<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 SEPTEMBER 30, 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 November 12, 1998, 5,745,964 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 47
--
Index to Exhibits Appears on Sequentially Numbered Page 16
--
<PAGE>
LABORATORY SPECIALISTS OF AMERICA, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
December 31, 1997 and September 30, 1998 (Unaudited)......... 3
Consolidated Statements of Income (Unaudited)
Three and Nine Months Ended September 30, 1997 and 1998...... 5
Consolidated Statements of Cash Flows (Unaudited)
Three and Nine Months Ended September 30, 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.....................................................14
ITEM 2. CHANGES IN SECURITIES.................................................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................14
ITEM 5. OTHER INFORMATION.....................................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................15
SIGNATURES........................................................................15
</TABLE>
CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING INFORMATION
Certain statements contained in this Report constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Certain, but not necessarily all, of such forward-looking statements
can be identified by the use of forward-looking terminology such as
"believes", "expects", "may", "will", "should", or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategies that involve risks and uncertainties. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, levels of activity,
performance or achievements of Laboratory Specialists of America, Inc. and
its subsidiaries, or industry results, to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. As a result of the foregoing and
other factors, no assurance can be given as to future results, levels of
activity and achievements and neither Laboratory Specialists of America, Inc.
nor any other person assumes responsibility for the accuracy and completeness
of these statements.
-2-
<PAGE>
PART I FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
12/31/97 9/30/98
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 2,863,639 $ 2,512,843
Accounts receivable, net of allowances of $568,237 in
1997 and $521,880 in 1998................................ 2,262,990 3,203,077
Income tax refund receivable................................... 190,498 --
Inventories.................................................... 109,929 64,284
Prepaid expenses and other..................................... 115,219 98,599
Deferred tax asset............................................. 160,709 160,709
------------------ ------------------
Total current assets......................................... 5,702,984 6,039,512
------------------ ------------------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $1,123,909 in 1997 and $1,379,859 in 1998...... 2,376,885 2,555,202
------------------ ------------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $272,148 in
1997 and $338,813 in 1998.................................... 2,316,302 2,249,638
Customer list, net of accumulated amortization of $518,105
in 1997 and $834,507 in 1998................................. 4,587,814 7,496,412
Deferred costs................................................. 32,595 36,400
------------------ ------------------
Total other assets........................................... 6,936,711 9,782,450
------------------ ------------------
Total assets................................................. $ 15,016,580 $ 18,377,164
------------------ ------------------
------------------ ------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
-3-
<PAGE>
LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
12/31/97 9/30/98
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................... $ 742,292 $ 962,316
Accrued income tax............................................. -- 302,477
Accrued payroll................................................ 411,364 436,149
Accrued expenses............................................... 78,491 176,538
Accrued customer list installment payments..................... 510,345 549,539
Obligations from discontinued operations....................... 126,813 14,730
Current portion of long-term debt.............................. 527,696 539,570
------------------ ------------------
Total current liabilities.................................... 2,397,001 2,981,319
------------------ ------------------
LONG-TERM DEBT, net of current portion........................... 2,353,428 1,594,820
------------------ ------------------
DEFERRED INCOME TAXES............................................ 359,848 359,848
------------------ ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Commonstock, $0.001 par value, 20,000,000 shares authorized,
4,924,818 shares issued and outstanding at 12/31/97 and
5,729,091 shares issues and outstanding at 9/30/98........ 4,925 5,729
Paid in capital in excess of par, common stock.................. 8,291,365 10,384,710
Retained earnings............................................... 1,610,013 3,050,738
------------------ ------------------
Total stockholders' equity................................... 9,906,303 13,441,177
------------------ ------------------
Total liabilities and stockholders' equity................... $ 15,016,580 $ 18,377,164
------------------ ------------------
------------------ ------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
-4-
<PAGE>
LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
---------------------------------- ----------------------------------
9/30/97 9/30/98 9/30/97 9/30/98
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
REVENUES ............................. $ 3,538,050 $ 4,379,390 $ 9,549,032 $ 12,039,154
COST OF LABORATORY SERVICES .......... 1,586,256 1,975,506 4,246,113 5,438,352
------------ ------------ ------------ ------------
Gross profit ....................... 1,951,794 2,403,884 5,302,919 6,600,802
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling ............................ 166,126 295,687 458,221 720,619
General and administrative ......... 772,655 1,025,829 2,371,735 2,811,881
Depreciation and amortization ...... 184,058 258,857 501,230 651,765
------------ ------------ ------------ ------------
Total operating expenses ......... 1,122,839 1,580,373 3,331,186 4,184,265
------------ ------------ ------------ ------------
Income from operations ........... 828,955 823,511 1,971,733 2,416,537
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense ................... (61,983) (49,555) (152,467) (147,993)
Interest income .................... 17,619 28,813 37,112 106,636
Other income ....................... 1,058 24,568 1,130 77,055
------------ ------------ ------------ ------------
Total other income (expense) ..... (43,306) 3,826 (114,225) 35,698
------------ ------------ ------------ ------------
Income before income taxes ....... 785,649 827,337 1,857,508 2,452,235
INCOME TAX EXPENSE ................... 324,680 340,918 773,923 1,011,510
------------ ------------ ------------ ------------
Net income ....................... $ 460,969 $ 486,419 $ 1,083,585 $ 1,440,725
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
BASIC EARNINGS PER SHARE:
Weighted Average Number Of Common
Stock Shares Outstanding ........... 3,371,266 5,667,815 3,332,904 5,237,332
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net Income Per Common Stock Share .... $ 0.14 $ 0.09 $ 0.33 $ 0.28
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
DILUTED EARNINGS PER SHARE:
Weighted Average Number Of Common
Stock Shares And Common Stock
Equivalents Outstanding ............ 4,024,120 5,767,139 3,866,119 5,502,783
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net Income Per Common Stock And
Common Stock Equivalents ........... $ 0.11 $ 0.08 $ 0.28 $ 0.26
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-5-
<PAGE>
LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
----------------------------------------
9/30/97 9/30/98
------------- ------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................... $ 1,083,585 $ 1,440,725
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization ................... 501,230 651,765
Provision for bad debts and other ............... 17,175 30,000
Gain from extinguishment of long-term debt ...... -- (38,123)
Impact of changes in assets and liabilities:
Accounts receivable ......................... (916,292) (1,003,942)
Income tax refund receivable ............... 500,914 190,498
Inventories ................................. (11,159) 45,645
Prepaid expenses and other .................. 47,356 12,815
Income tax payable .......................... -- 302,477
Accounts payable and accrued expenses ........ 373,918 230,774
----------- -----------
Net cash provided by operating activities ....... 1,596,727 1,862,634
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................ (913,498) (447,017)
Purchase of PLL Customer List ....................... (2,215,210) (42,033)
Purchase of Accu-Path Customer List ................. -- (139,147)
Purchase of Harrison Customer List .................. -- (553,515)
Purchase of Toxworx Customer List ................... -- (2,417,256)
Acquisition costs ................................... (99,587) --
----------- -----------
Net cash used in investing activities ........... (3,228,295) (3,598,968)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term borrowings ................... (452,554) --
Payments on long-term borrowings .................... (323,261) (708,610)
Proceeds from long-term borrowings .................. 2,385,485 --
Proceeds (payments) from exercise of warrants and
stock options, net of related taxes paid .......... -- (150,941)
Proceeds from private offering ...................... -- 2,245,090
Warrant offering costs .............................. (110,288) --
----------- -----------
Net cash provided by financing activities ....... 1,499,382 1,385,539
----------- -----------
(DECREASE) IN CASH AND CASH EQUIVALENTS ............... (132,186) (350,795)
----------- -----------
CASH AND CASH EQUIVALENTS, beginning of period ........ 727,381 2,863,639
----------- -----------
CASH AND CASH EQUIVALENTS, end of period .............. $ 595,195 $ 2,512,844
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest ............ $ 152,467 $ 160,129
----------- -----------
----------- -----------
Cash paid during the period for income taxes ........ $ 521,000 $ 518,535
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-6-
<PAGE>
LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, AND
SEPTEMBER 30, 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 also reflect the dilutive effect, if any, of the conversion of stock
options (with the exception of the 525,000 stock options issued on July 20,
1998 and rescinded effective with the date of grant), 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.
Income from continuing operations for purposes of computing both basic
earnings per share and diluted earnings per share was $486,419 and $460,969
for the three months ended September 30, 1998 and 1997, respectively, and
$1,440,725 and $1,083,585 for the nine months ended September 30, 1998 and
1997, respectively. A reconciliation of the average shares outstanding used
to compute basic earnings per share to the shares used to compute diluted
earnings per share for both periods is presented below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
9/30/98 9/30/97 9/30/98 9/30/97
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Average shares outstanding-basic................... 5,667,815 3,371,266 5,237,332 3,332,904
Dilutive effect of stock options................... 53,825 92,748 187,872 70,789
Dilutive effect of warrants........................ 45,499 494,961 77,579 371,962
Dilutive effect of contingent shares related to
NPL purchase................................... -- 65,145 -- 90,464
-------------- --------------- -------------- ---------------
Average shares outstanding assuming dilution....... 5,767,139 4,024,120 5,502,783 3,866,119
-------------- --------------- -------------- ---------------
-------------- --------------- -------------- ---------------
</TABLE>
-7-
<PAGE>
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 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 purchase of assets from Pathology Laboratories, Ltd.
("PLL"), a liability of $960,000 was recorded based upon estimated future
quarterly installment payments to be made to PLL. As of September 30, 1998,
all installment payments, totaling $751,688 had been made and the remaining
balance of the liability of $208,312, was treated as a reduction in the
carrying value of the PLL customer list since it will not be paid pursuant to
the purchase agreement.
In connection with the purchase of assets from Accu-Path Medical Laboratory,
Inc. ("Accu-Path"), a liability of $260,000 was recorded based upon estimated
future quarterly installment payments to be made to Accu-Path. As of
September 30, 1998, the first three installment payments, totaling
approximately $136,606, had been made, with one quarterly installment payment
remaining to be paid.
In connection with the purchase of assets from Harrison Laboratories, Inc.
("HLI"), a liability of $460,000 was recorded based upon the estimated future
payment obligation. As of September 30, 1998, no payments have been made on
this liability; however, a $33,855 reduction was recorded as a result of the
offset of amounts owed to Laboratoary Specialists, Inc. by HLI.
-8-
<PAGE>
The above transactions, except the reductions in the liabilities owed to PLL,
Accu-Path and HLI, are non-cash transactions and have been excluded from the
accompanying statements of cash flows.
6. SUBSEQUENT EVENTS
On October 15, 1998, the Company issued 1,500 shares of common stock to James
Cassel in connection with the exercise of certain warrants.
The Company rescinded 525,000 stock options that had been issued on July 20,
1998, effective with the date of grant.
On October 21, 1998, the Company entered into a definitive agreement to be
acquired by The Kroll-O'Gara Company (NASDAQ : KROG) for a purchase price of
approximately $5 per share, subject to certain conditions and payable in
Kroll-O'Gara common stock. Closing of the transaction is anticipated in
December, 1998 and is subject to the approval of the shareholders of the
Company.
On October 23, 1998, the Company issued 15,373 shares of common stock to
James Cassel in connection with the exercise of certain warrants.
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.
On January 31, 1997, the Company acquired from Pathology Laboratories,
Ltd.("PLL"), certain forensic drug testing assets (the "PLL Asset Purchase")
pursuant to an Asset Purchase Agreement, dated January 31, 1997 (the "PLL
Purchase Agreement"). The assets purchased included the customer list of PLL
and all related assets, and all assets owned by PLL used in connection with
the PLL office in Greenville, South Carolina. Pursuant to the PLL Purchase
Agreement, the Company (i) paid $1,600,000 at closing and $765,601 in four
quarterly installments during the 12-month period ended January 31, 1998, and
(ii) assumed the obligations of PLL under a certain lease between Edith
Schlien and PLL, dated September 16, 1996, covering approximately 2,500
square feet of office space located in Greenville, South Carolina, which
requires monthly base rental payments of $2,083 and which expires on
September 16, 1999.
On December 1, 1997, the Company acquired from Accu-Path Medical
Laboratory, Inc. ("Accu-Path") certain intangible assets pursuant to an Asset
Purchase Agreement, dated December 1, 1997 (the "Accu-Path Asset Purchase").
Pursuant to the Asset Purchase Agreement, the Company agreed to pay 180
percent of 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 30 days following the end of each quarter, and (iii) the
balance to be paid in four quarterly installments with the first payment due
30 days following the end of the first 12 month anniversary period from the
date of closing. The estimated gross revenues attributable to this customer
base was approximately $360,000. As of September 30, 1998, the first three
installment payments, totaling approximately $136,606, had been made to
Accu-Path and one installment remains to be paid.
On May 1, 1998, the Company acquired from Harrison Laboratories, Inc.
("HLI") a customer list pursuant to an Asset Purchase Agreement, dated April
13, 1998 (the "HLI Asset Purchase"). In connection with the HLI Asset
Purchase, the Company (i) paid $500,000 at closing and agreed to pay on or
before May 30, 1999, an amount equal to the revenues attributable to the
customer list during the one-year period ending April 30, 1999, in excess of
$500,000, (ii) assumed HLI's
-9-
<PAGE>
obligations under a five-year lease with Linc Quantum Analytics, Inc., dated
November 11, 1997, and acquired the related equipment, and (iii) entered into
a three-year employment agreement with the principal shareholder of HLI as a
sales representative, providing for a base salary of $50,000 per year,
monthly bonuses equal to 3.5 percent of revenues attributable to the customer
list, and other benefits. The purchase price of the customer list was
recorded as an intangible asset, which is being amortized over 15 years.
On June 4, 1998, LSAI completed the offering of 555,222 shares of Common
Stock for net proceeds of $2,312,647 (the "1998 Private Offering").
Furthermore, LSAI paid Jesup & Lamont Securities Corporation ("Jesup &
Lamont") a placement fee of $174,650 and issued 55,522 warrants to Jesup &
Lamont and its designees (the "Jesup & Lamont Group Warrants"). In connection
with the 1998 Private Offering, LSAI agreed to file a registration statement
under the 1933 Act with respect to the Common Stock offered and underlying
the Jesup & Lamont Group Warrants and maintain the effectiveness of the
registration statement for a minimum of six years. Pursuant to such
agreement, LSAI filed the registration statement on July 2, 1998, which
became effective September 2, 1998.
On July 1, 1998, the Company acquired from Toxworx Laboratories, Inc.
("TLI"), a California corporation, a customer list pursuant to an Asset
Purchase Agreement, dated June 8, 1998, ("TLI Asset Purchase"). In connection
with the TLI Asset Purchase, the Company paid $2,400,000 at closing. The
purchase price of the customer list was recorded as an intangible asset,
which is being amortized over 15 years.
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
three months ended September 30, 1997 and 1998, which are derived from the
unaudited consolidated financial statements of the Company and (ii) for the
nine months ended September 30, 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>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------------ ------------------------------------------------
9/30/97 9/30/98 9/30/97 9/30/98
------------------------ ---------------------- ----------------------- ----------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues .................. $ 3,538,050 100.0% $ 4,379,390 100.0% $ 9,549,032 100.0% $12,039,154 100.0%
Cost of revenues .......... 1,586,256 44.8% 1,975,506 45.1% 4,246,113 44.5% 5,438,352 45.2%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Gross profit .............. 1,951,794 55.2% 2,403,884 54.9% 5,302,919 55.5% 6,600,802 54.8%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Operating expenses:
Selling ................. 166,126 4.7% 295,687 6.8% 458,221 4.8% 720,619 6.0%
General and
administrative ....... 772,655 21.8% 1,025,829 23.4% 2,371,735 24.8% 2,811,881 23.3%
Depreciation and
amortization ......... 184,058 5.2% 258,857 5.9% 501,230 5.3% 651,765 5.4%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Total operating expenses .. 1,122,839 31.7% 1,580,373 36.1% 3,331,186 34.9% 4,184,265 34.7%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Income from operations .... $ 828,955 23.5% $ 823,511 18.8% $ 1,971,733 20.6% $ 2,416,537 20.1%
----------- ----- ----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- ----- ----------- -----
</TABLE>
During the three and nine months ended September 30, 1998, LSI
experienced a 1.1 percent and 2.4 percent decrease in the price per specimen,
compared to the three and nine months ended September 30, 1997, principally
due to increased price competition amongst providers of drug testing
services, price per specimen being an important factor in obtaining
-10-
<PAGE>
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
further automate the testing process and employ additional technology to
continue profitability, although there can be no assurance that such measures
will assure profitability in the event of substantial price reductions within
the short term.
COMPARISON OF THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND
1998
Revenues increased to $12,039,154 in the nine months ended September 30,
1998 (the "1998 Interim Period"), from $9,549,032 in the nine months ended
September 30, 1997 (the "1997 Interim Period"), an increase of 26.1 percent.
Revenues increased to $4,379,390 in the three months ended September 30, 1998
(the "1998 Third Quarter"), from $3,538,050 in the three months ended
September 30, 1997 (the "1997 Third Quarter"), an increase of 23.8 percent.
The increase in revenues was due to a 30.2 percent and 28.6 percent increase,
respectively, in the number of specimens analyzed during the 1998 Interim
Period as compared to the 1997 Interim Period and the 1998 Third Quarter as
compared to the 1997 Third Quarter, although partially offset by a decrease
of 2.4 percent and 1.1 percent, respectively, in the average price per
specimen. The increase in number of specimens analyzed was attributable to
the Accu-Path, HLI, and TLI 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 $1,192,239 from $4,246,113 in the 1997 Interim
Period to $5,438,352 in 1998 Interim Period and $389,250 from $1,586,256 in
the 1997 Third Quarter to $1,975,506 in the 1998 Third Quarter, increases of
28.1 percent and 24.5 percent, respectively. Gross profit on revenues
decreased as a percentage of revenues from 55.5 percent in the 1997 Interim
Period to 54.8 percent in 1998 Interim Period and from 55.2 percent in the
1997 Third Quarter to 54.9 percent in the 1998 Third Quarter. The decrease
was primarily due to the decrease in the price per specimen.
Operating expenses increased from $3,331,186 in the 1997 Interim Period
to $4,184,265 in the 1998 Interim Period and from $1,122,839 in the 1997
Third Quarter to $1,580,373 in the 1998 Third Quarter, increases of 25.6
percent and 40.7 percent respectively, but decreased as a percentage of
revenues from 34.9 percent to 34.7 percent in the Interim Period, and
increased as a percentage of revenues from 31.7 percent to 36.1 percent in
the Third Quarter . The increase in operating expenses was attributable to
the increase in selling expenses of $262,398 for the Interim Period and
$129,561 for the Third Quarter, general and administrative expenses of
$440,146 for the Interim Period and $253,174 for the Third Quarter and
depreciation and amortization of $150,535 for the Interim Period and $74,799
for the Third Quarter. The increase in general and administrative expenses
was principally the 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, Accu-Path, HLI
and TLI Asset Purchases. The increase in selling expenses was due to several
additions to the sales force during late 1997 and early 1998, to assist in
maintaining forensic clients acquired as part of the PLL, Accu-Path, HLI and
TLI Asset Purchases, as well as additional business development in other
areas of the United States. Depreciation increased due to the renovation of
the new laboratory and purchase of additional equipment at LSI, while
amortization increased due to the customer list acquisitions from PLL,
Accu-Path, HLI and TLI and the amortization of the purchase price of such
customer lists.
Income from operations increased from $1,971,733 in the 1997 Interim
Period to $2,416,537 in the 1998 Interim Period, a 22.6 percent increase, but
decreased from $828,955 in the 1997 Third Quarter to $823,511 in the 1998
Third Quarter, a 0.7 percent decrease. Operating income decreased as a
percentage of revenues from 20.6 percent to 20.1 percent in the Interim
Period and from 23.5 percent to 18.8 percent in the Third Quarter.
Interest expense decreased 2.9 percent from $152,467 in the 1997 Interim
Period to $147,993 in 1998 Interim Period and 20.1 percent from 61,983 in the
1997 Third Quarter to $49,555 in the 1998 Third Quarter. The decrease in
interest expense was due in part to the repayment in full of the note payable
to Mbf USA, Inc. during the first quarter of 1998 as well as
-11-
<PAGE>
the gradual reduction in the monthly interest expense related to the bank
loans acquired during 1997 associated with the PLL Asset Purchase and the
purchase and renovation of the new laboratory building. Interest income
increased from $37,112 in the 1997 Interim Period to $106,636 in the 1998
Interim Period, a 187.3 percent increase, and from $17,619 in the 1997 Third
Quarter to $28,813 in the 1998 Third Quarter, a 63.5 percent increase. These
increases were due to additional funds on deposit primarily from the exercise
of stock warrants late in 1997 and the 1998 Private Offering during the
second quarter of 1998. Other income increased from $1,130 in the 1997
Interim Period to $77,055 in the 1998 Interim Period and from $1,058 in the
1997 Third Quarter to $24,568 in the 1998 Third Quarter. The increase in
other income is primarily due to a one-time gain realized due to the early
payout of the note payable to MBf USA, Inc. in addition to the recovery of
bad debts previously written off. Net income, after provision for income
taxes, increased from $1,083,585 in the 1997 Interim Period to $1,440,725 in
the 1998 Interim Period, a 33.0 percent increase, and from $460,969 in the
1997 Third Quarter to $486,419 in the 1998 Third Quarter, a 5.5 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 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 nine months ended September 30, 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 $1,858,689 in the nine
months ended September 30, 1998, and $1,596,727 in the nine months ended
September 30, 1997. As of September 30, 1998, LSAI had working capital of
$3,058,193, compared to working capital of $3,305,983, at December 31, 1997.
On August 25, 1998, LSI entered into a revolving line of credit loan
agreement with Hibernia National Bank (the "Bank"), which will mature on
August 25, 2000, under which LSI may draw up to $1,000,000 (the "Revolving
Loan"). As of September 30, 1998, there were no borrowings outstanding under
the Revolving Loan. It is anticipated that any advances on the Revolving Loan
will be based upon LSI's liquid assets including its accounts receivable.
Amounts drawn under the Revolving Loan bear interest at Citibank, N.A. rate.
The Revolving Loan is secured by the accounts receivable, intangible assets,
and by a mortgage on the building owned by LSI, and is guaranteed by LSAI.
The loan agreement contains various covenants, including certain financial
ratios.
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 to fund
the PLL Asset Purchase. 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 September 30, 1998, the interest rate was 9 percent per annum and the
outstanding principal amount of such loan was approximately $1,133,333.
On July 2, 1997, LSI entered into a loan agreement with the bank for a
term loan in the principal amount of $720,000,
-12-
<PAGE>
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 September 30, 1998, the outstanding principal balance amount of
such loan was approximately $653,443.
On December 1, 1997, the Company completed the Accu-Path Asset Purchase
and pursuant thereto agreed to pay 180 percent of 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 30 days
following the end of each quarter, and (iii) the balance to be paid in four
quarterly installments with the first payment due December 31, 1998. The
estimated gross revenues attributable to this customer base was approximately
$360,000. As of September 30, 1998, total payments of $136,606 have been
recorded as reductions in the liability owed to Accu-Path for the first three
quarterly installments.
On May 1, 1998, the Company completed the HLI Asset Purchase and pursuant
thereto (i) paid $500,000 at closing, (ii) assumed the obligations of HLI
under a certain 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, May 30, 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 $533,855. The estimated gross
revenues attributable to the customer base, for the year ended December 31,
1997, was approximately $960,000. As of September 30, 1998, no cash payments
have been made toward the liability owed to Harrison, but a reduction has
been recorded in the amount of $33,855 for amounts owed to LSI by HLI and
offset against the amount due.
On June 26, 1998, 480,000 stock options were exercised by officers of the
Company. Pursuant to the stock option plan, the exercise price of the stock
options and the payroll taxes associated with the exercise of the stock
options were paid to the Company in the form of previously issued fully
mature shares of Common Stock of the Company. As a result of the transaction,
105,906 additional shares of Common Stock were issued on June 26, 1998, and
the Company paid approximately $478,962 in related payroll taxes on July 16,
1998. The payroll taxes had been accrued as part of the payroll tax liability
on the balance sheet as of June 30, 1998.
On July 1, 1998, the Company acquired from Toxworx Laboratories, Inc.
("TLI"), a California corporation, a customer list pursuant to an Asset
Purchase Agreement dated June 8, 1998, ("TLI Asset Purchase"). In connection
with the TLI Asset Purchase, the Company paid $2,400,000 at closing. The
purchase price of the customer list was recorded as an intangible asset,
which is being amortized over 15 years.
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.
YEAR 2000 COMPUTER SYSTEM COMPLIANCE. The Company has two primary
computer systems both of which were developed employing six digit date
structures. Where date logic requires the year 2000 or beyond, such
structures may produce inaccurate results. Management has substantially
completed the implementation of a program to comply with year 2000
requirements on a system-by-system basis including information technology
("IT") and non-IT systems (e.g.
-13-
<PAGE>
microcontrollers). Management expects the program to be complete during 1998
at which time the Company's computer systems are expected to be year 2000
compliant.
Management has evaluated its in-house supported IT systems and found no
instances of date dependent calculations or operations that are affected by
this six digit date structure. The Company's vendor-supported IT system has
been updated and certified year 2000 compliant by the vendor. Non-IT systems
including all personal computers will be evaluated by a third party
contractor, updated if necessary, and certified as compliant during 1998. The
Company's risks associated with the year 2000 are mainly its ability to
communicate with its distributors, take orders for and ship products and pay
its employees, distributors and vendors. Although management's evaluation is
complete and vendor certifications are being obtained, a failure of the
Company's computer systems or other support systems to function adequately
with respect to the year 2000 issues could have a material effect on the
Company's operations. Based on progress to date, there is no need for a
contingency plan and such a plan has not been developed. The Company
estimates that the total cost of its program to make the Company's computer
system year 2000 compliant is less than $25,000.
The Company is in the early process of contacting its major suppliers to
determine if their systems will be year 2000 compliant on a timely basis. In
the event that the Company experiences product unavailability or supply
interruptions due to year 2000 non-compliance by its suppliers, management
believes that it would be able to obtain alternative sources of its products.
A significant delay or reduction in availability of products, however, could
also have a material adverse effect on the Company's operations.
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.
-14-
<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 August 25, 1998.
10.2 Commercial Guarantee between Hibernia National Bank
and Laboratory Specialists of America, Inc., dated
August 25, 1998.
27 Financial Data Schedules.
(b) Reports on Form 8-K
On July 14, 1998, the Registrant filed a Form 8-K reporting
the acquisition of certain assets of Toxworx Laboratories, Inc. under Item 2.
Acquisition or Disposition of Assets. The Registrant was not required to
include any financial statements under Item 7. Financial Statements and
Exhibits of the Form 8-K. See "Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations-General" of this Report.
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: November 12, 1998 By: /s/ Arthur R. Peterson, Jr.
-------------------------------
Arthur R. Peterson, Jr.
Treasurer
-15-
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE
- ---------- ------ -----------
10.1 Loan agreement between Hibernia National Bank 17
and Laboratory Specialists, Inc., dated August 25,
1998.
10.2 Commercial Guarantee between Hibernia National 37
Bank and Laboratory Specialists of America, Inc.,
dated August 25, 1998.
27 Financial Data Schedules.
-16-
<PAGE>
EXHIBIT 10.1
LOAN AGREEMENT
BY AND BETWEEN:
HIBERNIA NATIONAL BANK
AND
LABORATORY SPECIALISTS, INC.
LBA - August 25,1998 (9:51AM)
UNITED STATES OF AMERICA
STATE OF LOUISIANA
PARISH OF ORLEANS
CITY OF NEW ORLEANS
BE IT KNOWN, that as of the 25th day of August, 1998 (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 and
No/100 ($1,000,000.00) Dollars (the "Loan").
B. The Lender has agreed to provide the Borrower with the Loan
subject to the terms and
-17-
<PAGE>
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, the
Loan and/or the Collateral.
"Grantor" shall mean Borrower and any Guarantor and any other person who
grants Lender any Collateral for the Loan.
-18-
<PAGE>
"Indebtedness" shall mean any and all amounts and/or liabilities owing
from time to time from Borrower to Lender, whether now or in the
future, whether evidenced in writing or not, whether relating to a
promissory note or other formal evidence of indebtedness or arising out
of some other source or obligation, whether pursuant to this Agreement
or any other instrument, including, without limitation, principal,
interest, late charges, penalties, attorney's fees and amounts advanced
by the Lender.
"Loan" shall have the meaning ascribed to it in Recital A.
"Loan Documents" shall mean, collectively, this Agreement, the Note, the
Collateral Documents, and any other documents or instruments executed or to
be executed in the future pursuant to this Agreement or in connection with
the Loan.
"Loan Year" shall mean each period of one year commencing on the anniversary
date of the Closing Date and ending one year later. The "First Loan Year"
shall commence on the Closing Date and shall end on the day prior to the
Closing Date one year later, and the "Second Loan Year" shall commence on the
first annual anniversary of the Closing Date and shall end one year later and
so on.
"Note" shall mean the promissory note executed by Borrower as maker, payable
to the order of Lender, dated the Closing Date, in the principal sum of One
Million and No/100 ($1,000,000.00) Dollars.
"Parent" shall mean any person that owns more than fifty (50%) percent of the
total issued and outstanding ownership interests in another person.
"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.
"Subsidiary" shall mean any person with respect to which more than fifty
(50%) percent of the total issued and outstanding ownership interests is
owned by another person.
SECTION 1.02. Additional Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"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").
"Commitment" shall mean the commitment letter addressed by Lender to Borrower
under date of April 8, 1998, accepted by Borrower on June 11, 1998.
"Compliance Certificate" shall mean the certificate, certified correct by the
chief executive officer
-19-
<PAGE>
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.
"Guarantor" shall mean LSAI.
"Guaranty Agreement" shall mean the continuing guaranty agreement
establishing the guaranty described in Section 3.03 below.
"LSAI" shall mean Laboratory Specialists of America, Inc., an Oklahoma
corporation.
"Mortgage" shall mean an encumbrance of immovable property.
"Maturity Date" shall mean the date that is two years after the Closing Date.
"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.
SECTION 1.03. Specific Financial Definitions.
"EBITDA" shall mean earnings before interest expense, income taxes. non-cash
depreciation, amortization and any extraordinary, non-recurring income.
"Long Term Debt" shall mean all indebtedness of the Borrower for borrowed
money maturing more than twelve (12) months after the date of determination,
whether secured or unsecured, which would be classified as long-term debt in
accordance with generally accepted accounting principles.
"Senior Debt" shall mean the Indebtedness plus any other debt of the Borrower
not subordinated to Lender.
SECTION 1.04. Rules of Interpretation.
(a) All terms defined in this Agreement shall have their defined meanings
when used in the Note, the Collateral Documents or in any certificates or
other document made or delivered pursuant hereto, unless the context shall
otherwise require.
(b) Words used herein in the singular, where the context so permits, shall
be deemed to include the plural and vice versa. Likewise, the definitions of
words used in the singular herein shall also apply to such words when used in
the plural and vice versa, unless the context shall otherwise
-20-
<PAGE>
require.
(c) The words "hereof ", and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement.
(d) Section, subsection, schedule and exhibit references are to this
Agreement unless otherwise specified.
(e) Captions and section headings are inserted for convenience only and
shall not affect any construction or interpretation of this Agreement.
ARTICLE II
BASIC ELEMENTS OF THE LOAN
SECTION 2.01. The Loan. Subject to the terms and conditions and relying
on the representations and warranties contained in this Agreement, Lender
agrees to provide Borrower with the Loan, evidenced by the Note. Some of the
salient terms and conditions of the Loan are set forth below. The terms and
provisions of the Note are more fully set forth in the Note, and in the event
of any conflict between the provisions of this Section 2.01 and the
provisions of the Note, the provisions of the Note will govern.
(a) The maximum outstanding balance due under the Note shall not exceed
One Million and No/100 ($1,000,000) Dollars.
(b) The Note shall bear interest from the date of each Advance until
paid in full at the interest rate(s) as provided in the Note.
(c) The entire principal balance outstanding under the Note and all
accrued interest shall be due and payable on the Maturity Date. The Note 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 Note, 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.
(d) The Note may be prepaid in full or in part at any time, as provided
in the Note.
(e) 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 Loan.
-21-
<PAGE>
SECTION 2.02. Advances. The original principal amount of the Loan shall
be advanced by Lender to Borrower on a periodic basis, as requested by
Borrower, but same shall be advanced only (i) as permitted by Lender's
business practices then in effect, and (ii) provided all other applicable
terms and conditions of this Agreement have been satisfied.
SECTION 2.03. Termination of Advances. The Lender's obligation to make
Advances shall terminate in the event that:
(a) the amount of Advances made to date under the Loan equals One
Million and No/100 ($1,000,000.00) Dollars; or
(b) the Maturity Date occurs.
ARTICLE III
SECURITY FOR THE LOAN
SECTION 3.01. Collateral. The Loan and the Note shall be secured by the
following rights and interests in favor of Lender, all of which shall have a
first ranking and priority except as specifically indicated below:
(a) a Mortgage encumbering the property at 113 Jarrell Drive, Belle
Chasse, Louisiana;
(b) a Mortgage encumbering the property at 1111 Newton Street,
Gretna, Louisiana 70053;
(c) the guaranty of the Guarantor in the amount as provided in Section
3.03;
(d) the grant of a Security Interest in the following movable property
of Borrower:
(1) all accounts receivables; and
(2) all contract rights and general intangibles; and
(3) all equipment; and
(4) all furniture; and
(5) all inventory.
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
-22-
<PAGE>
acceptable to Lender and Lender's counsel, in their discretion:
(a) an acknowledgment that achieves the Collateral described in Section
3.01(a) above;
(b) an acknowledgment that achieves the Collateral described in Section
3.01(b) above;
(c) a Security Agreement encumbering the Collateral described in Section
3.01
(d) above together with a reference therein to previously-recorded UCC-1
Financing Statements covering same;
(d) the Guaranty Agreement.
SECTION 3.03. Guaranty Agreement . The Loan and all other Indebtedness
shall be guaranteed by each Guarantor in solids, up to the maximum amount of
same.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. General. To induce the Lender to make the Loan, the
Borrower hereby makes the following representations and warranties to the
Lender:
(a) With respect to each Borrower and each Guarantor:
(i) If any such person is a natural person, the marital status of
such person recited in the appearance section of this Agreement
or in any document by which such person grants Collateral to
Lender is true and correct.
(ii) The mailing addresses of any such persons set forth in Section
9.06 of this Agreement pertaining to notices are correct.
(iii) If any such person is an entity, each such entity
a) is duly organized and validly existing under the laws
of the state of its organization,
b) has all requisite power and authority to execute any of
the Loan Documents to which it is a signatory, and
c) if a corporation, is in good standing in the state of
its incorporation.
(iv) Each such person has all requisite capacity and authority to
-23-
<PAGE>
a) own its property,
b) to transact business in connection with the matters
described in this Agreement, and
c) to enter into and perform its obligations under the Loan
Documents.
(v) Each such person indicated as the owner of any property in any of
the Loan Documents has full, complete, good and merchantable
title to such property.
(b) (1) The execution, delivery and performance by any person of or
under the Loan Documents requires no action by or in respect of, or filing
with, any Governmental Authority (other than actions or filings in connection
with the perfection of a Security Interest or privilege in any Collateral
hereunder) and does not contravene, or constitute a default under or
violation of any provision of applicable law or regulation or of any
documents governing any such person or of any agreement, judgment,
injunction, order, decree or other instrument which is binding upon such
person or to which any of such person's property is subject.
(2) The execution of any Loan Documents by any person signatory
thereto constitutes and stands as the free act and deed of such person,
without the necessity of any further actions or approvals of any kind from
any persons or entities.
(c) The Loan Documents all constitute the legal, valid and binding
obligations of the person signatory thereto, and said documents are fully
enforceable in accordance with their respective terms.
(d) The financial statements heretofore delivered to the Lender are
true and correct in all material respects, and fairly represent the financial
condition of persons described therein, as of the date thereof. No material
adverse change has occurred in the conditions or operations reflected in any
such financial statement since the respective dates thereof, and no person
described therein is the subject of any bankruptcy, reorganization, or
insolvency proceeding.
(e) All information, reports, papers, financial projections and data
given to the Lender by Borrower or any other person pursuant to this
Agreement or in connection with the application for or the making of the Loan
are accurate and correct in all material respects.
(f) (i) The principal address from which Borrower conducts its business
is: 1111 Newton Street, Gretna, LA 70053.
(ii) The address of Borrower's chief financial office is: 1111
Newton Street, Gretna, LA 70053.
(iii) The address of Borrower's registered office is: 113 Jarrell
Drive, Belle Chasse, Louisiana 70037.
-24-
<PAGE>
(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) nor involving or affecting the validity or enforceability or
priority of any of the Collateral, nor are any of same threatened or likely.
ARTICLE V
AFFIRMATIVE COVENANTS
SECTION 5.01. General. Unless the Lender consents otherwise in writing,
continuing for as long as any Indebtedness remains unpaid, Borrower shall
keep, maintain, comply, preserve and be responsible for the satisfaction of
each of the following covenants:
(a) Borrower will indemnify the Lender from claims of brokers with whom
Borrower has dealt in the execution hereof or the consummation of the
transactions contemplated hereby.
(b) Borrower will pay all fees and expenses incurred by the Borrower
and the Lender in connection with the transactions contemplated hereunder,
including, without limitation, all service fees, legal fees (including the
fees of counsel for the Lender) and all other costs, expenses and fees
required to satisfy the conditions of this Agreement.
(c) The Lender shall have the right from time to time at all times
during normal business hours to examine any or all of the books, records and
accounts at the office of the Borrower or other person maintaining such
books, records, and accounts and to make such copies or extracts thereof as
the Lender shall desire. In addition, Borrower shall furnish to the Lender
within fifteen (15) days, after request, such further detailed information
covering the financial affairs of the Borrower, as the Lender in its sole
discretion may request.
(d) Borrower shall observe and perform each and every term to be
observed or performed by the Borrower pursuant to the terms of (i) all
agreements and other instruments (including but not limited to the Loan
Documents) to which the Borrower and the Lender are parties; and (ii) any
other agreement or recorded instrument the breach of which (a) would
materially adversely affect the ownership, operation or management of the
Borrower's business or (b) would adversely affect the priority or
enforceability of any of the Loan Documents.
-25-
<PAGE>
(e) Borrower shall make, execute and deliver to Lender such security
agreements, instruments, documents and other agreements reasonably necessary
to document or confirm the Loan and any matters set forth in any of the Loan
Documents or to evidence, confirm or continue any of the Security Interests
in the Collateral intended to be granted by the Loan Documents.
(f) If any of the addresses specified in Section 9.06 below are
changed, Borrower shall give Lender five (5) prior Business Days' notice
thereof.
(g) Borrower shall comply with all applicable statutes, regulations and
orders of any Governmental Authority, and of any court, arbitrator or grand
jury, in respect to the conduct of its businesses and the ownership of its
properties, except such as are being contested in good faith.
(h) Borrower shall maintain all of its operating accounts with Lender,
including an automated wholesale lockbox.
(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 Lender
against any and all liabilities, obligations, losses, damages (including, but
not limited to, environmental liability), penalties, claims, actions, suits,
costs and expenses of whatever kind or nature which may be imposed on,
incurred by or asserted at any time against Lender in any way relating to, or
arising in connection with the transaction of Borrower's business.
(k) Borrower shall provide Lender copies of all audits or inspections
or reports performed at the request of a governmental entity within thirty
(30) days after Lender's request for same.
SECTION 5.02. Financial Reports. Unless the Lender consents otherwise
in writing, continuing for as long as any Indebtedness remains unpaid,
Borrower shall keep, maintain, comply, preserve and be responsible for the
satisfaction of each of the following covenants:
(a) Borrower will keep true books and records and accounts concerning
its business transactions.
(b) Borrower and Guarantor will, during the term of the Loan, furnish
to Lender as soon as available and in any event within forty-five (45) days
after the end of each fiscal quarter of each entity, financial statements,
including all financial statements filed with any Governmental Authority
which regulates securities (collectively the "Required Statements") covering
each entity, signed by the chief financial officer of the entity as to which
the Required Statements are issued.
(c) The Required Statements shall be prepared according to generally
accepted accounting principles, consistently applied; shall in all events
include balance sheets, income statements, sources and uses of cash,
statements of profit and loss, statements of changes in equity,
-26-
<PAGE>
and statements of cash flows; and shall be addressed to Lender.
(d) Further, within ninety (90) 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 notify Lender immediately of any material change in
its financial condition or that of any Guarantor or other Grantor.
(f) Within forty-five (45) days after the end of each fiscal quarter of
Borrower, 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, a certification and
computation of all of the financial covenants of Borrower, with reference to
the preceding 12-month period ended on the last day of the calendar quarter
covered by such certificate.
(g) Borrower will provide to Lender such other financial information as
Lender may reasonably request.
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. This covenant shall be tested
annually.
(b) Borrower shall maintain a ratio of Senior Debt to EBITDA of no more
than 3.00: 1.00. This covenant shall be tested quarterly.
(c) Borrower shall maintain a Debt Service Coverage Ratio of no less
than 2.00: 1.00. As used herein, the phrase "Debt Service Coverage Ratio"
shall mean the ratio obtained by dividing the Borrower's net income plus
non-cash 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 lease obligations.
This covenant shall be tested annually at the end of each fiscal year of
Borrower.
(d) Borrower shall maintain an Interest Coverage Ratio of no less than
5.00: 1.00. As used herein, the phrase "Interest Coverage Ratio" shall mean
the ratio obtained by dividing the Borrower's EBITDA by the total interest
expense of Borrower on all loans and bank indebtedness (including the Loan
and any loans in favor of Lender). This covenant shall be tested annually at
the end of each fiscal year of Borrower.
-27-
<PAGE>
(e) Borrower shall maintain accounts receivable of no less than
$2,800,000.00 at any given time.
ARTICLE VI
NEGATIVE COVENANTS
SECTION 6.01. Lender's Consent Required. Unless Lender consents
otherwise in writing, continuing for as long as any Indebtedness remains
unpaid, Borrower shall be responsible and liable that:
(a) Borrower shall not assign, transfer, alienate, pledge or encumber
any interest in this Agreement.
(b) Neither Borrower nor any Guarantor shall dispose of all or
substantially all of its property, accounts, assets or business.
(c) Borrower shall not change or expand its business as presently
conducted, consolidate with or merge into any other business, acquire
interest or ownership in any other business, or lend funds to any other
business, provided that Lender's consent to any such action shall not be
unreasonably withheld.
(d) Borrower shall not permit, cause or suffer there to occur (1) any
change in the identity or ownership percentages of the owners of Borrower
(2) any change in the management of any Borrower, (3) any change in the
identity of the President, Chief Executive Officer, or Chairman of the Board
of Directors of Borrower, from that in existence as of the Closing Date, or
(4) any transfer, encumbrance or pledge of any interest in Borrower.
(e) Borrower shall not sell, convey, lease, donate or otherwise
alienate or dispose of any of the property encumbered by the Collateral,
whether voluntarily or involuntarily, in any manner whatsoever, except
(1) where explicitly permitted under other provisions of this
Agreement, or
(2) for bona fide, arms' length sales or leases of portions of said
property where such sales or leases are part of the business
regularly engaged in by Borrower with respect to said property,
such as (without limitation) sales of condominium lots, or leases
of apartments or office space.
(f) Borrower shall not grant or suffer or permit to be filed any
mortgage, Security Interest, lien, pledge, hypothecation, or other
encumbrance of or against any 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.
-28-
<PAGE>
(g) Borrower shall not use or expend any portion of the Loan proceeds for
any purpose or matter other than the working capital of Borrower.
(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 Lender to
make the Loan hereunder is and shall be subject to satisfaction of each of
the following conditions:
(a) All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident to such
transactions shall be satisfactory in form and substance to Lender and its
counsel, and Lender shall have received all documents or other evidence which
Lender and its counsel may reasonably have requested in connection with such
transactions.
(b) Borrower shall be in compliance with all the terms and conditions
of the Commitment, this Agreement and the other Loan Documents as of the date
of any Advance.
(c) No Event of Default shall have occurred, nor shall there exist any
state of facts which with the passage of time or the giving of notice or both
would constitute an Event of Default hereunder.
(d) Lender shall have received duly executed originals or counterparts
of each of the Loan Documents.
(e) Lender shall have been furnished with favorable opinions from
Borrower's counsel, which opinion shall cover such matters as Lender may
require and be in form and substance satisfactory to Lender.
(f) Lender shall have received the Required Statements in conformity
with Section 5.02 above, dated with respect to Borrower as of a date not
later than thirty (30) days prior to the Closing Date, and on the Closing
Date there shall have occurred no material changes in the financial condition
of Borrower from that reflected in said financial statements.
(g) 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) 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
-29-
<PAGE>
substance to Lender and its special counsel and Lender shall have received
all documents or other evidence which Lender and its special counsel may
reasonably have requested in connection with such transactions, including
copies of records of all corporate proceedings, if any, in connection with
such transactions, in form and substance satisfactory to Lender and its
counsel.
(i) Lender shall have received evidence satisfactory to Lender that
Borrower has paid (or will pay from the initial disbursement made hereunder)
for all costs incident to this transaction, including without limiting the
generality of the foregoing, a non-refundable fee to Lender in the amount of
Five Thousand ($5,000.00) Dollars, closing costs and Lender's attorney's fees.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. The occurrence of any of the following
events shall constitute a default hereunder ("Event of Default"):
(a) Payment. The failure of the Borrower to pay any interest or
principal on the Note or any other Indebtedness when due, or any other cost
or expense due hereunder or under the Note, or any "default event" under the
terms of the Note or under this Agreement or any of the other Loan Documents.
(b) Other Obligations.
(1) the violation, default, or breach of any other covenant,
obligation, warranty, provision, clause or representation in favor of Lender
under this Agreement or any other Loan Document; or
(2) the violation, default, or breach of any covenant, obligation,
warranty, provision, clause or representation in favor of Lender under any
other document between Borrower and Lender, including but not limited to the
following documents: Loan Agreement dated January 9, 1997, as amended;
Promissory Note executed by Borrower as maker, payable to the order of
Lender, in the original principal amount of One Million Seven Hundred
Thousand and No/100 ($1,700,000.00) Dollars dated January 9, 1997; Loan
Agreement dated July 22, 1997; Promissory Note executed by Borrower as maker,
payable to the order of Lender, in the original principal amount of Seven
Hundred Twenty Thousand and No/100 ($720,000.00)Dollars, dated July 2, 1997; 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
-30-
<PAGE>
misleading in any material respect.
(d) Receivership. If an order, judgment or decree shall be entered by
any competent court appointing a receiver of the property of the Borrower or
any Guarantor, unless such appointment shall have been sought by the Lender
to enforce some provision of this Agreement, and such order, judgment or
decree is not appealed from within the time allowed by law, or if appealed
from shall have been affirmed.
(e) Insolvency. If the Borrower or any Guarantor shall: (i) apply for,
or consent to, the appointment of a receiver, trustee or liquidator of
Borrower or any Guarantor, or all or a substantial part of the assets of
same; (ii) be adjudicated a bankrupt or insolvent, or file a voluntary
petition in bankruptcy, or admit in writing the inability to pay debts as
they become due; (iii) make a general assignment for the benefit of
creditors; (iv) file a petition or answer seeking reorganization or
arrangement with creditors, or to take advantage of any insolvency law, or;
(v) file an answer admitting the material allegations of, or consent to, or
default in answering, a petition filed against Borrower or any Guarantor in
any bankruptcy, reorganization or insolvency proceeding; or if any
involuntary petition for bankruptcy is filed against Borrower and such
petition is not dismissed within sixty (60) days of its filing date.
(f) Seizure. If the property or any part thereof 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 Borrower's business, 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.
(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(b) above.
-31-
<PAGE>
SECTION 8.02. Remedies.
If an Event of Default should occur, Lender, without notice to
Borrower, shall have no obligation to make any further Advance hereunder. If
such default is not cured within ten (10) Business Days from the date of
giving of Lender's notice to Borrower ("Default After Notice"), then Lender
shall have the right to immediately declare the Note, the Indebtedness and
all amounts secured to be immediately due and payable, whereupon the same
shall be immediately due and payable without presentment, demand, protest, or
notice of any kind (all of which are hereby expressly waived by Borrower),
and Lender may thereupon institute proceedings to collect the same, including
the right to institute foreclosure and/or enforcement proceedings on the Loan
Documents, or any of them. However, if the Event of Default is other than an
obligation of Borrower to pay money, then before a Default After Notice shall
have occurred, Borrower shall have thirty (30) days from the date of delivery
of Lender's notice to Borrower within which to cure it, and if the Event of
Default cannot be reasonably cured within such thirty (30) day period, and if
Borrower commences the action required to cure such default and diligently
pursues such action, then the period shall be extended for such time as may
be required in the sole judgment of Lender to cure such default. In addition
to all other rights and remedies available to Lender hereunder, Lender shall
have all rights and remedies available under the law against any person or
persons for damages or other compensation or remuneration that may be owed to
Lender on account of the violation, default, or breach of any covenant,
obligation, warranty, provision, clause or representation in Lender's favor.
ARTICLE IX
GENERAL PROVISIONS
Throughout the term of this Agreement:
SECTION 9.01. Cumulative Rights. The rights and remedies of Lender
under this Agreement, the Note, and the other Loan Documents shall be
cumulative, and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
SECTION 9.02. Approval by Lender. All proceedings relating to the Loan
and all documents required or contemplated by this Agreement, and the persons
responsible for the execution and preparation thereof, shall be satisfactory
to Lender, and Lender's counsel shall have received copies (or certified
copies where appropriate in such counsel's judgment) of all documents
requested.
SECTION 9.03. No Waiver. No Advance shall constitute a waiver of any of
the conditions to Lender's obligation to make further Advances. If Borrower
is unable to satisfy any such condition, no Advance or waiver shall have the
effect of precluding Lender from thereafter declaring an Event of Default
because any such condition shall remain unsatisfied.
SECTION 9.04. Facts. Any condition of this Agreement which requires the
submission of evidence of the existence or non-existence of a specified fact
or facts implies as a condition the
-32-
<PAGE>
existence or non-existence, as the case may be, of such fact or facts, and
Lender shall, at all times, be free independently to establish to its
reasonable satisfaction such existence or non-existence.
SECTION 9.05. Third Party Beneficiaries. All conditions and obligations
of Lender to make Advances hereunder are imposed solely and exclusively for
the benefit of Lender and its assigns. No other person shall have standing
to require satisfaction of such conditions or be entitled to assume that
Lender will refuse to make Advances in the absence of strict compliance with
any or all thereof, and no other person shall, under any circumstances, be
deemed to be a beneficiary of such conditions, any or all of which may be
freely waived, in whole or in part, by Lender at any time in its sole
discretion.
SECTION 9.06. Notices. All notices required hereunder shall be in
writing and shall be deemed to have been given (i) when delivered or (ii) if
delivery is refused, then on the date of attempted delivery, by the United
States mail by certified or registered mail, return receipt requested, or by
commercial overnight courier service, addressed to any party hereof at its
address stated below, or at such other address of which it shall have given
notice in writing. The respective addresses of the parties are as follows:
To the Lender: Hibernia National Bank
Commercial Banking Department
313 Carondelet Street
New Orleans, LA 70130
Attn: Lizette Terral
To the Borrower: Laboratory Specialists, Inc.
1111 Newton Street
Gretna, LA 70053
Attn: Arthur R. Peterson, Jr.
To the Guarantor: Laboratory Specialists of America, Inc.
1111 Newton Street
Gretna, LA 70053
Attn: Arthur R. Peterson, Jr.
SECTION 9.07. Amendment. Neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated orally, or in any
manner other than by an instrument in writing signed by the party against
whom enforcement of the change, waiver, discharge or termination is sought.
SECTION 9.08. Assignment by the Lender. This Agreement, the Loan and
any documents executed pursuant hereto may be assigned or serviced by Lender,
its successors or assigns and Lender, its successors, or assigns may receive
service, brokerage or other fees.
-33-
<PAGE>
SECTION 9.09. Entire Agreement. This Agreement sets forth the entire
agreement of the Lender and the Borrower, and the Guarantor with respect to
the Loan, and supersedes all prior written or oral understandings with
respect thereto; provided, however, that all written representations,
warranties and certifications made by the Borrower or Guarantor to the Lender
with respect to the Loan and the Collateral shall survive the execution of
this Agreement.
SECTION 9.10. Conflict with Collateral Documents. If any substantive
provision of this Agreement is in conflict with a corresponding provision of
the Collateral Documents, the provisions of this Agreement shall prevail.
SECTION 9.11. Time is of the Essence. Time shall be deemed of the
essence with respect to performance of all the terms, provisions and
conditions on the part of the Borrower to be performed hereunder.
SECTION 9.12. Consent to Loan Participation. Borrower agrees and
consents to Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loan to one or more purchasers, whether
related or unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to privacy
it may have with respect to such matters and specifically consents to the
release of such information. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interest will be considered as the
absolute owners of such interest in the Loan and will have all the rights
granted under the participation agreement or agreements governing the sale of
such participation interests. Borrower further waives all rights of offset
or counterclaim that it may have now or later against Lender or against any
purchaser of such participation interests and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loan irrespective of the failure or insolvency of any holder of any interest
in the Loan. Borrower further agrees that the purchaser of any such
participation interests may enforce its interest irrespective of any personal
claims or defenses that Borrower may have against Lender.
SECTION 9.13. Non-Waiver of Rights. Neither failure nor delay of Lender
to exercise any right, power or privilege under this Agreement shall operate
as a waiver thereof. The single or partial exercise by Lender of any right,
power or privilege shall not preclude any other or further exercise of any
right, power or privilege hereunder.
SECTION 9.14. Governing Law. This Agreement and all aspects of the Loan
shall be governed by laws of the State of Louisiana.
SECTION 9.15. Intervention by Guarantors. Each Guarantor intervenes in
this Agreement for the express purpose of becoming a party to this Agreement
and to acknowledge all of the terms, provisions, conditions and obligations
of this Agreement, including specifically the representations,
-34-
<PAGE>
warranties, and covenants herein made with respect to each Guarantor and its
property. Without limiting the generality of the foregoing, by virtue of
this intervention, each Guarantor takes cognizance of and affirms each such
representation, warranty, covenant and obligation of Borrower set forth in
this Agreement, binds and obligates himself or itself, jointly and in solids
with Borrower and each other Guarantor, and guarantees to Lender, its
successors and assigns, the full and complete performance of all terms,
conditions, provisions of this Agreement and all obligations undertaken by
Borrower, and each Guarantor herein.
SECTION 9.16. Relationship between the Parties. The relationship
between Lender and Borrower shall be solely that of lender and borrower, and
such relationship shall not, under any circumstances whatsoever, be construed
to be a joint venture, joint adventure, or partnership.
SECTION 9.17. Survival. All warranties, representations, and covenants
made by Borrower and Guarantor herein or in any certificate or other
instrument delivered by them or on their behalf under this Agreement shall be
considered to have been relied upon by Lender and shall survive the making of
the Loan and delivery to Lender of the Note, regardless of any investigation
made by the Lender or on its behalf. All statements in any such certificate
or other instrument shall constitute warranties and representations by
Borrower and Guarantor hereunder.
SECTION 9.18. Separate Covenants. Each covenant contained in this
Agreement shall be construed (absent an express contrary provision therein)
as being independent of each other covenant contained herein and compliance
with any one covenant shall not (absent such an express contrary provision)
be deemed to excuse compliance with any or all other covenants.
SECTION 9.19. Severability. If any provision or the application of any
provision of this Agreement shall to any extent be invalid or unenforceable,
then the remainder of this Agreement or the application of such provision in
other circumstances (other than those as to which it is invalid or
unenforceable) shall not be affected, and each provision of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.
SECTION 9.20. Limitation of Liability. This Agreement, the Note, and
the other Loan Documents, are executed by an officer of Lender, and by
acceptance of the Loan, Borrower agrees that for the payment of any claim or
the performance of any obligations hereunder resulting from any default by
Lender, resort shall be had solely to the assets and property of Lender, and
no shareholder, officer, employee or agent of Lender shall be personally
liable therefor.
SECTION 9.21. Multiple Parties. All of the covenants, agreements, and
obligations undertaken by Borrower shall bind each of the persons comprising
Borrower, in solids.
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.
-35-
<PAGE>
WITNESSES: BORROWER:
LABORATORY SPECIALISTS, INC.
Mary B. Sears By: Arthur R. Peterson, Jr.
Linda B. Ashley Arthur R. Peterson, Jr.
Its: President
LENDER:
HIBERNIA NATIONAL BANK
By: Lizette M. Terral
Lizette M. Terral
Its: Vice President
Robert M. Steeg
NOTARY PUBLIC
INTERVENTION and agreement, per Section 9.15 above:
Laboratory Specialists of America, Inc.
By: Arthur R. Peterson, Jr.
Arthur R. Peterson, Jr.
Its: Treasurer
-36-
<PAGE>
EXHIBIT 10.2
COMMERCIAL GUARANTY
Borrower: LABORATORY SPECIALISTS, INC.
(TIN: 72-0846066)
P.O. Box 435
Belle Chasse, LA 70037
Lender: Hibernia National Bank
(TIN: 72-0210640)
Loan Administration Department
313 Carondelet Street
New Orleans, LA 70130
Guarantor: Laboratory Specialists of America, Inc.
P.O. Box 435
Belle Chasse, LA 70037
AMOUNT OF GUARANTY. The amount of this Guaranty Is Unlimited.
DEFINITIONS. The following terms shall have the following meanings when used in
this Agreement:
Agreement. The word "Agreement" means this Guaranty Agreement as this
Agreement may be amended or modified from time to time.
Borrower. The word "Borrower" means individually, collectively and
interchangeably LABORATORY SPECIALISTS, INC..
Guarantor. The word "Guarantor" means individually, collectively and
interchangeably Laboratory Specialists of America, Inc. and all other
persons guaranteeing payment and satisfaction of Borrower's Indebtedness
as hereinafter defined.
Indebtedness. The word "Indebtedness" means individually, collectively,
interchangeably and without limitation any and all present and future
loans, loan advances, extensions of credit, obligations and/or
liabilities that Borrower may now and/or in the future owe to and/or
incur in favor of Lender, whether direct or indirect, or by way of
assignment or purchase of a participation interest, and whether absolute
or contingent, voluntary or involuntary, determined or undetermined,
liquidated or unliquidated, due or to become due, secured or unsecured,
and whether Borrower may be liable individually, jointly or solidarity
with others, whether primarily or secondarily, or as a guarantor or
otherwise, and whether now existing or hereafter arising, of
-37-
<PAGE>
every nature and kind whatsoever, in principal, interest, costs,
expenses and attorneys' fees and other fees and charges, including
without limitation Borrower's indebtedness and obligations under a
certain promissory note in favor of Lender dated August 25, 1998 In the
fixed principal amount of U.S. $1,000,000.00. In addition, all Interest
thereon, costs, expenses, attorneys' fees and other fees and charges
related thereto under Borrower's Indebtedness shall be fully guaranteed
hereunder.
Lender. The word "Lender" means Hibernia National Bank TIN: 72-0210640,
its successors and assigns, and any subsequent holder or holders of
Borrower's Indebtedness.
GUARANTEE OF BORROWER'S INDEBTEDNESS. Guarantor hereby absolutely and
unconditionally agrees to, and by these presents does hereby, guarantee the
prompt and punctual payment, performance and satisfaction of any and all of
Borrower's present aid future Indebtedness In favor of Lender.
CONTINUING GUARANTY. THIS IS A CONTINUING GUARANTY AGREEMENT UNDER WHICH
GUARANTOR AGREES TO GUARANTEE PAYMENT OF BORROWER'S PRESENT AND FUTURE
INDEBTEDNESS IN FAVOR OF LENDER ON A CONTINUING BASIS. Guarantor's
obligations and liability under this Agreement shall be open and continuous
in effect. Guarantor intends to and does hereby guarantee at all times the
prompt and punctual payment, performance and satisfaction of all of
Borrower's present and future Indebtedness in favor of Lender. Accordingly,
any payments made on Borrower's Indebtedness will not discharge or diminish
the obligations and liability of Guarantor under this Agreement for any
remaining and succeeding Indebtedness of Borrower in favor of Lender.
JOINT, SEVERAL AND SOLIDARY LIABILITY. Guarantor's obligations and liability
under this Agreement shall be on a "solidary" or "joint and several" basis
along with Borrower to the same degree and extent as if Guarantor had been
and/or will be a co-borrower, co-principal obligor and/or co-maker of
Borrower's Indebtedness. In the event that there is more than one Guarantor
under this Agreement, or in the event that there are other guarantors,
endorsers or sureties of all or any portion of Borrower's Indebtedness,
Guarantor's obligations and liability hereunder shall further be on a
"solidary" or "joint and several" basis along with such other guarantors,
endorsers and/or sureties.
DURATION OF GUARANTY. This Agreement and Guarantor's obligations and
liability hereunder shall remain in full force and effect until such time as
this Agreement may be canceled or otherwise terminated by Lender under a
written cancellation instrument in favor of Guarantor (subject to the
automatic reinstatement provisions herein below). It is anticipated that
fluctuations may occur in the aggregate amount of Borrower's Indebtedness
guaranteed under this Agreement and it is specifically acknowledged and
agreed to by Guarantor that reductions in the amount of Borrower's
Indebtedness, even to zero ($0.00) dollars, prior to Lender's written
cancellation of this Agreement, shall not constitute or give rise to a
termination of this Agreement.
CANCELLATION OF AGREEMENT; EFFECT. Unless otherwise indicated under such a
written
-38-
<PAGE>
cancellation instrument, Lender's agreement to terminate or otherwise cancel
this Agreement shall affect only, and shall be expressly limited to,
Guarantor's continuing obligations and liability to guarantee Borrower's
Indebtedness incurred, originated and/or extended (without prior commitment)
after the date of such a written cancellation instrument; with Guarantor
remaining fully obligated and liable under this Agreement for any and all of
Borrower's Indebtedness incurred, originated, extended, or committed to prior
to the date of such a written cancellation instrument. Nothing under this
Agreement or under any other agreement or understanding by and between
Guarantor and Lender, shall in any way obligate, or be construed to obligate,
Lender to agree to the subsequent termination or cancellation of Guarantor's
obligations and liability hereunder; it being fully understood and agreed to
by Guarantor that Lender has and intends to continue to rely on Guarantor's
assets, income and financial resources in extending credit and other
Indebtedness to and in favor of Borrower, and that to release Guarantor from
Guarantor's continuing obligations and liabilities under this Agreement would
so prejudice Lender that Lender may, within its sole and uncontrolled
discretion and judgment, refuse to release Guarantor from any of its
continuing obligations and liability under this Agreement for any reason
whatsoever as long as any of Borrower's Indebtedness remains unpaid and
outstanding, or otherwise.
DEFAULT. Should any event of default occur or exist under any of Borrower's
Indebtedness in favor of Lender, Guarantor unconditionally and absolutely
agrees to pay Lender the then unpaid amount of Borrower's Indebtedness, in
principal, interest, costs, expenses, attorneys' fees and other fees and
charges. Such payment or payments shall be made at Lender's offices
indicated above, immediately following demand by Lender.
GUARANTOR'S WAIVERS. Guarantor hereby waives:
(a) Notice of Lander's acceptance of this Agreement.
(b) Presentment for payment of Borrower's Indebtedness, notice of dishonor
and of nonpayment, notice of intention to accelerate, notice of
acceleration, protest and notice of protest, collection or institution of
any suit or other action by Lender in collection thereof, including any
notice of default in payment thereof, or other notice to, or demand for
payment thereof, on any party.
(c) Any right to require Lender to notify Guarantor of any nonpayment
relating to any collateral directly or indirectly securing Borrower's
Indebtedness, or notice of any action or nonaction on the pan of Borrower,
Lender, or any other guarantor, surety or endorser of Borrower's
Indebtedness, or notice of the creation of any new or additional
Indebtedness subject to this Agreement
(d) Any rights to demand or require collateral security from the Borrower
or any other person as provided under applicable Louisiana law or
otherwise.
(e) Any right to require Lender to notify Guarantor of the terms, time and
place of any public or private sale of any collateral directly or
indirectly securing Borrower's Indebtedness.
-39-
<PAGE>
(f) Any "one action" or "anti-deficiency" law or any other law which may
prevent Lender from bringing any action, including a claim for deficiency,
against Guarantor, before or after Lender's commencement or completion of
any foreclosure action, or any action in lieu of foreclosure.
(g) Any election of remedies by Lender that may destroy or impair
Guarantor's subrogation rights or Guarantor's right to proceed for
reimbursement against Borrower or any other guarantor, surety or endorser
of Borrower's Indebtedness, including without limitation, any loss of
rights Guarantor may suffer by reason of any law limiting, qualifying, or
discharging Borrower's Indebtedness.
(h) Any disability or other defense of Borrower, or any other guarantor,
surety or endorser, or any other person, or by reason of the cessation from
any cause whatsoever, other than payment in full of Borrower's
Indebtedness.
(i) Any statute of limitations or prescriptive period, if at the time an
action or suit brought by Lender against Guarantor is commenced, there is
any outstanding Indebtedness of Borrower to Lender which is barred by any
applicable statute of limitations or prescriptive period.
Guarantor warrants and agrees that each of the waivers set forth above is
made with Guarantor's full knowledge of its significance and consequences,
and that, under the circumstances, such waivers are reasonable and not
contrary to public policy or law. If any such waiver is determined to be
contrary to any applicable law or public policy, such waiver shall be
effective only to the extent permitted by law.
GUARANTOR'S SUBORDINATION OF RIGHTS. in the event that Guarantor should for
any reason (a) advance or lend monies to Borrower, whether or not such funds
are used by Borrower to make payment(s) under Borrower's Indebtedness, and/or
(b) make any payment(s) to Lender or others for and on behalf of Borrower
under Borrower's Indebtedness, and/or (c) make any payment to Lender in total
or partial satisfaction of Guarantor's obligations and liabilities under this
Agreement, and/or (d) if any of Guarantor's property is used to pay or
satisfy any of Borrower's Indebtedness, Guarantor hereby agrees that any and
all rights that Guarantor may have or acquire to collect from or to be
reimbursed by Borrower (or from or by any other guarantor, endorser or surety
of Borrower's Indebtedness), whether Guarantor's rights of collection or
reimbursement arise by way of subrogation to the rights of Lender or
otherwise, shall in all respects, whether or not Borrower is presently or
subsequently becomes insolvent, be subordinate, inferior and junior to the
rights of Lender to collect and enforce payment, performance and satisfaction
of Borrower's then remaining Indebtedness, until such time as Borrower's
Indebtedness is fully paid and satisfied. In the event of Borrower's
insolvency or consequent liquidation of Borrower's assets, through
bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation, or otherwise, the assets of Borrower applicable to the payment
of claims of both Lender and Guarantor shall be paid to Lender and shall be
first applied by Lender to Borrower's then remaining Indebtedness. Guarantor
hereby assigns to Lender all claims which it may have or acquire against
Borrower or any assignee or trustee of Borrower in bankruptcy; provided that,
such assignment shall be effective only for the
-40-
<PAGE>
purpose of assuring to Lender full payment of Borrower's Indebtedness
guaranteed under this Agreement.
If now or hereafter (a) Borrower shall be or become insolvent, and (b)
Borrower's Indebtedness shall not at all times until paid be fully secured by
collateral pledged by Borrower, Guarantor hereby forever waives and
relinquishes in favor of Lender and Borrower, and their respective
successors, any claim or right to payment Guarantor may now have or hereafter
have or acquire against Borrower, by subrogation or otherwise, so that at no
time shall Guarantor be or become a "creditor" of Borrower within the meaning
of 11 U.S.C. section 547(b), or any successor provision of the Federal
bankruptcy laws.
GUARANTOR'S RECEIPT OF PAYMENTS. Guarantor further agrees to refrain from
attempting to collect and/or enforce any of Guarantor's collection and/or
reimbursement rights against Borrower (or against any other guarantor, surety
or endorser of Borrower's Indebtedness), arising by way of subrogation or
otherwise, until such time as all of Borrower's then remaining Indebtedness
in favor of Lender is fully paid and satisfied. In the event that Guarantor
should for any reason whatsoever receive any payment(s) from Borrower (or any
other guarantor, surety or endorser of Borrower's Indebtedness) that Borrower
(or such a third party) may owe to Guarantor, for any of the reasons stated
above, Guarantor agrees to accept such payment(s) in trust for and on behalf
of Lender, advising Borrower (or the third party payee) of such fact.
Guarantor further unconditionally agrees to immediately deliver such funds to
Lender, with such funds being hold by Guarantor over any interim period, in
trust for Lender. In the event that Guarantor should for any reason
whatsoever receive any such funds from Borrower (or any third party), and
Guarantor should deposit such funds in one or more of Guarantor's deposit
accounts, no matter where located, Lender shall have the right to attach any
and all of Guarantor's deposit accounts in which such funds were deposited,
whether or not such funds were commingled with other monies of Guarantor, and
whether or not such funds then remain on deposit in such an account or
accounts. To this end and to secure Guarantor's obligations under this
Agreement, Guarantor collaterally assigns and pledges to Lender, and grants
to Lender a continuing security interest in, any and all of Guarantor's
present and future rights, title and interest in and to all monies that
Guarantor may now and/or in the future maintain on deposit with banks,
savings and loan associations and other entities (other than tax deferred
accounts with Lender), in which Guarantor may at any time deposit any such
funds that may be received frm Borrower (or any other guarantor, endorser or
surety of Borrower's Indebtedness) in favor of Lender.
DEPOSIT ACCOUNTS. As collateral security for repayment of Guarantor's
obligations hereunder and under any additional guaranties previously granted
or to be granted by Guarantor in the future, and additionally as collateral
security for any present and future indebtedness of Guarantor in favor of
Lender (with the exception of any indebtedness under a consumer credit card
account), Guarantor is granting Lender a continuing security interest in any
and all funds that Guarantor may now and in the future have on deposit with
Lender or in certificates of deposit or other deposit accounts as to which
Guarantor is an account holder (with the exception of IRA, pension, and other
tax-deferred deposits). Guarantor further agrees that Lender may at any time
apply any funds that Guarantor may have on deposit with Lender or in
certificates of deposit or other deposit accounts as to which
-41-
<PAGE>
Guarantor is an account holder against the unpaid balance of any and all
other present and future obligations and indebtedness of Guarantor to Lender,
in principal, interest, fees, costs, expenses, and attorneys' fees.
ADDITIONAL COVENANTS. Guarantor agrees that Lender may, at its sole option,
at any time, and from time to time, without the consent of or notice to
Guarantor, or any of them, or to any other party, and without incurring any
responsibility to Guarantor or to any other party, and without impairing or
releasing any of Guarantor's obligations or liabilities under this Agreement:
(a) Make additional secured and/or unsecured loans to Borrower.
(b) Discharge, release or agree not to sue any party (including, but not
limited to, Borrower or any other guarantor, surety, or endorser of
Borrower's Indebtedness), who is or may be liable to Lender for any of
Borrower's Indebtedness.
(c) Sell, exchange, release, surrender, realize upon, or otherwise deal
with, in any manner and in any order, any collateral directly or indirectly
securing repayment of any of Borrower's Indebtedness.
(d) Alter, renew, extend, accelerate, or otherwise change the manner,
place, terms and/or times of payment or other terms of Borrower's
Indebtedness, or any part thereof, including any increase or decrease in
the rate or rates of interest on any of Borrower's Indebtedness.
(e) Settle or compromise any of Borrower's Indebtedness.
(f) Subordinate and/or agree to subordinate the payment of all or any part
of Borrower's Indebtedness, or Lander's security rights in any collateral
directly or indirectly securing any such Indebtedness, to the payment
and/or security rights of any other present and/or future creditors of
Borrower.
(g) Apply any payments and/or proceeds to any of Borrower's Indebtedness
in such priority or with such preferences as Lender may determine in its
sole discretion, regardless of which of Borrower's Indebtedness then
remains unpaid.
(h) Take or accept any other collateral security or guaranty for any or
all of Borrower's Indebtedness.
(i) Enter into, deliver, modify, amend, or waive compliance with, any
instrument or arrangement evidencing, securing or otherwise affecting, all
or any part of Borrower's Indebtedness.
NO IMPAIRMENT OF GUARANTOR'S OBLIGATIONS. No course of dealing between
Lender and Borrower (or any other guarantor, surety or endorser of Borrower's
Indebtedness), nor any failure or delay on the part of Lender to exercise any
of Lender's rights and remedies under this
-42-
<PAGE>
Agreement or any other agreement or agreements by and between Lender and
Borrower (or any other guarantor, surety or endorser), shall have the effect
of impairing or releasing Guarantor's obligations and liabilities to Lender,
or of waiving any of Lender's rights and remedies under this Agreement or
otherwise. Any partial exercise of any rights and remedies granted to Lender
shall furthermore not constitute a waiver of any of Lender's other rights and
remedies; it being Guarantor's intent and agreement that Lender's rights and
remedies shall be cumulative in nature. Guarantor further agrees that,
should Borrower default under any of its Indebtedness, any waiver or
forbearance on the part of Lender to pursue Lender's available rights and
remedies shall be binding upon Lender only to the extent that Lender
specifically agrees to such waiver or forbearance in writing. A waiver or
forbearance on the part of Lender as to one event of default shall not
constitute a waiver or forbearance as to any other default.
NO RELEASE OF GUARANTOR. Guarantor's obligations and liabilities under this
Agreement shall not be released, impaired, reduced, or otherwise affected by,
and shall continue in full force and effect notwithstanding the occurrence of
any event, including without limitation any one or more of the following
events:
(a) The death, insolvency, bankruptcy, arrangement, adjustment,
composition, liquidation, disability, dissolution, or lack of authority
(whether corporate, partnership or trust) of Borrower (or any person acting
on Borrower's behalf), or of any other guarantor, surety or endorser of
Borrower's Indebtedness.
(b) Any payment by Borrower, or any other-party, to Lender that is held to
constitute a preferential transfer or a fraudulent conveyance under any
applicable !aw, or any such amounts or payment which, for any reason,
Lender is required to refund or repay to Borrower or to any other person.
(c) Any dissolution of Borrower, or any sale, lease or transfer of all or
any part of Borrower's assets.
(d) Any failure of Lender to notify Guarantor of the making of additional
loans or other extensions of credit in reliance on this Agreement.
AUTOMATIC REINSTATEMENT. This Agreement and Guarantor's obligations and
liabilities hereunder shall continue to be effective, and/or shall
automatically and retroactively be reinstated, if a release or discharge has
occurred, or if at any time, any payment or part thereof to Lender with
respect to any of Borrower's Indebtedness, is rescinded or must otherwise be
restored by Lender pursuant to any insolvency, bankruptcy, reorganization,
receivership, or any other debt relief granted to Borrower or to any other
party to Borrower's Indebtedness or any such security therefor. In the event
that Lender must rescind or restore any payment received in total or partial
satisfaction of Borrower's Indebtedness, any prior release or discharge from
the terms of this Agreement given to Guarantor shall be without effect, and
this Agreement and Guarantor's obligations and liabilities hereunder shall
automatically and retroactively be renewed and/or reinstated and shall remain
in full
-43-
<PAGE>
force and effect to the same degree and extent as if such a release or
discharge had never been granted. It is the intention of Lender and
Guarantor that Guarantor's obligations and liabilities hereunder shall not be
discharged except by Guarantor's full and complete performance and
satisfaction of such obligations and liabilities; and then only to the extent
of such performance.
LEGAL EXISTENCE. Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Oklahoma. Guarantor is
duly qualified and in good standing as a foreign corporation in each
jurisdiction where in the nature of the business transacted and the property
owned by Guarantor makes such qualification necessary. Guarantor's guaranty
of Borrower's Indebtedness and this Agreement does not violate Guarantor's
Articles of incorporation or Bylaws. Guarantor has taken all corporate
action necessary to authorize the execution, delivery and performance of this
Agreement.
REPRESENTATIONS AND WARRANTIES BY GUARANTOR. Guarantor represents and
warrants that:
(a) Guarantor has the lawful power to own its properties and to engage in
its business as presently conducted.
(b) Guarantor's guaranty of Borrower's Indebtedness and Guarantor's
execution, delivery and performance of this Agreement are not in violation
of any laws and will not result in a default under any contract, agreement,
or instrument to which Guarantor is a party, or by which Guarantor or its
property may be bound.
(c) Guarantor has agreed and consented to execute this Agreement and to
guarantee Borrower's Indebtedness in favor of Lender, at Borrower's request
and not at the request of Lander.
(d) Guarantor will receive and/or has received a direct or indirect
material benefit from the transactions contemplated herein and/or arising
out of Borrower's Indebtedness.
(e) This Agreement, when executed and delivered to Lender, will constitute
a legal-and-binding obligation of Guarantor, enforceable in accordance with
its terms.
(f) Guarantor has established adequate means of obtaining information from
Borrower on a continuing basis regarding Borrower's financial condition.
(g) Lender has made no representations to Guarantor as to the
creditworthiness of Borrower.
ADDITIONAL OBLIGATIONS OF GUARANTOR. So long as this Agreement remains in
effect, Guarantor has not and will not, without Lender's prior written
consent, sell, lease, assign, pledge, hypothecate, encumber, transfer, or
otherwise dispose of all or substantially all of Guarantor's assets.
Guarantor agrees to keep adequately informed of any facts, events or
circumstances which might in any way affect Guarantor's risks under this
Agreement. Guarantor further agrees that Lender shall
-44-
<PAGE>
have no obligation to disclose to Guarantor any information or material
relating to Borrower or Borrower's Indebtedness.
ADDITIONAL DOCUMENTS; FINANCIAL STATEMENTS. Upon the reasonable request of
Lender, Guarantor will, at any time, and from time to time, execute and
deliver to Lender any and all such financial instruments and documents, and
supply such additional information, as may be necessary or advisable in the
opinion of Lender to obtain the full benefits of this Agreement. Guarantor
further agrees to provide Lender with such financial statements and other
related information at such frequencies and in such detail as Lender may
reasonably request.
TRANSFER OF INDEBTEDNESS. This Agreement is for the benefit of Lender and
for such other person or persons as may from time to time become or be the
holders of all or any part of Borrower's Indebtedness. This Agreement shall
be transferrable and negotiable with the same force and affect and to the
same extent as Borrower's Indebtedness may be transferrable; it being
understood and agreed to by Guarantor that, upon any transfer or assignment
of all or any part of Borrower's Indebtedness, the holder of such
Indebtedness shall have all of the rights and remedies granted to Lender
under this Agreement. Guarantor further agrees that, upon any transfer of
all or any portion of Borrower's Indebtedness, Lender may transfer and
deliver any and all collateral securing repayment of such Indebtedness
(including, but not limited to, any collateral provided by Guarantor) to the
transferee of such Indebtedness, and such collateral shall secure any and all
of Borrower's Indebtedness in favor of such a transferee. Guarantor
additionally agrees that, after any such transfer or assignment has taken
place, Lender shall be fully discharged from any and all liability and
responsibility to Borrower and Guarantor with respect to such collateral, and
the transferee thereafter shall be vested with all the powers and rights with
respect to such collateral.
CONSENT TO PARTICIPATION. Guarantor recognizes and agrees that Lender may,
from time to time, one or more times, transfer all or any part of Borrower's
Indebtedness through sales of participation interests in such Indebtedness to
one or more third party lenders. Guarantor specifically agrees and consents
to all such transfers and assignments, and Guarantor further waives any
subsequent notice of such transfers and assignments as may be provided under
Louisiana law. Guarantor additionally agrees that the purchaser of a
participation interest in Borrower's Indebtedness will be considered as the
absolute owner of a percentage interest of such Indebtedness and that such a
purchaser will have all of the rights granted under any participation
agreement governing the sale of such a participation interest. Guarantor
waives any rights of offset that Guarantor may have against Lender and/or any
purchaser of such a participation interest, and Guarantor unconditionally
agrees that either Lender or such a purchaser may enforce Guarantor's
obligations and liabilities under this Agreement, irrespective of the failure
or insolvency of Lender or any such purchaser.
NOTICES. Any notice provided in this Agreement must be in writing and will be
considered as given on the day it is delivered by hand or deposited in the U.S.
mail, postage prepaid, addressed to the person to whom the notice is to be given
at the address shown above or at such other addresses as any party may designate
to the other in writing. If there is more than one Guarantor under this
-45-
<PAGE>
Agreement, notice to any Guarantor shall constitute notice to all Guarantors.
ADDITIONAL GUARANTIES. Guarantor recognizes and agrees that Guarantor may have
previously granted, and may in the future grant, one or more additional
guaranties of Borrower's Indebtedness in favor of Lender. Should this occur,
the execution of this Agreement and any additional guaranties on the part of
Guarantor will not be construed as a cancellation of this Agreement or any of
Guarantor's additional guaranties; it being Guarantor's full intent and
agreement that all such guaranties of Borrower's Indebtedness in favor of Lender
shall remain in full force and effect and shall be cumulative in nature and
effect.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
Amendment. No amendment, modification, consent or waiver of any
provision of this Agreement, and no consent to any departure by
Guarantor therefrom, shall be effective unless the same shall be in
writing signed by a duly authorized officer of Lender, and then shall be
effective only as to the specific instance and for the specific purpose
for which given.
Applicable Law. This Guaranty has been delivered to Lender and accepted
by Lender in the State of Louisiana. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Louisiana.
Caption Headings. Caption headings of the sections of this Agreement
are for convenience purposes only and are not to be used to interpret or
to define their provisions. In this Agreement, whenever the context so
requires, the singular includes the plural and the plural also includes
the singular.
Severability. If any provision of this Agreement is hold to be illegal,
invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable. This
Agreement shall be construed and enforceable as if the illegal, invalid
or unenforceable provision had never comprised a part of it, and the
remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision, there shall be
added automatically as a part of this Agreement, a provision as similar
in terms to such illegal, invalid or unenforceable provision as may be
possible and legal, valid and enforceable.
Successors and Assigns Bound. Guarantor's obligations and liabilities
under this Agreement shall be binding upon Guarantor's successors,
heirs, legatees, devisees, administrators, executors and assigns.
Waive Jury. Guarantor and Lender hereby waive the right to any jury
trial in any action, proceeding, or counterclaim brought by either
against the other.
-46-
<PAGE>
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED. NO
FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED AUGUST 25, 1998.
GUARANTOR:
Laboratory Specialists of America, Inc.
By: Arthur R. Peterson, Jr., Treasurer
-47-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LABORATORY SPECIALISTS OF AMERICA, INC. AND SUBSIDIARY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,512,843
<SECURITIES> 0
<RECEIVABLES> 3,724,957
<ALLOWANCES> 521,880
<INVENTORY> 64,284
<CURRENT-ASSETS> 6,039,512
<PP&E> 3,935,061
<DEPRECIATION> 1,379,859
<TOTAL-ASSETS> 18,377,164
<CURRENT-LIABILITIES> 2,981,319
<BONDS> 1,594,820
0
0
<COMMON> 5,729
<OTHER-SE> 13,435,448
<TOTAL-LIABILITY-AND-EQUITY> 18,377,164
<SALES> 0
<TOTAL-REVENUES> 12,039,154
<CGS> 0
<TOTAL-COSTS> 5,438,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 147,993
<INCOME-PRETAX> 2,452,235
<INCOME-TAX> 1,011,510
<INCOME-CONTINUING> 1,440,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,440,725
<EPS-PRIMARY> .28
<EPS-DILUTED> .26
</TABLE>
