certain legal matters for the Company. David B. Stocker, Esq., Phoenix,
Arizona will pass upon certain legal matters for the Underwriter.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act with the Commission in Washington, D.C. with respect to the
securities offered hereby. This Prospectus, which is part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the securities offered hereby, reference is hereby
made to the Registration Statement and the exhibits and schedules filed as a
part thereof. Statements contained in this Prospectus as to the contents of any
agreement or any other document referred to are not necessarily complete, and in
each instance, if such agreement or document is filed as an exhibit, reference
is made to the copy of such agreement or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference to such exhibit. The Registration Statement, including exhibits
and schedules thereto, may be inspected and copied at the principal office of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's Regional Offices at 7 World Trade Center, New
York, New York 10048, and Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Company is required
to file electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
45
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
U.S. LABORATORIES INC. AND SUBSIDIARIES
Report of Singer Lewak Greenbaum Goldstein LLP, Independent Auditors....... F-2
Consolidated Balance Sheets at December 31, 1997 and
at July 31, 1998 (unaudited)............................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 and the seven months ended July 31, 1998 and
1997 (unaudited)........................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996 and the seven months ended July 31,
1998 (unaudited)........................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1996 and the seven months ended July 31, 1998 and
1997 (unaudited)........................................................... F-7
Notes to Consolidated Financial Statements................................. F-10
WYMAN TESTING LABORATORIES, INC.
Report of Singer Lewak Greenbaum Goldstein LLP, Independent Auditors....... F-24
Balance Sheet at December 31, 1997......................................... F-25
Statement of Operations for the year ended December 31, 1997............... F-27
Statement of Stockholders' Equity for the year ended December 31, 1997..... F-28
Statement of Cash Flows for the year ended December 31, 1997............... F-29
Notes to Financial Statements.............................................. F-31
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Balance Sheet.................................................... F-39
Pro Forma Statement of Operations.......................................... F-41
Note to Pro Forma Financial Statements..................................... F-42
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholder
U.S. Laboratories Inc.
We have audited the accompanying consolidated balance sheet of U.S.
Laboratories Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two 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 consolidated financial position of U.S.
Laboratories Inc. and subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their consolidated cash flows
for each of the two years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
March 4, 1998 (except for
Note 7, as to which the date
is October 21, 1998)
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND JULY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
December 31, July 31,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Current assets
Cash................................................................... $ 94,132 $ 44,243
Accounts receivable, net of allowances for doubtful
accounts of $40,927 and $22,555, respectively....................... 1,719,120 2,791,993
Work-in-process........................................................ 181,772 188,634
Prepaid expenses and other current assets 47,414 47,641
------------ -----------
Total current assets.......................................... 2,042,438 3,072,511
Furniture and equipment, net of accumulated depreciation
of $564,217 and $673,434, respectively................................. 395,711 683,105
Excess cost over fair value of net assets acquired, net
of accumulated amortization of $331,725 and $400,034, respectively..... 939,147 1,576,962
Deferred offering costs..................................................... - 198,241
Other assets................................................................ 154,411 171,890
------------ -----------
Total assets.............................................. $ 3,531,707 $ 5,702,709
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
DECEMBER 31, 1997 AND JULY 31, 1998 (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------- ------------
(unaudited)
<S> <C> <C>
Current liabilities
Book overdraft......................................................... $ 9,390 $ 54,950
Lines of credit........................................................ 484,335 403,660
Current portion of long-term debt...................................... 84,526 95,682
Current portion of capitalized lease obligations - 12,353
Current portion of notes payable....................................... - 383,993
Accounts payable....................................................... 273,620 433,910
Accrued payroll and payroll taxes...................................... 115,214 113,901
Other accrued expenses................................................. 14,612 -
Due to stockholder..................................................... 584,281 98,386
Deferred income tax.................................................... 678,749 678,749
Income tax payable..................................................... 162,708 385,268
----------- ------------
Total current liabilities.......................................... 2,407,435 2,660,852
Long-term debt, net of current portion...................................... 118,732 172,058
Capitalized lease obligations, net of current portion - 9,814
Notes payable, net of current portion....................................... - 1,285,000
----------- ------------
Total liabilities............................................. 2,526,167 4,127,724
----------- ------------
Minority interest........................................................... 338,128 -
----------- ------------
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value
5,000,000 shares authorized
none issued and outstanding........................................ - -
Common stock, $0.01 par value
50,000,000 shares authorized
2,032,400 and 2,615,000 shares issued and outstanding.............. 20,324 26,150
Additional paid-in capital............................................. 377,676 966,102
Retained earnings...................................................... 269,412 582,733
----------- ------------
Total stockholders' equity.................................... 667,412 1,574,985
----------- ------------
Total liabilities and stockholders' equity................ $ 3,531,707 $ 5,702,709
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
For the Years Ended For the Seven Months Ended
December 31, July 31,
------------------------------- ---------------------------------
1997 1996 1998 1997
-------------- --------------- -------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue..................................... $ 7,766,414 $ 4,963,090 $ 6,255,944 $ 4,049,518
Cost of goods sold.......................... 4,476,952 2,635,263 3,218,557 2,387,194
--------------- ---------------- --------------- ----------------
Gross profit................................ 3,289,462 2,327,827 3,037,387 1,662,324
Selling, general, and administrative
expenses................................. 2,531,770 1,853,318 2,442,815 1,416,734
--------------- ---------------- --------------- ----------------
Income from operations...................... 757,692 474,509 594,572 245,590
--------------- ---------------- --------------- ----------------
Other income (expense)
Interest expense......................... (130,605) (84,390) (80,991) (66,007)
Interest income.......................... 7,277 8,430 9,252 2,997
Forgiveness of note receivable........... - (9,976) - 1,738
Forgiveness of debt...................... 100,000 - - 100,000
Gain (loss) on sale of fixed asset....... 4,912 (3,873) - -
Rental income............................ 25,160 4,598 13,048 16,857
Gain on sale of minority interest........ 25,229 - - 25,229
--------------- ---------------- --------------- ----------------
Total other income (expense)........... 31,973 (85,211) (58,691) 80,814
--------------- ---------------- --------------- ----------------
Income before provision for income
taxes and minority interest.............. 789,665 389,298 535,881 326,404
Provision for income taxes.................. 345,256 202,921 222,560 143,464
--------------- ---------------- --------------- ----------------
Income before minority interest............. 444,409 186,377 313,321 182,940
Minority interest........................... (80,253) (33,664) - (31,574)
--------------- ---------------- --------------- ----------------
Net income.................................. $ 364,156 $ 152,713 $ 313,321 $ 151,366
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
Basic income per share...................... $ 0.14 $ 0.06 $ 0.12 $ 0.06
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
Diluted income per share.................... $ 0.14 $ 0.06 $ 0.12 $ 0.06
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
WEIGHTED-AVERAGE SHARE
outstanding.............................. 2,615,000 2,615,000 2,615,000 2,615,000
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE SEVEN MONTHS ENDED JULY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
-------------------------------- Paid-In (Accumulated
Shares Amount Capital Deficit) Total
--------------- --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December
31, 1995................ 2,032,400 $ 20,324 $ 377,676 $ (247,457) $ 150,543
Net income................. 152,713 152,713
--------------- --------------- -------------- --------------- ----------------
Balance, December
31, 1996................ 2,032,400 20,324 377,676 (94,744) 303,256
Net income................. 364,156 364,156
--------------- --------------- -------------- --------------- ----------------
Balance, December
31, 1997................ 2,032,400 20,324 377,676 269,412 667,412
Issuance of common
stock in exchange
for shares held by
minority interest
holders (unaudited) 582,600 5,826 588,426 594,252
Net income (unaudited) 313,321 313,321
--------------- --------------- -------------- --------------- ----------------
Balance, July 31,
1998 (unaudited) 2,615,000 $ 26,150 $ 966,102 $ 582,733 $ 1,574,985
--------------- --------------- -------------- --------------- ----------------
--------------- --------------- -------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1996 FOR THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
For the Years Ended For the Seven Months Ended
December 31, July 31,
---------------------------- -----------------------------
1997 1996 1998 1997
---------- ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income............................... $ 364,156 $ 152,713 $ 313,321 $ 151,366
Adjustments to reconcile net income
to net cash provided by operating
activities
Amortization......................... 84,724 84,724 68,309 49,243
Depreciation......................... 181,552 145,980 130,299 106,514
Loss (gain) on sale of fixed asset... (4,912) 3,873 - -
Forgiveness of debt.................. (100,000) - - (100,000)
Minority interest.................... 80,253 33,664 - 31,574
Distributions to minority interests.. (20,000) (251,327) - -
Gain on sale of subsidiary stock..... 9,771 - - 9,771
Deferred income tax.................. 275,918 109,551 - -
(Increase) decrease in
Accounts receivable.................... (750,149) (325,311) (495,192) (336,283)
Work in process........................ 24,826 (21,344) (6,862) 9,698
Prepaid expenses....................... 21,008 7,571 29,758 (3,264)
Other assets........................... (63,486) (34,300) (17,479) (10,286)
Increase (decrease) in
Accounts payable....................... 49,476 (2,965) 119,870 73,463
Accrued payroll and payroll taxes...... 46,362 41,447 (73,923) (8,029)
Other accrued expenses................. (1,251) 15,863 (30,085) 7,370
Income tax payable..................... 69,338 93,370 222,560 143,464
---------- ------------ ------------ ------------
Net cash provided by operating
activities.................................. 267,586 53,509 260,576 124,601
---------- ------------ ------------ ------------
Cash flows from investing activities
Purchase of furniture and equipment...... (83,798) (93,142) (161,786) (62,154)
Proceeds from sale of fixed assets....... 34,291 4,801 - -
Investment in the San Diego division
of CH&A Corporation.................... - (62,500) - -
Investment in Wyman Enterprises,
Inc., net of cash acquired............. - - (296,730) -
Investment in Professional Services
Industries, Inc........................ - - (13,900) -
Investment in Jupiter, Division of Fraser
Engineering & Testing, Inc............. - - (35,000) -
---------- ------------ ------------ ------------
Net cash used in investing activities....... (49,507) (150,841) (507,416) (62,154)
---------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1996 FOR THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
For the Years Ended For the Seven Months Ended
December 31, July 31,
---------------------------- ------------------------------
1997 1996 1998 1997
----------- ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from financing activities
Increase (decrease) in book
overdraft.............................. $ (69,095) $ 46,792 $ 45,560 $ (62,630)
Line of credit, net...................... 322,229 162,106 (278,176) 191,394
Due to stockholders, net................. (130,421) 161,443 (485,895) 74,453
Payments on long-term debt............... (97,660) (64,919) (75,358) (56,108)
Payments on capitalized lease
obligations............................ - - (4,932) -
Payments on notes payable................ (149,000) (238,000) - (149,000)
Deferred offering costs.................. - - (198,241) -
Increase in notes payable................ - - 1,218,993 -
Due from Wyman Testing
Laboratories, Inc...................... - - (25,000) -
----------- ------------ ------------ -----------
Net cash provided by (used in)
financing activities........................ (123,947) 67,422 196,951 (1,891)
----------- ------------ ------------ -----------
Net increase (decrease) in cash............. 94,132 (29,910) (49,889) 60,556
Cash, beginning of period................... - 29,910 94,132 -
----------- ------------ ------------ -----------
Cash, end of period......................... $ 94,132 $ - $ 44,243 $ 60,556
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Supplemental disclosures of cash flow information
Interest paid............................ $ 130,605 $ 84,390 $ 80,991 $ 66,007
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Income taxes paid........................ $ 2,000 $ 1,380 $ 135 $ 1,000
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1996 FOR THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the years ended December 31, 1997 and 1996 and the seven months ended
July 31, 1998 and 1997, the Company acquired an automobile and trucks of
$124,469, $105,679, $110,055, and $124,469, respectively, under note payable
agreements.
During the year ended December 31, 1997 and the seven months ended July 31,
1997, the Company forgave debt in the amount of $100,000.
On January 1, 1998, the Company issued 582,600 shares of the Company's common
stock to minority interest holders in exchange for all of their shares in the
subsidiaries. In connection with the purchase, the Company recorded additional
goodwill of $194,924.
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended
July 31, 1998 and 1997 is unaudited.)
NOTE 1 - ORGANIZATION AND BUSINESS
U.S. Laboratories Inc. and subsidiaries (collectively the
"Company") offers engineering and design services, project
management, construction quality control, structural
engineering and design, environmental engineering and
inspection and testing. The Company has facilities in
California, New Jersey, and Florida and grants credit to
customers in those states.
ACQUISITIONS
On October 18, 1996, the Company acquired substantially all the
furniture and equipment of the San Diego division of CH&A Corporation.
The purchase price of the assets was $67,500 which was paid on the
closing date.
On January 1, 1998, the Company purchased all of the shares held by
minority stockholders in its subsidiaries for $533,052. The Company
issued an aggregate of 522,600 shares of common stock in exchange for
the purchase price. The shares were valued using a method similar to
previous Company acquisitions. The Company recorded $194,924 in excess
of cost over fair value of net assets acquired which is being amortized
on a straight-line basis over fifteen years.
On March 25, 1998, Wyman Testing Laboratories, Inc. ("Wyman"), a
majority-owned subsidiary of U.S. Laboratories Inc., acquired certain
assets and liabilities of Wyman Enterprises, Inc. The purchase price
for the assets was $830,620. Wyman recorded $511,200 in excess of cost
over fair value of net assets acquired which is being amortized on a
straight-line basis over fifteen years. For financial statement
purposes, the acquisition occurred on March 31, 1998. The assets
acquired were as follows:
<TABLE>
<S> <C>
Cash $ 22,690
Accounts receivable 577,681
Prepaids 29,985
Furniture and equipment 96,952
Goodwill 511,200
Liabilities (407,888)
----------------
TOTAL $ 830,620
----------------
----------------
</TABLE>
In May 1998, Wyman merged into San Diego Testing Engineers, Inc., a
majority-owned subsidiary of the Company, which is the surviving
corporation. Each share of Wyman was converted into one-half share of
the surviving corporation.
In May 1998, the Company acquired certain equipment of
Professional Services Industries, Inc. ("PSI") for a
purchase price of $13,900 which has been paid.
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended July
31, 1998 and 1997 is unaudited.)
NOTE 1 - ORGANIZATION AND BUSINESS (CONTINUED)
In May 1998, the Company acquired certain equipment of Jupiter,
Division of Fraser Engineering & Testing, Inc. ("Jupiter") for a
purchase price of $35,000 which has been paid.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts
of U.S. Laboratories Inc. and its subsidiaries. All
material intercompany accounts and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment, including equipment under capital leases, are
recorded at cost, less accumulated depreciation and amortization.
Depreciation and amortization are provided using the straight-line
method over the estimated useful lives as follows:
<TABLE>
<S> <C>
Automobile and trucks 3 to 5 years
Furniture and fixtures 5 to 7 years
Office hardware and software 5 years
Machinery and equipment 5 to 7 years
Leasehold improvements 5 years
</TABLE>
Maintenance, repairs, and minor renewals are expensed as incurred.
Expenditures for additions and major improvements are capitalized.
Gains and losses on disposals are included in the statements of
operations.
INTANGIBLES
Intangibles consist of goodwill which is being amortized over a
fifteen-year period. The Company continually evaluates whether events
or circumstances have occurred that indicate the remaining estimated
value of goodwill may not be recoverable. When factors indicate that
the value of goodwill may be impaired, the Company estimates the
remaining value and reduces the goodwill to that amount.
DEFERRED OFFERING COSTS
Amounts paid for costs associated with an anticipated initial public
offering ("IPO") are capitalized and will be recorded as a reduction to
additional paid-in capital upon the completion of the IPO. In the event
that the IPO is not successful, the deferred offering costs will be
charged to expense.
The accompanying notes are an integral part of these
consolidated financial statements.
F-11
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended July
31, 1998 and 1997 is unaudited.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue from services performed is recorded as earned over the lives of
the contract. Revenue from services is recognized when services have
been performed and accepted.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs
for the years ended December 31, 1997 and 1996 and the seven months
ended July 31, 1998 and 1997 were $15,699, $29,047, $12,994, and
$8,979, respectively.
INCOME TAXES
The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
INTERIM UNAUDITED FINANCIAL INFORMATION
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which
in the opinion of management, are necessary to fairly state the
Company's financial position, the results of operations, and cash
flows for the periods presented. The results of operations for the
seven months ended July 31, 1998 are not necessarily indicative of
results for the entire fiscal year ending December 31, 1998.
STOCK SPLIT
Effective May 30, 1998, the Company effected a 20,324-for-one stock
split. All share and per share data have been retroactively restated
to reflect the stock split.
The accompanying notes are an integral part of these
consolidated financial statements.
F-12
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended July
31, 1998 and 1997 is unaudited.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments including cash,
accounts receivable, accounts payable, and other accrued expenses, the
carrying amounts approximate fair value due to their short maturities.
The amounts shown for long-term debt and capital lease obligations also
approximate fair value because current interest rates and terms offered
to the Company for similar long-term debt and capital lease obligations
are substantially the same.
CONCENTRATIONS OF RISK
The Company sells products and provides contract services to
construction companies and the military, primarily in California, New
Jersey, and Florida. It also extends credit based on an evaluation of
the customer's financial condition, generally without requiring
collateral. Exposure to losses on receivables is principally dependent
on each customer's financial condition. The Company monitors its
exposure for credit losses and maintains allowances for anticipated
losses.
NET INCOME PER SHARE
For the year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share." Basic earnings per share is computed by dividing
net income to common stockholders by the weighted-average number of
common shares outstanding.
Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common
shares were dilutive.
The accompanying notes are an integral part of these
consolidated financial statements.
F-13
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended July
31, 1998 and 1997 is unaudited.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income," is effective for
financial statements with fiscal years beginning after December 15,
1997. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. The Company does not expect
adoption of SFAS No. 130 to have a material effect, if any, on its
financial position or results of operations.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," is effective for financial statements with fiscal years
beginning after December 15, 1997. This statement establishes standards
for the way that public entities report selected information about
operating segments, products, and services, geographic areas, and major
customers in interim and annual financial reports. The Company does not
expect adoption of SFAS No. 131 to have a material effect, if any, on
its financial position or results of operations.
NOTE 3 - CASH
The Company maintains cash deposits at banks located in California,
Florida, and New Jersey. Deposits at each bank are insured by the
Federal Deposit Insurance Corporation up to $100,000. As of December
31, 1997 and July 31, 1998, uninsured portions of balances held at
banks aggregated to $27,026 and $101,333, respectively. The Company has
not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash.
The accompanying notes are an integral part of these
consolidated financial statements.
F-14
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended July
31, 1998 and 1997 is unaudited.)
NOTE 4 - FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
--------------- --------------
<S> <C> <C>
Automobile and trucks...................................... $ 465,614 $ 585,195
Furniture and fixtures..................................... 237,798 273,582
Office hardware and software............................... 35,666 73,635
Machinery and equipment.................................... 202,313 329,902
Leasehold improvements..................................... 18,537 94,225
--------------- -------------
.................................................... 959,928 1,356,539
Less accumulated depreciation and amortization............. 564,217 673,434
--------------- -------------
TOTAL.................................................. $ 395,711 $ 683,105
--------------- -------------
--------------- -------------
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1997 and 1996 and the seven months ended July 31, 1998 and 1997 was
$181,552, $145,980, $130,299, and $106,514, respectively.
NOTE 5 - LINES OF CREDIT
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
--------------- ----------
<S> <C> <C>
The Company has a $800,000 line of credit from a bank with
interest payable on a monthly basis at the 30-day
Commercial Paper Rate (5.75% at December 31, 1997) plus
3.15%. The line of credit is secured by substantially all
of the Company's assets and personally guaranteed by the
majority stockholder. Subsequent to
year end, amounts were repaid......................... $ 484,335 $ -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-15
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended July
31, 1998 and 1997 is unaudited.)
NOTE 5 - LINES OF CREDIT (CONTINUED)
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
--------------- ----------
<S> <C> <C>
In May 1998, the Company entered into a $1,700,000 line of
credit with a bank, maturing on May 1, 1999. Interest is
payable on a monthly basis at prime (8.5% at December 31,
1997). The maximum advance rate is 75% of accounts
receivable aged 90 days or less. The line is guaranteed by
a UCC-1 financing statement, covering a majority of the
Company's assets, dated May 27, 1998, and personally
guaranteed by the majority stockholder. Subsequent to July
31, 1998, the Company refinanced the line of credit into a
$1,200,000 note payable (see Note 7) and remaining
$500,000 as a line of credit with the above
terms................................................ $ - $ 238,660
In July 1998, the Company entered into a $500,000 line of
credit with a bank, payable upon demand, but no later than
July 1, 2000. Interest is payable on a monthly basis at
the bank's reference rate. A portion of the line is
guaranteed by the majority stockholder and the majority of
the Company's
assets............................................... - 165,000
------------- -----------
TOTAL............................................. $ 484,335 $ 403,660
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-16
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended July
31, 1998 and 1997 is unaudited.)
NOTE 6 - LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------ -----------
<S> <C> <C>
Notes payable to Toyota Motor Credit Corporation,
collateralized by applicable equipment. The notes are
currently due in aggregate monthly payments of $355
including interest at 9.19% per annum.................. $ 5,788 $ 3,376
Notes payable to General Motors Credit Corporation,
collateralized by applicable equipment. The notes are
currently due in aggregate monthly payments of $2,167
including interest from 7.95% to 9.7% per annum........ 78,869 104,591
Notes payable to Barnett Bank, collateralized by applicable
equipment. The notes are currently due in aggregate
monthly payments of $4,644 including interest from 9.29%
to 14.5% per annum..................................... 68,099 82,276
Notes payable to Ford Motor Credit Corporation, collateralized
by applicable equipment. The notes are currently due in
aggregate monthly payments of $1,969 including interest
from 7.99% to 10.25% per annum......................... 50,502 77,497
------------- -----------
203,258 267,740
Less current portion....................................... 84,526 95,682
------------- -----------
Long-term portion................................. $ 118,732 $ 172,058
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-17
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended July
31, 1998 and 1997 is unaudited.)
NOTE 6 - LONG-TERM DEBT (CONTINUED)
The following is a schedule by years of future maturities of long-term
debt:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1998 $ 84,526
1999 66,577
2000 28,880
2001 20,250
2002 3,025
----------------
TOTAL $ 203,258
----------------
----------------
</TABLE>
Subsequent to year end, the Company entered into three note payable
agreements and assumed two note payable agreements upon the acquisition of Wyman
Enterprises, Inc. The notes are currently due in aggregate monthly payments of
$2,471 including interest from 8.75% to 13.5% per annum.
NOTE 7 - NOTES PAYABLE
Notes payable consisted of the following at July 31, 1998. (All
balances were zero at December 31, 1997.):
<TABLE>
<S> <C>
Note payable to stockholder of Wyman Enterprises, Inc. in
connection with the acquisition. The amount is to be
paid in four annual installments of $37,500
beginning March 25, 1999.......................................... $ 150,000
Note payable to stockholder of Wyman Enterprises, Inc. in
connection with the acquisition. The amount is to be
paid in four annual installments of $37,500
beginning March 25, 1999 with one lump sum payment of
$150,000 due at the earlier of (i) October 1, 1999,
(ii) January 1, 1999 if the IPO occurs prior
to that date, or (iii) the 30 days following the IPO
if it occurs after January 1, 1999............................... 300,000
Note payable to stockholders of Wyman Enterprises, Inc. in
connection with the acquisition. The amount is
payable upon demand and non-interest bearing..................... 18,993
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-18
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended July
31, 1998 and 1997 is unaudited.)
NOTE 7 - NOTES PAYABLE (CONTINUED)
<TABLE>
<S> <C>
Note payable to bank. The note is interest only
through December 31, 1998 at the prime rate
(8.5% at December 31, 1997) starting January 1999.
The amount is to be paid in monthly installments of
$20,000 plus interest at the prime. The note is
secured by substantially all of the Company's
assets and personally guaranteed by the majority
stockholder......................................................... $ 1,200,000
-------------
1,668,993
Less current portion................................................ 383,993
-------------
Long-term portion...................................... $ 1,285,000
-------------
-------------
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS
DUE TO STOCKHOLDER
At December 31, 1997 and July 31, 1998, the Company had amounts due to
the majority stockholder of $584,281 and $98,386, respectively. The
amounts are non-interest bearing and are payable upon demand.
STOCKHOLDER MANAGEMENT FEES
During the year ended December 31, 1997 and 1996 and the seven months
ended July 31, 1998 and 1997, the Company expensed $181,067, $169,594,
$106,116, and $92,052, respectively, in management fees to a
stockholder. The management fees are based upon 5% of net sales of a
subsidiary.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LEASES
The Company has entered into non-cancelable operating leases for its
corporate offices and facilities in California, New Jersey, and
Florida. The Company has the option to extend certain leases.
Future minimum rental commitments under lease agreements with initial
or remaining terms of one year or more at December 31, 1997 are as
follows:
The accompanying notes are an integral part of these
consolidated financial statements.
F-19
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended July
31, 1998 and 1997 is unaudited.)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASES (continued)
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1998 $ 195,622
1999 76,504
2000 38,946
2001 214,608
----------------
525,680
Less sublease 19,390
----------------
Total $ 506,290
----------------
----------------
</TABLE>
Rent expense was approximately $316,685, $153,250, $192,195, and
$192,364 for the years ended December 31, 1997 and 1996 and the seven
months ended July 31, 1998 and 1997, respectively.
CAPITALIZED LEASE OBLIGATIONS
Upon the acquisition of Wyman Enterprises, Inc., the Company assumed
three capitalized lease obligations. The agreements are payable in
aggregate monthly payments of principal and interest of $1,477,
expiring through May 2002. The agreements are collateralized by
applicable equipment.
LITIGATION
The Company is involved in certain legal proceedings and claims which
arise in the normal course of business. Management does not believe
that the outcome of these matters will have a material adverse effect
on the Company's consolidated financial position or results of
operations.
LEASE COMMITMENTS
In May 1998, the Company entered into a non-cancelable operating lease
agreement for its facilities in California that expires in April 2003.
The agreement initially requires monthly payments of $8,230 with annual
increases.
In May 1998, upon the acquisition of PSI, the Company assumed PSI's
lease obligation in New Jersey. PSI will pay the monthly lease through
November 30, 1998, and the Company will be responsible for the monthly
lease payments of $1,700 from December 1, 1998 to May 30, 2001.
In May 1998, upon the acquisition of Jupiter, the Company assumed
Jupiter's lease obligation in Florida. The Company is responsible for
the monthly lease payments of $1,198 through June 2000.
The accompanying notes are an integral part of these
consolidated financial statements.
F-20
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended
July 31, 1998 and 1997 is unaudited.)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYMENT AGREEMENTS
In May 1998, the Company entered into three-year employment
agreements with certain key employees of the Company. The agreements
require aggregate monthly payments of approximately $59,000.
INCENTIVE PROGRAMS
In July 1998, the Company entered into incentive program agreements
with certain members of Company management. The agreements call for
bonuses of 3% and 7% of pre-tax profits based upon the Company's
performance. Additionally, up to 5% of individual subsidiary pre-tax
profits may be distributed to employees based on performance of
those subsidiaries.
NOTE 10 - PROFIT SHARING PLAN
The Company has a voluntary profit sharing plan which covers
substantially all eligible full-time employees who meet the plan
requirements. Annual employer contributions are based on a years of
service vesting schedule. Employer contributions for the years ended
December 31, 1997 and 1996 were $26,900 and $11,700, respectively.
NOTE 11 - INCOME TAXES
A reconciliation of the expected income tax computed using the
federal statutory income tax rate to the Company's effective income
tax rate for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Income tax computed at federal statutory tax rate................ 34.0% 34.0%
State taxes, net of federal benefit.............................. 6.5 9.9
Non-deductible goodwill amortization and other................... 3.2 8.0
---------- ----------
Total..................................................... 43.7% 51.9%
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-21
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended
July 31, 1998 and 1997 is unaudited.)
NOTE 11 - INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and
liabilities for income taxes for the year ended December 31, 1997
consisted of the following:
<TABLE>
<S> <C>
Deferred tax assets
Accrued payroll and other expenses..................... $ 90,275
Other.................................................. 1,400
-------------
91,675
-------------
Deferred tax liabilities
Accounts receivable.................................... 667,648
Work-in-progress....................................... 72,708
Other.................................................. 30,068
-------------
770,424
-------------
Net deferred tax liability......................... $ (678,749)
-------------
-------------
</TABLE>
The components of the income tax provision for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Current
Federal............................................... $ 58,938 $ 79,365
State................................................. 10,400 14,005
------------ -------------
69,338 93,370
------------ -------------
Deferred
Federal............................................... 214,302 93,118
State................................................. 61,616 16,433
------------ -------------
275,918 109,551
------------ -------------
Total............................................ $ 345,256 $ 202,921
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-22
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE SEVEN MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
(The information with respect to the seven months ended
July 31, 1998 and 1997 is unaudited.)
NOTE 12 - STOCK OPTION PLAN
In July 1998, the Board of Directors adopted and approved the 1998
Stock Option Plan (the "Option Plan") under which a total of 500,000
shares of common stock have been reserved for issuance. Options
under this plan may be granted to employees, officers, and directors
and consultants of the Company. The exercise price of the options is
determined by the Board of Directors, but the exercise price may not
be less than 100% of the fair market value on the date of grant.
Options vest over periods not to exceed 10 years. In July 1998, the
Company had 395,000 stock options outstanding at an exercise price
ranging from $5.00 to $5.50 per share, of which 261,360 stock
options were exercisable. The Board of Directors also approved the
grant of an additional 70,000 options to various employees under the
plan.
NOTE 13 - WARRANTS
In July 1998, the Board of Directors approved the grant of 150,000
stock warrants to certain employees of the Company. The warrants
entitle the holder to purchase Company common stock at a price of
$5.00 per share. The warrants are exercisable the earlier of (i) the
date on which the closing price of a share of the Company's common
stock as reported on the NASDAQ Small-Cap Market is greater than
$10.00 or (ii) the date on which the audited consolidated earnings
for the fiscal year ending December 31, 1998, or any fiscal year
thereafter, are at least twice the base period earnings of $841,041.
The warrants expire upon termination or November 1, 2001.
The accompanying notes are an integral part of
these consolidated financial statements.
F-23
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Wyman Testing Laboratories, Inc.
We have audited the accompanying balance sheet of Wyman Testing Laboratories,
Inc. as of December 31, 1997, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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 Wyman Testing Laboratories,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted
accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 29, 1998
The accompanying notes are an integral part of
these consolidated financial statements.
F-24
<PAGE>
WYMAN TESTING LABORATORIES, INC.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
Current assets
Cash...................................................................................... $ -
Accounts receivable....................................................................... 716,173
Prepaid assets............................................................................ 46,818
--------------
Total current assets.................................................................. 762,991
Furniture and equipment, net of accumulated depreciation
and amortization of $244,913.............................................................. 68,508
--------------
Total assets................................................................. $ 831,499
--------------
--------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-25
<PAGE>
WYMAN TESTING LABORATORIES, INC.
BALANCE SHEET (CONTINUED)
DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities
Book overdraft............................................................................ $ 37,778
Revolving lines of credit................................................................. 197,501
Accounts payable.......................................................................... 38,488
Accrued payroll and payroll taxes......................................................... 40,114
Accrued stockholder's salaries............................................................ 48,375
Other accrued expenses.................................................................... 21,786
Due to stockholder........................................................................ 70,000
Deferred taxes............................................................................ 86,078
Current portion of long-term debt......................................................... 5,552
Current portion of capitalized lease obligations.......................................... 4,243
--------------
Total current liabilities............................................................. 549,915
Long-term debt, less current portion......................................................... 24,740
Capitalized lease obligations, less current portion.......................................... 1,572
--------------
Total liabilities................................................................ 576,227
--------------
Commitments
Stockholders' equity
Common stock, no par value
3,000 shares authorized
100 shares issued and outstanding...................................................... 108,000
Stock subscription receivable............................................................. (1,000)
Retained earnings......................................................................... 148,272
--------------
Total stockholders' equity............................................................ 255,272
--------------
Total liabilities and stockholders' equity................................... $ 831,499
--------------
--------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-26
<PAGE>
WYMAN TESTING LABORATORIES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Net sales...................................................................................... $ 3,201,989
Cost of sales.................................................................................. 1,681,823
----------------
Gross profit................................................................................... 1,520,166
Selling, general, and administrative expenses.................................................. 1,232,316
----------------
Income from operations......................................................................... 287,850
----------------
Other income (expense)
Interest expense............................................................................ (29,421)
Gain on sale of fixed asset................................................................. 12,000
----------------
Total other income (expense).............................................................. (17,421)
----------------
Income before provision for income taxes....................................................... 270,429
Provision for income taxes..................................................................... 36,646
----------------
Net income..................................................................................... $ 233,783
----------------
----------------
Basic income per share......................................................................... $ 2,337.83
----------------
----------------
Diluted income per share....................................................................... $ 2,337.83
----------------
----------------
Weighted-average shares outstanding............................................................ 100
----------------
----------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-27
<PAGE>
WYMAN TESTING LABORATORIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Retained
Common Stock Stock Earnings
--------------------------------- Subscription (Accumulated
Shares Amount Receivable Deficit) Total
--------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December
31, 1996................ 100 $ 8,000 $ (1,000) $ (85,511) $ (78,511)
Capital contribution 100,000 100,000
Net income................. 233,783 233,783
--------------- --------------- ---------------- --------------- ----------------
Balance, December
31, 1997................ 100 $ 108,000 $ (1,000) $ 148,272 $ 255,272
--------------- --------------- ---------------- --------------- ----------------
--------------- --------------- ---------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-28
<PAGE>
WYMAN TESTING LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities
Net income.................................................................................. $ 233,783
Adjustments to reconcile net income to net cash
used in operating activities..............................................................
Depreciation and amortization........................................................... 18,526
Gain on sale of fixed asset............................................................. (12,000)
Deferred taxes.......................................................................... 35,846
(Increase) decrease in
Accounts receivable....................................................................... (353,933)
Prepaid expenses.......................................................................... (8,741)
Increase (decrease) in
Accounts payable.......................................................................... (62,812)
Accrued payroll and payroll taxes......................................................... (26,796)
Accrued stockholder's salaries............................................................ (4,500)
Accrued management fee.................................................................... (64,286)
Other accrued expenses.................................................................... 5,821
----------------
Net cash used in operating activities........................................................ (239,092)
----------------
Cash flows from investing activities
Purchase of property and equipment.......................................................... (12,069)
----------------
Net cash used in investing activities........................................................ (12,069)
----------------
Cash flows from financing activities
Book overdraft.............................................................................. 37,778
Revolving lines of credit, net.............................................................. 130,000
Payments on long-term debt.................................................................. (37,312)
Payments on capitalized lease obligations................................................... (8,668)
Increase in capital contributions........................................................... 100,000
Due to stockholder, net..................................................................... 25,000
----------------
Net cash provided by financing activities.................................................... 246,798
----------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-29
<PAGE>
WYMAN TESTING LABORATORIES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Net increase (decrease) in cash................................................................ $ (4,363)
Cash, beginning of period...................................................................... 4,363
----------------
Cash, end of period............................................................................ $ -
----------------
----------------
Supplemental disclosures of cash flow information
Interest paid .............................................................................. $ 29,421
----------------
----------------
Income taxes paid .......................................................................... $ 800
----------------
----------------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1997, the Company acquired an automobile
of $38,000 under note payable agreements.
The accompanying notes are an integral part of
these consolidated financial statements.
F-30
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND BUSINESS
Wyman Testing Laboratories, Inc. (the "Company"), a Delaware
corporation, was incorporated in March 1998. The Company is
engaged in testing for the commercial construction industry.
ACQUISITION
On March 25, 1998, Wyman Testing Laboratories, Inc., a majority-owned
subsidiary of U.S. Laboratories Inc., acquired certain assets and
liabilities of Wyman Enterprises, Inc. The purchase price for the
assets was $830,620. Wyman Testing Laboratories, Inc. recorded $511,200
in excess of cost over fair value of net assets acquired which is being
amortized on a straight-line basis over fifteen years. The assets
acquired were as follows:
<TABLE>
<S> <C>
Cash $ 22,690
Accounts receivable 577,681
Prepaids 29,985
Furniture and equipment 96,952
Excess of cost over fair value of net assets acquired 511,200
Liabilities (407,888)
-------------
Total $ 830,620
-------------
-------------
</TABLE>
In May 1998, Wyman merged into San Diego Testing Engineers, Inc., a
majority-owned subsidiary of the Company, which is the surviving
corporation. Each share of Wyman was converted into one-half share of
the surviving corporation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment, including equipment under capital leases, are
recorded at cost, less accumulated depreciation and amortization.
Depreciation and amortization are provided using the straight-line
method over the estimated useful lives as follows:
<TABLE>
<S> <C>
Automobile and trucks 3 to 5 years
Furniture and fixtures 7 years
Office hardware and software 5 years
Machinery and equipment 5 to 7 years
</TABLE>
Maintenance, repairs, and minor renewals are expensed as incurred.
Expenditures for additions and major improvements are capitalized.
Gains and losses on disposals are included in the statement of
operations.
The accompanying notes are an integral part of
these consolidated financial statements.
F-31
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue from services performed is recorded as earned over the lives of
the contract. Revenue from services is recognized when services have
been performed and accepted.
ADVERTISING/MARKETING
The Company expenses advertising costs as incurred. Advertising costs
for the year ended December 31, 1997 were $14,421.
INCOME TAXES
The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments including cash, accounts receivable,
accounts payable, and accrued expenses, the carrying amounts
approximate fair value due to their short maturities. The amounts shown
for long-term debt and capital lease obligations also approximate fair
value because current interest rates and terms offered to the Company
for similar debt and lease agreements are substantially the same.
CONCENTRATIONS OF RISK
The Company sells products and provides contract services to
construction companies and the military, primarily in the San Diego
area. It also extends credit based on an evaluation of the customer's
financial condition, generally without requiring collateral. Exposure
to losses on receivables is principally dependent on each customer's
financial condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses.
The accompanying notes are an integral part of
these consolidated financial statements.
F-32
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
For the year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share." Basic earnings per share is computed by dividing
net income by the weighted-average number of common shares outstanding.
Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if potential
common shares such as options had been issued and if the additional
common shares were dilutive. Since the Company has no stock options and
warrants outstanding, there are no dilutive common shares. Therefore,
basic earnings per share and diluted earnings per share are the same.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income," is effective for
financial statements with fiscal years beginning after December 15,
1997. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-
purpose financial statements. The Company does not expect adoption of
SFAS No. 130 to have a material effect, if any, on its financial
position or results of operations.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," is effective for financial statements with fiscal years
beginning after December 15, 1997. This statement establishes standards
for the way that public entities report selected information about
operating segments, products, and services, geographic areas, and major
customers in interim and annual financial reports. The Company does not
expect adoption of SFAS No. 131 to have a material effect, if any, on
its financial position or results of operations.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Automobile and trucks........................................................ $ 108,894
Furniture and fixtures....................................................... 22,597
Office hardware and software................................................. 16,891
Machinery and equipment...................................................... 151,148
Leased equipment............................................................. 13,891
---------------
.................................................................... 313,421
Less accumulated depreciation and amortization............................... 244,913
---------------
Total.................................................................... $ 68,508
---------------
---------------
</TABLE>
Total depreciation and amortization expense for the year ended December
31, 1997 was $18,526.
The accompanying notes are an integral part of
these consolidated financial statements.
F-33
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 4 - RELATED PARTY TRANSACTIONS
DUE TO STOCKHOLDER
At December 31, 1997, the Company had amounts due to a stockholder of
$70,000 for operating advances which are non-interest bearing and
payable upon demand. Amounts were repaid subsequent to December 31,
1997.
ACCRUED STOCKHOLDER SALARIES
At December 31, 1997, the Company owed a stockholder $48,375 in
salaries. Amounts were repaid subsequent to December 31, 1997.
STOCKHOLDER SALARIES AND MANAGEMENT FEE
During the year ended December 31, 1997, the Company expensed $186,215
in salaries and management consulting fees to two stockholders.
CAPITAL CONTRIBUTION
During the year ended December 31, 1997, one stockholder made an
additional capital contribution of $100,000.
NOTE 5 - REVOLVING LINES OF CREDIT
The Company has available two unsecured $100,000 revolving lines of
credit from a bank with interest payable on a monthly basis at the
bank's index rate (9.75% at December 31, 1997) plus 2.25%. The lines
are guaranteed by a first trust deed on vacant land owned by the
majority stockholder and a commercial security agreement dated
September 3, 1996 which includes a UCC-1 financing statement. The lines
of credit matured on April 1, 1998. At December 31, 1997, the amount
drawn against the lines of credit were $197,501. Subsequent to December
31, 1997, the amount was repaid.
The accompanying notes are an integral part of
these consolidated financial statements.
F-34
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 6 - LONG-TERM DEBT
Notes payable at December 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Note payable - bank, collateralized by an
automobile, payable in monthly installments of
$93 including interest at 11.9% per annum.................................. $ 1,340
Note payable - financial institution, collateralized
by an automobile, payable in monthly
installments of $434 including interest at
13.5% per annum............................................................ 19,251
-----------
Note payable - financial institution, collateralized by an
automobile, payable in monthly installments of $278 including
interest at 11.99% per annum............................................... 9,701
-----------
........................................................................ 30,292
Less current portion.......................................................... 5,552
-----------
Long-term portion....................................................... $ 24,740
-----------
-----------
</TABLE>
The following is a schedule by years of future maturities of long-term
debt:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
1998 $ 5,552
1999 4,734
2000 5,105
2001 5,900
2002 3,895
Thereafter 5,106
-----------
Total $ 30,292
-----------
-----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-35
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 7 - COMMITMENTS
LEASE COMMITMENTS
The Company leases certain office equipment under non-cancelable
capital lease arrangements.
Future minimum payments under its non-cancelable capital leases with
initial or remaining terms of one year or more at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
1998 $ 5,088
1999 1,672
2000 -
-------------
6,760
Less amount representing interest 945
-------------
5,815
Less current portion 4,243
-------------
Long-term portion $ 1,572
-------------
-------------
</TABLE>
Rent expense for the year ended December 31, 1997 was $49,368.
The accompanying notes are an integral part of
these consolidated financial statements.
F-36
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 8 - INCOME TAXES
A reconciliation of the expected income tax computed using the federal
statutory income tax rate to the Company's effective income tax rate
for the year ended December 31, 1997 is as follows:
<TABLE>
<S> <C>
Income tax computed at federal statutory tax rate....................... 34.0%
State taxes, net of federal benefit..................................... 5.8
Valuation allowance..................................................... (26.8)
---------------
Total............................................................... 13.0%
---------------
---------------
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities for income taxes for the year ended December 31, 1997
consisted of the following:
<TABLE>
<S> <C>
Deferred tax assets
Net operating loss carryforward..................................... $ 144,827
Accounts payable and accrued expenses............................... 54,893
Other............................................................... 16,455
---------------
Total deferred tax assets................................... 216,175
---------------
Deferred tax liability
Accounts receivable................................................. 286,469
Prepaid expenses and other.......................................... 14,984
---------------
Total deferred tax liability................................ 301,453
---------------
Net deferred tax liability.............................. $ 85,278
---------------
---------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-37
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 8 - INCOME TAXES (CONTINUED)
The components of the income tax provision are as follows:
<TABLE>
<S> <C>
Current
Federal............................................................. $ -
State............................................................... 800
-------------
800
-------------
Deferred
Federal............................................................. 18,262
State............................................................... 17,584
-------------
35,846
-------------
Total....................................................... $ 36,646
-------------
-------------
</TABLE>
The Company has net operating losses available to carry forward to
future periods for reduction of taxable income of approximately
$393,000 for federal income tax purposes and $127,000 for state income
tax purposes. These carryforwards begin to expire in 2020 and 2001 for
federal and state income taxes, respectively. Upon the acquisition, the
Company will lose the net operating loss carryforwards of Wyman
Enterprises, Inc.
The valuation allowance has been decreased by approximately $72,000
during the year ended December 31, 1997.
NOTE 9 - EMPLOYEE PROFIT SHARING PLAN
The Company established a 401(k) profit sharing plan covering
substantially all employees who meet the eligibility requirements of
the plan. The Company may match up to 10% of the employee contributions
up to a total of 15% of the contributions which vest over six years.
During the year ended December 31, 1997, the Company made matching
contributions of $1,958.
NOTE 10 - SUBSEQUENT EVENTS (UNAUDITED)
CAPITALIZED LEASE OBLIGATION
The Company entered into a non-cancelable capital lease agreement. The
agreement is payable in monthly installments of $1,053, expiring in May
2000.
EMPLOYMENT AGREEMENT
In March 1998, the Company entered into a two-year employment agreement
to pay an annual salary of $60,000 plus other benefits.
The accompanying notes are an integral part of
these consolidated financial statements.
F-38
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES/
WYMAN TESTING LABORATORIES, INC.
PRO FORMA BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
U.S. Wyman
Laboratories Testing
Inc. and Enterprises,
Subsidiaries Inc. Adjustments Total
-------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Current assets
Cash..................................... $ 94,132 $ - $ - $ 94,132
Accounts receivable...................... 1,719,120 716,173 - 2,435,293
Work-in-process.......................... 181,772 - - 181,772
Prepaid expenses and other current
assets................................. 47,414 46,818 - 94,232
-------------- -------------- ------------- -----------
Total current assets................. 2,042,438 762,991 - 2,805,429
Furniture and equipment, net................ 395,711 68,508 - 464,219
Excess cost over fair value of net
assets acquired, net..................... (a) 511,200
939,147 - (c) 194,924 1,645,271
Other assets................................ 154,411 - - 154,411
-------------- -------------- ------------- -----------
Total assets....................... $ 3,531,707 $ 831,499 $ 706,124 $ 5,069,330
-------------- -------------- ------------- -----------
-------------- -------------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-39
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES/
WYMAN TESTING LABORATORIES, INC.
PRO FORMA BALANCE SHEET (CONTINUED)
DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
U.S. Wyman
Laboratories Testing
Inc. and Enterprises,
Subsidiaries Inc. Adjustments Total
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Current liabilities
Book overdraft........................... $ 9,390 $ 37,778 $ - $ 47,168
Lines of credit.......................... 484,335 197,501 - 681,836
Current portion of long-term debt........ 84,526 5,552 - 90,078
Current portion of capitalized lease
obligations............................ - 4,243 - 4,243
Current portion of notes payable - - (a) 480,272 480,272
Accounts payable......................... 273,620 38,488 - 312,108
Accrued payroll and payroll taxes........ 115,214 40,114 - 155,328
Accrued stockholders' salaries........... - 48,375 - 48,375
Other accrued expenses................... 14,612 21,786 - 36,398
Due to stockholder....................... 584,281 70,000 - 654,281
Deferred income tax...................... 678,749 86,078 - 764,827
Income tax payable....................... 162,708 - - 162,708
--------------- ---------------- ------------- ---------------
Total current liabilities............ 2,407,435 549,915 480,272 3,437,622
Long-term debt, net of current portion...... 118,732 24,740 - 143,472
Capitalized lease obligations, net of
current portion........................ - 1,572 - 1,572
Notes payable, net of current portion....... - - (a) 225,000 225,000
--------------- ---------------- ------------- ---------------
Total liabilities.................... 2,526,167 576,227 705,272 3,807,666
--------------- ---------------- ------------- ---------------
Minority interest........................... 338,128 - (c) (338,128) -
--------------- ---------------- ------------- ---------------
Stockholders' equity
Preferred stock.......................... - - - -
Common stock............................. (a) (108,000)
(a) 600
20,324 108,000 (c) 5,226 26,150
Stock subscription receivable............ - (1,000)(a) 1,000 -
Additional paid-in capital (a) 60,600
377,676 - (c) 527,826 966,102
Retained earnings........................ 269,412 148,272 (a) (148,272) 269,412
--------------- ---------------- ------------- ---------------
Total stockholders' equity........... 667,412 255,272 338,980 1,261,664
--------------- ---------------- ------------- ---------------
Total liabilities and
stockholders' equity $ 3,531,707 $ 831,499 $ 706,124 $ 5,069,330
--------------- ---------------- ------------- ---------------
--------------- ---------------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-40
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES/
WYMAN TESTING LABORATORIES, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
U.S. Wyman
Laboratories Testing
Inc. and Enterprises,
Subsidiaries Inc. Adjustments Total
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue..................................... $ 7,766,414 $ 3,201,989 $ - $ 10,968,403
Cost of goods sold.......................... 4,476,952 1,681,823 - 6,158,775
-------------- -------------- -------------- --------------
Gross profit................................ 3,289,462 1,520,166 - 4,809,628
Selling, general, and administrative
expenses................................. (b) 34,080
................................... 2,531,770 1,232,316 (d) 12,995 3,811,161
-------------- -------------- -------------- --------------
Income from operations...................... 757,692 287,850 (47,075) 998,467
-------------- -------------- -------------- --------------
Other income (expense)
Interest expense......................... (130,605) (29,421) - (160,026)
Interest income.......................... 7,277 - - 7,277
Forgiveness of debt...................... 100,000 - - 100,000
Gain on sale of fixed asset.............. 4,912 12,000 - 16,912
Rental income............................ 25,160 - - 25,160
Gain on sale of minority interest........ 25,229 - - 25,229
-------------- -------------- -------------- --------------
Total other income (expense)........... 31,973 (17,421) - 14,552
-------------- -------------- -------------- --------------
Income before provision for income
taxes and minority interest.............. 789,665 270,429 (47,075) 1,013,019
Provision for income taxes.................. 345,256 36,646 - 381,902
-------------- -------------- -------------- --------------
Income before minority interest............. 444,409 233,783 (47,075) 631,117
Minority interest........................... (80,253) - (e) 80,253 -
-------------- -------------- -------------- --------------
Net income.................................. $ 364,156 $ 233,783 $ 33,178 $ 631,117
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Basic income per share...................... $ 0.14 $ 0.24
-------------- --------------
-------------- --------------
Diluted income per share.................... $ 0.14 $ 0.24
-------------- --------------
-------------- --------------
Weighted-average shares
outstanding.............................. 2,615,000 2,615,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-41
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES/
WYMAN TESTING LABORATORIES, INC.
NOTE TO PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying pro forma balance sheet presents the
accounts of U.S. Laboratories Inc. and subsidiaries ("US
Labs") and Wyman Testing Laboratories, Inc. ("Wyman") as if
the acquisition of the assets of Wyman by US Labs occurred
on December 31, 1997, and the pro forma statement of
operations presents the accounts of US Labs and Wyman as if
the acquisition took place on January 1, 1997.
a) To record purchase price allocation adjustment and
corresponding note payable in consideration of the assets
acquired. In connection with the purchase, the Company
recorded $511,200 in excess of cost over fair value of net
assets acquired and issued 60,000 shares of US Labs common
stock.
b) To record amortization of excess of cost over fair value of
net assets acquired, which is being amortized on a
straight-line basis over fifteen years.
In addition, the accompanying pro forma balance sheet presents the
purchase of the minority interest by of US Labs as if the purchase of minority
interest occurred on December 31, 1997, and the pro forma statement of
operations as if the purchase of the minority interest took place on January 1,
1997.
c) To record purchase of all of the shares held by minority
stockholders in the subsidiaries of US Labs for $533,052. In
connection with the purchase of the minority interest, the
Company issued an aggregate of 522,600 shares of common stock
in exchange for the purchase price and recorded $194,924 in
excess of cost over fair value of net assets acquired.
d) To record amortization of excess of cost over fair value of
net assets acquired, which is being amortized on a
straight-line basis over fifteen years.
e) To eliminate minority interest expense.
The accompanying notes are an integral part of
these consolidated financial statements.
F-42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES TO WHICH IT RELATES, OR AN
OFFER TO OR A SOLICITATION OF ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 3
The Company............................................................... 6
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Capitalization............................................................ 15
Dilution.................................................................. 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 17
Business.................................................................. 22
Management................................................................ 35
Principal Stockholders.................................................... 39
Related Transactions...................................................... 40
Underwriting.............................................................. 41
Description of Securities................................................. 42
Shares Eligible for Future Sale........................................... 44
Experts................................................................... 45
Legal Matters............................................................. 45
Additional Information.................................................... 45
Index to Financial Statements............................................. F-1
</TABLE>
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UNTIL OCTOBER , 1998, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,200,000 UNITS
U.S. LABORATORIES INC.
JANDA & GARRINGTON LLC
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware
Act") provides that subject to such standards and restrictions, if any, as are
set forth in its Certificate of Incorporation, a Delaware corporation has the
power to indemnify any person who is a party to a civil, criminal,
administration or investigative proceeding by reason of the fact that the person
was a director, officer, employee or agent of the corporation if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful.
The Company's Amended and Restated Certificate of Incorporation also
provides that the Company will indemnify the Company's directors, officers,
employees and agents to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law.
The Company's Amended and Restated Certificate of Incorporation also
provides that directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law (relating
to unlawful payment of dividends or unlawful stock purchase or redemption) or
(iv) for any transaction from which the director derived any improper personal
benefit.
ITEM 25. OTHER EXPENSES OF INSURANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee................. $ 4,684
Blue sky fees and expenses.................................... 12,000
Printing and engraving expenses............................... 35,000
Accountants' fees and expenses................................ 110,000
NASDAQ Listing Application Fee................................ 13,815
Legal fees and expenses....................................... 125,000
Transfer Agent Fees........................................... 1,000
Miscellaneous fees and expenses............................... --
--------
Total........................................... $301,499
--------
--------
</TABLE>
The Company will pay all of the fees, costs and expenses set forth
above. Other than the SEC filing fee, all fees and expenses are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On January 1, 1998, in reliance on an exemption under Section 4(2) of
the Securities Act of 1993 (the "Act"), the Company issued a total of 522,600
shares of the Company's common stock (the "Common Stock") to five executive
officers of the Company or its subsidiaries in exchange solely for common stock
of the Company's subsidiaries. No cash compensation was paid for the shares and
no commissions were paid to any person in connection with the transaction.
Specifically, the Company issued (a) 375,000 shares of Common Stock to Gary H.
Elzweig, Executive Vice President of the Company, in exchange for 100 shares of
the common stock of Professional Engineering & Inspection Company, Inc.; (b)
66,000 shares of Common Stock to Martin B. Lowenthal, Executive Vice President
of the Company in exchange for 18.5 shares of the common stock of U.S.
Engineering Laboratories, Inc.; (c) 40,000 shares of Common Stock to Mark Baron,
Executive Vice President of the Company, in exchange for 1.67 shares of the
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common stock of San Diego Testing Engineers, Inc.; and (d) 28,600 shares of
Common Stock to Thomas H. Chapman, Vice President of San Diego Testing
Engineers, Inc., in exchange for 5.67 shares of the common stock of San Diego
Testing Engineers, Inc.
On January 1, 1998, in reliance on an exemption under Section 4(2) of
the Act, the Company also issued 13,000 shares of Common Stock to Christopher
O'Malley, Vice President of U.S. Engineering Laboratories, Inc., under the terms
of a Restricted Stock Agreement containing restrictions on the disposition of
the Common Stock and representations of Mr. O'Malley that are similar to those
described above in the Share Exchange Agreements. The issues issued to Mr.
O'Malley also bear a restrictive legend similar to that described above.
On April 1, 1998, in reliance on an exemption under Section 4(2) of the
Act, the Company issued 60,000 shares of Common Stock to Donald C. Alford,
Executive Vice President of the Company, in exchange for 25 shares of the common
stock of Wyman Testing Laboratories, Inc.
Each of the above exchanges was completed under the terms of a Share
Exchange Agreement that, during the period beginning on the date of issuance and
ending on the effective date of the Offering, prohibited the transfer of the
Common Stock without the Company's prior written consent and granted the Company
an option to purchase the restricted Common Stock for the fair market value of
such shares as determined by the Company's independent public accountants. Each
Share Exchange Agreement also contained representations from the executive
officer that the officer was not acquiring the Common Stock with a view toward
any distribution or resale of such shares to any person except in accordance
with the provisions of the Act and applicable state securities laws
(collectively. the "Securities Laws"). The shares of Common Stock issued to the
executive officers bear a legend setting forth that the shares have not been
registered under the Securities Laws and may not be sold, transferred or
otherwise disposed of except under registration, exemption from registration, or
operation of law.
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ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
*1.1 Form of Underwriting Agreement
*1.2 Form of Agreement Among Underwriters
*1.2 Form of Standard Dealers Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Amended and Restated by-laws of the Registrant
*4.1 Form of Warrant
*4.2 Form of Warrant Agreement
4.3 Form of Underwriter's Warrant
4.4 Form of Warrant Agency Agreement
*5.1 Opinion of Foley & Lardner regarding legality
*10.1 Business Loan Agreement between North County Bank and the
Company
*10.2 Master note: Reference Rate Related between Bank of
America and the Company
*10.3 Lease for San Diego, California facility
21 List of Subsidiaries
*23.1 Consent of Foley & Lardner (included in Exhibit 5.1)
23.2 Consents of Singer Lewak Greenbaum & Goldstein, LLP.
24.1 Power of Attorney relating to subsequent amendments
(included on the signature page of this Registration
Statement)
27 Financial Data Schedule
</TABLE>
*To be filed by amendment.
ITEM 28. UNDERTAKINGS
The undersigned small business issuer hereby undertakes as follows:
(a) The small business issuer will:
(1) file, during any period in which offers or
sales of securities are being made, a post-effective amendment to
this Registration Statement to:
(i) Include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or
events arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement. (Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
a prospectus filed with the Commission under Rule 424(b) if, in the aggregate,
the changes in
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volume and price represent no more than a 20% change in the maximum offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement.); and
(iii) Include any additional or changed
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) For the purpose of determining any liability under the
Securities Act of 1933, treat each post-effective amendment as a new
Registration Statement of the securities offered, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) The small business issuer will provide to the Underwriter at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
(c) The Company's Amended and Restated Certificate of Incorporation
also provides that the small business issuer will indemnify its directors,
officers, employees and agents to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the small business issuer under the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against pubic policy as expressed in the Securities Act
of 1933 and will be governed by the final adjudication of each issue.
(d) The small business issuer will:
(1) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective.
(2) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration Statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on this 20th day of
October, 1998.
U.S. LABORATORIES INC.
By:
---------------------------
Dickerson Wright, Chief Executive Officer,
President, and Chairman of the Board
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
constitutes and appoints Dickerson Wright and James Wait, and each of them
acting individually, as his or her true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and any Registration Statement filed under Rule 462(b) of the Securities Act
prepared in connection therewith, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- ---------- ----- -----
<S> <C> <C>
/S/ DICKERSON WRIGHT Chief Executive Officer, President, and October 20, 1998
- ---------------------------------- Chairman of the Board
Dickerson Wright
/S/ GARY ELZWEIG Executive Vice President and Director October 20, 1998
- ----------------------------------
Gary Elzweig
/S/ DONALD C. ALFORD Executive Vice President and Director October 20, 1998
- ----------------------------------
Donald C. Alford
/S/ MARK BARON Executive Vice President and Director October 20, 1998
- ----------------------------------
Mark Baron
/S/ MARTIN B. LOWENTHAL Executive Vice President and Director October 20, 1998
- ----------------------------------
Martin B. Lowenthal
/S/ JAMES D. WAIT Chief Financial Officer, Secretary, and Director October 20, 1998
- ---------------------------------- (Chief Financial and Accounting Officer)
James D. Wait
/S/ THOMAS H. CHAPMAN Director October 20, 1998
- ----------------------------------
Thomas H. Chapman
</TABLE>
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<TABLE>
<CAPTION>
Signature Title Date
- ---------- ----- -----
<S> <C> <C>
/S/ JAMES L. MCCUMBER Director October 20, 1998
- ----------------------------------
James L. McCumber
/S/ ROBERT E. PETERSEN Director October 20, 1998
- ----------------------------------
Robert E. Petersen
/S/ NOEL SCHWARTZ Director October 20, 1998
- ----------------------------------
Noel Schwartz
/S/ IRVING FUCHS Director October 20, 1998
- ----------------------------------
Irving Fuchs
</TABLE>
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EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
U.S. LABORATORIES INC.
Pursuant to the provisions of Section 245 of the General Corporation
Law of Delaware, the undersigned, being the sole stockholder of U.S.
Laboratories Inc., a corporation organized under the laws of the State of
Delaware on October 12, 1993 (the "Corporation"), does hereby certify that the
text of the Certificate of Incorporation of the Corporation is hereby amended
and restated as set forth below and that such Amended and Restated Certificate
of Incorporation has been adopted by the board of directors of the Corporation
and approved by a unanimous written consent of the stockholders of the
Corporation.
1. The name of the Corporation is U.S. Laboratories Inc.
2. The registered office of the Corporation is to be located at 30 Old
Rudnick Lane, Suite 100, City of Dover, County of Kent, in the State of Delaware
19901. The name of the registered agent at that address is Lexis Document
Services Inc.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of capital stock which the Corporation is
authorized to issue is fifty-five million (55,000,000) shares, of which fifty
million (50,000,000) shares shall be common stock, $.01 par value ("Common
Stock"), and five million (5,000,000) shares shall be preferred stock, $.01 par
value ("Preferred Stock").
4.1 Common Stock.
4.1.1. Each share of Common Stock shall, subject to provisions contained
elsewhere herein, have one vote, and except as provided by resolutions
adopted by the Corporation's Board of Directors providing for the
issuance of any class or series of Preferred Stock, the exclusive voting
power for all purposes shall be vested in the holders of Common Stock.
4.1.2. Subject to any preferential rights of holders of Preferred Stock,
holders of Common Stock shall be entitled to receive their pro rata
share, based upon the number of shares of Common Stock held by them, of
such dividends or other distributions as may be declared by the Board of
Directors from time to time, and of any distribution, after the payment
or provision for payment of debts and other
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<PAGE>
liabilities of the Corporation, of the assets of the Corporation upon its
liquidation, dissolution or winding up, whether voluntary or involuntary.
4.2 Preferred Stock.
4.2.1. The Board of Directors is hereby authorized to provide, by resolution
or resolutions adopted by the Board of Directors, for the issuance of
Preferred Stock from time to time in one or more class and/or series, to
establish the designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, and number of shares of each such class or series,
as stated and expressed herein and in the resolution or resolutions
providing for the issue of such class and/or series adopted by the Board
of Directors as hereinafter provided. Without limiting the generality of
the foregoing, the Board is authorized to provide that shares of a class
or series of Preferred Stock:
5. are entitled to cumulative, partially cumulative or noncumulative
dividends or other distributions payable in cash, capital stock or indebtedness
of the Corporation or other property, at such times and in such amounts as are
set forth in the resolution or resolutions establishing such class or series or
as are determined in a manner specified in such resolution or resolutions;
6. are entitled to a preference with respect to payment of dividends over
one or more other class and/or series of capital stock of the Corporation;
7. are entitled to a preference with respect to any distribution of
assets of the Corporation upon its liquidation, dissolution or winding up over
one or more other class and/or series of capital stock of the Corporation in
such amount as is set forth in the resolution or resolutions establishing such
class or series or as is determined in a manner specified in such resolution or
resolutions;
8. are redeemable or exchangeable at the option of the Corporation and/or
on a mandatory basis for cash, capital stock or indebtedness of the Corporation
or other property, at such times or upon the occurrence of such events, and at
such prices, as are set forth in the resolution or resolutions establishing
such class or series or as are determined in a manner specified in such
resolution or resolutions;
9. are entitled to the benefits of such sinking fund, if any, as is
required to be established by the Corporation for the redemption and/or purchase
of such shares by the resolution or resolutions establishing such class or
series;
10. are convertible at the option of the holders thereof into shares of
any other class or series of capital stock of the Corporation, at such times or
upon the occurrence of such events, and upon such terms, as are set forth in the
resolution or resolutions establishing such class or series or as are determined
in a manner specified in such resolution or resolutions;
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<PAGE>
11. are exchangeable at the option of the holders thereof for cash,
capital stock or indebtedness of the Corporation or other property, at such
times and upon the occurrence of such events, and at such prices, as are set
forth in the resolution or resolutions establishing such class or series or as
are determined in a manner specified in such resolution or resolutions;
12. are entitled to such voting rights, if any, as are specified in the
resolution or resolutions establishing such class or series (including, without
limiting the generality of the foregoing, the right to elect one or more
directors voting alone as a single class or series or together with one or more
other classes and/or series of Preferred Stock, if so specified by such
resolution or resolutions) at all times or upon the occurrence of specified
events; and
13. are subject to restrictions on the issuance of additional shares of
Preferred Stock of such class or series or of any other class or series, or on
the reissuance of shares of Preferred Stock of such class or series or of any
other class or series, or on increases or decreases in the number of authorized
shares of Preferred Stock of such class or series or of any other class or
series.
Without limiting the generality of the foregoing authorizations, any
of the rights and preferences of a class or series of Preferred Stock may be
made dependent upon facts ascertainable outside the resolution or resolutions
establishing such class or series, and may incorporate by reference some or all
of the terms of any agreements, contracts or other arrangements entered into by
the Corporation in connection with the issuance of such class or series. Unless
otherwise specified in the resolution or resolutions establishing a class or
series of Preferred Stock, holders of a class or series of Preferred Stock shall
not be entitled to cumulate their votes in any election of directors in which
they are entitled to vote and shall not be entitled to any preemptive rights to
acquire shares of any class or series of capital stock of the Corporation.
14. The Corporation shall have perpetual existence.
15. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend,
change, add to or repeal the by-laws of the Corporation without the assent or
vote of the stockholders.
16. Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the by-laws of the Corporation.
17. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omission not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
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<PAGE>
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit.
18. The Corporation shall to the fullest extent permitted by Section 145
of the Delaware General Corporation Law, as amended from time to time, indemnify
all persons whom it may indemnify pursuant thereto.
May __, 1998.
_______________________________
Dickerson Wright
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EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
U.S. LABORATORIES INC.
(A DELAWARE CORPORATION)
19. OFFICES
19.1 PRINCIPAL AND BUSINESS OFFICES. The Corporation may have
such principal and other business offices, either within or without the State of
Delaware, as the Board of Directors may designate or as the business of the
Corporation may require from time to time.
19.2 REGISTERED OFFICE. The registered office of the
Corporation required by the Delaware General Corporation Law to be maintained in
the State of Delaware may be, but need not be, identical with the principal
office in the State of Delaware, and the address of the registered office may be
changed from time to time by the Board of Directors or by the registered agent.
The business office of the registered agent of the Corporation shall be
identical to such registered office.
20. STOCKHOLDERS
20.1 ANNUAL MEETING. The annual meeting of the stockholders
shall be held on the second Wednesday of February of each year (unless that date
shall be a non-business day or legal holiday, in which event the annual meeting
of the stockholders shall be held the first business day immediately following
such date) for the purposes of electing directors and for the transaction of
such other business as may come before the meeting.
20.2 SPECIAL MEETING. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute, may be
called by the Board of Directors or the President or the Secretary or by the
person, or in the manner, designated by the Board of Directors.
20.3 PLACE OF MEETING. The Board of Directors may designate
any place, either within or without the State of Delaware, as the place of
meeting for any annual meeting or for any special meeting of stockholders called
by the Board of Directors. If no
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designation is made, or if a special meeting be otherwise called, the place of
meeting shall be the registered office of the Corporation in the State of
Delaware.
20.4 NOTICE OF MEETING. Written notice stating the place, day
and hour of the meeting of stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered to each
stockholder of record entitled to vote at such meeting not less than ten (10)
days (unless a longer period is required by law or the certificate of
incorporation) not more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the Board of Directors,
the President, the Secretary, or any other officer or persons calling the
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, addressed to the stockholder at his address as it
appears on the stock record books of the Corporation, with postage thereon
prepaid.
20.5 ADJOURNMENT. Any meeting of stockholders may be adjourned to
reconvene at any place designated by vote of a majority of the shares
represented thereat. At the adjourned meeting, the Corporation may transact any
business which might have been transacted at the original meeting. No notice of
the time or place of an adjournment need be given if the time and place are
announced at the meeting at which an adjournment is taken, unless the
adjournment is for more than thirty (30) days or a new record date is fixed for
the adjourned meeting, in which case notice of the adjourned meeting shall be
given to each stockholder. Unless a new record date for the adjourned meeting
is fixed, the determination of stockholders of record entitled to notice or to
vote at the meeting at which adjournment is taken shall apply to the adjourned
meeting.
20.6 FIXING OF RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors may fix in advance a date as the record
date for any such determination of stockholders, such date in any case to be not
more than sixty (60) days, and, in case of a meeting of stockholders, not less
than ten (10) days prior to the date on which the particular action requiring
such determination of stockholders is to be taken. If no record date is fixed,
the record date for determining:
20.6.1. 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 if waived, at the close of business on
the day next preceding the day on which the meeting is held;
20.6.2. stockholders entitled to express consent to a corporate action
in writing without meeting shall be the day on which the first written consent
is expressed; or
20.6.3. stockholders for any other purpose shall be the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
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20.7 VOTING RECORDS. The officer having charge of the stock
transfer books for shares of the Corporation shall, at least ten (10) days
before each meeting of stockholders, make a complete record of the stockholders
entitled to vote at such meeting, arranged in alphabetical order, with the
address of and the number of shares held by each. Such record shall be produced
and kept open to the examination of any stockholders, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held as specified in the notice of the meeting or at the place of the
meeting. The record 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
stockholders present. The original stock transfer books shall be the only
evidence as to who are the stockholders entitled to examine such record or
transfer books or to vote at any meeting of stockholders.
20.8 QUORUM. Except as otherwise provided in the certificate
of incorporation, a majority of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders, but
in no event shall less than one-third of the shares entitled to vote constitute
a quorum. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders unless the vote of a greater number or
voting by classes is require by law or the certificates of incorporation.
Though less than a quorum of the outstanding shares are represented at a
meeting, a majority of the shares represented at a meeting which initially had a
quorum may adjourn the meeting from time to time without further notice.
20.9 CONDUCT OF MEETING. The President, and in his absence, a
Vice President in the order provided under Section 4.06 and in their absence,
any person chosen by the stockholders present, shall call the meeting of the
stockholders to order and shall act as chairman of the meeting. The Secretary
of the Corporation shall act as secretary of all meetings of the stockholders,
but, in the absence of the Secretary, the presiding officer may appoint any
other person to act as secretary of the meeting.
20.10 PROXIES. At all meetings of stockholders, a stockholder
entitled to vote may vote in person or by proxy appointed in writing by the
stockholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the Secretary of the Corporation before or at the time of the
meeting. Unless otherwise provided in the proxy and supported by sufficient
interest, a proxy may be revoked at any time before it is voted, either by
written notice filed with the Secretary or the acting secretary or the meeting
or by oral notice given by the stockholder to the presiding officer during the
meeting. The presence of a stockholder who has filed a proxy shall not of
itself constitute a revocation. No proxy shall be valid after three (3) years
from the date of its execution, unless otherwise provided in the proxy. The
Board of Directors shall have the power and authority to make rules establishing
presumptions as to the validity and sufficiency of proxies.
20.11 VOTING OF SHARES. Each outstanding share of common stock
shall be entitled to one vote upon each matter submitted to a vote at a meeting
of stockholders,
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except to the extent that the voting rights of the shares of any class or
classes are enlarged, limited or denied by the certificate of incorporation.
20.12 VOTING OF SHARES BY CERTAIN HOLDERS.
20.12.1. OTHER CORPORATIONS. Shares standing in the name of another
corporation may be voted either in person or by proxy, by the president of such
corporation or any other officer appointed by such president. A proxy executed
by any principal officer of such other corporation or assistant thereto shall be
conclusive evidence of the signer's authority to act, in the absence of express
notice to this Corporation, given in writing to the Secretary of this
Corporation, of the designation of some other person by the Board of Directors
or the by-laws of such other corporation.
20.12.2. LEGAL REPRESENTATIVES AND FIDUCIARIES. Shares held by any
administrator, executor, guardian, conservator, trustee in bankruptcy, receiver,
or assignee for creditors may be voted by a duly executed proxy, without a
transfer of such shares to his name. Shares standing in the name of a fiduciary
may be voted by him, either in person or by proxy. A proxy executed by a
fiduciary, shall be conclusive evidence of the signer's authority to act, in the
absence of express notice to this Corporation, given in writing to the Secretary
of this Corporation, that such manner of voting is expressly prohibited or
otherwise directed by the document creating the fiduciary relationship.
20.12.3. PLEDGEES. A stockholder whose shares are pledged shall be
entitled to vote such shares unless in the transfer of the shares the pledgor
has expressly authorized the pledgee to vote the shares and thereafter the
pledgee, or his proxy, shall be entitled to vote the shares so transferred.
20.12.4. TREASURY STOCK AND SUBSIDIARIES. Neither treasury shares, nor
shares held by another corporation if a majority of the shares entitled to vote
for the election of directors of such other corporation is held by this
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares entitled to vote, but shares of its own issue held
by its corporation in a fiduciary capacity, or held by such other corporation in
a fiduciary capacity, may be voted and shall be counted in determining the total
number of outstanding shares entitled to vote.
20.12.5. JOINT HOLDERS. Shares of record in the names of two or more
persons or shares to which two or more persons have the same fiduciary
relationship, unless the Secretary of the Corporation is given notice otherwise
and furnished with a copy of the instrument creating the relationship, may be
voted as follows: (i) if voted by an individual, his vote binds all holders; or
(ii) if voted by more than one holder, the majority vote binds all, unless the
vote is evenly split in which case the shares may be voted proportionately, or
according to the ownership interest as shown in the instrument filed with the
Secretary of the Corporation.
20.13 WAIVER OF NOTICE BY STOCKHOLDERS. Whenever any notice is
required to be given to any stockholder of the Corporation under the certificate
of
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incorporation or by-laws or any provision of the Delaware General Corporation
Law, a waiver thereof in writing, signed at any time, whether before or after
the time of meeting, by the stockholder entitled to such notice, shall be deemed
equivalent to the giving of such notice. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except where the person
attends for the express purpose of objecting to the transaction of any business.
Neither the business, nor the purpose of any regular or special meeting of
stockholders, directors or members of a committee of directors need be specified
in the waiver.
20.14 STOCKHOLDERS CONSENT WITHOUT MEETING. Any action
required or permitted by the certificate of incorporation or by-laws or any
provision of law to be taken at a meeting of the stockholders, may be taken
without a meeting, prior notice or vote, if a consent in writing, setting forth
the action so taken, shall be signed by the number of stockholders required to
authorize such action at a meeting. If the action is authorized by less than
unanimous consent, notice of the action shall be given to nonconsenting
stockholders.
21. BOARD OF DIRECTORS
21.1 GENERAL POWERS AND NUMBER. The business and affairs of
the Corporation shall be managed by its Board of Directors. The number of
directors of the Corporation shall be one (1) or such other specific number as
may be designated from time to time by resolution of the Board of Directors.
21.2 TENURE AND QUALIFICATIONS. Each director shall hold
office until the next annual meeting of stockholders and until his successor
shall have been qualified and elected, or until his prior death, resignation or
removal. A director may be removed from office by affirmative vote of a
majority of the outstanding shares entitled to vote for the election of such
director, taken at a meeting of stockholders called for that purpose. A
director may resign at any time by filing his written resignation with the
Secretary of the Corporation. Directors need not be residents of the State of
Delaware or stockholders of the Corporation.
21.3 REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this by-law immediately after
the annual meeting of stockholders, and each adjourned session thereof. The
place of such regular meeting shall be the same as the place of the meeting of
stockholders which precedes it, or such other suitable place as may be announced
at such meeting of stockholders. The Board of Directors may provide, by
resolution, the time and place, either within or without the State of Delaware,
for the holding of additional regular meetings without other notice than such
resolution.
21.4 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the President, Secretary or
Treasurer. The President or Secretary calling any special meeting of the Board
of Directors may fix any place, either within or without the State of Delaware,
as the place for holding any special meeting of the Board of Directors called by
them, and if no other place is fixed the place of the meeting shall be the
registered office of the Corporation in the State of Delaware.
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21.5 NOTICE; WAIVER. Notice of each meeting of the Board of
Directors (unless otherwise provided in or pursuant to Section 3.03) shall be
given to each director not less than twenty-four (24) hours prior to the
meeting by giving oral, telephone or written notice to a director in person,
or by telegram, or not less than three (3) days prior to a meeting by
delivering or mailing notice to the business address or such other address as
a director shall have designated in writing and filed with the Secretary. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage thereon prepaid. If notice be
given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegraph company. Whenever any notice whatever
is required to be given to a any director of the Corporation under the
certificate of incorporation or by-laws or any provision of law, a waiver
thereof in writing, singed at any time, whether before or after the time of
meeting, by the director entitled to such notice, shall be deemed equivalent
to the giving of such notice. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting and objects thereat to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of
the Board of Directors need be specified in the notice or waiver of notice of
such meeting.
21.6 QUORUM. Except as otherwise provided by law or by the
certificate of incorporation or these by-laws, a majority of the directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, but in no event shall less than one-third of the directors
constitute a quorum. A majority of the directors present (though less than such
quorum) may adjourn the meeting from time to time without further notice.
21.7 MANNER OF ACTING. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors, unless the act of a greater number is required by law or
by the certificate of incorporation or these by-laws.
21.8 CONDUCT OF MEETINGS. The President, and in his absence a
Vice President in the order provided under Section 4.06, and in their absence,
any director chosen by the directors present, shall call meetings of the Board
of Directors to order and shall act as chairman of the meeting. The Secretary
of the Corporation shall act as secretary of all meetings of the Board of
Directors but in the absence of the Secretary, the presiding officer may appoint
any Assistant Secretary or any director or other person present to act as
secretary of the meeting.
21.9 VACANCIES. Any vacancy occurring in the Board of
Directors, including a vacancy created by an increase in the number of
directors, may be filled until the next succeeding annual election by the
affirmative vote of a majority of the directors then in office, though less than
a quorum of the Board of Directors; provided, that in case of a vacancy created
by the removal of a director by vote of the stockholders, the stockholders shall
have the right to fill such vacancy at the same meeting or any adjournment
thereof.
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21.10 COMPENSATION. The Board of Directors, by affirmative
vote of a majority of the directors then in office, and irrespective of any
personal interest of any of its members, may establish reasonable compensation
of all directors for services to the Corporation as directors, officers or
otherwise, or may delegate such authority to an appropriate committee. The
Board of Directors also shall have authority to provide for or delegate
authority to an appropriate committee to provide for reasonable pensions,
disability or death benefits, and other benefits or payments, to directors,
officers and employees and to their estates, families, dependents or
beneficiaries on account of prior services rendered by such directors, officers
and employees to the Corporation.
21.11 PRESUMPTION OF ASSENT. A director of the Corporation who
is present at a meeting of the Board of Directors or a committee thereof of
which he is a member at which action on any corporate matter is taken unless his
dissent shall be entered in the minutes of the meeting or unless he shall file
his written dissent to such action with the person acting as the secretary of
the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
21.12 COMMITTEES. The Board of Directors by resolution adopted
by the affirmative vote of a majority of the directors may designate one or more
committees, each committee to consist of one or more directors elected by the
Board of Directors, which to the extent provided in said resolution as initially
adopted, and as thereafter supplemented or amended by further resolution adopted
by a like vote, 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. Each such committee shall fix its own rules governing the conduct
of its activities and shall make such reports to the Board of Directors of its
activities as the Board of Directors may request.
21.13 UNANIMOUS CONSENT WITHOUT MEETING. Any action required
or permitted by the certificate of incorporation or by-laws or any provision of
law to be taken by the Board of Directors at a meeting or by a resolution of any
committee thereof may be taken without a meeting if a consent in writing,
setting forth the action so taken, filed with the minutes of the proceedings,
shall be signed by all of the directors then in office.
21.14 TELEPHONIC MEETINGS. Members of the Board of Directors,
or any committee designated by the Board, may participate in a meeting of such
Board or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
22. OFFICERS
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22.1 NUMBER. The principal officers of the Corporation shall
be a President, no or any number of Vice Presidents, a Secretary, and a
Treasurer, each of whom shall be elected by the Board of Directors. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the Board of Directors. Any number of offices may be held by the
same person.
22.2 ELECTION AND TERM OF OFFICE. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of the stockholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Each officer shall hold office until his successor shall
have been duly elected or until his prior death, resignation or removal. Any
officer may resign at any time upon written notice to the Corporation. Failure
to elect officers shall not dissolve or otherwise affect the Corporation.
22.3 REMOVAL. Any officer or agent may be removed by the
Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment shall not of itself create contract rights.
22.4 VACANCIES. A vacancy in any principal office because of
death, resignation, removal, disqualification or otherwise, shall be filled by
the Board of Directors for the unexpired portion of the term.
22.5 PRESIDENT. The President shall be the principal
executive officer of the Corporation and, subject to the control of the Board of
Directors, shall, in general, supervise and control all of the business and
affairs of the Corporation. He shall, when present, preside at all meetings of
the stockholders and of the Board of Directors. He shall have authority,
subject to such rules as may be prescribed by the Board of Directors, to appoint
such agents and employees of the Corporation as he shall deem necessary, to
prescribe their powers, duties and compensation, and to delegate authority to
them. Such agents and employees shall hold office at the discretion of the
President. He shall have authority to sign, execute and acknowledge, on behalf
of the Corporation, all deeds, mortgages, bonds, stock certificates, contracts,
leases, reports and all other documents or instruments, of every conceivable
kind and character whatsoever, necessary or proper to be executed in the course
of the Corporation's regular business, or which shall be authorized by
resolution of the Board of Directors; and, except as otherwise provided by law
or the Board of Directors, he may authorize any Vice President or other officer
or agent of the Corporation to sign, execute and acknowledge such documents or
instruments in his place and stead. In general he shall perform all duties
incident to the office of President and such other duties as may be prescribed
by the Board of Directors from time to time.
22.6 THE VICE PRESIDENT. In the absence of the President or
in the event of his death, inability or refusal to act, or in the event for any
reason it shall be impracticable for the President to act personally, the Vice
President, if one is elected, (or in
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the event there be more than one Vice President, the vice Presidents in the
order designated by the Board of Directors, 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. Any Vice President may
sign, with the Secretary or Assistant Secretary, certificates for shares of
the Corporation; and shall perform such other duties and have such authority
as from time to time may be delegated or assigned to him by the President or
by the Board of Directors. The execution of any instrument of the
Corporation by any Vice President shall be conclusive evidence, as to third
parties, of his authority to act in the stead of the President.
22.7 THE SECRETARY. The Secretary shall: (a) keep the
minutes of the meetings of the stockholders and of the Board of Directors in one
or more books provided for the purpose; (b) attest instruments to be filed with
the Secretary of State; (c) see that all notices are duly given in accordance
with the provisions of these by-laws or as required by law; (d) be custodian of
the corporate records and of the seal of the Corporation and see that the seal
of the Corporation is affixed to all documents the execution of which on behalf
of the Corporation under its seal is duly authorized; (e) keep or arrange for
the keeping of a register of the post office address of each stockholder which
shall be furnished to the Secretary by such stockholder; (f) sign with the
President, or a Vice President, certificates for shares of the Corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (g) have general charge of the stock transfer books of the
Corporation; and (h) in general perform all duties incident to the office of
Secretary and have such other duties and exercise such authority as from time to
time may be delegated or assigned to him by the President or by the Board of
Directors.
22.8 THE TREASURER. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(b) receive and give receipts for moneys due and payable to the Corporation from
any source whatsoever, and deposit all such moneys in the name of the
Corporation in such banks, trust companies or other depositaries as shall be
selected in accordance with the provisions of Section 5.04; and (c) in general
perform all of the duties incident to the office of Treasurer and have such
other duties and exercise such other authority as from time to time may be
delegated or assigned to him by the President or by the Board of Directors. If
required by the Board of Directors, the Treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the Board of Directors shall determine.
22.9 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. There
shall be such number of Assistant Secretaries and Assistant Treasurers as the
Board of Directors may from time to time authorize, if any. The Assistant
Secretaries may sign with the President or a Vice President certificates for
shares of the Corporation the issuance of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Treasurers shall
respectively, if required by the Board of Directors, give bonds for the faithful
discharge of the duties in such sums and with such sureties as the Board of
Directors shall determine. the Assistant Secretaries and Assistant Treasurers,
in general, shall perform such duties and have
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such authority as shall from time to time be delegated or assigned to them by
the Secretary or the Treasurer, respectively, or by the President or the
Board of Directors.
22.10 OTHER ASSISTANTS AND ACTING OFFICERS. The Board of
Directors shall have the power to appoint any person to act as assistant to any
officer, or as agent for the Corporation in his stead, or to perform the duties
of such officer whenever for any reason it is impracticable for such officer to
act personally, and such assistant or acting officer or other agent so appointed
by the Board of Directors shall have the power to perform all the duties of the
office to which he is so appointed to be an assistant, or as to which he is so
appointed to act, excerpt as such power may be otherwise defined or restricted
by the Board of Directors.
22.11 SALARIES. The salaries of the principal officers shall
be fixed from time to time by the Board of Directors or by a duly authorized
committee thereof, and no officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the Corporation.
23. CONTRACTS, LOAN, CHECKS AND DEPOSITS; SPECIAL CORPORATE ACTS
23.1 CONTRACTS. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute or
deliver any instrument in the name of and on behalf of the Corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages and instruments of assignment or
pledge made by the Corporation shall be executed in the name of the Corporation
by the President or a Vice President and by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer; the Secretary or an
Assistant Secretary, when necessary or required, shall affix the corporate seal
thereto; and when so executed no other party to such instrument or any third
party shall be required to make any inquiry into the authority of the signing
officer or officers.
23.2 LOANS. No indebtedness for borrowed money shall be
contracted on behalf of the Corporation and no evidences of such indebtedness
shall be issued in its name unless authorized by or under the authority of a
resolution of the Board of Directors. Such authorization may be general or
confined to specific instances.
23.3 DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositaries as may be selected by or
under the authority of a resolution of the Board of Directors.
23.4 VOTING OF SECURITIES OWNED BY THIS CORPORATION. Subject
always to the specific directions of the Board of Directors, (a) any shares or
other securities issued by any other corporation and owned or controlled by this
Corporation may be voted at any meeting of security holders of such other
Corporation by the President of this Corporation if he is present, or in his
absence, by a Vice President of this Corporation who may be present, and (b)
whenever, in the judgment of the President, or in his absence, of a Vice
President, it is
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desirable for this Corporation to execute a proxy or written consent in
respect to any shares or other securities issued by any other corporation and
owned by this Corporation, such proxy or consent shall be executed in the
name of this Corporation by the President or one of the Vice Presidents of
this Corporation, without necessity of any authorization by the Board of
Directors affixation of corporate seal or countersignature or attestation by
another officer. Any person or persons designated in the manner above stated
as the proxy or proxies of this Corporation shall have full right, power and
authority to vote the shares or other securities issued by such other
corporation and owned by this Corporation the same as such shares or other
securities might be voted by this Corporation.
24. CERTIFICATES FOR SHARES AND THEIR TRANSFER
24.1 CERTIFICATES FOR SHARES. Certificates representing
shares of the Corporation shall be in such form, consistent with law, as shall
be determined by the Board of Directors. Such certificates shall be signed by
the President or a Vice President and by the Secretary or an Assistant Secretary
or Treasurer or Assistant Treasurer. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer shall
be canceled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except as
provided in Section 6.06.
24.2 FACSIMILE SIGNATURES AND SEAL. The seal of the
Corporation on any certificates for shares may be a facsimile. The signatures
of the President or Vice President and the Secretary or Assistant Secretary upon
a certificate may be facsimiles if the certificate is manually signed on behalf
of a transfer agent, or a registrar, other than the Corporation itself or an
employee of the Corporation.
24.3 SIGNATURE BY FORMER OFFICERS. In case any officer, who
has signed or whose facsimile signature has been placed upon any certificate for
shares, 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 he were such
officer at the date of its issue.
24.4 TRANSFER OF SHARES. Prior to due presentment of a
certificate for shares for registration of transfer, the Corporation may treat
the registered owner of such shares as the person exclusively entitled to vote,
to receive notifications and otherwise to have and exercise all the rights and
power of an owner. Where a certificate for shares is presented to the
Corporation with a request to register for transfer, the Corporation shall not
be liable to the owner or any other person suffering loss as a result of such
registration of transfer if (a) there were on or with the certificate the
necessary endorsements, and (b) the Corporation had no duty to inquire into
adverse claims or has discharged by such duty. The Corporation may require
reasonable assurance that said endorsements are genuine and effective and
compliance with such other regulations as may be prescribed by or under the
authority of the Board of Directors. Where a transfer of shares is made for
collateral security, and not absolutely, it
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shall be so expressed in the entry of transfer if, when the shares are
presented, both the transferor and the transferee so request.
24.5 RESTRICTIONS ON TRANSFER. The face or reverse side of
each certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the Corporation upon the transfer of such shares.
Otherwise, any such restriction is invalid except against those with actual
knowledge of the restrictions.
24.6 LOST, DESTROYED OR STOLEN CERTIFICATES. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the person requesting such new certificate or
certificates, or his or her legal representative, to give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
24.7 CONSIDERATION FOR SHARES. The shares of the Corporation
may be issued for such consideration as shall be fixed from time to time by the
Board of Directors, consistent with the law of the State of Delaware.
24.8 STOCK REGULATIONS. The Board of Directors shall have
the power and authority to make all such further rules and regulations not
inconsistent with the statutes of the State of Delaware as it may deem expedient
concerning the issue, transfer and registration of certificates representing
shares of the Corporation.
25. SEAL
25.1 The Board of Directors may, at their discretion, provide
a corporate seal in an appropriate form.
26. FISCAL YEAR
26.1 The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
27. AMENDMENTS
27.1 BY STOCKHOLDERS. These by-laws may be adopted, amended
or repealed and new by-laws may be adopted by the stockholders entitled to vote
at the stockholders' annual meeting without prior notice or any other meeting
provided the amendment under consideration has been set forth in the notice of
meeting, by affirmative vote
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of not less than a majority of the shares present or represented at any
meeting at which a quorum is in attendance.
27.2 BY DIRECTORS. These by-laws may be adopted, amended or
repealed by the Board of Directors as provided in the certificate of
incorporation by the affirmative vote of a majority of the number of directors
present at any meeting at which a quorum is in attendance; but no by-law adopted
by the stockholders shall be amended or repealed by the Board of Directors if
the by-laws so provide.
27.3 IMPLIED AMENDMENTS. Any action taken or authorized by
the Board of Directors, which would be inconsistent with the by-laws then in
effect but it taken or authorized by affirmative vote of not less than the
number of directors required to amend the by-laws so that the by-laws would
be consistent with such action, shall be given the same effect as though the
by-laws had been temporarily amended or suspended so far, but only so far, as
is necessary to permit the specific action so taken or authorized.
28. INDEMNIFICATION OF DIRECTORS AND OFFICERS
28.1 INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES.
The Corporation shall indemnify to the full extent permitted by law any person
made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that the
person, his or her testator or intestate is or was a director, officer or
employee of the Corporation or any predecessor of the Corporation or serves or
served any other enterprise as a director, officer or employee at the request of
the Corporation or any predecessor of the Corporation.
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EXHIBIT 4.3
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER UNITED STATES
FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE
SECURITIES BE TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT REGISTRATION OF
SUCH SECURITIES UNDER ALL APPLICABLE UNITED STATES FEDERAL OR STATE SECURITIES
LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE, AT
THE OPTION OF THE COMPANY, TO BE EVIDENCED BY AN OPINION OF WARRANTHOLDER'S
COUNSEL, IN FORM ACCEPTABLE TO THE COMPANY, THAT NO VIOLATION OF SUCH
REGISTRATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
U.S. LABORATORIES, INC.
FORM OF
UNDERWRITER'S WARRANT AGREEMENT
FOR WARRANTS FOR THE PURCHASE OF 120,000 UNITS OF
COMMON STOCK AND REDEEMABLE WARRANTS
AT $0.01 PER WARRANT
DATED _________, 1998
This Underwriters' Warrant Agreement (the "Agreement") is made by and
between U.S. LABORATORIES, INC., a corporation organized under the laws of the
State of Delaware (the "Company"), and and Janda & Garrington, LLC, a
California limited liability company ("Janda") on behalf of the Underwriters, as
defined below.
The Company hereby issues to Janda (referred to herein as the "Holder")
purchase warrants (the "Warrant") for the purchase of the Company's Units
consisting of one share of the Company's $0.01 par value common stock and one
warrant per unit (the "Underwriters' Units) in the respective amounts listed on
Schedule A, subject to adjustment pursuant to SECTION 8 below. The Warrant is
being issued pursuant to Section 2.d of the Underwriting Agreement, dated
effective as of ___________, 1998 (the "Underwriting Agreement"), in connection
with the
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Offering of the Company's Units (the "Units") as more particularly
described in that certain Registration Statement filed on Form SB-2
(Registration No. ________) filed with the U.S. Securities and Exchange
Commission on July ___, 1998, as amended ("Registration Statement"). The
Underwriting Agreement is by and among the Company, the Warrantholder as
representative of each of the Underwriters, and each Participating Dealer, if
any, (as defined in the Underwriting Agreement) who expressly adopts and agrees
to be bound by the terms of the Underwriting Agreement (the "Underwriters").
The Warrantholder, as the Representative of the Underwriters, is executing this
Agreement for its own behalf and as the representative of the Underwriting Group
(as defined in SUBSECTION 1(d) hereof) who may be entitled to receive the
Warrants pursuant to SUBSECTION 1(d) hereof. Capitalized terms used, but not
defined herein, shall have the meanings ascribed to such terms in the
Underwriting Agreement.
In consideration of the foregoing and for the purpose of defining the terms
and provisions of the Warrant and the respective rights and obligations
hereunder, the Company and the Holder, for value received, hereby agree as
follows:
1. FORM AND TRANSFERABILITY OF WARRANT
(a) CERTIFICATION. The Warrant (or Warrants should the Warrant be divided
and/or assigned as provided herein) shall be numbered and shall be registered on
the books of the Company when issued.
(b) FORM OF WARRANT. The text and the form of the Warrant Certificate
shall be in the form of EXHIBIT A attached hereto and by this reference
incorporated herein. The price per share as determined in accordance with the
provisions of SECTION 7 hereof (the "Warrant Price") and the number of the
Underwriters' Units issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events, all as hereinafter provided in
SECTION 8 hereof.
The Warrant shall be executed on behalf of the Company by its president or
a vice president, under its corporate seal reproduced thereon attested by its
secretary or an assistant secretary. A Warrant bearing the signature of an
individual who was at any time the proper officer of the Company shall bind the
Company, notwithstanding that such individual shall have ceased to hold such
office prior to the delivery of such Warrant or did not hold such office on the
date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
(c) TRANSFER. The Warrant shall be divisible and transferable only on the
books of the Company maintained at its principal office in San Diego,
California, or at the office of the Company's stock transfer agent, upon
delivery thereof duly endorsed by the Holder or by its duly authorized attorney
or representative, or accompanied by proper evidence of succession,
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assignment or authority to transfer. Upon any registration of transfer, the
Company shall execute and deliver a new Warrant to the person entitled
thereto.
(d) LIMITATIONS ON TRANSFER OF WARRANT. The Warrant shall not be sold,
transferred, assigned, exchanged or hypothecated by the Holder, except to: (i)
an Underwriter or to a broker-dealer firm which has participated in the Offering
as a participating dealer and has executed, and is not then in default of, its
respective Participating Dealer Agreement regarding the Offering (the
"Underwriting Group") and one or more persons, each of whom on the date of
transfer is an officer (including officer-director) or partner of a member of
the Underwriting Group or an officer (including officer-director) or partner of
a successor to a member of the Underwriting Group; (ii) one or more persons,
each of whom on the date of transfer is an officer (including officer-director)
of a Holder or an officer (including officer-director) or partner of a successor
to a Holder as provided herein; (iii) a partnership or partnerships, all of the
partners of which are a Holder and one or more persons, each of whom on the date
of transfer is an officer (including officer-director) of a Holder or an officer
(including officer-director) or partner of a successor to a Holder; (iv) a
successor to a Holder through merger or consolidation; (v) a purchaser of all or
substantially all of a Holder's assets; (vi) the stockholders of a Holder or the
stockholders or partners of its transferee in the event of liquidation or
dissolution; or (vii) any person receiving the Warrant from one or more persons
listed in this Subsection (d) at such person's or persons' death pursuant to
will, trust or the laws of intestate succession. The Warrant may be divided or
combined, upon request to the Company by the Holder, into a certificate or
certificates representing the right to purchase the same aggregate number of
Underwriters' Units..
(e) EXCHANGE OR ASSIGNMENT OF WARRANT. Subject to SUBSECTION 1(d) any
Warrant certificate may be exchanged without expense for another certificate or
certificates entitling the Holder to purchase a like aggregate number of
Underwriters' Units as the certificate or certificates surrendered then entitled
such Holder to purchase. Any Holder desiring to exchange a Warrant certificate
shall make such request in writing delivered to the Company, and shall
surrender, properly endorsed, the certificate evidencing the Warrant to be so
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate as so requested. Any Holder desiring
to assign a Warrant shall make such request in writing delivered to the Company,
and shall surrender, properly endorsed, the certificate evidencing the Warrant
to be so assigned, with an instrument of assignment duly executed accompanied by
proper evidence of assignment, succession or authority to transfer, funds
sufficient to pay any transfer tax, and any other documents which the Company or
its counsel may reasonably request, whereupon the Company shall, without charge,
execute and deliver a new Warrant certificate in the name of the assignee named
in such instrument of assignment and the original Warrant certificate shall
promptly be canceled. The text and form of the request for assignment shall be
substantially as set forth in Exhibit A attached hereto and by this reference
incorporated herein.
(f) HOLDER. Unless the context indicates otherwise, the term "Holder"
shall include any transferee of the Warrant pursuant to SUBSECTION 1(c),
SUBSECTION 1(d), SUBSECTION 5, and
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SUBSECTION 11(e) hereof, and the term "Warrant" shall include any and all
Warrants outstanding pursuant to this Agreement, including those evidenced by
a certificate or certificates issued upon division, exchange, substitution,
or transfer pursuant to this Agreement.
2. TERMS AND EXERCISE OF WARRANTS
Subject to the terms of this Agreement, the Holder shall have the right, at
any time during the sixty (60) month period (the "Exercise Period") commencing
on the first anniversary date of the effective date of the Offering (the
"Exercise Date") and ending at 5:00 p.m., Pacific time, on the fifth anniversary
date of the Exercise Date and shall be void thereafter (the "Warrant Expiration
Date"), or if any such date is a day on which banking institutions are
authorized by law to close, then on the next succeeding day which shall not be
such a day, to purchase from the Company up to the number of fully paid and
nonassessable Underwriters' Units which the Holder may at the time be entitled
to purchase pursuant to this Agreement, upon surrender to the Company, at its
principal office in San Diego, California or at the office of the Company's
stock transfer agent or at such other address as the Company may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company, of the certificate evidencing the Warrant to be exercised,
together with the form of Election to Purchase included in EXHIBIT A duly
completed and signed, and upon payment to the Company of the Warrant Price (as
determined in accordance with the provisions of SECTION 7 and SECTION 8 hereof),
for the number of Underwriters' Units with respect to which such Warrant is then
exercised together with all taxes applicable upon such exercise. Payment of the
aggregate Warrant Price shall be made in cash or by certified check or cashier's
check, payable to the order of the Company.
Upon such surrender of the Warrant certificate and payment of such Warrant
Price as aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to the Holder in such name or names as the Holder may
designate in writing, a certificate or certificates for the number of full
Underwriters' Units so purchased upon the exercise of the Warrant, together with
cash, as provided in SECTION 9 hereof, with respect to any fractional
Underwriters' Units otherwise issuable upon such surrender. Such certificate or
certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a holder of such Underwriters'
Units as of the close of business on the date of the surrender of the Warrant
and payment of the Warrant Price, as aforesaid, notwithstanding that the
certificates representing such Common Stock and/or Redeemable Warrants
comprising the Underwriters' Units, shall not actually have been delivered or
that the stock transfer books of the Company shall then be closed. The Warrant
shall be exercisable, at the election of the Holder, either in full or from time
to time in part, and, in the event that the certificate evidencing the Warrant
is exercised with respect to less than all of the Underwriters' Units specified
therein at any time prior to the Warrant Expiration Date, a new certificate
evidencing the remaining Underwriters' Units shall be issued by the Company.
3. MUTILATED OR MISSING WARRANT
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In case the certificate or certificates evidencing the Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Holder, issue and deliver in exchange and substitution for and upon cancellation
of the mutilated certificate or certificates, or in lieu of and in substitution
for the certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and date and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such Warrant, and of
reasonable bond of indemnity, if requested, also satisfactory in form and amount
and at the applicant's cost. Applicants for such replacement certificates agree
to comply with other reasonable requirements of the Company and to pay such
other reasonable charges as the Company may prescribe.
4. RESERVATION OF UNDERWRITERS' UNITS
There has been reserved, and the Company shall at all times keep reserved
so long as the Warrant remains outstanding, out of its authorized Common Stock,
such number of Shares of its Common Stock as shall be subject to purchase under
the Warrant. Every transfer agent for the Common Stock issuable upon the
exercise of the Warrant shall be irrevocably authorized and directed at all
times to reserve such number of authorized Shares as shall be requisite for such
purpose. The Company shall keep a copy of this Agreement on file with its
transfer agent for the Shares of Common Stock issuable upon the exercise of the
Warrant. The Company shall supply such transfer agent with duly executed stock
and other certificates for such purpose and shall provide or otherwise make
available any cash which may be payable as provided in SECTION 9 hereof.
5. LEGEND ON WARRANT AND CERTIFICATE FOR UNDERWRITERS' UNITS
Notwithstanding the provisions in SUBSECTION 1(d) of this Agreement
imposing limitations on the transfer of the Warrant, neither the Warrant nor the
Underwriters' Units shall be sold, transferred, pledged, issued in a name other
than of the holder thereof or otherwise disposed except in compliance with the
Securities Act of 1933, as amended (the "Act"). Each certificate evidencing the
Warrant and each certificate for securities initially issued upon exercise of
the Warrant, unless at the time of exercise such securities are registered with
the Securities Exchange Commission (the "Commission"), under the Act shall bear
the following legend:
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS CERTIFICATE OR
THE SECURITIES PURCHASABLE HEREUNDER SHALL BE MADE EXCEPT PURSUANT TO
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT
TO AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT REGISTRATION
IS NOT REQUIRED. TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS
ALSO RESTRICTED BY THAT CERTAIN UNDERWRITERS' WARRANT AGREEMENT DATED
_____________, 1998, A COPY OF WHICH IS AVAILABLE FROM THE ISSUER.
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Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public underwriting pursuant to a registration statement under the Act of
the securities represented thereby) shall also bear the above legend unless, in
the opinion of such counsel as shall be reasonably approved by the Company, the
securities represented thereby need no longer be subject to such restrictions.
6. PAYMENT OF TAXES
The Company shall pay all documentary stamp taxes, if any, attributable to
the initial issuance of the Warrant and the shares of Common Stock issuable upon
the exercise thereof; PROVIDED, HOWEVER, that the Company shall not be required
to pay any tax or taxes which may be payable with respect to any secondary
transfer of the Warrant or such securities.
7. WARRANT PRICE
The price per share at which the shares of Common Stock shall be
purchasable on the exercise of the Warrant (the "Warrant Price") shall be
______________ dollars ($_______) per Share (i.e. 120% of the Offering Price of
the Shares, subject to adjustment pursuant to SECTION 8 hereof.
8. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF UNDERWRITERS' UNITS
The number and kind of securities purchasable upon the exercise of the
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
(a) In case the Company shall (i) pay a dividend in Common Stock, (ii)
subdivide its outstanding Common Stock, (iii) combine its outstanding Common
Stock into a smaller number of shares of Common Stock, or (iv) issue by
reclassification of its Common Stock other securities of the Company, the number
and kind of securities purchasable upon the exercise of the Warrant immediately
prior thereto shall be adjusted so that the Holder shall be entitled to receive
the number and kind of securities of the Company which it would have owned or
would have been entitled to receive after the happening of any of the events
described above had the Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this Subsection (a) shall become effective on the effective
date of such event retroactive to the record date, if any, for such event.
(b) No adjustment in the number of securities purchasable hereunder shall
be required unless such adjustment would require an increase or decrease of at
least one percent (1%) in the number of securities (calculated to the nearest
full share) then purchasable upon the exercise of the Warrant or, if the Warrant
is not then exercisable, the number of securities purchasable upon the exercise
of the Warrant on the first date thereafter that the Warrant becomes
exercisable;
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PROVIDED, HOWEVER, that any adjustment which by reason of this SECTION 8 is
not required to be made immediately shall be carried forward and taken into
account in any subsequent adjustment.
(c) Whenever the number of the securities purchasable upon the exercise of
the Warrant is adjusted as herein provided, the Warrant Price payable upon the
exercise of the Warrant shall be adjusted by multiplying such Warrant Price
immediately prior to such adjustment by a fraction, of which the numerator shall
be the number of the securities purchasable upon the exercise of the Warrant
immediately prior to such adjustment, and of which the denominator shall be the
number of the securities so purchasable immediately thereafter.
(d) For the purpose of this SECTION 8, the term "Common Stock" shall mean:
(i) the class of stock designated as the Common Stock of the Company at the date
of this Agreement; or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that at any time, as a result of an adjustment made
pursuant to this SECTION 8, the Holder shall become entitled to purchase any
securities of the Company other than the Underwriters' Units, thereafter the
number of such other securities so purchasable upon the exercise of the Warrant
and the Warrant Price of such securities shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the securities contained in this SECTION 8.
(e) Whenever the number of the securities purchasable upon the exercise of
the Warrant or the Warrant Price is adjusted as herein provided, the Company
shall cause to be promptly mailed to the Holder by first class mail, postage
prepaid, notice of such adjustment and a certificate of a firm of independent
certified public accountants selected by the board of directors of the Company
(who may be the regular accountants employed by the Company) setting forth the
number of the securities purchasable upon the exercise of the Warrant or the
Warrant Price after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
(f) In case of any reclassification, capital reorganization or other
change in the outstanding shares of Common Stock of the Company (other than a
change in par value, or from par value to no par value, or from no par value to
par value), or as a result of an issuance of Common Stock by way of dividend or
other distribution, or of a subdivision or combination of the Common Stock for
which an adjustment to the Warrant is made by reason of SUBSECTION 8(a) hereof,
or in case of any consolidation or merger of the Company with or into another
corporation or entity (other than a merger with a subsidiary in which merger the
Company is the continuing corporation and which does not result in any
reclassification or capital reorganization of the Company) as a result of which
the holders of the Company's Common Stock become holders of other shares or
securities of the Company or of another corporation or entity, or such holders
receive cash or other assets, or in case of any sale or conveyance to another
corporation of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, as the case may be, shall execute with
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the Holder an agreement that the Holder shall have the right thereafter upon
payment of the Warrant Price in effect immediately prior to such action to
purchase upon the exercise of the Warrant the kind and number of securities
and property which it would have owned or have been entitled to have received
after the happening of such reclassification, capital reorganization, change
in the outstanding shares of Common Stock of the Company, consolidation,
merger, sale or conveyance had the Warrant been exercised immediately prior
to such action.
The agreement referred to in this SUBSECTION 8(f) shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this SECTION 8. The provisions of this
SUBSECTION 8(f) shall similarly apply to successive reclassifications, capital
reorganizations, changes in the outstanding shares of Common Stock of the
Company, consolidations, mergers, sales or conveyances.
(g) Except as provided in this SECTION 8, no adjustment with respect to
any dividends shall be made during the term of the Warrant or upon the exercise
of the Warrant.
(h) No adjustments shall be made in connection with the public sale and
issuance of Common Stock, or the options or warrants issued in connection
therewith, or for any warrants or options outstanding on the date of this
Agreement or for any Common Stock issuable upon the exercise of any such
warrants or options.
(i) Irrespective of any adjustments in the Warrant Price or the number or
kind of securities purchasable upon the exercise of the Warrant, the Warrant
certificate or certificates theretofore or thereafter issued may continue to
express the same price or number or kind of securities stated in the
Underwriters' Warrant initially issuable pursuant to this Agreement.
9. FRACTIONAL INTEREST
The Company shall not be required to issue fractional shares of Common
Stock upon the exercise of the Warrant. If any fraction of an Underwriters'
Units would, except for the provisions of this SECTION 9, be issuable upon the
exercise of the Warrant (or specified portion thereof), the Company shall pay an
amount in cash equal to the then current market price of the Company's Common
Stock multiplied by such fraction. For purposes of this Agreement, the term
"current market price" shall mean: (a) if the Common Stock is traded in the
over-the-counter market and not on the American Stock Exchange (the "AMEX") or
on any national securities exchange, the average between the per share closing
bid and asked prices of the Common Stock for the 30 consecutive trading days
immediately preceding the date in question, as reported by the AMEX or an
equivalent generally accepted reporting service; or (b) if the Common Stock is
traded on the AMEX or on a national securities exchange, the average for the 30
consecutive trading days immediately preceding the date in question of the daily
per share closing prices of the Common Stock on the AMEX or on the principal
national stock exchange on which it is listed, as the case may be. The closing
price referred to in clause (b) above shall be the last reported sales price or,
in case no such reported sale takes place on such
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day, the average of the reported closing bid and asked prices on the AMEX or
on the principal national securities exchange on which the Common Stock is
then listed, as the case may be.
10. NO RIGHTS AS SHAREHOLDER; NOTICES OF HOLDER
Nothing contained in this Agreement or in the Warrant shall be construed as
conferring upon the Holder or its transferee any rights as a shareholder of the
Company, either at law or in equity, including the rights to vote, receive
dividends, consent or receive notices as a shareholder with respect to any
meeting of shareholders for the election of directors of the Company or for any
other matter. If, however, at any time prior to the Warrant Expiration Date and
prior to the exercise of the Warrant, any action which requires an adjustment
pursuant to SECTION 8 occurs, or a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation, merger or sale of its
property, assets and business as an entirety) is proposed, then the Company
shall give notice in writing of such occurrence or proposal to the Holder, as
provided in SECTION 13 hereof, at least 30 days prior to the date fixed as the
record date or the date of closing the transfer books for the determination of
the shareholders entitled to any relevant dividend, underwriting, subscription
rights or other rights or for the determination of the shareholders entitled to
vote on such proposed dissolution, liquidation or winding up. Such notice shall
specify such record date or such date of closing the transfer books, as the case
may be.
11. REGISTRATION RIGHTS
(a) DEMAND REGISTRATION. When so requested in writing at any time during
the Exercise Period, but in no event after the fifth anniversary date of the
effective date of the Offering, by the holder or holders then of record of more
than 50% of the outstanding Warrant(s) and shares of Common Stock purchased upon
the Exercise of a Warrant (the "50% Holders") if any, the Company shall, as
promptly as practicable after receipt of such request, but in no event later
than 90 days therefrom, prepare and file with the Commission a registration
statement pursuant to Rule 415 promulgated under the Act on such form as may
then be available to the Company, for the registration under the Act of a public
offering by such 50% Holders of all or any portion of the Common Stock issuable
(and issued, if any) upon the exercise of the Warrants (the "Underlying
Securities").
Within ten (10) days after receiving any such request, the Company shall
give notice to any other holders of Warrants and any Underlying Securities
advising them that the Company is filing such registration statement, and
offering to include therein all or any portion of the Underlying Securities of
such holders or the Warrants for Underlying Securities of a holder who desires
to exercise and/or resell his or her Underlying Securities. The Company shall
not be obligated to any such other holder unless such other holder shall accept
such offer by notice in writing to the Company within thirty (30) days after the
receipt thereof. The Company shall be required to file only one such
registration statement hereunder, but shall use its best efforts to keep such
registration statement effective for a period of not less than nine (9) months;
PROVIDED,
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HOWEVER, that the Company shall have no duty to file any amendment to
any such registration statement at any time that the Company reasonably believes
that disclosure of the information required to be included in such amendment
would be premature or contrary to the best interests of the Company and its
security holders. The registration rights of the Holder shall not be
extinguished if the registration statement is withdrawn for any reason.
Notwithstanding any provision to the contrary, the Company's obligation to file
a registration statement pursuant to this SUBSECTION 11(a) shall not be
satisfied unless and until the registration statement is declared effective by
the Commission and it is effective for a period of at least nine (9) months
following such effective date.
The Company may include other of its securities in such registration
statement, unless the underwriter of such offering reasonably advises the
Company that the inclusion of such other securities will materially and
adversely affect the underwriting of, or the market for, the Underlying
Securities. The preparation and filing of the registration statement requested
pursuant to this Subsection (a) shall be without any expense to such Holders
(other than fees and expenses of counsel to such Holders and any underwriting
discounts or commissions) for that one time only.
(b) PIGGYBACK REGISTRATION. In addition to the rights of the Holders
pursuant to SUBSECTION 11(a) above, if the Company shall at any time during the
period commencing with the Exercise Date and ending with the Warrant Expiration
Date, but in no event after the sixth anniversary date of the effective date of
the Offering, prepare and file a registration statement under the Act with
respect to the public offering of any of its securities (other than on Forms
S-8, S-14 or S-15 or other similar form inappropriate to the registration of the
Warrant or Underlying Securities), and pursuant to the then applicable rules and
regulations under the Act a secondary offering of the Underlying Securities by a
Holder may be combined with such public offering in a single registration, the
Company shall in every such instance give reasonable written notice thereof to
the Holders thirty (30) or more days prior to the filing of such registration
statement, and shall upon the written request of a Holder made within fifteen
(15) days of the mailing of said written notice by the Company, include in such
registration statement such number of Underlying Securities as the Holder may
request. Any such registration statement shall remain effective for a period of
not less than nine (9) months following its effective date; PROVIDED, HOWEVER,
that if the Holder defers the sale of its Underlying Securities pursuant to
SUBSECTION 11(c) below, then the Company shall keep such registration statement
current for an additional period of ninety (90) days; PROVIDED FURTHER, that the
Company shall have no duty to file any amendment to any such registration
statement at any time that the Company reasonably believes that disclosure of
the information required to be included in such amendment would be premature or
contrary to the best interests of the Company and its security holders. The
inclusion of such Underlying Securities in any registration statement shall be
without any expense to the Holder, other than fees and expenses of counsel to
the Holder and any underwriting discounts or commissions. Neither the delivery
of such notice by the Company nor such request by the Holder shall in any way
obligate the Company to file such registration statement, and notwithstanding
the filing of such registration statement, the Company may, at any time prior to
the effective date thereof, determine not to offer the securities to which such
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registration statement relates, without liability to the Holder. In the event
the Company fails to receive written notice from a Holder within fifteen (15)
days of the mailing of said written notice by the Company, then the Company
shall treat such failure as having the same force and effect as if such Holder
had advised the Company that it does not intend to include any of its Underlying
Securities in such registration statement. If a Holder shall advise or be
deemed to have advised the Company of its intention not to include any of its
Underlying Securities in such registration statement, then such Holder shall,
for a period of ninety (90) days thereafter, refrain from demanding its rights
pursuant to SUBSECTION 11(a) HEREOF.
(c) Notwithstanding the provisions of SUBSECTION 11(b) hereof, if the
offering subject to any registration statement referred to therein is made by
the Company and is underwritten, and if the underwriter makes a written
determination prior to the effectiveness of such registration statement and so
requests and such request is based upon the opinion of the underwriter that the
sale of the Underlying Securities to be registered on such registration
statement by the Holder pursuant to SUBSECTION 11(b) will materially and
adversely interfere with such planned offering, then: (i) the Holder shall
agree not to sell any Underlying Securities, whether pursuant to such
registration statement or otherwise, for a period not to exceed ninety (90) days
following the effective date of such registration statement, and the Company
shall, at the expiration of such ninety (90) day period, at its expense,
maintain the currency of the registration statement and take such other steps as
may be required to permit the Holder to sell Underlying Securities pursuant to
such registration statement for an additional period of ninety (90) days
following the expiration of such ninety (90) day period; PROVIDED, HOWEVER, that
the Company shall have no duty to file any amendment to any such registration
statement at any time that the Company reasonably believes that disclosure of
the information required to be included in such amendment would be premature or
contrary to the best interests of the Company and its security holders; and (ii)
the Holder shall agree that the Underlying Securities shall be sold through such
underwriter in the same manner as the other securities that are the subject of
the registration, and shall pay to such underwriter a commission in respect of
such Underlying Securities at the same rate as the commission to be paid to such
underwriter in respect of the other securities that are the subject of such
registration.
If securities are proposed to be offered for sale pursuant to such
registration statement by other security holders of the Company, and the total
number of securities to be offered by the Holder and any other selling security
holders is required to be reduced pursuant to a request from the underwriter
(which request shall be made only for the reasons and in the manner set forth
above in this SUBSECTION 11(c), then the number of Underlying Securities to be
offered by all selling Holders pursuant to such registration statement shall
equal the number that bears the same ratio to the maximum number of securities
that the underwriter believes may be included for all the selling security
holders (including the Holder) as the original number of Underlying Securities
proposed to be sold by such Holder bears to the total original number of
securities proposed to be offered by all selling Holders and any other selling
security holders. In no event shall there be a reduction in the number of
shares of any securities offered by the Company pursuant to the registration
statement referred to in SUBSECTION 11(b) hereof.
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(d) The Company shall use its best efforts to cause any registration
statement covering all or any portion of the Underlying Securities to become
effective as promptly as possible and, if any stop order shall be issued in
connection therewith, to use its best efforts to obtain the removal of such
order. The Company shall furnish the selling Holder with copies of preliminary
prospectuses (together with any supplements thereto) and other documents
necessary or incidental to the offering being made by each Holder in such
quantities as each Holder may reasonably request. The Holders agree to
cooperate in all respects with the Company in effectuating the foregoing. The
obligations of the Company to the Holders hereunder are expressly conditioned on
the timely furnishing in writing by each selling Holder to the Company of such
information concerning the Holder and the terms of the Holder's proposed sale as
the Company may reasonably request.
(e) In connection with any registration of all or any portion of the
Underlying Securities (and the Warrant, if applicable), the Company shall,
without any expense to the Holder (other than fees and expenses of counsel to
the Holder and any underwriting discounts or commissions), prepare and file such
documents as may be necessary to register or qualify such Underlying Securities
under the securities or blue sky laws of such states as the Holder shall
reasonably request, and use its best efforts to do any and all other acts and
things, consistent with its existing business practices, that may reasonably be
necessary or advisable to enable the Holders to consummate a public sale in such
states of such Underlying Securities; PROVIDED, HOWEVER, that in connection with
any registration statement filed pursuant to SUBSECTION 11(b) hereof, the
Company shall be required to make the Underlying Securities eligible for public
offering and sale only in such states (including the District of Columbia) as
any other securities of the Company included in such registration statement are
eligible for public offering and sale. In no event shall the Company be
obligated to qualify to do business in any state where it is not so qualified at
the time of filing such documents or to take any action which would subject it
to unlimited service of process in any state where it is not so subject at such
time. The Company shall keep any such filing current for the time period it is
obliged to keep any registration statement current pursuant to this SECTION 11.
(f) Nothing herein shall be construed to require a Holder to exercise its
Warrant with respect to any Underlying Securities which a Holder is entitled to
require the Company to register pursuant to any provision of this SECTION 11
prior to the effective date of the registration statement effecting such
registration, and the Holders, at their election, to the extent permissible by
law, may exercise such Warrant against payment of the proceeds of the sale of
the registered Underlying Securities in the offering covered by such
registration statement.
(g) The provisions of this SECTION 11 and of SECTION 12 hereof shall apply
to the extent provided herein if the Company chooses to file an offering
statement under Regulation A promulgated under the Act.
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(h) The Company agrees that until the Underlying Securities have been sold
under a registration statement or pursuant to Rule 144 under the Act, it shall
keep current in filing all materials required to be filed with the Commission in
order to permit holders of the Underlying Securities, if they otherwise comply
with the requirements of Rule 144, to sell Underlying Securities under such
Rule.
12. INDEMNITY AND CONTRIBUTION PROVISIONS
The Company, the Representative, and each Participating Dealer hereby agree
to the following indemnity provisions:
(a) In the event of the filing of any registration statement with
respect to the Warrant or the Underwriters' Units pursuant to SECTION 11
hereof, the Company agrees to indemnify and hold harmless the Holder(s) and
any person who controls any such person within the meaning of the Act, and
each of their directors, officers, employees, and agents, against losses,
claims, damages, or liabilities, joint and several, to which any such person,
or any director, officer, employee, or agent, may become subject under the
Act or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Prospectus, or arise out of or are based upon the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Subject to SUBSECTION 12(c) hereof, the Company agrees to
reimburse any legal or other expenses reasonably incurred by such
Representative, each member of the selling group, and such controlling
person, and each of their directors, officers, employees, and agents, in
connection with the investigation or the defense of any such loss, claim,
damage, liability, or action; PROVIDED, HOWEVER, that the Company will not be
liable under this SUBSECTION 12(a), if such loss, claim, or liability arises
out of or is based on an untrue statement or alleged untrue statement or
omission or alleged omission made in the Prospectus in reliance upon and in
conformity with written information furnished to the Company by or on behalf
of the Holder(s) specifically for use in preparation thereof. A person who
controls the Holder(s) or any of their directors, officers, employees, or
agents, will be covered by the indemnity agreement in this SUBSECTION 12(a),
for all such losses, claims, damages, liabilities, and expenses irrespective
of whether they are based on the Act. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) Each Holder agrees, jointly and severally, to indemnify and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement, and any person who controls the Company within the
meaning of the Act, against any losses, claims, damages, or liabilities to which
the Company or any such director, officer, or controlling person may become
subject, under the Act or otherwise, if such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based on any
untrue or alleged untrue statement of material fact contained in the Prospectus
or arise out of or are based upon the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in light of
the
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circumstances under which they were made, not misleading, in each case if,
but only if, such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Prospectus in reliance upon and in conformity
with written information concerning the Holder(s) furnished to the Company by or
on behalf of the Holder(s) specifically for use in the preparation thereof.
Subject to SUBSECTION 12(c) hereof, the Representative and each Participating
Dealer agrees, jointly and severally, to reimburse any legal or other expense
reasonably incurred by the Company or such director, officer, or controlling
person in connection with the investigation or the defense of any such loss,
claim, damage, liability, or action. This indemnity agreement will be in
addition to any liability which such person may otherwise have.
(c) Promptly after receipt by an indemnified party under this SECTION 12
of notice of the commencement of any action, the indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
SECTION 12, notify the indemnifying party in writing of the commencement
thereof; but the omission to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party otherwise than
under this SECTION 12. In case any such action is brought against any
indemnified party and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel who shall be reasonably
satisfactory to such indemnified party; and after notice from the indemnifying
party to such indemnified party of its election to so assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this SECTION 12 for any legal or other expense subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. In any such action, any indemnified party
shall have the right to retain its own counsel, but the fees and expense of such
counsel shall be at the expense of such indemnified party unless: (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel; or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing legal defenses or
interests between them. The indemnifying party shall not be liable for any
settlement of any proceeding or claim effected without its written consent; but
if settled with such consent or if there is a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in SUBSECTION 12(a) or SUBSECTION
12(b) hereof is for any reason, other than as specified in such sections, held
by a court to be unavailable and the Company or the Holder(s) has been required
to pay damages as a result of a determination by a court that the Prospectus
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, then the Company shall contribute to
the damages paid by the Holder(s) and such persons shall contribute to the
damages paid by the Company (but in each case only to the extent that such
damages arise out of or are based upon such untrue statement or
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omissions): (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Holder(s) on the
other from the offering of the Securities; or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect the relative fault of the Company and the Holder(s)
in connection with statements or omissions which resulted in such damages, as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Holder(s) shall be deemed to be in the same
proportion as the total net proceeds from the Offering (before deducting
expenses) received by the Company bears to the total commissions received by
the Holder(s) as set forth in the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company or Holder(s) and the parties' relative
intent, knowledge, access to information, and opportunity to correct or
prevent such untrue statement or omission. For purposes of this SUBSECTION
12(d), the term "damages" shall include any legal or other expenses
reasonably incurred by the Company or Holder(s) in connection with
investigation or defending any action or claim which is the subject of the
contribution provisions of this SUBSECTION 12(d). Notwithstanding the
provisions of this SUBSECTION 12(d), the Warrantholder shall not be required
to contribute any amount in excess of the amount by which the total
Warrantholders' compensation received by it under the Underwriters' Agreement
exceeds the amount of any damages which such Warrantholder has otherwise been
required to pay by reason of any such untrue statements or omissions. No
person adjudged guilty of fraudulent misrepresentation within the meaning of
Section 11(f) of the Act shall be entitled to contribution from any person
who was not adjudged guilty of such fraudulent misrepresentation. Under this
SUBSECTION 12(d), the obligations of the Warrantholder(s) to contribute are
several in proportion to their respective obligations and not joint.
(e) The agreements contained in this SECTION 12 and the representations
and warranties of the Company and the Holder in this Agreement shall remain
operative and in full force and effect regardless of: (i) any investigation made
by or on behalf of: (a) the Holder or any person controlling the Holder; or (b)
the Company, any of its directors, officers or agents, or any person controlling
the Company or any of its directors, officers or agents; (ii) acceptance of any
Underwriters' Units and payment therefor hereunder; and (iii) any termination of
this Agreement.
13 NOTICES
(a) NOTICES. Except as otherwise expressly provided herein, notice given
pursuant to any of the provisions of this Agreement shall be in writing and
shall be delivered personally, by first class, certified, or registered mail, by
facsimile transmission, or by Federal Express or any other reputable overnight
courier service addressed as set forth below (or in each case to such other
address as the person to be notified may have requested in writing):
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If to the Company:
U.S. LABORATORIES, INC.
7895 Convoy Court, Suite 18
San Diego, California 92111
Attention: Dickerson Wright
With a copy to:
Joseph M. Lesko, Esq.
Foley & Lardner
402 West Broadway, 23rd Floor
San Diego, California 92101
If to the Holder, to their Representative hereunder:
Janda & Garrington, LLC
600 W. Broadway, 14th Floor
San Diego, California 92101
14 PARTIES IN INTEREST
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company, the Holder, and, to the extent expressed,
any holder of any shares of Common Stock purchased upon the exercise of an
Underwriters' Warrant, any person controlling the Company or the Holder or any
holder of such securities, directors of the Company, nominees for directors (if
any) named in the final prospectus, or officers of the Company who have signed
the registration statement, any legal or equitable right, remedy or claim under
this Agreement, and this Agreement shall be for the sole and exclusive benefit
of the aforementioned parties.
15 MISCELLANEOUS PROVISIONS
(a) SUCCESSORS. All the covenants and provisions of this Agreement by or
for the benefit of the parties included in SECTION 14 hereof shall bind and
inure to the benefit of their respective executors, administrators, successors
and assigns hereunder; PROVIDED, HOWEVER, that the rights of the Holder shall be
assignable only to those persons and entities specified in SUBSECTION 1(d),
hereof, in which event such assignee shall be bound by each of the terms and
conditions of this Agreement.
(b) MERGER OR CONSOLIDATION OF THE COMPANY. The Company shall not merge
or consolidate with or into any other corporation or sell all or substantially
all of its property to another corporation, unless it complies with the
provisions of SUBSECTION 8(f), hereof.
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(c) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements contained
in any schedule, exhibit, certificate or other instrument delivered by or on
behalf of the parties hereto in connection with the transactions contemplated by
this Agreement, shall be deemed to be representations and warranties hereunder.
Notwithstanding any investigations made by or on behalf of the parties to this
Agreement, all representations, warranties and agreements made by the parties to
this Agreement or pursuant hereto shall survive.
(d) CHOICE OF LAW. This Agreement and the rights of the parties hereunder
shall be governed by and construed in accordance with the laws of the state of
California, including all matters of construction, validity, performance, and
enforcement, and without giving effect to the principles of conflict of laws.
(e) JURISDICTION. The parties submit to the jurisdiction of the Courts of
the State of California for the resolution of all legal disputes arising under
the terms of this Agreement.
(f) ENTIRE AGREEMENT. Except as provided herein, this Agreement,
including exhibits, contains the entire agreement of the parties, and supersedes
all existing negotiations, representations or agreements and all other oral,
written, or other communications between them concerning the subject matter of
this Agreement.
(g) SEVERABILITY. If any provision of this Agreement is unenforceable,
invalid, or violates applicable law, such provision shall be deemed stricken and
shall not affect the enforceability of any other provisions of this Agreement.
(h) CAPTIONS. The captions in this Agreement are inserted only as a
matter of convenience and for reference and shall not be deemed to define,
limit, enlarge, or describe the scope of this Agreement or the relationship of
the parties, and shall not affect this Agreement or the construction of any
provisions herein.
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(i) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
"THE COMPANY" "THE HOLDER"
U.S. LABORATORIES, INC. JANDA & GARRINGTON, LLC,
a corporation organized under the a California limited liability
laws of the State of ___________ company
By: By:
------------------------------- -------------------------------
Dickerson Wright, President Jeffrey J. Janda, CEO
------------------------------- -------------------------------
NAME AND TITLE NAME AND TITLE
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EXHIBIT 4.4
FORM OF
WARRANT AGENCY AGREEMENT
This WARRANT AGENCY AGREEMENT ("Agreement") is made and entered into
as of this day of October ___, 1998, between U. S. Laboratories, Inc., a
Delaware corporation whose principal executive offices are located at 7895
Convoy Court, Suite 18, San Diego, California 92111 ("Company"), and
________________ whose offices are located at __________________________
("Warrant Agent").
WITNESSETH:
WHEREAS, the Company, at or about the time that it is entering into
this Agreement, intends to engage in a public offering ("Public Offering") of up
to 1,380,000 firm units and option units ("Units"), each Unit to consist of one
share of the Company's Common Stock, par value $.01 per share ("Common Stock"),
and warrants ("Warrants") to purchase one share of Common Stock pursuant to a
Registration Statement on Form SB-2 (Registration No. 33-_______) ("Registration
Statement") [to be] filed with the United States Securities and Exchange
Commission. Each Warrant represents the right to purchase one share of Common
Stock for an exercise price of $6.50, subject to adjustment in certain
circumstances, upon the terms and conditions and subject to the adjustments set
forth in this Agreement;
WHEREAS,_________________________, as the representative
("Representative") of the underwriters for the Public Offering, will receive a
warrant ("Representative's Warrant") to purchase up to 138,000 shares of Common
Stock;
WHEREAS, the Company wishes to retain the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in connection
with the issuance, registration, transfer, exchange and replacement of the
certificates evidencing the Warrants to be issued under this Agreement ("Warrant
Certificates") and the exercise of Warrants; and
WHEREAS, the Company desires to enter into this Agreement to set forth
the terms and conditions of the Warrants to be issued to the public and the
Representative, and the rights of the holders thereof and to set forth the
respective rights and obligations of the Company and the Warrant Agent;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for the purpose of setting forth the terms and
conditions governing the Warrants, the parties hereto agree as follows:
29. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the Warrant
Agent to Act as agent to the Company in accordance with the instructions of this
Agreement, and the Warrant Agent hereby accepts such appointment.
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30. DATE, DENOMINATION AND EXECUTION OF WARRANT CERTIFICATES. The
Warrants shall be represented by Warrant Certificates and shall be in registered
form only and in substantially the form annexed hereto as Exhibit A, and may
have such letters, numbers or other marks of identification or designation, and
such legends, summaries or endorsements printed, lithographed or engraved
thereon as the company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law, or
with any rule or regulation made pursuant thereto, or with any rule or
regulation of any stock exchange or any automated interdealer quotation system
on which the Common Stock or Warrants may be listed or quoted, or to conform to
usage.
The Warrants shall be issued as part of a Unit consisting of one
Warrant and one share of Common Stock. The Warrants may be transferred
separately from the Common Stock with which the Warrants immediately after
the Units are issued. Each Warrant Certificate shall initially entitle the
registered holder thereof, subject to the provisions of this Agreement and of
the Warrant Certificate, to purchase, at any time prior to the close of
business on October ___, 2003 [five years after the Registration Statement is
declared effective by the Securities and Exchange Commission] ("Exercise
Period"), one fully paid and nonassessable share of Common Stock for each
Warrant evidenced by such Warrant Certificate, at a price per share described
in Section 6 hereof, subject to adjustment as set forth in Section 7 hereof.
Each Warrant Certificate issued as part of a Unit offered to the public as
described in the recitals above shall be dated October ___, 1998; each other
Warrant Certificate shall be dated the date on which the Warrant Agent
receives valid issuance instructions from the Company or, if such
instructions specify another date, such other date.
For purposes of this Agreement, the term "close of business" on any
given date shall mean 5:00 p.m., New York time, on such date; provided,
however, that if such date is not a business day, it shall mean 5:00 p.m.,
New York time, on the next succeeding business day. For purposes of this
Agreement, the term "business day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in New York are authorized or
obligated by law to be closed.
Each Warrant Certificate shall be executed on behalf of the company
by its President or a Vice President, either manually or by facsimile
signature printed thereon, and have affixed thereto the Company seal or a
facsimile thereof which shall be attested by the Chief Financial Officer of
the Company, either manually or by facsimile signature. Each Warrant
Certificate shall be manually countersigned by the Warrant Agent and shall
not be valid for any purpose unless so countersigned. In case any officer of
the Company who shall have signed any Warrant Certificate shall cease to be
such officer of the Company before countersignature by the Warrant Agent and
issue and delivery thereof by the Company, such Warrant Certificate,
nevertheless, may be countersigned by the Warrant Agent, issued and delivered
with the same force and effect as though the person who signed such Warrant
Certificate had not ceased to be such officer of the Company.
31. SUBSEQUENT ISSUE OF WARRANT CERTIFICATES. Subsequent to their
original issuance, no Warrant Certificates shall be reissued except (i)
Warrant Certificates issued upon transfer
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thereof in accordance with Section 4 hereof, (ii) Warrant Certificates issued
upon any combination, split-up, or exchange of Warrant Certificates pursuant
to Section 4 hereof, (iii) Warrant Certificates issued in replacement of
mutilated, destroyed, lost or stolen Warrant Certificates pursuant to Section
5 hereof, (iv) Warrant Certificates issued upon the partial exercise of
Warrant Certificates pursuant to Section 8 hereof, and (v) Warrant
Certificates issued pursuant to Section 23 hereof to reflect any adjustment
or change in the Purchase Price or the number or kind of shares purchasable
thereunder. The Warrant Agent is hereby irrevocably authorized to
countersign and deliver, in accordance with the provisions of Sections 4, 5,
8 and 23, the new Warrant Certificates required for purposes thereof, and the
Company, whenever required by the Warrant Agent, will supply the Warrant
Agent with Warrant Certificates duly executed on behalf of the Company for
such purposes.
32. TRANSFERS AND EXCHANGES OF WARRANT CERTIFICATES. The Warrant Agent
will keep or cause to be kept books for registration of ownership and
transfer of the Warrant Certificates issued hereunder. Such registers shall
show the names and addresses of the respective holders of the Warrant
Certificates and the number of Warrants evidenced by each such Warrant
Certificates.
The Warrant Agent shall, from time to time, register the transfer
or any outstanding Warrants upon the books to be maintained by the Warrant
Agent for that purpose, upon surrender of the Warrant Certificate evidencing
such Warrants, with the Form of Assignment in the form attached to the
Warrant Certificate duly completed and executed, to the Warrant Agent at its
stock transfer office in New York at any time during the Exercise Period, and
upon payment to the Warrant Agent for the account of the Company of an amount
equal to any applicable transfer tax. Payments of the amount of such tax may
be made in cash, or by certified or official bank check, payable in lawful
money in the United States of America to the order of the Company.
Upon receipt of a Warrant Certificate, with the Form of Assignment
attached to the Warrant Certificate duly completed and executed, accompanied
by payment of an amount equal to any applicable transfer tax, the Warrant
Agent shall promptly cancel the surrendered Warrant Certificate and
countersign and deliver to the transferee a new Warrant Certificate for the
number of full Warrants transferred to such transferee; provided, however,
that in case the registered holder of any Warrant Certificate shall elect to
transfer fewer than all of the Warrants evidenced by such Warrant
Certificate, the Warrant Agent in addition shall promptly countersign and
deliver to such registered holder a new Warrant Certificate or Certificates
for the number of full Warrants not transferred.
Any Warrant Certificate or Certificates may be exchanged at the
option of the holder thereof for another Warrant Certificate or Certificates
of different denominations, of like tenor and representing in the aggregate
the same number of Warrants, upon surrender of such Warrant Certificate or
Certificates, with the Form of Assignment attached to the Warrant Certificate
duly completed and executed, to the Warrant Agent, at any time or from time
to time after the close of business on the date hereof and prior to the close
of business on the expiration date of the Exercise Period. The Warrant Agent
shall promptly cancel the
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surrendered Warrant Certificate and deliver the new Warrants Certificate
pursuant to the provisions of this Section.
33. MUTILATED, DESTROYED, LOST OR STOLEN WARRANT CERTIFICATES. Upon
receipt by the Company and the Warrant Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of any
Warrant Certificate, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation of the Warrant Certificate, the
Warrant Agent shall countersign and deliver in lieu thereof a new Warrant
Certificate representing the same number of Warrants. Application for a
substitute Warrant Certificate shall also comply with such other reasonable
regulations and reasonable charges and expenses as the company and the
Warrant Agent may prescribe.
34. PURCHASE PRICE. The Purchase price relating to each Warrant shall
be $6.50 per share ("Purchase Price"), subject to adjustment as set forth in
Section 7.
35. ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND PURCHASE PRICE.
The number of securities purchasable upon exercise of a Warrant and Purchase
Price shall be subject to adjustment from time to time upon the occurrence,
after the date hereof, of the following events:
In case the Company shall (a) pay a dividend in, or make a
distribution of, shares of Common Stock or of securities convertible into, or
exchangeable (without payment of any additional consideration) for, Common
Stock on its outstanding Common Stock, (b) forward split its outstanding
shares of Common Stock into a greater number of such shares or (c) reverse
split its outstanding shares of Common Stock into a smaller number of such
shares, the total number of Warrants outstanding immediately prior thereto
shall be proportionately adjusted. Any adjustment made pursuant to this
subsection shall, in the case of a stock dividend or distribution, become
effective as of the record date therefor and, in the case of forward or
reverse split, be made as of the effective date thereof. If, as a result of
an adjustment made pursuant to this subjection, the holder of any Warrant
Certificate thereafter surrendered for exercise shall be entitled to receive
shares of two or more classes of securities of the Company, the Board of
Directors of the Company (whose determinations shall be conclusive and shall
be evidenced by a Board resolution filed with the Warrant Agent) shall
determine the allocation of the adjusted Purchase Price between or among such
shares of such classes of securities.
35.1 In the event of any adjustment of the total number of
Warrants pursuant to Subsection 7.1, the total number of shares of Common
Stock purchasable upon the exercise of Warrants to the per share Purchase
Price shall be proportionately adjusted so that the aggregate Purchase Price
with respect to the Warrants shall remain unchanged.
35.2 No adjustment shall be required to be made under this
Section 7 unless such adjustment would require an increase or decrease of at
least 1%; provided however, that any adjustment which by reason of this
subsection is not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this
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Section 7 shall be made to the nearest cent or to the nearest one-hundredth
of a share, as the case may be, but in no event shall the Company be
obligated to issue fractional shares upon the exercise of any Warrant.
35.3 Whenever the number of shares of Common Stock is adjusted as
provided in this Section 7, the Company will promptly file with the Warrant
Agent a certificate signed by the President or a Vice President of the
Company and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Company setting forth the number of shares
purchasable and per share Purchase Price, as so adjusted, stating that such
adjustments in the number of shares and per share Purchase Price conform to
the requirements of this Section 7, and setting forth a brief statement of
the facts accounting for such adjustments. Such certificates shall be
conclusive evidence of the correctness of such adjustments. Promptly after
filing such certificate, the Company, or the Warrant Agent at the Company's
request, will deliver, by first-class, postage prepaid mail, a brief summary
thereof (to be supplied by the Company) to the registered holders of the
outstanding Warrants; provided, however, that failure to file or to give any
notice required under this subsection, or any defect therein, shall not
affect the legality or validity of any such adjustments under this Section 7.
35.4 In case of any consolidation of the Company with, or merger
of the Company with, or merger of the Company into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), or in case of
any sale or conveyance to another corporation of the property of the Company
in the entirety or substantially in the entirety, the Company shall cause the
corporation formed by such consolidation or merger or the corporation which
shall have acquired such assets, as the case may be, to execute and deliver
to the Warrant Agent a supplemental warrant agreement providing that the
holder of each Warrant then outstanding shall have the right thereafter
(until the expiration of such warrant) to receive, upon exercise of such
Warrant, solely the kind and amount of shares of stock and other securities
and property "or cash" receivable upon such consolidation, merger, sale or
transfer by a holder of the number of shares of Common Stock of the Company
into which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided in this Section. The above provision
of this Subsection 7.5 shall similarly apply to successive consolidations,
mergers, sales or transfers.
The Warrant Agent shall not be under any responsibility to
determine the correctness of any provision contained in any such
supplemental warrant agreement relating to either the kind or amount of
shares of stock or securities or property or cash) purchasable by holders
of Warrant Certificates upon the exercise of their Warrants after any such
consolidation, merger, sale, or transfer of any adjustment to be made with
respect thereto, but subject to the provisions of Section 21 hereof, may
accept as conclusive evidence of the correctness of such provisions, and
shall be protected in relying upon a certificate of a firm of independent
certified public accountants with respect thereto.
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35.5 In case of any recapitalization of the Company, the holder
of each Warrant then outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, solely
the kind and amount of shares of stock and other securities and property (or
cash) receivable upon such recapitalization by a holder of the number of
share of Common Stock of the Company into which such Warrant was exercisable
immediately prior to such recapitalization.
Irrespective of any adjustments in the number or kind of shares
issuable upon exercise of Warrants and per share Purchase Price, Warrant
Certificates theretofore or thereafter issued may continue to express the
sale price and number of shares and per share Purchase Price as are stated
in the Warrant Certificates initially issuable pursuant to this Warrant
Agreement.
The Company may retain a firm of independent public accountants
of recognized standing, which may be the firm regularly retained by the
Company, selected by the Board of Directors of the Company to make any
computation required by this Section, and a certificate signed by such firm
shall be conclusive evidence of the correctness of any computation made
under this Section 7.
36. EXERCISE AND REDEMPTION OF WARRANTS. Unless the Warrants have been
previously redeemed as provided in this Section 8, the registered holder of
any Warrant Certificate is entitled to exercise the Warrants evidenced
thereby, in whole at any time or in part from time to time, during the
Exercise Period upon the terms and subject to the conditions set forth herein
and in the Warrant Certificate. After the Exercise Period the Warrant
Certificates shall be and become wholly void and of no value. Warrants may
be exercised by their holders or redeemed by the Company as follows:
Holders of Warrants have the right to exercise their Warrants for
the purchase of shares of Common Stock only if a current prospectus relating
to such shares is then in effect and only if such shares are qualified for
sale, or deemed to be exempt from qualification, under applicable state
securities laws. The Company will use its best efforts to maintain a current
prospectus relating to such shares of Common Stock at all times when the
market price of the Common Stock exceeds the exercise price of the Warrants
until the expiration date of the Warrants, although there can be no assurance
that the Company will be able to do so.
Exercise of Warrants shall be accomplished upon surrender of the
Warrant Certificate evidencing such Warrants, with the exercise form on the
reverse side thereof duly completed and executed, to the Warrant Agent at its
stock transfer office, together with payment to the Company of the Purchase
Price (as of the date of such surrender) with respect to the Warrants then
being exercised and an amount equal to any applicable transfer tax and, if
requested by the Company, any other taxes or governmental charges which the
Company may be required by law to collect in respect of such exercise.
Payment of the Purchase Price and other amounts may be made in cash, or by
certified or official bank check, payable in lawful money of the United
States of America to the order of the Company. No adjustment shall be
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made for any cash dividends, whether paid or declared, on any securities
issuable upon exercise of a Warrant.
Upon receipt of a Warrant Certificate, with the exercise form duly
completed and executed, accomplished by payment of the Purchase Price with
respect to the Warrants being exercised (and of an amount equal to any
applicable taxes or government charges as aforesaid), the Warrant Agent shall
at such time verify that all of the conditions precedent to the issuance of
the securities to be fulfilled upon valid exercise of the Warrants as set
forth herein have been so fulfilled and, if all such conditions have been so
satisfied, the Warrant Agent on behalf of the Company shall with respect to
the securities to be issued ("Warrant Securities") deliver to or upon the
order of the registered holder of such Warrant Certificate, in such name or
names as such registered holder may designate, a certificate or certificates
for the number of full shares of the Warrant Securities to be purchased,
together with cash made available by the Company pursuant to Section 9 hereof
in respect of any fraction of a share of Warrant Securities otherwise
issuable upon such exercise. In addition, if it is required by law, the
Warrant Agent will deliver to each such registered holder a prospectus which
complies with the provisions of Section 10 of the Securities Act of 1933, as
amended, and the Company agrees to supply the Warrant Agent with sufficient
numbers of such prospectus for that purpose.
In case the registered holder of any Warrant Certificate shall
exercise fewer than all of the Warrants evidenced by such Warrant
Certificate, the Warrant Agent shall promptly countersign and deliver to the
registered holder of each Warrant Certificate, or to his duly authorized
assigns, a new Warrant Certificate or Certificates evidencing the number of
Warrants that were not so exercised.
Each person in whose name any certificate for Warrant Securities is
issued upon the exercise of Warrants shall for all purposes be deemed to have
become the holder of record of the Warrant Securities represented thereby as
of, and such certificate shall be dated, the date upon which the Warrants
Certificate was duly surrendered in proper form and payment of the Purchase
Price (and of any applicable taxes or other governmental charge) was made in
full; provided, however, that if the date of such surrender and payment is a
date on which the stock transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such shares as of, and
the certificate for such shares shall be dated, the next succeeding business
day on which the stock transfer books of the Company are open (whether during
or after the Exercise Period), and the Warrant Agent shall be under no duty
to deliver the certificate for such shares until such date. The Company
covenants and agrees that it shall not cause its stock transfer books to be
closed for a period of more than 20 consecutive business days except upon
consolidation, merger, sale of all or substantially all of its assets,
dissolution or liquidation or as otherwise provided by law.
Outstanding Warrants can be redeemed in whole at any time or in
part from time to time at the option of the Company, on not more than 60
days' nor less than 30 days' written notice to the registered holders of such
Warrants at a price equal to $0.01 per Warrant ("Redemption Price"), so long
as the closing bid quotation for the Common Stock on a
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national securities exchange or automated interdealer quotation system on
which the Common Stock is listed or quoted exceeds 200% of the price of the
Units to the public pursuant to the Registration Statement for twenty (20)
consecutive trading days ending on the third trading day prior to the day on
which the Company gives notice; provided, however, that the registered
holders of the Warrant shall in any event have the right to exercise the
Warrants in accordance with the provisions of this Section 8 until the
redemption date ("Redemption Date"). On the Redemption Date, the registered
holders of redeemed Warrants shall be entitled to payment of the Redemption
Price upon surrender of such redeemed Warrants to the Company at the stock
transfer office of the Warrant Agent. Only Warrants which have been issued
and are outstanding can be redeemed. If fewer than all of the outstanding
Warrants are to be redeemed, the Company shall designate those Warrants to be
redeemed pro rata or by lot.
Notice of redemption of Warrants shall be given at least 30 days
and not more than 60 days prior to the Redemption Date by mailing first
class, postage prepaid, a copy of such notice to all of the registered
holders of Warrants at their respective addresses appearing on the books or
transfer records of the Company or such other address designated in writing
by the holder or record to the Warrant Agent.
From and after the Redemption Date, all rights of the holders of
Warrants (except the right to receive the Redemption Price) shall terminate,
but only if (a) on or prior to the Redemption Date the Company shall have
irrevocably deposited with the Warrant Agent as paying agent a sufficient
amount to pay on the Redemption Date the Redemption Price for all Warrants
called for redemption, and (b) the notice of redemption shall have stated the
name and address of the Warrant Agent and the intention of the Company to
deposit such amount with the Warrant Agent on or before the Redemption Date.
The Warrant Agent shall pay to the registered holders of redeemed
Warrants all monies received by the registered holders of such redeemed
Warrants who shall have surrendered with Warrant Certificates are entitled.
Any amounts deposited with the Warrant Agent that are not required
for redemption of Warrants may be withdrawn by the Company. Any amounts
deposited with the Warrant Agent that shall be unclaimed after six months
after the Redemption Date may be withdrawn by the Company, and thereafter the
holders of the Warrants called for redemption for which such funds were
deposited shall look solely to the Company for payment. The Company shall be
entitled to interest, if any, on funds deposited with the Warrant Agent, and
the holders of redeemed Warrants shall have no right to any such interest.
The decision as to whether to have interest bearing investments and the form
of those investments will be agreed upon between Company and the Warrant
Agent at the time of the deposit.
If the Company fails to make a sufficient deposition with the
Warrant Agent as provided above, the holder of any Warrants called for
redemption may, at the option of the holder (a) by notice to the company
within 60 days after the Redemption Date declare the notice of redemption a
nullity as to such holder, or (b) proceed against the Company for the
Redemption Price. If the holder brings an action against the Company for
the Redemption
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Price, the Company will pay reasonable attorneys' fees of the holder. If the
holder fails to bring an action within 60 days after the Redemption Date, the
holder shall be deemed to have elected to declare the notice of redemption a
nullity as to such holder, and such notice shall be without any force or
effect as to such holder.
37. FRACTIONAL INTERESTS. The Company shall not be required to issue
any Warrant Certificate evidencing a fraction of a Warrant or to issue
fractions of shares of securities on the exercise of the Warrants. If any
fraction (calculated to the nearest one-hundredth) of a Warrant or a share of
securities would, except for the provisions of this Section, be issuable on
the exercise of any Warrant, the Company shall purchase such fraction for an
amount in cash equal to the current value of such fraction computed on the
basis of the closing market price of the Common Stock (as reported on a
national securities exchange) or of the average bid and asked prices of the
Common Stock (if quoted on an automated interdealer quotation system) on the
trading day immediately preceding the day upon which such Warrant Certificate
was surrendered for exercise in accordance with Section 6 hereof; provided,
however, that if the Common Stock is not quoted on a national security
exchange or automated interdealer quotation system at the time the Warrant is
exercised, the purchase price for such fraction shall be based upon the fair
market value of the Common Stock as determined by the Company's board of
directors.
38. RESERVATION OF SECURITIES: REGISTRATION OF SECURITIES. The
Company covenants that it will at all times, solely for the purpose of
issuance and delivery upon exercise of the Warrants, reserve and keep
available, free from preemptive and other rights, out of its authorized and
unissued shares of Common Stock, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all securities which shall be so issuable shall, upon
such issue, be duly authorized, validly issued, fully paid and nonassessable.
The Company and the Warrant Agent acknowledge that the Company will
be required, pursuant to the Securities Act of 1933, as amended ("Act"), to
deliver to each registered holder of Warrant Certificates upon the exercise
of Warrants and delivery of Warrant Securities a prospectus covering the
issuance of the Warrant Securities which meets the requirements of the Act,
which prospectus must be part of an effective registration statement under
the Act at the time a Warrant is exercised. The Company and the Warrant
Agent further acknowledge that, in addition to the requirements under the
Act, the Warrant Securities must be qualified for sale or an exemption from
such qualification requirements must be satisfied pursuant to applicable
state securities laws. Therefore, no Warrants may be exercised nor may
Warrant Securities be issued by the Company Transfer Agent or delivered by
the Warrant Agent unless, on the Exercise Date: (i) the Company has an
effective registration statement under the Act covering the issuance of the
Warrant Securities or an exemption from registration is available; (ii)
unless an exemption from registration is available, the Warrant Agent has
copies of the prospectus which is part of such effective registration
statement and which the Warrant Agent hereby agrees to deliver with the
Warrant Securities; and (iii) the Warrant Securities may be legally issued
and delivered to the exercising registered holder of the Warrant Certificates
under the applicable state securities laws.
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Notwithstanding the foregoing, in no event shall the Warrant
Securities be issued, and the Company is authorized to refuse to honor the
exercise of any Warrant, if the exercise of any Warrants would result, in the
opinion of the Company's Board of Directors upon advice of counsel, in the
violation of any law.
39. REDUCTION OF PURCHASE PRICE BELOW PAR VALUE. Before taking any
action that would use an adjustment pursuant to Section 7 hereof reducing the
per share Purchase Price below the than par value (if any) of a share of such
capital stock, the Company will use its best efforts to take any corporate
action which, in the opinion of its counsel, may be necessary in order that
the Company may validly and legally issue fully paid and nonassessable shares
of such capital stock.
40. PAYMENT OF TAXES. The Company agrees that it will pay when due and
payable any and all federal and state documentary stamp and other original
issue taxes which may be payable in respect of the original issuance of the
Warrant Certificates, or any shares of Common Stock upon the exercise of
Warrants. The Company shall not, however, be required (i) to pay any tax
which may be payable in respect of any transfer involved in the transfer and
delivery of Warrant Certificates or the issuance or delivery of certificates
for Common Stock or other securities in a name other than that of the holder
of the Warrant Certificate surrendered for purchase, or (ii) to issue or
deliver any certificate for shares of Common Stock or other Warrant
Securities upon the exercise of any Warrant Certificate until any such tax
shall have been paid, all such tax being payable by the holder of such
Warrant Certificate at the time of surrender.
41. NOTICE OF CERTAIN CORPORATE ACTION. In case the Company after the
date hereof shall propose (i) to grant to all holders of Common Stock rights
to subscribe to or purchase shares of any class of its capital stock or any
other rights, or (ii) to effect any reclassification of Common Stock, any
consolidation of the Company with, or merger of the Company into, any other
persons, any merger of any person into the Company other than a merger that
does not result in any reclassification, conversion, exchange or cancellation
of outstanding shares of Common Stock), or any sale or transfer of all or
substantially all of the assets of the Company, then, in each such case, the
Company shall file with the Warrant Agent and the Company, or the Warrant
Agent on its behalf, shall mail (first class, postage prepaid) to all
registered holders of the Warrant Certificates notice of such proposed
action, which notice shall specify the date on which the books of the Company
shall close or a record be taken for such offer of rights, or the date on
which such reclassification, consolidation, merger, sale or transfer, shall
take place or commence, as the case may be, and which shall also specify any
record date for determination of holders of Common Stock entitled to vote
thereon or participate therein. Such notice shall be filed and mailed in the
case of any action covered by clause (i) above, at least 10 days prior to the
record date for determining holders of the Common Stock for purposes of such
action or, if a record is not to be taken, the date as of which the holders
of shares of Common Stock of record are to be entitled to such offering; and,
in the case of any action covered by clause (ii) above, at least 20 days
prior to the earlier of the date on which such reclassification,
consolidation, merger, sale or transfer, is expected to become effective and
the date on which it is expected that holders of shares of Common Stock of
record on such
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date shall be entitled to exchange their shares for securities or other
property deliverable upon such reclassification, onsideration, merger, sale
or transfer, failure to give any such notice or any defect therein shall not
affect the legality or validity of any transaction listed in this Section 13.
42. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS, ETC. The Warrant
Agent shall promptly notify in writing the Company of the exercise of any
Warrants and shall promptly account to the Company with respect to Warrants
exercised and concurrently pay to the Company all moneys received by the
Warrant Agent for the purchase of securities or other property through the
exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours at its stock
transfer office. Copies of this Agreement may be obtained upon writing
request addressed to the Company.
43. WARRANT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER. No holder, as
such, of any Warrant Certificate shall be entitled to vote, receive dividends
or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Warrants
represented thereby for any purpose whatever, nor shall anything contained
herein or in any Warrant Certificate be construed to confer upon the holder
of any Warrant Certificate, as such, any of the rights of a shareholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporation action or to receive notice of meetings
or other actions affecting shareholders (except as provided in Section 13
hereof), or to receive dividend or subscription rights, or otherwise, until
such Warrant shall have been exercised in accordance with the provisions
hereof and the receipt by the Warrant Agent of the Purchase Price and any
other amounts payable upon such exercise by the Warrant Agent.
44. RIGHT OF ACTION. All rights of action in respect to this Agreement
are vested in the respective registered holders of the Warrant Certificates;
and any registered holder of any Warrant Certificate, without the consent of
the Warrant Agent or of the holder of any Warrant Certificate, may, in his
own behalf for his own benefit, enforce, and may institute and maintain any
suit, action or preceding against the Company suitable to enforce, or
otherwise in respect of, his right to exercise the Warrants evidenced by such
Warrant Certificate, for the purchase of shares of the Common Stock in the
manner provided in the Warrant Certificate and in this Agreement.
45. AGREEMENT OF HOLDERS OF WARRANT CERTIFICATES. Every holder of a
Warrant Certificate by accepting the same consents and agrees with the
Company, the Warrant Agent and every other holder of a Warrant Certificate
that:
The Warrant Certificate are transferable on the registry books
of the Warrant Agent only upon the terms and conditions set forth in the
Agreement; and
The Company and the Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the absolute owner
of the Warrant
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notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent, for all purposes
whatever, and neither the Company nor the Warrant Agent shall be affected
by any notice to the contrary.
46. CANCELLATION OF WARRANT CERTIFICATES. In the event that the
Company shall redeem or otherwise acquire any Warrant Certificate or
Certificates after the issuance thereof, such Warrant Certificates or
Certificates shall thereupon be delivered to the Warrant Agent and be
canceled by it and retired. The Warrant Agent shall also cancel any Warrant
Certificate delivered to it for exercise, in whole or in part, or delivered
to it for transfer, split-up, combination or exchange. Warrant Certificates
so canceled shall be delivered by the Warrant Agent to the Company from time
to time, or disposed of in accordance with the instructions of the Company.
47. CONCERNING THE WARRANT AGENT. The Company agrees to pay to the
Warrant Agent from time to time, on demand of the Warrant Agent, reasonable
compensation for all services rendered by it hereunder in the amounts as set
forth on Schedule 1. The Company also agrees to indemnify the Warrant Agent
for, and to hold it harmless against, any loss, liability or expense,
incurred without gross negligence, bad faith or willful misconduct on the
part of the Warrant Agent, arising out of or in connection with the
acceptance and administration of this Agreement.
48. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT. Any
corporation into which the Warrant Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of
any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a
successor warrant agent under the provisions of Section 22 hereof. In case
at the time such successor of the Warrant Agent shall succeed to the agency
created by this Agreement, any of the Warrant Certificates shall have been
countersigned but not delivered, any such successor to the Warrant Agent may
adopt the countersignature of the original Warrant Agent and deliver such
Warrant Certificates so countersigned; and in case at that time any of the
Warrant Certificates shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrant Certificates either in the name of
the predecessor Warrant Agent or in the name of the successor Warrant Agent;
and in all such cases such Warrant Certificates shall have the full force
provided in the Warrant Certificates and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed
and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent may adopt the
countersignature under its prior name and deliver Warrant Certificates so
countersigned; and in case at that time any of the Warrant Certificates shall
not have been countersigned, the Warrant Agent may countersign such Warrant
Certificate either in its prior name or in its change name; and in such cases
such Warrant Certificates shall have the full force provided in the Warrant
Certificates and in this Agreement.
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49. DUTIES OF WARRANT AGENT. The Warrant Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrant
Certificates, by their acceptance thereof, shall be bound:
The Warrant Agent may consult with counsel satisfactory to
it (who may be counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Warrant
Agent as to any action taken, suffered or omitted by it in good faith
and in accordance with such opinion; provided, however, that the Warrant
Agent shall have exercised reasonable care in the selection of such
counsel.
Whenever in the performance of its duties under this Agreement,
the Warrant Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed
by the President or a Vice President or the Secretary of the Company and
delivered to the Warrant Agent; and such certificate shall be full
authorization to the Warrant Agent for any action taken or suffered in
good faith by it under the provisions of this Agreement in reliance upon
such certificate.
The Warrant Agent shall be liable hereunder only for its own
gross negligence, bad faith or willful misconduct.
The Warrant Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or
in the Warrant Certificates (except its countersignature on the Warrant
Certificates and such statements or recitals as described the Warrant
Agent or action taken or to be taken by it) or be required to verify the
same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Warrant Agent) or in
respect of the validity or execution of any Warrant Certificate (except
its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this
Agreement or in any Warrant Certificate; nor shall it be responsible for
the making of any representation or warranty as to the authorization or
reservation of any shares of Common Stock to be issued pursuant to this
Agreement or any Warrant Certificate or as to whether any shares of
Common Stock will, when issued, be validly issued, fully paid and
nonassessable.
The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or take any other action likely to
involve expense unless the Company or one or more registered holders of
Warrants shall furnish the Warrant
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Agent with reasonable security and indemnity for any costs and expenses
which may be incurred. All rights of action under this Agreement or
under any of the Warrants may be enforced by the Warrant Agent without
the possession of any of the Warrants or the production thereof at any
trial or other proceeding relative thereto, and any such action, suit or
proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable
benefit of the registered holders of the Warrants, as their respective
rights or interests may appear.
The Warrant Agent and any stockholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or have a pecuniary interest
in any transaction in which the company may be interested, or contact
with or lend money to or otherwise act as fully and freely as though it
were not Warrant Agent from acting in any other capacity for the Company
or for any legal entity.
The Warrant Agent is hereby authorized and directed to
accept written instructions with respect to the performance of its
duties hereunder from the President or a Vice President or the Secretary
of the Company, and to apply to such officers for advice or instructions
in connection with the Warrant Agent's duties, and it shall not be
liable for any action taken or suffered or omitted by it in good faith
in accordance with written instructions of any such officer.
The Warrant Agent will not be responsible for any failure of
the Company to comply with any of the covenants contained in this Agreement
or in the Warrant Certificates to be complied with by the Company.
The Warrant Agent will not incur any liability or
responsibility to the Company or to any holder of any Warrant
Certificate for any action taken, or any failure to take action, in
reliance on any notice, resolution, waiver, consent, order, certificate,
or other paper, document or instrument reasonably believed by the
Warrant Agent to be genuine and to have been signed, sent or presented
by the proper party or parties.
The Warrant Agent will act hereunder solely as agent of the
Company in a ministerial capacity, and its duties will be determined solely
by the provisions hereof.
50. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be
discharged from its duties under this Agreement upon 60 days' prior notice in
writing mailed, by registered or certified mail, to the Company. The Company
may remove the Warrant Agent or any successor warrant agent upon 60 days'
prior notice in writing, mailed to the Warrant Agent or successor warrant
agent, as the case may be, by registered or certified mail. If the Warrant
Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent and shall,
within 30 days following such appointment, give notice thereof in writing to
each registered holder of the Warrant Certificates. If the Company shall fail
to make such appointment within a period of 30 days after giving notice of
such removal or after it has been notified in writing of such resignation
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or incapacity by the resigning or incapacitated Warrant Agent, then the
Company agrees to perform the duties of the Warrant Agent hereunder until a
successor Warrant Agent is appointed. After appointment the successor
Warrant Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent shall deliver and transfer
to the successor Warrant Agent any property at the time held by it hereunder,
and execute and deliver any further assurance, conveyance, act or deed
necessary for the purpose. Failure to give any notice provided for in this
Section, however, or any defect therein shall not affect the legality or
validity of the resignation or removal of the Warrant Agent or the
appointment of the successor warrant agent, as the case may be.
51. ISSUANCE OF NEW WARRANT CERTIFICATES. Notwithstanding any of the
provisions of this Agreement or any Warrant Certificates to the contrary, the
Company may, at its option, issue new Warrant Certificates in such form as
may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price or the number of kind of shares purchasable under the
Warrant Certificates made in accordance with the provisions of this Agreement.
52. NOTICES. Notice or demand pursuant to this Agreement to be given
or made on the Company by the Warrant Agent or by the registered holder of
any Warrant Certificate shall be sufficiently given or made if sent by first
class or registered mail, postage prepaid, addressed (until another address
filed in writing by the Company with the Warrant Agent) as follows:
U.S. Laboratories Inc.
7895 Convoy Court, Suite 18
San Diego, California 92111
Attn: James D. Wait
Subject to the provisions of Section 22, any notice pursuant to
this Agreement to be given or made by the Company or by the holder of any
Warrant Certificate to or on the Warrant Agent shall be sufficiently given or
made if sent by first class or registered mail, postage prepaid, address
(until another address is filed in writing by the Warrant Agent with the
Company) as follows:
____________________________________________
____________________________________________
____________________________________________
Any notice or demand authorized to be given or made to the
registered holder of any Warrant Certificate under this Agreement shall be
sufficiently given or made if sent by first class or registered mail, postage
prepaid, to the last address of such holder as it shall appear on the
registers maintained by the Warrant Agent.
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53. MODIFICATION OF AGREEMENT. The Company and the Warrant Agent may
from time to time supplement or amend this Agreement without the approval of
any registered holders of Warrant Certificates in order to cure any
ambiguity, manifest error or other mistake or to correct or supplement any
provision contained herein or in the Warrant Certificates which may be
defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which
the company and the Warrant Agent may deed necessary or desirable and which
shall not be inconsistent with the provisions of the Warrants and which shall
not adversely affect the interests of the registered holders of the Warrants;
provided, however, that this Agreement shall not be otherwise modified,
supplemented or altered except with the consent of the registered holders of
Warrant Certificates representing not less than a majority of the Warrants
outstanding. Changes which do not require consent of the registered holders
of Warrant Certificates may include but will not be limited to: (i) extending
the Exercise Period of the Warrants, (ii) decreasing the Purchase Price with
respect to the Warrants (whether permanently or for a finite period of time,
but not less than ten business days), or (iii) increasing the number of
Warrant Securities for which a Warrant may be exercised. Any such supplement
or amendment shall be in a writing executed by the Company and the Warrant
Agent.
As of the date hereof, this Agreement contains the entire and only
agreement, understanding, representation, condition, warranty or covenant
between the parties hereto with respect to the matters herein, supersedes any
and all other agreements between the parties hereto relating to such matters
and may be modified or amended only by a written agreement signed by both
parties hereto pursuant to the authority granted by the first sentence of
this Section.
54. SUCCESSORS. All the covenants and provisions of this Agreement by
or for the benefit of the company or the Warrant Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.
55. GOVERNING LAW. This Agreement and each Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State
of Delaware and for all purposes shall be construed in accordance with the
laws of such state.
56. TERMINATION. This Agreement shall terminate as of the close of
business on the last day of the Exercise Period, or such earlier date upon
which all Warrants shall have been exercised or redeemed, except that the
Warrant Agent shall account to the Company as to all warrants outstanding and
all cash held by it as of the close of business on the last day of the
Exercise Period.
57. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement or in the
Warrant Certificates shall be construed to give to any person or corporation
other than the Company, the Warrant Agent, and their respective successors
and assigns hereunder and the registered holders of the Warrant Certificates
any legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, the
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Warrant Agent, their respective successors and assigns hereunder and the
registered holders of the Warrant Certificates.
58. DESCRIPTIVE HEADINGS. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
59. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitutes one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, all as of the day and year first above written.
U.S. LABORATORIES INC.
By:________________________________________
Dickerson Wright
President and Chief Executive Officer
____________________________________________
By:____________________________________
Its:____________________________________
-52-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE ISSUER
<TABLE>
<CAPTION>
STATE OF ADDITIONAL NAMES UNDER WHICH THE
NAME OF SUBSIDIARY INCORPORATION SUBSIDIARY DOES BUSINESS
------------------- -------------- ----------------------------------
<S> <C> <C>
San Diego Testing Engineers, Inc. Delaware Testing Engineers - San Diego
Professional Engineering & Inspection Florida None
Company, Inc.
U.S. Engineering Laboratories, Inc. Delaware None
Los Angeles Testing Engineers, Inc. Delaware Testing Engineers - Los Angeles
</TABLE>
-53-
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 4, 1998 (except for Note 7, as to which
the date is October 21, 1998), accompanying the financial statements of U.S.
Laboratories Inc. and subsidiaries contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
October 26, 1998
-54-
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 29, 1998, accompanying the financial
statements of Wyman Testing Laboratories, Inc. contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned report in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
October 26, 1998
-55-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 7-MOS
<FISCAL-YEAR-END> DEC-31-1997 JUL-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUL-31-1997
<CASH> 94,132 44,243
<SECURITIES> 0 0
<RECEIVABLES> 1,760,047 2,814,548
<ALLOWANCES> 40,927 22,555
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,042,438 3,072,511
<PP&E> 959,928 1,356,537
<DEPRECIATION> 564,217 673,434
<TOTAL-ASSETS> 3,531,707 5,702,709
<CURRENT-LIABILITIES> 2,407,435 2,660,852
<BONDS> 0 0
0 0
0 0
<COMMON> 20,324 26,150
<OTHER-SE> 647,088 1,548,835
<TOTAL-LIABILITY-AND-EQUITY> 3,531,707 5,702,709
<SALES> 7,766,414 6,255,944
<TOTAL-REVENUES> 7,766,414 6,255,944
<CGS> 4,476,952 3,218,557
<TOTAL-COSTS> 2,531,770 2,442,815
<OTHER-EXPENSES> 162,578 22,300
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 130,605 80,991
<INCOME-PRETAX> 789,665 535,881
<INCOME-TAX> 345,256 222,560
<INCOME-CONTINUING> 364,156 313,321
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 364,156 313,321
<EPS-PRIMARY> .014 .012
<EPS-DILUTED> .014 .012
</TABLE>
