<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO __________________.
COMMISSION FILE NUMBER 0-24988
LABORATORY SPECIALISTS OF AMERICA, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
OKLAHOMA 73-145065
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
101 PARK AVENUE, SUITE 810
OKLAHOMA CITY, OKLAHOMA 73102-7202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(405) 232-9800
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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[ ].
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 12, 1997, 3,313,405 shares of issuer's Common Stock, $.001 par
value per share, were outstanding.
Transitional Small Business Disclosure Format (check one); Yes [ ] No [X]
Total Sequentially Numbered Pages is 40
Index to Exhibits Appears on Sequentially Numbered Page 16
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LABORATORY SPECIALISTS OF AMERICA, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
Page
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PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)
June 30, 1997, and December 31, 1996......................... 3
Consolidated Statements of Income (Unaudited)
Three and Six Months Ended June 30, 1996
and 1997................................................... 5
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1996 and 1997...................... 6
Notes to Consolidated Financial Statements
(Unaudited).................................................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... 9
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................................. 14
ITEM 2. CHANGES IN SECURITIES.......................................... 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................ 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 14
ITEM 5. OTHER INFORMATION.............................................. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 14
SIGNATURES.................................................................. 15
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PART I-FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1996 1997
(UNAUDITED)
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 727,381 $ 703,157
Accounts receivable, net of allowances of
$597,499 in 1996 and $637,499 in 1997.............. 1,696,744 2,284,415
Income tax refund receivable....................... 312,664 71,421
Inventories........................................ 99,754 75,370
Prepaid expenses and other......................... 146,859 78,802
Deferred tax asset................................. 211,078 211,078
---------- -----------
Total current assets............................. 3,194,480 3,424,243
---------- -----------
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of $900,948 in
1996 and $1,024,749 in 1997........................ 1,592,599 1,983,990
---------- -----------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $171,355 in 1996 and $222,604 in 1997......... 2,663,850 2,612,602
Customer lists, net of accumulated
amortization of $216,429 in 1996, and
$358,264 in 1997................................. 1,863,061 4,369,602
Deferred costs..................................... 80,818 66,949
---------- -----------
Total other assets............................... 4,607,729 7,049,153
---------- -----------
Total assets..................................... $9,394,808 $12,457,386
========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
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LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1996 1997
(UNAUDITED)
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 521,705 $ 868,580
Accrued payroll.................................... 300,103 394,432
Accrued expenses................................... 57,310 30,039
Accrued customer list costs........................ -- 745,718
Short-term debt.................................... 410,293 398,627
Current portion of long-term debt.................. 118,085 462,888
Obligations from discontinued operations........... 784,272 575,782
---------- -----------
Total current liabilities........................ 2,191,768 3,476,066
---------- -----------
LONG-TERM DEBT, net of current portion............... 1,245,690 2,401,354
---------- -----------
DEFERRED INCOME TAXES................................ 307,100 307,100
---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, 20,000,000
shares authorized, 3,313,405 shares issued
and outstanding at 12/31/96 and 6/30/97........... 3,313 3,313
Paid in capital in excess of par, common stock...... 5,366,027 5,366,027
Retained earnings................................... 280,910 903,526
---------- -----------
Total stockholders' equity....................... 5,650,250 6,272,866
---------- -----------
Total liabilities and stockholders' equity....... $9,394,808 $12,457,386
========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
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LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
JUNE 30 , 1996 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES..................................... $ 2,291,171 $ 3,423,760 $ 4,239,707 $ 6,010,982
----------- ----------- ----------- -----------
COST OF LABORATORY SERVICES.................. 1,016,373 1,473,773 1,856,534 2,659,857
------------ ----------- ----------- -----------
Gross profit............................... 1,274,798 1,949,987 2,383,173 3,351,125
------------ ----------- ----------- -----------
OPERATING EXPENSES:
Selling.................................... 166,227 159,966 314,496 292,095
General and administrative................. 607,082 903,464 1,131,605 1,599,080
Depreciation and amortization.............. 130,108 176,323 221,444 317,172
------------ ----------- ----------- -----------
Total operating expenses................. 903,417 1,239,753 1,667,545 2,208,347
------------ ----------- ----------- -----------
Income from operations................... 371,381 710,234 715,628 1,142,778
------------ ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense........................... (18,832) (53,608) (29,325) (90,484)
Interest income............................ 9,701 7,840 19,672 19,493
Other income............................... 300 (231) 507 72
------------ ----------- ----------- -----------
Total other income (expense)............. (8,831) (45,999) (9,146) (70,919)
------------ ----------- ----------- -----------
Income before income taxes............... 362,550 664,235 706,482 1,071,859
INCOME TAX EXPENSE........................... 153,713 275,622 295,398 449,243
------------ ----------- ----------- -----------
Net income............................... $ 208,837 $ 388,613 $ 411,084 $ 622,616
------------ ----------- ----------- -----------
Net income available to common stockholders.. $ 208,837 $ 388,613 $ 411,084 $ 622,616
============ =========== =========== ===========
PRIMARY EARNINGS PER SHARE:
Weighted Average Number Of Common Stock
And Common Stock Equivalents Outstanding..... 3,326,135 3,360,976 3,318,127 3,343,749
============ =========== =========== ===========
Net Income Per Common Stock And
Common Stock Equivalents..................... $ .06 $ .12 $ .12 $ .19
============ =========== =========== ===========
FULLY DILUTED EARNINGS PER SHARE:
Weighted Average Number Of Common Stock
And Common Stock Equivalents Outstanding..... 4,053,688 3,766,454 4,046,943 3,834,644
============ =========== =========== ===========
Net Income Per Common Stock And
Common Stock Equivalents..................... $ .05 $ .10 $ .10 $ .16
============ =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1997
-------------- -------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 411,084 $ 622,616
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation and amortization................. 221,444 317,172
Provision for bad debts and other............. 24,000 40,000
Impact of changes in assets and liabilities:
Accounts receivable......................... (457,593) (627,671)
Income tax refund receivable............... 158,982 241,243
Inventories................................. 5,604 24,384
Prepaid expenses and other.................. 100,391 53,759
Accounts payable and accrued expenses....... (278,271) 257,255
----------- -----------
Net cash provided by operating activities..... 185,641 928,758
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (61,533) (481,957)
Purchase of NPLI Stock, net of cash acquired...... (1,022,597) --
Purchase of PLL Customer List..................... -- (1,894,184)
Acquisition costs................................. (120,699) (37,514)
----------- -----------
Net cash used in investing
activities.................................. (1,204,829) (2,413,655)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term borrowings................. (545,621) (11,667)
Payments on long-term borrowings.................. (65,024) (199,533)
Proceeds from long-term borrowings................ -- 1,682,293
Warrant offering costs............................ -- (10,420)
----------- -----------
Net cash provided by (used in) financing
activities.................................. (610,645) 1,460,673
----------- -----------
(DECREASE) IN CASH AND CASH EQUIVALENTS............. (1,629,833) (24,224)
----------- -----------
CASH AND CASH EQUIVALENTS, beginning
of period......................................... 2,411,051 727,381
----------- -----------
CASH AND CASH EQUIVALENTS, end of period............ $ 781,218 $ 703,157
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for interest.......... $ 16,170 $ 90,484
=========== ===========
Cash paid during the period for taxes............. $ 197,949 $ 190,000
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996,
AND JUNE 30, 1997, ARE UNAUDITED.)
1. GENERAL
The consolidated financial statements included in this report have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission for interim reporting and include all adjustments which are,
in the opinion of management, necessary for a fair presentation. These
financial statements have not been audited by an independent accountant. The
consolidated balance sheet at December 31, 1996, has been derived from the
audited balance sheet of the Company.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures are adequate to
make the information presented not misleading. However, these financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Annual Report on Form 10-KSB filed by the
Company with the Securities and Exchange Commission on April 22, 1997. The
financial data for the interim periods presented may not necessarily reflect the
results to be expected for the full year.
2. PLL ASSET PURCHASE
On January 31, 1997, the Company acquired from Pathology Laboratories, Ltd., a
Mississippi corporation ("PLL"), certain intangible assets (the "PLL Asset
Purchase") pursuant to an Asset Purchase Agreement dated January 31, 1997 (the
"PLL Purchase Agreement"). The assets purchased included the customer list of
PLL and all contracts, contract rights and agreements, correspondence with the
customers for which PLL has provided forensic drug testing services, and all
assets owned by PLL used in connection with the PLL office in Greenville, South
Carolina.
Pursuant to the Purchase Agreement, (i) the Company paid $1,600,000 at closing
and (ii) the Company assumed the obligations of PLL under a certain Lease
between Edith Schlien and PLL, dated September 16, 1996, covering approximately
2,500 square feet of office space located in Greenville, South Carolina, which
requires monthly base rental payments of $2,083 and which expires on September
16, 1999. Furthermore, the Company agreed to make four additional installment
payments to PLL within 60 days following the end of each three month period
during the 12 months ending January 31, 1998, as follows: (i) the first
installment payment being equal to 75 percent of Forensic Testing Revenues (as
defined below) during the first three month period ending April 30, 1997, in
excess of $400,000; (ii) the second installment payment being equal to 75
percent of Forensic Testing Revenues during the six month period ending July 31,
1997, in excess of the aggregate sum of the prior installment payment and
$800,000, (iii) the third installment payment being equal to 85 percent of
Forensic Testing Revenues during the nine month period ending October 30, 1997,
in excess of the aggregate sum of the prior installment payments and $1,200,000,
and (iv) the fourth installment being equal to Forensic Testing Revenues during
the 12 month period ended January 31, 1998, in excess of the aggregate sum of
the prior installment payments and $1,600,000. Under the Purchase Agreement,
"Forensic Testing Revenues" is defined as the gross revenues during the calendar
quarter or 12 month period ending January 31, 1998, directly attributable to
each customer comprising the customer base of PLL acquired by the Company. As
of June 30, 1997, total payments of $214,282.27 were recorded as reductions in
the liability owed to PLL for the first installment. These payments consisted
of $38,414.30 in cash paid on June 30, 1997 plus $175,867.97 in advances and
other costs previously paid.
On July 11, 1997, both the Company and PLL agreed to amend the PLL Purchase
Agreement as follows: In exchange for a reduction in the overall purchase price
from 100 percent to 90 percent of the Forensic Testing Revenues during the First
Anniversary Period, the Company will pay 100 percent of the amount calculated
for the
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first three installments as opposed to 75 percent of the first and second
installments and 85 percent of the third installment.
3. EARNINGS PER COMMON SHARE
Both Primary and Fully Diluted Earnings per common share were computed using the
weighted average number of common shares outstanding after adding the dilutive
effect, if any, of the conversion of stock options, outstanding warrants and
contingent shares. In the fully diluted earnings per share calculation the
outstanding warrants were calculated using the lowest possible exercise price
during the term of the warrants.
4. GOODWILL AND CUSTOMER LIST
Goodwill and customer lists are being amortized on a straight-line basis over
twenty to forty years and fifteen years, respectively. The Company continually
evaluates whether events and circumstances have occurred that indicate the
remaining estimated useful life of goodwill and customer lists may warrant
revision or that the remaining unamortized balance of goodwill or customer lists
may not be recoverable. When factors, such as operating losses, loss of
customers, loss or suspension for an extended period of laboratory
certification, or changes in the drug testing industry, if present, indicate
that goodwill or customer lists should be evaluated for possible impairment, the
Company uses an estimate of the related undiscounted cash flows over the
remaining life of the goodwill or customer lists in measuring whether the
goodwill and the customer lists are recoverable. Although management believes
that goodwill and the customer lists are currently recoverable over the
respective remaining amortization periods, it is possible, due to a change in
circumstances, that the carrying value could become impaired in the future.
Such impairment could have a material effect on the results of operations in a
particular reporting period.
5. CONTINGENT LIABILITIES
Incidental to its business, the Company from time to time is sued by individuals
who have tested positive for drugs of abuse or who allege that improper analysis
has been performed, generally arising from Laboratory Specialists, Inc.'s, the
company's wholly owned subsidiary ("LSI"), alleged failure to properly
administer drug urinalysis tests. LSI is currently a defendant in several
such lawsuits. Based upon prior successful defense of similar-type lawsuits,
the Company believes it has valid defenses to each of such lawsuits, and intends
to vigorously defend in such actions. Although LSI maintains insurance to
protect itself against such liability, and LSI's insurance carriers have assumed
the defense of LSI in connection with certain actions, the extent of such
insurance coverage is limited, both in terms of types of risks covered by the
policies and the amount of coverage. In the opinion of the Company's management
and it's legal counsel, these suits and claims should not result in judgments or
settlements which would have a material adverse effect on the Company's results
of operations or financial position. Although LSI has not experienced any
material liability related to such claims, there can be no assurance that LSI,
and possibly LSAI, will not at some time in the future experience significant
liability in connection with such claims and such liability may exceed the
extent of such insurance coverage, both in terms of risks covered by the
policies and the amount of coverage, which could have a material adverse effect
upon the results of operations and financial condition of the Company.
6. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In connection with the Pathology Laboratories, Ltd. Purchase (see Item 2), LSI
has recorded a liability of $960,000 based upon estimated future quarterly
payments. As of June 30, 1997, total payments of $214,282.27 were recorded as
reductions in the liability owed to PLL for the first installment. These
payments consisted of $38,414.30 in cash paid on June 30, 1997 plus $175,867.97
in advances and other costs previously paid.
A capital lease obligation of approximately $650,000 was incurred when LSI
entered into an agreement with a vendor in 1996 to buy equipment and certain lab
supplies at a fixed price per drug screen performed. The minimum monthly amount
under the agreement was approximately $47,000 in 1996 and increased to
approximately $60,000 in 1997,
-8-
<PAGE>
with approximately $13,000 per month allocated to the principal and interest of
the capital lease obligation, and the remaining cost being allocated to the cost
of laboratory supplies. The agreement resulted in LSI recording approximately
$650,000 in additional equipment, with an equal amount of capital lease
obligation recorded as long-term debt obligation payable over five years.
The above transactions, except the monthly payment to the vendor, are non-cash
transactions and have been excluded from the accompanying statements of cash
flows.
7. ACCOUNTING PRONOUNCEMENTS
In March, 1997, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which specifies the computation, presentation, and disclosure
requirements for earnings per share. This statement is effective for financial
statements with periods ending after December 15, 1997. Management has not
determined the impact this standard will have on earnings per share.
In June, 1997, the FASB issued SFAS No. 130, which requires that all items
required to be recognized under accounting standards as components of
comprehensive income, consisting of both net income and those items that bypass
the income statement and are reported in a balance within a separate component
of stockholders' equity, be reported in a financial statement the is displayed
with the same prominence as other financial statements. The company does not
believe that comprehensive income will differ materially from net income.
8. SUBSEQUENT EVENTS
On July 2, 1997, LSI entered into a loan agreement with Hibernia National Bank
(the "bank") for a term loan of up to $720,000 to refinance the purchase and
construction of its new laboratory. The loan was fully advanced upon execution
of the loan agreement and the December 3, 1996 note payable was paid in full
with a portion of the proceeds. The bank note is payable monthly with the first
36 consecutive principal and interest payments of approximately $9,811, then 23
consecutive principal and interest payments of approximately $6,007, and a final
payment due on July 2, 2002 of approximately $484,666. The loan bears interest
at the rate of 8.65 per annum.
On July 10, 1997, the Company filed a Registration Statement with the Securities
and Exchange Commission to redeem the outstanding 1994 warrants at a redemption
price of $.01 per warrant. The proposed redemption will be limited to a
specific time period after the declaration of effectiveness of the Registration
Statement.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
PLL ASSET PURCHASE. On January 31, 1997, the Company acquired from Pathology
Laboratories, Ltd., a Mississippi corporation ("PLL"), certain intangible assets
(the "PLL Asset Purchase") pursuant to an Asset Purchase Agreement dated January
31, 1997 (the "PLL Purchase Agreement"). The assets purchased included the
customer list of PLL and all contracts, contract rights and agreements,
correspondence with the customers for which PLL has provided forensic drug
testing services, and all assets owned by PLL used in connection with the PLL
office in Greenville, South Carolina.
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<PAGE>
Pursuant to the Purchase Agreement, (i) the Company paid $1,600,000 at closing
and (ii) the Company assumed the obligations of PLL under a certain Lease
between Edith Schlien and PLL, dated September 16, 1996, covering approximately
2,500 square feet of office space located in Greenville, South Carolina, which
requires monthly base rental payments of $2,083 and which expires on September
16, 1999. Furthermore, the Company agreed to make four additional installment
payments to PLL within 60 days following the end of each three month period
during the 12 months ending January 31, 1998, as follows: (i) the first
installment payment being equal to 75 percent of Forensic Testing Revenues (as
defined below) during the first three month period ending April 30, 1997, in
excess of $400,000; (ii) the second installment payment being equal to 75
percent of Forensic Testing Revenues during the six month period ending July 31,
1997, in excess of the aggregate sum of the prior installment payment and
$800,000, (iii) the third installment payment being equal to 85 percent of
Forensic Testing Revenues during the nine month period ending October 30, 1997,
in excess of the aggregate sum of the prior installment payments and $1,200,000,
and (iv) the fourth installment being equal to Forensic Testing Revenues during
the 12 month period ended January 31, 1998, in excess of the aggregate sum of
the prior installment payments and $1,600,000. Under the Purchase Agreement,
"Forensic Testing Revenues" defined as the gross revenues during the calendar
quarter or 12 month period ending January 31, 1998, directly attributable to
each customer comprising the customer base of PLL acquired by the Company.
On July 11, 1997, both the Company and PLL agreed to amend the PLL Purchase
Agreement as follows: In exchange for a reduction in the overall purchase price
from 100 percent to 90 percent of the Forensic Testing Revenues during the First
Anniversary Period, the Company will pay 100 percent of the amount calculated
for the first three installments as opposed to 75 percent of the first and
second installments and 85 percent of the third installment.
RESULTS OF OPERATIONS
The following table sets forth selected results of operations for (i) the
three months ended June 30, 1996 and 1997, which are derived from the unaudited
financial statements of the Company and (ii) for the six months ended June 30,
1996 and 1997, which are derived from the unaudited financial statements of the
Company which include, in the opinion of management of the Company, all normal
recurring adjustments which management of the Company considers necessary for a
fair statement of the results for such periods The results of operations for
the periods presented are not necessarily indicative of the Company's future
operations.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------- ----------------------------------
1996 1997 1996 1997
-------------------- -------------------- --------------------- ---------------------------
(UNAUDITED) (UNAUDITED)
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 2,291,171 100.0% $ 3,423,760 100.0% $ 4,239,707 100.0% $ 6,010,982 100.0%
Cost of revenues.............. 1,016,373 44.4% 1,473,773 43.0% 1,856,534 43.8% 2,659,857 44.2%
----------- ------ ----------- ------ ----------- ------ ----------- ------
Gross profit.................. 1,274,798 55.6% 1,949,987 57.0% 2,383,173 56.2% 3,351,125 55.8%
----------- ------ ----------- ------ ----------- ------ ----------- ------
Operating expenses:
Selling..................... 166,227 7.2% 159,966 4.7% 314,496 7.4% 292,095 4.9%
General and administrative.. 607,082 26.5% 903,464 26.4% 1,131,605 26.7% 1,599,080 26.6%
Depreciation and
amortization............. 130,108 5.7% 176,323 5.1% 221,444 5.2% 317,172 5.3%
----------- ------ ----------- ------ ----------- ------ ----------- ------
Total operating expenses...... 903,417 39.4% 1,239,753 36.2% 1,667,545 39.3% 2,208,347 36.8%
----------- ------ ----------- ------ ----------- ------ ----------- ------
Income from operations........ $ 371,381 16.2% $ 710,234 20.8% $ 715,628 16.9% $ 1,142,778 19.0%
=========== ====== =========== ====== =========== ====== =========== ======
</TABLE>
During the three and six months ended June 30, 1997, LSI experienced a 3.1
percent and 3.9 percent decrease respectively in the price per specimen,
compared to the three and six months ended June 30, 1996, principally due to
increased price competition amongst providers of drug testing services, price
per specimen being an important
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factor in obtaining and maintaining clients. Management of LSI closely monitors
its price per specimen, the prices of its competitors and the costs of
processing specimens to remain competitive, as well as profitable. As a result
of the PLL Asset Purchase, the price per specimen increased by 3.9 percent
during the six months ended June 30, 1997 as compared to December 31, 1996.
However, there can be no assurance that price per specimen will not decline
during 1997.
Comparison of Three-Month and Six-Month Periods Ended June 30, 1996 and 1997
Revenues increased to $6,010,982 in the six months ended June 30, 1997 (the
"1997 Interim Period"), from $4,239,707 in the six months ended June 30, 1996
(the "1996 Interim Period"), an increase of 41.8 percent. Revenues increased to
$3,423,760 in the three months ended June 30, 1997 (the "1997 Second Quarter"),
from $2,291,171 in the three months ended June 30, 1996 (the "1996 Second
Quarter"), an increase of 49.4 percent. The increase in revenues was due to a
47.7 percent and 55.5 percent increase respectively in the number of specimens
analyzed during the 1997 Interim Period as compared to the 1996 Interim Period
and 1997 Second Quarter as compared to the 1996 Second Quarter, although
partially offset by a decrease of 3.9 percent and 3.1 percent respectively in
the average price per specimen. The increase in number of specimens analyzed
was attributable to the PLL Asset Purchase as well as LSI's normal sales and
marketing efforts. The decrease in the average price per specimen was
principally due to increased price competition among providers of drug testing
services, price per specimen being an important factor in obtaining and
maintaining clients. As a result of the PLL Asset Purchase, the price per
specimen increased by 3.9 percent during the six months ended June 30, 1997 as
compared to December 31, 1997. However, there can be no assurance that price
per specimen will not decline in 1997.
Cost of revenues for the 1997 Interim Period and 1997 Second Quarter
increased $803,323 and $457,400 from $1,856,534 in the 1996 Interim Period to
$2,659,857 in 19976 Interim Period and from $1,016,373 in the 1996 Second
Quarter to $1,473,773 in the 1997 Second Quarter, respectively. Gross profit on
revenues decreased as a percentage of revenues from 56.2 percent in the 1996
Interim Period to 55.8 percent in 1997 Interim Period and increased as a
percentage of revenues from 55.6 percent in the 1996 Second Quarter to 57.0
percent in the 1997 Second Quarter.
Operating expenses increased from $1,667,545 in the 1996 Interim Period to
$2,208,347 in the 1997 Interim Period and from $903,417 in the 1996 Second
Quarter to $1,239,753 in the 1997 Second Quarter, an increase of 32.4 percent
and 37.2 percent, respectively, and decreased as a percentage of revenues from
39.3 percent to 36.8 percent and 39.4 percent to 36.2 percent, respectively.
The increase in operating expenses was attributable to the increase in general
and administrative expenses of $467,475 for the Interim Period and $296,382 for
the Second Quarter while selling expense decreased by $22,401 for the Interim
Period and by $6,261 for the Second Quarter and depreciation and amortization
increased by $95,728 for the Interim Period and by $46,215 for the Second
Quarter. The increase in general and administrative expenses was principally as
a result of (i) an increase in executive officer compensation, (ii) the addition
of several key positions at LSI and (iii) the addition of certain overhead costs
associated with the PLL Asset Purchase. The decrease in selling expenses for
the Interim Period was due to the temporary reduction in the sales force for
part of the first quarter of 1997, although partially offset by the addition of
one sales representative to assist in maintaining forensic clients acquired in
the PLL Asset Purchase. Depreciation increased due to the addition of new
laboratory equipment at LSI, while amortization increased due to the acquisition
of PLL and the amortization of the PLL customer list.
Income from operations increased from $715,628 in the 1996 Interim Period to
$1,142,778 in the 1997 Interim Period, a 59.7 percent increase and from $371,381
in the 1996 Second Quarter to $710,234 in the 1997 Second Quarter a 91.2 percent
increase. Operating income increased from 16.9 percent of revenues in the 1996
Interim Period to 19.0 percent of revenues in the 1997 Interim Period and from
16.2 percent of revenues in the 1996 Second Quarter to 20.8 percent of revenues
in the 1997 Second Quarter.
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Interest expense increased from $29,325 in the 1996 Interim Period to
$90,484 in 1997 Interim Period, a 208.6 percent increase, and from $18,832 in
the 1996 Second Quarter to $53,608 in the 1997 Second Quarter. The increase in
interest expense is a result of a capital lease agreement for certain laboratory
equipment entered into late in the first quarter of 1996 and the bank loan
associated with the PLL Asset Purchase. Interest income decreased from $19,672
in the 1996 Interim Period to $19,493 in the 1997 Interim Period and from $9,701
in the 1996 Second Quarter to $7,840 in the 1997 Second Quarter. Other income
decreased from $507 in the 1996 Interim Period to $72 in the 1997 Interim Period
and from $300 in the 1996 Second Quarter to a loss of $231 in the 1997 Second
Quarter. Net income, after provision for income taxes, increased from $411,084
in the 1996 Interim Period to $622,616 in the 1997 Interim Period, a 51.5
percent increase and decreased from $208,837 in the 1996 Second Quarter to
$388,613 in the 1997 Second Quarter, a 86.1 percent decrease.
Quarterly Results of Operations
LSI's operations are affected by seasonal trends to which drug testing
laboratories are generally subject. In LSI's experience, testing volume tends
to be higher in the second calendar quarter and lower in the winter holiday
season and the beginning of the first calendar quarter primarily due to hiring
patterns which affect pre-employment drug testing. Because the general and
administrative expenses associated with maintaining and adding to the testing
work force are relatively fixed over the short term, margins tend to increase in
periods of higher testing volume and decrease in periods of lower testing
volume. These effects are not always apparent because of the impact and timing
of the startup of new businesses and other factors such as the timing and amount
of price increases or decreases. Nevertheless, the results of operations for a
particular quarter may not be indicative of the results to be expected during
other quarters.
Income Taxes
Income taxes accrued for the six months ended June 30, 1997, were based on
an effective combined federal and state corporate income tax rate of
approximately 40 percent of pretax income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $928,758 in the six months
ended June 30, 1997, and $185,641 in the six months ended June 30, 1996. As of
June 30, 1997, LSAI had a working capital deficit of ($51,823), compared to
working capital of $1,002,712, at December 31, 1996. The working capital
deficit is a result of the recording of the PLL Asset Purchase including the
four future quarterly payments to be made. In the event the Company's revenues
increase as anticipated by management of the Company, the Company's working
capital requirements will also increase and such requirements may exceed the net
cash provided by operating activities and require that cash be used in operating
activities from sources other than operations, including the available cash and
cash equivalents (which were $703,157 at June 30, 1997) and borrowing. The
increase in cash used in operations will principally be due to the timing
differential between Company's payment for materials and services to its
suppliers and employee work force, and the time at which the Company receives
payment from its customers.
On December 27, 1996, LSI's revolving line credit facility with Hibernia
National Bank expired, at which time there were no outstanding borrowings. On
January 9, 1997, LSI entered in to a loan agreement with Hibernia National Bank
(the "Bank") which established a credit facility comprised of a five-year term
loan of up to $1,700,000 and a one-year revolving loan of $250,000 to be used
for the acquisition of Pathology Laboratories Limited. The term loan was fully
advanced upon execution of the loan agreement. Advances under the revolving
loan are based upon LSI maintaining certain ratios and compliance with the
covenants of the loan agreement and LSI's liquid assets including its accounts
receivable. The outstanding principal amount of the revolving loan bears
interest at Citibank, N.A. rate and the term loan bears interest at such rate
plus one-half percent. The loan is secured by the accounts
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receivable, intangible assets, and by a mortgage on the building owned by LSI,
and is guaranteed by LSAI.
FUTURE OPERATIONS AND LIQUIDITY
On December 3, 1996, LSI purchased a building to be renovated for its new
laboratory. The purchase was financed by a note payable to the seller due on
June 3, 1997, with no stated interest rate. This note has been classified as
long-term based on a written commitment from a bank to refinance the purchase
and construction costs up to the lesser of 80% of appraised value or cost, not
to exceed $720,000. On July 2, 1997, LSI entered into a loan agreement with
Hibernia National Bank (the "bank") for a term loan of up to $720,000 to
refinance the purchase and construction of its new laboratory. The loan was
fully advanced upon execution of the loan agreement and the December 3, 1996
note payable was paid in full with a portion of the proceeds. The bank note is
payable monthly with the first 36 consecutive principal and interest payments of
approximately $9,811, then 23 consecutive principal and interest payments of
approximately $6,007, and a final payment due on July 2, 2002 of approximately
$484,666. The loan bears interest at the rate of 8.65 per annum.
On January 31, 1997, the Company acquired from Pathology Laboratories, Ltd.
("PLL") certain intangible assets pursuant to an Asset Purchase Agreement dated
January 31, 1997 (the "Purchase Agreement"). Pursuant to the Purchase
Agreement, (i) the Company paid $1,600,000 at closing and (ii) the Company
assumed the obligations of PLL under a certain lease, dated September 16, 1996,
which requires monthly base rental payments of $2,083 and which expires on
September 16, 1999. Furthermore, the Company is required to make four
additional quarterly installment payments to PLL within 60 days following the
end of each three-month period during the twelve months ending January 31, 1998.
These quarterly payments are based on 90 percent of gross revenues directly
attributable to each customer comprising the customer base of PLL for the year
ending January 31, 1998, exceeding $1,600,000. The gross revenues attributable
to this customer base for the year ended December 31, 1996, were approximately
$3,200,000.
The Company anticipates that existing cash and cash equivalent balances and
short-term investments, and funds to be generated from future operations will be
sufficient to fund operations, and budgeted capital expenditures of LSAI and LSI
through 1997.
FUTURE ASSESSMENT OF RECOVERABILITY AND IMPAIRMENT OF GOODWILL. The carrying
value and recoverability of unamortized goodwill and customer lists will be
periodically reviewed by management of the Company. If the facts and
circumstances suggest that the goodwill or customer lists may be impaired, the
carrying value of goodwill or customer lists will be adjusted which will result
in an immediate charge against income during the period of the adjustment and/or
the length of the remaining amortization period may be shortened which will
result in an increase in the amount of goodwill or customer list amortization
during the period of adjustment and each period thereafter until fully
amortized. Once adjusted, there can be no assurance that there will not be
further adjustments for impairment and recoverability in future periods. In the
event management of the Company determines that goodwill or the customer list
has become impaired, the adjustment for impairment and recoverability will most
likely occur during a period of operations in which the Company has sustained
losses or has only marginal profitability from operations, and the impairment
and/or increased amortization amount will either increase such losses from
operations or further reduce profitability.
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PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than the pending litigation previously reported in the Annual Report
on Form 10-KSB filed with the Commission on April 22, 1997, LSAI does not have
any pending litigation. In the ordinary course of its business, LSI from time to
time is sued by individuals who have tested positive for drugs of abuse. To
date, LSI has not experienced any material liability related to these claims,
although there can be no assurance that LSI will not at some time in the future
experience significant liability in connection with such claims. Based upon the
prior successful defense of similar-type litigation, LSI believes they have
valid defenses to the plaintiffs claims in all pending litigation, and LSI
intends to vigorously defend themselves in such litigation. LSI is not currently
a defendant party in any other legal proceedings other than routine litigation
that is incidental to the business of LSI, and management of LSI believes the
outcome of such legal proceedings will not have a material adverse effect upon
the results of operations or financial condition of LSI . Furthermore,
management of LSI believes that the liability coverage is adequate with respect
to the pending litigation and, in general, for the business of LSI.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No.
10.1 Loan Agreement between Hibernia National
Bank and Laboratory Specialists, Inc.,
dated July 2, 1997
10.2 Promissory note issued by Laboratory
Specialists, Inc. to Hibernia National
Bank, dated July 2, 1997
27 Financial Data Schedules
(b) Reports on Form 8-K
Not applicable
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LABORATORY SPECIALISTS OF
AMERICA, INC.
(Registrant)
Date: August 12, 1997 By: /s/ Arthur R. Peterson, Jr.
-------------------------------
Arthur R. Peterson, Jr.
Treasurer
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INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE
- ----------- ------- ------------
10.1 Loan Agreement between Hibernia
National Bank and Laboratory
Specialists, Inc., dated July 2, 1997 17
10.2 Promissory note issued by Laboratory
Specialists, Inc. to Hibernia National
Bank, dated July 2, 1997 37
27 Financial Data Schedules 41
- --------------------------------------------------------------------------------
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LOAN AGREEMENT
BY AND BETWEEN
HIBERNIA NATIONAL BANK
AND
LABORATORY SPECIALISTS, INC.
UNITED STATES OF AMERICA
STATE OF LOUISIANA
PARISH OF ORLEANS
CITY OF NEW ORLEANS
BE IT KNOWN, that as of the 2nd day of July 1997 (the "Effective Date"),
BEFORE ME, a Notary Public, duly commissioned and qualified, and in the
presence of the undersigned witnesses,
PERSONALLY CAME AND APPEARED:
LABORATORY SPECIALISTS, INC., a Louisiana corporation represented herein by
Arthur R. Peterson, Jr., its President, duly authorized by virtue of a
resolution of the Board of Directors of the corporation, a certified copy of
which is annexed hereto and made a part hereof,
(hereinafter the "Borrower"),
and
HIBERNIA NATIONAL BANK, a national banking association having its domicile and
principal place of business in New Orleans, Louisiana, appearing herein through
and by its duly authorized officer
(hereinafter the "Lender"),
each of whom did say and declare as follows:
A. The Borrower has applied to the Lender for a credit facility in the
maximum aggregate principal sum not exceeding Seven Hundred Twenty Thousand and
No/100 ($720,000.00) Dollars (the "Loan").
B. The Lender has agreed to provide the Borrower with the Loan subject to
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lender to provide the Loan, the Borrower and the Lender hereby covenant and
agree as follows:
ARTICLE I
INTERPRETATIVE PROVISIONS
SECTION 1.01. Basic Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Advance" shall mean the disbursement of any portion of the Loan.
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"Agreement" shall mean this Loan Agreement, as the same may hereafter be
amended.
"Business Day" shall mean any day except a Saturday, Sunday, or other day
on which banks in New Orleans, Louisiana are required to close.
"Closing Date" shall mean the Effective Date.
"Collateral" shall mean all of the security interests, liens, mortgages,
encumbrances, or other rights in or relating to property, whether real or
personal, whether tangible or intangible, required to be held by or granted to
Lender under Section 3.01 of this Agreement.
"Collateral Documents" shall mean, collectively, the documents to be
delivered to the Lender as set forth in Section 3.02 of this Agreement.
"Default After Notice" shall have the meaning ascribed to it in Section 8.02
below.
"Effective Date" shall mean the Effective Date determined pursuant to
the first sentence of this Agreement.
"Event of Default" shall mean any of the events or occurrences set forth in
Section 8.01 of this Agreement.
"Governmental Authority" shall mean any municipal, parish, state or federal
governmental authority having or claiming jurisdiction over the Borrower and/or
the Property.
"Grantor" shall mean Borrower and any Guarantor and any other person who
grants Lender any Collateral for the Loan.
"Indebtedness" shall mean any and all amounts and/or liabilities owing from
time to time from Borrower to Lender, whether now or in the future, whether
evidenced in writing or not, whether relating to a promissory note or other
formal evidence of indebtedness or arising out of some other source or
obligation, whether pursuant to this Agreement or any other instrument,
including, without limitation, principal, interest, late charges, penalties,
attorney's fees and amounts advanced by the Lender.
"Loan" shall have the meaning ascribed to it in Recital A.
"Loan Documents" shall mean, collectively, this Agreement, the Note, the
Collateral Documents, and any other documents or instruments executed or to be
executed in the future pursuant to this Agreement or in connection with the
Loan.
"Loan Year" shall mean each period of one year commencing on the
anniversary date of the Closing Date and ending one year later. The "First
Loan Year" shall commence on the Closing Date and shall end on the day prior
to the Closing Date one year later, and the "Second Loan Year" shall commence
on the first annual anniversary of the Closing Date and shall end one year
later and so on.
"Maturity Date" shall mean the date that is five (5) years after the
Closing Date (unless accelerated pursuant to the provisions of Section 8.02 of
this Agreement).
"Note" shall mean the promissory note executed by Borrower as maker,
payable to the order of Lender, dated the Closing Date, in the principal sum
of Seven Hundred Twenty Thousand and No/100 ($720,000.00) Dollars.
"Parent" shall mean any person that owns more than fifty (50%) percent of
the total issued and outstanding ownership interests in another person.
"Permitted Use" shall mean the expenditure of funds by or for the benefit of
Borrower for the following specific purposes, and any purposes reasonably
ancillary thereto: reimbursement for acquisition of the Property and
construction of the Project.
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<PAGE>
"Person" or "person" shall mean any natural or juridical person including
any human being or any entity whether incorporated or not, such as without
limitation, a corporation, limited liability company, or partnership.
"Prime Rate" shall mean the interest rate which is the prime rate of
interest charged by Citibank, N.A. at its main office at New York, New York
as of the Closing Date. The Prime Rate is eight and one-half (8.5 %)
percent.
"Subsidiary" shall mean any person with respect to which more than fifty
(50%) percent of the total issued and outstanding ownership interests is
owned by another person.
SECTION 1.02. Additional Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Acceptance of Contract" shall mean a document the filing of which shall
commence the running of the statutory lien period with regard to the
Construction Contract pursuant to La. R. S. 9:4801 et seq.
"Affiliate" shall mean (a) any Guarantor, (b) any Subsidiary of Borrower,
(c) any Parent of Borrower, and (d) any other Subsidiary of the Parent of
Borrower (collectively "Affiliates").
"Assignment of Leases" shall mean a document, or that portion of a
document, establishing the security and rights described in Section 3.01(b)
below.
"Commitment" shall mean the commitment letter addressed by Lender to
Borrower under date of November 27, 1996, accepted by Borrower on November
30, 1996.
"Compliance Certificate" shall mean the certificate, certified correct by
the chief executive officer of Borrower or other officer of Borrower
reasonably acceptable to Lender, affirming and certifying that Borrower is,
as of the date of said certificate, in full compliance with all covenants
and obligations expressed in this Agreement or any other Loan Documents.
"Construction Contract" shall mean the contract dated December 3, 1996
between LSI and Kerry O'Connor General Contractor, Inc. ("Contractor") for
the performance of certain work by Contractor on the Land, recorded in the
mortgage records of the Parish of Jefferson, State of Louisiana on December
5, 1996 in MOB 3776, folio 703.
"Guarantor" shall mean LSAI.
"Guaranty Agreement" shall mean the continuing guaranty agreement
establishing the guaranty described in Section 3.03 below.
"Improvements" shall mean all buildings and other constructions now or
hereafter erected in, upon, and above the Land.
"Jarrell Drive Collateral Note" shall mean that certain Collateral Mortgage
Note executed by Borrower, dated January 17, 1990, in the principal sum of
Two Hundred Fifty-Five Thousand and No/100 ($255,000.00) Dollars, which is
paraphed for identification with and secured by the Jarrell Drive Mortgage.
"Jarrell Drive Mortgage" shall mean that certain Collateral Mortgage by
Borrower dated January 17, 1990, encumbering the Jarrell Drive Property,
which secures the
"Jarrell Drive Collateral Note", recorded in the mortgage records of the
Parish of Plaquemines, State of Louisiana, in MOB 194, folio 361.
"Jarrell Drive Property" shall mean that certain immovable property located
in Plaquemines Parish, Louisiana, encumbered by and more particularly
described in the Jarrell Drive Mortgage, and known generally as 113 Jarrell
Drive, Belle Chasse, Louisiana.
"Land" shall mean the immovable property described on EXHIBIT "A" annexed
hereto and made a part hereof.
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<PAGE>
"LSAI" shall mean Laboratory Specialists of America, Inc., an Oklahoma
corporation.
"Mortgage" shall mean that certain Mortgage to Secure Future Indebtedness
by Borrower, dated the Closing Date, encumbering the Property, recorded or to
be recorded in the mortgage records of the Parish of Jefferson, State of
Louisiana.
"Project" shall mean a drug testing facility, together with all appurtenant
facilities, in and upon the Property.
"Property" shall mean the Land and Improvements.
"Security Agreement" shall mean a document pursuant to which there is
created and established a Security Interest.
"Security Interest" shall mean an encumbrance of movable property, and
shall include proceeds unless otherwise specifically provided herein.
"Title Commitment" shall mean a binding, paid-up commitment from Title
Company for the issuance of the Title Policy.
"Title Company" shall mean First American Title Insurance Company.
"Title Policy" shall mean a policy of mortgagee's title insurance, in form
and substance satisfactory to the Lender in its sole discretion, together with
such endorsements and related documents as Lender may from time to time
require. The Title Policy must be in the full amount of the Loan and indicate
that the Mortgage is a valid first lien with no exceptions other than those
approved by Lender in writing in Lender's discretion. The Title Policy is for
the exclusive benefit of Lender. The Title Policy shall specifically provide
for extended coverage and affirmative coverage as to access to the Property
from the nearest public road.
SECTION 1.03. Specific Financial Definitions.
"EBITDA" shall mean earnings before interest expense, income taxes,
depreciation and amortization.
"Long Term Debt" shall mean all indebtedness of the Borrower for borrowed
money maturing more than twelve (12) months after the date of determination,
whether secured or unsecured, which would be classified as long-term debt in
accordance with generally accepted accounting principles.
"Senior Debt" shall mean the Indebtedness plus any other debt of the
Borrower not subordinated to Lender.
SECTION 1.04. Rules of Interpretation.
(a) All terms defined in this Agreement shall have their defined meanings
when used in the Note, the Collateral Documents or in any certificates or other
document made or delivered pursuant hereto.- unless the context shall otherwise
require.
(b) Words used herein in the singular, where the context so permits, shall
be deemed to include the plural and vice versa. Likewise, the definitions of
words used in the singular herein shall also apply to such words when used in
the plural and vice versa, unless the context shall otherwise require.
(c) The words "hereof", and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
(d) Section, subsection, schedule and exhibit references are to this
Agreement unless otherwise specified.
(e) Captions and section headings are inserted for convenience only and
shall not affect any construction or interpretation of this Agreement.
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<PAGE>
ARTICLE II
BASIC ELEMENTS OF THE LOAN
SECTION 2.01. The Loan. Subject to the terms and conditions and relying on
the representations and warranties contained in this Agreement, Lender agrees to
provide Borrower with the Loan, evidenced by the Note. Some of the salient terms
and conditions of the Loan are set forth below. The terms and provisions of the
Note are more fully set forth in the Note, and in the event of any conflict
between the provisions of this Section 2.01 and the provisions of the Note, the
provisions of the Note will govern.
(a) The Note shall bear interest from the Closing Date until paid in full at
an annual interest rate equal to eight and sixty-five hundredths (8.65%)
percent. In the absence of prior demand, interest on the outstanding principal
balance of the Note shall be payable in arrears, along with principal due on the
Note, on the second (2nd) day of each month until the Maturity Date. All
interest charged shall be computed on the basis of a 360-day daily interest
factor calculated over the number of days in an actual calendar year of 365
days, or, in the case of a leap year, a calendar year of 366 days.
(b) In the absence of prior demand, the entire principal balance outstanding
on the Note, interest and all other fees, costs or charges shall be due and
payable on the Maturity Date.
(c) The Note may be prepaid in part or in full at any time, without penalty
or premium, if the source of funds for such prepayment is other than borrowed
funds. Payment from borrowed funds may be made only upon simultaneous payment
of a prepayment penalty in accordance with the following schedule:
Loan Year Prepayment Penalty
Loan Year One Four (4%) percent of principal amount being prepaid.
Loan Year Two Three (3%) percent of principal amount being prepaid.
Loan Year Three Two (2%) percent of principal amount being prepaid.
Loan Year Four One (1%) percent of principal amount being prepaid.
Loan Year Five No penalty.
(d) All funds received by Lender in repayment of the Loan shall be applied
first for the satisfaction of any outstanding penalties, fees, or costs
thereunder, and next to outstanding and unpaid interest due thereunder, and then
to principal.
SECTION 2.02. Advances. The original principal amount of the Loan shall be
advanced by Lender to Borrower in a lump sum on the Closing Date, but only (a)
as permitted by Lender's business practices then in effect, and (b) provided all
other applicable terms and conditions of this Agreement have been satisfied or
waived.
SECTION 2.03. Other Advances. In the event that Lender shall, upon failure
of Borrower to make such payment when due, elect to disburse a payment to a
party other than Borrower pursuant to any provisions of this Agreement, then
such payment shall be deemed to be an Indebtedness due and payable upon demand
by Lender, and, as such, said payment shall be secured by the Collateral and
shall bear interest from the date of advance until paid at a rate per annum
equal to the Prime Rate PLUS five (5 %) percent.
ARTICLE M
SECURITY FOR THE LOAN
SECTION 3.01. Collateral. The Loan and the Note shall be secured by the
following rights and interests in favor of lender, all of which shall have a
first ranking and priority except as specifically indicated below:
(a) the Mortgage;
(b) the collateral assignment of, and grant of a Security Interest in, all
present and future leases and rents pertaining to the Property;
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(c) the guaranty of the Guarantor in the amount as provided in Section 3.03;
(d) the grant of a Security Interest in the following movable property of
Borrower:
(1) all accounts receivables; and
(2) all contract rights and general intangibles; and
(3) all equipment; and
(4) all furniture; and
(5) all inventory; and
(6) all fixtures located on the Property; and
(e) the pledge of, and grant of a Security Interest in, the Jarrell Drive
Collateral Note.
SECTION 3.02. Collateral Documents. The Borrower shall execute and/or
deliver on the Closing Date, any and all documents which may be necessary in
order to create, establish, attach or perfect the Collateral, including but not
limited to the following, all of which shall be in form and content acceptable
to Lender and Lender's counsel, in their discretion:
(a) the Mortgage;
(b) a Security Agreement achieving the Collateral described in Section
3.01(d)(6) above and UCC-1 Financing Statement perfecting the Security
Interest in said Collateral;
(c) the Assignment of Leases;
(d) the Guaranty Agreement; and
(e) an acknowledgment that achieves the Collateral described in Section
3.01(d) (1) through (5) and 3.01(e) above .
SECTION 3.03. Guaranty Agreement. The Loan and all other Indebtedness
shall be guaranteed by each Guarantor in solido, up to the maximum amount of
same.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. General. To induce the Lender to make the Loan, the Borrower
hereby makes the following representations and warranties to the Lender:
(a) With respect to each Borrower and each Guarantor:
(i) If any such person is a natural person, the marital status of
such person recited in the appearance section of this Agreement
or in any document by which such person grants Collateral to
Lender is true and correct.
(ii) The mailing addresses of any such persons set forth in Section
9.06 of this Agreement pertaining to notices are correct.
(iii) If any such person is an entity, each such entity
a)is duly organized and validly existing under the laws of the
state of its organization,
b)has all requisite power and authority to execute any of the
Loan Documents to which it is a signatory, and
c)if a corporation, is in good standing in the state of its
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incorporation.
(iv) Each such person has all requisite capacity and authority to
a)own its property,
b)to transact business in connection with the matters described
in this Agreement, and
c)to enter into and perform its obligations under the Loan
Documents.
(v) Each such person indicated as the owner of any property in any
of the Loan Documents has full, complete, good and merchantable
title to such property.
(b) (1) The execution, delivery and performance by any person of or
under the Loan Documents requires no action by or in respect of, or filing with,
any Governmental Authority (other than actions or filings in connection with the
perfection of a Security Interest or privilege in any Collateral hereunder) and
does not contravene, or constitute a default under or violation of any provision
of applicable law or regulation or of any documents governing any such person or
of any
agreement, judgment, injunction, order, decree or other instrument which is
binding upon such person or to which any of such person's property is subject.
(2) The execution of any Loan Documents by any person signatory
thereto constitutes and stands as the free act and deed of such person, without
the necessity of any further actions or approvals of any kind from any persons
or entities.
(c) The Loan Documents all constitute the legal, valid and binding
obligations of the person signatory thereto, and said documents are fully
enforceable in accordance with their respective terms.
(d) The financial statements heretofore delivered to the Lender are true
and correct in all material respects, and fairly represent the financial
condition of persons described therein, as of the date thereof. No material
adverse change has occurred in the conditions or operations reflected in any
such financial statement since the respective dates thereof, and no person
described therein is the subject of any bankruptcy, reorganization, or
insolvency proceeding.
(e) All information, reports, papers, financial projections and data
given to the Lender by Borrower or any other person pursuant to this Agreement
or in connection with the application for or the making of the Loan are accurate
and correct in all material respects.
(f) (i) The principal address from which Borrower conducts its
business is: 1111 Newton Street, Gretna, LA 70053.
(ii) The address of Borrower's chief financial office is: 1111 Newton
Street, Gretna, LA 70053.
(iii) The address of Borrower's registered office is:113 Jarrell
Drive, Belle Chasse, Louisiana 70037.
(g) The fiscal year of Borrower ends on December 31.
(h) As of the Closing Date, neither Borrower nor any Guarantor is in
default under or in violation of any document or agreement with or in favor of
Lender, or any other document or agreement the default under or violation of
which would have a material adverse impact upon such person, nor does there
exist any state of facts which with the passage of time or the giving of notice
or both would constitute such a default or violation.
(i) There are no actions, suits or proceedings pending, at law or in
equity, or before any Governmental Authority, involving or affecting any of the
Collateral or the
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property subject to same (including but not limited to the Mortgage or the
Property) nor involving or affecting the validity or enforceability or priority
of any of the Collateral, nor are any of same threatened or likely.
SECTION 4.02. Additional Representations and Warranties Pertaining to the
Property. Further, to induce Lender to make the Loan, Borrower hereby makes the
following further representations and warranties to Lender:
(a) The Property is free and clear of all mortgages, pledges, liens or
encumbrances except as indicated in the Title Policy, and the Property
has not been conveyed nor encumbered, nor is it subject to any
agreements to convey or encumber, except as explicitly described in
this Agreement.
(b) The Property is presently commercially zoned, and the intended use of
same is in full and strict compliance with all applicable zoning and
subdivision laws, municipal restrictions and other regulations of any
Governmental Authority.
SECTION 4.03. Additional Representations and Warranties Pertaining to
Hazardous Materials. For the purposes of this Agreement, Borrower and Lender
agree that:
(a) Unless the context otherwise specifies or requires, the following
terms shall have the meaning herein defined :
(i) "Hazardous Materials" shall mean any "hazardous waste" as defined
by either the Resource Conservation and Recovery Act of 1976 (42
U.S.C. (S) 6901 et seq.), or the Louisiana Environmental Quality
Act (La. R.S. 30:1051 et seq.) ("LEQA"), as amended from time to
time, and regulations promulgated thereunder;
any "hazardous substance" as defined by either the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42
U.S. C. (S) 9601 et seq) ("CERCLA") or the LEQA, as amended from
time to time, and regulations promulgated thereunder ;
asbestos;
polychlorinated biphenyls;
any substance the presence of which on the Property is prohibited
by any lawful rules and regulations of legally constituted
authorities from time to time in force and effect relating to the
Property; and
any other substance which by any such rule or regulation requires
special handling in its collection, storage, treatment, or
disposal.
(ii) "Hazardous Materials Contamination" shall mean the contamination
(whether presently existing or hereafter occurring) of the
Property, including the Improvements, facilities, soil, ground,
water, air or other elements on, or of, the Property by Hazardous
Materials, or the contamination of the Property, including the
Improvements, facilities, soil, ground, water, air or other
elements on, or of, any other property as a result of Hazardous
Materials at any time (whether before or after the date of this
Agreement) emanating from the Property.
(iii) "Governmental Requirement" shall mean any law, statute, ordinance,
code, rule, regulation, order or decree of any Governmental
Authority.
(b) Borrower and any Grantor owning an interest in the Property hereby
warrant that each of them has no knowledge, after due inquiry, (i) of any
Hazardous Materials having been located on or under the Property, (ii) of
Borrower or any other person having ever caused or permitted any Hazardous
Materials to be placed, held, located or disposed of on, under or at the
Property or any part thereof, (iii) of any part of the Property having ever been
used as a manufacturing, storage or disposal site for Hazardous Materials, and
(iv) that any part of the Property is or has been affected by any Hazardous
Materials Contamination. To the best of said persons' knowledge and belief, no
property adjoining the Property has ever been used as a manufacturing, storage
or disposal site
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for Hazardous Materials nor is any other property adjoining the Property
affected by Hazardous Materials Contamination.
(c) Borrower agrees to (i) give notice to Lender immediately upon its
acquiring knowledge of the presence of any Hazardous Materials on the Property
or of any Hazardous Materials Contamination with a full description thereof;
(ii) promptly comply with any Governmental Requirement requiring removal,
treatment or disposal of such Hazardous Materials or Hazardous Materials
Contamination and provide Lender with satisfactory evidence of such compliance;
and (iii) provide Lender, within thirty (30) days after demand by Lender, with a
bond, letter of credit or similar financial assurance evidencing to Lender that
the necessary funds are available to pay the cost of removing, treating and
disposing of such Hazardous Materials or Hazardous Materials Contamination and
discharging any assessment which may be established on the Property as a result
thereof.
(d) Lender (by its officers, employees and agents) at any time and from
time to time, with reasonable cause, either prior to or after the occurrence of
any Event of Default hereunder, may contract for the services of persons (the
"Site Reviewers") to perform environmental site assessments (the "Site
Assessments') on the Property for the purpose of determining whether there
exists on the Property any environmental condition which could result in any
liability, cost or expense to the owner or occupier of such Property arising
under any Governmental Requirement relating to Hazardous Materials. The Site
Assessment may be performed at any time or times, upon reasonable notice, and
under reasonable conditions which do not impede the performance of the Site
Assessment. The Site Reviewers are hereby authorized to enter upon the Property
for such purposes. The Site Reviewers are further authorized to perform both
above and below the ground testing for environmental damage or the presence of
Hazardous Materials on the Property and such other tests on the Property as may
be necessary to conduct the Site Assessment in the reasonable opinion of the
Site Reviewers. Borrower will supply to the Site Reviewers such historical and
operational information regarding the Property as may be reasonably requested by
the Site Reviewers to facilitate the Site Assessment and will make available for
meetings with the Site Reviewers appropriate personnel having knowledge of such
matters. On request, Lender shall make the results of such Site Assessment
fully available to Borrower, which (prior to an Event of Default hereof) may at
its election, participate under reasonable procedures in the direction of such
Site Assessment and the description of tasks of the Site Reviewers. The cost of
performing such Site Assessment shall be paid by the Borrower.
(e) Regardless of whether any Site Assessments are conducted hereunder, any
Event of Default hereunder shall have occurred and be continuing, or any
remedies in respect of the Property are exercised by the Lender, Borrower shall
defend, indemnify and hold harmless Lender from any and all liabilities
(including strict liability), actions, demands, penalties, losses, costs or
expenses (including, without limitation, reasonable attorneys' fees and remedial
costs), suits, costs of any settlement or judgment and claims of any and every
kind whatsoever which may now or in the future be paid, incurred, or suffered
by, or asserted against Lender by any person or entity or governmental agency
for, with respect to, or as a direct or indirect result of, the presence on or
under, or the escape, seepage, leakage, spillage, discharge, emission,
discharging or release from or onto the Property of any Hazardous Materials or
any Hazardous Materials Contamination, or arise out of, or result from, the
environmental condition of the Property or the applicability of any Governmental
Requirement relating to Hazardous Materials (including, without limitation,
CERCLA or any so-called federal, state or local "superfund" or "superlien" law,
statute, ordinance, code, rule, regulation, order or decree) regardless of
whether or not caused by or within the control of Borrower. These
representations, covenants and warranties contained in this Section shall
survive the termination of this Agreement.
(f) At Lender's request, Borrower shall execute and deliver to the Lender
an environmental indemnity agreement in form and content acceptable to the
Lender and Lender's counsel.
SECTION 4.04. Wetlands. The term "wetlands", as used in this Agreement,
shall have the same meaning as set forth in 16 USC Section 3902(5); the Clean
Water Act, 33 USC Section 1251, et seq.; LSA-R.S. 49:214.3, as they may be
amended or interpreted in the future. Except as disclosed to and acknowledged
by Lender in writing, Borrower represents and warrants that: (a) the Property
has not, as of the date of this Agreement, been
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designated, declared or reserved as wetlands by any state or federal body or
agency having jurisdiction over the Property; and (b) Borrower has no knowledge
of, or reason to believe that there is, any effort to have the Property declared
wetlands. Borrower hereby agrees to indemnify Lender for any loss in value of
the Property due to its subsequent declaration, designation and/or reservation
as wetlands, and against any and all claims, losses, liabilities, damages,
penalties and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of this Agreement or as a consequence of
any dedication, declaration or reservation of the Property, or any part thereof
as wetlands. The provisions of this section shall not be affected by Lender's
acquisition of any interest in all or any portion of the Property, whether by
foreclosure or otherwise.
ARTICLE V
AFFIRMATIVE COVENANTS
SECTION 5.01. General. Unless the Lender consents otherwise in writing,
continuing for as long as any Indebtedness remains unpaid, Borrower shall keep,
maintain, comply, preserve and be responsible for the satisfaction of each of
the following covenants:
(a) Borrower will indemnify the Lender from claims of brokers with whom
Borrower has dealt in the execution hereof or the consummation of the
transactions contemplated hereby.
(b) Borrower will pay all fees and expenses incurred by the Borrower and
the Lender in connection with the transactions contemplated hereunder,
including, without limitation, all service fees, legal fees (including the fees
of counsel for the Lender) and all other costs, expenses and fees required to
satisfy the conditions of this Agreement.
(c) The Lender shall have the right from time to time at all times during
normal business hours to examine any or all of the books, records and accounts
at the office of the Borrower or other person maintaining such books, records,
and accounts and to make such copies or extracts thereof as the Lender shall
desire. In addition, Borrower shall furnish to the Lender within fifteen (15)
days, after request, such further detailed information covering the financial
affairs of the Borrower, as the Lender in its sole discretion may request.
(d) Borrower shall observe and perform each and every term to be observed
or performed by the Borrower pursuant to the terms of (i) all agreements and
other instruments (including but not limited to the Loan Documents) to which the
Borrower and the Lender are parties; and (ii) any other agreement or recorded
instrument the breach of which (a) would materially adversely affect the
ownership, operation or management of the Borrower's business or (b) would
adversely affect the priority or enforceability of any of the Loan Documents.
(e) Borrower shall make, execute and deliver to Lender such security
agreements, instruments, documents and other agreements reasonably necessary to
document or confirm the Loan and any matters set forth in any of the Loan
Documents or to evidence, confirm or continue any of the Security Interests in
the Collateral intended to be granted by the Loan Documents.
(f) If any of the addresses specified in Section 9.06 below are changed,
Borrower shall give Lender five (5) prior Business Days' notice thereof.
(g) Borrower shall comply with all applicable statutes, regulations and
orders of any Governmental Authority, and of any court, arbitrator or grand
jury, in respect to the conduct of its businesses and the ownership of its
properties, except such as are being contested in good faith.
(h) Borrower shall maintain all of its operating accounts with Lender.
(i) Borrower shall pay, as and when due, all accounts and trade payables in
a manner consistent with normal business practices for companies engaged in
similar operations in the same area.
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(j) Borrower will and does hereby indemnify and hold harmless Lender
against any and all liabilities, obligations, losses, damages (including, but
not limited to, environmental liability), penalties, claims, actions, suits,
costs and expenses of whatever kind or nature which may be imposed on, incurred
by or asserted at any time against Lender in any way relating to, or arising in
connection with the transaction of Borrower's business.
(k) Borrower shall provide Lender copies of all audits or inspections or
reports performed at the request of a governmental entity within thirty (30)
days after Lender's request for same.
SECTION 5.02. Financial Reports. Unless the Lender consents otherwise in
writing, continuing for as long as any Indebtedness remains unpaid, Borrower
shall keep, maintain, comply, preserve and be responsible for the satisfaction
of each of the following covenants:
(a) Borrower will keep true books and records and accounts concerning its
business transactions.
(b) Borrower and Guarantor will, during the term of the Loan, furnish to
Lender as soon as available and in any event within forty-five (45) days after
the end of each fiscal quarter of each entity, financial statements, including
all financial statements filed with any Governmental Authority which regulates
securities (collectively the "Required Statements") covering each entity, signed
by the chief financial officer of the entity as to which the Required Statements
are issued.
(c) The Required Statements shall be prepared according to generally accepted
accounting principles, consistently applied; shall in all events include balance
sheets, income statements, sources and uses of cash, statements of profit and
loss, statements of changes in equity, and statements of cash flows; and shall
be addressed to Lender.
(d) Further, within one hundred twenty (120) days after the end of the
fiscal year of Borrower and Guarantor, each entity shall submit to Lender the
Required Statements, audited, unqualified and certified by a certified public
accountant.
(e) Borrower will provide to Lender photocopies of all income tax returns
filed by Borrower, within thirty (30) days of the filing of same.
(f) Borrower will notify Lender immediately of any material change in its
financial condition or that of any Guarantor or other Grantor.
(g) Within thirty (30) days after the end of Borrower's fiscal year,
Borrower shall provide to Lender a certified statement that it is in full
compliance with all of the terms of all of the Loan Documents and that there
exists no Event of Default under this Agreement nor any state of facts that with
the passage of time or the giving of notice or both would constitute such an
Event of Default, except for such facts and circumstances as may be specifically
described in such certificate.
(h) Borrower shall submit to Lender the Eligible Receivables Certificate.
SECTION 5.03. Financial Covenants. Unless the Lender consents otherwise in
writing, continuing for as long as any Indebtedness remains unpaid, Borrower
shall keep, maintain, comply, preserve and be responsible for the satisfaction
of each of the following covenants:
(a) Borrower shall maintain a positive net income, as defined by generally
accepted accounting principles.
(b) Borrower shall maintain a ratio of Senior Debt to EBITDA of no more
than 1.75:1.00.
(c) Borrower shall maintain a Debt Service Coverage Ratio of no less than
1.5:1 from the Closing Date until September 30, 1997 and no less than 2.5:1
thereafter. As used herein, the phrase "Debt Service Coverage Ratio" shall mean
the ratio obtained by dividing the Borrower's net income plus depreciation and
amortization expenses by the total "debt service" of Borrower. As used herein
"debt service" shall mean the total of the current
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maturities of Long Term Debt plus all current lease obligations. This covenant
shall be tested annually at the end of each fiscal year of Borrower.
SECTION 5.04. Covenants Relating to the Property. Unless Lender
consents otherwise in writing, continuing for as long as any Indebtedness
remains unpaid, Borrower shall keep, maintain, comply, preserve and be
responsible for the satisfaction of each of the following covenants:
(a) Borrower shall pay all taxes, assessments, water rates, and other
charges, now or hereafter levied or assessed against the Property (hereinafter
referred to as "Taxes") prior to the date upon which any fine, penalty, or cost
may be added thereto or imposed by law for the non-payment thereof, unless
contested by Borrower as permitted hereby, and shall deliver to Lender evidence
satisfactory to Lender evidencing such payment. Borrower shall have the right
to contest Taxes which it believes in good faith and with advice of its counsel
or certified public accountants to be invalid or erroneously assessed, provided
that (i) such contest shall not result in the filing of an enforceable lien
against the Property or in any liability to Lender and (ii) Borrower shall give
notice of such contest to Lender. Borrower will proceed to contest such Taxes
diligently, and in connection with such contest shall either pay the Taxes under
protest or establish a reserve or escrow satisfactory to Lender for the payment
of such Taxes, together with any interest, penalties and costs that may be due
with respect to such Taxes. In the event that Lender does not receive
satisfactory evidence from the Borrower, in writing, of the payment of all
Taxes, then and in such event, Lender may pay the Taxes directly to the
appropriate Governmental Authority and such payments shall be deemed an Advance.
(b) (1) Borrower shall keep the Property and all contents therein
insured for an amount not less than the greater of (i) the amount of the
replacement cost of the Improvements or (ii)the amount of the Loan, all for the
protection of Lender, who shall be named as loss payee, in such manner, in such
amounts, and in such companies as Lender may from time to time approve. Loss
proceeds (less expenses of collection) shall, at Lender's sole discretion, be
applied to the Indebtedness, whether due or not, or to the restoration of the
Improvements, or shall be released to Borrower, but such application or release
shall not cure or waive any Event of Default hereunder.
(2) Borrower shall also maintain in effect public liability and
property damage insurance covering the Property in amounts and in companies
satisfactory to Lender, together with such other coverages as Lender may, in its
sole discretion, require.
(3) When available, policies of flood insurance (if required by
applicable governmental regulations) shall be maintained on the Property in the
maximum amount permitted.
(4) All policies of insurance required to be maintained by Borrower
hereunder shall contain standard clauses providing for notice of cancellation or
material modification thereof, which notice shall be given to Lender not less
than thirty (30) days prior to said cancellation or material modification.
(5) If Lender does not receive satisfactory evidence, in writing, of
said policies,then Lender may obtain the required insurance, with all expenses
of said insurance to be deemed an Advance.
(c) (1) Borrower shall cause the property to be maintained in good
condition and repair and will not commit or suffer to be committed any waste of
the Property.
(2) The Improvements shall not be removed, demolished or materially
altered (except for normal replacement), without the consent of Lender.
(3) Borrower shall promptly comply with all laws, orders, and
ordinances affecting the Property or the use thereof, and shall promptly repair,
replace or rebuild any part of the Property which may be damaged or destroyed by
any casualty (including any casualty for which insurance was not obtained or
obtainable) and shall complete and pay for, within a reasonable time, any
structure at any time in the process of construction or repair on the Property.
(4) Except for normal and customary utility servitudes, Borrower
will not, without obtaining the prior consent of Lender, initiate, join in, or
consent to
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any private restrictive covenant, zoning ordinance, or other public or private
restrictions, limiting or defining the uses which may be made of the Property or
any part thereof.
(d) Borrower shall make, execute and deliver to Lender such security
agreements, instruments, documents and other agreements reasonably necessary to
document and secure the Loan and to perfect Lender's Security Interests as
required under this Agreement.
(e) No materialmen's or mechanics' or laborers' liens shall be filed of
record against the Property whatsoever and permitted to remain of record (that
is, not removed from the public records by bonding or payment or otherwise) for
a period in excess of ten (10) Business Days after Borrower has notice or
knowledge of any such lien.
(f) Borrower shall execute an Acceptance of Contract to be recorded in the
mortgage records of the Parish of Jefferson, State of Louisiana.
(g) Within fifteen (15) days following the termination of the applicable
statutory lien period commenced by the recordation of the Acceptance of
Contract, Borrower shall deliver to Lender's counsel a document executed by
Borrower and Contractor which will, upon its recordation in the mortgage records
of the Parish of Jefferson, State of Louisiana, cause to be canceled and erased
the recordation of the Construction Contract.
ARTICLE VI
NEGATIVE COVENANTS
SECTION 6.01. Lender's Consent Required. Unless Lender consents otherwise
in writing, continuing for as long as any Indebtedness remains unpaid, Borrower
shall be responsible and liable that:
(a) Borrower shall not assign, transfer, alienate, pledge or encumber any
interest in this Agreement.
(b) Neither Borrower nor any Guarantor shall dispose of all or
substantially all of its property, accounts, assets or business.
(c) Borrower shall not change or expand its business as presently
conducted, consolidate with or mergeinto any other business, acquire interest or
ownership in any other business, or lend funds to any other business, provided
that Lender's consent to any such action shall not be unreasonably withheld.
(d) Borrower shall not permit, cause or suffer there to occur (1) any
change in the identity or ownership percentages of the owners of Borrower (2)
any change in the management of any Borrower, (3) any change in the identity of
the President, Chief Executive Officer, or Chairman of the Board of Directors of
Borrower, from that in existence as of the Closing Date, or (4) any transfer,
encumbrance or pledge of any interest in Borrower.
(e) Borrower shall not sell, convey, lease, donate or otherwise alienate or
dispose of any of the property encumbered by the Collateral, whether voluntarily
or involuntarily, in any manner whatsoever, except
(1) where explicitly permitted under other provisions of this
Agreement, or
(2) for bona fide, arms' length sales or leases of portions of said
property where such sales or leases are part of the business regularly engaged
in by Borrower with respect to said property, such as (without limitation)
sales of condominium lots, or leases of apartments or office space.
(f) Borrower shall not grant or suffer or permit to be filed any
mortgage, Security Interest, lien, pledge, hypothecation, or other encumbrance
of or against any
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of the property encumbered by the Collateral, whether voluntarily or
involuntarily, in any manner whatsoever, regardless of whether same is superior
or subordinate to the lien of any of the Collateral.
(g) Borrower shall not use or expend any portion of the Loan proceeds for
any purpose or matter other than the Permitted Use.
(h) Borrower shall not use any portion of the Property for any purpose or
matter other than the Project.
(i) Borrower shall not incur any indebtedness or other obligation,
including any guaranty or other contingent obligation, to any bank, financial
institution or institutional lender.
ARTICLE VII
CONDITIONS OF LENDING
SECTION 7.01. General Conditions to Lend. The obligation of Lender to make
the Loan hereunder is and shall be subject to satisfaction of each of the
following conditions:
(a) All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident to such transactions
shall be satisfactory in form and substance to Lender and its counsel, and
Lender shall have received all documents or other evidence which Lender and its
counsel may reasonably have requested in connection with such transactions.
(b) Borrower shall be in compliance with all the terms and conditions of
the Commitment, this Agreement and the other Loan Documents as of the date of
the Loan.
(c) No Event of Default shall have occurred, nor shall there exist any
state of facts which with the passage of time or the giving of notice or both
would constitute an Event of Default hereunder.
(d) Lender shall have received duly executed originals or counterparts of
each of the Loan Documents.
(e) Lender shall have been furnished with favorable opinions from
Borrower's counsel, which opinion shall cover such matters as Lender may require
and be in form and substance satisfactory to Lender.
(f) Lender shall have received the Required Statements in conformity with
Section 5.02 above, dated with respect to Borrower as of a date not later than
thirty (30) days prior to the Closing Date,and on the Closing Date there shall
have occurred no material changes in the financial condition of Borrower from
that reflected in said financial statements.
(g) Lender shall have received evidence satisfactory to Lender that
Borrower has paid (or will pay from the initial disbursement made hereunder) for
all costs incident to this transaction, including without limiting the
generality of the foregoing, title insurance premiums, survey, recording fees, a
non-refundable fee to Lender in the amount of Seven Thousand Five Hundred
($7,500.00) Dollars, closing costs and Lender's attorney's fees.
(h) The representations and warranties of Borrower contained in Article IV
shall be true on and as of the date of any Advance as though such
representations and warranties had been made on the dates of such Advance.
(i) All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident to such transactions
shall be satisfactory in form and substance to Lender and its special counsel
and Lender shall have received all documents or other evidence which Lender and
its special counsel may reasonably have requested in connection with such
transactions, including copies of records of all corporate proceedings, if any,
in connection with such transactions, in
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form and substance satisfactory to Lender and its counsel.
SECTION 7,02, Additional Conditions For the Advance - Property. The
obligation of Lender for the Advance hereunder is and shall be subject to
satisfaction of each of the following additional conditions, all of which shall
be conclusively deemed satisfied or waived by the making of the Advance of the
Loan:
(a) Borrower shall have furnished Lender with a survey, conducted within
sixty (60) days of the Closing Date, of the Property prepared by a registered
land surveyor or civil engineer, which survey shall be certified to Lender and
the Title Company and show (i) the location of the perimeter of the Property by
metes and bounds; (ii) all servitudes, rights of way, and encroachments together
with the extent thereof upon the Property in feet and inches; (iii) the lines of
any roads and highways abutting the Property and the width thereof; (iv) the
Improvements and the relation of the Improvements by distances to the boundaries
of the Property, the established building lines and the street lines; (v) that
there are no encroachments, overlapping of improvements or shortage of
boundaries; and (vi) the location of all utilities serving the Improvements and
all of the roads, drives, and parking spaces located on the Property.
(b) Lender shall have received, at Borrower's sole expense, the Title
Commitment. In such event, the Borrower shall furnish the Lender with the Title
Policy, within thirty (30) days after the Closing Date. Lender shall have
received, at Borrower's sole expense the Title Policy.
(c) Lender shall have received, at Borrower's sole expense, an
environmental assessment of the Property satisfactory in all respect to Lender
in its discretion, and Borrower shall have caused, at its sole expense, the
performance of any and all corrective or remedial work required by Lender in its
sole discretion with respect to the Property.
(d) Lender shall have received an appraisal of the Property by an appraiser
approved by Lender in its sole discretion, at Borrower's cost, showing that the
Property has a fair market value of at least Seven Hundred Fifty Thousand and
No/100 ($750,000.00) Dollars, as of a date no more than thirty (30) days prior
to the Closing Date.
(e) Lender shall have inspected the Project to ascertain the extent of
deferred maintenance thereon, and if Lender has discovered same, Borrower shall
have deposited with Lender sufficient cash to perform the needed repairs and
maintenance. Borrower shall have paid all fees and expenses of such inspection.
(f) The Lender shall have received mortgage and conveyance and tax
researches on the Property, showing the Property to be free and clear of any
liens, encumbrances, restrictions or servitudes that Lender has not approved in
writing, and showing that all taxes due and owing on the Property have been paid
in full.
(g) Lender shall have received, at Borrower's sole expense, evidence
satisfactory to Lender in its sole discretion that all necessary insurance with
respect to the Property, as required under Article V, is in full force and
effect and is fully paid for a period of twelve (12) months commencing on the
Closing Date.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. The occurrence of any of the following
events shall constitute a default hereunder ("Event of Default"):
(a) Payment. The failure of the Borrower to pay any interest or principal
on the Note or any other Indebtedness when due, or any other cost or expense due
hereunder or under the Note,or any "default event' under the terms of the Note
or under this Agreement or any of the other Loan Documents.
(b) Other Obligations.
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(1) the violation, default, or breach of any other covenant,
obligation, warranty, provision, clause or representation in favor of Lender
under this Agreement or any other Loan Document; or
(2) the violation, default, or breach of any covenant, obligation,
warranty, provision, clause or representation in favor of Lender under any other
document between Borrower and Lender, including but not limited to the following
documents, each dated January 9, 1997: Loan Agreement between Borrower and
Lender; two Promissory Notes executed by Borrower or maker, payable to the order
of Lender, in the original principal amounts of One Million Seven Hundred
Thousand and No/100 ($1,700,000.00) Dollars and Two Hundred Fifty Thousand and
No/100 ($250,000.00) Dollars respectively; and two Security Agreements by
Borrower in favor of Lender; or
(3) the violation, default, or breach of any covenant, obligation,
warranty, provision, clause or representation in favor of Lender under any other
document or instrument representing any part of the Indebtedness.
(c) Misrepresentations. If any report, certificate, financial
statement or other instrument furnished in connection with the Commitment or the
Loan Documents shall prove to be false or misleading in any material respect.
(d) Receivership. If an order, judgment or decree shall be entered by
any competent court appointing a receiver of the property of the Borrower or any
Guarantor, unless such appointment shall have been sought by the Lender to
enforce some provision of this Agreement, and such order, judgment or decree is
not appealed from within the time allowed by law, or if appealed from shall have
been affirmed.
(e) Insolvency. If the Borrower or any Guarantor shall: (I) apply
for, or consent to, the appointment of a receiver, trustee or liquidator of
Borrower or any Guarantor, or all or a substantial part of the assets of same;
(ii) be adjudicated a bankrupt or insolvent, or file a voluntary petition in
bankruptcy, or admit in writing the inability to pay debts as they become due;
(iii) make a general assignment for the benefit of creditors; (iv) file a
petition or answer seeking reorganization or arrangement with creditors, or to
take advantage of any insolvency law, or; (v) file an answer admitting the
material allegations of, or consent to, or default in answering, a petition
filed against Borrower or any Guarantor in any bankruptcy, reorganization or
insolvency proceeding; or if any involuntary petition for bankruptcy is filed
against Borrower and such petition is not dismissed within sixty (60) days of
its filing date.
(f) Seizure. If the Property or any part thereof or any of the
accounts receivable or rents of Borrower be seized in the execution of a writ of
seizure or sale, attachment, fieri facias or any other legal process, or an
order be issued in any judicial proceeding, and such writ of seizure and sale,
attachment, fieri facias or any other legal process or order for the sale of
such assets or any part thereof, issued in any judicial proceeding be not
released, revoked, stayed or set aside within forty-five (45) days from issuance
thereof.
(g) Adverse Change. If, in the opinion of Lender, any material
adverse change occurs in the financial condition of Borrower or any Guarantor
for any reason whatsoever.
(h) Termination of Entities. If any person comprising Borrower or any
Guarantor, not a natural person, should cease to exist as a duly organized and
existing entity under the laws of the State of its organization, or not be in
good standing under such laws, or be dissolved or liquidated.
(i) Non-Compliance. Failure or refusal of Borrower to cause to be
corrected within a reasonable time of discovery thereof, the failure of any
materials, fixtures, or articles used in the Improvements or in the
appurtenances thereto, or to be used in the operation thereof, to meet the
specifications and requirements of, or to comply with any Governmental
Authority.
(j) Advance. Failure or refusal of Borrower to satisfy any conditions
to its right to the receipt of an Advance hereunder for a period in excess of
thirty (30) days.
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<PAGE>
SECTION 8.02. Remedies.If an Event of Default should occur, Lender, without
notice to Borrower, shall have no obligation to make any further Advance
hereunder. If such default is not cured within ten (10) Business Days from the
date of giving of Lender's notice to Borrower ("Default After Notice"), then
Lender shall have the right to immediately declare the Note, the Indebtedness
and all amounts secured to be immediately due and payable, whereupon the same
shall be immediately due and payable without presentment, demand, protest, or
notice of any and (all of which are hereby expressly waived by Borrower), and
Lender may thereupon institute proceedings to collect the same, including the
right to institute foreclosure and/or enforcement proceedings on the Loan
Documents, or any of them. However, if the Event of Default is other than an
obligation of Borrower to pay money, then before a Default After Notice shall
have occurred, Borrower shall have thirty (30) days from the date of delivery of
Lender's notice to Borrower within which to cure it, and if the Event of Default
cannot be reasonably cured within such thirty (30) day period, and if Borrower
commences the action required to cure such default and diligently pursues such
action, then the period shall be extended for such time as may be required in
the sole judgment of Lender to cure such default. In addition to all other
rights and remedies available to Lender hereunder, Lender shall have all rights
and remedies available under the law against any person or persons for damages
or other compensation or remuneration that may be owed to Lender on account of
the violation, default, or breach of any covenant, obligation, warranty,
provision, clause or representation in Lender's favor.
ARTICLE IX
GENERAL PROVISIONS
Throughout the term of this Agreement:
SECTION 9.01. Cumulative Rights. The rights and remedies of Lender under
this Agreement, the Note, and the other Loan Documents shall be cumulative, and
the exercise or partial exercise of any such right or remedy shall not preclude
the exercise of any other right or remedy.
SECTION 9.02. Approval by Lender. All proceedings relating to the Loan and
all documents required or contemplated by this Agreement, and the persons
responsible for the execution and preparation thereof, shall be satisfactory to
Lender, and Lender's counsel shall have received copies (or certified copies
where appropriate in such counsel's judgment) of all documents requested.
SECTION 9.03. No Waiver. No Advance shall constitute a waiver of any of
the conditions to Lender's obligation to make further Advances. If Borrower is
unable to satisfy any such condition, no Advance or waiver shall have the effect
of precluding Lender from thereafter declaring an Event of Default because any
such condition shall remain unsatisfied.
SECTION 9.04. Facts. Any condition of this Agreement which requires the
submission of evidence of the existence or non-existence of a specified fact or
facts implies as a condition the existence or non-existence, as the case may be,
of such fact or facts, and Lender shall, at all times, be free independently to
establish to its reasonable satisfaction such existence or non-existence.
SECTION 9.05. Third Party Beneficiaries. All conditions and obligations of
Lender to make Advances hereunder are imposed solely and exclusively for the
benefit of Lender and its assigns. No other person shall have standing to
require satisfaction of such conditions or be entitled to assume that Lender
will refuse to make Advances in the absence of strict compliance with any or all
thereof, and no other person shall, under any circumstances, be deemed to be a
beneficiary of such conditions, any or all of which may be freely waived, in
whole or in part, by Lender at any time in its sole discretion.
SECTION 9.06. Notices. All notices required hereunder shall be in writing
and shall be deemed to have been given (I) when delivered or (ii) if delivery is
refused, then on the date of attempted delivery, by the United States mail by
certified or registered mail, return receipt requested, or by commercial
overnight courier service,
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<PAGE>
addressed to any party hereof at its address stated below, or at such other
address of which it shall have given notice in writing. The respective
addresses of the parties are as follows:
To the Lender: Hibernia National Bank
Commercial Banking Department
313 Carondelet Street
New Orleans, LA 70130
Attn: Lizette Terral
To the Borrower: Laboratory Specialists, Inc.
1111 Newton Street
Gretna, LA 70053
Attn: Arthur R. Peterson, Jr.
To the Guarantor: Laboratory Specialists of America, Inc.
1111 Newton Street
Gretna, LA 70053
Attn: Arthur R. Peterson, Jr.
SECTION 9.07. Amendment. Neither this Agreement nor any provisions hereof
may be changed, waived, discharged or terminated orally, or in any manner other
than by an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.
SECTION 9.08. Assignment by the Lender. This Agreement, the Loan and any
documents executed pursuant hereto may be assigned or serviced by Lender, its
successors or assigns and Lender, its successors, or assigns may receive
service, brokerage or other fees.
SECTION 9.09. Entire Agreement. This Agreement sets forth the entire
agreement of the Lender and the Borrower, and the Guarantor with respect to the
Loan, and supersedes all prior written or oral understandings with respect
thereto; provided, however, that all written representations, warranties and
certifications made by the Borrower or Guarantor to the Lender with respect to
the Loan and the Collateral shall survive the execution of this Agreement.
SECTION 9.10. Conflict with Collateral Documents. If any substantive
provision of this Agreement is in conflict with a corresponding provision of the
Collateral Documents, the provisions of this Agreement shall prevail.
SECTION 9.11. Time is of the Essence. Time shall be deemed of the essence
with respect to performance of all the terms, provisions and conditions on the
part of the Borrower to be performed hereunder.
SECTION 9.12. Consent to Loan Participation. Borrower agrees and consents
to Lender's sale or transfer, whether now or later, of one or more participation
interests in the Loan to one or more purchasers, whether related or unrelated to
Lender. Lender may provide, without any limitation whatsoever, to any one or
more purchasers, or potential purchasers, any information or knowledge Lender
may have about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect to such
matters and specifically consents to the release of such information. Borrower
additionally waives any and all notices of sale of participation interests, as
well as all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interest will be
considered as the absolute owners of such interest in the Loan and will have all
the rights granted under the participation agreement or agreements governing the
sale of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or against
any purchaser of such participation interests and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the Loan
irrespective of the failure or insolvency of any holder of any interest in the
Loan. Borrower further agrees that the purchaser of any such participation
interests may enforce its interest irrespective of any personal claims or
defenses that Borrower may have against Lender.
SECTION 9.13. Non-Waiver of Rights. Neither failure nor delay of Lender to
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<PAGE>
exercise any right, power or privilege under this Agreement shall operate as a
waiver thereof. The single or partial exercise by Lender of any right, power or
privilege shall not preclude any other or further exercise of any right, power
or privilege hereunder.
SECTION 9.14. Governing Law. This Agreement and all aspects of the Loan
shall be governed by laws of the State of Louisiana.
SECTION 9.15. Intervention by Guarantors. Each Guarantor intervenes in
this Agreement for the express purpose of becoming a party to this Agreement and
to acknowledge all of the terms, provisions, conditions and obligations of this
Agreement, including specifically the representations, warranties, and covenants
herein made with respect to each Guarantor and its property. Without limiting
the generality of the foregoing, by virtue of this intervention, each Guarantor
takes cognizance of and affirms each such representation, warranty, covenant and
obligation of Borrower set forth in this Agreement, binds and obligates himself
or itself, jointly and in solids with Borrower and each other Guarantor, and
guarantees to Lender, its successors and assigns, the full and complete
performance of all terms, conditions, provisions of this Agreement and all
obligations undertaken by Borrower, and each Guarantor herein.
SECTION 9.16. Relationship between the Parties. The relationship between
Lender and Borrower shall be solely that of lender and borrower, and such
relationship shall not, under any circumstances whatsoever, be construed to be a
joint venture, joint adventure, or partnership.
SECTION 9.17. Survival. All warranties, representations, and covenants
made by Borrower and Guarantor herein or in any certificate or other instrument
delivered by them or on their behalf under this Agreement shall be considered to
have been relied upon by Lender and shall survive the making of the Loan and
delivery to Lender of the Note, regardless of any investigation made by the
Lender or on its behalf. All statements in any such certificate or other
instrument shall constitute warranties and representations by Borrower and
Guarantor hereunder.
SECTION 9.18. Separate Covenants. Each covenant contained in this
Agreement shall be construed (absent an express contrary provision therein) as
being independent of each other covenant contained herein and compliance with
any one covenant shall not (absent such an express contrary provision) be deemed
to excuse compliance with any or all other covenants.
SECTION 9.19. Severability. If any provision or the application of any
provision of this Agreement shall to any extent be invalid or unenforceable,
then the remainder of this Agreement or the application of such provision in
other circumstances (other than those as to which it is invalid or
unenforceable) shall not be affected, and each provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
SECTION 9.20. Limitation of Liability. This Agreement, the Note, and the
other Loan Documents, are executed by an officer of Lender, and by acceptance of
the Loan, Borrower agrees that for the payment of any claim or the performance
of any obligations hereunder resulting from any default by Lender, resort shall
be had solely to the assets and property of Lender, and no shareholder, officer,
employee or agent of Lender shall be personally liable therefor.
SECTION 9.21. Multiple Parties. AR of the covenants, agreements, and
obligations undertaken by Borrower shall bind each of the persons comprising
Borrower, in solids.
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<PAGE>
THUS DONE AND SIGNED by the parties hereto at New Orleans, Louisiana, on
the date first above written, in the presence of the undersigned witnesses and
me, Notary, after due reading of the whole.
WITNESSES: BORROWER:
---------
LABORATORY SPECIALISTS, INC.
/s/ John P. Lyons BY: /s/ Arthur R. Peterson, Jr.
- ----------------- ---------------------------
Arthur R. Peterson, Jr.
/s/ Mary B. Sears Its: President
- -----------------
LENDER:
-------
HIBERNIA NATIONAL BANK
BY: /s/ Lizette M. Terral
---------------------
Lizette M. Terral
Its: Vice President
/s/ Robert M. Steeg
- -------------------
NOTARY PUBLIC
INTERVENTION and agreement, per Section 9.15 above:
Laboratory Specialists of America, Inc.
By: /s/ Arthur R. Peterson, Jr.
---------------------------
Arthur R. Peterson, Jr.
Its: Treasurer
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<PAGE>
PROMISSORY NOTE
Borrower: Laboratory Specialists, Inc. Lender: Hibernia National Bank
TIN: 72-0846066 TIN: 72-0210640
Loan Administration Department
1111 Newton Street 313 Carondelet Street
Gretna, LA 70053 New Orleans, LA 70130
Principal Amount: $720,000.00 Date of Note: July 2, 1997
PROMISE TO PAY. LABORATORY SPECIALISTS, INC. ("Borrower") promises to pay to
the order of Hibernia National Bank ("Lender") in lawful money of the United
States of America the sum of Seven Hundred Twenty Thousand & 00/100 Dollars
(U.S. $720,000), together with simple interest on the unpaid principal balance
of this Note as outstanding from time to time, commencing on July 2, 1997 and
continuing until this Note is paid in full, or until default under this Note
with interest thereafter being subject to the default interest rate provisions
set forth herein.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in
accordance with the following payment schedule:
36 consecutive monthly principal and interest payments of $9,410.63 each,
beginning August 2, 1997, with interest calculated on the unpaid principal
balances at a simple Interest rate of 8.6150% per annum; 23 consecutive
monthly principal and Interest payments of $6,006.73 each, beginning August 2,
2000, with Interest calculated on the unpaid principal balances at a simple
Interest rate of 8.650% per annum: and 1 principal and Interest payment of
$484,666.18 on July 2, 2002, with Interest calculated on unpaid principal
balances at a simple Interest rate of 8.650% per annum. This estimated final
payment is based on the assumption that all payments will be made exactly as
scheduled: the actual final payment will be for all principal and accrued
Interest not yet paid, together with any other unpaid amounts under this Note.
Interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest over a year of 360 days, multiplied
by the outstanding principal balance, multiplied by the actual number of days
the principal balance is outstanding. Borrower will pay Lender at Lender's
address shown above or at such other place as Lender may designate in writing.
Unless otherwise agreed or required by applicable law, payments will be applied
first to accrued unpaid interest, then to principal, and any remaining amount to
any unpaid collection costs and late charges.
PREPAYMENT PENALTY. Upon prepayment of this Note, Lender is entitled to the
following prepayment penalty: During the first year of this Note, a prepayment
penalty of 4% will be assessed on prepayments. During the second year, a
prepayment penalty of 3% will be assessed on prepayments. During the third year
a prepayment penalty of 2% will be assessed on prepayments. During the fourth
year, a prepayment penalty of 1% will be assessed on prepayments. Other than
Borrower's obligation to pay any prepayment penalty, Borrower may prepay this
Note in full at any time by paying the then unpaid principal balance of this
Note, plus accrued simple interest and any unpaid late charges through date of
prepayment. If Borrower prepays this Note in full, or if Lender accelerates
payment, Borrower understands that, unless otherwise required by law, any
prepaid fees or charges will not be subject to rebate and will be earned by
Lender at the time this Note is signed. Unless otherwise agreed to in writing,
early payments under this Note will not relieve Borrower of Borrowees obligation
to continue to make regularly scheduled payments under the above payment
schedule. Early payments will instead reduce the principal balance due, and
Borrower may be required to make fewer payments under this Note.
LATE CHARGE. If Borrower fails to pay any payment under this Note in full
within 10 days of when due, Borrower agrees to pay Lender a late payment fee in
an amount equal to 10.00% of the delinquent interest due. Late charges will not
be assessed following declaration of default and acceleration of maturity of
this Note.
DEFAULT. The following actions and/or inactions shall constitute default events
under this Note.
Default Under This Note. Should Borrower default in the payment of principal
and/or interest under this Note.
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<PAGE>
Default Under Security Agreements. Should Borrower or any guarantor violate,
or fail to comply fully with any of the terms and conditions default under any
security right, instrument document, or agreement directly or indirectly
securing repayment of this Note.
Other Defaults in Favor of Lender. Should Borrower or any guarantor of this
Note default under any other loan, extension of credit, security right,
instrument, document, or agreement, or
obligation in favor of Lender.
Default in Favor of Third Parties. Should Borrower or any guarantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person that
may affect any property or other collateral directly or indirectly securing
repayment of this Note.
Insolvency. Should the suspension, failure or insolvency, however evidenced,
of Borrower or any guarantor of this Note occur or exist.
Death or Interdiction. Should any guarantor of this Note die or be
interdicted.
Readjustment of Indebtedness. Should proceedings for readjustment of
indebtedness, reorganization, bankruptcy, composition or extension under any
insolvency law be brought by or against Borrower or any guarantor.
Assignment for Benefit of Creditors. Should Borrower or any guarantor file
proceedings for a respite or make a general assignment for the benefit of
creditors.
Receivership. Should a receiver of all or any part of Borrower's property, or
the property of any guarantor, be applied for or appointed.
Dissolution Proceedings. Should proceedings for the dissolution or appointment
of a liquidator of Borrower or any guarantor be commenced.
False Statements. Should any representation, warranty, or material statement
of Borrower or any guarantor, made in connection with the obtaining of the loan
evidenced by this Note or any security agreement directly or indirectly securing
repayment of this Note, prove to be incorrect or misleading in any respect.
Material Adverse Change. Should any material change occur in the financial
condition of Borrower, or any guarantor of this Note or should any material
discrepancy exist between the financial statements submitted by Borrower or any
guarantor and the actual financial condition of Borrower or such guarantor.
Insecurity. Should Lender deem itself to be insecure with regard to repayment
of this Note.
LENDER'S RIGHTS UPON DEFAULT. Should any one or more default events occur or
exist under this Note as provided above, Lender shall have the right, at its
sale option, to declare formally this Note to be in default and to accelerate
the maturity and insist upon immediate payment in full of the unpaid principal
balance then outstanding under this Note, plus accrued interest, together with
reasonable attorneys' fees, costs, expenses and other fees and charges as
provided herein. Lender shall have the further right, again at its sole option,
to declare formal default and to accelerate the maturity and to insist upon
immediate payment in full of each and every other loan, extension of credit,
debt, liability and/or obligation of every nature and kind that Borrower may
then owe to Lender, whether direct or indirect or by way of assignment, and
whether absolute or contingent, liquidated or unliquidated, voluntary or
involuntary, determined or undetermined, secured or unsecured, whether Borrower
is obligated alone or with others on a "solidary" or "joint and several basis,
as a principal obligor or otherwise, all without further notice or demand,
unless Lender shall otherwise elect.
INTEREST AFTER DEFAULT. It Lender declares this Note to be In default, Lender
has the right prospectively to adjust and fix the simple interest rate under
this Note until this Note is paid in full, as follows: (1) It the original
principal amount of this Note is $250,000 or less, the fixed default interest
rate shall be equal to eighteen
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<PAGE>
(18%) percent per annum, or three (3%) per cent per annum in excess of the
interest rate under this Note, whichever is greater. (2)If the original
principal amount of this Note if more than $250,000, the fixed default interest
rate shall be equal to twenty-one (21%) percent per annum, or three (3%) per
cent per annum in excess of the interest rate under this Note at the time of
default, whichever is greater.
ATTORNEYS' FEES. If Lender refers this Note to an attorney for collection, or
files suit against Borrower to collect this Note, or it Borrower files for
bankruptcy or other relief from creditors, Borrower agrees to pay Lender's
reasonable attorneys' fees in an amount not exceeding 25.00% of the unpaid debt
then owing under this Note.
NSF CHECK CHARGES. In the event that Borrower makes any payment under this Note
by check and Borrower's check is returned to Lender unpaid due to nonsufficient
funds in my deposit account, Borrower agrees to pay Lender an additional NSF
check charge equal to $20.00.
DEPOSIT ACCOUNTS. As collateral security for repayment of this Note and all
renewals and extensions, as well as to secure any and all other loans, notes,
indebtedness and obligations that Borrower (or any of them) may now and in the
future owe to Lender or incur in Lender's favor, whether direct or indirect,
absolute or contingent, due or to become due, of any nature and kind whatsoever
(with the exception of any indebtedness under a consumer credit card account),
Borrower is granting Lender a continuing security interest in any and all funds
that Borrower may now and in the future have on deposit with Lender or in
certificates of deposit or other deposit accounts as to which Borrower is an
account holder (with the exception of IRA, pension, and other tax-deterred
deposits). Borrower further agrees that Lender may at any time apply any funds
that Borrower may have on deposit with Lender or in certificates of deposit or
other deposit accounts as to which Borrower is an account holder against the
unpaid balance of this Note and any and all other present an future indebtedness
and obligations that Borrower (or any of them) may then owe to Lender, in
principal, interest, fees, costs, expenses, and attorneys' fees.
FINANCIAL STATEMENTS. Borrower agrees to provide Lender with such financial
statements and other related information at such frequencies and in such detail
as Lender may reasonably request.
GOVERNING LAW. Borrower agrees that this Note and the loan evidenced hereby
shall be governed under the laws of the State of Louisiana. Specifically, this
business or commercial Note is subject to La. R.S. 9:3509 et seq.
WAIVERS. Borrower and each guarantor of this Note hereby waive demand,
presentment for payment, protest, notice of protest and notice of nonpayment,
and all pleas of division and discussion, and severally agree that their
obligations and liabilities to Lender hereunder shall be on a "solidary" or
"joint and several" basis. Borrower and each guarantor further severally agree
that discharge or release of any party who is or may be liable to Lender for the
indebtedness represented hereby, or the release of any collateral directly or
indirectly securing repayment hereof, shall not have the effect of releasing any
other party or parties, who shall remain liable to Lender, or of releasing any
Other collateral that is not expressly released by Lender. Borrower and each
guarantor additionally agree that Lender's acceptance of payment other than in
accordance with the terms of this Note, or Lender's subsequent agreement to
extend or modify such repayment terms, or Lender's failure or delay In
exercising any rights or remedies granted to Lender, shall likewise not have the
effect of releasing Borrower or any other party or parties from their
respective obligations to Lender, or of releasing any collateral that directly
or indirectly secures repayment hereof. In addition, any failure or delay on
the part of Lender to exercise any of the rights and remedies granted to Lender
shall not have the effect of waiving any of Lender's rights and remedies. Any
partial exercise of any rights and/or remedies granted to Lender shall
furthermore not be construed as a waiver of any other rights and remedies; it
being Borrower's intent and agreement that Lender's rights and remedies shall be
cumulative In nature. Borrower and each guarantor further agree that, should
any default event occur or exist under this Note, any waiver or forbearance on
the part of Lender to pursue the rights and remedies available to Lender, shall
be binding upon Lender only to the extent that Lender specifically agrees to any
such waiver or forbearance in writing. A waiver or forbearance on the part of
Lender as to one default event shall not be construed as a waiver or forbearance
as to any other default Borrower and each guarantor of this Note further agree
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<PAGE>
that any late charges provided for under this Note will not be charges for
deferral of time for payment and will not and are not Intended to compensate
Lender for a grace or cure period, and no such deferral, grace or cure period
has or will be granted to Borrower in return for the imposition of any late
charge. Borrower recognizes that Borrower's failure to make timely payment of
amounts due under this Note will result in damages to Lender, including but not
limited to Lender's lose of the use of amounts due, and Borrower agrees that any
late charges imposed by Lender hereunder will represent reasonable compensation
to Lender for such damages . Failure to pay in full any installment or p payment
timely when due under this Note, whether or not a late charge is assessed will
remain and shall constitute an Event of Default hereunder.
SUCCESSORS AND ASSIGNS LIABLE. Borrower's and each guarantor's obligations and
agreements under this Note shall be binding upon Borrowers and each guarantor's
respective successors, heirs, legatees, devisees, administrators, executors and
assigns. The rights and remedies granted to Lender under this Note shall inure
to the benefit of Lender's successors and assigns, as well as to any subsequent
holder or holders of this Note.
CAPTION HEADINGS. Caption headings of the sections of this Note are for
convenience purposes only and are not to be used to Interpret or to define their
provisions. In this Note, whenever the context so requires, the singular
includes the plural and the plural also includes the singular.
SEVERABILITY. If any provision of this Note is held to be invalid, illegal or
unenforceable by any court, that provision shall be deleted from this Note and
the balance of this Note shall be interpreted as if the deleted provision never
existed.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY
ACTION, PROCEEDING, OR C0UNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST
THE OTHER.
BORROWER:
BY: /s/ Arthur R. Peterson, Jr.
---------------------------
Arthur R. Peterson, Jr., President
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARIES FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 703,157
<SECURITIES> 0
<RECEIVABLES> 2,921,914
<ALLOWANCES> 637,499
<INVENTORY> 75,370
<CURRENT-ASSETS> 3,424,243
<PP&E> 3,008,739
<DEPRECIATION> 1,024,749
<TOTAL-ASSETS> 12,457,386
<CURRENT-LIABILITIES> 3,476,066
<BONDS> 2,401,354
0
0
<COMMON> 3,313
<OTHER-SE> 6,269,553
<TOTAL-LIABILITY-AND-EQUITY> 12,457,386
<SALES> 0
<TOTAL-REVENUES> 6,010,982
<CGS> 0
<TOTAL-COSTS> 2,659,857
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40,000
<INTEREST-EXPENSE> 90,484
<INCOME-PRETAX> 1,071,859
<INCOME-TAX> 449,243
<INCOME-CONTINUING> 622,616
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 622,616
<EPS-PRIMARY> .19
<EPS-DILUTED> .16
</TABLE>
