SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal Year Ended December 31, 1995.
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____.
Commission File Number 0-21662
DATAGUARD RECOVERY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-1064606
(State or other jurisdiction of (I.R.S. Identification No.)
Employer incorporation or organization)
10301 Linn Station Road
P.O. Box 37144
Louisville, Kentucky 40233-7144
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (502)426-3434
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 22, 1996: Common stock -- $1,475,440.
The number of shares of the registrant's common stock outstanding as of
March 22, 1996 -- 5,029,770 shares.
REFERENCE
Portions of the Corporation's Definitive Proxy Statement is incorporated by
reference into Part III of this Form 10-KSB.
PART I
Item 1. Description of Business.
Overview
Dataguard Recovery Services, Inc. (the "Company") is the leading provider of
hot site services for users of large-scale Bull computers in North America.
The Company began offering comparable services to users of large-scale IBM
computers in January 1993. In February 1995, the Company began offering hot
site and other disaster recovery services to users of large-scale Bull and UNIX
computers in Europe after its newly organized French subsidiary Twinsys
Dataguard, SA acquired certain assets and assumed certain liabilities of
Societe Twinsys, SA, a Paris, France disaster recovery firm.
During 1995, the Company marketed disaster recovery services to users of
large-scale computers in the United States and Canada. Customers using IBM
and/or Bull (formerly, Honeywell) computers whose data processing centers are
rendered unusable are entitled to immediate use of the Company's fully
equipped and operational computer facilities to restore data processing
operations in a matter of hours. The Company also provides a disaster
recovery facility equipped with telecommunications lines, adequate power,
environmental controls, and other necessary features in which customers can
install their own replacement computer systems and related equipment. In
addition to providing disaster recovery facilities, the Company also provides
consulting services as experts in disaster recovery planning for users of IBM,
Bull, and other computer systems. Based on its consulting experience, the
Company has developed disaster recovery planning software for commercial
distribution to any organization that needs to develop and maintain a disaster
recovery plan. The Company also began offering capacity and outsourcing
services in 1995.
Acquisition of Twinsys
On February 3, 1995, the Company purchased certain operating assets and
assumed certain liabilities of Societe Twinsys, SA, a leading provider
of computer disaster backup services for users of Bull and UNIX computers
in France. The purchased assets include customer contracts, the lease to
Twinsys' main computer facility in Paris, France, and certain other
operating assets. The Company also assumed obligations under backup
contracts for which revenues of approximately $1,000,000 had been prepaid.
The purchase price was approximately $200,000, plus the assumption of
obligations to provide prepaid services. The Company acquired the Twinsys
assets in insolvency proceedings before a French tribunal, which had
administered Twinsys' operations since November 1994, following the apparent
diversion of company assets to the personal benefit of a former officer.
The acquisition of a leading European disaster recovery provider has given the
Company a substantial presence in the much larger Bull market in Europe. The
addition of a second computer facility provides additional security for both
the Company's established North American customers and its new European
customers should two customers concurrently suffer computer disasters.
Disaster Recovery Services
Advances in electronic data processing and communications technology have
allowed large companies to establish centralized computer installations for
processing their critical business operations. Geographically dispersed
facilities frequently use the central facility on a continuous basis through
telephone lines and other data transmission equipment. The advent of these
on-line capabilities and their subsequent integration into businesses' day-
to-day operations have made immediate and continuous access to the data
processing system a critical need. As many large companies have become
increasingly dependent on their computer centers, they have also become
increasingly vulnerable to catastrophic losses if their centralized data
processing operations are significantly interrupted as a result of a fire,
sabotage, flood, long-term power outage, explosion, or other unanticipated
events.
The purpose of a commercial disaster recovery service is to provide suitable
alternate processing facilities with full telecommunications capability. Two
types of commercial disaster recovery facilities are generally available: a
fully equipped computer center (a "hot site") ready for immediate use by a
customer who experiences a disaster with its compatible data processing
equipment; or a facility in which a customer must provide and install the
required computers and related equipment (a "cold site"). Both hot sites and
cold sites require sophisticated support equipment and environmental controls
as well as the availability of numerous data transmission lines. Cold site
service is less expensive but also less effective than hot site service, as
several days or weeks may be required to obtain and install the necessary
equipment at a cold site facility. Hot site service requires matching an
individual manufacturer's large-scale computer and peripherals with the
customer's existing system and needs. Hot site service is thus more
capital-intensive than cold site service and requires additional expense to the
customer.
Hot site service (North America)
* Immediate use, in the event of a disaster, of an IBM 3090-600E
computer system, a fully operational large-scale tandem Bull DPS 8000
computer system, a large-scale Bull DPS 90/94 computer system, a
large-scale DPS 8/70 computer system, and two DPS 6 minicomputers,
all with peripheral and support equipment. The IBM and tandem Bull
systems are divisible into two independent smaller systems and allow
each customer to contract for one of several levels of backup system
configurations to satisfy its capacity needs. Certain peripheral and
support systems are included in the basic service level, while others
are available at higher levels of service at additional costs.
Generally, if a disaster occurs the customer may process on these
systems for specified periods.
* Pricing levels of customer contracts depend on the amount of capacity
on the large-scale IBM and Bull computers to be made available to the
customer and the particular configuration of the peripheral and
communications equipment needed.
* Use of 1,000 square feet of office and terminal space, equipped with
office furniture and equipment, telephone jacks and coaxial cable,
which the customer's data processing personnel may use while at the
Company's facilities.
* Use of the Company's large-scale IBM and Bull computer systems,
minicomputer and facilities for 48 to 72 hours of testing per year,
during which the customer's personnel may test its disaster recovery
capability and plans.
* Transition, testing, and operations assistance from the Company's
trained technical support staff.
Hot site service (Europe)
* Immediate use, in the event of a disaster, of a large-scale Bull DPS
9000/92 computer system, three DPS 7000 computer systems, and
multiple UNIX computer systems, all with peripheral and support
equipment. Certain peripheral and support systems are included in
the basic service level, while others are available at higher levels
of service at additional costs. Generally, if a disaster occurs the
customer may process on these systems for specified periods.
* Pricing levels of customer contracts depend on the amount of capacity
on the large-scale Bull and UNIX computers to be made available to
the customer and the particular configuration of the peripheral and
communications equipment needed.
* Use of 1,000 square meters of data center, office and terminal space,
equipped with office furniture and equipment, telephone jacks and
coaxial cable, which the customer's data processing personnel may use
while at the Company's Paris facilities.
* Use of the Company's Bull and UNIX computer systems and facilities
for 48 to 72 hours of testing per year, during which the customer's
personnel may test its disaster recovery capability and plans.
* Transition, testing, and operations assistance from the Company's
trained technical support staff.
Cold site service
* Use of a 3,500 square foot computer room, environmentally prepared
for installation of a large computer system obtained by the customer.
The facility contains raised flooring, environmental control units,
access to hundreds of data communications lines, a Halon fire
detection and suppressant system, tape storage facilities, sufficient
electrical power for large computer installations, and 24-hour
security. Generally, if a disaster occurs the customer may process
in this facility for up to 12 weeks.
* Use of the 1,000 square feet of office and terminal space described
above.
* Customers may contract for cold site floor space in increments of
1,750 square feet, permitting smaller computer dependent customers to
use the Company's services more economically.
* Transition, testing, and operations assistance from the Company's
trained technical staff.
Consulting Services
* The Company's current consulting staff consists of four persons
serving full-time and three persons, when not engaged in testing or
actual disaster recovery operations, serving part-time as consultants
to produce contingency plans and to assess various risks of loss of
data processing capabilities. The Company provides these consulting
services to users of Bull, IBM, or other computer systems either on a
fixed price or hourly basis.
* The Company issues reports to customers analyzing their risk exposure
and vulnerability together with its recommendations to minimize both
the probability of occurrence and the cost of those potential data
processing disruptions and the loss or destruction of critical
records.
* The Company will also assist its customers in developing a complete
disaster recovery plan to preplan and structure procedures for
restoration of all organizational functions as well as data
processing capabilities, for replacement of needed supplies and
equipment, and for the division of staff responsibilities.
Capacity and Outsourcing Services
* Use of a separate Bull computer system with all appropriate
peripheral and support equipment (front-end processor, tape/disk
storage, controllers, printers). The service is staffed by
computer operations personnel to support 24-hour per day computer
processing for companies who have contracted for these services.
Software Product
* Based on its consulting experience, the Company has developed
Recovery Architect, a disaster recovery planning software product
for commercial distribution. The Company believes its software can
be used by any organization that needs to plan for the recovery of
its critical operations and other functions following a disaster.
Dataguard's hot and cold site customers make monthly payments under contracts
generally having terms of one year or more for the services described in the
preceding paragraphs. If a customer's data processing center becomes inoper-
able, it must notify the Company to formally declare a disaster. If a customer
uses the Company's facilities after a declared disaster, a daily usage fee for
hot site or cold site usage will be charged, together with other incidental
fees for services provided as specified in the Company's price list. The
Company provides consulting services on a job-by-job basis.
The Company believes that its services and products are interrelated in many
cases. Several of the Company's customers are subscribers of both its hot site
services and cold site services. The Company expects that if one of these
customers suffers a data processing disaster, the customer will initially use
the Company's hot site facilities while it obtains replacement equipment or
restores its former equipment. If replacement equipment were needed, the
customer might then have the equipment delivered to the Company's cold site
facilities pending completion of the permanent location.
The Company's consulting services have resulted in several of its consulting
customers subsequently contracting with the Company for hot site and/or cold
site services. Many customers require a disaster recovery plan be established
before they will contract for the Company's particular hot site or cold site
facilities. The risk assessment and contingency planning inherent in the
disaster planning process tends to identify and focus the customer's planning
process with respect to disaster recovery services. The Company's software
product can assist organizations in the contingency planning process along with
or in place of the Company's consulting services.
The Company also began offering capacity and outsourcing services. High system
costs, the cost of maintenance and support, and the expense and effort relating
to migrating to new technologies can cause companies to contract with third
parties to operate some or all of their data processing operations as a means
to significantly reduce these costs. Capacity and outsourcing services are
offered as a solution for controlling these information management costs.
Market, Customers, and Competition
The Company focuses its marketing effort upon its ability to provide full
service disaster recovery, including both hot site and cold site facilities.
The potential market for the Company's hot site services includes the majority
of businesses having critical business applications that use large-scale IBM,
Bull and UNIX data processing equipment in North America and Europe. The
Company believes that its target market in North America includes approximately
5,000 IBM and 250 Bull installations of this size as well as 700 Bull and UNIX
users in Europe. Due to the size of these systems, the Company believes that
most of these installations engage in data processing operations of significant
importance to the business served. In addition, the Company has been informed
by customers that their independent certified public accountants often
recommend disaster recovery plans as part of their review of internal controls
to protect important physical assets. The Company believes that businesses are
becoming increasingly dependent on their large-scale computers in carrying out
day-to-day operations.
The number of companies using large-scale computer systems is relatively stable
due to the very substantial costs in time, money, and disruption of data
processing as well as other tangible and intangible costs involved in
"migrating" from one vendor to another. However, in recent years the number of
users of large-scale Honeywell and Bull computers in the United States has
decreased from approximately 700 Honeywell users in 1986 to approximately 150
Honeywell and Bull users at December 31, 1995.
There is both a national and international market for disaster recovery
services for large-scale Bull users. The Company's present telecommunications
systems enable customers to use either its Louisville, Kentucky or Paris,
France computer center in the event of a computer disaster, giving its
customers in both North America and Europe added security if two customers
should concurrently suffer computer disasters. The Company believes that
telecommunications would permit a potential competitor to establish and operate
a disaster recovery site for Bull systems anywhere in the world.
From 1990 to 1994, the Company was the only active provider of disaster
recovery services to users of Bull computer equipment in North America. In
1994, an affiliate of Bull HN Information Systems, Inc. began actively offering
disaster recovery services in the North American market. See "Item 3, Legal
Proceedings." Although the Company believes that it continues to have a
predominant share of the North American market, the number of Bull computer
users in North America is limited, and Bull HN has substantially greater
financial resources than the Company. The increased competition in the Bull
disaster recovery market has had an adverse effect on the Company.
Although the number of users of Bull computers in Europe is significantly
larger than in North America, the Company believes that a smaller percentage of
European Bull users have entered into backup arrangements. Twinsys is believed
to have the largest share of the disaster recovery market in France, where it
competes with an affiliate of Bull. Twinsys actively markets its backup
and consulting services throughout Europe.
The market leaders in IBM backup services are IBM, Comdisco Disaster Recovery
Services, and Sungard Recovery Services. Comdisco and Sungard have provided
these services for more than a decade. IBM entered the backup services market
in 1989 giving an indication of the market's increased credibility and growth
potential. These companies offer a wide range of recovery services, operate
multiple facilities, and offer services to users of varying sized IBM systems.
In spite of the tremendous growth and the large market share held by Comdisco,
Sungard and IBM, the overall market penetration is not all that significant.
Therefore, the Company believes that disaster recovery services will remain one
of the fastest growing segments of the computer services industry through the
1990's. The Company estimates that there are approximately 20,000 users of IBM
mini or mainframe computer systems in North America, and has identified 5,000
of such users as potential candidates for the Company's IBM backup services.
The Company's current market for its disaster recovery consulting services
includes both the United States and Canada. The Company has hired a consultant
at Twinsys and is also offering consulting services to European companies
through its French subsidiary. The Company believes that there are dozens of
competitors offering disaster recovery consulting services in these markets.
Because the Company believes that providing consulting services represents a
source of revenue independent from its hot site and cold site facilities, the
Company does not focus the marketing of its consulting services in any
particular geographic market area, or exclusively to users of the computer
systems of a single vendor. The Company expects to continue to be competitive
with other consultants because the Company's staff has significant experience
in testing and implementing disaster recovery plans.
Personnel
As of February 1, 1996, the Company had 21 full-time employees in its North
American operations, including 4 persons in marketing, 10 persons on its
consulting and technical staff, and 7 persons in management and administration.
The Company had 12 full-time employees in its European operations in Paris,
France. These employees include 4 persons in marketing, 4 persons on its
technical staff, and 4 persons in management and administration.
Item 2. Description of Property.
The Company's corporate offices and North American computer center are located
at 10301 Linn Station Road, outside Louisville, Kentucky. The property
consists of a two-story, 27,900 sq. ft. building that sits on approximately
two acres. It was renovated in 1992 to house corporate offices and a 23,000
sq. ft. computer center.
At December 31, 1995, the facility consisted of:
* 27,900 total square feet (of which 5,000 square feet are used for the
Company's offices and administrative functions);
* 17,000 square feet of raised floor; and
* 311 tons of air conditioning.
The Company's facility is monitored by 24-hour security personnel and systems
at the facility. The facility is located within 20 minutes by car from
Louisville's Standiford Field Airport. Standiford Field is the national air
hub for United Parcel Service's overnight delivery operations, so the Company's
customers may quickly and conveniently move backup tapes and other materials.
The Company's equipment consists of an IBM 3090-600E system, a large-scale Bull
tandem system consisting of two identical DPS 8000 computers, a large-scale DPS
90/94 computer system, all of which can also be used as two separate systems or
as one system for larger capacity, a large-scale DPS 8/70 computer system, and
two DPS 6 minicomputers. The Company also has various peripherals, support
equipment, in-place dial-up lines, leased lines, access to a public data
network, several front-end processors, modems, electronic matrix switches,
protocol analyzers, communications line testers, office furniture, and office
equipment.
The Company's payments due under its capital leases for its computer equipment,
and its current operating leases for equipment and facilities are set forth
in Notes 6 and 13 to the Consolidated Financial Statements.
The Company leases space to house its office and 1,000 square meter backup
facilities in Paris, France. The Company also leases most of its computer
systems and related equipment at its Paris facilities.
Item 3. Legal Proceedings.
In addition to the matters discussed below, the Company is a party in certain
routine legal proceedings incidental to its business. Management believes,
after discussion with legal counsel, that the ultimate resolution of these
proceedings will not have a material adverse impact on its financial status.
On February 7, 1995, Bull HN and Honeywell filed suit against the Company in
Massachusetts state court seeking a declaration of rights under a 1991 contract
between the Company and Bull HN. Honeywell Inc. and Bull HN Information
Systems, Inc. V. Dataguard Recovery Services, Inc., No. MICV95-00752 (Middlesex
Superior Ct.). The suit seeks no monetary relief or damages from the Company.
The Company removed the action to United States District Court, District of
Massachusetts in February 1995, where it has been assigned civil action No.
95-1052-JLT.
Bull HN and Honeywell asserted that the 1991 agreement should be interpreted to
extinguish any obligations by Bull HN or Honeywell not to compete with the
Company for the sale of disaster recovery services. In particular, Bull HN
sought a declaration that it was not precluded from providing disaster recovery
services to Honeywell, which was a primary customer of the Company from 1985
until 1994.
The Company has asserted that Bull HN is barred from competing with the Company
by non-compete commitments made orally and in writing by Bull HN and its
predecessor Honeywell Information Systems Inc. on various occasions between
1984 and 1991. Accordingly, the Company is seeking a declaration that Bull HN
is precluded from providing disaster recovery services to Honeywell, as well as
asserting claims for monetary damages against plaintiffs for breach of contact,
promissory estoppel, intentional interference with prospective economic
relations, and aiding and abetting intentional interference with prospective
economic relations. The Company also filed a separate action against Bull HN
seeking damages and injunctive relief under federal antitrust law. That action
has been transferred to and consolidated with the declaratory judgment action.
The antitrust claims are expected to be replead as counter claims in that
action. Although the Company intends to vigorously pursue the litigation, the
Company cannot predict the likelihood of a favorable outcome.
A former employee of Twinsys has filed a lawsuit against the Company claiming
certain severance benefits as a result of his dismissal. The total amount of
the claim approximates 800,000 French francs (approximately $160,000). While
the ultimate outcome of this lawsuit cannot be predicted, the Company believes
it has meritorious defenses against the claim and intends to vigorously contest
the lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Dataguard's Common Stock trades on the over-the-counter market. At March 22,
1996, the Company had approximately 235 stockholders of record. The market
makers are: (i) Carr Securities, (ii) Paragon Capital Corporation, (iii)
Troster-Singer Corporation, and (iv) Wm. V. Frankel & Company. The following
table sets forth the ranges of high and low bid quotations per share of the
Common Stock for 1995 and 1994, according to National Quotation Bureau, Inc.
<TABLE>
<CAPTION>
1995 1994
Quarter High Low High Low
<S> <C> <C> <C> <C>
First $ .88 $ .38 $1.25 $ .50
Second 1.13 .38 1.25 .50
Third 1.13 .38 1.00 .50
Fourth 1.25 .38 1.25 .38
</TABLE>
These quotations reflect interdealer quotations without retail mark-up, mark-
down, or commissions and do not necessarily represent actual transactions. On
March 22, 1996, the closing bid price quoted for the Common Stock was $.38.
Since its inception in 1984, the Company has not paid any dividends on its
Common Stock.
Item 6. Management's Discussion and Analysis.
Results of Operations
The Company reported revenue of $8,927,183 and $4,615,535 for 1995
and 1994, respectively. The Company reported net income of $41,967 for 1995
after reporting net income of $6,313 in 1994. The increase in revenue and net
income in 1995 is attributable entirely to the Company's subsidiary, Twinsys
Dataguard S.A. (hereinafter referred to as "Twinsys"). On February 3, 1995,
Dataguard acquired certain operating assets and assumed certain liabilities of
Twinsys, a Paris, France-based provider of disaster recovery services in
Europe. See Note 3 of Notes to Consolidated Financial Statements for a more
detailed explanation of the Twinsys acquisition. Twinsys contributed net
income of approximately $750,000 in 1995, which offset the net loss incurred by
the Company's North American operations during the year.
Consolidated service revenue increased $4,311,648 during 1995. Twinsys
accounted for approximately $5,800,000 of consolidated service revenue in 1995.
Backup service revenue for the Company's North American operations decreased
54% in 1995. Bull backup service revenue decreased significantly due to the
expiration of the Company's then second largest and largest contracts effective
January 1 and June 1, 1995, respectively, and to increased competition. The
expired contracts together generated approximately 42% of the Company's revenue
in 1994. The Company entered into a new contract with one of these customers
for significantly lower revenue due to the customer's reduced backup service
requirements. See "Liquidity and Capital Resources." IBM backup service
revenue grew by 23% in 1995, but was more than offset by the decrease in Bull
backup service revenue. Consulting service revenue for 1995 increased by 63%
over 1994, but was offset by a comparable decrease in revenue from other data
processing services. The Company's consulting services and other data
processing services are not recurring, and therefore significant changes in
these revenues can occur from year to year. The Company began offering
outsourcing data processing services in December 1995. Outsourcing services
are expected to provide an additional source of revenue throughout 1996.
The Company's operating expenses increased to $7,829,424 for 1995
from $4,215,042 in 1994. This increase is principally attributable to Twinsys.
Twinsys' operating expenses totaled $4,402,981 in 1995 and are comprised mainly
of lease and maintenance expenses for its facility and computer equipment, as
well as personnel costs. The cost of services for North American operations
decreased approximately 13% in 1995 principally from reductions in Bull
computer equipment lease and maintenance costs. Selling, general and
administrative expenses increased to $2,434,906 for 1995 from $1,053,324 in
1994. This increase resulted primarily from the addition of expenses totaling
$1,451,061 for Twinsys in 1995, which relate largely to personnel and marketing
expenses. General and administrative expenses, which had remained stable for
several years prior to 1995, are expected to be lower in 1996 as the costs for
establishing and coordinating Twinsys' technical, sales and administrative
procedures begin to decrease. Legal and accounting fees increased in 1995 due
to the acquisition and initial startup of Twinsys operations. Professional
fees attributable to Twinsys are expected to be lower in 1996, but legal fees
are likely to increase in connection with ongoing litigation in the United
States. See Item 3 - Legal Proceedings.
Interest expense totaled $657,410 and $395,776 for 1995 and 1994, respectively.
Interest expense for Twinsys totaled $240,143 and is related mainly to capital
leases for computer equipment. Interest costs at Dataguard increased
approximately 5% principally as a result of debt incurred to purchase Twinsys.
The provision for income taxes totaled $443,568 for 1995, due to French income
taxes resulting from income of Twinsys. No income tax benefits can be
recognized currently for U.S. operating losses, but these losses are available
to offset any future U.S. taxable income.
Liquidity and Capital Resources
At December 31, 1995, the Company's consolidated current liabilities
exceeded current assets by $3,295,207. The principal resources available to
reduce the Company's liquidity deficiency are monthly revenues payable under
its backup service contracts. Backup services revenue for the Company's
customers are generated in most cases under multi-year, non-cancelable
contracts that will provide a fixed revenue stream over the next several years.
These contractual revenues, though not recorded on the Company's balance sheet,
will be available to help meet the Company's liabilities as recorded at
December 31, 1995.
Income from Twinsys has provided a significant, positive impact upon
the consolidated cash flow of the Company. However, the timing and amount of
cash transfers between Twinsys and Dataguard are subject to rules governing
dividend payments by French subsidiaries of multi-national corporations, as
well as practical considerations. The Company will continue to assess the
working capital needs of its North American and European operations on a
periodic basis and will determine appropriate allocations of cash throughout
the year. The Company expects to meet its other cash flow needs in 1996
through payments of consulting revenues by existing customers, the addition of
new customers for backup, consulting and outsourcing services, as well as the
extension of payment terms on certain monthly expenses and other debt. In
addition, cash flow from operations in 1996 will be positively affected by the
more favorable terms of new computer leases, which replaced leases that expired
during the last quarter of 1995. The Company will continue to seek more
favorable terms for its remaining lease and maintenance agreements as the
Company's present agreements expire. The Company's domestic computer equipment
will meet the technological requirements of the Company's current and
prospective customers without the need for any material capital expenditure
during 1996. Twinsys acquired computer equipment needed for the backup
requirements of some of its largest customers during the first quarter of 1996.
The acquisition was financed through a capital lease obligation totaling
approximately $2,000,000. The Company's objective is to finance capital needs
with the smallest possible adverse impact on the Company's liquidity position.
The Company has not generated new revenue in North America to offset
the loss of revenue upon the expiration of its two largest contracts in 1995
and cannot currently predict when or if sufficient new revenues will be
generated to offset the loss. The Company's equipment costs associated with
the new backup services agreement for one of these customers significantly
decreased during the last quarter of 1995, partially offsetting the decrease in
revenues.
During 1994, an affiliate of Bull HN began offering backup services
to Bull computer users. The increased competition to procure backup service
contracts adversely affected the Company's revenues in 1995, and is expected to
adversely affect the Company's revenues in the future, pending the outcome of
litigation between the Company and Bull relating to competitive practices. See
Item 3 - Legal Proceedings.
Item 7. Financial Statements.
DATAGUARD RECOVERY SERVICES, INC. AND SUBSIDIARY
<TABLE>
FINANCIAL INFORMATION
Consolidated Balance Sheet
<CAPTION>
December 31
Assets 1995
<S> <C>
Current assets:
Cash and cash equivalents $ 170,636
Accounts receivable 1,128,407
Other current assets 490,124
Total current assets 1,789,167
Property and equipment 16,138,011
Less accumulated depreciation and amortization 7,376,653
8,761,358
Other Assets 237,222
$10,787,747
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 304,139
Current installments of obligations under capital leases 1,858,755
Notes payable to stockholders 991,176
Accounts payable 941,812
Accrued income taxes 133,630
Accrued expenses and other current liabilities 854,862
Total current liabilities 5,084,374
Long-term debt, excluding current installments 1,024,356
Obligations under capital leases, excluding current installments 2,179,412
Customers' deposits 58,253
Deferred revenue 852,146
Deferred income taxes 309,938
Total liabilities 9,508,479
Stockholders' equity:
Preferred stock without par value. Authorized 2,000,000 shares:
Series A Convertible Preferred Stock ($10 stated value);
authorized 100,000 shares; issued and outstanding 34,167 shares;
liquidating value $467,144 341,670
Common stock without par value. Authorized 6,000,000 shares;
issued and outstanding 5,013,770 shares 3,029,833
Accumulated deficit (2,119,092)
Foreign currency translation 26,857
Total stockholders' equity 1,279,268
Commitments and contingencies
$10,787,747
</TABLE>
See accompanying notes to consolidated financial statements.
DATAGUARD RECOVERY SERVICES, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Operations
<CAPTION> Years ended December 31
1995 1994
<S> <C> <C>
Service revenue $ 8,927,183 $ 4,615,535
Operating expenses:
Cost of services 5,394,518 3,161,718
Selling, general and administrative expenses 2,434,906 1,053,324
7,829,424 4,215,042
Operating income 1,097,759 400,493
Other income (expense):
Interest expense (657,410) (395,776)
Other income, net 45,186 1,596
(612,224) (394,180)
Income before income taxes 485,535 6,313
Income taxes 443,568
Net income $ 41,967 $ 6,313
Income (loss) per common and common equivalent
share $ - $ (.01)
Weighted average number of common and common
equivalent shares outstanding 4,987,206 4,837,584
</TABLE>
See accompanying notes to consolidated financial statements.
DATAGUARD RECOVERY SERVICES, INC. AND SUBSIDIARY
<TABLE>
Statements of Stockholders' Equity
<CAPTION>
Series A Foreign
Preferred Stock Common Stock Accumulated currency
Shares Amount Shares Amount deficit translation Total
<S> <C> <C> <C> <C> <C> <C> <C>
January 1,
1994 34,167 $341,670 4,725,770 $2,885,833 $(2,128,844) $ $1,098,659
Issuance
of common
stock 224,000 112,000 112,000
Net income 6,313 6,313
December 31,
1994 34,167 $341,670 4,949,770 $2,997,833 $(2,122,531) $1,216,972
Issuance
of common
stock 64,000 32,000 32,000
Payments of
dividends (38,528) (38,528)
Net income 41,967 41,967
Foreign
currency
translation 26,857 26,857
December 31,
1995 34,167 $341,670 5,013,770 $3,029,833 $(2,119,092) $26,857 $1,279,268
</TABLE>
See accompanying notes to financial statements.
DATAGUARD RECOVERY SERVICES, INC. AND SUBSIDIARY
<TABLE>
Statements of Cash Flows
<CAPTION>
Years ended December 31
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 41,967 $ 6,313
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,113,081 1,068,131
Deferred income taxes 309,938
Other 36,899 1,390
Changes in operating assets and liabilities:
Accounts receivable (1,005,638) 88,961
Other current assets (390,975) (20,821)
Accounts payable 403,386 (159,429)
Accrued income taxes 133,630
Accrued expenses and other current liabilities 513,477 106,552
(Increase) decrease in other assets (124,202) 37,910
Increase (decrease) in deferred revenue 652,691 (339,465)
Increase (decrease) in customers' deposits 22,258 (17,226)
Net cash provided by operating activities 2,706,512 772,316
Cash flows from investing activities:
Acquisition of property and equipment (488,735) (46,331)
Purchase of Twinsys (203,856)
Net cash used in investing activities (692,591) (46,331)
Cash flows from financing activities:
Proceeds from note payable to stockholder 500,000
Net proceeds from issuance of common stock 100,000
Proceeds from long-term debt 28,150
Principal payments of long-term debt and
obligations under capital leases (2,413,360) (793,366)
Payments preferred dividend (38,528)
Net cash used in financing activities (1,951,888) (665,216)
Net increase in cash and cash equivalents 62,033 60,769
Cash and cash equivalents at beginning of year 108,603 47,834
Cash and cash equivalents at end of year $ 170,636 $ 108,603
</TABLE>
See accompanying notes to financial statements.
DATAGUARD RECOVERY SERVICES, INC. AND SUBSIDIARY
Notes to Financial Statements
(1) Basis of Presentation
Dataguard Recovery Services, Inc. (Dataguard) and its wholly-owned French
subsidiary, Twinsys Dataguard, S.A. (Twinsys), together referred to herein as
"the Company," is a major provider of hot site services for users of large-scale
Bull and IBM computers in North America and Bull and UNIX computers in Europe.
The Company markets its services to corporate users of large-scale computers in
the United States, Canada and Europe.
The financial statements have been prepared on the basis of principles
applicable to a going concern. This basis presumes the realization of assets
and a settlement of liabilities in the ordinary course of business. As shown
in the accompanying financial statements, the Company has an accumulated
deficit of $2,119,092 at December 31, 1995. In addition, the Company has
financed a large portion of its computer equipment that is used for backup
services under capital leases. The current installments of obligations under
these capital leases were the most significant cause of current liabilities
exceeding current assets by $3,295,207 at December 31, 1995.
The Company's ability to operate as a continuing business is dependent
upon, among other things, the Company's maintaining profitable operations and
being able to meet its current obligations.
The Company believes access to the European disaster recovery market
through Twinsys, as well as its continued intensified marketing effort, will
provide new opportunities for additional backup, outsourcing, and consulting
service revenues. The Company plans to increase its utilization of its
facilities and computer equipment to support other computer services
opportunities.
Management has obtained and will continue to seek more favorable terms for
its lease and maintenance agreements in an effort to reduce the Company's
operating costs and liquidity deficiency. The Company expects to meet its cash
flow needs through payments of service revenues by existing customers, the
addition of new customers for its backup, outsourcing, and consulting services,
as well as the extension of payment terms on certain monthly expenses and other
debt.
(2) Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
Dataguard Recovery Services, Inc. and Twinsys. All significant intercompany
accounts and transactions have been eliminated in consolidation.
(b) Use of Estimates
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires Company
management to make estimates and assumptions that affect the amounts reported
in these financial statements and accompanying notes. Actual results could
differ from those estimates.
(c) Recognition of Revenue
The Company provides backup recovery services through contracts whose
terms are generally for more than one year and require the payment of monthly
subscription fees. Service revenue from contracts is recognized on a straight-
line method over the life of the contract. Deferred revenue represents cash
received in excess of the revenue recorded for multi-year agreements to provide
backup services to customers. The Company also provides consulting services.
Service revenue for consulting is recognized when services are rendered.
(d) Property and Equipment
Property and equipment are recorded at cost and consist of the
following at December 31, 1995:
<TABLE>
<S> <C>
Land $ 260,800
Building and improvements 3,154,789
Equipment 12,551,702
Other 170,720
$16,138,011
</TABLE>
Depreciation of equipment is computed on the straight-line method
over the estimated useful life of the asset. Leasehold improvements and
equipment under capital leases are amortized on the straight-line method over
the terms of the related leases or over the estimated useful life of the asset.
(e) Foreign Currency Translation
The financial statements of Twinsys have been translated into U.S.
dollars in accordance with FASB Statement 52, Foreign Currency Translation.
All balance sheet accounts have been translated using the exchange rates in
effect at the balance sheet date. Amounts in the statements of operations have
been translated using the average exchange rate for the year. The gains and
losses resulting from the changes in exchange rates during the year have been
reported separately as a component of stockholders' equity.
(f) Income Per Share
Income per share is based on net income less preferred dividends
divided by the weighted average number of common and equivalent shares
outstanding during the period. Common stock equivalents outstanding are
calculated for stock options and warrants using the treasury stock method.
Fully diluted per share amounts are not materially different from primary per
share amounts.
(g) Cash Equivalents
Cash equivalents are highly liquid investments with a maturity of
less than three months when purchased.
(h) Stock Incentive Plans
The Financial Accounting Standards Board has recently issued FASB
Statement 123, Accounting for Stock-Based Compensation. FASB 123 encourages,
but does not require, companies to recognize compensation expense related to
the grants of stock or stock options to employees under plans such as the
Company's 1988 and 1990 Plans. Companies choosing not to adopt FASB 123 will
continue to account for such grants using the accounting described by APB
Statement 25, Accounting for Stock Issued to Employees, but will be required to
make certain disclosures about their plans, including proforma net income and
earnings per share under the new method. The Company is first required to
follow the rules of FASB 123 in 1996. The Company expects to continue to
follow APB 25 for expense recognition and to make disclosures required by FASB
123. Accordingly, the Company expects that FASB 123 will have no effect on the
Company's earnings or financial position.
(i) Financial Instruments
The carrying amounts of the Company's financial instruments
approximate their fair values as of December 31, 1995.
(3) Acquisition
On February 3, 1995, Dataguard purchased for approximately $200,000
certain operating assets and assumed certain liabilities of Twinsys, S.A., a
Paris, France-based provider of disaster recovery services in Europe.
Dataguard financed the purchase with funds borrowed from EPI Corporation, the
Company's largest stockholder, under an amendment to an existing loan
agreement. John P. Snyder, EPI's President and Chairman, is a director of the
Company. The acquisition was accounted for by the purchase method of
accounting.
The results of operations of Twinsys are included in the 1995 Consolidated
Statement of Operations since the date of acquisition. Summarized below are
the unaudited proforma results of operations for the years ended December 31,
1995 and 1994, as though the acquisition had occurred on January 1, 1995 and
1994, respectively; adjusted to reflect the impact of certain lease terms which
have been renegotiated; reduction of personnel costs as a result of fewer
required Twinsys employees, reduced equipment and office rent expense by
combining the Twinsys office locations; and the borrowing of $500,000 by
Dataguard from a stockholder to finance the acquisition of Twinsys and to
provide working capital for its initial operations.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Service revenue $ 9,587,000 $ 10,796,000
Net income (loss) 135,000 (784,000)
Income (loss) per common and
common equivalent share $ .02 $ (.17)
</TABLE>
(4) Long-term Debt and Credit Agreements
Long-term debt consists of the following at December 31, 1995:
<TABLE>
December 31
1995
<S> <C>
Mortgage note $ 1,055,871
Revolving credit agreements 120,000
Promissory note 133,526
Equipment notes 19,098
1,328,495
Less current installments 304,139
Long-term debt, excluding current installments $ 1,024,356
</TABLE>
The mortgage note is payable in equal monthly installments through May 1,
2009; however, the lender has the option to accelerate payment on the entire
outstanding balance of the note at five year intervals throughout the note
term. The next potential note acceleration date is May 1, 1999 and the current
interest rate of 11% is fixed until that date.
The Company has committed revolving credit facilities with two banks. A
$100,000 credit agreement is committed through October 31, 1996, and provides
that borrowings will bear interest at the bank's prime rate plus 2%
(effectively 10.5% at December 31, 1995). Borrowings under this credit
agreement are secured by substantially all domestic company assets, other than
its real property and leased assets. Credit agreements amounting to $250,000
and $20,000 are committed by another bank. The $250,000 agreement is committed
through May 15, 1996 and is secured by a letter of credit issued by the
Company's bank in France. Other current assets at December 31, 1995 include
approximately $288,000 of restricted cash related to the letter of credit.
This agreement bears interest on borrowings at prime plus 1% (effectively 9.5%
at December 31, 1995). No amounts were borrowed under this agreement at
December 31, 1995. The $20,000 agreement is committed through February 28,
1996, and bears interest at prime plus 1%, and was fully outstanding at
December 31, 1995.
A promissory note was established on May 1, 1994 with a supplier. The
note provides that interest, fixed at an annual rate of 11%, will accrue and
compound monthly on the total unpaid balance. Monthly installments of $26,836
began in December 1995 and will continue through June 1996 until the entire
principal and interest amounts are paid.
Equipment notes are payable to one bank in monthly installments through
November 1997. Interest rates on these notes range from 10.0% to 10.5% and the
notes are secured by equipment with a net book value of $16,596 as of December
31, 1995.
Aggregate maturities of long-term debt are $304,139 in 1996, $45,610 in
1997, $45,390 in 1998 and $933,356 in 1999.
(5) Notes Payable to Stockholders
During 1992, the Company entered into a $300,000 second mortgage agreement
with a stockholder. The original term of the agreement was ninety days. The
agreement had been renewed for additional 90-day terms subsequent to the
original term through December 31, 1994. In January 1995, an $800,000 second
mortgage agreement was entered into with this stockholder ($300,000 of which
represents an extension of the original loan as noted above). The term of the
loan extends through April 10, 1996. Interest on this amount is payable at an
annual rate equal to the prime rate plus 1.5% (effectively 10% at December 31,
1995). Interest expense of $80,242 and $25,750 was charged to 1995 and 1994
operations, respectively. At December 31, 1995, accrued interest recorded in
the consolidated balance sheet related to these notes was $110,581. The
promissory note is secured by a second mortgage on the Company's real property.
In consideration of this opportunity to borrow funds, the Company issued 30,000
shares of common stock to the stockholder in connection with the initial
agreement. Additional share increments of common stock (currently 16,000
shares) have been issued with each renewal (a total of 118,000 and 54,000
additional shares had been issued through December 31, 1995 and 1994,
respectively). During January 1996, the Company renewed this note at the same
terms and conditions as the original note. An additional 16,000 shares of
common stock were issued to the stockholder in connection with this renewal.
The Company has notes payable of $191,176 to certain stockholders.
Interest is payable quarterly at an annual rate of 10%. Interest expense of
$19,118 was charged to operations for the years ended December 31, 1995 and
1994 for these notes. The notes were originally due in November 1992 but have
been renewed and are now due in December 1996 at the same terms and conditions
as the original notes.
(6) Leases
The Company is obligated under various equipment capital leases that
expire over the next four years. Property and equipment include the following
amounts under capital leases at December 31, 1995:
<TABLE>
<CAPTION>
December 31
1995
<S> <C>
Equipment $ 7,297,047
Less accumulated amortization 2,083,064
$ 5,213,983
</TABLE>
The Company acquired $4,831,746 and $186,174 of equipment in exchange for
capital lease obligations during 1995 and 1994, respectively.
The Company also has certain noncancellable operating leases, primarily
for computer hardware and software, that expire over the next five years and
provide for purchase or renewal options.
Future minimum lease payments under capital leases and noncancellable
operating leases, and the present value of future minimum capital lease
payments as of December 31, 1995 are:
<TABLE>
<CAPTION>
Capital Operating
leases leases
<S> <C> <C>
Years ending December 31:
1996 $ 2,118,554 $ 845,897
1997 1,611,728 779,982
1998 680,910 745,846
1999 25,080 745,846
2000 - 279,692
Total minimum lease payments 4,436,272 $ 3,397,264
Less amount representing interest
(at rates ranging from 7.0%
to 11.35%) 398,206
Present value of net minimum
capital lease payments 4,038,167
Less current installments 1,858,755
Obligations under capital
leases, excluding current
installments $ 2,179,412
</TABLE>
Total rental expense, including maintenance charges, for operating leases
in 1995 and 1994 was $1,947,904 and $1,534,976, respectively.
(7) Income Taxes
For financial reporting purposes, income before income taxes includes
the following components:
<TABLE>
<CAPTION>
1995 1994
Pretax income (loss):
<S> <C> <C>
United States $ (713,298) $ 6,313
Foreign 1,198,833 -
$ 485,535 $ 6,313
</TABLE>
The provision for income tax expense in 1995 is attributable to earnings
from foreign operations, the components of which follows:
<TABLE>
<S> <C>
Foreign - current $ 133,630
- deferred 309,938
$ 443,568
</TABLE>
A reconciliation of the income tax expense for the years ended December
31, 1995 and 1994 with the federal statutory rate is as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Tax expense at U.S. statutory rates $ 165,082 $ 2,146
Operating losses in the U.S. generating
no current tax benefit 240,027 -
Utilization of net operating loss
carryforwards - (3,777)
Higher effective income tax rate of
foreign operations 35,965 -
Other 2,494 1,631
$ 443,568 $ -
</TABLE>
Undistributed earnings of the Company's foreign subsidiary amounted to
$755,265 at December 31, 1995. Those earnings are considered to be
indefinitely reinvested and, accordingly, no provision for U.S. federal income
taxes has been provided thereon. Upon distribution of those earnings in the
form of dividends or otherwise, the Company would be subject to both U.S.
income taxes (subject to an adjustment for foreign tax credits) and withholding
taxes payable to France. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable because of the complexities
associated with its hypothetical calculation.
At December 31, 1995, the Company had U.S. net tax operating loss
carryforwards of approximately $3,340,000 for federal income tax reporting
purposes. These carryforwards expire as follows: $467,000 in 2000; $658,000
in 2001; $508,000 in 2002; $115,000 in 2004; $26,000 in 2005; $51,000 in 2006;
$435,000 in 2007; $649,000 in 2008; and $431,000 in 2010.
Significant components of the Company's deferred tax assets (liabilities)
at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1995
Deferred tax assets:
<S> <C>
Net operating loss carryforwards $ 1,269,000
Valuation allowance (1,029,000)
Net deferred tax assets 240,000
Deferred tax liabilities:
Tax over book depreciation (462,000)
Other (87,938)
Total deferred tax liabilities $ (549,938)
Net deferred tax liability $ (309,938)
</TABLE>
(8) Stock Option and Grant Plans
The Dataguard 1988 Stock Option Plan (as amended by stockholders in 1989)
allows for options to be granted to key employees of the Company to purchase no
more than an aggregate of 300,000 shares of common stock at a price not less
than 75% of the fair market value at the time the grant is approved. Options
totaling 85,000 shares of common stock were granted to employees in 1995. No
options were granted to employees in 1994. It also provides automatic grants
of stock options to the Company's directors who are not employees. Options to
purchase 1,000 shares of common stock are granted annually to each nonemployee
director. In addition, each nonemployee director who was not a director on May
15, 1989 will automatically be granted an option for 5,000 shares of common
stock on May 15 following his subsequent election. Options for nonemployee
directors are granted at the fair market value of the common stock on the grant
date as determined by the Stock Option Committee of the Board of Directors.
Information pertaining to options for 1995 follows:
<TABLE>
<CAPTION>
Price Range
Common Share per Share
<S> <C> <C>
Options outstanding at
January 1, 1995 63,679 $.50 - $1.75
Options granted 87,000 $.63 - $.69
Options outstanding at
December 31, 1995 150,679 $.66
Options exercisable -
December 31, 1995 61,679 $.66
</TABLE>
All options granted under the plan are exercisable over a 10-year period.
No options have been exercised as of December 31, 1995.
The Dataguard 1990 Stock Grant Plan authorizes the Company's Stock Option
Committee to grant up to 250,000 shares of common stock to key employees as
restricted or performance stock awards. In 1990, grants of 8,150 shares of
common stock were issued under this plan. No shares have been granted
subsequent to 1990.
(9) Preferred Stock
In 1991, 100,000 shares of Series A Preferred Stock were authorized. The
Company issued 16,667 shares of Series A Preferred Stock in 1992 and 17,500
shares in 1991. This stock provides a cumulative preferred annual dividend of
11.5%, payable on a quarterly basis and before any payment of dividends on
common stock. At December 31, 1995, dividends in arrears totaled $40,056.
Each share of Series A Preferred Stock is convertible into eight shares of
common stock, at an effective price of $1.25 per share of common stock, for a
period of five years following the date of issuance.
The Series A Preferred Stock is also redeemable at the Company's option at
a price of $11.15, if the average bid and asked price of the common stock
exceeds 150% of the then-effective conversion price of the Series A Preferred
Stock for twenty of thirty consecutive trading days. No such restriction
applies to redemption after July 1, 1997. This redemption price declines
gradually each year to $10 a share after December 31, 2001.
The Series A Preferred Stock has a liquidation value of $12.50 per share,
plus any accrued but unpaid dividends upon the liquidation, dissolution, or
winding up of the affairs of the Company. Holders of Series A Preferred Stock
have no voting rights except upon the occurrence of an event of default.
The holders of Series A Preferred Stock also received a five-year warrant
to purchase two shares of common stock for each share of Series A Preferred
Stock purchased. At December 31, 1995, warrants to purchase 68,334 shares of
common stock were outstanding at an exercise price of $2.25.
Shares of common stock reserved with respect to all of the above options,
convertible preferred stock and warrants were 492,349 at December 31, 1995.
(10) Segment Information
The Company and its subsidiary are engaged in one industry segment
consisting of providing disaster recovery and other computer related services
to users of large-scale computer systems.
Service revenue, operating income and identifiable assets for the years
ended December 31, 1995 and 1994 pertaining to the two geographic areas in
which the Company operates are presented below.
<TABLE>
<CAPTION>
1995 1994
Service revenue
<S> <C> <C>
United States $ 3,116,662 $ 4,615,535
Europe 5,810,152 -
$ 8,927,183 $ 4,615,535
Operating income (loss)
United States $ (309,781) 400,493
Europe 1,407,540 -
$ 1,097,759 $ 400,493
Identifiable total assets
United States $ 4,717,216 $ 5,703,693
Europe 6,070,531 -
$ 10,787,747 $ 5,703,693
</TABLE>
The net assets of Twinsys at December 31, 1995 amounted to approximately
$782,123.
In 1994, the Company had two customers, accounting for approximately 26%
and 15%, respectively, of consolidated service revenue, who individually
accounted for more than 10% of the Company's consolidated service revenue for
the year. Neither customer accounted for 10% of the Company's consolidated
service revenue in 1995. The only customer who accounted for 10% of the
Company's consolidated service revenue in 1995 was a group of affiliated
companies, which together accounted for approximately 13% of consolidated
service revenue.
(11) Supplemental Cash Flow Information
Total amount of interest paid was approximately $650,000 and $393,000 for
the years ended December 31, 1995 and 1994, respectively. No cash payments
were made for income taxes during 1995 or 1994.
(12) Commitments and Contingencies
The Company has an agreement with Copex Limited (a United Kingdom company)
which was established to recognize the assistance provided by Copex in the
acquisition of Twinsys. The Company is to pay Copex 2% of the gross revenues
of Twinsys for the calendar years 1995 through 1999. Other assets include
approximately $74,000 (net of amortization) as of December 31, 1995 related to
the fee earned to date under this agreement.
A former employee of Twinsys has filed a lawsuit against the Company
claiming certain severance benefits as a result of his dismissal. The total
amount of the claim approximates 800,000 French francs (approximately
$160,000). While the ultimate outcome of this lawsuit is unknown, the Company
believes it has meritorious defenses against the Claim and intends to
vigorously contest the lawsuit.
(13) Subsequent Event
On March 7, 1996, Twinsys entered into a capital lease agreement for
computer equipment with the lease having a discounted present value of
approximately 10,000,000 French francs (approximately $2,000,000). The lease
is for a three year term and requires monthly rental payments of approximately
430,000 French francs (approximately $86,000) in 1996 and monthly rental
payments of 250,000 French francs (approximately $50,000) for the remainder of
the lease term. This lease commitment is not included in Note 6.
DATAGUARD RECOVERY SERVICES, INC. AND SUBSIDIARY
Report of Independent Auditors
The Board of Directors and Stockholders
Dataguard Recovery Services, Inc.
We have audited the accompanying consolidated balance sheet of Dataguard
Recovery Services, Inc. and subsidiary as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1995. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Dataguard Recovery Services, Inc. and subsidiary at December 31, 1995, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Dataguard Recovery Services, Inc. and subsidiary will continue as a going
concern. As more fully described in Note 1, the Company has had a significant
working capital deficiency since inception, has incurred significant cumulative
losses from its inception through December 31, 1995, and has had recent adverse
developments with respect to contracts with certain customers. In view of
these conditions, substantial doubt remains as to the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities
that may result from the possible inability of Dataguard Recovery Services,
Inc. and subsidiary to continue as a going concern.
{ERNST & YOUNG LLP}
Louisville, Kentucky
March 8, 1996
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The information under the caption "Board of Directors" on pages 4 to 6 of the
Definitive Proxy Statement (the "1996 Proxy Statement") and under the caption
"Section 16(a) Reporting Delinquencies" on page 8 of the 1996 Proxy Statement
are incorporated herein by reference.
Item 10. Executive Compensation.
The information under the caption "Executive Compensation" on pages 6 and 7 of
the 1996 Proxy Statement is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information under the caption "Principal Shareholders" on pages 2 to 4 of
the 1996 Proxy Statement is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions.
The information under the caption "Transactions With Management" on page 7 of
the 1996 Proxy Statement is incorporated herein by reference.
Item 13. Exhibits, List, and Reports on Form 8-K.
(a) List of Exhibits Filed.
(3.1) Amended and Restated Articles of Incorporation are
incorporated by reference to Exhibits 3.1 and 4.1 to
the 1992 10-K.
(3.2) Bylaws.
(4.1) Amended and Restated Articles of Incorporation are
incorporated by reference to Exhibits 3.1 and 4.1 to
the 1992 10-K.
(4.2) Form of Stock Purchase Warrant issued to holders of
Series A Preferred is incorporated by reference to
Exhibit 4.2 to the 1991 10-K.
(10.1) Promissory Note due December 31, 1996 from the Company
to Richard W. Smith.
(10.2) Promissory Note due December 31, 1996 from the Company
to James P. Buren.
(10.3) Promissory Note due December 31, 1996 from the Company
to EPI Corporation.
(10.4) Promissory Note due December 31, 1996 from the Company
to John A. Brenzel.
(10.5) 1988 Stock Option Plan is incorporated by reference to
Exhibit 10.8 to the 1994 10-KSB.
(10.6) 1990 Stock Grant Plan is incorporated by reference to
Exhibit 10.8 to the 1994 10-KSB.
(10.7) Agreement of Assignment of Mortgage Note dated
August 1, 1991, between Future Federal Savings Bank,
Brown, Noltemeyer Co., Charles A. Brown, Jr.,
Norman V. Noltemeyer, and Dataguard Recovery Services,
Inc.
(10.8) Mortgage Note dated April 3, 1984, from Brown,
Noltemeyer Co. to Future Federal Savings Bank, as
amended.
(10.9) Security Agreement dated July 13, 1992 as amended
January 17, 1995 between the Company and EPI
Corporation is incorporated by reference to Exhibit
10.11 to the 1994 10-KSB.
(10.10) Second Mortgage dated July 13, 1992 as amended January
17, 1995 between the Company and EPI Corporation is
incorporated by reference to Exhibit 10.12 to the
1994 10-KSB.
(10.11) Promissory note due April 10, 1996 between the Company
and EPI Corporation.
(11) For a statement regarding the computations of per
share earnings (loss), see Note 2 of the Notes to the
Consolidated Financial Statements.
(21) Subsidiaries.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DATAGUARD RECOVERY SERVICES, INC.
Date: March 29, 1996
By /s/ Richard W. Smith
Richard W. Smith, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Richard W. Smith
Richard W. Smith President and Director March 29, 1996
(Principal Executive Officer)
(Principal Financial Officer)
(Principal Accounting Officer)
/s/ James P. Buren
James P. Buren Executive Vice President- March 29, 1996
Technology, Treasurer, and
Director
/s/ John P. Snyder
John P. Snyder Secretary and Director March 29, 1996
/s/ John A. Brenzel
John A. Brenzel Director March 29, 1996
</TABLE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Sequential Page
Number Description Number
<S> <C> <C>
(3.1) Amended and Restated Articles of Incorporation are
incorporated by reference to Exhibits 3.1 and 4.1 to
the 1992 10-K.
(3.2) Bylaws.
(4.1) Amended and Restated Articles of Incorporation are
incorporated by reference to Exhibits 3.1 and 4.1 to
the 1992 10-K.
(4.2) Form of Stock Purchase Warrant issued to holders of
Series A Preferred is incorporated by reference to
Exhibit 4.2 to the 1991 10-K.
(10.1) Promissory Note due December 31, 1996 from the
Company to Richard W. Smith.
(10.2) Promissory Note due December 31, 1996 from the
Company to James P. Buren.
(10.3) Promissory Note due December 31, 1996 from the
Company to EPI Corporation.
(10.4) Promissory Note due December 31, 1996 from the
Company to John A. Brenzel.
(10.5) 1988 Stock Option Plan is incorporated by reference to Exhibit
10.7 to the 1994 10-KSB.
(10.6) 1990 Stock Grant Plan is incorporated by reference to Exhibit 10.8
to the 1994 10-KSB.
(10.7) Agreement of Assignment of Mortgage Note dated
August 1, 1991, between Future Federal Savings
Bank, Brown, Noltemeyer Co., Charles A. Brown, Jr.,
Norman V. Noltemeyer, and Dataguard Recovery
Services, Inc.
(10.8) Mortgage Note dated April 3, 1984, from Brown,
Noltemeyer Co. to Future Federal Savings Bank,
as amended.
(10.9) Security Agreement dated July 13, 1992 as amended
January 17, 1995 between the Company and EPI Corporation
is incorporated by reference to Exhibit 10.11 to the 1994
10-KSB.
(10.10) Second Mortgage dated July 13, 1992 as amended
January 17, 1995 between the Company and EPI Corporation
is incorporated by reference to Exhibit 10.12 to the 1994
10-KSB.
(10.11) Promissory note due April 10, 1996 between the Company
and EPI Corporation.
(11) For a statement regarding the computations of per
share earnings (loss), see Note 2 of the Notes to the
Consolidated Financial Statements.
(21) Subsidiaries.
(27) Financial Data Schedule.
</TABLE>
Exhibit 3.2
BYLAWS
OF
DATAGUARD RECOVERY SERVICES, INC.
1. Meetings of Shareholders
1.1 Except as the Board of Directors may otherwise designate, the annual
meeting of the shareholders of the Corporation shall be held at 10:00 a.m. on
April 10 each year if not a Saturday, Sunday or legal holiday and if a
Saturday, Sunday or legal holiday, then on the next day not a Saturday, Sunday
or legal holiday.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's registered office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors the meeting shall be held at the Corporation's registered office.
2. Board of Directors
2.1 The exact number of directors may be fixed, increased or decreased from
time to time by a resolution adopted by the vote of the shareholders who (a)
are present in person or by proxy at a meeting held to elect directors and (b)
have a majority of the voting power of the shares represented at such meeting
and entitled to vote in the election.
2.2 Meetings of the Board of Directors may be called by the President or by
any director.
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (a) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (b) mailed to each director at
his last known address at least ninety-six hours before the time of the
meeting.
2.4 Nominations for election to the Board of Directors may be made by the
Board of Directors or by an shareholder. Any shareholder who intends to
nominate or to cause to have nominated any candidate for election to the Board
of Directors (other than a candidate nominated by the Board of Directors) shall
deliver or mail written notification of the nomination to the Secretary of the
Corporation not less than three days after the giving of the notice of the
meeting no more than fifty days before any meeting of shareholders held for the
election of directors. Any such notification shall contain the following
information to the extent known to the notifying shareholder or shareholders:
(a) the name and address of each proposed nominee;
(b) the principal occupation of each proposed nominee;
(c) the total number of shares that to the knowledge of the notifying
shareholder or shareholders will be voted for each proposed nominee;
(d) the name and residence address of each notifying shareholder; and
(e) the number of shares owned by each notifying shareholder.
The chairman of any meeting of shareholders held for the election of directors
may in his discretion disregard any votes cast for any nominee whose nomination
was not made in accordance with these nomination provisions.
3. Officers
3.1 The Corporation may have one or more Vice Presidents and shall have a
President, a Secretary and a Treasurer, all of whom shall be elected by the
Board of Directors. The Corporation may also have such assistant officers as
the Board of Directors may deem necessary, all of whom shall be elected by the
Board of Directors or chosen by an officer or officers designed by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and of
the Board of Directors,
(c) Have authority to sign and deliver on behalf of the Corporation such
documents as may have been authorized by the Board of Directors by general
delegation or specific resolution, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
3.3 The Vice President, or if there be more than one Vice President, the
Vice Presidents in the order of their seniority by designation (or if not
designated in the order of their seniority of election), shall perform the
duties of the President in his absence. The Board of Directors shall promptly
appoint one Vice President to perform the duties of the President on an interim
basis if the President resigns, dies, or becomes temporarily or permanently
disabled until such time that a temporary disability ends or a new President
can be appointed. The Vice Presidents shall have such other powers and duties
as the Board of Directors or the President may assign to them.
3.4 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs and
transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.6 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
4. Certificates and Transfer
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
5. Indemnification
Each person who is or becomes an officer or director of the Corporation
shall be indemnified and advanced expenses by the Corporation with respect to
all threatened, pending or completed actions, suits or proceedings (whether
civil, criminal, administrative or investigative and whether formal or
informal) in which that person was, is or is threatened to be made a named
defendant or respondent because he or she is or was an officer or director of
the Corporation. This Section obligates the Corporation to indemnify and
advance expenses to its officers or directors only in connection with
proceedings arising from that person's conduct in his official capacity with
the Corporation to the extent permitted by the Kentucky Business Corporation
Act, as amended from time to time. The indemnification and advancement of
expenses provided by this Section shall not be deemed exclusive of any other
rights to which officers and directors may be entitled under any provision of
the articles of incorporation, agreement, vote of shareholders or disinterested
directors, or otherwise. Any repeal or modification of this Section by the
shareholders of the Corporation shall not adversely affect any right or protec-
tion of an officer or director of the Corporation under this Section with
respect to any act or omission occurring prior to the time of such repeal or
modification.
Exhibit 10.1
PROMISSORY NOTE
$29,411.75 Louisville, Kentucky
January 1, 1996
For value received DATAGUARD RECOVERY SERVICES, INC. ("Maker"), promises to
pay to the order of RICHARD W. SMITH ("Payee") the principal amount of Twenty-
nine Thousand Four Hundred Eleven Dollars Seventy-five Cents ($29,411.75) on
December 31, 1996.
This note shall bear interest at the annual rate of ten percent (10%) on the
principal balance remaining unpaid from time to time. Accrued interest shall
be payable on the first day of the first three calendar quarters in 1996 and on
December 31, 1996.
The Maker shall prepay this note by 25 percent of the Maker's cash flow,
(defined as income before income taxes plus amortization and depreciation, but
less all principal payments on the Company's capital lease obligations), for
any quarter in which the Maker's cash flow is positive.
If any payment to be made under this note is not made when the payment
becomes due, then at the option of the Payee the entire unpaid principal of
this note plus accrued but unpaid interest shall become immediately due and
payable without notice or demand of any kind.
The Maker of this note may prepay all or any part of the indebtedness
evidenced by this note without penalty or premium.
If there is any default under this note, and this note is placed in the
hands of an attorney for collection, or is collected through any court,
including any bankruptcy court, the Maker promises to pay to the order of
Payee, the Payee's reasonable attorneys' fees and court costs incurred in
collecting or attempting to collect this note, to the extent allowed by the
laws of the Commonwealth of Kentucky.
This note has been delivered in, and shall be governed by and construed in
accordance with, the laws (including, without limitation, the conflict of law
rules) of the Commonwealth of Kentucky.
All parties to this instrument, whether makers, sureties, guarantors,
endorsers, accommodation parties or otherwise, shall be jointly and severally
bound, and jointly and severally waive presentment, demand, notice of dishonor,
protest, notice of protest, notice of nonpayment or nonacceptance and any other
notice and all due diligence or promptness that may otherwise be required by
law, and all exemptions to which they may now or hereafter be entitled under
the laws of the Commonwealth of Kentucky or of the United States of America or
any state thereof. The Payee may, with or without notice to any party, and
without affecting the obligations of any maker, surety, guarantor, endorser,
accommodation party or any other party to this note (1) extend the time for
payment of either principal or interest from time to time, (2) release or
discharge any one or more parties liable on this note, (3) suspend the right to
enforce this note with respect to any persons, (4) change, exchange or release
any property in which the holder has any interest security this note, (5)
justifiably or otherwise, impair any collateral securing this note or suspend
the right to enforce against any such collateral, and (6) at any time it deems
it necessary or proper, call for and should it be made available, accept, as
additional security, the signature or signatures of additional parties or a
security interest in property of any kind or description or both.
This note has been delivered in and shall be governed by and construed in
accordance with, the laws (including, without limitation, the conflicts of law
rules) of the Commonwealth of Kentucky.
DATAGUARD RECOVERY SERVICES, INC.
By: /s/ Richard W. Smith
Richard W. Smith, President
Exhibit 10.2
PROMISSORY NOTE
$29,411.75 Louisville, Kentucky
January 1, 1996
For value received DATAGUARD RECOVERY SERVICES, INC. ("Maker"), promises to
pay to the order of JAMES P. BUREN ("Payee") the principal amount of Twenty-
nine Thousand Four Hundred Eleven Dollars Seventy-five Cents ($29,411.75) on
December 31, 1996.
This note shall bear interest at the annual rate of ten percent (10%) on the
principal balance remaining unpaid from time to time. Accrued interest shall
be payable on the first day of the first three calendar quarters in 1996 and on
December 31, 1996.
The Maker shall prepay this note by 25 percent of the Maker's cash flow,
(defined as income before income taxes plus amortization and depreciation, but
less all principal payments on the Company's capital lease obligations), for
any quarter in which the Maker's cash flow is positive.
If any payment to be made under this note is not made when the payment
becomes due, then at the option of the Payee the entire unpaid principal of
this note plus accrued but unpaid interest shall become immediately due and
payable without notice or demand of any kind.
The Maker of this note may prepay all or any part of the indebtedness
evidenced by this note without penalty or premium.
If there is any default under this note, and this note is placed in the
hands of an attorney for collection, or is collected through any court,
including any bankruptcy court, the Maker promises to pay to the order of
Payee, the Payee's reasonable attorneys' fees and court costs incurred in
collecting or attempting to collect this note, to the extent allowed by the
laws of the Commonwealth of Kentucky.
This note has been delivered in, and shall be governed by and construed in
accordance with, the laws (including, without limitation, the conflict of law
rules) of the Commonwealth of Kentucky.
All parties to this instrument, whether makers, sureties, guarantors,
endorsers, accommodation parties or otherwise, shall be jointly and severally
bound, and jointly and severally waive presentment, demand, notice of dishonor,
protest, notice of protest, notice of nonpayment or nonacceptance and any other
notice and all due diligence or promptness that may otherwise be required by
law, and all exemptions to which they may now or hereafter be entitled under
the laws of the Commonwealth of Kentucky or of the United States of America or
any state thereof. The Payee may, with or without notice to any party, and
without affecting the obligations of any maker, surety, guarantor, endorser,
accommodation party or any other party to this note (1) extend the time for
payment of either principal or interest from time to time, (2) release or
discharge any one or more parties liable on this note, (3) suspend the right to
enforce this note with respect to any persons, (4) change, exchange or release
any property in which the holder has any interest security this note, (5)
justifiably or otherwise, impair any collateral securing this note or suspend
the right to enforce against any such collateral, and (6) at any time it deems
it necessary or proper, call for and should it be made available, accept, as
additional security, the signature or signatures of additional parties or a
security interest in property of any kind or description or both.
This note has been delivered in and shall be governed by and construed in
accordance with, the laws (including, without limitation, the conflicts of law
rules) of the Commonwealth of Kentucky.
DATAGUARD RECOVERY SERVICES, INC.
By: /s/ Richard W. Smith
Richard W. Smith, President
Exhibit 10.3
PROMISSORY NOTE
$58,823.50 Louisville, Kentucky
January 1, 1996
For value received DATAGUARD RECOVERY SERVICES, INC. ("Maker"), promises to
pay to the order of EPI CORPORATION ("Payee") the principal amount of Fifty-
eight Thousand Eight Hundred Twenty-three Dollars Fifty Cents ($58,823.50) on
December 31, 1996.
This note shall bear interest at the annual rate of ten percent (10%) on the
principal balance remaining unpaid from time to time. Accrued interest shall
be payable on the first day of the first three calendar quarters in 1996 and on
December 31, 1996.
The Maker shall prepay this note by 25 percent of the Maker's cash flow,
(defined as income before income taxes plus amortization and depreciation, but
less all principal payments on the Company's capital lease obligations), for
any quarter in which the Maker's cash flow is positive.
If any payment to be made under this note is not made when the payment
becomes due, then at the option of the Payee the entire unpaid principal of
this note plus accrued but unpaid interest shall become immediately due and
payable without notice or demand of any kind.
The Maker of this note may prepay all or any part of the indebtedness
evidenced by this note without penalty or premium.
If there is any default under this note, and this note is placed in the
hands of an attorney for collection, or is collected through any court,
including any bankruptcy court, the Maker promises to pay to the order of
Payee, the Payee's reasonable attorneys' fees and court costs incurred in
collecting or attempting to collect this note, to the extent allowed by the
laws of the Commonwealth of Kentucky.
This note has been delivered in, and shall be governed by and construed in
accordance with, the laws (including, without limitation, the conflict of law
rules) of the Commonwealth of Kentucky.
All parties to this instrument, whether makers, sureties, guarantors,
endorsers, accommodation parties or otherwise, shall be jointly and severally
bound, and jointly and severally waive presentment, demand, notice of dishonor,
protest, notice of protest, notice of nonpayment or nonacceptance and any other
notice and all due diligence or promptness that may otherwise be required by
law, and all exemptions to which they may now or hereafter be entitled under
the laws of the Commonwealth of Kentucky or of the United States of America or
any state thereof. The Payee may, with or without notice to any party, and
without affecting the obligations of any maker, surety, guarantor, endorser,
accommodation party or any other party to this note (1) extend the time for
payment of either principal or interest from time to time, (2) release or
discharge any one or more parties liable on this note, (3) suspend the right to
enforce this note with respect to any persons, (4) change, exchange or release
any property in which the holder has any interest security this note, (5)
justifiably or otherwise, impair any collateral securing this note or suspend
the right to enforce against any such collateral, and (6) at any time it deems
it necessary or proper, call for and should it be made available, accept, as
additional security, the signature or signatures of additional parties or a
security interest in property of any kind or description or both.
This note has been delivered in and shall be governed by and construed in
accordance with, the laws (including, without limitation, the conflicts of law
rules) of the Commonwealth of Kentucky.
DATAGUARD RECOVERY SERVICES, INC.
By: /s/ Richard W. Smith
Richard W. Smith, President
Exhibit 10.4
PROMISSORY NOTE
$14,706.00 Louisville, Kentucky
January 1, 1996
For value received DATAGUARD RECOVERY SERVICES, INC. ("Maker"), promises to
pay to the order of JOHN A. BRENZEL ("Payee") the principal amount of Fourteen
Thousand Seven Hundred Six Dollars ($14,706.00) on December 31, 1996.
This note shall bear interest at the annual rate of ten percent (10%) on the
principal balance remaining unpaid from time to time. Accrued interest shall
be payable on the first day of the first three calendar quarters in 1996 and on
December 31, 1996.
The Maker shall prepay this note by 25 percent of the Maker's cash flow,
(defined as income before income taxes plus amortization and depreciation, but
less all principal payments on the Company's capital lease obligations), for
any quarter in which the Maker's cash flow is positive.
If any payment to be made under this note is not made when the payment
becomes due, then at the option of the Payee the entire unpaid principal of
this note plus accrued but unpaid interest shall become immediately due and
payable without notice or demand of any kind.
The Maker of this note may prepay all or any part of the indebtedness
evidenced by this note without penalty or premium.
If there is any default under this note, and this note is placed in the
hands of an attorney for collection, or is collected through any court,
including any bankruptcy court, the Maker promises to pay to the order of
Payee, the Payee's reasonable attorneys' fees and court costs incurred in
collecting or attempting to collect this note, to the extent allowed by the
laws of the Commonwealth of Kentucky.
This note has been delivered in, and shall be governed by and construed in
accordance with, the laws (including, without limitation, the conflict of law
rules) of the Commonwealth of Kentucky.
All parties to this instrument, whether makers, sureties, guarantors,
endorsers, accommodation parties or otherwise, shall be jointly and severally
bound, and jointly and severally waive presentment, demand, notice of dishonor,
protest, notice of protest, notice of nonpayment or nonacceptance and any other
notice and all due diligence or promptness that may otherwise be required by
law, and all exemptions to which they may now or hereafter be entitled under
the laws of the Commonwealth of Kentucky or of the United States of America or
any state thereof. The Payee may, with or without notice to any party, and
without affecting the obligations of any maker, surety, guarantor, endorser,
accommodation party or any other party to this note (1) extend the time for
payment of either principal or interest from time to time, (2) release or
discharge any one or more parties liable on this note, (3) suspend the right to
enforce this note with respect to any persons, (4) change, exchange or release
any property in which the holder has any interest security this note, (5)
justifiably or otherwise, impair any collateral securing this note or suspend
the right to enforce against any such collateral, and (6) at any time it deems
it necessary or proper, call for and should it be made available, accept, as
additional security, the signature or signatures of additional parties or a
security interest in property of any kind or description or both.
This note has been delivered in and shall be governed by and construed in
accordance with, the laws (including, without limitation, the conflicts of law
rules) of the Commonwealth of Kentucky.
DATAGUARD RECOVERY SERVICES, INC.
By: /s/ Richard W. Smith
Richard W. Smith, President
Exhibit 10.7
AGREEMENT
This Agreement is entered into on August 1, 1991 between Future Federal
Savings Bank, formerly Future Federal Savings and Loan Association, herein
"Future"; Brown-Noltemeyer, Co., a Kentucky Partnership, herein "Brown";
Charles A Brown, Jr.; and Norman V. Noltemeyer, herein "Guarantor"; and
Dataguard Recovery Services, Inc., a Kentucky corporation, herein "Dataguard."
RECITAL
On April 3, 1984 Brown entered into a mortgage loan with Future which is
recorded in Mortgage Book 2172, page 612 in the Office of the County Court
Clerk of Jefferson County, Kentucky, herein "mortgage." The note, of even
date, which is secured thereby, is guaranteed by Guarantors. The real estate,
herein "Property" pledged as security is described as follows:
Being tract 32, Plainview, Section 11, plat of
which is of record in Plat and Subdivision
Book 31, page 27 in the Office of the County
Court Clerk of Jefferson County, Kentucky.
Brown has this date sold the property to Dataguard and it is the purpose of
this Agreement to serve as written consent of mortgagee as provided in
paragraph 9 of the mortgage.
AGREEMENT
1. Future hereby consents to and acknowledges that the property is being
sold by Brown to Dataguard.
2. Dataguard hereby agrees to pay the Note, a copy of which is attached
hereto and made a part hereof, and agrees to be bound by all of its terms as
well as the terms of the Mortgage as if Dataguard had been one of the
mortgagors and Borrowers named and who signed said Note and Mortgage. The
principal balance after the crediting of the August 1, 1991 payment is
$1,175,112.00.
3. Brown and Guarantors hereby acknowledge and reaffirm the provisions
of paragraph 10 of the mortgage and further SPECIFICALLY AGREE THAT THEY REMAIN
LIABLE FOR THE REMAINING INDEBTEDNESS EVIDENCED BY THE NOTE AND MORTGAGE
SECURED THEREBY.
4. All parties hereto acknowledge and agree that this transaction is not
to be considered as a loan assumption, but as an additional borrower added to
the loan, with the original borrower remaining liable for the debt.
5. All the terms of the mortgage and note not inconsistent with the
foregoing remain in full force and effect.
IN AFFIRMATION of this conveyance, witness the signatures of "Future",
"Brown", "Guarantor" and "Dataguard", August 1, 1991.
FUTURE FEDERAL SAVINGS BANK BROWN-NOLTEMEYER, CO.,
a corporation a Kentucky Partnership
BY: /s/ J. Louis Hagan /s/ Charles A. Brown, Jr.
J. Louis Hagan, Charles A. Brown, Jr.
Senior Vice President General Partner
/s/ Norman V. Noltemeyer
Norman V. Noltemeyer,
General Partner
/s/ Charles A. Brown, Jr. DATAGUARD RECOVERY SERVICES, INC.
CHARLES A. BROWN, JR.
Guarantor
BY: /s/ Richard W. Smith
President
/s/ Norman V. Noltemeyer
NORMAN V. NOLTEMEYER
Guarantor
STATE OF KENTUCKY
COUNTY OF JEFFERSON
The foregoing instrument was acknowledged before me this 31st day of
July, 1991 by Charles A. Brown, Jr., as General Partner of Brown-Noltemeyer,
Co., a Kentucky Partnership, on behalf of said Partnership; and Charles A.
Brown, Jr., individually.
My commission expires: 1/24/93
/s/ Julie E. Leppert
NOTARY PUBLIC, STATE AT LARGE, KENTUCKY
STATE OF KENTUCKY
COUNTY OF JEFFERSON
The foregoing instrument was acknowledged before me this 1st day of August,
1991 by Richard W. Smith as President of Dataguard Recovery Services, Inc., a
Kentucky corporation on behalf of said corporation.
My commission expires: 10/11/93
/s/ Louanne S. Love
NOTARY PUBLIC, STATE AT LARGE, KENTUCKY
STATE OF KENTUCKY
COUNTY OF JEFFERSON
The foregoing instrument was acknowledged before me this __ day of August,
1991 by Norman V. Noltemeyer, as General Partner of Brown-Noltemeyer, Co., a
Kentucky Partnership on behalf of said Partnership; and Norman V. Noltemeyer,
individually.
My commission expires: April 3, 1994
/s/ Dorothy C. Miller
NOTARY PUBLIC, STATE AT LARGE, KENTUCKY
STATE OF KENTUCKY
COUNTY OF JEFFERSON
The foregoing instrument was acknowledged before me this 2nd day of August,
1991 by J. Louis Hagan as Senior Vice President of Future Federal Savings Bank,
a corporation on behalf of said corporation.
My commission expires: July 22, 1994
/s/ Tami Y. Spangler
NOTARY PUBLIC, STATE AT LARGE, KENTUCKY
INSTRUMENT PREPARED BY:
/s/ C. L. Nutt
ACKERSON, NUTT, BLANDFORD, YANN & KISER, P.S.C.
Suite 1800, One Riverfront Plaza
Louisville, KY 40202
(502)589-4130
Exhibit 10.8
MORTGAGE NOTE
$1,275,000.00 Louisville, Kentucky
April 3, 1984
FOR VALUE RECEIVED, subject to the right of the holder of this Note to
accelerate payment as stated in Paragraph 2 herein, the undersigned
("Borrower") promises to pay to the order of Future Federal Savings and Loan
Association, P. O. Box 7727, Louisville, Kentucky 40207 the sum of ONE MILLION
TWO HUNDRED SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS together with interest on
the unpaid principal balance from the date of this Note until paid, at the
initial rate of Twelve (12.00%) percent per annum, payable as follows:
1. INTEREST ONLY payments on the principal outstanding at the interest rate
of Twelve (12.00%) percent per annum shall be due beginning May 1, 1984, and on
the first day of each month until and including November 1, 1984. Beginning
November 1, 1984, and with the payment due December 1, 1984, payments of
principal and interest on the unpaid principal balance at the interest rate of
Twelve (12.00%) percent per annum shall be payable in equal monthly
installments of $13,472.72. Thereafter, and subject to the provisions of
Paragraph 2 herein, monthly installments of principal and interest shall
continue until the entire indebtedness evidenced by this Note is fully paid,
except that any remaining indebtedness, if not sooner paid, shall be due and
payable on May 1, 2009.
2. Other provisions of this Note notwithstanding, it is specifically
understood and agreed that the holder of this note reserves the option to
accelerate this indebtedness beginning may 1, 1989, and on the same day of the
month every five years thereafter by giving written notice of the exercise of
such option at least three months prior to the respective date of acceleration.
In such event, the entire outstanding balance of this Note shall be immediately
due and payable on the applicable due date as provided in said notice without
penalty. The holder of this Note agrees it will not accelerate the maturity of
this loan provided mutually acceptable terms and conditions for the next
succeeding five year period are agreed upon in writing between the holder
hereof and the maker hereof, or its assigns, not less than thirty days prior to
the due date in said notice. Should such agreement in writing not be executed
in accordance herewith, the entire debt evidenced hereby shall be due and
payable as set out herein. Should the holder hereof not give to the maker
hereof the three month notice of its intention to accelerate the payment of
this Note, the loan evidenced hereby shall continue under the terms hereof at
the then current rate of interest for the next succeeding five year period.
3. Monthly installments of principal and interest shall continue until the
entire indebtedness evidenced by this Note is fully paid, except that any
remaining indebtedness, if not sooner paid, shall be due and payable on May 1,
2009.
4. All payments hereunder shall be applied first to accrued interest and
the remainder to principal until said debt is paid in full.
5. It is agreed that time is of the essence of this contract. In the event
of default in the payment of any installment due under this Note for a period
of thirty (30) days, the holder hereof may, at its sole option, declare the
entire unpaid balance of this Note due and payable. Thereupon, paid due
interest shall be added to and become a part of the unpaid principal, which sum
shall bear interest at the rate as set out herein for the unpaid principal
balance. Failure of the holder of this Note to exercise its option to declare
a default shall not constitute a waiver of the right to exercise same in any
other time. In the event of a default, the holder shall be entitled to collect
all reasonable costs and expenses of collection, including but not limited to,
reasonable attorneys fees.
6. Payments in addition to those required by this Note may be made at any
time but if the total payment prepaid during any one calendar year exceeds 20%
of the original principal amount of this Note, then the maker shall be required
to pay a penalty in an amount not in excess of six months interest on the total
exceeding the 20% amount. Payment in full of the loan balance pursuant to the
exercise of the holder's option to accelerate the payment of this Note in
accordance with Paragraph 2 above shall not be construed as prepayment of the
loan. Any partial prepayment shall be applied against the principal
outstanding and shall not postpone the due date of any subsequent monthly
installments or change the amount of such installments, unless the Noteholder
shall otherwise agree in writing.
7. Borrowers shall pay to the holder of this Note a late charge of Four
(4%) percent of any monthly installment not received by the holder within
fifteen (15) days after the installment is due.
The indebtedness evidenced by this Note is secured by a Mortgage dated April
3, 1984, on property known as 10301 Linn Station Road, Louisville, Kentucky,
and reference is made to that Mortgage for additional terms and rights as to
the acceleration of this indebtedness.
BROWN-NOLTEMEYER, CO.,
a Kentucky Partnership
BY: /s/ Charles A. Brown, Jr.
Charles A. Brown, Jr.
General Partner
BY: /s/ Norman V. Noltemeyer
Norman V. Noltemeyer
General Partner
The undersigned, hereby guarantee the payment of any and all sums advanced
under this Note together with all expenses of or incidental to collection of
this Note, including but not limited to attorney fees, and does hereby waive
grace, demand, protest, presentment and payment and notice of nonpayment, and
consent that the time of payment may be extended or this Note renewed without
notice, and that any increase or decrease in the interest rate will not release
the guarantor nor affect its enforceability. The liability of the undersigned
is an absolute, primary and direct obligation without regard to any other
obligor or security or collateral held by Noteholder.
/s/ Charles A. Brown, Jr.
/s/ Norman V. Noltemeyer
It is hereby agreed that the interest rate on this note for the remainder of
the initial term ending May 1, 1989 shall be 11.00% per annum, effective June
1, 1986 and beginning with the July 1, 1986 payment.
All other terms and conditions of this note, not inconsistent herewith, remain
the same.
June 1, 1986 BROWN-NOLTEMEYER, CO.
a Kentucky Partnership
/s/Charles A. Brown, Jr., BY: /s/Charles A. Brown, Jr.
CHARLES A. BROWN, JR., Indiv. CHARLES A. BROWN, JR.,
General Partner
/s/ Norman V. Noltemeyer, BY: /s/ Norman V. Noltemeyer
NORMAN V. NOLTEMEYER, Indiv. NORMAN V. NOLTEMEYER, General Partner
FUTURE FEDERAL SAVINGS BANK
BY: /s/Stuart E. Schmidt
STUART E. SCHMIDT, Vice-President
MORTGAGE
THIS MORTGAGE is entered into on April 3, 1984, between BROWN-NOLTEMEYER,
CO., a Kentucky Partnership, hereinafter called the mortgagor, and FEDERAL
SAVINGS AND LOAN ASSOCIATION, a Corporation organized and existing under the
laws of the U.S.A., hereinafter called the Mortgagee, whose address is 3940
Grandview Avenue, Louisville, Kentucky, 40207.
WITNESSETH: That for the purpose of securing the payment of the indebtedness
herein mentioned and all renewals and extensions thereof and securing the
fulfillment of all the covenants and conditions hereinafter contained, the
mortgagor hereby conveys to the mortgagee with Covenant of General Warranty the
fee simple estate to the property hereinafter described, together with the
buildings and improvements erected thereon, or to be erected thereon, and the
rights, privileges and appurtenances thereto belonging or in anywise
appertaining, and all fixtures movable and immovable, on or about the premises,
mechanical refrigeration units, and all heating, plumbing, and lighting
fixtures and appliances now or hereafter on or affixed to the realty, (all of
which is hereinafter referred to collectively as "the Property"), together with
the rents, issues and profits therefrom.
TO HAVE AND TO HOLD the same unto the mortgagee, its successors and assigns
forever.
NOW, the condition of this mortgage is that whereas the mortgagor is justly
indebted to the mortgagee in the principal sum of ONE MILLION TWO HUNDRED
SEVENTY-FIVE THOUSAND AND NO/100 ($1,275,000.00) DOLLARS, with interest thereon
as provided for in a promissory note (hereafter called the "note") of even date
herewith, executed and delivered by the mortgagor to the order of the
mortgagee, and with the stated principal and interest payments as shown
therein, and with other provisions and obligations, all of which the mortgagor
hereby recognizes. The said note, by reference, is considered part hereof.
The said note bears a final maturity date of April 1, 2009.
The mortgagor warrants the title to the Property and covenants that it has
good right to mortgage and convey the same; that the same is free from all
encumbrances, liens, claims or charges prior to or on equality with this
mortgage; that the mortgagor has a good and perfect title to the same and that
this mortgage is and shall be the first and best lien against the Property
except any declarations, easements or restrictions listed in a schedule of
exceptions to coverage in any title insurance policy insuring mortgagee's
interest in the property.
And the mortgagor, in order to more fully protect the security of this
mortgage, covenants and agrees as follows:
1. The mortgagor will pay the note and interest thereon as hereby secured
according to the terms thereof.
2. To pay promptly all taxes or assessments, general and special, now or
hereafter levied against the Property.
3. To keep the improvements now existing or hereafter erected on the
Property in good condition and repair and to, at its own expense, procure,
deliver to and maintain for the benefit of the mortgagee, policies of insurance
upon the Property providing the following insurance coverages, in some company
or companies and to limits, terms and conditions acceptable to the mortgagee,
which shall not be cancellable, except upon not less than 30 days prior written
notice to the mortgagee:
(a) Property insurance consisting of fire, extended coverage,
vandalism and malicious mischief, with waiver of subrogation and a standard
form of mortgage insurance requirements, or with coverage adequate to avoid co-
insurance penalty.
(b) Liability insurance.
(c) Flood insurance with such coverage in such amounts as are
satisfactory to the mortgagee if the Property is in an area which has been, or
is hereafter, identified by the Secretary of Housing & Urban Development as
having special flood or mud slide hazards.
(d) If the mortgagor rents or leases the Property at any time during
the term of this mortgage, rental insurance for the payment of rental for a
period of not less than six (6) months following the date of damage to or
destruction of any part of the Property rented or leased.
(e) If the mortgagor is a corporation, partnership, joint venture or
if the mortgagor intends to in any way use the property for the pursuit of a
business or commercial purpose, Business Interruption Insurance in an amount
sufficient to cover loss of income for a period of up to six (6) months.
The mortgagor will pay the premiums on such policies when due, deliver to
the mortgagee upon its request the official receipt for such premium payments,
and upon issue of such policies, will promptly deposit them with mortgagee as
additional security.
The mortgagor further covenants to deliver to the mortgagee at least ten
days before the expiration of any such insurance policy, a renewal of such
policy or policies, together with official receipts for the payment of the
premium thereon. The mortgagor agrees that the proceeds, if any, of such
insurance policies shall be applied to the payment of any indebtedness hereby
secured, or at the option of the mortgagee to the repairing or replacement of
the Property.
Should the mortgagor fail to maintain such or to keep the policies therefor
deposited with the mortgagee, or to promptly make repairs and replacements, or
to pay the taxes and assessments referred to in paragraph #2 above, the
mortgagee may at its option procure and pay for such insurance, cause such
repairs or replacements to be made, and/or pay such taxes or assessments, and
the sums so paid shall be immediately due and payable and shall be a part of
the indebtedness secured by this mortgage (with the lien therefor deemed to be
equal in dignity to the lien securing the other indebtedness secured hereby)
and bear interest at the rate as specified in the note.
In the event of any loss or damage, the mortgagor will give immediate notice
thereof to the mortgagee, and mortgagee may thereupon make proof of such loss
or damage, if the same is not promptly made by the mortgagor. All proceeds of
insurance, in the event of such loss or damage, shall be payable to the
mortgagee, and any affected insurance company is authorized and directed to
make payment thereof directly to mortgagee. The mortgagee is authorized and
empowered to settle, adjust, or compromise any claims for loss, damage, or
destruction under any policy or policies of insurance. All such insurance
proceeds may, at the sole discretion of the mortgagee, be applied to the
restoration, repair, replacement, or rebuilding of the Property, or to and in
reduction of any indebtedness secured by this mortgage. The delivery to the
mortgagee of any policy or policies of insurance hereunder, or renewals
thereof, shall constitute an assignment to the mortgagee of all unearned
premiums thereon as further security for the payment of the indebtedness
secured hereby. In event of foreclosure of this mortgage or other transfer of
title to the Property in extinguishment of the indebtedness secured hereby, all
right, title and interest of the mortgagor in and to any insurance policies
then in force shall pass to the purchaser or grantee.
4. If part or all of a payment on any note secured by this mortgage is not
paid when due, the mortgagor agrees to pay to the mortgagee, as compensation
for additional costs and labor incurred, a late charge in an amount equal to 4%
of the total amount (including principal and interest) that is past due;
provided that there shall be only one late charge assessed as to any one
scheduled payment.
5. The mortgagor will not commit, permit or suffer any waste, impairment or
deterioration beyond natural wear and tear of the Property or any part thereof
or the destruction or removal of any part of the Property, nor erect or permit
to be erected any new buildings or improvements on the Property, nor add to or
permit any addition to existing improvements without the written consent of the
mortgagee.
6. To pay all and singular the costs, charges, and expenses, reasonably
incurred or paid at any time by the mortgagee, its legal representatives or
assigns, because of the failure on the part of the mortgagor, his heirs,
executors, administrators, assigns, or successors in interest, to perform or
comply with the terms of this mortgage or any legal or governmental charge or
requirement regarding the property or the owner thereof, including all expenses
of foreclosure including but not limited to reasonable attorney fees and costs
of documentary evidence and title reports and every, such payment shall bear
interest from date at the rate of interest as stated on the note and any and
all sums so paid by the mortgagee, together with interest thereon, shall become
a part of the debt hereby secured.
7. Should the mortgagor fail: (a) to pay any installment on the said note
or interest thereon when the same becomes due; or (b) to pay such taxes or
assessments when they become due; or (c) to keep the Property insured against
loss by fire and other hazards, casualties and contingencies or to pay the
premiums for such insurance when they become due; or (d) to keep the Property
in good condition and repair; (e) to keep or perform any covenant or
stipulation of this Mortgage, Note or Assignment of Rentals, executed by
Mortgagor in connection with this Mortgage; or (f) should proceedings be
instituted involving title to the Property or any part thereof, including the
foreclosure of any second or other inferior mortgage or any other lien against
the Property herein conveyed; or (g) should the mortgagor be adjudged a
bankrupt in either voluntary or involuntary proceedings, then in any of such
cases, the mortgagee may declare the whole indebtedness secured hereby to be at
once due and payable, and may forthwith proceed to collect the same and to
enforce this mortgage by suit or otherwise; and in any of such cases the
mortgagee may enter on the Property, collect the rents, issues and profits
therefrom, and after paying all expenses of such collections, and a reasonable
compensation for itself, shall apply the money collected to the satisfaction of
the debts and demands hereby secured. In any of such events of default herein
mentioned, the mortgagee may at its option apply to any court of competent
jurisdiction and be entitled to the appointment of a Receiver of the Property
to manage the same and to collect the rents, issues and profits therefrom, and
after deducting the costs and expenses of such receivership and a reasonable
compensation for its services, shall apply the remainder of such rents, issues
and profits so received to the payment of the mortgage indebtedness. It is
further agreed that the grounds for the appointment of a Receiver herein set
out shall be in addition to and not in limitation of the statutory remedy of
receivership and may be invoked either in aid of or without proceeding for the
foreclosure and sale of the Property.
8. It is expressly agreed that failure of the mortgagee to exercise any of
its options to precipitate the debt secured because of violation of this
mortgage shall not constitute a waiver of the right to exercise such option.
In the event of a waiver of any one of the obligations assumed by the mortgagor
hereunder it shall not at any time thereafter be held to be a waiver of any of
the terms or conditions hereof, except such as are expressly waived.
9. If all or any part of the Property or an interest therein is sold or
transferred by the mortgagor without mortgagee's prior written consent,
mortgagee may, at the mortgagee's option, declare all the sums secured by this
mortgage to be immediately due and payable and may without further notice or
demand on mortgagor, forthwith proceed to collect the same and enforce the lien
of this mortgage by judicial proceeding or otherwise. The mortgagee shall have
waived such option to accelerate if prior to the sale or transfer the
mortgagee, mortgagor and the party to whom the property is to be sold or
transferred reach agreement in writing that the credit of such party is
satisfactory to the mortgagee and that the interest payable on the sums secured
by this mortgage shall be at such rate as the mortgagee shall request.
10. Regardless of whether or not the mortgagee has consented or agreed
under Paragraph #9 to the sale of the Property, no sale of the Property and no
forbearance on the part of the mortgagee, nor extension of time for the payment
of the debt secured, shall operate to release, discharge, modify, change or
affect the original liability of the mortgagor, or any subsequent persons who
become obligated by reason of the assumption of the debt secured, either in
whole or in part.
11. In the event the Property or any part thereof shall, during the term of
this mortgage, be condemned and taken for public use or damaged in any way, the
mortgagee shall have the right to demand that all damages awarded for the
taking of or damages to the Property shall be paid to it, to the extent of the
then unpaid sum secured hereby.
12. The mortgagor will keep or cause to be kept, with respect to the
Property and the operations thereof, proper books of record and account in
accordance with generally accepted accounting principles, and mortgagee shall
have the right to examine such books at such reasonable times and intervals as
the mortgagee may elect. The mortgagor will, within ninety (90) days following
the end of each fiscal year, furnish to the mortgagee complete financial
statements, reflecting all details of the operation of the Property, including
an itemized list of rentals and expenses on the Property, a profit and loss
statement, balance sheet and reconciliation of surplus, which statements shall,
at the mortgagee's option, be certified without qualification by audit of
certified public accountants approved by the mortgagee.
13. Mortgagee may make or cause to be made reasonable inspections of the
Property.
14. This mortgage shall be governed by the law of the Commonwealth of
Kentucky. In the event that any provision or clause of this mortgage or note
conflicts with applicable law such conflict shall not affect other provisions
of this note and mortgage which can be given effect without the conflicting
provision and to this end the provision of the mortgage and note are declared
to be severable.
15. Should the mortgagor pay the indebtedness and perform all the covenants
and stipulations hereof, the mortgagee shall cancel the note hereby secured,
and release this mortgage at the cost of the mortgagor.
16. Upon request of mortgagor, mortgagee, at mortgagees option prior to
release of this mortgage may make future advances to mortgagor. Such future
advances with interest thereon shall be secured by this mortgage when evidenced
by promissory notes stating that said notes are secured hereby. At no time
shall the principal amount of the indebtedness not including sums advanced
hereby to protect the security of this mortgage exceed the original amount of
the note. All future advances secured by this mortgage shall be due and
payable on or before the maturity date of the indebtedness evidenced by the
note.
The covenants herein contained shall bind, and the benefits and advantages
shall inure to, the respective heirs, executors, administrators, successors and
assigns of the parties hereto, and wherever used, the singular shall include
the plural, the plural the singular, and the use of any gender shall include
all genders.
The property conveyed is thus described:
BEING Tract 32, PLAINVIEW, Section 11, plat
of which is of record in Plat and Subdivision
Book 31 Page 27 in the office of the Clerk of
Jefferson County, Kentucky.
BEING the same property conveyed to the
Mortgagor by Deed dated March 7, 1984, and
recorded in Deed Book 5410 Page 169 in the
office of the Clerk aforesaid.
IN AFFIRMATION of the foregoing, witness the signatures of the Mortgagor the
day and year first hereinabove written.
BROWN-NOLTEMEYER, CO.,
a Kentucky Partnership
BY: /s/ Charles A. Brown, Jr.
CHARLES A. BROWN, JR.,
General Partner
BY: /s/ Norman V. Noltemeyer
NORMAN V. NOLTEMEYER,
General Partner
STATE OF KENTUCKY
COUNTY OF JEFFERSON
The foregoing instrument was acknowledged before me on the April 3, 1984, by
Charles A. Brown, Jr. and Norman V. Noltemeyer, as General Partners of Brown-
Noltemeyer, Co., a Kentucky partnership on behalf of the Partnership.
My commission expires: 2/29/88
/s/ C. L. Nutt
Notary Public, State at Large, KY.
THIS INSTRUMENT PREPARED BY:
/c/ C. L. Nutt
NUTT & YANN ATTORNEYS
430 South Fifth Street
Louisville, Kentucky 40202
502-584-5387
Exam No. 32716
Exhibit 10.11
PROMISSORY NOTE
$800,000.00 January 12, 1996
Louisville, Kentucky
For value received, DATAGUARD RECOVERY SERVICES, INC., a Kentucky
corporation (the "Maker"), hereby promises to pay to the order of EPI
CORPORATION, a Kentucky corporation (the "Lender"), the principal sum of Eight
Hundred Thousand Dollars ($800,000.00), together with interest on the principal
balance of this Note from time to time outstanding at an annual rate equal to
the "Prime Rate," as from time to time in effect, plus one and one-half percent
(1 1/2%). Interest on this Note shall accrue from the date of this Note until
the entire principal balance of and all accrued interest on this Note have been
paid in full.
The term of this Note shall be ninety (90) days including the date of this
Note. On April 10, 1996, the Maker shall pay to the holder of this Note the
entire outstanding principal balance of, and all accrued but unpaid interest
due under, this Note.
This Note is a renewal promissory note to supersede promissory notes dated July
13, 1992 (the "Original Note") for $300,000 and an additional $500,000 loan on
January 17, 1995 (the "Subsequent Note") extended by Lender to Maker. The
Original Note and the Subsequent Note were issued in connection with a Security
Agreement (the "Security Agreement") and a Second Mortgage (the "Mortgage"),
respectively, between the Maker and the Lender and dated as of the date of the
Original Note and amended as of January 17, 1995. This Note is secured as
provided in the Security Agreement and in the Mortgage, and references therein
to the "Note" shall hereafter relate to this Note. Upon delivery of this Note,
the Subsequent Notes shall terminate and be of no further force or effect.
All payments of principal and interest on this Note shall be paid to the
holder at EPI Corporation, 9707 Shelbyville Road, Louisville, Kentucky 40223,
or to such other person or entity or at such other place as may be designated
in writing by the holder of this Note.
As used in this Note, "Prime Rate" shall mean the annual interest rate most
recently published in The Wall Street Journal, Midwest Edition, from time to
time, which is designated as the Prime Rate. The interest rate of this Note
shall be adjusted, from time to time, on the same day on which the Prime Rate
is published in The Wall Street Journal, Midwest Edition. As of the date of
this Note, the Prime Rate is 8.50%, and the annual interest rate for this Note
is 10.00%. All interest on this Note shall be computed on the basis of the
actual number of days elapsed over an assumed year of three hundred sixty (360)
days. Interest shall accrue and shall have accrued from the date of this Note
even if it is signed at a later date.
The Maker may prepay, in whole or in part, the principal of this Note
without premium or penalty. All prepayments shall, at the holder's option,
first be applied to applicable costs and penalties, next to accrued interest,
and finally to the principal balance.
Failure of the holder of this Note to exercise any of its rights and
remedies shall not constitute a waiver of any provision of this Note or of the
Security Agreement or the Mortgage, or of any of such holder's rights and
remedies, nor shall it prevent the holder from exercising any rights or
remedies with respect to the subsequent happening of the same or similar
occurrences. All remedies of the holder hereof shall be cumulative to the
greatest extent permitted by law. Time shall be of the essence for payment of
all payments of interest and principal of this Note.
The occurrence of an Event of Default (as defined in the Security Agreement
or in the Mortgage) shall be a default under this Note. Upon any default under
this Note, the holder of this Note may declare the entire outstanding principal
balance of, and all accrued but unpaid interest on, this Note to be immediately
due and payable.
If there is any default under this Note, and this Note is placed in the
hands of an attorney for collection, or is collected through any court,
including, without limitation, any bankruptcy court, the Maker promises to pay
to the order of the holder hereof such holder's reasonable attorney's fees and
court costs incurred in collecting or attempting to collect or securing or
attempting to secure this Note or enforcing the holder's rights with respect to
any collateral securing this Note, to the extent allowed by the laws of the
Commonwealth of Kentucky or any state in which any collateral for this Note is
situated.
This Note has been delivered in, and shall be governed by and construed in
accordance with, the laws (including, without limitation, the conflicts of law
rules) of the Commonwealth of Kentucky.
Except as otherwise expressly provided herein or in the Security Agreement
or in the Mortgage, all parties to this instrument, whether makers, sureties,
guarantors, endorsers, accommodation parties or otherwise, shall be jointly and
severally bound, and jointly and severally waive presentment, demand, notice of
dishonor, protest, notice of protest, notice of nonpayment or nonacceptance and
any other notice and all due diligence or promptness that may otherwise be
required by law, and all exemptions to which they may now or hereafter be
entitled under the laws of the Commonwealth of Kentucky or of the United States
of America or any state thereof. The holder of this instrument may, with or
without notice to any party, and without affecting the obligations of any
maker, surety, guarantor, endorser, accommodation party or any other party to
this Note (1) extend the time for payment of either principal or interest from
time to time, (2) release or discharge any one or more parties liable on this
Note, (3) suspend the right to enforce this Note with respect to any persons,
(4) change, exchange or release any property in which the holder has any
interest securing this Note, (5) justifiably or otherwise, impair any
collateral securing this Note or suspend the right to enforce against any such
collateral, and (6) at any time it deems it necessary or proper, call for and
should it be made available, accept, as additional security, the signature or
signatures of additional parties or a security interest in property of any kind
or description or both.
DATAGUARD RECOVERY SERVICES, INC.
By /s/ Richard W. Smith
Title: President
Exhibit 21
Subsidiaries
Twinsys Dataguard SA (France)
Dataguard Limited (Kentucky)
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> $ 170,636
<SECURITIES> 0
<RECEIVABLES> 1,128,407
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,789,167
<PP&E> 16,138,011
<DEPRECIATION> 7,376,653
<TOTAL-ASSETS> 10,787,747
<CURRENT-LIABILITIES> 5,084,374
<BONDS> 1,024,356
<COMMON> 3,029,833
0
341,670
<OTHER-SE> (2,092,235)
<TOTAL-LIABILITY-AND-EQUITY> 10,787,747
<SALES> 0
<TOTAL-REVENUES> 8,927,183
<CGS> 0
<TOTAL-COSTS> 7,829,424
<OTHER-EXPENSES> 612,224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 485,535
<INCOME-TAX> 443,568
<INCOME-CONTINUING> 41,967
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,967
<EPS-PRIMARY> 0
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