<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 MARCH 31, 1998
[_] 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 May 8, 1998, 4,941,318 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 15
Index to Exhibits Appears on Sequentially Numbered Page 15
<PAGE>
LABORATORY SPECIALISTS OF AMERICA, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
Page
----
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
December 31, 1997 and March 31, 1998 (Unaudited).............. 3
Consolidated Statements of Income (Unaudited)
Three Months Ended March 31, 1997 and 1998.................... 5
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1997 and 1998.................... 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................................................. 12
ITEM 2. CHANGES IN SECURITIES............................................. 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 12
ITEM 5. OTHER INFORMATION................................................. 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 13
SIGNATURES.................................................................. 14
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PART I-FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARIES
---------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
ASSETS (UNAUDITED)
------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,863,639 $ 3,120,960
Accounts receivable, net of allowances of $568,237 in
1997 and $558,485 in 1998 2,262,990 2,413,563
Income tax refund receivable 190,498 --
Inventories 109,929 70,911
Prepaid expenses and other 115,219 170,659
Deferred tax asset 160,709 160,709
----------- -----------
Total current assets 5,702,984 5,936,802
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $1,123,909 in 1997 and $1,194,023 in 1998 2,376,885 2,340,997
----------- -----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $272,148 in 2,316,302 2,291,956
1997 and $296,494 in 1998
Customer list, net of accumulated amortization of $518,105
in 1997, and $603,240 in 1998 4,587,814 4,296,908
Deferred costs 32,595 30,675
----------- -----------
Total other assets 6,936,711 6,619,539
----------- -----------
Total assets $15,016,580 $14,897,338
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
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LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARIES
---------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 742,292 $ 799,836
Accrued income tax -- 93,439
Accrued payroll 411,364 459,856
Accrued expenses 78,491 54,365
Accrued customer list installment payments 510,345 260,000
Obligations from discontinued operations 126,813 134,604
Current portion of long-term debt. 527,696 531,573
----------- -----------
Total current liabilities 2,397,001 2,333,673
----------- -----------
LONG-TERM DEBT, net of current portion 2,353,428 1,865,954
----------- -----------
DEFERRED INCOME TAXES 359,848 359,848
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, 20,000,000 shares authorized,
4,924,818 shares issued and outstanding at 12/31/97 and
4,934,818 shares issues and outstanding at 3/31/98 4,925 4,935
Paid in capital in excess of par, common stock 8,291,365 8,321,355
Retained earnings 1,610,013 2,011,573
----------- -----------
Total stockholders' equity 9,906,303 10,337,863
----------- -----------
Total liabilities and stockholders' equity $15,016,580 $14,897,338
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
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<PAGE>
LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARIES
--------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
REVENUES $2,587,222 $3,571,608
COST OF LABORATORY SERVICES 1,186,084 1,675,281
---------- ----------
Gross profit 1,401,138 1,896,327
---------- ----------
OPERATING EXPENSES:
Selling 132,129 196,414
General and administrative 695,616 853,028
Depreciation and amortization 140,849 192,344
---------- ----------
Total operating expenses 968,594 1,241,786
---------- ----------
Income from operations 432,544 654,541
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (36,876) (46,144)
Interest income 11,653 37,167
Other income 303 39,933
---------- ----------
Total other income (expense) (24,920) 30,956
---------- ----------
Income before income taxes 407,624 685,497
INCOME TAX EXPENSE 173,621 283,937
---------- ----------
Net income available to common stockholders $ 234,003 $ 401,560
========== ==========
BASIC EARNINGS PER SHARE:
Weighted Average Number Of Common Stock
Shares Outstanding 3,313,405 4,925,485
========== ==========
Earnings Per Common Stock Share $.07 $.08
========== ==========
DILUTED EARNINGS PER SHARE:
Weighted Average Number Of Common Stock and
Common Stock Equivalents Outstanding 3,891,723 5,288,380
========== ==========
Earnings Per Common Stock and Common Stock Equivalents $.06 $.08
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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<PAGE>
LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARIES
----------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 234,003 $ 401,560
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 140,849 192,344
Provision for bad debts 30,000 --
Gain from extinguishment of long-term debt -- (38,121)
Impact of changes in assets and liabilities:
Accounts receivable-current (300,764) (150,573)
Income tax refund receivable 173,621 190,498
Inventories (16,389) 39,018
Prepaid expenses and other 290 (55,440)
Income tax payable -- 93,439
Accounts payable and accrued expenses 131,013 89,701
----------- ----------
Net cash provided by operating activities 392,623 762,426
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (217,431) (46,977)
Purchase of PLL Customer List (1,650,433) (42,033)
Purchase of Accu-Path Customer List -- (2,541)
Acquisition costs (193,058) 1,920
----------- ----------
Net cash used in investing
----------- ----------
activities (2,060,922) (89,631)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term debt (11,666) --
Payments on long-term debt (85,312) (445,474)
Proceeds from long-term borrowings 1,681,309 --
Proceeds from exercise of warrants and stock options -- 30,000
----------- ----------
Net cash provided by (used in) financing
activities 1,584,331 (415,474)
----------- ----------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (83,968) 257,321
----------- ----------
CASH AND CASH EQUIVALENTS, beginning
of period 727,381 2,863,639
----------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 643,413 $3,120,960
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for interest $ 36,876 $ 58,279
=========== ==========
Cash paid during the period for taxes $ -- $ --
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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<PAGE>
LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARY
-------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997, AND MARCH 31, 1998, IS
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, 1997, 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 March 27, 1998. The
financial data for the interim periods presented may not necessarily reflect the
results to be expected for the full year.
2. EARNINGS PER COMMON SHARE
Both Basic and Diluted Earnings per common share were computed using the
weighted average number of common shares outstanding. Diluted earnings per
share were computed by adding the dilutive effect, if any, of the conversion of
stock options, outstanding warrants and contingent shares. In the diluted
earnings per share calculation the outstanding warrants were calculated using
the weighted average market price during the term of the warrants.
3. 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.
4. 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
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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.
5. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In connection with the Pathology Laboratories, Ltd. ("PLL") Purchase, LSI had
recorded a liability of $960,000 based upon estimated future quarterly payments.
As of March 31, 1998, total payments of $751,688 were recorded as reductions in
the liability owed to PLL for the four installments. The remaining balance of
the liability, approximately $208,312, was recorded as a reduction in the
carrying value of the PLL customer list.
In connection with the Accu-Path Medical Laboratory, Inc. ("Accu-Path")
Purchase, LSI has recorded a liability of $260,000 based upon estimated future
quarterly payments. As of March 31, 1998, no payments have been made toward the
liability with Accu-Path.
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, 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 and the
reductions in the liability owed to PLL and Accu-Path, are non-cash transactions
and have been excluded from the accompanying statements of cash flows.
6. SUBSEQUENT EVENTS
On May 1, 1998, the Company acquired from Harrison Laboratories, Inc. ("HLI"), a
Texas corporation, certain intangible assets pursuant to an Asset Purchase
Agreement dated April 13, 1998, ("HLI Asset Purchase"). The assets purchased
included the customer list of HLI and certain other intangible assets. Pursuant
to the HLI Asset Purchase, the Company (i) paid $ 500,000 at closing, (ii)
assumed the obligations of HLI under a certain capital lease, dated November 11,
1997, which requires 60 monthly base payments of $6,137, and (iii) is required
to make a final payment, on or before June 1, 1999, in an amount equal to 100
percent of the gross revenues directly attributable to each customer comprising
the customer base of HLI for the year ended April 30, 1999, exceeding $ 533,000.
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<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Laboratory Specialists of America, Inc. (the "Company" or "LSAI"), an Oklahoma
corporation, was organized in March 1994. Effective July 8, 1994, and January
2, 1996, respectively, LSAI acquired all of the capital stock of Laboratory
Specialists, Inc. ("LSI"), a Louisiana corporation, and National
Psychopharmacology Laboratory, Inc. ("NPLI"), a Tennessee corporation, and LSI
and NPLI became wholly owned subsidiaries of LSAI.
Through LSI, the Company operates an independent forensic drug testing
laboratory providing integrated drug testing services to corporations and
governmental bodies, by negotiated contract, for detection of illegal drug use
by employees and prospective employees. The Company's customers are primarily
in the construction, transportation, service, mining, and manufacturing
industries, principally located in the southeast and southwest United States.
RESULTS OF OPERATIONS
The following table sets forth selected results of operations for (i) the
twelve months ended December 31, 1996 and 1997, which are derived from the
audited consolidated financial statements of the Company and (ii) for the three
months ended March 31, 1997 and 1998, which are derived from the unaudited
consolidated 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>
For the Year Ended December 31, Three Months Ended March 31,
----------------------------------------- ------------------------------------------
1996 1997 1997 1998
------------------ ------------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED)
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $8,726,799 100.0% $12,836,953 100.0% $2,587,222 100.0% $3,571,608 100.0%
Cost of revenues 3,816,114 43.7% 5,828,665 45.4% 1,186,084 45.9% 1,675,281 46.9%
---------- ----- ----------- ----- ---------- ----- ---------- -----
Gross profit 4,910,685 56.3% 7,008,288 54.6% 1,401,138 54.1% 1,896,327 53.1%
---------- ----- ----------- ----- ---------- ----- ---------- -----
Operating expenses:
Selling 601,945 6.9% 654,284 5.1% 132,129 5.1% 196,414 5.5%
General and 2,442,602 28.0% 3,230,117 25.1% 695,616 26.9% 853,028 23.9%
administrative
Depreciation and
amortization 504,123 5.8% 690,268 5.4% 140,849 5.4% 192,344 5.4%
Asset impairment 124,531 1.4% -- 0.0% -- 0.0% -- 0.0%
---------- ----- ----------- ----- ---------- ----- ---------- -----
Total operating expenses 3,673,201 42.1% 4,574,669 35.6% 968,594 37.4% 1,241,786 34.8%
---------- ----- ----------- ----- ---------- ----- ---------- -----
Income from operations $1,237,484 14.2% $ 2,433,619 19.0% $ 432,544 16.7% $ 654,541 18.3%
========== ===== =========== ===== ========== ===== ========== =====
</TABLE>
During the three months ended March 31, 1998, LSI experienced a 4.0 percent
decrease in the price per specimen, compared to the three months ended March 31,
1997, principally due to increased price competition amongst providers of drug
testing services, price per specimen being an important 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. There can be no assurance that price per
specimen will not decline during 1998. In the event price stabilization does
not occur, LSI will, as it has in the past, take appropriate measures to
downsize its drug testing personnel and possibly furthur automate the testing
process and employ additional technology to continue profitability, although
there can be no assurance that
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such measures will assure profitability in the event of substantial price
reductions within the short term.
Comparison of Three-Month Periods Ended March 31, 1997 and 1998
Revenues increased to $3,571,608 in the three months ended March 31, 1998 (the
"1998 Interim Period"), from $2,587,222 in the three months ended March 31, 1997
(the "1997 Interim Period"), an increase of 38.0 percent. The increase in
revenues was due to a 44.2 percent increase in the number of specimens analyzed
during the 1998 Interim Period as compared to the 1997 Interim Period, although
partially offset by a decrease of 4.0 percent in the average price per specimen.
The increase in number of specimens analyzed was attributable to the PLL and
Accu-Path Asset Purchases 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.
Cost of revenues increased $489,197 from $1,186,084 in the 1997 Interim Period
to $1,675,281 in 1998 Interim Period, an increase of 41.2 percent. Gross
profit on revenues decreased as a percentage of revenues from 54.1 percent in
the 1997 Interim Period to 53.1 percent in 1998 Interim Period. The decrease
was primarily due to the decrease in the price per specimen. In addition, a key
laboratory position was added in early 1998 resulting in increased salaries.
Operating expenses increased from $968,594 in the 1997 Interim Period to
$1,241,786 in the 1998 Interim Period, an increase of 28.2 percent, and
decreased as a percentage of revenues from 37.4 percent to 34.8 percent. The
increase in operating expenses for the Interim Period was attributable to
increases in selling expenses of $64,285, general and administrative expenses of
$157,412 and depreciation and amortization of $51,495. The increase in general
and administrative expenses was principally 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 and
Accu-Path Asset Purchases. The increase in selling expenses was due to several
additions to the sales force during 1997, to assist in maintaining forensic
clients acquired in the PLL and Accu-Path Asset Purchase as well as generate
additional business in other areas of the country. Depreciation increased due
to the renovation of the new laboratory and purchase of additional equipment at
LSI, while amortization increased due to the acquisitions of PLL and Accu-Path
and the amortization of the PLL and Accu-Path customer lists.
Income from operations increased from $432,544 in the 1997 Interim Period to
$654,541 in the 1998 Interim Period, a 51.3 percent increase and increased from
16.7 percent of revenues in the 1997 Interim Period to 18.3 percent of revenues
in the 1998 Interim Period.
Interest expense increased from $36,876 in the 1997 Interim Period to $46,144
in 1998 Interim Period, a 25.1 percent increase. 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 loans
associated with the PLL Asset Purchase and the purchase and renovation of the
new laboratory building. Interest income increased from $11,653 in the 1997
Interim Period to $37,167 in the 1998 Interim Period. Other income increased
from $303 in the 1997 Interim Period to $39,933 in the 1998 Interim Period. Net
income, after provision for income taxes, increased from $234,003 in the 1997
Interim Period to $401,560 in the 1998 Interim Period, a 71.6 percent increase.
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
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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 three months ended March 31, 1998, 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 $762,426 in the three months
ended March 31, 1998, and $392,623 in the three months ended March 31, 1997. As
of March 31, 1998, LSAI had working capital of $3,603,129, compared to working
capital of $3,305,983, at December 31, 1997. 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 $3,120,960 at March 31, 1998) 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.
FUTURE OPERATIONS AND LIQUIDITY
On January 9, 1997, LSI entered into a loan agreement with Hibernia National
Bank (the "bank") for a term loan of $1,700,000 to be used for the acquisition
of PLL. This loan is payable in 59 monthly principal installments of
approximately $28,333, with a final principal payment becoming due on January
10, 2002, of approximately $28,547. The outstanding principal balance of this
loan bears interest at the Citibank N.A. Rate. As of March 31, 1998, the
interest rate was 9 percent per annum and the outstanding principal amount of
such loan was approximately $1,303,333.
On July 2, 1997, LSI entered into a loan agreement with the bank for a term
loan in the principal amount of $720,000, to refinance the building to which
LSI's laboratory has been relocated. This loan is payable in 36 monthly
installments of approximately $9,800, followed by 23 monthly installments of
approximately $6,000, with a final payment becoming due on July 2, 2002, of
approximately $484,700. The outstanding principal balance of this loan bears
interest at a rate of 8.65 percent per annum. As of March 31, 1998, the
outstanding principal balance amount of such loan was approximately $682,650.
On December 1, 1997, the Company acquired from Accu-Path Medical Laboratory,
Inc. certain intangible assets pursuant to an Asset Purchase Agreement, dated
December 1, 1997. Pursuant to the Purchase Agreement, the Company agreed to
pay 180 percent of the the forensic testing revenues during the period from June
through November, 1998 as follows: (i) $100,000 paid at closing, (ii) an amount
equal to 50 percent of the forensic testing revenues for each of the first three
quarters, to be paid thirty days following the end of each quarter, and (iii)
the balance to be paid in four quarterly installments with the first payment due
thirty days following tht end of the first twelve month anniversary period from
the date of closing. The estimated gross revenues attributable to this customer
base was approximately $400,000. As of March 31, 1998, no payments have been
made toward the liability with Accu-Path.
On May 1, 1998, the Company acquired from HLI, certain intangible assets
pursuant to an Asset Purchase Agreement dated April 13, 1998. Pursuant to the
HLI Asset Purchase the Company (i) paid $500,000 at closing,
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(ii) assumed the obligations of HLI under a certain capital lease, dated
November 11, 1997, which requires 60 monthly base payments of $6,137, and (iii)
is required to make a final payment, on or before, June 1, 1999, in an amount
equal to 100 percent of the gross revenues directly attributable to each
customer comprising the customer base of HLI for the year ended April 30, 1999,
exceeding $533,000. The estimated gross revenues attributable to the customer
base, for the year ended December 31, 1997, was approximately $1,300,000. As of
March 31, 1998, no payments have been made toward the liablitiy with HLI.
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.
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 March 27, 1998, 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.
-12-
<PAGE>
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 January 9, 1997.
10.2 Promissory Note issued by Laboratory Specialists,
Inc. to Hibernia National Bank, dated January 9, 1997.
10.3 The Asset Purchase agreement between the Registrant,
Laboratory Specialists, Inc., and Harrison
Laboratories, Inc., dated April 13, 1998 .
10.4 Employment Agreement between Roy D. Harrison,
Laboratory Specialists, Inc. and the Registrant.
27 Financial Data Schedules.
(b) Reports on Form 8-K
Not applicable
-13-
<PAGE>
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: May 11, 1998 By: /s/ Arthur R. Peterson, Jr.
-------------------------------
Arthur R. Peterson, Jr.
Treasurer
-14-
<PAGE>
INDEX TO EXHIBITS
-----------------
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE
----------- ------- ------------
10.1 Loan Agreement between Hibernia National 16
Bank and Laboratory Specialists, Inc., dated
January 9, 1997.
10.2 Promissory Note issued by Laboratory 40
Specialists, Inc. to Hibernia National Bank,
dated January 9, 1997.
10.3 The Asset Purchase Agreement between 45
the Registrant, Laboratory Specialists, Inc.,
and Harrison Laboratories, Inc., dated
April 13, 1998.
10.4 Employment Agreement between Roy D. 63
Harrison, Laboratory Specialists, Inc., and
the Registrant.
27 Financial Data Schedules. 68
-15-
<PAGE>
Exhibit 10.1
LOAN AGREEMENT
BY AND BETWEEN:
HIBERNIA NATIONAL BANK
AND
LABORATORY SPECIALISTS, INC.
UNITED STATES OF AMERICA
STATE OF LOUISIANA
PARISH ORLEANS
CITY OF NEW ORLEANS
BE IT KNOWN, that as of the 9th day of January, 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 One Million Seven Hundred Thousand
and No/100 ($1,700,000.00) Dollars (the "Term Loan") and for an additional
credit facility in the maximum aggregate principal sum not exceeding Two Hundred
Fifty Thousand and No/100 ($250,000.00) Dollars (the "Revolving Loan"), which
facilities shall be used for the purposes of the acquisition of the forensic
operations of Pathology Laboratories Limited and financing the equipment and
receivables of Borrower (the
<PAGE>
said Term Loan and the said Revolving Loan being hereinafter collectively
referred to as 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.
"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 Loan.
"Indebtedness" shall mean any and all amounts and/or liabilities owing from time
to time to the 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
<PAGE>
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.
"Notes" or "Note" shall mean, respectively, the Revolving Note and the Term Loan
Note collectively, or either one of them individually.
"Parent" shall mean any person that owns more than fifty (50%) percent of the
total issued and outstanding ownership interests in another person.
"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 subject to change from time to time
equal to an independent index which is the prime rate of interest charged by
Citibank, N.A. at its main office at New York, New York (the "Index"). The
Index is not necessarily the lowest rate charged by Lender on its loans. If the
Index becomes unavailable during the term of this Loan, Lender may designate a
substitute Index after notice to Borrower. Lender will tell Borrower the
current Index upon Borrower's request. Borrower understands that Lender may make
loans based on other rates as well. As of the Closing Date, the Prime Rate is
eight and one-quarter (8.25%) percent. The Prime Rate shall not change more
often than once each day.
SECTION 1.02. Additional Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"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").
"Collateral Note" shall mean that certain Collateral Mortgage Note executed by
the 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 Mortgage.
"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.
<PAGE>
"Eligible Receivables" shall mean those accounts receivable of Borrower which
have been outstanding and unpaid for less than ninety (90) days after date of
invoice and which are approved by Lender in its sole discretion as being
accounts receivable which Lender is willing to accept as collateral for the
Loan, evaluated on a month-by-month and case-by-case basis. By way of
illustration without limitation, the following accounts receivable were not so
approved, as of the Effective Date:
(1) all accounts receivable due from an account debtor if more than
fifty (50%) percent of the total accounts receivable due from that account
that account debtor that have been unpaid for more than sixty (60) days
after the date upon which payment was due;
(2) all accounts receivable due from account debtors not domiciled in
the United States, except such accounts that are payable in United States
currency;
(3) all accounts receivable due from account debtors with respect to
which bankruptcy or reorganization or similar proceedings for relief from
creditors are pending; and
(4) all accounts receivable due from account debtors who are (in
whole or in part) agencies or instrumentalities of local, state or federal
government.
"Eligible Receivables Certificate" shall mean the certificate, certified correct
by Borrower's chief financial officer, or chief operating officer or chief
executive officer, setting forth the calculation of the Eligible Receivables as
of the last day of a fiscal quarter, delivered to the Lender thirty (30) days
thereafter on the form annexed hereto as EXHIBIT "A". It shall show the
calculation of the Eligible Receivables and be supported by an aging summary for
the accounts receivable.
"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 Property.
"LSAI" shall mean Laboratory Specialists of America, Inc., an Oklahoma
corporation.
"Mortgage" shall mean that certain Collateral Mortgage by the Borrower, dated
January 17, 1990, encumbering the Property, which secures the Collateral Note,
recorded or to be recorded in the mortgage records of the Parish of Plaquemines,
State of Louisiana in MOB 194, folio 361.
"Pledge of Collateral Mortgage Note" shall mean a document establishing the
Security Interest described in 3.01(a) below.
"Property" shall mean that certain immovable property located in Plaquemines
Parish, Louisiana, encumbered by and more particularly described in the
Mortgage, and known generally as 113 Jarrell Drive, Belle Chasse, Louisiana.
"Revolving Loan" shall mean any and all monies advanced from time to time by
Lender to Borrower under the Revolving Note.
<PAGE>
"Revolving Loan Maturity Date" shall mean the date that is three hundred sixty-
four (364) days after the Closing Date.
"Revolving Note" shall mean the promissory note executed by the Borrower to the
order of the Lender on the Closing Date in the principal sum of Two Hundred
Fifty Thousand and No/100 ($250,000.00) Dollars, in evidence of the Revolving
Loan.
"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.
"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.
"Term Loan" shall mean any and all monies advanced from time to time by Lender
to Borrower under the Term Loan Note.
"Term Loan Maturity Date" shall mean the date that is five (5) years after the
Closing Date.
"Term Loan Note" shall mean that certain promissory note in the original
principal amount of One Million Seven Hundred Thousand and No/100
($1,700,000.00) Dollars, executed by Borrower as maker to the order of Lender,
dated the Closing Date.
SECTION 1.03. Specific Financial Definitions.
"EBITDA" shall mean earnings before interest expense, income taxes, depreciation
and amortization.
"Long Team 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 the 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.
<PAGE>
(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.
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, the Lender
agrees to provide the Borrower with the Term Loan and with the Revolving Loan,
as follows:
(a) Term Loan. The maximum outstanding balance due under the Term Loan
shall not exceed One Million Seven Hundred Thousand and No/100 ($1,700,000.00)
Dollars, on the following terms and conditions:
i) The Term Note shall bear interest from the date of the Advance
until paid in full at the Prime Rate, as same is adjusted from time to
time as, provided elsewhere in this Agreement, plus one-half (.5%)
percent. Interest on the outstanding principal balance of the Term
Note shall be payable in arrears, along with principal due on the Term
Note, on the tenth (10th) day of each month until the Term Loan
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.
ii) The entire principal balance outstanding on the Term Loan Note
and all accrued interest shall be due and payable on the Term Loan
Maturity Date.
iii) The Term Loan Note may be prepaid in full or in part at any time
without the imposition of a prepayment charge or penalty.
iv) There shall be a fee of one (1%) percent of the maximum aggregate
principal sum of the Term Loan due from Borrower to Lender at Closing.
(b) Revolving Loan. The maximum outstanding balance due under the
Revolving Loan shall not exceed Two Hundred Fifty Thousand and No/100
($250,000.00) Dollars, and shall be made on the following terms and conditions:
i) The Revolving Note shall bear interest from the date of each
Advance until paid in full at the Prime Rate, as same is adjusted from
time to time as provided elsewhere in this Agreement. Interest on the
outstanding principal balance of the Revolving Note shall be payable
in arrears on the tenth (10th) day of each month. 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.
ii) The entire principal balance outstanding on the Revolving Note
and all accrued interest shall be due and payable three hundred sixty-
four
<PAGE>
(364) days after the Closing Date. The Revolving Loan may be renewed
in whole or in part for one or more one (1) year periods thereafter,
all in Lender's sole discretion. In the event of any such renewal, all
provisions of this Agreement and the other Loan Documents shall, to
the maximum extent applicable to the Revolving Loan, remain in full
force and effect, without the need for any additional documentation,
provided that Borrower agrees to execute any additional documentation
relating to any such renewal that Lender may reasonably request.
iii) The Revolving Note may be prepaid in full or in part at any time
without the imposition of a prepayment charge or penalty.
iv) There shall be a fee, payable quarterly in arrears, of one-
quarter (.25%) percent of the unused portion of the maximum aggregate
principal sum of the Revolving Loan.
SECTION 2.02. Advances. The original principal amount of the Term Loan
shall be advanced by Lender to Borrower in a lump sum on the Closing Date, and
the principal amount of the Revolving Loan shall be advanced by Lender to
Borrower on a periodic basis, as requested by Borrower, but same shall be
advanced 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.
SECTION 2.03. Termination or Advances. The Lender's obligation to make
Advances shall terminate in the event that:
(a) the amount of all Advances made to date under the Term Loan equals One
Million Seven Hundred Thousand and No/100 ($1,700,000.00) (the occurrence of
this event shall terminate the obligation to make Advances under the Term Loan
Note only); or
(b) the Term Loan Maturity Date occurs (the occurrence of this event shall
terminate the obligation to make Advances under the Term Loan only); or
(c) the amount of Advances made to date under the Revolving Loan equals Two
Hundred Fifty Thousand and No/100 ($250,000.00) Dollars (the occurrence of this
event shall terminate the obligation to make Advances under the Revolving Loan
only); or
(d) the Revolving Maturity Date occurs (the occurrence of this event shall
terminate the obligation to make Advances under the Revolving Loan only).
ARTICLE III
SECURITY FOR THE LOAN
SECTION 3.01. Collateral. The Loan and the Notes 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 pledge of, and grant of a Security Interest in, the Collateral
Note;
(b) the guaranty of the Guarantor in the amount as provided in Section
3.03;
(c) the grant of a Security Interest in the following movable property of
<PAGE>
Borrower:
(1) all accounts receivables; and
(2) all contract rights and general intangibles; and
(3) all equipment;
(4) all furniture; and
(5) all fixtures located on the Property; and
(6) all inventory.
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) an acknowledgment of the Pledge of Collateral Mortgage Note that
achieves the Collateral described in Section 3.01(a) above;
(b) the Guaranty Agreement;
(c) a Security Agreement in, and a UCC-3 Statement amending the November
10, 1993 UCC-1 Financing Statement to add, the movable property of Borrower
described in Section 3.01(c)(4)through (6) above; and
(d) an acknowledgment of the 1993 Commercial Security Agreement that would
achieve the collateral described in subsections 3.01(c)(1) through (3)
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
<PAGE>
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
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: 113 Jarrell Drive, Belle Chasse, Louisiana 70037.
(ii) The address of Borrower's chief financial office is: 113 Jarrell
<PAGE>
Drive, Belle Chasse, Louisiana 70037.
(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 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
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
<PAGE>
Hazardous Materials at any time (whether before or after the date of
this Agreement) emanating from the Property.
"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 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
per-forming such Site Assessment shall be paid by the Borrower.
<PAGE>
(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 4.03. 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 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.
<PAGE>
(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 their businesses and the ownership of their
properties, except such as are being contested in good faith.
(h) Borrower shall maintain all of its operating accounts with the 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.
(j) Borrower will and does hereby indemnify and hold harmless the 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 the 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
<PAGE>
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 maturities of Long Term Debt
plus all current
<PAGE>
lease obligations. This covenant shall be tested annually at the end of each
fiscal year of Borrower.
(d) Borrower shall maintain Eligible Receivables of no less than One
Million Five Hundred Thousand and No/100 ($1,500,000.00) Dollars, increasing to
at least One Million Seven Hundred Thousand ($1,700,000.00) Dollars within
ninety (90) days after Borrower's acquisition of Pathology Laboratories Limited.
SECTION 5.04. Covenants Relating to the Property. 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) The 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 the Borrower as permitted hereby, and shall deliver to the Lender
evidence satisfactory to the Lender evidencing such payment. The 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 the Lender and (ii)
the Borrower shall give notice of such contest to the Lender. The 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 the 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 the Lender does not receive satisfactory evidence from the
Borrower, in writing, of the payment of all Taxes, then and in such event, the
Lender may pay the Taxes directly to the appropriate Governmental Authority and
such payments shall be deemed an Advance.
(b) (1) The 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 thereon or (ii) the amount of the Loan, all
for the protection of the Lender, who shall be named as loss payee, in such
manner, in such amounts, and in such companies as the Lender may from time to
time approve. Loss proceeds (less expenses of collection) shall, at the
Lender's sole discretion, be applied to the Indebtedness, whether due or not, or
to the restoration of such improvements, or shall be released to the Borrower,
but such application or release shall not cure or waive any Event of Default
hereunder.
(2) The Borrower shall also maintain in effect public liability and
property damage insurance covering the Property in amounts and in companies
satisfactory to the Lender, together with such other coverages as the 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.
<PAGE>
(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) The 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 on the Property shall not be removed, demolished
or materially altered (except for normal replacement), without the consent of
the Lender.
(3) The 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, the Borrower
will not, without obtaining the prior consent of the Lender, initiate, join in,
or consent to 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) The 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.
ARTICLE VI
NEGATIVE COVENANTS
SECTION 6.01. Lender's Consent Required. Unless the 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 merge into any other business, acquire interest
or ownership in any other business, or lend funds to any other business,
provided that Lender's
<PAGE>
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 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 Revolving Loan
proceeds for any purpose or matter other than the working capital of Borrower
nor any portion of the Term Loan proceeds for any purpose or matter other than
acquisition of the forensic operations of Pathology Laboratories Limited, a
Mississippi corporation.
(h) 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 the Lender to
make any Advance 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 the 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
any Advance.
<PAGE>
(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) The Lender shall have received duly executed originals or counterparts
of each of the Loan Documents.
(e) The Lender shall have been furnished with favorable opinions from
Borrower's counsel, which opinion shall cover such matters as the Lender may
require and be in form and substance satisfactory to the 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) 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.
(h) Lender shall have received the Borrowing Base Certificate the due date
of which is closest to but prior to the date of the Advance.
(i) All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident to such trans-actions
shall be satisfactory in form and substance to Lender and its special counsel
and Lender shall have received all documents or other evidence which the 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 form and substance satisfactory to
Lender and its counsel.
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 either of the Notes or any other Indebtedness when due, or any other cost or
expense due hereunder or under the Notes, or any "default event" under the terms
of either of the Notes or under this Agreement or any of the other Loan
Documents.
(b) Other Obligations.
(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 the Note
or any other document establishing, securing, or relating to any other document
or agreement (i) governing any other collateral that serves as collateral of the
Loan
<PAGE>
or (ii) the default of which also constitutes a default under the Loan; 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 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.
<PAGE>
(k) Other Default After Notice. A Default After Notice shall be deemed to
exist under this Agreement if a Lack of Balance occurs with respect to the Loan
and Restoration of Balance is not achieved by Borrower within the time period
required under Section 2.02 above.
SECTION 8.02. Remedies.
If an Event of Default should occur, the 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 the Lender's notice to Borrower ("Default After Notice"), then the 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 kind (all of which are hereby expressly waived by Borrower), and the 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
the Borrower to pay money, then before a Default After Notice shall have
occurred, the 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 the
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 the 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 the 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 the 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
the Lender, and the 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 the 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 the Lender from thereafter declaring an Event of Default because
any such condition shall remain unsatisfied.
<PAGE>
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 the 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
the Lender to make Advances hereunder are imposed solely and exclusively for the
benefit of the Lender and its assigns. No other person shall have standing to
require satisfaction of such conditions or be entitled to assume that the 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 the 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, 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.
113 Jarrell Drive
Belle Chasse, LA 70037
Attn: Arthur R. Peterson, Jr.
To the Guarantor: Laboratory Specialists of America, Inc.
113 Jarrell Drive
Belle Chasse, LA 70037
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 the Lender,
its successors or assigns and the 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
<PAGE>
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 the
Lender to exercise any right, power or privilege under this Agreement shall
operate as a waiver thereof. The single or partial exercise by the 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 the Borrower set forth in this Agreement, binds and obligates
himself or itself, jointly and in solido with Borrower and each other Guarantor,
and guarantees to the 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
the
<PAGE>
Lender and the 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 the Lender, and by
acceptance of the Loan, the 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 the Lender, and
no shareholder, officer, employee or agent of the Lender shall be personally
liable therefor.
SECTION 9.21. Multiple Parties. All of the covenants, agreements, and
obligations undertaken by Borrower shall bind each of the persons comprising
Borrower, in solido.
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/ Robert A. Gardebled, Jr. By: /s/ Arthur R. Peterson, Jr.
- ---------------------------- ---------------------------
Its: President
LENDER:
-------
HIBERNIA NATIONAL BANK
<PAGE>
By: /s/ Lizette M. Terral
---------------------
Its: Vice President
NOTARY PUBLIC
/s/ Robert M. Steeg
-------------------
INTERVENTION and agreement, per Section 9.15 above:
Laboratory Specialists of America, Inc.
By: /s/ Arthur R. Peterson, Jr.
---------------------------
Date: January 9, 1997
---------------
<PAGE>
Exhibit 10.2
PROMISSORY NOTE
Borrower: LABORATORY SPECIALISTS, INC. Lender: Hibernia National Bank
TIN: 72-0846066 TIN: 72-0210640
P.O. Box 435 Loan Administration Dept.
Belle Chasse, LA 70037 313 Carondelet Street
New Orleans, LA 70130
Principal Amount:$1,700,000 Initial Rate:8.750%
Date of Note:January 9, 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 One Million Seven Hundred Thousand &
00/100 Dollars (U.S. $1,700,000.00), together with simple interest
assessed on a variable rate basis at the rate per annum equal to 0.500
percentage points over the Index provided below, as the Index under this
Note may be adjusted from time to time, one or more times, with interest
being assessed on the unpaid principal balance of this Note as outstanding
from time to time, commencing on January 9, 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. Subject to any payment changes resulting from changes in the
Index, Borrower will pay this loan on demand, or if no demand is made, in
59 principal payments of $28,333.33 each and one final principal and
interest payment of $28,547.02. Borrower's first principal payment is due
February 10, 1997, and all subsequent principal payments are due an the
same day of each month after that. In addition, Borrower will pay regular
monthly payments of all accrued unpaid interest due as of each payment
date. Borrower's first interest payment is due February 10, 1997, and all
subsequent interest payments are due on the same day of each month after
that. Borrower's final payment due January 10, 2002, will be for all
principal and accrued interest not yet paid. Interest on this Note is
computed on a 365/360 simple interest basis; that is, by applying the
ratio of the annual interest rate 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.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
change from time to time based on changes in an independent index which is
the CITIBANK N.A. RATE (the "Index"). The Index is not necessarily the
lowest rate charged by Lender on its loans. If the Index becomes
unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that
Lender may make loans based on other rates as well. The interest rate
change will not occur more often than each day. The Index currently is
8.25O% per annum. The interest rate to be applied to
<PAGE>
the unpaid principal balance of this Note will be at a rate of 0.500
percentage points over the Index, resulting in an initial rate of 8.75O%
per annum. Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. 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 Borrower's
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 10.000% 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.
Default Under Security Agreements. Should Borrower or any guarantor violate,
or fail to comply fully with any of the terms and conditions of, or 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
<PAGE>
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 adverse 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
sole 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. If 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) If the original
principal amount of this Note is $250,000 or less, the fixed default interest
rate shall be equal to eighteen (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 is 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. It Lender refers this Note to an attorney for collection, or
files suit against Borrower to collect this Note, or if Borrower files for
bankruptcy or other relief from creditors, Borrower agrees to pay Lender's
reasonable attorneys' fees in an amount not exceeding 25.000% of the unpaid debt
then owing under this Note.
NSF CHECK CHARGES. In the event that Borrower makes any payment under this Note
by
<PAGE>
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-deferred
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 and 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.
LOAN AGREEMENT. This loan is governed by a Loan Agreement dated January 9, 1997.
Any default under that Loan Agreement shall constitute a default hereunder and
shall entitle Lender to exercise all remedies required hereunder.
ACKNOWLEDGMENT OF COLLATERAL. Borrower hereby acknowledges, confirms and
ratifies that all collateral previously pledged to Lender or in which Lender was
granted a security interest to secure Borrower's other obligations to Lender
also secures this Note.
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
<PAGE>
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
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 Lander's loss 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 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 Borrower's 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 Lander'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, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. LENDER AND BORROWER
HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, 0R
COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER.
BORROWER:
LABORATORY SPECIALISTS, INC.
BY: /s/ Arthur R. Peterson, Jr.
----------------------------------
Arthur R. Peterson, Jr., President
<PAGE>
Exhibit 10.3
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
this 13th day of April, 1998, by and between HARRISON LABORATORIES, INC., a
Texas corporation ("HLI"), ROY D. HARRISON, an individual, officer, director and
shareholder of HLI ("Harrison"), LABORATORY SPECIALISTS OF AMERICA, INC., an
Oklahoma corporation ("LSAI"), and LABORATORY SPECIALISTS, INC., a Louisiana
corporation and wholly-owned subsidiary of LSAI ("LSI").
R E C I T A L S
1. HLI and LSAI through LSI are each primarily engaged in the providing
of forensic drug testing services to corporate and institutional customers.
2. LSAI and LSI desire to purchase from HLI and HLI desires to sell to
LSAI and LSI certain assets of HLI, principally the customer base of HLI and the
assets related thereto.
3. HLI, LSAI and LSI desire to make certain representations, warranties,
covenants and agreements in connection with the transactions contemplated under
this Agreement and to prescribe various conditions precedent to such
transactions and payment and delivery of the consideration for purchase of the
assets of HLI.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties to this Agreement have agreed, and
hereby agree, subject to the terms and conditions hereinafter set forth, as
follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. Certain terms which are used primarily in individual
sections of this Agreement are defined when used in such sections. Other terms
used frequently throughout this Agreement are set forth below and have the
following meanings:
CLOSING: The consummation of the transactions contemplated by this Agreement on
the Closing Date.
CLOSING DATE: The date on which the Closing shall occur on and be effective May
1, 1998, or on such other date as mutually agreed among the parties hereto, but
in any event not later than May 31, 1998.
HARRISON: Roy D. Harrison, an individual, officer, director and shareholder of
HLI.
HLI: Harrison Laboratories, Inc., a Texas corporation.
HLI ASSETS: The assets of HLI as defined in Section 2.1 hereof and as more
specifically identified on Schedule 2.1 attached hereto which is a 309 page
schedule.
<PAGE>
LEGAL REQUIREMENTS: Any law, statute, ordinance, decree, final order, final
judgment, rule or regulation of (including without limitation the terms of any
license, certificate, franchise or permit issued by) the United States, any
state, commonwealth, territory or possession thereof and any political or
judicial subdivision or instrumentality of the foregoing, including without
limitation courts, departments, commissions, boards, bureaus or agencies.
LSAI: Laboratory Specialists of America, Inc., an Oklahoma corporation.
LSI: Laboratory Specialists, Inc., a Louisiana corporation and the wholly-owned
subsidiary of LSAI.
ONE-YEAR ACCOUNTING PERIOD: The 12 months ended following Closing.
ONE-YEAR REVENUE BASE: Determined in accordance with generally accepted
accounting principles, the sum of all revenues directly attributable to the HLI
Assets during the One Year Accounting Period.
TAXES: All net income, gross income, gross receipts, sales and use, ad valorem,
franchise, profits, licenses, withholding, payroll, excise, severance, stamp,
occupation, property, customs duties or other taxes, fees or charges of any kind
whatsoever imposed by a foreign, federal, state, county or local taxing
authority together with any interest or penalty thereon.
1.2 INTERPRETATION. The words "hereof," "herein" 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.
Article, section, subsection and paragraph references in this Agreement are to
articles, sections, subsections and paragraphs of this Agreement, unless
otherwise specified. The article, section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. The Exhibit and all Schedules referred to
herein are annexed hereto and incorporated herein by reference. The meanings
given to terms defined herein shall be equally applicable to both the singular
and plural forms of such terms.
ARTICLE II
ASSET PURCHASE
2.1 PURCHASE AND SALE OF HLI ASSETS. At the Closing, upon the terms and
subject to the conditions set forth in this Agreement, HLI shall sell, assign,
convey, set over, transfer and deliver to LSAI and LSI, and LSAI and LSI,
jointly and not severally, shall purchase, acquire and accept all right, title
and interest of HLI Assets, free and clear of any lien, charge, claim, pledge,
security interest or other encumbrance of any type or kind whatsoever, against
receipt of the consideration paid and delivered by LSAI pursuant to Section 2.2
hereof.
2.2 PURCHASE PRICE OF HLI ASSETS. In consideration for the HLI Assets to
be sold, assigned, conveyed, transferred and delivered to HLI pursuant to
Section 2.1 hereof and upon the terms and subject to the conditions contained
herein, the following payment and deliveries shall be made:
2.2.1 PAYMENT AT CLOSING. At Closing, LSAI and LSI, jointly and not
severally, shall deliver to HLI, in immediately available funds, the sum of
Five Hundred Thousand Dollars ($500,000); and
<PAGE>
2.2.2 PAYMENT SUBSEQUENT TO CLOSING. On or before 30th day following
the One-Year Accounting Period, LSAI and LSI, jointly and not severally,
shall pay HLI, in immediately available funds, an amount equal to the One-
Year Revenue Base, less (i) Five Hundred Dollars ($500,000) paid to HLI
pursuant to Section 2.2.1 and (ii) Thirty-Three Thousand Eight Hundred
Fifteen Dollars ($33,815) representing an account receivable owed by HLI to
LSI on the Closing Date.
2.3 CLOSING. Subject to the terms and conditions hereof, the Closing
shall take place by telecommunications at the offices of LSAI in Oklahoma City,
Oklahoma, and at the offices of HLI in Midland, Texas, or at such other places
as the parties hereto shall agree.
2.4 INSTRUMENTS OF TRANSFER AND CONVEYANCE. The conveyance, transfer,
assignment and delivery of the HLI Assets as herein provided shall be effected
by delivery by HLI at Closing (or any time thereafter) to LSAI and LSI of
instruments of transfer, conveyance, endorsements, bills of sale, all in form
satisfactory to LSAI and LSI, duly executed, as LSAI and LSI shall reasonably
deem necessary to vest in LSAI and LSI at Closing and at any time thereafter,
good and marketable title to the HLI Assets, free and clear of any lien, charge,
claim, pledge, security interest or other encumbrance of any type or kind
whatsoever.
2.5 NO ASSUMPTION OF LIABILITIES. Except as set forth on Schedule 2.5, in
connection with the purchase of the HLI Assets and consummation of the
transactions contemplated under this Agreement, LSAI and LSI shall not nor shall
any provision of this Agreement be construed to cause LSAI and LSI to, assume or
become liable for any liability, obligation, performance, duty, debt, lien or
any other claim of any kind or nature of HLI, and HLI hereby acknowledges that
it shall remain liable for all of its liabilities, obligations, performances,
duties, debts, liens or any other claim of any kind or nature, other than as set
forth on Schedule 2.5, after the Closing. Provided, however, LSI shall assume
all obligations of HLI to maintenance any and all records and information
required to be maintained and the continuing obligation to maintain all urine
samples in a frozen state in accordance with the regulations of the Substance
Abuse and Mental Health Services Administration, formerly National Institute on
Drug Abuse.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LSAI AND LSI
LSAI and LSI hereby represent and warrant to HLI as of the date hereof as
follows:
3.1 ORGANIZATION, GOOD STANDING, POWER, ETC. LSAI is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma and has all requisite corporate power and authority to own, operate and
lease its properties and assets and to carry on its business as contemplated
following the Closing. LSI is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Louisiana and has all
requisite corporate power and authority to own, operate and lease its properties
and assets and to carry on its business as contemplated following the Closing.
3.2 AUTHORIZATION OF AGREEMENT. Each of LSAI and LSI has all requisite
corporate power and authority to enter into and perform all of its obligations
under this Agreement. The execution and delivery of this Agreement by LSAI and
LSI and the consummation by LSAI and LSI of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate action on
the part of LSAI and LSI. This Agreement has been duly executed and delivered
by LSAI and LSI, and constitutes the legal, valid and binding obligation of LSAI
and LSI, enforceable against each of LSAI and LSI in accordance with terms of
this Agreement, except as enforceability may be limited by (i) any applicable
bankruptcy, insolvency,
<PAGE>
reorganization or other law relating to or affecting creditors' rights
generally, and (ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.3 NO CONFLICTING AGREEMENTS. Neither the execution and delivery of this
Agreement by LSAI and LSI nor the consummation of the transactions contemplated
by this Agreement, will (a) violate or conflict with any provision of the
Certificate of Incorporation or Bylaws of LSAI and Articles of Incorporation and
Bylaws of LSI, as currently in effect; (b) violate or conflict with any
provision of any law, rule, regulation, order, permit, certificate, writ,
judgment, injunction, decree, determination, award or other decision of any
governmental authority, other regulatory or self-regulatory body or association
or arbitrator binding upon LSAI or LSI or any of its properties or assets; (c)
result in a breach of or constitute a default under (or with notice or lapse of
time or both result in a breach of or constitute a default under), or give rise
to a right of termination, cancellation, acceleration or repurchase of any
obligation or a right of first refusal with respect to any material property or
asset or a loss of a material benefit or the imposition of a material penalty
under, any of the terms, conditions or provisions of (i) any mortgage,
indenture, loan or credit agreement or any other agreement or instrument
evidencing indebtedness for money borrowed to which LSAI or LSI is a party or by
which LSAI or LSI or any of its properties or assets is bound or affected, or
(ii) any lease, license, tariff, contract or other agreement or instrument to
which LSAI or LSI is a party or by which LSAI or LSI or any of its properties
or assets is bound or affected; or (d) result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge or encumbrance of any nature upon or with respect to any of the
properties or assets now or hereafter owned by LSAI or LSI.
3.4 CONSENTS AND APPROVALS. No consent, approval, order, certificate or
authorization of, or registration, declaration or filing with, any governmental
authority or other third party is required by or with respect to LSAI or LSI in
connection with the execution and delivery of this Agreement by LSAI or the
consummation by LSAI of the transactions contemplated hereby, other than
following consummation of the transactions contemplated by this Agreement in
connection or compliance with any applicable provisions of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). LSAI hereby agrees to
undertake all required actions in compliance with the Exchange Act; provided,
however, that any failure of LSAI to comply with the Exchange Act shall not
affect the obligations of LSAI and LSI under the terms of this Agreement.
3.5 FULL DISCLOSURE. No representation, covenant or warranty by LSAI or
LSI contained in this Agreement and no written information or agreements
furnished or to be furnished to HLI by LSAI and LSI or in connection with the
transactions contemplated by this Agreement, contains or will contain any untrue
statement of a material fact, or omits or will omit to contain a material fact
necessary in order to make the statements and information contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HLI
HLI hereby represents and warrants to LSAI and LSI as follows:
4.1 ORGANIZATION, GOOD STANDING, POWER, ETC. HLI is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Texas and has all requisite corporate power and authority to own, operate and
lease its properties and assets and to carry on its business as now being
conducted. HLI is duly qualified to do business and is in good standing in each
other jurisdiction in which the
<PAGE>
ownership, operation or leasing of its properties or assets or the nature of its
business requires such qualification.
4.2 AUTHORIZATION OF AGREEMENT. HLI has all requisite power and authority
to enter into and perform all of its obligations under this Agreement. The
execution and delivery of this Agreement by HLI and the consummation by HLI of
the transactions contemplated hereby have been duly authorized and all necessary
corporate action on the part of HLI has been taken or will have been taken on or
before Closing. This Agreement has been duly executed and delivered by HLI, and
constitutes the legal, valid and binding obligation of HLI, enforceable against
HLI in accordance with the terms of this Agreement, except as enforceability may
be limited by (a) any applicable bankruptcy, insolvency, reorganization or other
law relating to or affecting creditors' rights generally, and (b) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4.3 NO CONFLICTING AGREEMENTS. Neither the execution and delivery of this
Agreement by HLI, nor the consummation of the transactions contemplated by this
Agreement, will (a) violate or conflict with any provision of the Articles of
Incorporation or By-laws of HLI, as currently in effect; (b) violate or conflict
with any provision of any law, rule, regulation, order, permit, certificate,
writ, judgment, injunction, decree, determination, award or other decision of
any governmental authority, other regulatory or self-regulatory body or
association or arbitrator binding upon HLI or any of its properties or assets;
(c) at Closing or thereafter result in a breach of or constitute a default under
(or with notice or lapse of time or both result in a breach of or constitute a
default under), or give rise to a right of termination, cancellation,
acceleration or repurchase of any obligation or a right of first refusal with
respect to any material property or asset or a loss of a material benefit or the
imposition of a material penalty under, any of the terms, conditions or
provisions of (i) any mortgage, indenture, loan or credit agreement or any other
agreement or instrument evidencing indebtedness for money borrowed to which HLI
is a party or by which HLI or any of the HLI Assets is bound or affected, or
(ii) any lease, license, tariff, contract or other agreement or instrument to
which HLI is a party or by which HLI or any of the HLI Assets is bound or
affected; or (d) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature upon or with respect to any of the HLI Assets.
4.4 CONSENTS AND APPROVALS. No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental authority or
other third party is required by or with respect to HLI in connection with the
execution and delivery of this Agreement by HLI, or the consummation by HLI of
the transactions contemplated by this Agreement.
4.5 HLI ASSETS. The HLI Assets are free and clear of any lien, charge,
claim, pledge, security interest or other encumbrance of any type or kind
whatsoever.
4.6 FINANCIAL STATEMENTS. HLI has delivered to LSAI (a) the unaudited
balance sheet of HLI as of December 31, 1997, and the related unaudited
statements of income, and cash flows of HLI for the fiscal year ended December
31, 1997, together with the notes related thereto (the "HLI Financial
Statements"). Each HLI Financial Statements (and the notes relating thereto)
were prepared in accordance with generally accepted accounting principles
consistently applied and fairly presents the financial condition of HLI as of
the date thereof and the related results of operations, and cash flows of HLI
for and during the periods covered thereby.
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997, HLI
has not (i) borrowed or agreed to borrow funds secured or to be secured by the
HLI Assets; (ii) incurred or become subject to, or agreed to incur or become
subject to, any obligation or liability, contingent or otherwise, that
<PAGE>
resulted in or may become a lien, charge, claim, pledge, security interest or
encumbrance of any type or kind whatsoever against or burden upon the HLI
Assets; (iii) declared, set aside or paid any distribution of the HLI Assets;
(iv) mortgaged, pledged or subjected to lien, charge or other encumbrance, or
agreed so to do, any of the HLI Assets; (v) sold, assigned, transferred,
conveyed, leased or otherwise disposed of or agreed to sell, assign, transfer,
convey, lease or otherwise dispose of any of the HLI Assets; (vi) entered into
any material transaction, contract or commitment, other than this Agreement,
affecting or related to the HLI Assets; and (vii) made or permitted, or agreed
to make or permit, any amendment or termination of any material contract,
franchise, license, agreement or other instrument (that constitutes in whole or
part or relates to the HLI Assets) to which HLI is a party or by which any of
the HLI Assets is bound. Furthermore, except as otherwise set forth on Schedule
4.7, during the year ended December 31, 1997 and since December 31, 1997, HLI
has not lost and has no knowledge of the threatened of loss of any customer for
whom forensic drug testing services were provided during the year ended December
31, 1997, which such customer services accounted for $30,000 or more of HLI
revenues during the year ended December 31, 1997.
4.8 TITLE TO THE HLI ASSETS; ABSENCE OF LIENS AND ENCUMBRANCES. HLI holds
good and defensible title to the HLI Assets, free and clear of all mortgages,
liens, pledges, charges and encumbrances of any nature whatsoever.
4.9 LITIGATION. (i) Except as set forth on Schedule 4.9, there is no
claim, action, suit, proceeding, arbitration, investigation or inquiry
("proceeding") before any governmental authority or arbitrator, now pending or
threatened against, relating to or affecting HLI and/or the HLI Assets or
business of HLI or that questions the validity of this Agreement or affects the
transactions contemplated herein, and there is no basis for any such claim,
action, suit, proceeding, arbitration, investigation or inquiry.
(ii) HLI has not been permanently or temporarily enjoined or
prohibited by order, judgment or decree of any governmental authority or
arbitrator from engaging in or continuing any conduct or practice in connection
with the business engaged in by HLI or which would prevent or hinder the sale,
assignment, conveyance, setting over, transfer and delivery of the HLI Assets by
HLI to LSAI of all right, title and interest of HLI in and to the HLI Assets
free and clear of all mortgages, liens, pledges, charges and encumbrances of any
nature whatsoever, as contemplated hereunder.
(iii) There is not in existence any order, judgment or decree of any
governmental authority or arbitrator (other than general industry orders)
enjoining or prohibiting HLI from taking, or requiring HLI to take, any action
of any kind or to which HLI or any of the HLI Assets, are subject or bound.
(iv) HLI is not in default in any respect under any Legal Requirement
or any order, writ, injunction or decree of any governmental authority or
arbitrator which would prevent or hinder the sale, assignment, conveyance,
setting over, transfer and delivery of the HLI Assets by HLI to LSAI of all
right, title and interest of HLI in and to the HLI Assets free and clear of all
mortgages, liens, pledges, charges and encumbrances of any nature whatsoever, as
contemplated hereunder.
4.10 COMPLIANCE WITH LAWS. HLI is in compliance with all Legal
Requirements applicable to any of its properties or assets including the HLI
Assets and/or the ownership, operation or use thereof, and HLI has not received
notice of any noncompliance or alleged noncompliance with any Legal Requirement
relating or applicable to any of its properties or assets including the HLI
Assets or to the operation of its business.
4.11 FULL DISCLOSURE. No representation, covenant or warranty by HLI
contained in this Agreement and no written information or agreements furnished
or to be furnished to LSAI and LSI by HLI pursuant hereto or in connection with
the transactions contemplated by this Agreement, contains or will contain
<PAGE>
any untrue statement of a material fact, or omits or will omit to contain a
material fact necessary in order to make the statements and information
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
ARTICLE V
COVENANTS OF LSAI AND LSI
Each of LSAI and LSI covenants and agrees with HLI that, at all times
between the date hereof and the Closing, each of LSAI and LSI will comply with
all covenants and provisions of this Article V, except to the extent HLI may
otherwise consent in writing or to the extent otherwise expressly required or
permitted by this Agreement.
5.1 APPROVALS. Each of LSAI and LSI will (i) take all reasonable steps
and use all reasonable efforts necessary or desirable to recommend the granting
of and to obtain, as promptly as practicable, all approvals, authorizations,
certificates, franchises, licenses, consents and clearances of governmental
authorities and of third parties, required of LSAI to consummate the
transactions contemplated by this Agreement, (ii) provide such other information
and communications to such governmental authorities as HLI or such authorities
may reasonably request, and (iii) cooperate with HLI in obtaining, as promptly
as practicable, all approvals, authorizations, certificates, franchises,
licenses, consents and clearances of governmental authorities required of HLI to
consummate the transactions contemplated by this Agreement.
5.2 BROKERS' FEES. Each of LSAI and LSI has not and will not incur any
brokerage, finder's or similar fee in connection with the transactions
contemplated by this Agreement.
ARTICLE VI
COVENANTS OF HLI
HLI covenants and agrees with LSAI and LSI that, at all times between the
date hereof and the Closing, HLI will comply with all covenants and provisions
of this Article VI, except to the extent LSAI and LSI may otherwise consent in
writing or to the extent otherwise expressly required or permitted by this
Agreement.
6.1 APPROVALS. HLI will (i) take all reasonable steps and use all
reasonable efforts necessary or desirable to recommend the granting of and to
obtain, as promptly as practicable, all approvals, authorizations and clearances
of governmental authorities and of third parties, required of it to consummate
the transactions contemplated by this Agreement, (ii) provide such other
information and communications to such governmental authorities as LSAI or LSI
or such authorities may reasonably request, and (iii) cooperate with LSAI and
LSI in obtaining, as promptly as practicable, all approvals, authorizations and
clearances of governmental authorities required of LSAI and LSI to consummate
the transactions contemplated by this Agreement.
6.2 INVESTIGATION BY LSAI AND LSI. HLI will provide LSAI and LSI, their
counsel, accountants, and other representatives with reasonable access (at the
sole cost, risk and expense of LSAI and LSI), upon prior notice and during
normal business hours, to all facilities, officers, directors, employees,
agents, accountants, assets, properties, books and records of HLI. HLI will
furnish to LSAI and LSI and such other persons during such period all such other
information and data concerning the business, operations and affairs of HLI or
the transactions contemplated by this Agreement as LSAI and LSI or any of such
other persons reasonably may request. LSAI and LSI hereby agrees to indemnify
and hold HLI harmless from all claims,
<PAGE>
losses or damages arising out of exercise of such information access rights
pursuant to this Section 6.2. HLI will also provide to LSAI and LSI timely
notice of and access to minutes of all meetings (and all actions by written
consent in lieu thereof) of the board of directors and stockholders of HLI.
6.3 NO NEGOTIATIONS. Except as contemplated in this Agreement, HLI will
not take (or permit any other person acting for or on behalf of HLI to take),
directly or indirectly, any action to (i) seek or encourage any offer or
proposal from any person to acquire any of the HLI Assets or any interest
therein, (ii) merge, consolidate or combine, or permit any other person to
merge, consolidate or combine, with HLI, (iii) liquidate, dissolve or reorganize
HLI, (iii) acquire or transfer any of the HLI Assets or any interests therein,
other than in the ordinary course of business, or (iv) reach any agreement or
understanding (regardless of whether such agreement or understanding is
absolute, revocable, contingent or conditional) for, or otherwise to attempt to
consummate, any such acquisition, transfer, merger, consolidation, combination,
liquidation, dissolution or reorganization. LSAI and LSI hereby acknowledge
that, following the Closing Date, HLI anticipates selling all or a portion of
its remaining assets and adopting a plan of liquidation and dissolution and the
filing articles of dissolution in accordance with the Texas Business Corporation
Act and distributing the assets of HLI to the shareholders of HLI, after payment
or provision for payment of its debts.
6.4 CONDUCT OF BUSINESS. HLI will conduct its business only in the
ordinary course and consistent with past practices. Without limiting the
generality of the foregoing:
(i) HLI will cause the books and records of HLI, and HLI maintain its
books and records in the usual manner and consistent with past practices and
customs, and will not permit a material change in any operational or financial
reporting or accounting practice or policy of HLI or in any assumption
underlying such a practice or policy.
(ii) HLI will (A) prepare properly and file duly and timely all reports
and all tax returns required to be filed with governmental authorities with
respect to its business, operations or affairs, and (B) pay duly and fully all
Taxes indicated by such tax returns or otherwise levied or assessed upon it or
any of its assets and properties, and withhold or collect and pay to the proper
taxing authorities or reserve for such payment all Taxes that it is required to
so withhold or collect and pay, unless such Taxes are being contested in good
faith.
(iii) HLI (A) will not convey, encumber, mortgage, pledge or dispose of
any portion of the HLI Assets, (B) will use its best efforts to conduct its
business in the ordinary course in a prudent and diligent manner in accordance
with industry standards,(C) will promptly notify LSAI in writing of the receipt
of any written notice or written claim of default or breach by HLI or of any
termination or cancellation, or written threat of termination or cancellation,
of any contracts, agreements or other arrangements with HLI's customers, (D)
will promptly notify LSAI in writing of the loss or suspension of any
certification, which would have a material adverse effect upon HLI and its
operations, including without limitation, loss or suspension of certification by
the Substance Abuse and Mental Health Services Administration or any applicable
state agency.
6.5 NO DISTRIBUTIONS. HLI will not make any distributions of the HLI
Assets to its shareholders.
6.6 NO DISPOSAL OF HLI ASSETS. Except as contemplated in this Agreement,
HLI will not (a) dispose of or assign any of the HLI Assets or permit any of the
HLI Assets to be subjected to any liens, or (b) sell any portion of the HLI
Assets to any third party.
<PAGE>
6.7 CONTRACTS. HLI will not enter into any contract for the providing of
drug testing services, except contracts entered into in the ordinary course of
business consistent with past practices.
6.8 NOTICE AND CURE. HLI will notify LSAI and LSI promptly in writing of,
and contemporaneously will provide LSAI and LSI with true, complete and correct
copies of, any and all information or documents relating to, and will use all
reasonable efforts to cure prior to the Closing, any event, transaction or
circumstance occurring after the date of this Agreement that results in or will
result in any covenant or agreement of HLI being breached under this Agreement,
or that renders or will render untrue any representation or warranty of HLI
contained in this Agreement as if the same were made on or as of the date of
such event, transaction or circumstance. HLI also will use all reasonable
efforts to cure, at the earliest practicable date and before the Closing, any
violation or breach of any representation, warranty, covenant or agreement made
by HLI in this Agreement.
6.9 AGREEMENTS AND COVENANTS. HLI will not make any commitment, either in
writing or orally, which would violate any of the provisions set forth in this
Article VI.
6.10 BROKERS' FEES. HLI not and will not incur any brokerage, finder's or
similar fee in connection with the transactions contemplated by this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE PARTIES
Notwithstanding any other provision of this Agreement, the obligation of
HLI, on the one hand, and LSAI and LSI, on the other hand, to consummate the
transactions contemplated by this Agreement shall be subject to the fulfillment,
prior to or at the Closing, of each of the following conditions precedent, any
one of which may be waived by such entity:
7.1 CONSENTS AND APPROVALS. All approvals of and consents by all
governmental authorities and other persons, and all permits by and all filings
with and submissions to all such governmental authorities and other persons as
may be required for the consummation of the transactions contemplated by this
Agreement, shall have been obtained or made and reasonably satisfactory evidence
thereof shall have been received and any waiting period, if applicable, shall
have expired.
7.2 CERTAIN ACTIONS. There shall not have been instituted and be
continuing or threatened against LSAI, LSI, HLI or any of their respective
directors or officers, any action, suit or proceeding by or before any
governmental authority that would restrain, prohibit or invalidate, or result in
the payment of substantial damages in respect of, any transaction contemplated
by this Agreement.
7.3 APPROVAL OF STOCKHOLDERS OF HLI. The stockholders of HLI shall have
approved this Agreement.
<PAGE>
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF HLI
Not withstanding any other provision of this Agreement, the obligations of
HLI to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment prior to or at the Closing, of each of the following
conditions precedent, any of which may be waived by HLI:
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of LSAI and LSI set forth in Article III above shall be true and
correct in all material respects as of the date of this Agreement, with the same
effect as though such representations and warranties had been made at and as of
Closing.
8.2 PERFORMANCE OF COVENANTS, AGREEMENTS AND CONDITIONS. LSAI and LSI
shall have duly performed, complied with and satisfied in all material respects
all covenants, agreements and conditions required by this Agreement to be
performed, complied with or satisfied by it at or prior to the Closing.
8.3 CERTAIN ACTIONS. There shall not have been instituted and be
continuing or threatened against LSAI, LSI, HLI, or any of their respective
directors or officers, any action, suit or proceeding by or before any
governmental authority that would impose or confirm material limitations on the
ability of HLI to receive the consideration for purchase of the HLI Assets
pursuant to Section 2.2 hereof.
8.4 NO ADVERSE CHANGE. No material adverse change shall have occurred in
the business, operations, properties, assets or financial condition of LSAI and
LSI since the date of this Agreement.
8.5 OFFICERS' CERTIFICATE, ETC. HLI shall have received (a) certificates,
dated the date of the Closing and signed by the Chief Executive Officer or
President of LSAI or LSI, as the case may be, to the effect set forth in
Sections 8.1, 8.2, 8.3 and 8.4 above, and (b) such other certificates,
instruments and documents as shall be reasonably requested by HLI for the
purpose of verifying the accuracy of such representations and warranties and the
performance and satisfaction of such covenants and conditions.
8.6 EMPLOYMENT OFFER TO KEY LABORATORY PERSON. LSI shall offer Randy
Clouette, an employee of HLI, an employment position in the laboratory
facilities of LSI in Gretna, Louisiana as a "responsible person" under the
regulations of the Substance Abuse and Mental Health Services Administration for
annual compensation of Fifty Thousand Dollars ($50,000).
8.7 THREE-YEAR EMPLOYMENT AGREEMENT. LSAI shall have caused LSI to have
executed and delivered to Harrison the Employment Agreement attached hereto as
Exhibit A.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF LSAI AND LSI
Notwithstanding any other provision of this Agreement, the obligations of
LSAI and LSI to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment, prior to or at the Closing, of each of the
following conditions precedent, any of which may be waived by LSAI and LSI:
<PAGE>
9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of HLI set forth in Article IV above shall be true and correct as of
the date of this Agreement and as of the Closing, with the same effect as though
such representations and warranties had been made at and as of the Closing.
9.2 PERFORMANCE OF COVENANTS, AGREEMENTS AND CONDITIONS. HLI shall have
duly performed, complied with and satisfied all covenants, agreements and
conditions required by this Agreement to be performed, complied with or
satisfied by HLI, at or prior to the Closing.
9.3 NO ADVERSE CHANGE. No material adverse change shall have occurred in
the business, prospects, operations, properties or financial condition of HLI as
such related to the HLI Assets since December 31, 1997.
9.4 CERTAIN ACTIONS. There shall not have been instituted and be
continuing or threatened against LSAI, LSI, HLI, or any of their respective
directors or officers, any action, suit or proceeding by or before any
governmental authority that would prohibit the ownership of all of the HLI
Assets by LSAI and LSI.
9.5 OFFICERS' CERTIFICATES, ETC. LSAI shall have received (a) a
certificate, dated the date of the Closing and signed by the Chief Executive
Officer or President of HLI to the effect set forth in Sections 9.1, 9.2, 9.3
and 9.4 above, and (b) such other certificates, instruments and documents as
shall be reasonably requested by LSAI for the purpose of verifying the accuracy
of such representations and warranties and the performance and satisfaction of
such covenants and conditions.
ARTICLE X
TERMINATION AND AMENDMENTS
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing, as follows:
(i) by mutual consent of LSAI, LSI and HLI;
(ii) by either LSAI or HLI in the event the Closing shall not have been
consummated on or before May 30, 1998; provided, however, that if LSAI and LSI
(on the one hand) are or HLI (on the other hand) is in compliance with their or
its respective representations, warranties and covenants made in this Agreement
and prepared to close the transactions contemplated in this Agreement on May 30,
1998, the in such event, LSAI and LSI may require HLI or HLI may require LSAI
and LSI to perform as quickly after May 30, 1998, as possible and may
specifically use the remedies provide in Section 11.2 to enforce the provisions
this Section 10.1 and the other provisions of this Agreement to cause
consummation of the transactions contemplated in this Agreement; or
(iii) by LSAI and LSI on the one hand or HLI on the other hand if there
shall have been entered or rendered against LSAI, LSI, HLI, or any of their
respective directors or officers in any action or proceeding referred to in
Sections 7.2, 8.3 or 9.4 hereof an injunction or a final judgment having one of
the effects specified in such Sections.
10.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either LSAI and LSI on the one hand or HLI on the other hand, as provided in
Section 10.1 hereof, this Agreement shall forthwith become void and there shall
be no obligation or liability on the part of LSAI, LSI, HLI or their respective
officers, directors or shareholders, except as stated in Section 12.7 hereof;
provided, however, that
<PAGE>
such limitation shall not apply in the event of a willful breach by LSAI, LSI or
HLI of any of their respective material covenants contained herein in which case
the non-breaching party shall be entitled to recover from the breaching party
all out-of-pocket costs (including without limitation reasonable attorney fees'
and expenses) which the non-breaching party has incurred in connection this
Agreement.
10.3 AMENDMENT. This Agreement may be amended by the parties hereto, at
any time prior to the Closing. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
ARTICLE XI
SURVIVAL OF PROVISIONS; REMEDIES; FEES AND COSTS
11.1 SURVIVAL. The representations, warranties, covenants and agreements
respectively made by LSAI and HLI in this Agreement, in the Schedules or Exhibit
hereto, or on any certificate delivered pursuant to the provisions hereof shall
survive shall not terminate upon the Closing and consummation of the
transactions contemplated by this Agreement. The parties hereto acknowledge
that the representations and warranties contained in this Agreement are intended
to and shall give rise to liability, claim, action or cause of action on the
part of any party hereof on account of breach of any such representation or
warranty.
11.2 AVAILABLE REMEDIES. Each party expressly agrees that, consistent with
its intention and agreement to be bound by the terms of this Agreement and to
consummate the transactions contemplated by this Agreement, subject only to the
satisfaction of conditions precedent, the remedy of specific performance shall
be available to a non-breaching and non-defaulting party to enforce performance
of this Agreement by a breaching or defaulting party, including, without
limitation, to require the consummation of the Closing pursuant to Section 2.1
hereof.
11.3 ATTORNEYS' FEES AND COSTS. In the event any party hereto shall be
required to employ an attorney or attorneys to institute a legal proceeding
against the other party or parties for the purpose of enforcing any of the
provisions of this Agreement or protecting its interest in any matter arising
under this Agreement, the non-prevailing party in any such action pursued in
courts of competent jurisdiction (the finality of which is not legally
contestable) shall pay to the prevailing party all reasonable costs, damages and
expenses, including attorneys' fees, expended or incurred in connection with
such proceeding. The standard to be applied in determining who is a prevailing
party for purposes of this Section 11.2 shall be the same standard as applied by
the courts in determining who is a prevailing party for purposes of Rule 54(d)
of the Federal Rules of Civil Procedure.
ARTICLE XII
CONTINUING OBLIGATIONS OF HLI, HARRISON, LSAI AND LSI AFTER CLOSING
Following Closing and consummation of the transactions contemplated in this
Agreement, the HLI covenants and agrees (except to the extent LSAI and LSI may
otherwise consent in writing or to the extent otherwise expressly required or
permitted by this Agreement), and each of LSAI and LSI covenants and agrees
(except to the extent HLI otherwise consent in writing or to the extent
otherwise expressly required or permitted by this Agreement), as follows:
12.1 INDEMNIFICATIONS BY HLI. Subject to the provisions of this Article
XII, HLI agrees to indemnify fully in respect of, hold harmless and defend LSAI,
LSI and any Affiliate (as defined below) of
<PAGE>
LSAI or LSI against any and all damages, liabilities, costs, claims,
proceedings, investigations, penalties, judgments, deficiencies, losses,
including Taxes, expenses (including interest, penalties, and fees and
disbursements of attorneys, accountants and experts) ("Loss" or "Losses")
incurred or suffered by any of them arising out of or relating to (i) any
misrepresentation or breach of warranty or covenant on the part of HLI under
this Agreement and (ii) any nonfulfillment or failure to perform any covenant or
agreement on the part of any of HLI under this Agreement. For purposes of this
Article XII, "Affiliate" shall refer to an officer, director or employee of
LSAI, LSI or HLI, as the case may be.
12.2 INDEMNIFICATIONS BY LSAI. Subject to the provisions of this Article
XII, LSAI agrees to indemnify fully in respect of, hold harmless and defend HLI
and any Affiliate of HLI against, any and all Losses arising out of or relating
to (i) any misrepresentation, or breach of warranty or covenant on the part of
LSAI under this Agreement, or (ii) nonfulfillment or failure to perform any
covenant or agreement on the part of LSAI or LSI under this Agreement.
12.3 SET OFF. Subject to Section 12.5, in the event that HLI, LSI or
LSAI (the "Debtor Party") shall be indebted to HLI, LSI or LSAI or any other
person or entity (the "Creditor Party") for any amounts pursuant to the terms of
this Agreement, including, but not limited to, the provisions of this Article
XII or under any other agreement, then the Creditor Party (or Affiliate, if
applicable) may give notice to the Debtor Party of such obligation. If such
notice has been given and the Debtor Party does not fully pay such obligation
within 90 days of such notice, then the Creditor Party may retain and apply to
the payment of that amount otherwise owed by the Creditor Party (or Affiliate,
if applicable) to the Debtor Party (or Affiliate, if applicable) under this
Agreement or under any other agreement and in doing so such Creditor Party (or
Affiliate, if applicable) shall have no liability to such Debtor Party for such
retention and application, under this Agreement or any such other agreement and
such retention and application shall not be a violation or breach thereof;
provided, however, the amount which may be retained pursuant to this Section
12.3 of any payment otherwise due under this Agreement or any such other
agreement shall be an amount equal to that percentage of such payment obtained
by dividing such payment by all amounts then due and which can then be
determined to become due to the Debtor Party (or Affiliate, if applicable) by
the Creditor Party (or Affiliate, if applicable) under this Agreement or any
such other agreement.
12.4 LIMITATION OF LIABILITY FOR CERTAIN MISREPRESENTATIONS OR BREACHES.
(i) HLI shall not be liable under this Agreement for any misrepresentation or
breach of warranty, or breach of any covenant to be performed at or prior to
Closing, except to the extent that the aggregate amount of Losses for which it
would otherwise (but for this provision) be liable exceeds in the aggregate the
sum of $10,000 and then in such case to the full extent of such Losses;
provided, however, that in no event shall HLI be liable for any such
misrepresentation or such breach in excess of the sum of One Million Dollars
($1,000,000). LSAI and LSI hereby acknowledge that, following the Closing Date,
HLI anticipates selling all or a portion of its remaining assets and adopting a
plan of liquidation and dissolution and the filing articles of dissolution in
accordance with the Texas Business Corporation Act and distributing the assets
of HLI to the shareholders of HLI, after payment or provision for payment of its
debts. HLI hereby acknowledges that the obligations of HLI under the provisions
of this Article XII and the other provisions of this Agreement shall survive the
Closing and that adequate provision must be made for payment of said obligations
prior to the filing of said articles of dissolution in accordance with the Texas
Business Corporation Act.
(ii) LSAI and LSI, jointly and not severally, shall not be liable under
this Agreement for any misrepresentation or breach of warranty, or breach of any
covenant to be performed at or prior to Closing, except to the extent that the
aggregate amount of Losses for which it would otherwise (but for this provision)
be liable exceeds in the aggregate the sum of $10,000 and then in such case to
the full extent of such Losses;
<PAGE>
provided, however, that in no event shall LSAI and LSI be liable for any such
misrepresentation or breach for an aggregate amount in excess of One Million
Dollars ($1,000,000).
12.5 METHOD OF ASSERTING CLAIMS, ETC. The party claiming indemnification
under Section 12.1 or 12.2 of this Agreement hereinafter referred to as the
"Indemnified Party" and the party against whom such claims are asserted
hereunder is hereinafter referred to as the "Indemnifying Party." All claims
for indemnification by any Indemnified Party under this Article XII shall be
asserted and conducted as follows:
12.5.1 NOTIFICATION; DEFENSE. In the event that any claim or demand
for which an Indemnifying Party would be liable to an Indemnified Party
hereunder is asserted against or sought to be collected from such
Indemnified Party by a third party, said Indemnified Party shall with
reasonable promptness notify the Indemnifying Party of such claim or
demand, specifying the nature of and specific basis for such claim or
demand and the amount or the estimated amount thereof to the extent then
feasible (which estimate shall not be conclusive of the final amount of
such claim and demand (the "Claim Notice"). The Indemnified Party's
failure to so notify the Indemnifying Party in accordance with the
provisions of this Agreement shall not relieve the Indemnifying Party of
liability hereunder unless such failure materially prejudices the
Indemnifying Party's ability to defend against the claim or demand. The
Indemnifying Party shall have 30 days from the giving of the Claim Notice
(the "Notice Period") to notify the Indemnified Party (i) whether or not
the Indemnifying Party disputes the liability of the Indemnifying Party to
the Indemnified Party hereunder with respect to such claim or demand and
(ii) whether or not the Indemnifying Party desires, at the sole cost and
expense of the Indemnifying Party, to defend the Indemnified Party against
such claim or demand; provided, however, that any Indemnified Party is
hereby authorized prior to and during the Notice Period to file any motion,
answer or other pleading which it shall deem necessary or appropriate to
protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party. In the event that the Indemnifying
Party notifies the Indemnified Party within the Notice Period that he
desires to defend the Indemnified Party against such claim or demand and
except as hereinafter provided, the Indemnifying Party shall have the right
to defend by all appropriate proceedings, which proceedings shall be
promptly settled or prosecuted by him to a final conclusion. If the
Indemnified Party desires to participate in, but not control, any such
defense or settlement by the Indemnifying Party it may do so at its sole
cost and expense. If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and his counsel in
contesting any claim or demand which the Indemnifying Party elects to
contest, or, if appropriate and related to the claim in question, in making
any counterclaim against the person asserting the third party claim or
demand, or any cross-complaint against any person. No claim for which
indemnity is sought hereunder may be settled without the consent of the
Indemnifying Party, which consent may not be unreasonably withheld.
12.5.2 COUNTERCLAIM NOTIFICATION. In the event any Indemnified Party
should have a claim against any Indemnifying Party hereunder which does not
involve a claim or demand being asserted against or sought to be collected
from it by a third party, the Indemnified Party shall give a Claim Notice
with respect to such claim to the Indemnifying Party.
12.5.3 ACCESS TO BOOKS AND RECORDS. To the extent that LSAI or LSI
or its Affiliate may claim indemnity against HLI hereunder, HLI agrees to
give LSAI or LSI or its Affiliate access to the books, records and
employees of HLI in connection with the matters for which indemnification
is sought hereunder, to the extent LSAI or LSI or its Affiliate reasonably
deems necessary in connection with the rights and obligations under this
Agreement. To the extent that HLI may claim indemnity against LSAI or LSI
under this Agreement, LSAI or LSI agrees to give HLI access to the books,
records and employees of LSAI or LSI, as the case may be, in connection
with the matters for which
<PAGE>
indemnification is sought hereunder, to the extent HLI reasonably deems
necessary in connection with its rights and obligations under this
Agreement.
12.6 TRANSITION ASSISTANCE. Harrison agrees to provide LSAI and LSI with
such transition assistance and services for a period of ninety (90) days
following Closing as LSAI or LSI may reasonably request in order to provide for
an orderly and business-like transition of the ownership of the HLI Assets from
HLI. For such assistance and services, Harrison shall not be entitled to
receive any compensation other than as provided in the Employment Agreement
attached hereto as Exhibit A.
12.8 NON-COMPETITION. (i) In order to induce LSAI and LSI to enter into
this Agreement and the Employment Agreement attached hereto as Exhibit A, HLI
and Harrison covenants and agrees that, for a period of three (3) years from
Closing, each of HLI and Harrison shall not, and HLI shall not permit any of its
officers and directors, (A) to engage in any business similar to, or in any way
competitive with, that carried on by LSAI or LSI as constituted on the date of
this Agreement within any county in any state in which HLI is engaged in any
such similar or competitive business ("Competitive Business") (except pursuant
to agreements with LSAI and LSI), (B) to acquire any legal or beneficial
interest in, or otherwise participate in the ownership of any person, firm,
corporation, partnership or other entity or association which is or becomes
engaged in a Competitive Business, except ownership of less than one percent of
a publicly traded company shall be permissible, (C) to directly or indirectly
solicit, canvass or otherwise contact or accept any business or transaction from
any present or former customer of HLI, or take any action which shall cause the
termination or curtailment of the business relationship between HLI or LSAI or
LSI and/or its successor or successors and any of their present, future or
former customers, including without limitation those customers constituting in
whole or in part the HLI Assets relating to a Competitive Business, and (D) to
directly or indirectly, without the prior written consent of LSAI and LSI,
solicit, entice, raid, persuade or induce any individual who at of the date of
this Agreement is, or at any time during such period shall be, an employee of
LSAI, LSI or its subsidiary, or any of its respective successors, to terminate
or refrain from renewing or extending his or her employment with LSAI or LSI or
its subsidiary, or any of its respective successors, except this clause shall
not apply to any such employee whose employment shall have been terminated by
LSAI, LSI or its subsidiary. This covenant and agreement is included herein in
order to protect the value of the HLI Assets being acquired by LSAI and LSI
pursuant to this Agreement and to assure that LSAI and LSI shall have the full
benefit of the value of the HLI Assets.
(ii) If any part of the restrictions set forth in subsection (i) of this
Section 12.8 shall, for any reason whatsoever, be declared invalid by a court of
competent jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected and shall be enforced to
the fullest extent permitted by law. If any of such restrictions are deemed to
be unreasonable by a court of competent jurisdiction, then HLI shall submit to
the reduction or modification of this Section 12.8 as said court deems
reasonable.
(iii) If HLI shall be in violation of the aforementioned restrictive
covenant and agreements in this Section 12.8, then in addition to other remedies
available to LSAI or LSI, the time limitation thereof shall be extended for a
period of time equal to the period of time during which such violation occurred.
(iv) The terms and provisions of this Section 12.8 are for the benefit of
LSAI and LSI and may be waived in whole or in part only in writing by LSAI and
LSI.
(v) HLI, LSAI and LSI agree that no portion of the purchase price of the
HLI Assets shall be allocable to the restrictive covenant and agreement as set
forth in this Section 12.8.
<PAGE>
12.9 INJUNCTIVE RELIEF. HLI acknowledge that LSAI and LSI would be
irreparable damaged and that money damages and any other remedy available at law
would be inadequate to redress or remedy any loss in the event that the
provisions of Section 12.8 were not fully performed in accordance with their
specific terms or are otherwise breached, and HLI, therefore, agrees that LSAI
and its assigns, in addition to recovering any claim for damages or obtaining
any other remedy available at law, also may enforce the terms of Section 12.8 by
injunction or specific performance and may obtain may other appropriate remedy
available in equity, and that HLI hereby waives its or his right to assert and
will not assert in defense against such equitable claims that an adequate legal
remedy is available.
12.9 SPECIMEN COLLECTION SITE AND PERSONNEL EMPLOYMENT. LSAI and LSI
hereby agree to (i) establish a specimen collection site in Midland, Texas, and
(ii) employ Brandi Hamilton at such collection site as an employee of LSI,
commencing on the date following the Closing Date, with annual compensation of
Thirty Thousand Dollars ($30,000) payable in equal semi-month installments on
the fifteenth and last day of each month. Provided, however, LSAI and LSI shall
not be obligated to maintain the collection site or such employment for any
definite period of time and shall have the right to terminate such collection
site and employment in their sole and absolute discretion at any time.
ARTICLE XIII
MISCELLANEOUS
13.1 EXPENSES. Except as otherwise provided herein, LSAI will pay its own
costs and expenses, and HLI will pay own costs and expenses, incurred in
connection with this Agreement and the transactions contemplated by this
Agreement, including without limitation fees and expenses of counsel,
irrespective of when incurred and regardless of whether this transaction is
consummated.
13.2 NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
delivered personally, or on the next day after being sent by facsimile
transmission or a nationally recognized overnight delivery service, or on the
third (3rd) day after being sent by registered or certified mail (return receipt
requested), postage prepaid to the parties to this Agreement at the following
addresses or at such other address for a party as shall be specified by like
notice:
If to LSAI:
Laboratory Specialists of America, Inc.
101 Park Avenue, Suite 810
Oklahoma City, Oklahoma 73102
Attention: John Simonelli
Facsimile: (405) 232-9801
With a copy to:
Michael E. Dunn, Esq.
Dunn Swan & Cunningham
2800 First Oklahoma Tower
Oklahoma City, Oklahoma 73102-5604
Facsimile: (405) 235-9605
<PAGE>
If to HLI:
Harrison Laboratories, Inc.
Post Office Box 61750
Midland, Texas 79711
Attention: Roy D. Harrison
Facsimile: (915) 563-3131
With copies to:
Mike Atkins, Esq.
McMahon, Tidwell, Hansen, Atkins & Peacock, P.C.
4001 East 42nd Street, Suite 200
Odessa, Texas 79762
Facsimile: (915) 363-9121
13.3 ENTIRE AGREEMENT. This Agreement (including the Exhibit and Schedules
hereto and the documents and instruments referred to herein) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, written and oral.
13.4 BINDING EFFECT; BENEFITS. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors and permitted assigns. Neither this Agreement nor any right, remedy,
obligation or liability hereunder or by reason hereof shall be assignable by any
of the parties to this Agreement without the prior written consent of the
others. Nothing expressed or implied in this Agreement is intended to or shall
be construed to give any person other than the parties to this Agreement or
their respective successors or permitted assigns any legal or equitable right,
remedy or claim under or in respect of this Agreement, it being the intention of
the parties to this Agreement that this Agreement shall be for the sole and
exclusive benefit of the parties hereto or such successors or assigns and for
the benefit of no other person.
13.5 WAIVER. Any term or provision of this Agreement may be waived in
writing at any time by LSAI and LSI, if it is entitled to the benefits thereof,
or by HLI, if it is entitled to the benefits thereof. No such waiver shall,
unless explicitly stated, be a continuing waiver. No failure to exercise or
delay in exercising any right hereunder shall constitute a waiver thereof.
13.6 APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas applicable to contracts made and
to be performed within that State.
13.7 CONFIDENTIALITY. Prior to the consummation of the transactions
contemplated herein, HLI, LSI and LSAI shall each keep confidential, and not
disclose to any third party, information it may obtain hereunder about the
other; provided, however, that this restriction shall not apply to information
which (a) is now in or may hereafter enter the public domain without breach of
this covenant, (b) was already in the possession of HLI, LSI or LSAI, as the
case may be, prior to receipt from the other, (c) is lawfully received by HLI or
LSAI and LSI, as the case may be, from an unrelated third party after receipt of
the same from the other, (d) HLI or LSAI and LSI, as the case may be, is
required by law to disclose, or (e) HLI or LSAI and LSI, as the case may be,
discloses to independent consultants or financial institutions, provided there
are restrictions prohibiting further dissemination of such information by any
such consultant or financial institution. If the transactions contemplated
herein are not consummated, each of HLI, LSI and LSAI shall return to the other
all data obtained pursuant to this Agreement.
<PAGE>
13.8 PUBLICITY. All press releases and other publicity concerning the
transactions contemplated herein shall be jointly planned and coordinated by and
between HLI and LSAI. Neither party shall act unilaterally in this regard
without the prior written approval of the other, except to the extent required
by law.
13.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be a single agreement.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed by their duly authorized representatives as of the
date first written above.
"HLI" HARRISON LABORATORIES, INC.
By: /s/ Roy D. Harrison
--------------------------------
Roy D. Harrison, Chief Executive Officer
"Harrison" /s/ Roy D. Harrison
--------------------------------
Roy D. Harrison
"LSAI" LABORATORY SPECIALISTS OF AMERICA, INC.
By: /s/ John Simonelli
--------------------------------
John Simonelli, Chief Executive Officer
"LSI" LABORATORY SPECIALISTS, INC.
By: /s/ Arthur R. Peterson, Jr.
--------------------------------
Arthur R. Peterson, Jr., President
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into this
1st day of May, 1998, by and between Laboratory Specialists, Inc. (the
"Company"), a Louisiana corporation, Laboratory Specialists of America, Inc., an
Oklahoma corporation and parent of the Company ("LSAI") and Roy D. Harrison, an
individual ("Harrison").
WHEREAS, the parties hereto entered into this Employment Agreement in
connection with and as a condition of that certain Asset Purchase Agreement
between Harrison Laboratories, Inc. ("HLI"), Harrison, the Company and LSAI,
dated April 13, 1998 (the "Asset Purchase Agreement"), providing for the
purchase of certain assets of HLI by the Company and LSAI;
NOW, THEREFORE, for and in consideration of the conditions hereinbelow to
be performed on the part of the respective parties hereto, and in consideration
of the mutuality thereof, the parties hereto agree as follows:
1. Term of Employment. The Company hereby agrees to employ Harrison, and
Harrison hereby agrees to serve the Company as a sales representative, during
the three-year period commencing on the date of this Agreement, subject to the
provisions of Sections 4 and 5 hereof.
2. Duties. Substantially all of the duties and responsibilities of
Harrison, subject to such travel as the duties of Harrison hereunder may
reasonably require, shall be performed by Harrison at and from Midland, Texas.
During the term of employment hereunder, Harrison shall devote his full business
time, attention, skill, energy and best efforts to the duties assigned to him
from time to time by the Company as a sale representative to service and
maintain the customer base acquired by LSAI and the Company from HLI pursuant to
the Asset Purchase Agreement and to further develop the customer base of the
Company for the services offered and provided by the Company within the
marketing area assigned to Harrison by the Company. As an employee of the
Company, Harrison shall be subject to the overall supervision and instructions
of management of the Company.
3. Compensation and Other Benefits. During Harrison's employment pursuant
to this Agreement, the Company or LSAI shall pay or provide to Harrison and
Harrison shall be entitled to receive or have maintained for his benefit, the
following:
3.1 The Company or LSAI shall compensate Harrison for the services to
be rendered by him hereunder as follows:
3.1.1 The Company or LSAI shall pay to Harrison an annual base
salary in the sum of Fifty Thousand ($50,000) per year, payable in
equal semi-monthly, pay-period installments on the first and fifteen
day of each month following the date of this Agreement; provided,
however, that the first and last semi-monthly pay-period installments
to be paid during the term of Harrison's employment pursuant to this
Agreement shall be pro rated based on the number of days of such
employment during the applicable semi-monthly, pay-period installment.
3.1.2 The Company or LSAI shall pay to Harrison a monthly bonus
equal to three and one-half percent (3.5%) of HLI Revenues (as defined
below) during each month payable on the fifteenth day of the following
month. For purposes of this Agreement, "HLI Revenues" shall mean all
revenues of the Company directly attributable to the customers
comprising the customer based of HLI acquired by LSAI and the Company
pursuant to the Asset Purchase Agreement as determined in accordance
with generally accepted accounting principles.
3.1.3 With respect to New Customers (as defined below) obtained
by Harrison for the Forensic Testing services provided by the Company
and LSAI, Harrison shall be entitled to monthly sales commissions as
set forth in this Section 3.1.3. The Company or LSAI shall pay to
Harrison a monthly commission, payable on the fifteenth day of each
month, based upon the revenues for Forensic Testing provided to each
New Customer during the preceding month, as determined in accordance
with generally
<PAGE>
accepted account principles, equal to (i) six percent (6%) of such
revenues during the first year that each New Customer utilizes the
Forensic Testing services of the Company, (ii) four percent (4%) of
such revenues during the second year that each New Customer utilizes
the Forensic Testing services of the Company, (iii) two percent (2%)
of such revenues during the third year that such New Customer utilizes
the Forensic Testing services of the Company, and (iv) one percent
(1%) after the third year that such New Customer utilizes the Forensic
Testing services of the Company and LSAI. For purposes of this
Agreement, "New Customers" shall mean customers of the Company and
LSAI other than those customers that have previously utilized the
Forensic Testing services of the Company and LSAI on the date of this
Agreement, the customers comprising in part the assets purchase by
LSAI and the Company from HLI pursuant to the Asset Purchase
Agreement, and those customers comprising in whole or in part the
assets of a company subsequently acquired directly or indirectly by
LSAI or the Company pursuant to a purchase or merger transaction.
3.2 Harrison is hereby authorized to incur reasonable expenses for
the promotion of the Company's business, including entertainment, travel
and similar expenses (including without limitation oil and gas expenses of
the automobile utilized by Harrison), and he shall be reimbursed therefore
by the Company or LSAI upon his presentation of itemized accounts of such
expenditures.
3.3 The Company or LSAI shall provide to Harrison health and
disability insurance benefits comparable to those provided to an executive
of the Company.
3.4 Harrison shall be entitled to reasonable periods of vacation with
pay in each year, and reasonable periods of sick leave with pay in
accordance with Company's vacation and sick leave policies applicable to an
executive of the Company as established by the Board of Directors of the
Company.
3.5 The Company or LSAI shall pay to Harrison an automobile allowance
of Five Hundred Dollars ($500) per month, payable on the fifteen day of
each month while employed pursuant to this Agreement to assist Harrison in
the performance of his duties and responsibilities as an employee of the
Company.
3.6 On the date of this Agreement, Harrison shall be entitled to
become a participant in the 401(k) retirement benefit plan maintained by
the Company for its employees on the same basis that other Company
employees participate. The Company agrees to waive any minimum service
requirement for initial participation and vesting under such benefit plan.
4. Disability or Death.
4.1 In the event the Board of Directors of the Company determines in
good faith that Harrison is unable, because of physical or mental illness
or disability, to render services of the character contemplated by this
Agreement and that such illness or disability reasonably may be expected to
be permanent or to continue for a period of at least six (6) consecutive
months (or for shorter periods totaling more than six (6) months during any
period of eighteen (18) consecutive months), in such event the Board of
Directors of the Company may elect to terminate the employment of Harrison
hereunder upon written notice by the Company to Harrison effective on the
next first or fifteenth day of the month following the date of such notice.
Prior to and as a condition precedent of any such termination by the Board
of Directors, upon request therefor by the Company, Harrison shall submit
to a medical examination by a physician designated by the Company in
Midland, Texas, for the purpose of determining the existence, nature and
extent of any such illness or disability; provided, however, that in the
event Harrison refuses or fails to submit himself to such medical
examination within 30 days of such request, the Board of Directors shall
have the right immediately to terminate Harrison's employment pursuant to
this Agreement without such medical examination. In the event the
physician designated by the Company determines that Harrison is unable,
because of physical or mental illness or disability, to render services of
the character contemplated this Agreement, Harrison shall have the right,
within 10 days of the determination of Harrison's illness or disability by
the physician selected by the Company, to select a physician in Midland,
Texas, and submit himself to an examination for the purpose of determining
the existence, nature and extent any such illness or disability. In the
event Harrison fails to submit himself for examination by the physician
selected by Harrison within the 10-day period, the determination of such
illness or disability the by physician selected by the Company shall be
binding
<PAGE>
upon Harrison and shall be reasonable grounds for the Company to terminate
Harrison's employment pursuant to this Agreement. Furthermore, in the event
the physician designated by the Company and the physician selected by
Harrison are unable to reach an agreement on the issue of the ability of
Harrison to perform services under this Agreement due to any illness or
disability, such physicians shall promptly designate a qualified physician
to make such determination and the finding of such physician as to the
existence or nonexistence of such illness or disability shall be binding on
the Company and Harrison and, if such illness or disability is found to
exist, such finding shall be reasonable grounds for the Company to
terminate Harrison's employment pursuant to this Agreement. In the event
the Board of Directors terminates the employment of Harrison under this
Agreement pursuant to this Section 4.1, Harrison shall be entitled to
receive the amount of compensation determined pursuant to (i) Sections
3.1.1 and 3.1.3 up to the date of the termination of the employment of
Harrison, payable on the dates established pursuant to Sections 3.1.1 and
3.1.3, respectively, and (ii) Section 3.1.2 from the date of Harrison's
employment termination pursuant to this Section 4.1 through April 30, 2001,
payable on the fifteenth day of each month following the end of each month
during such period.
4.2 In the event Harrison shall die during the term of this
Agreement, this Agreement shall terminate effective on the next first or
fifteenth day of the month following the date of death, and the Company or
LSAI shall pay to the spouse of Harrison, or if unmarried at the time of
his death, to the estate of Harrison, the compensation otherwise payable to
Harrison but for his death pursuant to (i) Sections 3.1.1 and 3.1.2 for a
period of three (3) months following the date of Harrison's death, payable
on the dates established pursuant to Sections 3.1.1 and 3.1.3,
respectively, and (ii) Section 3.1.2 from the date of Harrison's death
through April 30, 2001, payable on the fifteenth day of each month
following the end of each month during such period. '''
5. Termination for Cause. In the event the Board of Directors of the
Company determines in good faith that Harrison should be terminated for Cause
(as defined below), the Company may terminate this Agreement, and all
obligations hereunder shall thereupon terminate. For purposes of this
Agreement, "Cause" shall mean (i) gross negligence by Harrison, (ii) the willful
failure by Harrison to substantially perform the duties assigned to Harrison
under this Agreement (other than physical or mental illness or disability which
determination shall be in accordance with Section 4.1 of this Agreement), (iii)
fraud, including without limitation any misrepresentation or breach of any
warranty or covenant by HLI contained in the Asset Purchase Agreement, or (iv)
the willful misconduct by Harrison which is materially injurious to the Company
or LSAI, or (v) Harrison's conviction of a felony.
6. Non-Competition. (i) During Harrison's employment pursuant to this
Agreement, or, if longer, the period of employment of Harrison by the Company or
LSAI, Harrison shall not engage in competition with the Company or LSAI, either
directly or indirectly, in any manner or capacity as an employee or executive
officer of a competitor company in any phase of the business carried on by the
Company or LSAI at any time during the term of Agreement. Furthermore, in order
to induce LSAI and the Company to enter into the Asset Purchase Agreement and
this Agreement, Harrison covenants and agrees, for a period of three (3) years
following the date of Harrison's termination of employment with the Company, not
to (A) directly or indirectly solicit, canvass or otherwise contact or accept
any business or transaction from any customer, former or otherwise of the
Company, or take any action which shall cause the termination or curtailment of
the business relationship with LSAI or the Company and/or its successor or
successors and any of its customers, former or otherwise, including without
limitation those customers constituting in whole or in part the HLI Assets and
(B) directly or indirectly, without the prior written consent of LSAI and the
Company or their successor or successors, solicit, entice, raid, persuade or
induce any individual who as of the date of Harrison's employment termination is
an employee of LSAI or the Company, or any of its successor or successors, to
terminate or refrain from renewing or extending his or her employment with LSAI
or the Company or any of its respective successors, except this clause shall not
apply to any such employee whose employment shall have been terminated by LSAI
or the Company or its successor or successors.
(ii) If any part of the restrictions set forth in subsection (i) of this
Section 6 shall, for any reason whatsoever, be declared invalid by an
arbitration panel, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected and shall be enforced to
the fullest extent permitted by law. If any of such restrictions are deemed to
be unreasonable by an arbitration panel, then Harrison shall submit to the
reduction or modification of this Section 6 as said panel deems reasonable.
<PAGE>
(iii) If Harrison shall be in violation of the aforementioned restrictive
covenant and agreements in this Section 6, then in addition to other remedies
available to LSAI or the Company, the time limitation thereof shall be extended
for a period of time equal to the period of time during which such violation
occurred.
(iv) The terms and provisions of this Section 6 are for the benefit of
LSAI and the Company and may be waived in whole or in part only in writing by
LSAI and the Company.
7. Confidentiality. During Harrison's employment pursuant to this
Agreement, or, if longer, the period of employment of Harrison by the Company,
and for a period of three (3) years thereafter, Harrison shall not divulge to
anyone, other than the Company, LSAI or persons designated by the Company or
LSAI in writing, any confidential material information directly or indirectly
useful in any aspect of the business of the Company, LSAI or any of its
subsidiaries, as conducted from time to time, as to which Harrison is now, or at
any time during employment shall become, informed and which is not then
generally known to the public or recognized as standard practice.
8. Certain Provisions to Survive Termination; Etc. Notwithstanding any
termination of his employment under this Agreement, Harrison, in consideration
of his employment hereunder to the date of such termination, shall remain bound
by the provisions of Section 6 and 7, and consequently, in addition to all other
remedies that may be available to it, the Company shall be entitled to
injunctive relief for any actual or threatened violation of such Sections.
Harrison acknowledges that the Company, LSAI and its successor or successors
would be irreparable damaged and that money damages and any other remedy
available at law would be inadequate to redress or remedy any loss in the event
that the provisions of Sections 6 and 7 were not fully performed in accordance
with their specific terms or are otherwise breached, and Harrison, therefore,
agrees that the Company, LSAI and its successor or successors, in addition to
recovering any claim for damages or obtaining any other remedy available at
law, also may enforce the terms of Sections 6 and 7 by injunction or specific
performance and may obtain may other appropriate remedy available in equity, and
that Harrison hereby waives his right to assert and will not assert in defense
against such equitable claims that an adequate legal remedy is available.
9. Non-Assignability. Neither party hereto shall have the right to assign
this Agreement or any rights or obligations hereunder without the written
consent of the other party.
10. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association and judgment
upon the award rendered by the arbitrator or arbitrators may be entered in any
court having jurisdiction thereof. The arbitration proceedings shall be
conducted in Midland, Texas, unless otherwise agreed by the parties hereto. The
arbitrator or arbitrators shall be deemed to possess the powers to issue
mandatory orders and restraining orders in connection with such arbitration;
provided, however, that nothing in this Section 10 shall be construed so as to
deny the Company, LSAI and its successor or successors the right and power to
seek and obtain injunctive relief in a court of equity for any breach or
threatened breach by Harrison of any of his covenants contained in Sections 6
and 7 hereof.
11. Notice. All notices required or permitted to be given hereunder shall
be in writing and shall be deemed to have been given forty-eight (48) hours
after depositing in the United States mail, certified mail, postage prepaid,
addressed to the party to receive such notice at the address set forth
hereinbelow or such other address as either party may give to the other in
writing pursuant to written notice pursuant to this Section:
If to Harrison: Mr. Roy D. Harrison
5301 Shady Bend Court
Midland, Texas 79707
If to the Company: Laboratory Specialists, Inc.
1111 Newton Street
Gretna, Louisiana 70053
Attention: Larry E. Howell
If to LSAI: Laboratory Specialists of America, Inc.
101 Park Avenue, Suite 810
Oklahoma City, Oklahoma 73102
<PAGE>
Attention: John Simonelli
12. General. The terms and provisions herein contained (i) constitute the
entire Agreement between the Company, LSAI and Harrison with respect to the
subject matter hereof, (ii) may be amended or modified only by a written
instrument executed by the parties hereto, and (iii) shall be construed and
enforced in accordance with the laws in effect in the State of Texas without
regard to its conflicts of law provisions. Failure by a party hereto to require
performance of any provision of this Agreement shall not affect, impair or waive
such party's right to require full performance at any time thereafter.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the date first above written.
"Company" LABORATORY SPECIALISTS, INC.
By: /s/ Arthur R. Peterson, Jr.
-----------------------------------
Arthur R. Peterson, Jr., President
"LSAI" LABORATORY SPECIALISTS OF AMERICA, INC.
By: /s/ Larry E. Howell
-----------------------------------
Larry E. Howell, President
"Harrison" /s/ Roy D, Harrison
-----------------------------------
Roy D. Harrison
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the financial
statements of Laboratory Specialists of America, Inc. and Subsidiary for the
three months ended March 31, 1998 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,120,960
<SECURITIES> 0
<RECEIVABLES> 2,972,048
<ALLOWANCES> 558,485
<INVENTORY> 70,911
<CURRENT-ASSETS> 5,936,802
<PP&E> 3,535,020
<DEPRECIATION> 1,194,023
<TOTAL-ASSETS> 14,897,338
<CURRENT-LIABILITIES> 2,333,673
<BONDS> 1,865,954
0
0
<COMMON> 4,935
<OTHER-SE> 10,332,928
<TOTAL-LIABILITY-AND-EQUITY> 14,897,338
<SALES> 0
<TOTAL-REVENUES> 3,571,608
<CGS> 0
<TOTAL-COSTS> 1,675,281
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,144
<INCOME-PRETAX> 685,497
<INCOME-TAX> 283,937
<INCOME-CONTINUING> 401,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 401,560
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
