<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 5, 1996
REGISTRATION NO. 333-1084
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
POST-EFFECTIVE AMENDMENT
NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
F.Y.I. INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 75-2560895
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3232 MCKINNEY AVE. -- SUITE 900
DALLAS, TEXAS 75204
(214) 953-7555
(Address, including zip code and telephone
number, including area code, of registrant's principal executive offices)
---------------------
ED H. BOWMAN, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
F.Y.I. INCORPORATED
3232 MCKINNEY AVE. -- SUITE 900
DALLAS, TEXAS 75204
(214) 953-7555
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
---------------------
Copy to:
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<S> <C>
MARGOT T. LEBENBERG, ESQ. CHRISTOPHER T. JENSEN, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL MORGAN, LEWIS & BOCKIUS LLP
F.Y.I. INCORPORATED 101 PARK AVENUE
3232 MCKINNEY AVE. -- SUITE 900 NEW YORK, NEW YORK 10178
DALLAS, TEXAS 75204 (212) 309-6000
(214) 953-7555
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
F.Y.I. INCORPORATED
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K.
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<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
----------------------------------------- -----------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus;
Additional Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds.......................... Outside Front Cover Page of Prospectus
5. Determination of Offering Price.......... Outside Front Cover Page of Prospectus
6. Dilution................................. Not Applicable
7. Selling Security Holders................. Not Applicable
8. Plan of Distribution..................... Outside Front Cover Page of Prospectus
9. Description of Securities to be
Registered............................... Description of Capital Stock; Dividend
Policy
10. Interests of Named Experts and Counsel... Legal Matters; Experts
11. Information with Respect to Registrant... Outside Front Cover Page of Prospectus;
Prospectus Summary; The Company; Risk
Factors; Dividend Policy; Selected
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Principal Stockholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Additional
Information; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
<PAGE> 3
SUBJECT TO COMPLETION JULY 5, 1996
2,000,000 SHARES
[FYI LOGO]
COMMON STOCK
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
This Prospectus covers 2,000,000 shares of common stock, $.01 par value
(the "Common Stock"), which may be offered and issued by F.Y.I. Incorporated
(the "Company" or "F.Y.I.") from time to time in connection with the merger with
or acquisition by the Company of other businesses or assets, and which may be
reserved for issuance pursuant to, or offered and issued upon exercise or
conversion of, warrants, options, convertible notes or other similar instruments
issued by the Company from time to time in connection with any such merger or
acquisition. It is expected that the terms of acquisitions involving the
issuance of securities covered by this Prospectus will be determined by direct
negotiations with the owners or controlling persons of the businesses or assets
to be merged with or acquired by the Company, and that the shares of Common
Stock issued will be valued at prices reasonably related to market prices
current either at the time the terms of a merger or acquisition are agreed upon
or at or about the time of delivery of shares. No underwriting discounts or
commissions will be paid, although finder's fees may be paid from time to time
with respect to specific mergers or acquisitions. Any person receiving any such
fees may be deemed to be an underwriter within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"). The Company has previously issued
253,252 shares of Common Stock pursuant to this Registration Statement.
The Common Stock of the Company is included for quotation on the Nasdaq
National Market. On July 1, 1996, the closing price of the Common Stock on the
Nasdaq National Market was $19.00 per share as published in The Wall Street
Journal on July 2, 1996.
All expenses of this offering will be paid by the Company. The Company is a
Delaware corporation and all references herein to the Company refer to the
Company and its subsidiaries. The executive offices of the Company are located
at 3232 McKinney Avenue -- Suite 900, Dallas, Texas 75204 and its telephone
number is (214) 953-7555.
The Common Stock offered hereby invokes a high degree of risk. See "Risk
Factors" commencing on page 6 hereof.
The date of this Prospectus is , 1996.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
F.Y.I. Incorporated (the "Company" or "F.Y.I.") was founded in September
1994 to create a national, single-source provider of document management
services to three primary client segments: healthcare institutions, professional
services firms and financial institutions. In January 1996, F.Y.I. acquired,
simultaneously with the closing of its initial public offering (the "Offering"),
seven document management services businesses (the "Founding Companies"). The
Founding Companies, which have been in business an average of 22 years, are
headquartered in San Francisco (2), San Jose, Fort Worth, Detroit, Malvern
(Philadelphia) and Baltimore, and operate in over 23 states. Since the Offering,
the Company has acquired seven additional companies (together with the Founding
Companies, the "Operating Companies") which provide document management services
and are headquartered in Washington, D.C., Baltimore, San Jose, Sacramento and
Seattle. The Company had pro forma fiscal 1995 annual revenues of approximately
$70.7 million and pro forma fiscal 1995 net income of $4.7 million after giving
effect to the significant acquisitions. The Company operates with a
decentralized management strategy rather than a standardized national model in
order to provide superior customer service and retain the historical customers
of acquired businesses while achieving the operating efficiencies of a large
organization. This strategy also emphasizes the retention of local management,
which the Company believes makes it an attractive acquiror of other document
management services companies. See "The Company."
The Company's three primary client segments are highly document-intensive.
For a variety of regulatory, client service and other reasons, the documents of
the Company's clients must be maintained, accessed and managed for extensive
periods of time, often under strict guidelines and specifications. While the
document management requirements of each target client segment are relatively
unique and require a specialized understanding of that segment, the Company
offers certain common document management services that are transferable across
its targeted client segments. These services, which are offered by one or more
of the Operating Companies, include: (i) micrographic services, including
microfilm and microfiche production and processing; (ii) electronic imaging
services, including the conversion of documents into digitized media using
sophisticated computer technology; (iii) active storage and maintenance of
documents and files; (iv) archival storage of inactive documents; and (v)
information and database management services. In addition, in order to better
fulfill the document management needs of targeted client segments, certain
Operating Companies also offer industry specific services such as litigation
support, including subpoena, authorization, photocopying and service of process
services, medical records release services and remittance processing. The
Company also derives revenue from the sale of certain micrographic and business
imaging products.
Historically, the document management services industry has been highly
fragmented, consisting primarily of small local or regional businesses that
limit their operations to a narrow range of offered services or provide services
only to selected client segments. The Company believes that significant
opportunities are available to a business that can consolidate the capabilities
and resources of a number of existing document management services businesses.
In order to effect such a consolidation, the Company has implemented an
aggressive acquisition program designed to expand its range of offered services
and acquire additional market share in each of its targeted geographic markets.
2
<PAGE> 5
The Company believes that each of its targeted geographic markets can
support the following range of services:
[CHART]
The Company believes that the consolidation of document management services
businesses will provide it with a significant competitive advantage over
existing smaller businesses. In addition to economies of scale, the Company
expects to benefit from enhanced operating efficiencies and significant
cross-selling opportunities. As the Company gains critical mass in certain
geographic markets, it expects to be able to capitalize on its existing client
relationships and technical expertise to: (i) vertically integrate by expanding
the services offered to each of its client segments; and (ii) horizontally
integrate by offering certain transferable services to a larger overall customer
base.
3
<PAGE> 6
SUMMARY COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FYI was founded in September 1994 and effectively began its operations on
February 1, 1996, following the completion of the Offering. The Summary Combined
Financial Data set forth below for the periods prior to February 1, 1996, are
derived from the Founding Companies Combined Statements contained elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS ENDED MARCH 31, 1996
ENDED MARCH (UNAUDITED)(5)
FISCAL YEARS ENDED DECEMBER 31, 31(4) -------------------------------------
----------------------------------------------- ------------ FOUNDING F.Y.I.
1991 1992 1993 1994 1995 1995 COMPANIES INCORPORATED SUPPLEMENTAL
----------- ------- ------- ------- ------- ------------ --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenue........... $29,525 $35,696 $38,396 $43,032 $47,626 $ 11,887 $ 3,917 $8,413 $ 12,330
Operating income........ 325 1,653 1,686 1,599 2,990 1,123 (180) 529 349
Interest and other
expense (income),
net................... 132 272 248 29 139 33 (45) (131) (176)
Income before income
taxes................. 193 1,381 1,438 1,570 2,851 1,090 (135) 660 525
Provision for income
taxes................. 6 267 218 211 163 42 (130) 262 132
Net income.............. 187 1,114 1,220 1,359 2,688 1,048 (5) 398 393
Founding Company pro
forma operating
income(1)............. $1,444 $2,708 $3,401 $3,454 $4,966 $1,379 $503 $529 $1,032
Founding Company pro
forma net
income(1)(2).......... 838 1,541 1,892 2,169 3,033 860 327 398 725
Founding Company pro
forma net income per
share................. $0.23 $0.42 $0.52 $0.60 $0.83 $0.16 $0.06 $0.14
Pro forma weighted
average shares
outstanding(3)........ 3,644 3,644 3,644 3,644 3,644 5,286 5,286 5,286
======= ======= ======= ======= ======= ======= ====== =======
Net income per share.... $ 0.08
======
Weighted average shares
outstanding........... 5,286
======
</TABLE>
SUMMARY PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED FOR
NEW ACQUISITIONS(6)
---------------------------
THREE
YEAR ENDED MONTHS
DECEMBER ENDED MARCH
31, 1995 31, 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Statement of Operations Data:
Total revenue........................................................................ $70,681 $18,597
Operating income..................................................................... 8,713 2,094
Interest and other expense, net...................................................... 1,046 25
Income before income taxes........................................................... 7,667 2,069
Provision for income taxes........................................................... 2,930 827
Net income........................................................................... 4,737 1,242
Pro forma net income per share....................................................... $0.86 $0.22
====== =======
Pro forma weighted average shares outstanding(3)..................................... 5,539 5,539
</TABLE>
4
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<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, MARCH 31, 1996
1995 1996 --------------
------------ ----------- PRO FORMA
ACTUAL ACTUAL AS ADJUSTED(6)
------------ ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital.................................................... $ 1,663 $11,902 $ 5,850
Total assets....................................................... 19,681 27,399 44,759
Long-term debt less current portion................................ 2,777 634 11,321
Stockholders' equity............................................... 7,111 19,207 22,663
</TABLE>
- ---------------
(1) Gives effect to certain reductions in salaries and benefits of the former
owners and key employees of the Founding Companies which were agreed to in
connection with the organization of the Company and the Offering (the
"Compensation Differential"). See Note 3 of Notes to Combined Financial
Statements of the Founding Companies.
(2) Gives effect to certain tax adjustments related to the taxation of certain
Founding Companies as S corporations or sole proprietorships prior to the
consummation of the acquisition of each of the Founding Companies (the
"Acquisitions") and the tax impact of the Compensation Differential in each
period. See Note 3 of Notes to Combined Financial Statements of the Founding
Companies.
(3) Weighted average shares for all periods prior to the Offering include: (i)
1,205,682 shares issued by F.Y.I. prior to the consummation of the
Acquisitions and the Offering; (ii) 1,878,933 shares issued to the
stockholders of the Founding Companies in connection with the Acquisitions;
(iii) 543,000 shares sold in the Offering to cover the cash consideration
for the Acquisitions; and (iv) 15,923 shares of Common Stock determined
pursuant to the treasury stock method relating to warrants to purchase
115,000 shares of Common Stock at $10.00 per share. Periods subsequent to
the Offering, the comparative interim data and the pro forma data include
the additional 1,642,000 shares (2,185,000 -- 543,000) issued in the
Offering beyond shares sold to cover cash consideration for the
Acquisitions. Does not include (i) an additional 650,000 shares of Common
Stock or 12% of the aggregate number of shares of Common Stock outstanding
reserved for issuance under the Company's 1995 Stock Option Plan, of which
options to purchase 597,750 shares of Common Stock are currently
outstanding; and (ii) warrants outstanding to purchase 100,000 shares of
Common Stock. Pro forma weighted average shares also include an additional
253,252 shares issued in connection with the acquisitions closed in May
1996.
(4) The Statement of Operations Data for the three months ended March 31, 1995,
represent the unaudited results of the combined Founding Companies for the
period.
(5) The Statement of Operations Data for the three months ended March 31, 1996,
for the Founding Companies represents the one month of operations prior to
the consummation of the Acquisitions. The Statement of Operations Data for
the three months ended March 31, 1996, for F.Y.I. Incorporated and
Subsidiaries represents the results of operations subsequent to the
consummation of the Acquisitions. The Supplemental data represents the
combined operations of the Founding Companies and F.Y.I. during the three
months ended March 31, 1996. The Supplemental Data is provided for
informational purposes only and does not purport to present the results of
operations of the Company had the transactions assumed therein occurred on
or as of the dates indicated, nor is it necessarily indicative of the
results of operations which may be achieved in the future.
(6) Gives effect to: (i) the New Acquisitions as if the transactions were
consummated for the balance sheet data as of March 31, 1996 and for
statement of operations data as of January 1, 1995. See separate unaudited
pro forma financials statements and notes thereto located elsewhere within
this Prospectus and (ii) the Acquisitions of the Founding Companies for
Statement of Operations Data for periods prior to February 1, 1996.
5
<PAGE> 8
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the specific factors set forth below as well as the other information
set forth in this Prospectus in evaluating an investment in the Company.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION
F.Y.I. was founded in September 1994 and conducted no operations prior to
the consummation of the Offering. F.Y.I. acquired the Founding Companies
simultaneously with the closing of the Offering. The Company effected a number
of additional acquisitions since the Offering. Prior to their acquisition, the
Operating Companies operated as separate independent entities. Currently, the
Company has no centralized financial reporting system and will initially rely on
the existing reporting systems of the Operating Companies. The success of the
Company will depend, in part, on the Company's ability to integrate the
operations of the Operating Companies, including centralizing certain functions
to achieve cost savings and developing programs and processes that will promote
cooperation and the sharing of opportunities and resources among the Operating
Companies. F.Y.I.'s management group has been assembled only recently and has no
previous experience in the document management services industry. There can be
no assurance that the management group will effectively be able to oversee the
combined entity and implement the Company's operating or growth strategies.
Further, to the extent that the Company is able to implement its acquisition
strategy, the resulting growth of the Company will place significant demands on
management and on the Company's internal systems and controls. There can be no
assurance that the newly assembled management group will effectively be able to
direct the Company through a period of significant growth. See
"Business -- Acquisition Program," "-- Organization" and "Management."
A number of the Operating Companies offer different services, utilize
different capabilities and technologies and target different geographic markets
and client segments. While the Company believes that there are substantial
opportunities in integrating the businesses of the Operating Companies, these
differences increase the risk inherent in successfully completing such
integration. Further, there can be no assurance that the Company's strategy to
establish a single-source provider for document management services will be
successful, or that the Company's target client segments will accept the Company
as a provider of such services. In addition, there can be no assurance that the
operating results of the Company will match or exceed the combined individual
operating results achieved by the Operating Companies prior to their
acquisition.
ACQUISITION STRATEGY
The Company's primary growth strategy is the acquisition of additional
document management services businesses which will complement its existing
businesses. There can be no assurance that the Company will be able to identify
or reach mutually agreeable terms with acquisition candidates and their owners,
or that the Company will be able to profitably manage additional businesses or
successfully integrate such additional businesses into the Company without
substantial costs, delays or other problems. Acquisitions may involve a number
of special risks including: adverse short-term effects on the Company's reported
operating results; diversion of management's attention; dependence on retention,
hiring and training of key personnel; risks associated with unanticipated
problems or legal liabilities; and amortization of acquired intangible assets.
Some or all of these risks could have a material adverse effect on the Company's
operations and financial performance. In addition, to the extent that
consolidation becomes more prevalent in the industry, the prices for attractive
acquisition candidates may be bid up to higher levels and, in any event, there
can be no assurance that businesses acquired in the future will achieve sales
and profitability that justify the investment therein. See
"Business -- Acquisition Program."
NEED FOR ADDITIONAL FINANCING TO IMPLEMENT ACQUISITION STRATEGY
The Company currently intends to finance future acquisitions by using its
Common Stock, including the Common Stock offered by this Prospectus, for all or
a portion of the consideration to be paid. In the event that the Company's
Common Stock does not maintain sufficient value, or potential acquisition
candidates are
6
<PAGE> 9
unwilling to accept the Company's Common Stock as consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to continue its acquisition program. If the
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain capital through additional debt or equity
financings. In April 1996, the Company and its subsidiaries entered into a
credit agreement, as amended (the "Line of Credit"), with Banque Paribas, as
agent, and the lenders named therein. Under the Line of Credit, the Company and
its subsidiaries may borrow, on a revolving credit basis, loans in an aggregate
outstanding principal amount of $5.0 million for working capital and general
corporate purposes and term loans in an aggregate principal amount of $30.0
million for acquisitions, subject to certain restrictions in the Line of Credit.
The commitments to fund revolving credit loans and term loans expire April 14,
2001 and October 15, 1997, respectively. Loans under the Line of Credit will
bear interest, at the option of the Company, at a rate per annum of (i) Banque
Paribas' prime rate plus 1.50% or (ii) an adjusted London inter-bank offered
rate plus 3.00%. As of July 1, 1996, the availability under the Line of Credit
was approximately $4.0 million for working capital and approximately $21.8
million for acquisitions. There can be no assurance, however, that funds
available under such Line of Credit will be sufficient for the Company's needs.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Acquisition
Program."
DEPENDENCE ON CERTAIN CLIENT SEGMENTS AND TECHNOLOGY
The Company derives its revenues primarily from its three targeted client
segments: healthcare institutions, professional services firms and financial
institutions. Fundamental changes in the business practices of any of these
client segments, whether due to regulatory, technological or other developments,
could cause a material reduction in demand by such clients for the services
offered by the Company. Any such reduction in demand would have a material
adverse effect on the results of operations of the Company. Although the Company
believes that it will be able to continue to offer services based on the newest
technologies, there can be no assurance that the Company will be able to obtain
the rights to use any such technologies, that it will be able to effectively
implement such technologies on a cost-effective basis or that such technologies
will not render obsolete the Company's role as a third party provider of
document management services. See "Business -- Services Offered by the Operating
Companies."
COMPETITION
The document management services businesses in which the Company competes
and expects to compete are highly competitive. A significant source of
competition is the in-house document handling capability of the Company's target
client base. There can be no assurance that these businesses will outsource more
of their document management needs or that such businesses will not bring
in-house services that they currently outsource. In addition, certain of the
Company's competitors are larger businesses, many of which have greater
financial resources than the Company. Certain of these competitors operate in
broader geographic areas than the Company, and others may choose to enter the
Company's areas of operation in the future. In addition, the Company intends to
enter new geographic areas through internal growth and acquisitions and expects
to encounter significant competition from established competitors in each of
such new areas. As a result of this highly competitive environment, the Company
may lose customers or have difficulty in acquiring new customers, and its
revenues and margins may be adversely affected. See "Business -- Competition."
EFFECT OF POTENTIAL FLUCTUATIONS IN OPERATING RESULTS ON PRICE OF COMMON STOCK;
VOLATILITY OF STOCK PRICE
Results for any quarter are not necessarily indicative of the results that
the Company may achieve for any subsequent quarter or a full fiscal year.
Quarterly results may vary materially as a result of the timing and structure of
acquisitions, the timing and magnitude of costs related to such acquisitions,
the gain or loss of material client relationships and variations in the prices
charged by the Company for the services it provides. In addition, since a
significant portion of the Company's revenues are generated on a
project-by-project basis, the timing or completion of material projects could
result in fluctuations in the Company's results of operations for particular
quarterly periods. Further, because the anticipated financial benefits of the
combination of the Operating Companies may not be generated immediately, the
Company's initial results as a combined company may reflect corporate overhead
that exceeds the realized benefits. Such fluctuations in operating results may
adversely affect the market price of the Company's Common Stock. The market
price
7
<PAGE> 10
for the Company's shares may also fluctuate in response to material
announcements by the Company or significant clients of the Company, changes in
the economic or other conditions impacting the Company's targeted client
segments and general economic conditions outside of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Fluctuations in Quarterly Results of Operations."
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of Thomas
C. Walker, Ed H. Bowman, Jr., Robert C. Irvine, David Lowenstein, Margot T.
Lebenberg, its other executive officers and on senior management of the
Operating Companies. Furthermore, the Company will also be dependent on the
senior management of businesses acquired in the future. If any of these people
is unable or unwilling to continue in his or her present role, or if the Company
is unable to attract and retain other skilled employees, the Company's business
could be adversely affected. The Company does not intend to obtain key man life
insurance covering any of its executive officers or other members of senior
management. See "Management."
POTENTIAL LIABILITY FOR BREACH OF CONFIDENTIALITY
A substantial portion of the Company's business involves the handling of
documents containing confidential and other sensitive information. Although the
Operating Companies have established procedures intended to eliminate any
unauthorized disclosure of confidential information and, in some cases, have
contractually limited their potential liability for unauthorized disclosure of
such information, there can be no assurance that unauthorized disclosures will
not result in liability to the Company. It is possible that such liabilities
could have a material adverse effect on the Company.
CONTROL BY MANAGEMENT
The former stockholders of the Operating Companies and the directors and
other executive officers of the Company, and entities affiliated with them,
beneficially own approximately 35.8% of the outstanding shares of Common Stock
and exercise substantial control over the Company's affairs. These stockholders
acting together would likely be able to elect a sufficient number of directors
to control the Board and to approve or disapprove any matter submitted to a vote
of stockholders. See "Principal Stockholders."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of Common Stock of the Company in
the public market.
The Company issued 2,185,000 shares of Common Stock in the Offering, all of
which may be sold in the public market. In addition, simultaneously with the
closing of the Offering, the former owners of the Founding Companies received,
in the aggregate, 1,878,933 shares of Common Stock as a portion of the
consideration for their businesses. Such shares are not being offered by this
Prospectus and have not been registered under the Securities Act, and therefore
may not be resold except in transactions registered under the Securities Act or
pursuant to an exemption from registration. Certain other stockholders of F.Y.I.
hold, in the aggregate, an additional 1,205,682 shares of Common Stock. See
"Business -- Organization." None of these 1,205,682 shares of Common Stock were
acquired in transactions registered under the Securities Act, and, accordingly,
such shares may not be sold except in transactions registered under the
Securities Act or pursuant to an exemption from registration. However, the
holders of all such 3,084,615 unregistered shares have certain registration
rights with respect to such shares.
The Company issued 253,252 shares of Common Stock in connection with the
acquisitions which closed in May 1996. These 253,252 shares of Common Stock were
registered under this Registration Statement, but are subject to certain
contractual transfer restrictions until May 31, 1998.
The Company has reserved for issuance under its 1995 Stock Option Plan (the
"Plan") an aggregate of 650,000 shares of Common Stock or 12% of the aggregate
number of shares of the Common Stock
8
<PAGE> 11
outstanding, whichever is greater. The Company has registered the shares
issuable upon exercise of options granted under the Plan, and such shares will
be eligible for resale in the public market. The Company also has warrants
outstanding for the purchase of 215,000 shares of Common Stock.
The Company has agreed not to offer or sell any shares of Common Stock of
the Company until July 21, 1996 (the "Lock-up Period") without the prior written
consent of Montgomery Securities, except that the Company may issue Common Stock
in connection with acquisitions or upon the exercise of options. Further, all of
the stockholders of the Company, including the former owners of the Founding
Companies, are contractually prohibited by the Company from selling such shares
until at least January 26, 1998 (other than certain sales registered under the
Securities Act). The Company has agreed that it will not waive such prohibition
during the Lock-up Period without the prior written consent of the Montgomery
Securities.
EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is empowered to issue preferred stock
without stockholder action. The existence of this "blank-check" preferred could
render more difficult or discourage an attempt to obtain control of the Company
by means of a tender offer, merger, proxy contest or otherwise. See "Description
of Capital Stock."
9
<PAGE> 12
THE COMPANY
F.Y.I. Incorporated was founded in September 1994 under the laws of the
State of Delaware to create a national, single-source provider of document
management services. Prior to the Offering, F.Y.I. did not conduct any
operations. F.Y.I. acquired simultaneously with the consummation of the
Offering, the following seven well-established businesses. For a description of
the transactions pursuant to which these businesses will be acquired, see
"Business -- Organization" and "Certain Transactions."
Imagent. Imagent Corporation (together with Mobile Information Services
Corporation, an affiliate being acquired by F.Y.I., "Imagent") provides document
management services to clients in the northeastern and mid-Atlantic United
States. Founded in 1969, Imagent's three primary lines of business include: (i)
the distribution of Kodak(C) microfilm and business imaging supplies; (ii)
microfilm processing; and (iii) business services, including microfilming,
database creation and management, and electronic imaging. A large number of
Imagent's microfilm processing clients are banks, including Bank of New York,
Bankers Trust, Chase Manhattan, Citibank, First Union and NationsBank. Imagent's
business services segment, which is its fastest growing business segment,
provides services to financial, administrative and legal departments of a wide
variety of companies. Imagent is headquartered in Baltimore and had 1995
revenues of $13.5 million.
Researchers. Melanson & Associates, Inc. (d/b/a Researchers) (together with
Bay Area Micrographics ("BAM"), an affiliate acquired by F.Y.I., "Researchers")
provides litigation support services to law firms, corporate legal departments
and insurance companies in the San Francisco, Los Angeles, San Jose and
Sacramento metropolitan areas. These services include customized solutions for a
variety of its clients' document needs, including on-site microfilming and
electronic imaging, overnight document reproduction and document indexing. In
addition, Researchers has particular expertise in retrieving and processing
medical records for use in medical malpractice and personal injury litigation.
Founded in 1975, Researchers is a significant provider of outsourced litigation
support in California and has provided services to many of the largest law firms
in the State. Although Researchers' business is primarily project driven, a
majority of its 1995 revenues have been generated by clients who were clients in
1994. Researchers is headquartered in San Francisco and had 1995 revenues of
$9.9 million.
Recordex. Recordex Services, Inc. ("Recordex") provides medical records
release services to over 140 hospitals and other healthcare institutions in 14
eastern states, including Johns Hopkins Hospital, University of Massachusetts
Medical Center and Duke University Medical Center, as well as to physician
groups, clinics and HMOs. Recordex's services, which are performed on-site,
include: (i) tracking of the request for information from its receipt until its
fulfillment; (ii) ensuring that a request for information is complete and
authorized; (iii) coordinating the retrieval of the record; (iv) reproducing
relevant pages for release; (v) reassembling and refiling the record; and (vi)
billing. Based in Malvern, Pennsylvania, Recordex was founded in 1986. Recordex
had 1995 net service revenues of $8.5 million.
DPAS. C. & T. Management Services, Inc. (d/b/a DPAS) (together with
Qualidata, Inc., an affiliate acquired by F.Y.I., "DPAS") provides database and
processing services primarily to financial institutions, including Bank of
America, as well as to a number of other corporate clients nationwide. Database
services include: document conversion; customized data capture (manually or
through scanning or other electronic means); database creation, management and
analysis; and certain direct mail services. DPAS also provides remittance
processing services as an outsourcing option for the receivables function of its
corporate clients. Such services include receiving and processing credit card
payments, encoding checks and depositing payments, and certain other
mailing-related activities. Headquartered in San Francisco, DPAS was founded in
1961. DPAS had 1995 revenues of $5.4 million.
Leonard. Leonard Archives, Inc. ("Leonard") provides records storage,
retrieval and processing services to over 30 hospitals and medical facilities,
as well as to a wide variety of corporate clients in southern Michigan and
northern Ohio. Founded in 1888 as a moving and storage company, Leonard entered
the records storage business in 1968. Leonard's services include: (i) active
medical, financial and legal records storage; (ii) archival storage of
semi-active and inactive documents; (iii) environmental vault storage of
magnetic and micrographic media; (iv) disaster recovery services; and (v)
document destruction. Leonard provides
10
<PAGE> 13
document management services to a wide variety of corporate clients, including
Ford Motor Company, Chrysler Corporation and Ameritech. Headquartered in
Detroit, Leonard had 1995 revenues of $5.9 million.
Deliverex. Deliverex, Incorporated (together with ASK Record Management, an
affiliate acquired by F.Y.I., "Deliverex") provides active medical records
storage, retrieval and processing services to 27 hospitals and medical
facilities in the San Jose and greater San Francisco Bay areas, including
Stanford University Hospital, Good Samaritan Health Systems, Summit Medical
Center and Santa Clara Valley Medical Center. Founded in 1973, Deliverex offers
off-site management of medical records, including: filling of records requests;
extracting key pages within minutes for transmission to hospitals via facsimile
for emergency cases; computerized tracking of medical records to their
destinations; file system conversion; storage; and purging of files on a regular
basis. In addition, Deliverex is currently developing a system in which it
electronically images the most frequently used pages of a medical file so that
it can provide its clients with immediate access to such records at multiple
locations through linked computer terminals. Deliverex is a franchisor or
licensor to five other medical records businesses operating in San Francisco,
Seattle, Denver, Baltimore and Ft. Lauderdale. Deliverex had 1995 revenues of
$2.9 million.
Permanent Records. Permanent Records, Inc. ("Permanent Records") provides a
complete document management outsourcing service for its hospital, clinic and
physician clients, including: on-site handling of medical records; off-site
active and inactive storage and retrieval services; microfilming; and medical
records release services. These services are provided to over 50 hospitals in
the Dallas/Fort Worth area, including Columbia/HCA Healthcare Systems and the
Harris and Irving healthcare systems. Founded in 1977, Permanent Records had
1995 revenues of $1.6 million.
The aggregate consideration paid by F.Y.I. to acquire the Founding
Companies was approximately $35 million, consisting of: (i) $7,059,000 in cash;
(ii) 1,878,933 shares of Common Stock; (iii) the assumption and repayment of
approximately $191,000 of indebtedness owed by a Founding Company stockholder;
and (iv) the distribution of cash and certain receivables to stockholders of
Imagent and Leonard, which are S corporations, in the amount of $2,750,000 and
$700,000, respectively, representing the Accumulated Adjustment Accounts ("AAA
accounts"). AAA accounts generally represent undistributed retained earnings of
an S corporation, upon which taxes have been paid by the shareholders. In
addition, prior to the closing of the Acquisitions, certain Founding Companies
made distributions to their stockholders of certain assets and related
liabilities, including the increase in net equity subsequent to June 30, 1995 of
each of the Founding Companies, other than Recordex. Based on the relevant
account balances as of December 31, 1995, the amount of these distributions was
$2,340,000. As such, total transfers of selected assets to and assumption of
selected liabilities of certain stockholders of the Founding Companies was in
the net amount of approximately $5,981,000 (of which $1,120,000 was distributed
prior to December 31, 1995).
The aggregate consideration paid for each Founding Company was: (i)
Imagent -- $1,500,000 and 331,497 shares of Common Stock; (ii)
Researchers -- $2,750,000 and 681,400 shares of Common Stock; (iii)
Recordex -- $309,000 and 198,589 shares of Common Stock; (iv) DPAS -- $400,000
and 117,068 shares of Common Stock; (v) Leonard -- $1,250,000 and 253,274 shares
of Common Stock; (vi) Deliverex -- $700,000 and 186,147 shares of Common Stock;
and (vii) Permanent Records -- $150,000 and 110,958 shares of Common Stock. In
addition, upon consummation of the acquisitions, the Company repaid
approximately $3,349,000 of third party indebtedness assumed by the Company in
the Acquisitions, virtually all of which was guaranteed by respective
stockholders of the Founding Companies, and $584,000 of indebtedness to such
stockholders. Combined with the $191,000 of assumed indebtedness referred to in
the immediately preceding paragraph, the total indebtedness repaid from the
proceeds of the Offering was approximately $4,124,000.
The consideration paid by F.Y.I. for each Founding Company was determined
by arm's-length negotiations between F.Y.I. and representatives of such Founding
Company. See "Business -- Organization" and "Certain Transactions."
The Company's executive offices are located at 3232 McKinney Avenue, Suite
900, Dallas, Texas 75204, and its telephone number is (214) 953-7555.
11
<PAGE> 14
RECENT DEVELOPMENTS
Since the closing of the Offering in January 1996, the Company has
acquired, seven additional document management services businesses. See "Risk
Factors."
Cook. Robert A. Cook and Staff, Inc. and RAC Services, Inc. ("Cook").
Substantially all of the non-cash assets of Cook were acquired by Robert A. Cook
Acquisition Corp. ("Cook Acquisition") and RAC (California) Acquisition Corp.
("RAC Acquisition"), respectively two wholly-owned subsidiaries of the Company
in June 1996. Cook provides litigation support services to hundreds of law firms
and insurance companies throughout the state of California. Founded in 1966,
Cook is headquartered in San Jose, California and had 1995 revenues of $12
million.
B&B. B&B Information and Image Management, Inc. ("B&B"). B&B was acquired
by B&B (Baltimore-Washington) Acquisition Corp., a wholly-owned subsidiary of
the Company in May 1996 and provides document management services to clients in
the Washington, D.C. area. Founded in 1980, B&B's primary lines of business
include micrographic, electronic imaging and database services. B&B's primary
client relationships include financial institutions, insurance companies,
hospitals, and medical facilities. B&B is headquartered in Upper Marlboro,
Maryland and had 1995 revenues of $8 million.
Premier. Premier Document Management, Inc. and PDM Services, Inc.
("Premier"). Premier was acquired by Premier Acquisition Corp., a wholly-owned
subsidiary of the Company in May 1996 and provides medical records release
services to over 195 clients throughout the state of Washington and northern
California. Based in Seattle, Washington, Premier was founded in 1984. Premier
had 1995 revenues of $3 million.
B&B, Premier and Cook will be collectively referred to as the "New
Acquisitions."
In addition, Sacramento Valley Records Management Co. ("Sacramento"), a
medical records storage and delivery franchise company was acquired by Deliverex
Sacramento Acquisition Corp. ("Deliverex Sacramento"), a wholly-owned subsidiary
of the Company in March 1996 and reports to Deliverex. In February 1996, certain
of the assets Microfilm Associates, Ltd. ("Microfilm"), an imaging company, were
acquired by Imagent and in June 1996, certain of the assets of Octo,
Incorporated ("Octo"), an imaging company were acquired by Imagent, both
Mircrofilm and Octo have been physically integrated into Imagent.
The Company has recently strengthened its management team. The Company has
hired Margot T. Lebenberg as Vice President, Secretary and General Counsel to
oversee its legal matters. Ms. Lebenberg was formerly an associate at Morgan,
Lewis & Bockius LLP, New York, New York. See "Management."
12
<PAGE> 15
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on the Nasdaq National Market since
January 23, 1996. On July 1, 1996, the last sale price of the Common Stock was
$19.00 per share, as published in The Wall Street Journal on July 2, 1996. At
July 1, 1996, there were 39 shareholders of record of the Company's Common
Stock. The following table sets forth the range of high and low sale prices for
the Common Stock for the period from January 23, 1996, the date of the Company's
initial public offering, through June 28, 1996.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1996
January 23, 1996 through
March 31, 1996...................... $20.00 $13.00(1)
====== ======
April 1, 1996 through
June 28, 1996....................... $22.50 $16.00
====== ======
</TABLE>
- ---------------
(1) Represents the initial public offering price
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future because it intends to retain its earnings, if
any, to finance the expansion of its business and for general corporate
purposes. Any payment of future dividends will be at the discretion of the Board
of Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions with respect to the payment of dividends and other factors that the
Company's Board of Directors deems relevant. In addition, the Line of Credit
prohibits the payment of dividends without the lender's consent.
13
<PAGE> 16
CAPITALIZATION
The following table sets forth the short-term debt and capitalization at
March 31, 1996 of F.Y.I. and pro forma to reflect: (i) the term debt issued and
the stock issued to consummate the New Acquisitions; and (ii) the debt acquired
with the New Acquisitions. This table should be read in conjunction with the
unaudited pro forma financial statements of F.Y.I. Incorporated and the related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
ACTUAL PRO FORMA
------- ---------
<S> <C> <C>
Short-term debt (including current portion of long-term debt)... $ 274 $ 605
======= =======
Long-term debt, excluding current portion....................... $ 634 $11,321
Stockholders' equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized,
none issued and outstanding................................ -- --
Common Stock, $0.01 par value, 26,000,000 shares authorized,
5,269,615 issued and outstanding, 5,522,867 issued and
outstanding Pro forma(1)................................... 53 56
Additional paid-in-capital.................................... 18,756 22,209
Retained earnings............................................. 398 398
------- -------
Total Stockholders' equity............................ 19,207 22,663
------- -------
Total Capitalization............................................ $19,841 $33,984
======= =======
</TABLE>
- ---------------
(1) Does not include an additional 650,000 shares of Common Stock or 12% of the
aggregate number of shares of common stock outstanding reserved for issuance
under the Company's 1995 Stock Option Plan and warrants outstanding for the
purchase of 215,000 shares of Common Stock.
14
<PAGE> 17
SELECTED FINANCIAL DATA
F.Y.I. acquired, simultaneously with and as a condition to the closing of
the Offering, Imagent, Researchers, Recordex, DPAS, Leonard, Deliverex and
Permanent Records. The Acquisitions have been accounted for in accordance with
generally accepted accounting principles ("GAAP") as a combination of the
Founding Companies at historical cost, because the Founding Companies'
stockholders transferred assets to F.Y.I. in exchange for Common Stock and cash
simultaneously with the Offering, the nature of future operations of the Company
will be substantially identical to the combined operations of the Founding
Companies, and no former stockholder group of any of the Founding Companies
obtained a majority of the outstanding voting shares of the Company.
Accordingly, historical financial statements of these Founding Companies have
been combined throughout all relevant periods herein as if the Founding
Companies had always been members of the same operating group. However, since
the Founding Companies were not under common control or management, historical
combined results may not be comparable to, or indicative of, future performance.
The Selected Financial Data for the years ended December 31, 1993, 1994 and
1995 have been derived from the Combined Financial Statements of the Founding
Companies that have been audited by Arthur Andersen LLP and that appear
elsewhere in this Prospectus. In their report, Arthur Andersen LLP states that
with respect to Recordex Services, Inc., as of and for the two years in the
period ended December 31, 1994, its opinion is based on the report of other
independent public accountants, namely Elko, Fischer, McCabe & Rudman, Ltd. The
Selected Financial Data for the years ended December 31, 1991 (unaudited) and
1992 (audited) have been derived from financial statements not included
elsewhere in this Prospectus. The unaudited financial statements have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all adjustments and reclassifications necessary
for a fair presentation of the financial position and results of operations for
the periods presented. The pro forma balance sheet data as of March 31, 1996
gives effect to the New Acquisitions as if they had occurred on March 31, 1996.
The pro forma statement of operations data gives effect to the Acquisitions of
the Founding Companies for periods prior to February 1, 1996, and effect to the
New Acquisitions as if the transactions were consummated as of January 1, 1995.
See the unaudited pro forma financial statements and the related notes thereto
included elsewhere in this Prospectus. The Founding Company pro forma statement
of operations data gives effect to certain compensation adjustments for key
executives who entered into employment agreements with the Company and certain
tax adjustments related to the taxation of certain Founding Companies as S
corporations or sole proprietorships prior to the consummation of the
Acquisitions and the tax impact of the compensation adjustments. See Note 3 of
Notes to Combined Financial Statements of the Founding Companies. In addition,
the pro forma information is based on available information and certain
assumptions described in the footnotes set forth below, all of which the Company
believes are reasonable. The pro forma information is provided for informational
purposes only and does not purport to present the results of operations of the
Company had the transactions assumed therein occurred on or as of the dates
indicated, nor is it necessarily indicative of the results of operations which
may be achieved in the future.
The Selected Individual Founding Company Financial Data for the years ended
December 31, 1993, 1994 and 1995 have been derived from the audited financial
statements of the Founding Companies that appear elsewhere in this Prospectus.
The Selected Individual Founding Company Financial Data for the year ended
December 31, 1992 have been derived from audited financial statements not
included elsewhere in this Prospectus.
The Selected Financial Data provided below should be read in conjunction
with the historical financial statements of F.Y.I., the Combined Financial
Statements of the Founding Companies and the financial statements of each
Founding Company, including the related notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
appear elsewhere in this Prospectus.
15
<PAGE> 18
SELECTED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
F.Y.I. was founded in September 1994 and effectively began its operations
on February 1, 1996, following the completion of the Offering. The selected
Combined Financial Data set forth below for the periods prior to December 31,
1995, are derived from the Founding Companies Combined Statements contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS ENDED MARCH 31, 1996
ENDED (UNAUDITED)(5)
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,(4) ---------------------------------------
--------------------------------------------------- ------------ FOUNDING F.Y.I.
1991 1992 1993 1994 1995 1995 COMPANIES INCORPORATED SUPPLEMENTAL
----------- ------- ------- ------- ------- ------------ --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Service
revenue........ $22,958 $29,442 $32,067 $36,081 $40,615 $ 10,000 $ 3,487 $7,407 $ 10,894
Product
revenue........ 5,899 5,378 5,123 5,923 6,138 1,723 395 913 1,308
Other revenue.... 668 876 1,206 1,028 873 164 35 93 128
------- ------- ------- ------- ------- -------- ------- ------ --------
Total
revenue... 29,525 35,696 38,396 43,032 47,626 11,887 3,917 8,413 12,330
Cost of
services....... 14,742 18,348 20,318 23,650 25,937 6,310 2,195 4,701 6,896
Cost of products
sold........... 5,050 4,628 4,464 4,892 4,972 1,422 308 718 1,026
Depreciation..... 771 873 883 1,055 1,238 305 91 212 303
------- ------- ------- ------- ------- -------- ------- ------ --------
Gross
profit... 8,962 11,847 12,731 13,435 15,479 3,850 1,323 2,782 4,105
Selling, general
and
administrative
expenses....... 8,637 10,194 11,045 11,836 12,489 2,727 1,503 2,253 3,756
------- ------- ------- ------- ------- -------- ------- ------ --------
Operating
income... 325 1,653 1,686 1,599 2,990 1,123 (180) 529 349
Interest and
other expense
(income),
net............ 132 272 248 29 139 33 (45) (131) (176)
------- ------- ------- ------- ------- -------- ------- ------ --------
Income before
income taxes... 193 1,381 1,438 1,570 2,851 1,090 (135) 660 525
Provision for
income taxes... 6 267 218 211 163 42 (130) 262 132
------- ------- ------- ------- ------- -------- ------- ------ --------
Net income....... $ 187 $ 1,114 $ 1,220 $ 1,359 $ 2,688 $ 1,048 $ (5) $ 398 $ 393
======= ======= ======= ======= ======= ======== ======= ====== ========
Founding Company
pro forma
compensation
differential(1)... $1,119 $1,055 $1,715 $1,855 $ 1,976 $ 256 $ 683 $ -- $ 683
======= ======= ======= ======= ======= ======== ======= ====== ========
Founding Company
pro forma
selling,
general and
administrative
expenses(1).... 7,518 9,139 9,330 9,981 10,513 2,471 3,073 3,073
Founding Company
pro forma
operating
income(1)...... 1,444 2,708 3,401 3,454 4,966 1,379 503 1,032
Founding Company
pro forma
provision for
taxes(2)....... 468 628 1,043 1,045 1,631 444 351 351
Founding Company
pro forma net
income(1)(2)... 838 1,541 1,892 2,169 3,033 860 327 725
Founding Company
pro forma net
income per
share.......... $0.23 $0.42 $0.52 $0.60 $0.83 $.16 $0.06 $ 0.14
======= ======= ======= ======= ======= ======== ======= ====== ========
Pro forma
weighted
average shares
outstanding(3)... 3,644 3,644 3,644 3,644 3,644 5,286 5,286 5,286
Net income per
share............ $0.08
======
Weighted average
shares
outstanding...... 5,286
</TABLE>
16
<PAGE> 19
SUMMARY PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED FOR
NEW ACQUISITIONS(6)
------------------------------
YEAR ENDED THREE MONTHS
DECEMBER ENDED MARCH
31, 1995 31, 1996
----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue.............................................................................. $62,085 $ 16,879
Product revenue.............................................................................. 7,688 1,579
Other revenue................................................................................ 908 139
------- --------
Total revenue.......................................................................... 70,681 18,597
Cost of services............................................................................. 38,656 10,514
Cost of products sold........................................................................ 6,222 1,262
Depreciation................................................................................. 1,577 396
------- --------
Gross profit........................................................................... 24,226 6,425
Selling, general and administrative expenses................................................. 15,513 4,331
------- --------
Operating income....................................................................... 8,713 2,094
Interest and other expense (income), net..................................................... 1,046 25
------- --------
Income before income taxes................................................................... 7,667 2,069
Provision for income taxes................................................................... 2,930 827
------- --------
Net income................................................................................... $ 4,737 $ 1,242
======= ========
Pro forma net income per share............................................................... $0.86 $0.22
======= ========
Pro forma weighted average shares outstanding(3)............................................. 5,539 5,539
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, 1995 MARCH 31, 1996
----------------------------------------- ------------ ----------------------------
1991 1992 1993 1994 ACTUAL ACTUAL AS ADJUSTED
----------- ------- ------- ------- ------------ ----------- PRO FORMA(6)
(UNAUDITED) (UNAUDITED) --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................... $ 1,341 $ 1,223 $ 2,081 $ 1,404 $ 1,663 $11,902 $ 5,850
Total assets.......................... 13,989 14,124 15,143 19,130 19,681 27,399 44,759
Long-term debt less current portion... 2,809 2,713 3,077 3,185 2,777 634 11,321
Stockholders' equity.................. 4,315 4,797 5,223 6,410 7,111 19,207 22,663
</TABLE>
- ---------------
(1) Gives effect to the Compensation Differential. See Note 3 of Notes to
Combined Financial Statements of the Founding Companies.
(2) Gives effect to certain tax adjustments related to the taxation of certain
Founding Companies as S corporations or sole proprietorships prior to the
consummation of the Acquisitions and the tax impact of the Compensation
Differential in each period. See Note 3 of Notes to Combined Financial
Statements of the Founding Companies.
(3) Weighted average shares for all periods prior to the Offering include: (i)
1,205,682 shares issued by F.Y.I. prior to the consummation of the
Acquisitions and the Offering; (ii) 1,878,933 shares issued to the
stockholders of the Founding Companies in connection with the Acquisitions;
(iii) 543,000 shares sold in the Offering to cover the cash consideration
for the Acquisitions; and (iv) 15,923 shares of Common Stock determined
pursuant to the treasury stock method relating to warrants to purchase
115,000 shares of Common Stock at $10.00 per share. Periods subsequent to
the Offering, the comparative interim data and the pro forma data include an
additional 1,642,000 shares (2,185,000 -- 543,000) issued in the offering
beyond shares sold to cover cash consideration for the acquisitions. Does
not include (i) an additional 650,000 shares of Common Stock or 12% of the
aggregate number of shares of Common Stock outstanding reserved for issuance
under the Company's 1995 Stock Option Plan, of which options to purchase
597,750 shares of Common Stock are currently outstanding; and (ii) warrants
outstanding to purchase 100,000 shares of Common Stock. Pro forma weighted
average shares also include an additional 253,252 shares issued in
connection with the acquisitions closed in May 1996.
(4) The Statement of Operations Data for the three months ended March 31, 1995,
represent the unaudited results of the combined Founding Companies for the
period.
(5) The Statement of Operations Data for the three months ended March 31, 1996,
for the Founding Companies represents the one month of operations prior to
the consummation of the Acquisitions. The Statement of Operations Data for
the three months ended March 31, 1996, for F.Y.I. Incorporated and
Subsidiaries represents the results of operations subsequent to the
consummation of the Acquisitions. The Supplemental Data represents the
combined operations of the Founding Companies and F.Y.I. during the three
months ended March 31, 1996. The Supplemental Data is provided for
informational purposes only and does not purport to present the results of
operations of the Company had the transactions assumed therein occurred on
or as of the dates indicated, nor is it necessarily indicative of the
results of operations which may be achieved in the future.
(6) Gives effect to: (i) the New Acquisitions as if the transactions were
consummated for the balance sheet data as March 31, 1996 and for the
Statement of Operations data as of January 1, 1995; and (ii) the
Acquisitions of the Founding Companies for statement of operations data for
periods prior to February 1, 1996. See separate unaudited pro forma
financials statements and the notes thereto located elsewhere in this
Prospectus.
17
<PAGE> 20
SELECTED INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,(1)
-------------------------------------------
1992 1993 1994 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Imagent................................................................. $10,258 $10,252 $12,135 $13,544
Researchers............................................................. 7,231 8,738 9,973 9,874
Recordex................................................................ 4,655 5,465 6,826 8,550
Leonard................................................................. 4,041 4,372 5,007 5,858
Other................................................................... 9,511 9,569 9,091 9,800
------- ------- ------- -------
Total............................................................. $35,696 $38,396 $43,032 $47,626
======= ======= ======= =======
Gross profit:
Imagent................................................................. $ 2,562 $ 2,713 $ 3,293 $ 3,829
Researchers............................................................. 2,708 2,841 3,384 2,611
Recordex................................................................ 1,942 2,258 2,494 3,092
Leonard................................................................. 1,787 1,843 1,640 2,415
Other................................................................... 2,848 3,076 2,624 3,532
------- ------- ------- -------
Total............................................................. $11,847 $12,731 $13,435 $15,479
======= ======= ======= =======
Selling, general and administrative expenses:
Imagent................................................................. $ 1,988 $ 2,197 $ 2,571 $ 2,838
Researchers............................................................. 1,935 2,453 2,619 2,395
Recordex................................................................ 1,906 2,185 2,368 2,923
Leonard................................................................. 1,476 1,544 1,577 1,627
Other................................................................... 2,889 2,666 2,701 2,706
------- ------- ------- -------
Total............................................................. $10,194 $11,045 $11,836 $12,489
======= ======= ======= =======
Net income (loss):
Imagent................................................................. $ 569 $ 532 $ 731 $ 1,071
Researchers............................................................. 464 185 576 201
Recordex................................................................ 8 10 45 58
Leonard................................................................. 234 235 11 660
Other................................................................... (161) 258 (4) 698
------- ------- ------- -------
Total............................................................. $ 1,114 $ 1,220 $ 1,359 $ 2,688
======= ======= ======= =======
Pro forma operating income:(2)
Imagent................................................................. $ 787 $ 677 $ 1,012 $ 1,294
Researchers............................................................. 1,283 1,383 1,794 1,153
Recordex................................................................ 35 168 235 376
Leonard................................................................. 429 459 123 933
Other................................................................... 174 714 290 1,210
------- ------- ------- -------
Total............................................................. $ 2,708 $ 3,401 $ 3,454 $ 4,966
======= ======= ======= =======
Pro forma net income:(2)(3)
Imagent................................................................. $ 499 $ 429 $ 632 $ 860
Researchers............................................................. 712 731 1,118 684
Recordex................................................................ 8 66 118 183
Leonard................................................................. 231 264 35 527
Other................................................................... 91 402 266 779
------- ------- ------- -------
Total............................................................. $ 1,541 $ 1,892 $ 2,169 $ 3,033
======= ======= ======= =======
</TABLE>
- ---------------
(1) Researchers' amounts for 1992 and 1993 are reported for fiscal years ended
July 31. See Note 2 of Notes to Combined Financial Statements of the
Founding Companies.
(2) Gives effect to the Compensation Differential. See Note 3 of Notes to
Combined Financial Statements of the Founding Companies.
(3) Gives effect to certain tax adjustments related to the taxation of certain
Founding Companies as S corporations or sole proprietorships prior to the
consummation of the Acquisitions and the tax impact of the Compensation
Differential in each period. See Note 3 of Notes to Combined Financial
Statements of the Founding Companies.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Combined
Financial Statements of the Company and related notes thereto and "Selected
Financial Data" appearing elsewhere in this Prospectus.
INTRODUCTION
The Company's revenue is classified as service revenue, product revenue and
other revenue. Service revenue relates to: (i) micrographic services; (ii)
electronic imaging; (iii) active document storage; (iv) archival storage of
inactive documents; (v) information and database management; (vi) litigation
support; (vii) medical records release services; and (viii) remittance
processing. Product revenue represents sales of Eastman Kodak micrographic and
business imaging supplies, primarily in conjunction with film processing and
other micrographic services. Other revenue consists of commissions on the sales
of imaging systems and equipment and franchising fees.
Cost of services consists primarily of salaries and benefits, equipment
costs, supplies and occupancy costs and also includes the costs associated with
other revenue discussed above. Cost of products sold relates to micrographic and
business imaging supplies.
Selling, general and administrative expenses ("SG&A") for periods prior to
February 1, 1996 reflect compensation and related benefits that former owners
and certain key employees received from their respective businesses. The
Founding Companies were managed throughout the periods presented as independent
private companies, and, as such, their results of operations reflect a variety
of tax structures (S corporation, C corporation and sole proprietorship) which
influenced, among other things, their historical levels of compensation. These
former owners and key employees agreed to certain reductions in salaries and
benefits in connection with the organization of the Company and the Offering.
The differential between the previous compensation of these individuals and the
compensation they agreed to receive subsequent to the Offering is referred to as
"Compensation Differential." See "Management -- Employment Agreements;
Covenants-Not-To-Compete." The Company has preliminarily analyzed the savings
that it expects to be realized by consolidating certain general and
administrative functions, including reductions in accounting, audit, insurance
and benefit plan expenses. In addition, the Company anticipates that it will
realize benefits from: (i) the reduction in interest payments related to the
prepayment of outstanding Founding Company debt; (ii) its ability to borrow at
lower interest rates than the Founding Companies; and (iii) the interest earned
on the net proceeds of the Offering. The Company has not and cannot quantify
these savings at the present time. It is anticipated that these savings will be
offset by the costs of being a public company and the incremental increase in
costs related to the Company's new management. However, these costs, like the
savings that they offset, cannot be quantified accurately. Accordingly, neither
the anticipated savings nor the anticipated costs have been included in the
Founding Company combined financial information included herein for the periods
prior to February 1, 1996.
The Company conducted no significant operations until the closing of the
Offering and the Acquisitions on January 23, 1996. The Company seeks to acquire
additional companies to create a national single-source provider of document
management services.
Since the Offering, the Company has acquired seven additional companies
which provide document management services and are headquartered in Washington,
D.C., Baltimore, San Jose, Sacramento and Seattle.
19
<PAGE> 22
RESULTS OF OPERATIONS
Except as otherwise noted, the following table sets forth various items as
a percentage of revenues for the three years ended December 31, 1995 on a
historical basis, as well as adjusted for the Compensation Differential. The
results prior to February 1, 1996 of the combined companies presented in this
table and the results discussed below occurred when the Operating Companies were
not under common control or management and may not be comparable to, or
indicative of, future performance. See "Risk Factors -- Absence of Combined
Operating History; Risks of Integration."
<TABLE>
<CAPTION>
SUPPLEMENTAL
DATA
------------
FISCAL YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,(3)
-------------------------- -----------------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service revenue..................... 83.5% 83.8% 85.3% 84.1% 88.4%
Product revenue..................... 13.4 13.8 12.9 14.5 10.6
Other revenue....................... 3.1 2.4 1.8 1.4 1.0
------ ------ ------ ------ ------
Total revenues............ 100.0 100.0 100.0 100.0 100.0
Cost of services(1)................. 61.1 63.7 62.5 62.1 62.6
Cost of products sold(2)............ 87.1 82.6 81.0 82.5 78.5
Depreciation and amortization....... 2.3 2.5 2.6 2.6 2.5
------ ------ ------ ------ ------
Gross profit.............. 33.2 31.2 32.5 32.4 33.3
Selling, general and administrative
expenses.......................... 28.8 27.5 26.2 22.9 30.5
------ ------ ------ ------ ------
Operating income.......... 4.4 3.7 6.3 9.5 2.8
Compensation differential........... 4.5 4.3 4.1 2.1 5.6
------ ------ ------ ------ ------
Adjusted operating
income.................. 8.9% 8.0% 10.4% 11.6% 8.4%
====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Shown as a percentage of service revenue and other revenue.
(2) Shown as a percentage of product revenue.
(3) The Statement of Operations Data for the three months ended March 31, 1995,
represents the unaudited results of the combined Founding Companies for the
period. The Supplemental Statement of Operations Data for the three months
ended March 31, 1996, represents a combination of: (i) Statement of
Operations Data for the combined operations of the Founding Companies for
the three months ended March 31, 1996, which represents the one month of
operations prior to the consummation of the Acquisitions; and (ii) Statement
of Operations Data for F.Y.I. Incorporated and Subsidiaries for the three
months ended March 31, 1996, which represents the results of operations
subsequent to the consummation of the Acquisitions. The supplemental data is
provided for information purposes only and does not purport to present the
results of operations of the Company had the transaction assumed therein
occurred on or as of the dates indicated, nor is it necessarily indicative
of the results of operations which may be achieved in the future.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995 -- F.Y.I. INCORPORATED
The Company conducted no significant operations from its inception through
the Offering and the Acquisitions. For accounting purposes and the presentation
of the actual financial results herein, January 31, 1996 has been used as the
effective date of the Acquisitions. The Company incurred various legal,
accounting, marketing and travel costs in connection with the Offering and the
Acquisitions, which were funded by issuance of Common Stock and Preferred Stock.
Additional costs associated with the Offering and the Acquisitions were repaid
with proceeds of the Offering.
Revenue for the three months ended March 31, 1996, was $8.4 million, and
gross profit for the three months was $2.8 million. Operating income was $0.5
million, and net income was $0.4 million. As previously mentioned, the Company
had no operations until February 1996. For further discussion of pro forma
operations for the three months ended March 31, 1996 and 1995, see the "Results
of Operations -- F.Y.I. Incorporated Combined with Founding Companies".
20
<PAGE> 23
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995 -- F.Y.I. INCORPORATED COMBINED WITH FOUNDING COMPANIES
The Statement of Operations Data for the three months ended March 31, 1995,
represent the unaudited results of the combined Founding Companies for the
period. The Supplemental Statement of Operations Data for the three months ended
March 31, 1996, represents a combination of: (i) Statement of Operations Data
for the combined operations of the Founding Companies for the three months ended
March 31, 1996, which represents the one month of operations prior to the
consummation of the Acquisitions; and (ii) Statement of Operations Data for
F.Y.I. Incorporated and Subsidiaries for the three months ended March 31, 1996,
which represents the results of operations subsequent to the consummation of the
Acquisitions. The supplemental data is provided for information purposes only
and does not purport to present the results of operations of the Company had the
transaction assumed therein occurred on or as of the dates indicated, nor is it
necessarily indicative of the results of operations which may be achieved in the
future.
<TABLE>
<CAPTION>
SUPPLEMENTAL
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
--------------- ---------------
1995 1996
--------------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue..................................... $10,000 $10,894
Product revenue..................................... 1,723 1,308
Other revenue....................................... 164 128
------- -------
Total revenue............................... 11,887 12,330
Cost of services.................................... 6,310 6,896
Cost of products sold............................... 1,422 1,026
Depreciation........................................ 305 303
------- -------
Gross profit................................ 3,850 4,105
Selling, general and administrative expenses........ 2,727 3,756
------- -------
Operating income............................ 1,123 349
Interest and other expenses (income), net........... 33 (176)
------- -------
Income before income taxes.......................... 1,090 525
Provision for income taxes.......................... 42 132
------- -------
Net income.......................................... $ 1,048 $ 393
======= =======
Founding Company Pro forma compensation
differential..................................... $ 256 $ 683
======= =======
Founding Company Pro forma selling, general and
administrative expenses.......................... 2,471 3,073
Founding Company Pro forma operating income......... 1,379 1,032
Founding Company Pro forma provision for taxes...... 444 351
Founding Company Pro forma net income............... 860 725
Founding Company Pro forma net income per share..... $ .16 $ .14
======= =======
Founding Company Pro forma weighted average shares
outstanding...................................... 5,286 5,286
</TABLE>
The $443,000 or 4% increase in revenue is attributable to a 9% increase in
service revenues of $894,000. The increase in service revenue is offset by a
$415,000 or 24% decrease in product revenue, and a $36,000 or 22% decrease in
other revenue.
The increase in service revenue was largely due to: (i) an increase in
scanning and microfilming revenue of approximately $225,000 primarily due to an
overall increase in projects; (ii) an increase in medical records release
revenues of $474,000 primarily attributable to the expansion into additional
healthcare institutions in the U.S. during 1995 and 1996; and (iii) an increase
in records storage and retrieval revenue of $100,000
21
<PAGE> 24
attributable to an increase in volume in 1996. The decrease in product revenue
resulted from a decline in one major customer's film purchases caused by
business interruption at that customer. This decline is not expected to be
permanent, as the interruption was attributable to the federal government
shutdown in late 1995.
Costs and expenses increased $582,000 or 6% largely due to: (i) an increase
in cost of services of approximately $586,000 or 9% primarily attributable to
the increases in service revenue; (ii) cost of products decreased $396,000 as a
result of the reduction in film purchases by one major customer; and (iii) an
increase in SG&A of approximately $407,000, primarily due to the establishment
of corporate overhead required to execute the acquisition program and to manage
the consolidated group of companies.
The decrease in earnings before taxes of $139,000 to $1,208,000 and
decrease in net income of $135,000 to $725,000 was largely attributable to the
factors discussed above. Net income prior to the incremental corporate SG&A
expense was $969,000, up 13% from the first quarter of 1995.
Results of Operations -- Founding Companies Combined
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenue
Total revenue. Total revenue increased 10.7% from $43.0 million for the
year ended December 31, 1994 to $47.6 million for the year ended December 31,
1995. This increase was comprised of a 12.6% increase in service revenue, a 3.6%
increase in product revenue and a 15.1% decrease in other revenue.
Service revenue. Service revenue increased $4.5 million from $36.1 million
for the year ended December 31, 1994 to $40.6 million for the year ended
December 31, 1995. This increase was largely due to: (i) an increase in
Imagent's revenue of $1.4 million, primarily attributable to opening a microfilm
processing laboratory in Philadelphia, Pennsylvania in December, 1994, the
revenue of which represented approximately 56% of the increase in Imagent's
revenue and to an overall increase in scanning and microfilming projects; (ii)
an increase in Leonard's revenue of $851,000 attributable to the addition of two
new storage contracts in 1994; to the opening of new records storage and
retrieval facilities in Toledo, Ohio in April 1994 and in Ann Arbor, Michigan in
January 1995, which new facilities had revenues constituting 25.3% of the
increase and due to increased paper prices received in the first half of 1995
for sales of scrap paper in the data disintegration area; and (iii) an increase
in Recordex's revenue of $1.7 million and in Permanent's revenue of $414,000
primarily attributable to the expansion of medical records release services into
38 additional healthcare institutions in the Eastern U.S. and Texas since
December 1994.
Product revenue. Product revenue increased approximately $215,000 from $5.9
million for the year ended December 31, 1994 to $6.1 million for the year ended
December 31, 1995. This resulted from obtaining a large contract to supply
micrographics products in March 1994 and an overall increase in film processing
due to the opening of two new processing labs.
Other revenue. Other revenue decreased approximately $155,000 from
$1,028,000 for the year ended December 31, 1994 to $873,000 for the year ended
December 31, 1995. This decrease was primarily attributable to Imagent selling
lower volumes of imaging systems and equipment.
Costs and Expenses
Cost of services. Cost of services increased 9.7% from $23.6 million for
the year ended December 31, 1994 to $25.9 million for the year ended December
31, 1995. Cost of services as a percentage of service and other revenue was
63.7% for the year ended December 31, 1994 and 62.5% for the year ended December
31, 1995. Combined cost of services as a percentage of revenue decreased 1.2%,
as a result of fluctuations in several service areas: (i) Researchers' cost of
services increased $631,000, and as a percentage of revenue increased from 63.3%
to 70.3%, as it benefited from several large litigation projects in the first
half of 1994 and was
22
<PAGE> 25
negatively impacted in the year ended December 1995 by expenses incurred in
connection with the expansion of its imaging business and the addition of
personnel and increased rental expense associated with the expansion of its San
Francisco facility; (ii) Leonard's cost of services increased $1,000, but as a
percentage of revenue decreased from 62.6% to 53.5% primarily as a result of
increased revenue and operating leverage in 1995 associated with the addition of
two storage contacts in 1994 and expenses incurred in 1994 in connection with
the opening of new document storage and retrieval facilities in Toledo, Ohio and
Farmington Hills, Michigan; (iii) Deliverex's cost of services decreased
$41,000, and as a percentage of revenue decreased from 64.6% to 57.3% as a
result of price increases and certain cost reduction programs; and (iv) DPAS's
cost of services decreased $414,000, and as a percentage of revenue decreased
from 74.5% to 66.3% primarily as a result of a cost reduction program
implemented in April 1995.
Cost of products sold. Cost of products sold increased 1.6% from $4.9
million for the year ended December 31, 1994 to $5.0 million for the year ended
December 31, 1995. Cost of products sold as a percentage of product revenue
decreased from 82.6% to 81.0% for the year ended December 31, 1994 and 1995,
respectively. This decrease was a result of reduced cost of goods sold
attributable to Eastman Kodak, the supplier implementing additional value added
rebates on selected products.
Depreciation
Depreciation increased 17.3% from $1.1 million for the year ended December
31, 1994 to $1.2 million for the year ended December 31, 1995. This increase is
primarily associated with machinery and equipment purchased for the expansions
at Leonard and Recordex discussed above.
Gross Profit
As a result of the foregoing, gross profit increased 15.2% from $13.4
million, or 31.2% of total revenue, for the year ended December 31, 1994 to
$15.5 million, or 32.5% of total revenue, for the year ended December 31, 1995.
Selling, general and administrative expenses
SG&A expenses increased 5.5% from $11.8 million, or 27.5% of revenues, for
the year ended December 31, 1994 to $12.5 million, or 26.2% of revenues, for the
year ended December 31, 1995. After giving effect to the Compensation
Differential in each year, SG&A expense increased from $10.0 million, or 23.2%
of revenues, for the year ended December 31, 1994 to $10.5 million, or 22.1% of
revenues, for the year ended December 31, 1995. Although combined SG&A expenses
adjusted for the Compensation Differential as a percentage of total revenue
decreased 1.1% there were fluctuations in several service areas: (i) Leonard's
adjusted SG&A as a percentage of revenues decreased from 30.3% to 25.3%
primarily as a result of the two storage contracts described above which
provided revenues without proportional increases in overhead; (ii) DPAS'
adjusted SG&A as a percentage of revenues decreased from 24.9% to 23.2%
primarily as a result of a cost reduction program implemented in April 1995; and
(iii) Recordex's SG&A as a percentage of revenues decreased from 33.1% to 31.8%
primarily as a result of increased revenues related to its expansion of medical
records release services into additional healthcare institutions without a
commensurate increase in overhead.
Pro forma operating income
Pro forma operating income adjusted for the Compensation Differential
increased 43.8% from $3.5 million, or 8.0% of total revenue, for the year ended
December 31, 1994 to $5.0 million, or 10.4% of total revenue, for the year ended
December 31, 1995.
Interest expense, net
Interest expense, net of interest income increased 16.1% from $304,000 for
the year ended December 31, 1994 to $353,000 for the same period in 1995. This
is primarily due to increased borrowings in April through
23
<PAGE> 26
December, for the purchase of equipment associated with Leonard's opening of new
document storage facilities.
Provision for income taxes
The combined provision for income taxes and pro forma provision for income
taxes increased 42.8% from $1.3 million, or an effective tax rate of 36.7%, for
the year ended December 31, 1994 to $1.8 million, or an effective tax rate of
37.2%, for the year ended December 31, 1995. The Founding Companies were
operated as separate entities for tax purposes for all periods presented.
Pro forma net income
Pro forma net income adjusted for the Compensation Differential and pro
forma provision for income taxes increased 39.8% from $2.2 million, or 5.0% of
total revenue, for the year ended December 31, 1994 to $3.0 million, or 6.4% of
total revenue, for the year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
Revenue
Total revenue. Total revenue increased 12.1% from $38.4 million in 1993 to
$43.0 million in 1994. This increase was comprised of a 12.5% increase in
service revenue, a 15.6% increase in product revenue and a 14.8% decrease in
other revenue.
Service revenue. Service revenue increased $4.0 million from $32.1 million
in 1993 to $36.1 million in 1994. This increase was largely due to: (i) an
increase in Imagent's revenue of $1.3 million primarily attributable to an
overall increase in scanning and microfilming projects, the opening of microfilm
processing laboratories in Roanoke, Virginia in April 1993 and in Philadelphia,
Pennsylvania in December 1994, the revenue of which constituted approximately
16% of the increase in Imagent's revenue and the purchase of a microfilm
processing business in October 1994, the revenue of which represented
approximately 7% of the increase in Imagent's revenue; (ii) an increase in
Researchers' revenue of $1.2 million primarily attributable to performing
services related to several large litigation projects that commenced in 1993;
(iii) an increase in Recordex's revenue of $1.4 million primarily attributable
to the expansion of medical records release services into an additional 30
healthcare institutions in the eastern U.S. during 1994; and (iv) an increase in
Leonard's revenue of $635,000 primarily attributable to opening of new document
storage facilities in Farmington Hills, Michigan and Toledo, Ohio, the revenue
of which represented approximately 35% of the increase in Leonard's revenue and
securing two new document storage and retrieval contracts during 1994. This
increase was partially offset by a decrease in DPAS' revenue of $468,000
primarily due to the loss of three inventory compilation projects in 1993 and
1994.
Product revenue. Product revenue increased approximately $800,000 from
$5.1 million in 1993 to $5.9 million in 1994. This increase resulted primarily
from Imagent's obtaining a large contract to supply micrographics products in
March 1994 and an increase in film sales made in conjunction with increased film
processing services at Imagent's new laboratory.
Other revenue. Other revenue decreased approximately $178,000 from $1.2
million in 1993 to $1.0 million in 1994. This decrease was primarily related to
a decrease in commissions on the sale of micrographics equipment by Imagent.
Costs and expenses
Cost of services. Cost of services increased 16.4% from $20.3 million in
1993 to $23.6 million in 1994. Cost of services as a percentage of service and
other revenue was 61.1% in 1993 and 63.7% in 1994. This increase in cost of
services as a percentage of service and other revenue was primarily attributable
to: (i) an increase in Imagent's cost of services of $816,000, and as a
percentage of revenue from 56.1% to 59.4%, due to costs related to the start-up
of the microfilm processing laboratory in Philadelphia and increased price
competition in one geographic area which began in late 1993; (ii) an increase in
Leonard's cost of services of $740,000, and as a percentage of revenue from
54.8% to 62.6%, related to its expansion into additional storage
24
<PAGE> 27
facilities in late 1993 and 1994; (iii) an increase in DPAS' cost of services of
$27,000, and as a percentage of revenue from 68.9% to 74.5% due to the loss of
three inventory compilation projects in late 1993 and 1994; and (iv) an increase
in Recordex's cost of services of $1.1 million, and as a percentage of revenue
from 56.3% to 61.0%, related to its expansion into an additional 30 healthcare
institutions in the eastern U.S. during 1994. These increases as a percentage of
revenue were partially offset by a reduction in Researchers' cost of services,
which increased $661,000, but decreased as a percentage of revenue from 64.7% to
63.3% primarily as a result of increased revenue and enhanced operating leverage
associated with several large litigation projects in 1994.
Cost of products sold. Cost of products sold increased 9.6% from $4.5
million in 1993 to $4.9 million in 1994. Cost of products sold as a percentage
of product revenue decreased from 87.1% in 1993 to 82.6% in 1994. This decrease
resulted from Imagent's receiving additional value added rebates and better
pricing on selected products.
Depreciation
Depreciation increased 19.5% from $883,000 in 1993 to $1.1 million in 1994.
This increase was primarily associated with machinery and equipment purchased
for the expansions discussed above.
Gross profit
As a result of the foregoing, gross profit increased 5.5% from $12.7
million, or 33.2% of total revenue, for 1993 to $13.4 million, or 31.2% of total
revenue, for 1994.
Selling, general and administrative
SG&A increased 7.2% from $11.0 million in 1993 to $11.8 million in 1994.
After giving effect to the Compensation Differential in each year, SG&A
increased from $9.3 million, or 24.3% of revenues, in 1993 to $10.0 million, or
23.2% of revenues, in 1994. This decrease in SG&A as a percentage of revenues is
primarily related to an increase in Recordex's revenues related to its expansion
of medical records release services into additional healthcare institutions
without a commensurate increase in overhead. In addition, Researchers, Imagent
and Leonard all experienced slightly enhanced operating efficiencies in 1994.
Pro forma operating income
Pro forma operating income adjusted for the Compensation Differential
increased 1.6% from $3.4 million, or 8.9% of total revenue, for 1993 to $3.5
million, or 8.0% of total revenue, for 1994.
Interest expense, net
Interest expense, net of interest income, increased slightly from $299,000
for 1993 to $304,000 for 1994.
Provision for income taxes
The combined provision for income taxes and pro forma provision for income
taxes remained constant at $1.3 million, with an effective tax rate of 40.0% for
1993 and an effective tax rate of 36.7% for 1994. The Founding Companies were
operated as separate entities for tax purposes for all periods presented. See
Note 11 of Notes to Combined Financial Statements of the Founding Companies for
a more detailed analysis of the provision for income taxes.
Pro forma net income
Pro forma net income adjusted for the Compensation Differential and pro
forma provision for taxes increased 14.7% from $1.9 million, or 4.9% of total
revenue, for 1993 to $2.2 million, or 5.0% of total revenue, for 1994.
Certain balance sheet changes
Accounts and notes receivable, less allowance for doubtful accounts and
notes increased from December 31, 1993 to December 31, 1994 primarily as a
result of an overall increase in revenues. Accounts receivable, officer and
employee, increased primarily as a result of advances to Researchers'
controlling stockholder. These advances were settled at Researchers fiscal year
end of July 31. Intangible assets, net of accumulated amortization increased
primarily due to the purchase by Imagent of a microfilm processing
25
<PAGE> 28
business. The intangible assets associated with this purchase represented a
customer list and a covenant not to compete. Property and equipment, net,
accounts payable and accrued liabilities and debt all increased primarily as a
result of facility expansions.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4.1 million, $2.0 million
and $2.3 million, respectively, for the years ended December 31, 1995, 1994 and
1993. Net cash provided by operating activities for the year ended December 31,
1995 was primarily impacted by: (i) an increase in net income; (ii) an increase
in revenue without a corresponding increase in accounts receivable; (iii) the
settlement of a significant portion of Researchers' stockholder receivable; and
(iv) a decrease in accounts payable and accrued liabilities. Net cash provided
by operating activities for the year ended December 31, 1994 was impacted by
increased revenue and increases in accounts receivable, accounts payable and
accrued liabilities associated with facility expansions and was also impacted by
an increase in Researchers' stockholder receivable. Cash used in investing
activities was $1.3 million, $2.0 million and $1.1 million, respectively, for
the years ended December 31, 1995, 1994 and 1993. Cash used in investing
activities for the year ended December 31, 1995 and for the year ended December
31, 1994 was primarily used for purchases of property, plant and equipment
associated with facility expansions, and was also impacted in 1994 by the
purchase by Imagent of a microfilm processing business and the associated
intangible assets. Cash used in investing activities for 1993 was primarily used
for purchases of property, plant and equipment associated with facility
expansions. Cash used for financing activities was $2.1 million, $124,000 and
$1.2 million, respectively, for the years ended December 31, 1995, 1994 and
1993. Cash used for financing activities for the year ended December 31, 1995,
consisted primarily of net payments on debt and payments of dividends. Cash used
for financing activities for the year ended December 31, 1994, consisted
primarily of payments of dividends offset by net proceeds from debt associated
with facility expansions. Cash used for financing activities for 1993 included
net payments on debt, advances to Recordex's parent company and payments of
dividends. As a result of the foregoing, cash and cash equivalents increased by
$686,000 for the year ended December 31, 1995, decreased by $86,000 in 1994 and
decreased by $79,000 in 1993.
In January 1996, the Company consummated the Offering and received net
proceeds of $24.6 million.
As of March 31, 1996, the Company had $11.9 million of working capital and
$10.0 million of cash. The Company paid off substantially all of its debt with
the proceeds of the Offering with the exception of approximately $415,000 of
debt with favorable interest rates and capital lease obligations of
approximately $425,000.
Subsequent to March 31, 1996, the Company negotiated a $35.0 million Line
of Credit (see Note 4 in the Notes to F.Y.I. Incorporated's financial statements
located elsewhere in this Prospectus).
The Company anticipates that cash from operations, and additional bank
financing available under the Line of Credit will be sufficient to meet the
Company's liquidity requirements for its operations through the end of fiscal
1996. The availability under the Line of Credit is approximately $4.0 million
for working capital and general corporate purposes and $21.8 million for
acquisitions. The Company expects that the amounts available under the Line of
Credit will be used in its acquisition program. However, the Company expects
that additional funds may be required in the future to successfully continue the
acquisition program. See "Risk Factors -- Need for Additional Financing to
Implement Acquisition Strategy."
The consideration paid for the seven businesses recently acquired by the
Company consisted of a combination of cash and shares of Common Stock. See
"Business -- Subsequent Acquisitions."
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
Revenues from the Company's services show no significant seasonal
variations. However, service revenue can vary from period to period due to the
impact of specific projects, primarily in the litigation support area. Quarterly
results may also vary as a result of the timing of acquisitions and the timing
and magnitude of costs related to such acquisitions. In addition, because the
anticipated financial benefits of the combination of the Operating Companies may
not be generated immediately, the Company's initial results as a combined
company may reflect corporate overhead that exceeds the realized benefits.
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BUSINESS
F.Y.I. Incorporated was founded in September 1994 to create a national,
single-source provider of document management services to three primary client
segments: healthcare institutions, professional services firms and financial
institutions. Prior to the Offering, F.Y.I. did not conduct any operations.
F.Y.I. has acquired, simultaneously with the consummation of the Offering, the
seven Founding Companies. The Founding Companies, which have been in business an
average of 22 years, are headquartered in San Francisco (2), San Jose, Fort
Worth, Detroit, Malvern (Philadelphia) and Baltimore, and operate in 23 states.
Since the Offering, the Company has acquired seven additional document
management services businesses headquartered in Washington, D.C., Baltimore, San
Jose, Sacramento and Seattle. See "The Company." The Company, inclusive of the
New Acquisitions, had pro forma 1995 revenue of approximately $70.7 million and
pro forma 1995 annual net income of approximately $4.7 million. The Company
operates with a decentralized management strategy rather than a standardized
national model in order to provide superior customer service and retain the
historical customers of acquired businesses while achieving the operating
efficiencies of a large organization. This strategy also emphasizes the
retention of local management, which the Company believes makes it an attractive
acquiror of other document management services companies.
The Company's three primary client segments are highly document-intensive.
For a variety of regulatory, client service and other reasons, the documents of
the Company's clients must be maintained, accessed and managed for extensive
periods of time, often under strict guidelines and specifications. While the
document management requirements of each target client segment are relatively
unique and require a specialized understanding of that segment, the Company
offers certain common document management services that are transferable across
its targeted client segments. These services, which are offered by one or more
of the Operating Companies, include: (i) micrographic services, including
microfilm and microfiche production and processing; (ii) electronic imaging
services, including the conversion of documents into digitized media using
sophisticated computer technology; (iii) active storage and maintenance of
documents and files; (iv) archival storage of inactive documents; and (v)
information and database management services. In addition, in order to better
fulfill the document management needs of targeted client segments, certain
Operating Companies also offer industry specific services such as litigation
support, including subpoena, authorization, photocopying and service of process
services, medical records release services and remittance processing. The
Company also derives revenue from the sale of certain micrographic and business
imaging products.
Historically, the document management services industry has been highly
fragmented, consisting primarily of small local or regional businesses that
limit their operations to a narrow range of offered services or provide services
only to selected client segments. The Company believes that significant
opportunities are available to a business that can consolidate the capabilities
and resources of a number of existing document management services businesses.
In order to effect such a consolidation, the Company has implemented an
aggressive acquisition program designed to expand its range of offered services
and acquire additional market share in each of its targeted geographic markets.
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<PAGE> 30
The Company believes that each of its targeted geographic markets can
support the following range of services:
[CHART]
The Company believes that the consolidation of document management services
businesses will provide it with a significant competitive advantage over
existing smaller businesses. In addition to economies of scale, the Company
expects to benefit from enhanced operating efficiencies and significant
cross-selling opportunities. As the Company gains critical mass in certain
geographic markets, it expects to be able to capitalize on its existing client
relationships and technical expertise to: (i) vertically integrate by expanding
the services offered to each of its client segments; and (ii) horizontally
integrate by offering certain transferable services to a larger overall customer
base.
OVERVIEW
An estimated four trillion documents are generated annually in the United
States. A significant portion of the storage, processing and management of these
documents is outsourced to document management services businesses such as the
Operating Companies. Further, the Company believes that the document management
services market is growing due to several factors including: (i) government
regulations that require lengthy document retention periods and rapid
accessibility for many types of records; (ii) increased customer expectations of
low cost access to records on short notice and, in many instances, at disparate
locations; (iii) the increasing litigiousness of society, necessitating access
to relevant documents and records for extended periods; and (iv) continuing
advancements in computer, networking, facsimile, printing and other technologies
which have greatly facilitated the production and wide distribution of
documents.
The Company's three targeted client segments, healthcare institutions,
professional services firms and financial institutions, generate large volumes
of documents and require efficient processing, distribution, storage and
retrieval of these documents and the information they contain. The Company
believes that these client segments have increased and will continue to increase
their outsourcing of document management services in order to: (i) maintain a
focus on core operating competencies and revenue generating activities; (ii)
reduce fixed costs, including labor and equipment costs; and (iii) gain access
to new technologies without incurring the expense and risk of near-term
obsolescence of such technologies.
The document management services business is highly fragmented. The Company
believes that many small document management services businesses: (i) have
insufficient capital for expansion; (ii) cannot keep abreast of rapidly changing
technologies; (iii) lack effective marketing programs; and (iv) are unable to
meet
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the needs of large, geographically dispersed clients. In addition, there are a
limited number of options for owners of such businesses to obtain liquidity or
to sell their businesses. As result, the Company believes that many owners of
such businesses will be receptive to a consolidation strategy.
BUSINESS STRATEGY
The Company's goal is to become a national, single-source provider of
document management services for its three primary target client segments:
healthcare institutions, professional services firms and financial institutions.
In order to achieve this goal, the Company intends to implement a focused
business strategy based on the following key principles:
Establish Full Service Operations in Multiple Metropolitan Areas. The
Company intends to establish full service document management operations in
targeted metropolitan areas, including the areas serviced by the Operating
Companies, through selected acquisitions and expansion of existing businesses.
Ultimately, the Company will seek to achieve a national scope of coverage so
that it can implement a national sales and service policy.
Capitalize on Cross-Selling Opportunities. The Company intends to
cross-sell in two primary ways. First, the Company intends to leverage its
existing client relationships by selling such clients additional document
management services provided by the Company's other businesses. Second, the
Company intends to leverage its existing knowledge with respect to industry
transferable services by marketing such services across client segment lines.
Achieve Cost Savings Through Economies of Scale. The Company believes that
it will be able to achieve significant economies of scale by combining a number
of general and administrative functions at the corporate level and by reducing
or eliminating redundant functions and facilities. For example, the Company has
implemented a Company-wide insurance plan and intends to implement Company-wide
employee benefits programs and to purchase certain items, such as paper,
microfilm and storage racks, on a combined basis. To the extent that the Company
is able to expand through the acquisition of additional document management
businesses, the Company believes that such cost savings will continue to accrue.
Operate With a Decentralized Management Strategy. The Company believes
that the experienced local management teams that exist at the Operating
Companies have a valuable understanding of their respective markets and
businesses and have existing client relationships upon which they may
capitalize. Accordingly, the Company intends to operate with a decentralized
management strategy. Local management will remain empowered to make most of the
day-to-day operating decisions at each location and will be primarily
responsible for the profitability and growth of that location. Although the
Company intends to have local management operate with a high degree of autonomy,
the Company believes that regular communication between the individual
businesses and the Company's executive management team will be integral to
realizing the benefits afforded by the consolidation of these businesses into a
single company.
ACQUISITION PROGRAM
The Company believes that there are significant opportunities to
consolidate the capabilities and resources of a number of existing document
management services businesses. In order to effect this consolidation, the
Company has implemented an aggressive acquisition program in order to enter
additional targeted markets, acquire additional service capabilities within such
markets and gain market share. The Company intends to employ a three-tiered
acquisition program.
Initially, to enter a targeted geographic market, the Company intends to
make "beachhead" acquisitions of leading document management services companies
with strong market positions. In analyzing beachhead acquisition candidates, the
Company will focus on acquiring businesses that have: (i) experienced and high
quality management; (ii) multiple locations, preferably with operations in two
to three contiguous markets; (iii) a strong customer franchise; and (iv) a
history of profitability.
The second tier of the Company's acquisition program involves the
acquisition of related document management services companies that will increase
the Company's offered services in a particular region. In
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<PAGE> 32
making such acquisitions, the Company will assess the services required by the
specific market's customer base and then seek to acquire leading providers of
such services within that geographic area. As with beachhead acquisitions, the
Company will seek profitable businesses with strong management teams.
Finally, in order to increase its market share and realize economies of
scale, the third tier of the Company's acquisition program will be the
acquisition of smaller "tuck-in" businesses which can be easily assimilated into
the operations of the Company's existing businesses. Such tuck-in businesses are
intended to enable the Company to benefit from the operating leverage of its
existing businesses by acquiring additional market share and revenue while
eliminating or reducing certain general, administrative and operating costs
previously associated with such revenue. Accordingly, the main selection
criteria for such tuck-in businesses will be strong customer relationships.
The Company believes that it will be an attractive acquiror of other
document management services companies due to: (i) the benefits afforded by an
association with a full service national company, including an enhanced ability
to compete in the local market through an expansion of offered products and
services and increased access to new technologies; (ii) the potential for
increased profitability as a result of the Company's centralization of certain
administrative functions and certain economies of scale; (iii) the Company's
financial strength and visibility as a public company; and (iv) the Company's
decentralized management strategy which will, in many cases, enable existing
local management to remain involved in the operations of acquired companies.
Nevertheless, there are numerous risks associated with the Company's intended
acquisition program. See "Risk Factors -- Acquisition Strategy" and "-- Need for
Additional Financing to Implement Acquisition Strategy."
Since its inception in September 1994, F.Y.I. has gathered and assembled
data with respect to numerous document management services businesses and
believes it is well positioned to commence and continue its acquisition program.
The Company's acquisition program is led by Thomas C. Walker, Chairman of the
Board and Chief Development Officer of the Company, and David Lowenstein,
Executive Vice President -- Corporate Development and Acquisitions, each of whom
has extensive experience in acquiring businesses.
As consideration for acquisitions, the Company intends to use various
combinations of Common Stock, cash and notes, including the shares of Common
Stock being offered hereby.
SERVICES OFFERED BY THE OPERATING COMPANIES
The Company provides a wide variety of document management services and
draws upon its available services to develop document management solutions for
its clients based on their specific needs. The current document management
services that are provided in certain geographic locations through one or more
of the Operating Companies include:
Transferable Services
Micrographics. Micrographics services involve: (i) the conversion of paper
documents into microfilm images; (ii) film processing; and (iii) computer-based
indexing and formatting. Typically, micrographic services are selected: (i) as a
cost-competitive technology to reduce the physical size of stored records; (ii)
for their long term (over 100 years) archival capabilities; and (iii) as an
intermediate step in certain imaging or reprographic applications. Imagent, B&B,
Researchers and Permanent Records currently provide micrographics services.
Electronic Imaging. Electronic imaging services involve the conversion of
paper or microfilm documents into digitized information through optical
scanners. Digitized information can be either stored as an image or converted to
code through optical character recognition (OCR) or digital imaging storage and
retrieval technologies. Conversion to code provides additional processing
capabilities such as manipulation of data. In both cases, the digitized
information can be stored on either a magnetic medium, such as a computer
diskette, or on optical laser disks, such as compact disks. Electronic imaging
is generally used because of the storage media's high speed of retrieval, its
multiple indexing and text search formatting capabilities, and its ability to be
used to distribute output to multiple locations. Electronic imaging services are
typically billed on a job-by-
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job basis, based on the number of images and complexity of the retrieval
applications. Imagent, B&B, Researchers and DPAS currently provide electronic
imaging services.
Active or Open Shelf Storage. Active or open shelf storage services
involve the storage, processing (i.e., indexing and formatting), retrieval,
delivery and return to storage of documents on a rapid time frame.
Representative uses for open shelf storage include active medical and legal case
files. In many instances, open shelf storage is offered as an outsourced file
room service, where documents are requested and retrieved frequently and, in
many cases, transmitted via facsimile due to the urgency of the request. Service
fees generally include a monthly fee based on activity levels and volumes
stored, with extra billing for specialized requests. Deliverex, Deliverex
Sacramento, Leonard and Permanent Records currently provide active or open shelf
storage.
Archival Storage of Inactive Documents. The archiving of inactive
documents involves storage for extended periods of time with a lesser emphasis
on service or accessibility to stored documents. Typical uses for archival
storage of inactive documents include storage of closed files for professional
services firms and documents that may be required by law to be maintained by
hospitals, other healthcare institutions and financial institutions for extended
periods. Service fees generally include billing for storage space, plus activity
charges for each retrieval, delivery and return to storage, and ultimately for
document destruction. Leonard and Permanent Records currently provide archival
storage of inactive documents.
Database Services. Database services involve data capture (manually or
through scanning or other electronic media), data consolidation and elimination,
storage, maintenance, formatting and report creation. In some cases, database
services include statistical analysis of data. DPAS, Imagent and B&B currently
provide database services.
Industry Specific Services
Certain of the Founding Companies have developed industry specific services
in order to address the document management needs of their particular clients.
These industry specific services include:
Litigation Support. Litigation often involves the production (i.e.,
delivery to opposing counsel) and management of thousands of pages of documents,
extracted in their current working form from the offices and files of litigating
parties and their experts, advisors and legal counsel. Litigation support
services include managing the logistics of high volume document production,
microfilming and/or electronic imaging, document coding, computer indexing,
automated document retrieval, and high speed, multiple-set reproduction of
documents. Litigation support services are provided to law firms, corporate
legal departments and insurance companies. These clients typically look to
litigation support companies to augment their internal operations and
capabilities on an as-needed, job-by-job basis. Additional litigation support
services include subpoena, authorization, photocopying and service of process
services. Clients are generally billed on a per unit basis. Researchers, Cook,
Imagent and DPAS currently provide litigation support services.
Medical Records Release Services. Medical records release services involve
processing a request for a patient's medical records from a physician, insurance
company, attorney or other healthcare institution. The medical records release
service provider initially verifies that the release is properly authorized,
coordinates the retrieval of the record, determines the relevant parts of the
record to be copied, and delivers the copied records (or portions thereof) to
the requesting party. Medical records release services are provided on-site
pursuant to contracts with hospitals and other large healthcare institutions.
The medical records release service provider bills the recipient directly and
sometimes pays a fee to the hospital. Recordex, Premier and Permanent Records
currently provide medical records release services.
Remittance Processing. Remittance processing and order fulfillment
services involve the outsourcing of a client's receivables function, including
generating bills and statements, receiving and processing credit card payments,
encoding checks and depositing payments, and other mailing related activities.
DPAS and Imagent currently provide remittance processing services.
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Business Imaging Products Sales
Imagent has a five-year agreement with the Eastman Kodak Company which
expires on December 31, 1999 and grants Imagent the right to act as a
distributor of a wide range of Kodak microfilm and business imaging supplies in
Delaware, Maryland, Pennsylvania, Virginia, West Virginia and Washington, D.C.
B&B is also in the business imaging product sales business.
SALES AND MARKETING
The Company has a broad customer base, and none of the Company's customers
accounted for more than 8.0% of revenue for either the year ended December 31,
1994 or December 31, 1995. Historically, the Company's sales efforts have been
implemented on a location-by-location basis at each Operating Company. For most
of the Operating Companies, sales efforts are typically not coordinated through
separate sales personnel, but are part of the local management's
responsibilities. The Company believes that the existing local sales efforts can
be supplemented through the addition of local sales representatives. The Company
will strive to increase its client base by attracting customers away from small,
single business operators as a result of its ability to offer a broader range of
solutions for its clients' document management needs. In addition, the Company
will focus on increasing revenues from its existing clients by cross-selling its
services and broadening its product offerings. Once the Company gains critical
mass in a number of metropolitan areas, it hopes to augment local sales and
marketing efforts through the implementation of a national sales/account
program.
The Company believes that its ability to attract and retain additional
clients will depend on its ability to offer the broad range of services
necessary to satisfy such clients' document management needs and maintain a high
level of customer satisfaction.
COMPETITION
The document management services businesses in which the Company competes
and expects to compete are highly competitive. A significant source of
competition is the in-house document handling capability of the Company's target
client base. There can be no assurance that these businesses will outsource more
of their document management needs or that such businesses will not bring
in-house services that they currently outsource. In addition, certain of the
Company's competitors are larger businesses, many of which have greater
financial resources than the Company. Certain of these competitors operate in
broader geographic areas than the Company, and others may choose to enter the
Company's areas of operation in the future. In addition, the Company intends to
enter new geographic areas through internal growth and by acquiring existing
companies and expects to encounter significant competition from established
competitors in each of such new areas. As a result of this highly competitive
environment, the Company may lose customers or have difficulty in acquiring new
customers and its revenues and margins may be adversely affected.
The Company believes that the principal competitive factors in document
management services include accuracy, reliability and security of service,
client segment specific knowledge and price. The Company competes primarily on
the basis of quality of service and client segment specific knowledge, and
believes that it competes favorably with respect to these factors.
ORGANIZATION
Simultaneously with the closing of the Offering, F.Y.I. acquired seven
well-established document management services businesses. The aggregate
consideration paid by F.Y.I. to acquire the Founding Companies was approximately
$35 million, consisting of: (i) $7,059,000 in cash; (ii) 1,878,933 shares of
Common Stock; (iii) the assumption and repayment of approximately $191,000 of
indebtedness owed by a certain Founding Company stockholder; and (iv) the
distribution of cash and certain receivables to stockholders of Imagent and
Leonard, which are S corporations, in the amounts of $2,750,000 and $700,000,
respectively, representing the AAA accounts of these companies. In addition,
prior to the closing of the Acquisitions, certain Founding Companies made
distributions to their stockholders of certain assets and related liabilities,
including the increase in net equity subsequent to June 30, 1995 of each of the
Founding Companies, other than Recordex. Based on the relevant account balances
as of December 31, 1995, the amount of these distributions was $2,340,000. As
such, total transfers of selected assets to and assumption of
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selected liabilities of certain stockholders of the Founding Companies was a net
amount of approximately $5,981,000 (of which $1,120,000 was distributed prior to
December 31, 1995). In addition, upon consummation of the Acquisitions, the
Company repaid approximately $3,349,000 of third party indebtedness assumed by
the Company in the Acquisitions, virtually all of which was guaranteed by
respective stockholders of the Founding Companies, and $584,000 of indebtedness
to such stockholders.
The consideration paid for the Founding Companies was determined through
arm's-length negotiations among F.Y.I. and representatives of the Founding
Companies. The factors considered by the parties in determining the
consideration to be paid include, among others, the historical operating
results, the levels of indebtedness and the future prospects of the Founding
Companies.
In connection with the Acquisitions, the stockholders of the Founding
Companies agreed not to compete with the Company for a period of five years
following the Acquisitions. In addition, each stockholder (other than Michael J.
Bradley) entered into a three-year employment agreement with the Company which
contains a two-year covenant-not-to-compete following termination of such
person's employment. The period of the covenants-not-to-compete will be
shortened to a period of one year following the termination of any such person
without cause. See "Management."
Imagent. Under an agreement with Imagent, Mr. John Shaw and Mr. Ted
Montouri, F.Y.I. acquired by merger all of the issued and outstanding stock of
Imagent. The consideration paid by F.Y.I. for Imagent was $1,500,000 in cash,
331,497 shares of Common Stock of the Company and an S Corporation dividend of
cash and certain receivables in the amount of $2,750,000 representing the AAA
account of Imagent.
Researchers. Under an agreement with Researchers, Mr. Greg Melanson and
Dr. Roger Mansfield, F.Y.I. acquired by merger all of the issued and outstanding
stock of Researchers. The consideration paid by F.Y.I. for Researchers was
$2,750,000 in cash and 681,400 shares of Common Stock of the Company. F.Y.I.
also has an option to acquire an additional start-up document management
business owned by Mr. Melanson, and Mr. Melanson has an option to require F.Y.I.
to purchase such business at such time as its annual audited pre-tax profits
exceed $550,000. In either event, the consideration payable to Mr. Melanson will
consist of F.Y.I. Common Stock with a value equal to six times the amount of
such audited pre-tax profits.
Recordex. Under an agreement with Recordex, Paragon Management Group, Inc.
("Paragon"), the sole shareholder of Recordex, and Mr. G. Michael Bellenghi, Mr.
Gerald E. Pierson and Mr. Michael J. Bradley, the shareholders of Paragon,
F.Y.I. acquired by merger all of the issued and outstanding stock of Recordex.
The consideration paid by F.Y.I. for Recordex was $309,000 in cash, 198,589
shares of Common Stock of the Company and the assumption and repayment of
$191,000 of debt of Paragon to its stockholders upon consummation of the
Acquisition.
DPAS. Under an agreement with DPAS, Mr. Robert Tessler and Mr. John Brown,
F.Y.I. acquired by merger all of the issued and outstanding stock of DPAS. The
consideration paid by F.Y.I. for DPAS was $400,000 in cash and 117,068 shares of
Common Stock of the Company.
Leonard. Under an agreement with Leonard and Mr. Jerry Leonard, F.Y.I.
acquired by merger all of the issued and outstanding stock of Leonard. The
consideration paid by F.Y.I. for Leonard was $1,250,000 in cash, 253,274 shares
of Common Stock of the Company and an S corporation dividend of cash and certain
receivables in the amount of $700,000 representing the AAA account of Leonard.
Deliverex. Under an agreement with Deliverex, Mr. Steven Rowen and Ms.
Andrea Bushnell, F.Y.I. acquired by merger all of the issued and outstanding
stock of Deliverex. The consideration paid by F.Y.I. for Deliverex was $700,000
in cash and 186,147 shares of Common Stock of the Company.
Permanent Records. Under an agreement with Permanent Records, Mr. Kent
Patterson and Mr. Neil Patterson, F.Y.I. acquired by merger all of the issued
and outstanding stock of Permanent Records. The consideration paid by F.Y.I. for
Permanent Records was $150,000 in cash and 110,958 shares of Common Stock of the
Company.
The businesses of each of the Founding Companies is conducted through
separate subsidiaries of the Company.
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SUBSEQUENT ACQUISITIONS
Since the closing of the Offering, the Company has acquired seven
additional document management services businesses, including B&B, Premier and
Cook. The Company's significant subsequent acquisitions are described below:
Cook. Under an agreement with Cook, Robert A. Cook and Anna M. Cook as
Co-Trustees of the Cook 1993 Living Trust, Cook Acquisition and RAC Acquisition,
both wholly-owned subsidiaries of the Company, acquired substantially all of the
non-cash assets of Cook in June 1996. Cook has been operating a litigation
support business for 30 years throughout the state of California. The aggregate
consideration paid by the Company for Cook consisted of $11.3 million in cash.
An amount equal to $1,000,000 in cash will be retained for a period of 90 days
from the date of closing as security against any indemnification claim.
B&B. Under an agreement with B&B and Charles J. Bauer, Jr., B&B
(Baltimore-Washington) Acquisition Corp., a wholly-owned subsidiary of the
Company, acquired by merger all of the issued and outstanding stock of B&B in
May 1996. B&B has been operating a document management services business for 15
years in the Baltimore-Washington, D.C. area. The aggregate consideration paid
by the Company for B&B consisted of $3.1 million in cash and 183,333 shares of
Common Stock. Of such 183,333 shares of Common Stock, a total of 13,889 shares
of Common Stock will be held in escrow for a period of 120 days from the date of
closing as security against any indemnification claim.
Premier. Under an agreement with Premier and Brian E. Whiteside,
Christopher S. Moore, Lynette C. Pomerville and Gary T. Siervert, Premier
Acquisition Corp., a wholly-owned subsidiary of the Company, acquired by merger
all of the outstanding stock of Premier in May 1996. Premier has been operating
as a document management services business for 11 years in the State of
Washington and in Northern California. The aggregate consideration paid by the
Company for Premier consisted of $1.2 million in cash and 69,919 shares of
Common Stock. An amount equal to $200,000 in cash will be retained by the
Company for a period of 120 days from the date of closing as security against
any indemnification claim.
In addition, Sacramento, a medical records storage company, was acquired by
Deliverex Sacramento in March 1996 and is already reporting to Deliverex. In
February 1996, certain of the assets of Microfilm, an imaging company, were
acquired by Imagent and, in June 1996, certain of the assets of Octo, an imaging
company, were acquired by Imagent. Microfilm and Octo have been physically
integrated into Imagent.
The aggregate consideration for Sacramento, Microfilm Associates and Octo
consisted of approximately $7.5 million in cash.
EMPLOYEES
As of May 31, 1996, the Company had approximately 1,359 full-time
employees, 218 of whom were employed primarily in management and administration.
In addition, the Company utilized the services of approximately 171 part-time
and 82 temporary employees. As of such date, the Company had 135 employees
represented by a labor union. The Company considers its relations with its
employees to be good.
PROPERTY AND EQUIPMENT
The Company operates 41 document management service facilities. Except as
noted, all of these facilities are leased and are principally used for
operations and general administrative functions. The chart below summarizes the
Company's facilities.
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<TABLE>
<CAPTION>
APPROXIMATE
LOCATION OF FACILITY SQUARE FOOTAGE FUNCTION
- ---------------------------- -------------- ----------------------------------------
<S> <C> <C>
Imagent
Baltimore, MD 12,000 Film Processing Lab, Supplies Warehouse
and Administrative Offices
Baltimore, MD 18,000 Microfilming and Imaging Operation
Baltimore, MD 3,000 Warehouse
Philadelphia, PA 2,000 Film Processing Lab
Claymont, DE 2,000 Film Processing Lab
Falls Church, VA 2,000 Film Processing Lab
Richmond, VA 2,000 Film Processing Lab
Roanoke, VA 1,000 Film Processing Lab
Researchers
San Francisco, CA 11,000 Microfilming, Imaging and Administrative
Offices
San Francisco, CA 8,000 Copying Operation
San Jose, CA 3,500 Records Retrieval Operation
San Jose, CA 1,000 Equipment Repair
Sacramento, CA 2,000 Records Retrieval Operation
Los Angeles, CA 2,000 Copying, Microfilming and Imaging
Operation
Palo Alto, CA 1,734 Overnight Copy Center
Recordex
Malvern, PA 6,000 Administrative Offices
DPAS
San Francisco, CA 10,000 Database Services and Administrative
Offices
San Francisco, CA 15,000 Mail Services
San Francisco, CA 1,400 Storage
Tamal, CA 1,500 Data Entry and Assembly Services
Leonard
Detroit, MI(1) 80,000 Archive Storage and Administrative
Offices
Detroit, MI 120,000 Archive Storage
Detroit, MI 20,000 Archive Storage
Detroit, MI 20,000 Archive Storage
Detroit, MI 500 Service Center
Farmington Hills, MI 45,000 Archive Storage
Ann Arbor, MI 16,000 Archive Storage
Ann Arbor, MI 10,000 Archive Storage
Toledo, OH 63,000 Archive Storage
Toledo, OH 20,000 Archive Storage
Deliverex
San Jose, CA 27,000 Medical Records Storage and
Administrative Offices
San Jose, CA 18,000 Medical Records Storage
San Jose, CA 12,500 Medical Records Storage
Hayward, CA 40,000 Medical Records Storage
Sacramento, CA 41,000 Off-Site Records Management
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION OF FACILITY SQUARE FOOTAGE FUNCTION
- ---------------------------- -------------- ----------------------------------------
<S> <C> <C>
Permanent Records
Ft. Worth, TX 22,000 Medical Records Microfilming, Storage
and Administrative Offices
B&B
Marlboro, Maryland(1) 30,000 Administrative Office, Warehouse and
Production
Premier
Seattle, WA 4,644 Administrative Office, Processing Center
and Medical Records Reproduction
Tacoma, WA 217 Warehouse and Production Hub
Spokane, WA 400 Processing Center and Production Hub
San Jose, CA 500 Production, Processing Center and
Warehouse
Cook
San Jose, CA 17,388 Administrative Office and Legal Copy
Operations
Santa Rosa, CA 2,578 Copy Operations
Sacramento, CA 2,650 Copy Operations
Fresno, CA 2,534 Copy Operations
Culver City, CA 3,372 Copy Operations
</TABLE>
- ---------------
(1) Owned facility.
The Company also operates on-site at over 155 client locations on a
contractual basis and from time to time at many other client locations for
specific projects.
The aggregate lease or rental expense for the Company was approximately
$2.2 million during 1995. See Note 8 of Notes to Combined Financial Statements
of the Founding Companies for further information relating to these leases. In
March 1996, the Company occupied its new premises for its corporate headquarters
in Dallas, Texas, consisting of approximately 4,700 square feet.
The Company believes that its properties are generally well maintained, in
good condition and adequate for its present needs. Furthermore, the Company
believes that suitable additional or replacement space will be available when
required.
The Company owns or leases under both financial and capital leases
substantial computer, scanning and imaging equipment which it believes to be
adequate for its current needs. Additionally, the Company owns or leases
approximately 87 cars or trucks of various types.
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of these actions
will have a material adverse effect on the financial condition or results of
operations of the Company.
Recordex is one of several defendants in one federal and three state
lawsuits contesting the reasonableness of the fees charged for medical records
reproduction. The plaintiffs in these cases are seeking class certification. In
November 1994, the plaintiff's motion for class certification and all other
claims were denied in the federal lawsuit. The plaintiffs filed an appeal in
January 1995. On April 4, 1996, the Court of Appeals affirmed the decision in
favor of the Company on the substantive claims, but remanded the case to the
District Court for a hearing on the individual plaintiff's request for
injunctive relief. In February 1996, one of the remaining Pennsylvania lawsuits
was concluded favorably to the Company. While the outcome of the remaining
litigation is uncertain, the Company believes that Recordex has meritorious
defenses to these
36
<PAGE> 39
claims, and that there will not be a material adverse effect on the Company's
financial position or results of operations as a result thereof.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that: (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water as well as handling
and disposal practices for solid and hazardous wastes; or (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposal or other releases of solid wastes and hazardous substances.
The Company is currently unaware of any environmental conditions relating
to present or past waste generation at or from these facilities that would be
likely to have a material adverse effect on the financial condition of results
of operations of the Company. However, there can be no assurance that
environmental liabilities in the future will not have a material adverse effect
on the financial condition or results of operations of the Company.
Statements throughout this Prospectus that state the Company's or
management's intentions, hopes, beliefs, anticipations, expectations or
predictions of the future are forward-looking statements. It is important to
note that the Company's actual results could differ materially from those
projected in such forward-looking statements. Additional information concerning
factors that could cause actual results to differ materially from those in the
forward-looking statements is contained under "Risk Factors."
37
<PAGE> 40
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- -------------------------------------------------
<S> <C> <C>
Thomas C. Walker(3)(4)...... 63 Chairman of the Board and Chief Development
Officer
Ed H. Bowman, Jr.(3)(5)..... 49 President and Chief Executive Officer; Director
Robert C. Irvine............ 47 Executive Vice President and Chief Financial
Officer
David Lowenstein(3)......... 34 Executive Vice President -- Corporate Development
and Acquisitions; Director
Margot T. Lebenberg......... 28 Vice President, Secretary and General Counsel
G. Michael Bellenghi(3)..... 48 Chairman -- Recordex; Director
Jerry F. Leonard, Jr.(4).... 56 President -- Leonard; Director
Greg Melanson(5)............ 43 President -- Researchers; Director
Jonathan B. Shaw(5)......... 41 President -- Imagent; Director
Michael J. Bradley(1)(2).... 51 Director
Donald F. Moorehead,
Jr.(1)(2)................. 45 Director
Hon. Edward M.
Rowell(1)(2)(4)........... 64 Director
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Executive Committee.
(4) Member of Nominating Committee.
(5) Member of Technology Committee.
At the annual meeting of stockholders, directors will be elected by the
holders of the Common Stock to succeed those directors whose terms are expiring.
All officers serve at the discretion of the Board of Directors. See
"-- Employment Agreements; Covenants-Not-to-Compete."
Thomas C. Walker has been Chairman of the Board and Chief Development
Officer of F.Y.I. since its inception in September 1994 and November 1995,
respectively. From September 1994 until November 1995, Mr. Walker held the
positions of President and Chief Executive Officer of F.Y.I. From August 1991 to
December 1994, Mr. Walker was Vice President, Corporate Development, of Laidlaw
Waste Systems, Inc., a subsidiary of Laidlaw, Inc., a waste management company,
where he was responsible for its acquisition and divestiture program in the
United States and Mexico. From May 1989 until he joined Laidlaw Waste Systems,
Inc., Mr. Walker was President of Thomas C. Walker Associates, Inc., a company
providing merger, acquisition and financial consulting services focusing on the
waste management industry. During his career, Mr. Walker has been responsible
for the acquisition or divestiture of over 100 businesses over a 29-year period.
Mr. Walker holds a B.S. degree in Industrial Engineering from Lafayette College.
In May 1989, Mr. Walker resigned from a senior executive position with a
former employer and received a severance payment under the terms of his
employment agreement. In July 1989, such employer commenced a proceeding in
bankruptcy and after emerging from such proceeding and in connection with its
liquidation, sought to recover Mr. Walker's severance payment as a preference
claim. Mr. Walker litigated this claim but ultimately entered into a judgment
requiring him to make significant payments to his former employer. In April
1993, Mr. Walker filed a voluntary petition in bankruptcy in order to discharge
such judgment and two mortgage notes relating to two condominiums in Dallas, the
holders of which were unwilling to renegotiate the terms of the mortgages. Mr.
Walker did not seek any other relief from creditors, and the bankruptcy was
discharged in February 1994.
38
<PAGE> 41
Ed H. Bowman, Jr. has been President and Chief Executive Officer and a
Director of F.Y.I. since November 1995. From May 1993 to June 1995, Mr. Bowman
was Executive Vice President and Chief Operating Officer of the Health Systems
Group of First Data Corporation, a financial services company. Mr. Bowman was
responsible for day to day operations of research and development, marketing and
customer services. From 1983 to 1993, Mr. Bowman served in a number of
marketing, customer service and research and development executive positions for
HBO & Company, last serving as Executive Vice President of the STAR Business
Unit with responsibility for domestic operations. Prior to joining HBO &
Company, Mr. Bowman was with Andersen Consulting for 10 years. Mr. Bowman holds
an M.S. from Georgia Institute of Technology and a B.B.A. from Georgia State
University.
Robert C. Irvine has been Executive Vice President and Chief Financial
Officer of F.Y.I. since January 1996. From February 1991 until joining the
Company, Mr. Irvine served as Executive Vice President, Secretary/Treasurer,
Chief Financial Officer and a Director of McNeil Real Estate Management, Inc.
and a Vice President of McNeil Investors, an affiliated entity. Mr. Irvine was
Executive Vice President -- Chief Financial Officer of Johnstown Management,
Inc., an affiliate of Southmark Corporation, from June 1989 through February
1991. From 1986 to 1989, Mr. Irvine held several financial positions with
Southmark Corporation, including Vice President, Corporate Development. Prior to
1986, Mr. Irvine was an acquisition specialist with Mason Best, a merchant
banking firm, and a Senior Manager with Price Waterhouse. Mr. Irvine earned his
B.A. and M.B.A. degrees from Tulane University and is a C.P.A.
David Lowenstein has been Executive Vice President -- Corporate Development
and Acquisitions and a Director of F.Y.I. since February 1995. Prior to joining
the Company, Mr. Lowenstein served, since February 1994, as Vice President,
Business Development of Laidlaw Waste Systems, Inc., with overall responsibility
for Laidlaw Waste System's acquisition and divestiture program in North America.
From April 1990 until February 1994, Mr. Lowenstein served in a variety of
capacities, including Director -- Corporate Development, for Laidlaw, Inc. From
November 1988 to March 1990, he served as a business analyst for Tricil, Ltd., a
solid and hazardous waste company that was acquired by Laidlaw, Inc. in 1990.
Mr. Lowenstein has been responsible for the acquisition or divestiture of over
30 businesses in North America and Europe. Mr. Lowenstein holds a B.A. degree in
Economics from Sir Wilfred Laurier University and an M.S. degree in Public and
Business Administration from Carnegie Mellon University. Mr. Lowenstein is a
citizen of the Dominion of Canada residing in the United States.
Margot T. Lebenberg has been Vice President, Secretary and General Counsel
of F.Y.I. since June 1996. From 1992 until joining the Company, Ms. Lebenberg
was an associate at Morgan, Lewis & Bockius LLP in New York where she practiced
law primarily in the areas of securities and mergers and acquisitions. Ms.
Lebenberg holds a B.A. degree in Economics and History from the State University
of New York at Binghamton and a J.D. degree from Fordham University School of
Law.
G. Michael Bellenghi has been a director since the closing of the Offering,
is a principal of Paragon, a healthcare consulting firm, and has served as
Chairman of the Board, Vice President and Secretary of Recordex since December
1990. Prior to joining Recordex, Mr. Bellenghi served as Partner-in-Charge and
Director of Deloitte & Touche's Philadelphia office Healthcare Practice for 10
years. Mr. Bellenghi has also served as a graduate professor in Financial
Management of Healthcare Institutions at LaSalle University. Mr. Bellenghi is a
director of Home Health Corporation of America, Inc., a public company. Mr.
Bellenghi is a certified public accountant and holds a B.A. degree in Accounting
from LaSalle University.
Jerry F. Leonard, Jr. has been a director since the closing of the Offering
and has been the President and Chief Executive Officer of Leonard since 1968.
Mr. Leonard has been active in the data storage business for over 27 years.
Greg Melanson has been a director since the closing of the Offering and has
been Chairman of the Board, President and Chief Executive Officer of Researchers
since 1978. Mr. Melanson has been in the litigation support services business
since 1975. Mr. Melanson holds a B.A. degree from the University of Southern
California.
39
<PAGE> 42
Jonathan B. Shaw has been a director since the closing of the Offering and
has been Chairman of the Board, President and Chief Executive Officer of Imagent
since 1990. Mr. Shaw has been active with Imagent for 16 years. Mr. Shaw
attended the University of Vermont and George Washington University.
Michael J. Bradley has been a director since the closing of the Offering.
Since January 1991, Mr. Bradley has served as a principal of Paragon and as a
member of the Board of Directors of Recordex. Mr. Bradley has also been
Executive Vice President of Mercy Health Corporation of Southeast Pennsylvania
since May 1994. Prior to joining Mercy Health Corporation, Mr. Bradley served as
President and Chief Executive Officer of several healthcare organizations,
including Thomas Jefferson University Hospital and North Philadelphia Health
System, both of which are located in Philadelphia, and the Columbia Presbyterian
Medical Center in New York City. Mr. Bradley is a certified public accountant
and holds a B.S. degree in Business Administration from Drexel University.
Donald F. Moorehead, Jr. has been a director of the Company since January
1995. Since June 1995, Mr. Moorehead has been Vice Chairman of the Board and
Chief Development Officer of U.S.A. Waste Services, Inc., a national waste
management company whose shares are listed on the New York Stock Exchange. From
May 1994 until June 1995, he was Chairman of the Board and Chief Development
Officer of U.S.A. Waste Services and from September 1990 to May 1994, served as
its Chairman of the Board and Chief Executive Officer. Mr. Moorehead was
Chairman of the Board and Chief Executive Officer of Mid-American Waste Systems,
Inc., from its inception in December 1985 until August 1990 and continued as a
director until February 1991. From 1977 until 1984, Mr. Moorehead served in
various management positions with Waste Management, Inc. Mr. Moorehead holds a
B.S. degree in Engineering from the University of Tulsa.
Hon. Edward M. Rowell has been a director since the closing of the
Offering. From April 1990 to August 1994, Mr. Rowell served as the United States
Ambassador to Luxembourg. Mr. Rowell also served from January 1988 to April 1990
as the United States Ambassador to Portugal and from August 1985 to January 1988
as the Ambassador to Bolivia. Mr. Rowell is currently Vice President of the
American Foreign Service Association, an organization dedicated to the
protection and advancement of United States interests abroad. Mr. Rowell is also
an associate of Global Business Access, Ltd., a private trade development firm
in Washington, D.C. Mr. Rowell holds a B.A. degree in International Relations
from Yale University and was a Sloan Executive Fellow at the Stanford University
Graduate School of Business.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company will receive a fee of $1,500 for attendance at each Board of
Director's meeting and $1,000 for each committee meeting (unless held on the
same day as a Board of Director's meeting) and an initial grant of nonqualified
options to purchase 10,000 shares of Common Stock. Non-employee directors will,
beginning with the first annual meeting of the Company's stockholders, receive
annual grants of nonqualified options to purchase 5,000 shares of Common Stock.
See "-- Stock Option Plan." All directors of the Company are reimbursed for
out-of-pocket expenses incurred in their capacity as directors of the Company.
EXECUTIVE COMPENSATION
F.Y.I. was incorporated in September 1994 and, prior to the Offering, did
not conduct any operations. The Company anticipates that during fiscal 1996 its
most highly compensated officers and their annualized base salaries will be: Mr.
Bowman -- $200,000, Mr. Walker -- $150,000, Mr. Irvine -- $150,000, Mr.
Bellenghi -- $150,000, Mr. Melanson -- $150,000, Mr. Shaw -- $140,000, Mr.
Lowenstein -- $120,000, Ms. Lebenberg -- $100,000 and Mr. Leonard -- $100,000
(collectively, the "named executive officers"). Each named executive officer has
entered into an employment agreement with the Company or a subsidiary thereof
commencing on completion of the Offering, except that Messrs. Bowman, Walker,
Irvine, Lowenstein and Lebenberg commenced employment with F.Y.I. in November
1995, December 1994, January 1996, February 1995 and May 1996, respectively. See
"-- Employment Agreements; Covenants-Not-To-Compete." Pursuant to such
employment agreements, each such officer is eligible to earn additional year-end
bonus
40
<PAGE> 43
compensation. From January 1 through December 31, 1995, Messrs. Walker and
Lowenstein had been paid cash compensation from F.Y.I. of $150,000 and $130,000,
respectively.
EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
Mr. Bowman, Mr. Irvine and Ms. Lebenberg entered into employment agreements
with F.Y.I. dated as of November 1995, January 1996 and July 1996, respectively.
Messrs. Walker and Lowenstein entered into employment agreements with F.Y.I. in
December 1994 and February 1995, respectively. Messrs. Bellenghi, Melanson, Shaw
and Leonard entered into employment agreements with the Company which commenced
on the date of the Offering. Pursuant to such agreements, each of such persons
receives an annual base salary and is eligible for additional year-end bonus
compensation. Each employment agreement is for a term of three years and
automatically renews at the end of its initial term (and each succeeding term)
for an additional one year, unless terminated or not renewed by the Company or
the employee.
Each of the employment agreements provides that, in the event of a
termination of employment by the Company without cause, such employee shall be
entitled to receive from the Company such employee's then current salary for the
greater of one year (two years in the case of Messrs. Bowman, Irvine, Walker,
Lowenstein and Lebenberg) or whatever period is remaining under the term of the
agreement. In the event of a change in control of the Company, if the employee
has not received notice 15 days prior to the event resulting in such change of
control that such employee's employment will be continued by the successor to
the Company, it shall be deemed a termination without cause, except that the
amount of the lump-sum payment to be made to such employee shall be triple the
amount ordinarily due upon a termination without cause. In addition, in the
event of a change in control of the Company, each employee may elect to
terminate his employment agreement and receive 150% of the amount ordinarily due
upon a termination without cause.
Each employment agreement contains a covenant-not-to-compete with the
Company for a period of two years following termination of employment, provided
that: (i) in the event of a termination of employment by the Company without
cause, the term of the covenant-not-to-compete contained in the employment
agreement will be shortened to one year; and (ii) in the event of a change in
control of the Company wherein the employee does not receive notice 15 days
prior to the event resulting in such change of control of the continuation of
such employee's employment, the covenant-not-to-compete shall not apply. If
applicable law reduces the time period during which the employee is prohibited
from competing with the Company, the covenant-not-to-compete shall be reduced to
the maximum period permitted by law.
STOCK OPTION PLAN
In October 1995, the Board of Directors and F.Y.I.'s stockholders approved
the Company's 1995 Stock Option Plan (the "Plan") which became effective on the
date of the Offering. The purpose of the Plan is to provide directors, officers
and key employees with additional incentives by increasing their ownership
interests in the Company. Directors, officers and other key employees of the
Company and its subsidiaries are eligible to participate in the Plan. Awards may
also be granted to consultants providing valuable services to the Company. In
addition, individuals who have agreed to become a key employee or consultant,
and key employees and consultants of entities that are expected to become
subsidiaries, are eligible for option grants, conditional in each case on actual
employment, consultant or subsidiary status. Awards of options to purchase
Common Stock may include incentive stock options ("ISOs") and/or non-qualified
stock options ("NQSOs").
The Plan also provides for automatic option grants to directors who are not
otherwise employed by the Company or its subsidiaries. Upon commencement of
service (or upon agreeing to serve in the case of the initial non-employee
directors), a non-employee director will receive a nonqualified option to
purchase 10,000 shares of Common Stock, and continuing non-employee directors
will receive annual options to purchase 5,000 shares of Common Stock. Options
granted to non-employee directors become exercisable one-third on the date of
grant and one-third on each of the next two anniversaries of the date of grant.
Non-employee directors' options have a term of five years from the date of
grant.
41
<PAGE> 44
The maximum number of shares of Common Stock that may be subject to
outstanding options, determined immediately after the grant of any option, is
the greater of 650,000 shares or 12% of the aggregate number of shares of the
Company's Common Stock outstanding, provided, however, that options to purchase
no more than 650,000 shares of Common Stock may be granted as ISOs.
The Company has outstanding nonqualified options to purchase a total of
472,500 shares of Common Stock granted in November 1995 at $13.00 per share
(including options granted to non-employee directors of the Company). The
outstanding options, other than those granted to non-employee directors, are
generally exercisable after July 21, 1996 as to 20% of the underlying shares,
and as to an additional 20% on each of the next four anniversaries of the date
of option grant. In November 1995, the Company granted to Mr. Bowman a warrant
to purchase 100,000 shares of Common Stock at $10.00 per share. The warrant is
exercisable as to 50% on January 26, 1998 and as to the remaining 50% on January
26, 1999. In January 1996, the Company granted to Mr. Irvine a warrant to
purchase 50,000 shares of Common Stock at $13.00 per share. The warrant is
exercisable as to 50% on January 26, 1998 and as to the remaining 50% on January
26, 1999. Since the Offering, the Company has granted an additional option to
purchase an additional 55,500 shares of Common Stock to its key employees. In
May 1996, the Company granted Mr. Bowman an additional warrant (the "Additional
Warrant") to purchase 50,000 shares of Common Stock at $20.00 per share. The
Additional Warrant is exercisable as to 50% on May 21, 1998 and as to the
remaining 50% on May 21, 1999.
Additional nonqualified options to purchase 70,000 shares of Common Stock
were granted at fair market value at the date of grant in connection with the
B&B and Premier acquisitions in May 1996, and nonqualified options to purchase
20,000 shares of Common Stock were granted at fair market value at the date of
grant in connection with the Cook acquisition in June 1996.
No options were granted during fiscal year 1994. The following table sets
forth certain information concerning the grant of options and warrants to
purchase Common Stock of the Company in 1995 to Mr. Bowman and in 1996 to Mr.
Irvine and Ms. Lebenberg. None of the other named executives has been granted
options or warrants.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
TOTAL OF STOCK PRICE APPRECIATION
OPTIONS/ OPTIONS AND FOR OPTION/WARRANT TERM(1)
WARRANT WARRANTS EXERCISE --------------------------------
NAME GRANTED OUTSTANDING PRICE EXPIRATION DATE 0% 5%
---- -------- ----------- -------- --------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ed H. Bowman, Jr. (options)............ 80,000 9.8% $13.00 (2) $ -- $654,048 $1,657,496
Ed H. Bowman, Jr. (warrant)............ 100,000 12.3% $10.00 (3) $300,000 $874,960 $1,660,000
Ed H. Bowman, Jr. (warrant)............ 50,000 6.2% $20.00 (4) $ [--] $407,100 $ 948,717
Robert C. Irvine (options)............. 40,000 4.9% $13.00 (2) $ -- $327,024 $ 828,748
Robert C. Irvine (warrant)............. 50,000 6.2% $13.00 (3) $ -- $287,475 $ 680,000
Margot T. Lebenberg (options).......... 45,000 5.5% $16.00 (2) $ [--] $452,804 $1,147,495
</TABLE>
- ---------------
(1) These values have been determined based on assumed rates of appreciation
and are not intended to forecast the possible future appreciation
mandated by rules of the Commission, if any, of the price or value of the
Company's Common Stock.
(2) The options will expire 10 years from the date of grant.
(3) Fifty percent of the warrants expire in 2003 and the remaining 50% of the
warrants expire in 2004.
(4) May 21, 2003.
OFFICER AND DIRECTOR LIABILITY
Pursuant to the Company's Certificate of Incorporation and under Delaware
law, directors of the Company are not liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty, except for liability in
connection with a breach of duty of loyalty, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, for
dividend payments or stock repurchases illegal under Delaware law or any
transaction in which a director has derived an improper personal benefit.
42
<PAGE> 45
In accordance with Delaware law, the Company entered into indemnification
agreements with its directors, pursuant to which it agreed to pay certain
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement incurred by such directors in connection with certain actions, suits
or proceedings. These agreements require directors to repay the amount of any
expenses advanced if it shall be determined that they shall not have been
entitled to indemnification.
The Company maintains liability insurance for the benefit of its directors
and officers.
43
<PAGE> 46
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Company's Common Stock by: (i) each person known to the Company
to be the beneficial owner of 5% or more thereof; (ii) each director; (iii) each
named executive officer; and (iv) all executive officers and directors as a
group. The address of each person listed below is c/o F.Y.I. Incorporated, 3232
McKinney Avenue, Suite 900, Dallas, Texas 75204. All persons listed have sole
voting and investment power with respect to their shares unless otherwise
indicated.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY PERCENTAGE
NAME OWNED OWNERSHIP
--------------------------------------------------------- ------------ ----------
<S> <C> <C>
Greg Melanson............................................ 613,260 11.1%
Thomas C. Walker......................................... 337,590 6.1
Jerral W. Jones Family Limited Partnership............... 301,420 5.5
David Lowenstein......................................... 265,250 4.8
Jonathan B. Shaw......................................... 265,198 4.8
Jerry F. Leonard, Jr..................................... 253,274 4.6
Michael J. Bradley(1).................................... 68,196 1.2
G. Michael Bellenghi..................................... 66,196 1.2
Donald F. Moorehead, Jr.(2).............................. 62,284 1.1
Ed H. Bowman, Jr.(3)..................................... 26,000 *
Margot T. Lebenberg(4)................................... 9,200 *
Robert C. Irvine(5)...................................... 8,000 *
Hon. Edward M. Rowell(6)................................. 2,000 *
All executive officers and directors as a group (12
persons)(7)............................................ 1,976,448 35.8%
</TABLE>
- ---------------
* Represents less than 1%.
(1) Does not include 8,000 shares which may be acquired upon the exercise of
options not exercisable within 60 days.
(2) Does not include 8,000 shares which may be acquired upon the exercise of
options not exercisable within 60 days.
(3) Includes 10,000 shares which Mr. Bowman purchased directly from the
Underwriters in the Offering and does not include 214,000 shares which may
be acquired upon the exercise of options and warrants not exercisable within
60 days.
(4) Does not include 36,000 shares which may be acquired upon the exercise of
options not exercisable within 60 days.
(5) Does not include 82,000 shares which may be acquired upon the exercise of
options and warrants not exercisable within 60 days.
(6) Does not include 8,000 shares which may be acquired upon the exercise of
options exercisable within 60 days.
(7) Includes 10,000 shares which Mr. Bowman purchased directly from the
Underwriters in the Offering and does not include 356,000 shares which may
be acquired upon the exercise of options and warrants not exercisable within
60 days.
44
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 26,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of preferred stock,
par value $.01 per share (the "Preferred Stock"). As of July 1, 1996, the
Company had outstanding 5,522,867 shares of Common Stock and no shares of
Preferred Stock and had 39 record holders of Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of the Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefore. See "Dividends." Holders of Common Stock are entitled to
share ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of Common Stock have no preemptive
rights to purchase shares of stock of the Company. Shares of Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of the Company. All outstanding shares of Common Stock are, and the
shares of Common Stock to be issued hereby will be upon payment therefor, fully
paid and non-assessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Certificate of Incorporation and limitations prescribed by law,
the Board of Directors is expressly authorized to adopt resolutions to issue the
shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the stockholders. The Company has no current plans to issue any shares of
Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of
45
<PAGE> 48
the corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is: (i) the owner of 15% or more of the outstanding
voting stock of the corporation; or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, by action of
its stockholders, to exempt itself from coverage, provided that such bylaw or
certificate of incorporation amendment shall not become effective until 12
months after the date it is adopted. The Company has not adopted such an
amendment to its Certificate of Incorporation or By-laws.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.
46
<PAGE> 49
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
Between September 1994 and September 1995, F.Y.I. issued 1,205,682 shares
of Common Stock at an aggregate purchase price of $1,225,000 to certain founding
stockholders including Thomas C. Walker, David Lowenstein and Jerry Jones.
In connection with the Acquisitions, and as consideration for their
interests in the Founding Companies, certain officers, directors and holders of
more than 5% of the outstanding shares of the Company received cash and shares
of Common Stock of the Company as follows: Mr. Melanson -- $2,475,000 and
613,260 shares of Common Stock; Mr. Leonard -- $1,250,000 and 253,274 shares of
Common Stock; Mr. Shaw -- $1,200,000 and 265,198 shares of Common Stock; Mr.
Bellenghi -- $103,000 and 66,196 shares of Common Stock; and Mr.
Bradley -- $103,000 and 66,196 shares of Common Stock. For a description of the
transactions pursuant to which the Company was formed. See
"Business -- Organization."
The Company has repaid approximately $4,106,000 of indebtedness of the
Founding Companies, of which approximately $2,212,000 directly or indirectly
benefited officers, directors or greater than 5% stockholders of the Company as
follows: Mr. Melanson -- approximately $417,000; Mr. Shaw -- approximately
$155,000; Mr. Leonard -- approximately $1.2 million; Mr. Bellenghi -- $205,000;
and Mr. Bradley -- $205,000. In each case, such person was previously either a
direct obligor or a guarantor of such indebtedness.
The Company has an option to acquire an additional start-up document
management business owned by Mr. Melanson, and Mr. Melanson has an option to
require the Company to purchase such business at such time as its annual pre-tax
profits exceed $550,000. In either event, the consideration payable to Mr.
Melanson will consist of the Company's Common Stock with a value equal to six
times the amount of such pre-tax profits. For the ten months ending October 31,
1995 the pre-tax loss of such business was $26,000. Consequently, it is unlikely
that the Company will be purchasing such business during fiscal 1996.
WARRANT TO PURCHASE COMMON STOCK
In November 1995, the Company granted to Mr. Bowman a warrant to purchase
100,000 shares of Common Stock at $10.00 per share. In January 1996, the Company
granted to Mr. Irvine a warrant to purchase 50,000 shares of Common Stock at
$13.00 per share. These warrants are exercisable as to 50% on January 26, 1998
and as to the remaining 50% on January 26, 1999. In May 1996, the Company
granted to Mr. Bowman the Additional Warrant to purchase 50,000 shares of Common
Stock at $20.00 per share. The Additional Warrant is exercisable as to 50% on
May 21, 1998 and as to the remaining 50% on May 21, 1999.
REAL ESTATE TRANSACTIONS
Leonard leases two properties from Leonard Investments, a partnership
consisting of Mr. Leonard and his father. The aggregate rental expenses for
these properties were approximately $127,000, $126,000 and $127,000 for the
three years ended December 31, 1993, 1994 and 1995, respectively. The Company
also leases one other facility from Mr. Leonard's father. The rental expenses
for this property were approximately $62,000 for each of the three years ended
December 31, 1993, 1994 and 1995, respectively. The Company believes that the
amounts paid for such properties do not exceed the fair market rental thereof.
Researchers leases office facilities and certain equipment from Mr.
Melanson. The total lease payments to Mr. Melanson were $187,000, $177,000 and
$242,000 for the three years ended December 31, 1993, 1994 and 1995,
respectively. Researchers is also required to pay the taxes and insurance on the
properties. The Company believes that the amounts paid for such properties do
not exceed the fair market rental thereof.
CERTAIN LOANS
At December 31, 1995, two companies in which Mr. Leonard and his relatives
owned 78% and 33% of the outstanding shares, respectively, were obligated to
Leonard in the amount of $259,000.
47
<PAGE> 50
COMPANY POLICY
In the future, transactions with affiliates of the Company are anticipated
to be minimal and will be approved by a majority of the Board of Directors,
including a majority of the disinterested members of the Board of Directors, and
will be made on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 5,522,867 shares of Common Stock. The 2,185,000
shares sold in the Offering are freely tradeable without restriction unless
purchased by affiliates of the Company. The 253,252 outstanding shares issued in
connection with the B&B and Premier acquisitions are subject to contractual
restrictions on the transfer therefor. These contractual restrictions expire two
years from the date of issuance and may only be resold in compliance with Rule
145 under the Securities Act. None of the remaining 3,084,615 outstanding shares
of Common Stock (collectively, the "Restricted Shares") has been registered
under the Securities Act, which means that they may be resold publicly only upon
registration under the Securities Act or in compliance with an exemption from
the registration requirements of the Securities Act, including the exemption
provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of the acquisition of restricted shares of
Common Stock from the Company or any affiliate of the Company, the acquiror or
subsequent holder thereof may sell, within any three-month, a number of shares
that does not exceed the greater of 1% of the then outstanding shares of the
Common Stock, or the average weekly trading volume of the Common Stock on the
Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the proposed sale is sent to the Commission. Sales under Rule
144 are also subject to certain manner of sale provisions, notice requirements
and the availability of current public information about the Company. If three
years have elapsed since the later of the date of the acquisition of restricted
shares of Common Stock from the Company or any affiliate of the Company, a
person who is not deemed to have been an affiliate of the Company at any time
for 90 days preceding a sale would be entitled to sell such shares under Rule
144 without regard to the volume limitations, manner of sale provisions or
notice requirements.
The Company has agreed not to offer or sell any shares of Common Stock
until July 21, 1996 (the "Lock-up Period") without the prior written consent of
Montgomery Securities, except that the Company may issue Common Stock in
connection with acquisitions or upon the exercise of options. Further, all of
the stockholders of the Company, including the former owners of the Founding
Companies, are contractually prohibited by the Company from selling such shares
until at least January 26, 1998 (other than certain sales registered under the
Securities Act). The Company has agreed that it will not waive such prohibition
during the Lock-up Period without the prior written consent of Montgomery
Securities.
Sales of substantial amounts of the Common Stock in the public market could
adversely affect prevailing market prices and the ability of the Company to
raise equity capital in the future.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus has been passed upon for the Company by Morgan, Lewis & Bockius LLP,
101 Park Avenue, New York, New York 10178.
48
<PAGE> 51
EXPERTS
The audited financial statements of F.Y.I.; Imagent Corporation and Related
Company; Melanson and Associates, Inc. and Related Company; C. & T. Management
Services, Inc. and Related Company; Leonard Archives, Inc.; Deliverex,
Incorporated and Subsidiary and Related Company and Permanent Records, Inc. for
the three years ended December 31, 1995 or the applicable fiscal year-ends
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports. The audited Combined Financial Statements of the
Founding Companies for the three years ended December 31, 1995, included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report. In this report, Arthur Andersen LLP states that with respect to Recordex
Services, Inc., as of and for the two years in the period ended December 31,
1994, its opinion is based on the report of other independent public
accountants, namely Elko, Fischer, McCabe & Rudman, Ltd. The audited financial
statements for Recordex Services, Inc. for the year ended December 31, 1995
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report. The audited financial statements for Recordex
Services, Inc. for the two years ended December 31, 1994 included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Elko, Fischer, McCabe & Rudman, Ltd., independent public accountants, as
indicated in their report with respect thereto. The financial statements are
included herein in reliance upon the authority of said firms as experts in
giving said reports.
The financial statements of B & B Information and Image Management, Inc. as
of December 31, 1994 and 1995 have been included herein in reliance on the
reports of C.W. Amos & Company, LLC, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
auditing and accounting.
The financial statements of Premier Document Management, Inc. as of
December 31, 1995 have been included herein in reliance on the reports of Moss
Adams LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in auditing and accounting.
The financial statements of Robert A. Cook and Staff, Inc. for the three
years ended December 31, 1995 included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
49
<PAGE> 52
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza Building,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and its regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials can be obtained from the Commission at
Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549, at prescribed
rates.
The Company has filed with the Commission, Washington, D.C., a Registration
Statement under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is made
to such Registration Statement and exhibits. A copy of the Registration
Statement on file with the Commission may be obtained from the Commission's
principal office in Washington, D.C. upon payment of the fees prescribed by the
Commission.
The Company's Common Stock is listed on the Nasdaq National Market. Proxy
statements and other information concerning the Company can also be inspected at
the offices of the Nasdaq National Market, 1735 K Street, Washington D.C. 20006.
50
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
F.Y.I. INCORPORATED
Report of Independent Public Accountants........................................... F-3
Balance Sheet as of December 31, 1995 and Consolidated Balance Sheet as of March
31, 1996........................................................................ F-4
Consolidated Statements of Operations.............................................. F-5
Consolidated Statements of Cash Flows.............................................. F-6
Notes to Consolidated Financial Statements......................................... F-7
FOUNDING COMPANIES
Report of Independent Public Accountants........................................... F-11
Report of Independent Public Accountants........................................... F-12
Combined Balance Sheets............................................................ F-13
Combined Statements of Operations.................................................. F-14
Combined Statements of Stockholders' Equity........................................ F-15
Combined Statements of Cash Flows.................................................. F-16
Notes to Combined Financial Statements............................................. F-17
IMAGENT CORPORATION AND RELATED COMPANY
Report of Independent Public Accountants........................................... F-30
Combined Balance Sheets............................................................ F-31
Combined Statements of Operations.................................................. F-32
Combined Statements of Stockholders' Equity........................................ F-33
Combined Statements of Cash Flows.................................................. F-34
Notes to Combined Financial Statements............................................. F-35
MELANSON AND ASSOCIATES, INC. AND RELATED COMPANY
Report of Independent Public Accountants........................................... F-40
Combined Balance Sheets............................................................ F-41
Combined Statements of Operations.................................................. F-42
Combined Statements of Stockholders' Equity........................................ F-43
Combined Statements of Cash Flows.................................................. F-44
Notes to Combined Financial Statements............................................. F-45
RECORDEX SERVICES, INC.
Report of Independent Public Accountants........................................... F-51
Report of Independent Public Accountants........................................... F-52
Balance Sheets..................................................................... F-53
Statements of Operations........................................................... F-54
Statements of Changes in Stockholder's Equity...................................... F-55
Statements of Cash Flows........................................................... F-56
Notes to Financial Statements...................................................... F-57
LEONARD ARCHIVES, INC.
Report of Independent Public Accountants........................................... F-63
Combined Balance Sheets............................................................ F-64
Combined Statements of Operations.................................................. F-65
Combined Statements of Stockholder's Equity........................................ F-66
Combined Statements of Cash Flows.................................................. F-67
Notes to Combined Financial Statements............................................. F-68
</TABLE>
F-1
<PAGE> 54
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
C. & T. MANAGEMENT SERVICES, INC. AND RELATED COMPANY
Report of Independent Public Accountants........................................... F-74
Combined Balance Sheets............................................................ F-75
Combined Statements of Operations.................................................. F-76
Combined Statements of Stockholders' Equity........................................ F-77
Combined Statements of Cash Flows.................................................. F-78
Notes to Combined Financial Statements............................................. F-79
DELIVEREX, INCORPORATED AND SUBSIDIARY AND RELATED COMPANY
Report of Independent Public Accountants........................................... F-84
Combined Balance Sheets............................................................ F-85
Combined Statements of Operations.................................................. F-86
Combined Statements of Stockholders' Equity........................................ F-87
Combined Statements of Cash Flows.................................................. F-88
Notes to Combined Financial Statements............................................. F-89
PERMANENT RECORDS, INC.
Report of Independent Public Accountants........................................... F-95
Balance Sheets..................................................................... F-96
Statements of Operations........................................................... F-97
Statements of Stockholders' Equity................................................. F-98
Statements of Cash Flows........................................................... F-99
Notes to Financial Statements...................................................... F-100
NEW ACQUISITIONS
COOK AND STAFF, INC. AND RELATED COMPANY
Report of Independent Public Accountants........................................... F-103
Balance Sheets..................................................................... F-104
Statements of Operations........................................................... F-105
Statements of Stockholder's Equity................................................. F-106
Statements of Cash Flows........................................................... F-107
Notes to Financial Statements...................................................... F-108
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
Report of Independent Public Accountants........................................... F-111
Balance Sheets..................................................................... F-112
Statements of Operations........................................................... F-113
Statements of Stockholder's Equity................................................. F-114
Statements of Cash Flows........................................................... F-115
Notes to Financial Statements...................................................... F-116
PREMIER DOCUMENT MANAGEMENT, INC.
Report of Independent Public Accountants........................................... F-120
Balance Sheets..................................................................... F-121
Statements of Operations........................................................... F-122
Statements of Stockholder's Equity................................................. F-123
Statements of Cash Flows........................................................... F-124
Notes to Financial Statements...................................................... F-125
PRO FORMA FINANCIAL STATEMENTS
F.Y.I. INCORPORATED AND SUBSIDIARIES
Pro Forma Balance Sheet -- March 31, 1996 (unaudited).............................. F-132
Pro Forma Statement of Operations for the Year Ended December 31, 1995
(unaudited)..................................................................... F-133
Pro Forma Statement of Operations for the Three Months Ended March 31, 1996
(unaudited)..................................................................... F-134
Notes to Pro Forma Financial Statements (unaudited)................................ F-135
</TABLE>
F-2
<PAGE> 55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To F.Y.I. Incorporated:
We have audited the accompanying balance sheet of F.Y.I. Incorporated (a
Delaware corporation) as of December 31, 1995. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of F.Y.I. Incorporated as of December
31, 1995, in accordance with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 15, 1996
F-3
<PAGE> 56
F.Y.I. INCORPORATED AND SUBSIDIARIES
BALANCE SHEET AS OF DECEMBER 31, 1995
AND CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 52 $10,037
Accounts receivable and notes receivable, less allowance.......... -- 8,369
Accounts receivable, officers and employees....................... -- 77
Inventory......................................................... -- 349
Prepaid expenses and other current assets......................... 52 499
------ -------
Total current assets...................................... 104 19,331
PROPERTY, PLANT AND EQUIPMENT, net.................................. 15 5,116
GOODWILL, DEFERRED OFFERING COSTS AND OTHER INTANGIBLES............. 2,190 1,749
ACCOUNTS RECEIVABLE, OFFICER-LONG TERM.............................. -- 644
OTHER NONCURRENT ASSETS............................................. 6 559
------ -------
Total assets.............................................. $2,315 $27,399
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.......................... $1,101 $ 7,155
Short-term obligations............................................ -- 47
Current maturities of long-term obligations....................... -- 227
------ -------
Total current liabilities................................. 1,101 7,429
LONG-TERM OBLIGATIONS,
net of current maturities......................................... -- 634
DEFERRED INCOME TAXES,
net of current portion............................................ -- 129
------ -------
Total liabilities......................................... 1,101 8,192
------ -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $.01 par value, 1,000,000 and 0 shares
authorized, 9,000 and 0 shares issued and outstanding at
December 31, 1995 and March 31, 1996, respectively............. -- --
Preferred stock, $.01 par value, 1,000,000 shares authorized, 0
shares issued and outstanding.................................. -- --
Common stock, $.01 par value, 26,000,000 shares authorized,
663,125 and 5,269,615 shares issued and outstanding at December
31, 1995 and March 31, 1996, respectively...................... 7 53
Additional paid-in-capital........................................ 1,207 18,756
Retained earnings................................................. -- 398
------ -------
Total stockholders' equity................................ 1,214 19,207
------ -------
Total liabilities and stockholders' equity........... $2,315 $27,399
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 57
F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1995 1996
--------- ---------
<S> <C> <C>
REVENUE:
Service revenue...................................................... $-- $ 7,407
Product revenue...................................................... -- 913
Other revenue........................................................ -- 93
--- -------
Total revenue................................................ -- 8,413
COST OF SERVICES....................................................... -- 4,701
COST OF PRODUCTS SOLD.................................................. -- 718
DEPRECIATION........................................................... -- 212
--- -------
Gross profit................................................. -- 2,782
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........................... -- 2,253
--- -------
Operating income............................................. -- 529
OTHER (INCOME) EXPENSE:
Interest expense..................................................... -- 14
Interest income...................................................... -- (106)
Other................................................................ -- (39)
--- -------
Income before income taxes................................... -- 660
PROVISION FOR INCOME TAXES............................................. -- 262
--- -------
NET INCOME............................................................. $-- $ 398
=== =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............................. -- 5,286
=== =======
NET INCOME PER COMMON SHARE............................................ $-- $ .08
=== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 58
F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1995 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $ -- $ 398
Adjustments to reconcile net income to net cash provided by operating
activities
Amortization and depreciation..................................... -- 305
Change in operating assets and liabilities:
Accounts receivable............................................. -- (220)
Inventories..................................................... -- (51)
Prepaid expenses and other assets............................... -- 2,022
Accounts payable and accrued liabilities........................ -- 59
----- -------
Net cash provided by operating activities.................... -- 2,513
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............................ (4) (617)
Cash paid for acquisitions, net of cash received..................... -- (6,509)
----- -------
Net cash used for investing activities....................... (4) (7,126)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net of underwriting discounts
and other costs................................................... (128) 22,280
Proceeds from preferred stock issuance............................... 135 --
Principal payments on short-term obligations......................... -- (2)
Principal payments on long-term obligations.......................... -- (7,680)
----- -------
Net cash provided by financing activities.................... 7 14,598
NET INCREASE IN CASH AND CASH EQUIVALENTS.............................. 3 9,985
CASH AND CASH EQUIVALENTS, beginning of period......................... 669 52
----- -------
CASH AND CASH EQUIVALENTS, end of period............................... $ 672 $10,037
===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 59
F.Y.I. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
F.Y.I. Incorporated ("FYI" or the "Company") was founded in September 1994
to create a national company to provide document management services to
companies in various industries. FYI intends to acquire various local and
regional companies, complete an initial public offering ("IPO") of its common
stock and, subsequent to the IPO, continue to acquire, through merger or
purchase, similar companies to build a national publicly owned enterprise.
FYI's primary asset at December 31, 1995, is deferred offering costs. The
Company has not conducted any operations and all activities to date have related
to the acquisitions and the IPO. Funding for the deferred offering costs has
come from issuance of stock discussed in Note 2. The Company is dependent upon
the IPO to fund the pending acquisitions and future operations.
In October 1995, FYI and separate wholly owned subsidiaries signed
definitive agreements to acquire by merger seven companies ("Founding
Companies") to be effective with the closing of an initial public offering of
the common stock of FYI. The aggregate consideration that will be paid by FYI to
acquire the Founding Companies is approximately $35 million consisting of a
combination of cash and common stock. In addition, the preferred stock will be
converted to common stock.
Simultaneously with the closing of its initial public offering (the
"Offering") on January 23, 1996, FYI and separate wholly owned subsidiaries
acquired by merger (the "Merger") the Founding Companies located in California,
Maryland, Texas, Pennsylvania, and Michigan. The consideration for the stock of
the Founding Companies consisted of a combination of cash and common stock of
FYI.
In the opinion of FYI's management, the accompanying interim consolidated
financial statements include the accounts of the Company and all adjustments
necessary to present fairly the Company's financial position at March 31, 1996,
its results of operations for the three months ended March 31, 1996 and 1995,
and cash flows for the three months ended March 31, 1996, and 1995. All
significant intercompany accounts have been eliminated. Although the Company
believes that the disclosures are adequate to make the information presented not
misleading, certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These consolidated
financial statements should be read in conjunction with the combined financial
statements of the Founding Companies and the related notes thereto included
elsewhere in this Prospectus. The results of operations for the three month
periods ended March 31, 1996 and 1995, may not be indicative of the results for
the full year.
2. STOCKHOLDERS' EQUITY:
In connection with the organization and initial capitalization of FYI in
September 1994, FYI issued 602,841 shares of common stock at par value. In March
1995, 21,099 additional shares were issued as consideration for services
provided by a consultant. The shares were valued at $35,000, and a corresponding
amount was recorded in deferred offering costs. In September 1995, FYI issued an
additional 39,185 shares of common stock for $325,000.
In October 1994, FYI issued a total of 9,000 shares of Series A, 6%
cumulative, convertible, voting preferred stock ("Series A Preferred") for
proceeds of $900,000, net of offering costs of $46,000. The Series A Preferred
is convertible into common stock on a one for one basis (pre-split) at the
shareholders' discretion after a five-month holding period from the date of
issuance, and will be converted in connection with the IPO. All Series A
Preferred shares outstanding at December 31, 1995, were convertible. The Series
A Preferred is entitled to a 6% cumulative preference on any dividends paid by
FYI.
In October 1995, FYI outstanding common stock was split 60.28 for one. In
addition, FYI increased the number of authorized shares of preferred stock and
common stock to 1,000,000 shares and 26,000,000 shares,
F-7
<PAGE> 60
F.Y.I. INCORPORATED
NOTES TO BALANCE SHEET -- (CONTINUED)
respectively. The common stock split and shares authorized have been
retroactively reflected on the balance sheet and in the accompanying Notes.
In November 1995, the Company issued warrants to purchase 115,000 shares of
common stock at $10.00 per share. The warrants are exercisable as to 50% on the
second anniversary of the date of grant and as to the remaining 50% on the third
anniversary date of the grant.
In January 1996, the Company issued warrants to purchase 50,000 shares of
common stock at $13.00 per share. The warrants are exercisable as to 50% on the
second anniversary of the date of the grant and as to the remaining 50% on the
third anniversary date of the grant.
In October 1995, the Board of Directors and FYI's stockholders approved the
Company's 1995 Stock Option Plan (the "Plan") which will become effective on the
date of the Offering. Awards of options to purchase common stock may include
incentive stock options ("ISOs") and/or non-qualified stock options ("NQSOs").
The maximum number of shares of common stock that may be subject to outstanding
options, determined immediately after the grant of any option, is equal to the
greater of 650,000 shares or 12% of the aggregate number of shares of the
Company's common stock outstanding, provided, however, that options to purchase
no more than 650,000 shares of common stock may be granted as ISOs. In November
1995, the Company issued NQSOs to purchase a total of 472,500 shares of common
stock at the IPO price and in March 1996, the Company issued NQSOs to purchase
6,000 shares of common stock at $17.25 per share.
3. INITIAL PUBLIC OFFERING AND MERGER:
Initial Public Offering
On January 26, 1996, the FYI completed the Offering of 2,185,000 (including
the exercise of the underwriters' over-allotment option) shares of common stock
at $13.00 per share for proceeds, net of underwriting commissions and estimated
offering costs, of approximately $22.3 million. Of these net proceeds,
approximately $7.1 million was used to pay a portion of the consideration for
the Merger, and approximately $7.7 million was used to retire certain
indebtedness of the Founding Companies, and the remainder will be used for
future acquisitions and general corporate purposes.
Upon closing of the Offering, the Company converted the 9,000 shares of
Series A Preferred Stock into 542,557 shares of common stock.
Merger
Simultaneously with the closing of the Offering mentioned above, the
Company acquired the Founding Companies. The Company issued 1,878,933 shares of
common stock to the stockholders of the Founding Companies, in addition to the
consideration mentioned above, to effect the Merger.
F-8
<PAGE> 61
F.Y.I. INCORPORATED
NOTES TO BALANCE SHEET -- (CONTINUED)
Supplemental Data
The Statement of Operations Data for the three months ended March 31, 1995,
represents the unaudited results of the combined Founding Companies for the
period. The Supplemental Statement of Operations Data for the three months ended
March 31, 1996, represents a combination of: (i) Statement of Operations Data
for the combined operations of the Founding Companies for the three months ended
March 31, 1996, which represents the one month of operations prior to the
consummation of the Acquisitions; and (ii) Statement of Operations Data for
F.Y.I. Incorporated and Subsidiaries for the three months ended March 31, 1996,
which represents the results of operations subsequent to the consummation of the
Acquisitions. The supplemental data is provided for information purposes only
and does not purport to present the results of operations of the Company had the
transaction assumed therein occurred on or as of the dates indicated, nor is it
necessarily indicative of the results of operations which may be achieved in the
future.
<TABLE>
<CAPTION>
SUPPLEMENTAL
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
--------------- ---------------
1995 1996
--------------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue..................................... $10,000 $10,894
Product revenue..................................... 1,723 1,308
Other revenue....................................... 164 128
------- -------
Total revenue............................... 11,887 12,330
Cost of services.................................... 6,310 6,896
Cost of products sold............................... 1,422 1,026
Depreciation........................................ 305 303
------- -------
Gross profit................................ 3,850 4,105
Selling, general and administrative expenses........ 2,727 3,756
------- -------
Operating income............................ 1,123 349
Interest and other expenses (income), net........... 33 (176)
------- -------
Income before income taxes.......................... 1,090 525
Provision for income taxes.......................... 42 132
------- -------
Net income.......................................... $ 1,048 $ 393
======= =======
Founding Company Pro forma compensation
differential..................................... $ 256 $ 683
======= =======
Founding Company Pro forma selling, general and
administrative expenses.......................... 2,471 3,073
Founding Company Pro forma operating income......... 1,379 1,032
Founding Company Pro forma provision for taxes...... 444 351
Founding Company Pro forma net income............... 860 725
Founding Company Pro forma net income per share..... $ .16 $ .14
======= =======
Founding Company Pro forma weighted average shares
outstanding...................................... 5,286 5,286
</TABLE>
F-9
<PAGE> 62
F.Y.I. INCORPORATED
NOTES TO BALANCE SHEET -- (CONTINUED)
The number of shares (in thousands) used in calculating net income per
share and pro forma net income per share was determined as follows:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C>
Outstanding FYI shares after the Offering and the Merger................... 5,270
Warrants to purchase stock under the treasury stock method................. 16
-----
Number of shares used in pro forma net income per share
calculation..................................................... 5,286
=====
</TABLE>
4. SUBSEQUENT EVENT:
In April 1996, the Company entered into a credit agreement (the "Credit
Agreement") with a lending group (the "Lenders"). The Company may borrow up to
$35.0 million from time to time under the secured revolving credit and
acquisition facility, subject to certain customary borrowing capacity
requirements. The Company and its subsidiaries may borrow up to $30.0 million of
term loans under the Credit Agreement for acquisitions under prescribed
conditions. The Company and its subsidiaries may borrow revolving credit loans
up to $5.0 million under the Credit Agreement for working capital and general
corporate purposes. The commitment to fund revolving credit loans expires April
14, 2001. The commitment to fund term loans expires October 15, 1997. The annual
interest rate applicable to borrowing under this facility is, at the option of
the Company, (i) 1.50% plus the prime rate or (ii) 3.00% plus the Eurodollar
rate.
The Credit Agreement requires mandatory prepayments in certain
circumstances. The outstanding principal balance of term loans as of October 15,
1997 shall thereafter be due and payable in 14 equal quarterly payments
beginning January 15, 1998 and ending April 15, 2001. The outstanding principal
balance of revolving credit loans shall be due and payable on April 15, 2001.
The Company currently has no borrowings outstanding under this facility.
F-10
<PAGE> 63
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To F.Y.I. Incorporated:
We have audited the accompanying combined balance sheets of the Founding
Companies (Note 1) as of December 31, 1994 and 1995, and the related combined
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits. We did not audit the financial statements of Recordex
Services, Inc., as of and for the two years in the period ended December 31,
1994 which statements reflect total assets of 14% of the combined totals as of
December 31, 1994, and total revenues of 14% and 16% of the combined totals for
each of the two years in the period ended December 31, 1994. Those statements
were audited by other auditors whose report has been furnished to us and our
opinion, insofar as it relates to the amounts included for those entities, is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the combined financial position of the Founding Companies as of December 31,
1994 and 1995, and the results of their combined operations and their combined
cash flows for each of the three years in the period ended December 31, 1995, in
accordance with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 15, 1996
F-11
<PAGE> 64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Recordex Services, Inc.
Malvern, Pennsylvania
We have audited the accompanying balance sheet of Recordex Services, Inc.
(a wholly-owned subsidiary of Paragon Management Group, Inc.) as of December 31,
1994, and the related statements of operations, changes in stockholder's equity,
and cash flows for the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Recordex Services, Inc. (a
wholly-owned subsidiary of Paragon Management Group, Inc.) as of December 31,
1994, and the results of its operations and its cash flows for the two years
then ended in conformity with generally accepted accounting principles.
ELKO, FISCHER, McCABE & RUDMAN, LTD.
Certified Public Accountants
Media, Pennsylvania
September 15, 1995
F-12
<PAGE> 65
FOUNDING COMPANIES
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 1,056 $ 1,742
Accounts and notes receivable, less allowance for doubtful accounts
and notes of $677 and $562, respectively............................. 7,802 7,939
Accounts receivable, officer and employee............................... 971 692
Accounts receivable, affiliates......................................... 280 279
Inventory............................................................... 257 331
Current portion of deferred income taxes................................ 78 24
Prepaid and other current assets........................................ 216 320
------- -------
Total current assets............................................ 10,660 11,327
------- -------
PROPERTY AND EQUIPMENT, net............................................... 6,142 6,467
INTANGIBLE ASSETS, net of accumulated amortization
of $17 and $82, respectively............................................ 836 770
ACCOUNTS RECEIVABLE, OFFICERS -- LONG-TERM................................ 795 890
OTHER NONCURRENT ASSETS................................................... 262 193
NOTES RECEIVABLE, LONG-TERM............................................... 435 34
------- -------
Total assets.................................................... $19,130 $19,681
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities................................ $ 5,674 $ 5,587
Short-term obligations.................................................. 1,970 1,430
Current maturities of long-term obligations............................. 715 1,250
Officers payable -- short-term.......................................... 520 1,064
Unearned revenue........................................................ 377 333
Current portion of deferred income taxes................................ -- --
------- -------
Total current liabilities....................................... 9,256 9,664
------- -------
LONG-TERM OBLIGATIONS, net of current..................................... 3,107 2,738
LONG-TERM OBLIGATIONS -- AFFILIATES, net of current....................... 43 19
LONG-TERM OBLIGATIONS -- OFFICERS, net of current......................... 35 20
DEFERRED INCOME TAXES..................................................... 229 129
OTHER NONCURRENT LIABILITIES.............................................. 50 --
------- -------
Total liabilities............................................... 12,720 12,570
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock (Note 9)................................................... 173 173
Additional paid-in capital.............................................. 775 775
Retained earnings....................................................... 5,463 6,163
------- -------
6,411 7,111
Less -- Treasury stock, 10,000 shares in 1994, no par,
$1,000 assigned value................................................ 1 --
------- -------
Total stockholders' equity...................................... 6,410 7,111
------- -------
Total liabilities and stockholders' equity...................... $19,130 $19,681
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-13
<PAGE> 66
FOUNDING COMPANIES
COMBINED STATEMENTS OF OPERATIONS (NOTE 1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
REVENUES:
Service revenue............................................. $32,067 $36,081 $40,615
Product revenue............................................. 5,123 5,923 6,138
Other revenue............................................... 1,206 1,028 873
------- ------- -------
Total revenue....................................... 38,396 43,032 47,626
COST OF SERVICES.............................................. 20,318 23,650 25,937
COST OF PRODUCTS SOLD......................................... 4,464 4,892 4,972
DEPRECIATION.................................................. 883 1,055 1,238
------- ------- -------
Gross profit........................................ 12,731 13,435 15,479
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES................. 11,045 11,836 12,489
------- ------- -------
Operating income.................................... 1,686 1,599 2,990
OTHER (INCOME) EXPENSE:
Interest expense............................................ 339 388 492
Interest income............................................. (40) (84) (139)
Other....................................................... (51) (275) (214)
------- ------- -------
Income before income taxes.......................... 1,438 1,570 2,851
PROVISION FOR INCOME TAXES.................................... 218 211 163
------- ------- -------
NET INCOME.................................................... $ 1,220 $ 1,359 $ 2,688
======= ======= =======
PRO FORMA DATA (Unaudited -- See Note 3):
HISTORICAL NET INCOME......................................... $ 1,220 $ 1,359 $ 2,688
PRO FORMA COMPENSATION DIFFERENTIAL........................... 1,715 1,855 1,976
PRO FORMA PROVISION FOR INCOME TAXES.......................... 1,043 1,045 1,631
------- ------- -------
PRO FORMA NET INCOME.......................................... $ 1,892 $ 2,169 $ 3,033
======= ======= =======
PRO FORMA NET INCOME PER COMMON SHARE......................... $ .52 $ .60 $ .83
======= ======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING................................................. 3,644 3,644 3,644
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-14
<PAGE> 67
FOUNDING COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 1)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK TREASURY
---------------- PAID-IN RETAINED ---------------- STOCK TOTAL
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT SUBSCRIBED EQUITY
------- ------ ------- -------- ------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992....... 208,109 $173 $ 775 $ 3,850 10,000 $ (1) $ -- $ 4,797
Dividends declared............. -- -- -- (823) -- -- -- (823)
Adjustment to conform fiscal
year-ends of certain combined
companies.................... -- -- -- 29 -- -- -- 29
Net income..................... -- -- -- 1,220 -- -- -- 1,220
------- ---- ----- ------- ------- ---- ---- -------
BALANCE, December 31, 1993....... 208,109 173 775 4,276 10,000 (1) -- 5,223
Dividends declared............. -- -- -- (401) -- -- -- (401)
Adjustment to conform fiscal
year-ends of certain
combined companies........... -- -- -- 229 -- -- -- 229
Net income..................... -- -- -- 1,359 -- -- -- 1,359
------- ---- ----- ------- ------- ---- ---- -------
BALANCE, December 31, 1994....... 208,109 173 775 5,463 10,000 (1) -- 6,410
Reissuance of treasury stock... -- -- -- -- (10,000) 1 (1) --
Dividends declared............. -- -- -- (2,032) -- -- -- (2,032)
Adjustment to conform fiscal
year-ends of certain combined
companies.................... -- -- -- 44 -- -- 1 45
Net income..................... -- -- -- 2,688 -- -- -- 2,688
------- ---- ----- ------- ------- ---- ---- -------
BALANCE, December 31, 1995....... 208,109 $173 $ 775 $ 6,163 -- $ -- $ -- $ 7,111
======= ==== ===== ======= ======= ==== ==== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-15
<PAGE> 68
FOUNDING COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 1,220 $ 1,359 $ 2,688
Adjustment to reconcile net income to net cash provided
by operating activities-
Amortization and depreciation.......................... 995 1,115 1,302
Loss (gain) on sale-retirement of assets............... -- (38) (3)
Loss on investment..................................... -- 17 --
Deferred tax expense (benefit)......................... 39 (555) (60)
Changes in operating assets and liabilities-
Accounts receivable................................. (446) (1,058) 220
Prepaid expenses and other assets................... (54) (142) (53)
Stockholder receivable.............................. -- (272) 331
Inventory........................................... (164) 171 (74)
Accounts payable.................................... 557 1,366 (162)
Unearned revenue.................................... 74 94 (44)
Other.................................................. 77 (46) (62)
------- ------- -------
Net cash provided by operating activities...... 2,298 2,011 4,083
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................... (1,119) (1,734) (1,423)
Sale of property, plant and equipment....................... 40 203 76
Purchase of intangibles..................................... -- (438) --
Other, net.................................................. (70) (4) --
------- ------- -------
Net cash used for investing activities......... (1,149) (1,973) (1,347)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on short-term obligations................ (425) (578) (2,063)
Principal payments on long-term obligations................. (1,802) (443) (704)
Proceeds from short-term borrowing.......................... 427 1,068 1,825
Proceeds from long-term borrowings.......................... 1,605 316 642
Borrowings (payments) on line of credit..................... 155 38 219
Payment of dividends........................................ (823) (401) (2,032)
Advances to parent.......................................... (352) (98) --
Other, net.................................................. -- 78 55
Net change in cash due to conforming fiscal year-end........ (13) (104) 8
------- ------- -------
Net cash used for financing activities......... (1,228) (124) (2,050)
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. (79) (86) 686
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR..................................................... 1,221 1,142 1,056
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR...................... $ 1,142 $ 1,056 $ 1,742
======= ======= =======
SUPPLEMENTAL DATA:
Interest paid............................................... $ 334 $ 379 $ 486
Income taxes paid........................................... 55 67 296
NONCASH TRANSACTIONS:
Equipment acquired through capital lease obligations........ 117 310 $ 225
Sale of investment.......................................... -- 13 --
Acquisition of intangible assets with debt.................. -- 414 --
Note receivable received in connection with sale of
building................................................. 550 -- --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-16
<PAGE> 69
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Concurrently with the initial public offering of its common stock (the
"Offering"), F.Y.I. Incorporated ("FYI") will merge with the following seven
companies (the "Founding Companies"): Imagent Corporation and Mobile Information
Services ("Imagent"); Melanson and Associates, Inc. ("Melanson") dba Researchers
and Bay Area Micrographics ("Researchers"); Recordex Services, Inc. (a wholly
owned subsidiary of Paragon Management Group, Inc.) ("Recordex"); C.&T.
Management Services, Inc. dba DPAS, and Qualidata, Inc. dba The Mail House
("DPAS"); Leonard Archives, Inc. ("Leonard"); Deliverex, Incorporated ("DLX")
and Peninsula Records Management, a wholly owned subsidiary of DLX ("PRM"), and
an affiliate, ASK Record Management, Inc. ("ASK") (collectively "Deliverex");
and Permanent Records, Inc. ("Permanent"). The merger will be effected by FYI
through issuance of its common stock and cash.
The Founding Companies are providers of document management services to
three primary client groups: healthcare institutions, professional services
firms, and financial institutions.
2. BASIS OF PRESENTATION:
Simultaneously with the closing of the Offering, FYI and separate wholly
owned subsidiaries of FYI will merge with the Founding Companies (the
"Mergers"). The accompanying combined financial statements and related notes
represent the combined financial position, results of operations, and cash flows
of the Founding Companies excluding FYI without giving effect to the Mergers and
the Offering. The assets and liabilities of the Founding Companies are reflected
at their historical amounts. The Founding Companies were not under common
control or management during any of the periods presented.
Melanson has previously reported on a fiscal year ending July 31. As such,
the accounts of Melanson for its 1993 fiscal year has been combined with the
accounts of the other Founding Companies for the year ended December 31, 1993.
The fiscal 1994 and 1995 accounts of Melanson have been recast to a December 31
year-end and have been combined with the accounts of the other Founding
Companies for the years ended December 31, 1994 and 1995. The exclusion of
Melanson's net income for the period from August 1 through December 31, 1993, of
$229,000 is reflected as an adjustment to retained earnings in the December 31,
1994, combined statement of stockholders' equity. The results of operations
related to the adjustment to retained earnings for Melanson included revenues of
$3,820,000 and costs and expenses of $3,591,000 from August 1, through December
31, 1993.
Deliverex's affiliate, ASK, has previously reported on a fiscal year ending
December 31. DLX and PRM have previously reported on a fiscal year ending
September 30. The 1995 accounts of DLX and PRM have been recast to a December 31
year-end and have been combined with the accounts of the other Founding
Companies for the year ended December 31, 1995. The exclusion of DLX and PRM's
net income for the period from October 1 through December 31, 1994, of $44,000
is reflected as an adjustment to retained earnings in the December 31, 1995
combined statement of stockholders' equity. The results of operations related to
the adjustment to retained earnings for DLX and PRM included revenue of $553,000
and costs and expenses of $509,000 from October 1 through December 31, 1994.
The affiliate of Imagent Corporation, Mobile Information Services, had
previously reported on a fiscal year ending June 30 through fiscal 1992. As
such, the accounts of the affiliate for its 1992 fiscal year have been combined
with the accounts of the other Founding Companies for the years ended December
31, 1992. The exclusion of the affiliate's net income for the period from July 1
through December 31, 1992, of $29,000 is reflected as an adjustment to retained
earnings in the December 31, 1992, combined statement of stockholders' equity.
The results of operations related to the adjustment to retained earnings for the
affiliate of Imagent Corporation included revenues of $656,000 and costs and
expenses of $627,000 from July 1 through December 31, 1992.
F-17
<PAGE> 70
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Founding Companies consider highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates market value.
Inventory
Inventory is stated at the lower of cost or market with cost determined on
a first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
assets. Leasehold improvements are depreciated over the lesser of the useful
life or the term of the lease.
Intangible Assets
Intangible assets consist primarily of customer lists, acquired by a
founding company in October of 1994, which are amortized over 15 years. The
Founding Companies continually evaluate whether events and circumstances
indicate the remaining estimated useful life of intangible assets may warrant
revisions or that the remaining balance of intangibles or other long-lived
assets may not be recoverable. To make this evaluation, the Founding Companies
use an estimate of undiscounted net income over the remaining life of the
intangibles or other long-lived assets. The Financial Accounting Standards Board
has issued Statement of Financial Accounting Standard No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121), which established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill. Adoption is
required in financial statements for fiscal years beginning after December 15,
1995. FYI and the Founding Companies do not expect the adoption of SFAS 121 to
have any material effect on the combined financial statements. FYI and the
Founding Companies will adopt SFAS 121 in 1996.
Revenue Recognition
Revenues are recognized when the services are rendered, or products are
shipped, to the Founding Companies' customers. Unearned revenue represents
customer storage and certain services which are billed in advance.
Income Taxes
Income taxes are provided based upon the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," for the
Founding Companies that are C corporations for income tax purposes, which
requires recognition of deferred income taxes under the asset and liability
method.
Certain of the Founding Companies are S corporations or a sole
proprietorship for income tax purposes and, accordingly, any income tax
liabilities are the responsibility of the respective owners. The historical
combined net income of the Founding Companies includes no provision for income
taxes of the S corporations or sole proprietorship.
Deferred income taxes are provided for temporary differences in the
recognition of revenues and expenses for tax and financial reporting purposes.
Temporary differences result primarily from accelerated depreciation and
amortization for tax purposes, deferred contract revenues being taxed when
billed, cash basis of
F-18
<PAGE> 71
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
accounting for tax purposes versus accrual basis accounting for financial
reporting purposes, and various accruals and reserves being deductible for tax
purposes in different periods.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to make their
presentation consistent with the current year.
Pro Forma Net Income (Unaudited)
The Founding Companies have been managed throughout the periods presented
as independent private companies and represent a variety of tax structures (S
corporation, C corporation, and sole proprietorship). Therefore, selling,
general, and administrative expenses for the periods presented reflect
compensation and related benefits that owners and certain key employees received
from their respective businesses during these periods. These owners and key
employees have agreed to certain reductions in salaries and benefits in
connection with the Mergers. Each stockholder (other than one Paragon Management
Group stockholder) has entered into a three year employment agreement with FYI
which contains a set base salary, participation in any future FYI incentive
plans, four weeks vacation, car allowance, health benefits, and a two-year
covenant-not-to-compete following termination of such person's employment. The
employment agreements provide for the following compensation levels by company:
<TABLE>
<CAPTION>
COMPANY COMPENSATION
------- ------------
<S> <C>
Imagent......................................................... $ 250,000
Researchers..................................................... 250,000
Recordex........................................................ 300,000
DPAS............................................................ 220,000
Leonard......................................................... 100,000
Deliverex....................................................... 247,000
Permanent....................................................... 120,000
----------
$1,487,000
==========
</TABLE>
The unaudited pro forma data presents compensation at the level the
officers and owners of the Founding Companies have agreed to receive subsequent
to the Offering. In addition, the pro forma data presents the provision for
income taxes as if all entities had been subject to federal and state income
taxes and adjusted for the impact of the compensation differential discussed
above.
Pro Forma Net Income Per Share (Unaudited)
The computation of pro forma net income per share is based upon 3,643,538
weighted average shares of common stock outstanding, which includes (i)
1,205,682 shares to be issued with the conversion of FYI preferred stock to
common stock and the stock split of FYI common stock at the date of the
registration statement filing, (ii) 1,878,933 shares to be issued to the
stockholders of the Founding Companies in connection with the Mergers, (iii)
543,000 shares being sold in the Offering to cover the cash portion of the
F-19
<PAGE> 72
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
purchase price (based upon the Offering price of $13 per share) and (iv) 15,923
shares of common stock determined pursuant to the treasury stock method relating
to warrants to purchase 115,000 shares of common stock granted at $10.00 per
share. Does not include (i) an additional 650,000 shares of common stock
reserved for issuance under F.Y.I.'s 1995 Stock Option Plan, of which options to
purchase 478,500 shares of common stock are currently outstanding, and (ii) a
warrant outstanding to purchase 50,000 shares of common stock.
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE:
The activity in the allowance for doubtful accounts and notes receivable is
as follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year Ended December 31, 1993
Allowance for doubtful accounts........ $599 $715 $ (572) $742
==== ==== ====== ====
Year Ended December 31, 1994
Allowance for doubtful accounts........ $742 $835 $ (900) $677
==== ==== ====== ====
Year Ended December 31, 1995
Allowance for doubtful accounts........ $677 $710 $ (825) $562
==== ==== ====== ====
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -------------------
YEARS 1994 1995
------------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Land................................................ N/A $ 415 $ 415
Buildings and improvements.......................... 7-18 2,203 2,194
Leasehold improvements.............................. 5-10 452 477
Vehicles............................................ 5-7 1,114 1,163
Machinery and equipment............................. 5-15 8,223 9,589
Furniture and fixtures.............................. 5-15 382 500
------- -------
12,789 14,338
Less -- Accumulated depreciation and amortization... 6,647 7,871
------- -------
$ 6,142 $ 6,467
======= =======
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable and accrued liabilities........................... $3,298 $3,255
Accrued compensation and benefits.................................. 731 827
Sales tax payable.................................................. 119 94
Income tax payable................................................. 907 818
Other accrued liabilities.......................................... 619 593
------ ------
$5,674 $5,587
====== ======
</TABLE>
F-20
<PAGE> 73
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. CREDIT FACILITIES:
Short-Term Obligations
Short-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Researchers
Bank line of credit -- expiring October 10, 1996, limited to
$425,000, interest payable monthly at prime plus 1.5% (10% and
10.5% at December 31, 1994 and 1995, respectively), guaranteed by
the
shareholder...................................................... $ 395 $ 213
Recordex
Bank line of credit, limited to $300,000, interest payable
monthly at the bank's prime plus 0.75% (10.25% and 10.5% at
December 31, 1994 and 1995, respectively), secured by all
assets........................................................... 143 250
DPAS
Bank line of credit, limited to $300,000, interest payable
monthly at
prime plus 1% (9.5% and 10.75% at December 31, 1994 and 1995,
respectively).................................................... 300 253
Trust deed payable on demand; monthly payment of $6,000 including
principal and interest at the bank's index rate plus 1.5% (11%
and 11.25% at December 31, 1994 and 1995, respectively), maturing
January 15, 1998; secured by first trust deed on commercial
property......................................................... 197 144
Note payable -- bank payable on demand, monthly payment of $8,000
plus accrued interest at prime plus 2% (10.5% and 10.75% at
December 31, 1994 and 1995, respectively), maturing December
1996, secured by non-real estate assets of DPAS.................. 200 100
Note payable -- bank, payable on demand, monthly payment of
$5,000 plus accrued interest at prime plus 2% (10.5% and 11% at
December 31, 1994 and 1995, respectively), maturing January 1996,
secured by non-real estate assets of DPAS........................ 60 --
Leonard
Bank demand note, expiring June 1999, interest at prime plus
0.75% (9.25% at December 31, 1994), secured by accounts
receivable and machinery and equipment........................... 119 --
Bank master equipment line of credit, each borrowing payable on
demand and is termed-out over 36 equal monthly payments, accrued
interest at prime plus 0.75% (9.25% at December 31, 1994),
payable monthly, secured by accounts receivable and machinery and
equipment........................................................ 242 --
</TABLE>
F-21
<PAGE> 74
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Bank demand master equipment note, monthly payment of $5,000 plus
accrued interest at prime plus 0.75% (9.25% at December 31,
1994), matures 1999, secured by accounts receivable and machinery
and equipment.................................................... $ 265 $ --
Bank working capital line of credit, payable on demand, accrued
interest at prime plus 1.25% (9.75% at December 31, 1995),
secured by a first security interest in all accounts receivable,
machinery, and equipment, and a personal guarantee by the
stockholder...................................................... -- 316
Deliverex
Bank line of credit, limited to $50,000, at prime plus a premium,
as defined by the outstanding principal balance (14% and 12.25%
at December 31, 1994 and 1995), no defined expiration date....... 46 39
Permanent
Bank line of credit, expiring on January 6, 1996, limited to
$175,000, interest at the bank's base rate, as defined, plus 1%
(10.5% at December 31, 1995), secured by accounts receivable,
inventory, equipment and fixtures, and life insurance policy..... 3 115
------ ------
Total short-term obligations............................. $1,970 $1,430
====== ======
</TABLE>
The weighted average interest rate on borrowings under the lines of credit
were approximately 7.50%, 9.75%, and 10.21% for the years ended December 31,
1993, 1994, 1995, respectively. The prime rate was 6%, 8.5%, and 8.5% at
December 31, 1993, 1994, and 1995.
Officers payable -- Short-term
Officers payable-short term consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Leonard
Note payable -- stockholder, payable on demand, accrued interest at
8.75%, unsecured................................................. $ -- $500
DPAS
Note payable -- stockholder, payable on demand, accrued interest at
9.0%, unsecured.................................................. $504 $546
</TABLE>
F-22
<PAGE> 75
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Term Obligations
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------ --------
(IN THOUSANDS)
<S> <C> <C>
Imagent
Noninterest-bearing note payable to Micrographics Services,
$200,000 due May 1, 1995, remainder due on February 1, 1996.... $ 414 $ 194
Researchers
Mortgage payable -- bank, monthly payment of $4,000 through
July 1994, $5,000 from August 1994 through maturity date of
July 2003; payment includes principal and interest at bank's
reference index plus 4% (9.45% and 9.25% at December 31, 1994
and 1995, respectively), secured by deed of trust on real
property....................................................... 565 561
Note payable -- bank, monthly payment of $2,000 plus accrued
interest at prime plus 1.75% (9.25% and 10.5% at December 31,
1994 and 1995, respectively), maturity date of September 15,
1998, unsecured................................................ 74 54
Note payable -- bank, monthly payment of $2,000 plus accrued
interest at prime plus 1.5% (9.25% and 10.25% at December 31,
1994 and 1995, respectively) maturing October 15, 1999,
guaranteed by the stockholder.................................. 97 77
Note payable -- bank, monthly payment of $5,000 through
maturity of November 2025; payment includes principal and
interest at 8%, secured by deed of trust on real property...... 738 739
Note payable -- bank, monthly payment of $2,000 plus accrued
interest at prime plus 1.75% (9.25% and 10.5% at December 31,
1994 and 1995, respectively); maturing September 15, 1997,
guaranteed by the stockholder.................................. 55 35
Note payable -- Xerox, monthly payment of $1,000, including
principal and interest at 15.5%, maturing November 1999,
secured by Xerox equipment..................................... 45 33
Recordex
Notes payable -- monthly payment of $4,000 plus accrued
interest at prime plus 1% (10.5% and 10.75% at December 31,
1994 and 1995, respectively), maturing December 1996, secured
by all assets.................................................. 96 42
Notes payable -- bank, monthly payment of $1,000 plus interest
at prime plus 1% (10.5% and 10.75% at December 31, 1994 and
1995, respectively), maturing April 1, 1997, secured by all
assets......................................................... 39 22
Note payable -- bank, monthly payment of $4,000 plus accrued
interest at prime plus 1% (10.5% and 10.75% at December 31,
1994 and 1995, respectively), maturing June 30, 1998; secured
by all assets.................................................. 140 128
</TABLE>
F-23
<PAGE> 76
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------ --------
(IN THOUSANDS)
<S> <C> <C>
Leonard
Mortgage payable, monthly payment of $9,000, including
principal and interest at prime plus .75% (9% and 9.5% at
December 31, 1994 and 1995, respectively), maturing October 1,
1996; secured by a first mortgage on the land, building and
certain equipment, guaranteed by the stockholder and former
stockholder.................................................... 562 504
Mortgage payable -- bank, monthly payment of $8,000, including
principal and interest at prime plus 1.25% (9.75% at December
31, 1995), maturing December 1, 2000, secured by a second
mortgage on the land, building, and certain equipment, and
guaranteed by the stockholder.................................. -- 600
Deliverex
Notes payable -- Small Business Administration, monthly payment
of $3,000, including principal and interest at 4%, maturing
November 17, 2014, secured by deed of trust on real estate and
non-real estate assets of the Company, guaranteed by the
stockholder and the stockholder's wife......................... 430 410
Capital lease obligations........................................ 351 424
All other obligations............................................ 120 85
------ --------
Total.................................................. 3,726 3,908
Less -- Current maturities of long-term obligations.............. 619 1,170
------ --------
Total long-term obligations............................ $3,107 $ 2,738
====== ========
</TABLE>
Certain short-term and long-term obligations contain warranties and
covenants and require maintenance of certain financial ratios of certain
Founding Companies.
As of December 31, 1995, all Founding Companies have complied with their
loan covenants.
Long-Term Obligations -- Affiliates
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Leonard
Note payable, monthly payment of $1,185, including principal and
interest at prime plus 1% (9.5% at December 31, 1994 and 1995,
respectively), maturing in 1998, unsecured.......................... $ 38 $26
Note payable -- Affiliate, interest payable annually at prime plus
1% (9.5% at December 31, 1994 and 1995, respectively), maturing
December 31, 1995, unsecured........................................ 69 59
Other................................................................. 32 14
---- ---
139 99
Less -- Current maturities of long-term obligations................. 96 80
---- ---
Total long-term obligations to affiliates................... $ 43 $19
==== ===
</TABLE>
F-24
<PAGE> 77
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Term Obligations -- Officer
DPAS has a 12% interest-bearing stockholder note payable totaling $51,000
and $38,000 at December 31, 1994 and 1995, respectively. Current maturities of
this note totaling $16,000 and $18,000 at December 31, 1994 and 1995,
respectively, have been included as Officers Payable -- Short-Term.
Maturities of Long-Term Obligations
Maturities of long-term obligations are as follows (In Thousands):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31
------------
<S> <C>
1996............................................................ $1,268
1997............................................................ 370
1998............................................................ 250
1999............................................................ 139
2000............................................................ 471
2001 and thereafter............................................. 1,547
------
Total................................................. $4,045
======
</TABLE>
8. LEASE COMMITMENTS:
The Founding Companies lease various office buildings, machinery,
equipment, and vehicles. Future minimum lease payments under capital leases and
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
---------------------
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1996.............................................................. $ 221 $ 1,967
1997.............................................................. 148 2,061
1998.............................................................. 76 1,899
1999.............................................................. 29 1,663
2000.............................................................. 12 1,065
2001 and thereafter............................................... -- 4,673
----- -------
Total minimum lease payments...................................... 486 $13,328
=======
Less -- Amounts representing interest............................. 62
-----
Net minimum lease payments........................................ 424
Less -- Current portion of obligations under capital leases....... 183
-----
Long-term portion of obligations under capital leases............. $ 241
=====
</TABLE>
Rent expense for all operating leases for the years ended December 31,
1993, 1994, and 1995, was $1,972,000, $2,227,000, and $2,219,000, respectively.
F-25
<PAGE> 78
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCKHOLDERS' EQUITY:
The common stock authorized, issued, and outstanding of the Founding
Companies consists of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Imagent
Common stock, class A and B, $10 par value, 7,500 shares authorized,
400 shares issued, and common stock, no par value, 100 shares
authorized and issued............................................... $ 21 $ 21
Researchers
Common stock, no par, 75,000 shares authorized, 556 shares issued
and outstanding..................................................... 2 2
Recordex
Common stock, $1 par value, 1,000 shares authorized, issued and
outstanding......................................................... 1 1
DPAS
Common stock, $1 par value and no par, 125,000 shares authorized,
3,100 shares issued and outstanding................................. 4 4
Leonard
Common stock, $10 par value, 8,500 shares authorized, 4,293 shares
outstanding......................................................... 43 43
Deliverex
Common stock, no par value, 510,000 shares authorized, 107,000
shares issued at stated value....................................... 10 10
Permanent
Common stock, $1 par value, 100,000 shares authorized, 91,660 shares
issued and outstanding.............................................. 92 92
---- ----
Total....................................................... $173 $173
==== ====
</TABLE>
In December 1994, ASK approved the reissuance of 10,000 shares of treasury
stock to its minority stockholder. Compensation expense of $1,000 was recorded
at the date of approval in 1994, equivalent to the estimated value of the shares
at the approval date. The shares were reissued on January 1, 1995.
10. EMPLOYEE BENEFIT PLANS:
Certain of the Founding Companies have qualified defined contribution
employee benefit plans (the "Plans"), the majority of which allow for voluntary
pretax contributions by employees. The Founding Companies pay all general and
administrative expenses of the Plans and in some cases, the Founding Companies
make matching and discretionary contributions to the Plans. The Founding
Companies offer no postemployment or postretirement benefits. The expenses
incurred related to the Plans by the Founding Companies were $36,000, $63,000,
and $82,000 for the years ending December 31, 1993, 1994, and 1995,
respectively.
F-26
<PAGE> 79
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES:
The provision for federal and state income taxes consists of the following
(In Thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED DECEMBER 31,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Federal --
Current..................................................... $120 $593 $172
Deferred.................................................... 39 (440) (40)
State --
Current..................................................... 43 173 51
Deferred.................................................... 16 (115) (20)
---- ---- ----
$218 $211 $163
==== ==== ====
</TABLE>
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following (In Thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED DECEMBER 31,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate......................................... $489 $534 $969
Add (deduct) --
State income taxes.......................................... 35 37 23
Effect of graduated tax rates............................... (10) (26) (26)
Income of S corporations.................................... (318) (339) (809)
Other, net.................................................. 22 5 6
---- ---- ----
$218 $211 $163
==== ==== ====
</TABLE>
The components of deferred income tax liabilities and assets are as follows
(In Thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
DECEMBER 31,
--------------
1994 1995
---- ----
<S> <C> <C>
Deferred income tax liabilities-
Tax over book depreciation and amortization........................ $116 $129
Accrual to cash differences, net................................... 690 381
Other, net......................................................... 7 --
---- ----
Total deferred income tax liabilities...................... 813 510
Deferred income tax assets-
Allowance for doubtful accounts.................................... 149 159
Other reserves, net................................................ 502 192
Other, net......................................................... 11 54
---- ----
Total deferred income tax assets........................... 662 405
---- ----
Total net deferred income tax liabilities............................ $151 $105
==== ====
Current deferred tax asset........................................... $(78) $(24)
Long-term deferred tax liabilities................................... 229 129
---- ----
$151 $105
==== ====
</TABLE>
F-27
<PAGE> 80
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. RELATED-PARTY TRANSACTIONS:
Leasing Transactions
Leonard leases its operating facilities from Leonard Investments and a
former stockholder. These leases are for various lengths and annual amounts. The
rental expense for these operating leases for the years ended December 31, 1993,
1994, and 1995, was approximately $189,000, $188,000, and $189,000,
respectively. Leonard also has obligations to Leonard Investments. Leonard
Investments is a partnership owned by the stockholder and former stockholder of
Leonard.
Researchers leases office facilities in Sacramento and San Francisco,
California, along with certain equipment from the Researcher's principal
shareholder. The leases provide for lease terms on a month-to-month basis as
well as over five to ten-year periods commencing on August 1, 1991, through July
31, 2001, with monthly lease payments of $2,000 to $9,000. The total lease
payments to the Researcher's principal shareholder for these operating leases
for the years ended July 31, 1993, and December 31, 1994 and 1995, was
approximately $187,000, $177,000, and $242,000, respectively. The lease
agreements provide that the Researchers pay all related taxes and insurance.
Permanent entered into an agreement to lease a building, beginning on July
1, 1995, from Permanent's stockholders. Lease expense per year will be
approximately $90,000.
Other Transactions
Researchers purchases digital coding services from an affiliated entity,
Researchers LLC. Researchers' principal shareholder has a controlling interest
in Researchers LLC. During the years ended December 31, 1994 and 1995,
Researcher's incurred expenses of $28,000 and $11,000, and had billings to
Researchers LLC of approximately $4,000 and $40,000.
Receivables and Advances
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Accounts receivable, officer and employee --
Deliverex -- noninterest bearing................................. $ 315 $ 315
Leonard -- noninterest bearing................................... 14 67
Researchers -- noninterest bearing............................... 642 310
------ ------
971 692
Accounts receivable, affiliates --
Leonard -- noninterest bearing................................... 280 259
Researchers -- noninterest bearing............................... -- 20
------ ------
280 279
------ ------
Accounts receivable, officers -- long-term --
Deliverex -- noninterest bearing................................. 74 74
Recordex -- noninterest bearing.................................. 721 816
------ ------
795 890
------ ------
Total related-party receivables.......................... $2,046 $1,861
====== ======
</TABLE>
Leonard has guaranteed a promissory note in the principal amount of
approximately $636,000 as of December 31, 1995, with interest at 10%, payable in
monthly installments in varying amounts through December 1, 2004. The promissory
note is from the stockholder to the former joint owner in Leonard.
F-28
<PAGE> 81
FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Leonard's guarantee and security interest are subordinate to all other notes
payable to the bank and the Detroit Economic Growth Council.
13. COMMITMENTS AND CONTINGENCIES:
Litigation
The Founding Companies are, from time to time, a party to litigation
arising in the normal course of their business, most of which involve claims for
workers compensation, unemployment and property damage incurred in connection
with its operations. Management of the Founding Companies believes that none of
this litigation will have a material adverse effect on the combined financial
position or combined results of operations of the Founding Companies.
Recordex is one of several defendants in a federal and three state lawsuits
contesting the reasonableness of the fees charged for medical records release
services. The plaintiffs in these cases are seeking class certification. In
November 1994, the plaintiff's motion for class certification and all other
claims were denied in the federal lawsuit. The plaintiffs filed an appeal on
January 3, 1995. On April 4, 1996, the Court of Appeals affirmed the decision in
favor of the Company on the substantive claims, but remanded the case to the
District Court for a hearing on the individual plaintiff's request for
injunctive relief. In February 1996, one of the Pennsylvania lawsuits was
concluded favorably to the Company. While the outcome of the remaining
litigation is uncertain, management of Recordex believes that it has meritorious
defenses, and there will not be a material effect on its financial position or
results of operations.
Employment Agreements
Researchers has employment agreements with certain personnel to pay
specific amounts annually. The employment agreements provide for a total annual
compensation amount of $595,000 to be disbursed to certain personnel of
Researchers in accordance with the terms of each employee's employment
agreement.
Concentration of Credit Risk
Financial instruments that potentially subject the Founding Companies to
concentration of credit risk consist primarily of cash and cash equivalents and
trade receivables. The Founding Companies maintain cash and cash equivalents and
certain other financial instruments at various major financial institutions
across many geographic areas. Credit risk on trade receivables is minimized as a
result of the large number of entities comprising the Founding Companies'
customer base and their dispersion across many industries and geographic areas.
14. SUBSEQUENT EVENTS:
In October 1995, FYI entered into definitive agreements to acquire the
Founding Companies. On January 26, 1996, the Founding Companies were acquired by
FYI and separate wholly owned subsidiaries, effective with the closing of the
Offering of 2,185,000 shares of FYI common stock.
F-29
<PAGE> 82
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Imagent Corporation:
We have audited the accompanying combined balance sheets of Imagent
Corporation (a Maryland corporation) and Related Company as of December 31, 1994
and 1995, and the related combined statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Imagent Corporation
and Related Company as of December 31, 1994 and 1995, and the results of their
combined operations and their combined cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 15, 1996
F-30
<PAGE> 83
IMAGENT CORPORATION AND RELATED COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 516,422 $1,073,616
Accounts receivable, less allowances for doubtful accounts of
$40,000 for each period........................................ 1,742,526 1,412,351
Inventories....................................................... 252,742 306,441
Prepaid and other current assets.................................. 15,778 17,196
---------- ----------
Total current assets...................................... 2,527,468 2,809,604
PROPERTY AND EQUIPMENT, net......................................... 1,035,816 968,163
INTANGIBLES, net of amortization of $17,935 and $82,481 at December
31, 1994 and 1995................................................. 834,498 769,952
OTHER NONCURRENT ASSETS............................................. 38,745 73,838
---------- ----------
Total assets.............................................. $4,436,527 $4,621,557
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations....................... $ 220,000 $ 194,347
Accounts payable and accrued liabilities.......................... 1,098,467 1,097,855
---------- ----------
Total current liabilities................................. 1,318,467 1,292,202
LONG-TERM OBLIGATIONS, net of current maturities.................... 194,347 --
---------- ----------
Total liabilities......................................... 1,512,814 1,292,202
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock...................................................... 20,773 20,773
Retained earnings................................................. 2,902,940 3,308,582
---------- ----------
Total stockholders' equity................................ 2,923,713 3,329,355
---------- ----------
Total liabilities and stockholders' equity................ $4,436,527 $4,621,557
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-31
<PAGE> 84
IMAGENT CORPORATION AND RELATED COMPANY
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Service revenue................................... $ 4,173,176 $ 5,451,372 $ 6,844,552
Product revenue................................... 5,123,101 5,922,622 6,138,127
Other revenue..................................... 955,345 760,789 561,350
----------- ----------- -----------
10,251,622 12,134,783 13,544,029
COST OF SERVICES.................................... 2,875,063 3,691,206 4,474,396
COST OF PRODUCT SOLD................................ 4,464,187 4,892,293 4,972,103
DEPRECIATION........................................ 199,389 257,847 268,183
----------- ----------- -----------
Gross profit.............................. 2,712,983 3,293,437 3,829,347
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES....... 2,196,798 2,571,162 2,838,360
----------- ----------- -----------
Operating income.......................... 516,185 722,275 990,987
OTHER (INCOME) EXPENSE:
Interest income................................... (11,954) (13,241) (27,728)
Other............................................. (3,395) 4,669 (52,612)
----------- ----------- -----------
NET INCOME.......................................... $ 531,534 $ 730,847 $ 1,071,327
----------- ----------- -----------
PRO FORMA DATA (Unaudited -- See Note 11):
HISTORICAL NET INCOME............................... $ 531,534 $ 730,847 $ 1,071,327
PRO FORMA COMPENSATION DIFFERENTIAL................. 161,143 289,571 303,357
PRO FORMA PROVISION FOR INCOME TAXES................ 264,013 388,137 515,100
----------- ----------- -----------
PRO FORMA NET INCOME................................ $ 428,664 $ 632,281 $ 859,584
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-32
<PAGE> 85
IMAGENT CORPORATION AND RELATED COMPANY
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992........... 500 $20,773 $ -- $2,139,804 $ 2,160,577
Dividends declared................. -- -- -- (467,204) (467,204)
Net income......................... -- -- -- 531,534 531,534
--- ------- ---- ---------- -----------
BALANCE, December 31, 1993........... 500 20,773 -- 2,204,134 2,224,907
Dividends declared................. -- -- -- (32,041) (32,041)
Net income......................... -- -- -- 730,847 730,847
--- ------- ---- ---------- -----------
BALANCE, December 31, 1994........... 500 20,773 -- 2,902,940 2,923,713
Dividends declared................. -- -- -- (665,685) (665,685)
Net income......................... -- -- -- 1,071,327 1,071,327
--- ------- ---- ---------- -----------
BALANCE, December 31, 1995........... 500 $20,773 $ -- $3,308,582 $ 3,329,355
=== ======= ==== ========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-33
<PAGE> 86
IMAGENT CORPORATION AND RELATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
--------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 531,534 $ 730,847 $1,071,327
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization...................... 199,389 275,782 332,729
Loss (gain) on disposal of assets.................. -- 20,693 (3,042)
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable, net...................... (186,962) (547,294) 330,175
Prepaid and other assets...................... 2,101 (5,218) (36,511)
Inventories................................... (164,008) 171,363 (53,699)
Increase (decrease) in --
Accounts payable and accrued liabilities...... 292,779 81,748 (612)
--------- --------- ----------
Net cash provided by operating
activities............................. 674,833 727,921 1,640,367
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................... (419,577) (322,797) (230,033)
Purchase of intangible assets......................... -- (438,086) --
Proceeds from sale of property and equipment.......... -- -- 32,545
--------- --------- ----------
Net cash used in investing activities.... (419,577) (760,883) (197,488)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations........... -- -- (220,000)
Capital distributions................................. (467,204) (32,041) (665,685)
Net change in cash due to conforming fiscal
year-end........................................... (12,840) -- --
--------- --------- ----------
Net cash used in financing activities.... (480,044) (32,041) (885,685)
--------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (224,788) (65,003) 557,194
CASH AND CASH EQUIVALENTS, at beginning of period....... 806,213 581,425 516,422
========= ========= ==========
CASH AND CASH EQUIVALENTS, at end of period............. $ 581,425 $ 516,422 $1,073,616
========= ========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for --
Interest........................................... $ -- $ -- $ --
Income taxes....................................... -- -- --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCIAL
ACTIVITIES:
Acquisition of intangible assets with debt............ -- 414,347 --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-34
<PAGE> 87
IMAGENT CORPORATION AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The accompanying combined financial statements include the accounts of
Imagent Corporation (formerly Mobile Microfilming Corporation) and Mobile
Information Services (collectively the "Company"). The Company is a microfilm
processing laboratory and Kodak distributor of microfilm/microfilming supplies
and a broker of imaging equipment and systems and provides data and document
acquisition services for public and private industry customers. The Company's
customers are primarily located in the Mid-Atlantic region.
The Company and its stockholders entered into a definitive agreement with
F.Y.I. Incorporated ("FYI") in October 1995, pursuant to which the Company will
merge with FYI (the "Merger"). All outstanding shares of the Company's common
stock will be exchanged for cash and shares of FYI's common stock concurrent
with the consummation of the initial public offering (the "Offering") of the
common stock of FYI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The Company is under common control of two stockholders. All significant
intercompany transactions have been eliminated in combination.
Mobile Information Services (MIS) reported on a June 30, 1992, year-end
prior to 1993; as such its accounts for the year ended June 30, 1992, have been
combined with the accounts of Mobile Microfilming Corporation as of December 31,
1992. The results of MIS's operations for the six months ended December 31,
1992, have been reflected as an adjustment to retained earnings. Unaudited
revenues and net income were approximately $656,000 and $29,000, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates market value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are depreciated over the lesser of the asset's useful
life or lease term.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Intangible and Other Long-Lived Assets
The customer list is being amortized over a 15-year period, and the
covenant not to compete is being amortized over the term of the agreement.
The Company continually evaluates whether events and circumstances indicate
the remaining estimated useful life of intangibles and long-lived assets may
warrant revisions or that the remaining balance of intangibles or other
long-lived assets may not be recoverable. To make this evaluation, the Company
uses an estimate of undiscounted net income over the remaining life of the
intangibles or other long-lived assets. The Financial Accounting Standards Board
has issued Statement of Financial Accounting Standard No. 121: Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
(SFAS 121) which establishes accounting standards for the impairment of
long-lived assets, certain
F-35
<PAGE> 88
IMAGENT CORPORATION AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
identifiable intangibles, and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 to have any material effect on the combined
financial statements. The Company will adopt SFAS 121 in 1996.
Revenue Recognition
Revenue is recognized when services are rendered, or products are shipped,
to the Company's customers.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Financial Accounting
Standards No. 105, consist primarily of trade accounts receivable. The Company's
customers are concentrated in the mid-Atlantic states and the primary customers
are governmental and financial institutions. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends, and other information.
An agency of the federal government accounted for 14% and 17% of its
revenues for the years ended December 31, 1994 and 1995, respectively. The
Company did not have sales to this customer prior to 1994.
Income Taxes
The Company is an S corporation for income tax purposes and, accordingly,
any income tax liabilities are the responsibility of the stockholders. The
Company's S corporation status will terminate with the effective date of the
Merger discussed in Note 1.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ---------------------------
(YEARS) 1994 1995
------------ ----------- -----------
<S> <C> <C> <C>
Vehicles..................................... 5 $ 249,165 $ 188,826
Leasehold improvements....................... 10 327,320 348,658
Machinery and equipment...................... 5-15 1,250,409 1,385,076
Furniture and fixtures....................... 5-15 21,589 49,288
Office equipment............................. 5-15 224,787 258,183
---- ----------- -----------
2,073,270 2,230,031
Less -- Accumulated depreciation and
amortization............................... 1,037,454 1,261,868
----------- -----------
$ 1,035,816 $ 968,163
=========== ===========
</TABLE>
4. INTANGIBLE ASSETS:
Other noncurrent assets consist of the following at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Customer list................................................. $802,433 $802,433
Covenant not to compete....................................... 50,000 50,000
-------- --------
852,433 852,433
Less -- Accumulated amortization.............................. 17,935 82,481
-------- --------
$834,498 $769,952
======== ========
</TABLE>
F-36
<PAGE> 89
IMAGENT CORPORATION AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company entered into an agreement on October 5, 1994, with Micrographic
Sciences, Inc. The Company purchased Micrographic Sciences Inc.'s customer list
and received a three-year covenant not to compete.
The purchase price was 100% of the processing sales plus 50% of the
microfilm sales between April 1, 1994, and March 31, 1995. The ultimate purchase
price of the customer list and the covenant not to compete was established as
$852,433.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Accounts payable............................................ $ 831,072 $ 871,345
Accrued payroll and related benefits........................ 143,510 176,825
Accrued expenses............................................ 123,885 49,685
---------- ----------
$1,098,467 $1,097,855
========== ==========
</TABLE>
6. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Noninterest-bearing note payable to Micrographics Sciences,
due on February 1, 1996.................................... $414,347 $194,347
Less -- Current maturities................................... 220,000 194,347
-------- --------
Long-term obligations, net of current maturities............. $194,347 $ --
======== ========
</TABLE>
The Company has established a line of credit facility with a financial
institution. The line of credit is secured by the Company's accounts receivable
and inventory. This line of credit allows the Company to borrow up to $500,000
at an interest rate equal to prime. At December 31, 1995, $500,000 of borrowing
capacity was available.
7. OPERATING LEASES:
The Company leases its office buildings. Lease payments for the years ended
December 31, 1993, 1994 and 1995, totaled $235,435, $246,816 and $230,369,
respectively. Minimum future lease payments under operating leases as of
December 31, 1995, for each of the next five years and in the aggregate are as
follows:
<TABLE>
<S> <C>
1996.............................................................. $223,152
1997.............................................................. 219,738
1998.............................................................. 120,342
1999.............................................................. --
2000.............................................................. --
Thereafter........................................................ --
--------
Total................................................... $563,232
========
</TABLE>
F-37
<PAGE> 90
IMAGENT CORPORATION AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLAN:
Effective January 1, 1991, the Company adopted a profit sharing plan to
provide for contributions made under salary deferral agreements pursuant to the
Internal Revenue Code. All employees shall be eligible to enter the plan if they
are at least 21 years of age and have at least one year of service.
All deferred compensation and company contributions are placed in a trust
to be held and invested by the trustee. The profit sharing expense was $16,195,
$19,325, and $20,875 for the years ended December 31, 1993, 1994, and 1995,
respectively.
9. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for workers'
compensation and unemployment incurred in connection with its operations.
Management believes none of these actions will have a material adverse effect on
the combined financial positions or combined results of operations of the
Company.
10. COMMON STOCK:
Common stock at December 31, 1994 and 1995, consists of the following:
<TABLE>
<CAPTION>
SHARES
PAR ------------------- ASSIGNED
VALUE AUTHORIZED ISSUED VALUE
----- ---------- ------ --------
<S> <C> <C> <C> <C>
Imagent Corporation --
Preferred Stock................................ $ 500 50 -- $ --
Class A Common Stock........................... 10 5,000 200 2,000
Class B Common Stock........................... 10 2,500 200 2,000
Mobile Information Services...................... None 100 100 16,773
----- --- --------
7,650 500 $ 20,773
===== === ========
</TABLE>
11. PRO FORMA NET INCOME (UNAUDITED):
Selling, general and administrative expenses for the periods presented
reflect compensation and related benefits that owners and certain key employees
received during the periods. These owners and key employees have agreed to
certain reductions in salaries and benefits in connection with the Merger.
In connection with the merger, each stockholder has entered into a
three-year employment agreement with FYI which provides for set base salary,
participation in any FYI incentive bonus plans, four weeks paid vacation, a car
allowance, health benefits, and a two year covenant-not-to-compete following
termination of such person's employment. The stockholders' employment agreements
provide for an aggregate base salary of $250,000.
The unaudited pro forma data presents compensation at the level the
officers and owners of the Company have agreed to receive subsequent to the
Offering. In addition, the following pro forma data presents the provision for
income taxes as if the Company had been subject to federal and state income
taxes and adjusted for the impact of the compensation differential discussed
above.
F-38
<PAGE> 91
IMAGENT CORPORATION AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS:
On January 26, 1996, the Company was acquired by FYI. In conjunction with
the Merger, the Company will dividend cash and accounts receivable to its
stockholders in the amount of $2,750,000 which represents the AAA accounts of
the Company. In addition, the Company could make an additional distribution
corresponding to the increase in net stockholders' equity from June 30, 1995 to
November 30, 1995, not to exceed $400,000. The $400,000 available for the
additional distribution was distributed prior to December 31, 1995. Had the
$2,750,000 transaction been recorded at December 31, 1995, the effect on the
accompanying balance sheet would be a decrease in total assets and stockholders'
equity of $2,750,000.
F-39
<PAGE> 92
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Melanson and Associates, Inc.:
We have audited the accompanying combined balance sheets of Melanson and
Associates, Inc. (a California corporation) and Related Company as of December
31, 1994 and 1995, and the related combined statements of operations,
stockholders' equity, and cash flows for each of the years ended July 31, 1993,
and December 31, 1994 and 1995. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Melanson
and Associates, Inc. and Related Company as of December 31, 1994 and 1995, and
the combined results of their operations and their combined cash flows for each
of the years ended July 31, 1993, and December 31, 1994 and 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 15, 1996
F-40
<PAGE> 93
MELANSON AND ASSOCIATES, INC. AND RELATED COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 339,031 $ 330,134
Accounts receivable, less allowance of $87,912 and $78,247....... 2,629,127 2,117,843
Stockholder receivable........................................... 641,547 310,634
Deferred tax assets.............................................. 10,179 --
Prepaid and other current assets................................. 3,413 19,310
---------- ----------
Total current assets..................................... 3,623,297 2,777,921
---------- ----------
PROPERTY AND EQUIPMENT, net........................................ 2,475,708 2,401,983
OTHER NONCURRENT ASSETS............................................ 120,514 16,830
---------- ----------
Total assets............................................. $6,219,519 $5,196,734
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term obligations........................................... $ 395,000 $ 213,000
Current maturities of long-term obligations...................... 77,936 93,388
Accounts payable and accrued liabilities......................... 1,829,137 1,480,069
---------- ----------
Total current liabilities................................ 2,302,073 1,786,457
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES................... 1,532,469 1,435,814
DEFERRED INCOME TAXES.............................................. 187,473 70,473
---------- ----------
Total liabilities........................................ 4,022,015 3,292,744
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, authorized 75,000 shares, 556 shares issued
and outstanding............................................... 2,421 2,421
Retained earnings................................................ 2,195,083 1,901,569
---------- ----------
Total stockholders' equity............................... 2,197,504 1,903,990
---------- ----------
Total liabilities and stockholders' equity............... $6,219,519 $5,196,734
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-41
<PAGE> 94
MELANSON AND ASSOCIATES, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
DECEMBER 31,
JULY 31, -------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
SERVICE REVENUE........................................ $8,738,476 $9,972,861 $9,874,336
COST OF SERVICES....................................... 5,650,307 6,311,498 6,942,566
DEPRECIATION........................................... 246,777 277,081 320,685
---------- ---------- ----------
Gross profit................................. 2,841,392 3,384,282 2,611,085
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES.......... 2,453,307 2,619,401 2,394,867
---------- ---------- ----------
Operating income............................. 388,085 764,881 216,218
OTHER (INCOME) EXPENSE:
Interest expense..................................... 120,203 87,751 112,068
Interest income...................................... (786) (814) (36,467)
Other (income) expense, net.......................... (4,974) (81,576) (53,417)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES............................. 273,642 759,520 194,034
PROVISION (BENEFIT) FOR INCOME TAXES................... 88,289 183,146 (7,263)
---------- ---------- ----------
Net income................................... $ 185,353 $ 576,374 $ 201,297
========== ========== ==========
PRO FORMA DATA (Unaudited -- See Note 13):
HISTORICAL NET INCOME.................................. $ 185,353 $ 576,374 $ 201,297
PRO FORMA COMPENSATION DIFFERENTIAL.................... 994,667 1,029,133 936,717
PRO FORMA PROVISION FOR INCOME TAXES................... 449,444 487,013 453,994
---------- ---------- ----------
PRO FORMA NET INCOME................................... $ 730,576 $1,118,494 $ 684,020
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-42
<PAGE> 95
MELANSON AND ASSOCIATES, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, July 31, 1992........................... 556 $2,421 $1,653,924 $ 1,656,345
Dividends declared............................. -- -- (201,511) (201,511)
Net income..................................... -- -- 185,353 185,353
--- ------ ---------- -----------
BALANCE, July 31, 1993........................... 556 2,421 1,637,766 1,640,187
Net income for the period August 1, 1993, to
December 31, 1993........................... -- -- 229,428 229,428
--- ------ ---------- -----------
BALANCE, December 31, 1993....................... 556 2,421 1,867,194 1,869,615
Dividends declared............................. -- -- (248,485) (248,485)
Net income..................................... -- -- 576,374 576,374
--- ------ ---------- -----------
BALANCE, December 31, 1994....................... 556 2,421 2,195,083 2,197,504
Dividends declared............................. -- -- (494,811) (494,811)
Net income..................................... -- -- 201,297 201,297
--- ------ ---------- -----------
BALANCE, December 31, 1995....................... 556 $2,421 $1,901,569 $ 1,903,990
=== ====== ========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-43
<PAGE> 96
MELANSON AND ASSOCIATES, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
DECEMBER 31,
JULY 31, ---------------------
1993 1994 1995
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 185,353 $ 576,374 $ 201,297
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation.......................................... 246,777 277,081 320,685
Deferred tax benefit.................................. (41,177) (526,790) (106,821)
Loss (gain) on disposal of assets..................... -- (18,635) 516
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable, net......................... 81,802 84,111 511,284
Stockholder receivable........................... -- (271,921) 330,913
Prepaid and other current assets................. 21,062 (147,004) 87,787
Increase (decrease) in --
Accounts payable and accrued liabilities......... 284,748 547,727 (349,068)
----------- --------- ---------
Net cash provided by operating activities...... 778,565 520,943 996,593
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net................. (326,466) (580,398) (291,691)
Proceeds from sales of property.......................... -- 203,068 44,215
----------- --------- ---------
Net cash used in investing activities.......... (326,466) (377,330) (247,476)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on short-term obligations............. (220,512) (288,124) (250,000)
Proceeds from short-term borrowings...................... 158,124 525,000 68,000
Principal payments on long-term obligations.............. (1,246,603) (80,507) (81,203)
Proceeds from long-term borrowings....................... 1,425,000 -- --
Payment of dividends..................................... (201,511) (248,485) (494,811)
----------- --------- ---------
Net cash used in financing activities.......... (85,502) (92,116) (758,014)
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 366,597 51,497 (8,897)
ADJUSTMENT TO CONFORM FISCAL YEAR-END TO A CALENDAR YEAR... -- (103,689) --
CASH AND CASH EQUIVALENTS, at beginning of period.......... 24,626 391,223 339,031
----------- --------- ---------
CASH AND CASH EQUIVALENTS, at end of period................ $ 391,223 $ 339,031 $ 330,134
=========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for --
Interest.............................................. $ 120,203 $ 87,751 $ 112,068
Income taxes.......................................... $ 33,914 $ 52,500 $ 257,876
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-44
<PAGE> 97
MELANSON AND ASSOCIATES, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The accompanying combined financial statements include the accounts of
Melanson and Associates, Inc. (dba Researchers) and Bay Area Micrographics
(BAM -- or the "Related Company") (a sole proprietorship), (collectively the
"Company"). The Company provides photocopying, microfilming, and electronic
imaging of document services to its customers from its offices in California.
In October 1995, the Company and its stockholders entered into a definitive
agreement with F.Y.I. Incorporated ("FYI") pursuant to which the Company will
merge with FYI (the "Merger"). All outstanding shares of the Company's common
stock and the ownership of the sole proprietorship will be exchanged for cash
and shares of FYI's common stock concurrent with the consummation of the initial
public offering (the "Offering") of the common stock of FYI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The Company is under common control. All significant intercompany
transactions have been eliminated in combination.
Fiscal Year-Ends
BAM has a December 31 year-end. Researchers has a July 31 year-end. The
accounts and results of BAM, using a December 31 year-end, have been combined
with the July 31 year-end accounts and results of Researchers in the
accompanying combined financial statements for 1993. Researcher's accounts and
results for 1994 and 1995 have been recast to a December 31 year-end.
Researcher's net income for the five-month period August 1, 1993, to December
31, 1993, was $229,428.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates market value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the accelerated and straight-line methods over the estimated useful lives of the
assets. Leasehold improvements are depreciated over the lesser of the asset's
useful life or the lease term.
Other Long-Lived Assets
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (SFAS 121), which established
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 to have any material effect on the combined
financial statements. The Company will adopt SFAS 121 in 1996.
Income Taxes
Researchers is a C corporation. BAM is a sole proprietorship for income tax
purposes and, accordingly, any income tax liabilities are the responsibility of
the owner. For purposes of these combined financial
F-45
<PAGE> 98
MELANSON AND ASSOCIATES, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
statements, no federal and state income taxes have been provided for BAM. BAM's
sole proprietorship status will terminate with the effective date of the Merger
discussed in Note 1.
Deferred income taxes for Researchers are provided for timing differences
in the recognition of revenues and expenses for tax and financial reporting
purposes. Temporary differences result primarily from accelerated depreciation
and amortization for tax purposes, deferred contract revenues being taxed when
billed and various accruals and reserves being deductible for tax purposes in
different periods.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration
of credit risk, as defined by Statement of Financial Accounting Standards (SFAS)
No. 105, consist primarily of trade accounts receivable. The Company's customers
are concentrated in the Western states and the primary customers are legal
institutions. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends, and other information.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31, DECEMBER 31,
(YEARS) 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Land......................................... $ 412,500 $ 412,500
Building and improvements.................... 15-31 1,289,327 1,289,327
Machinery and equipment...................... 7 1,310,220 1,351,255
Leasehold improvements....................... 5-7 107,621 107,621
Computer equipment........................... 5-7 606,702 804,314
Autos and aircraft........................... 5-7 229,289 244,809
Furniture and fixtures....................... 7 40,055 42,208
------------ ------------
3,995,714 4,252,034
Less -- Accumulated depreciation............. 1,520,006 1,850,051
------------ ------------
$ 2,475,708 $ 2,401,983
============ ============
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Accounts payable........................................... $ 414,073 $ 527,643
Sales tax payable.......................................... 76,435 77,961
Income taxes payable....................................... 846,248 687,933
Accrued compensation and benefits.......................... 273,139 180,837
Other accrued liabilities.................................. 219,242 5,695
----------- -----------
Total accounts payable and accrued liabilities... $1,829,137 $1,480,069
=========== ===========
</TABLE>
5. SHORT-TERM OBLIGATIONS:
The Company has a $425,000 line of credit with interest payable at prime
plus 1.5%, (7.5% and 10% at December 31, 1994 and 1995), on the outstanding
principal balance. The line of credit, which expires in
F-46
<PAGE> 99
MELANSON AND ASSOCIATES, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
October 1996, is guaranteed by the principal stockholder. The Company had draws
outstanding of $395,000 and $213,000 at December 31, 1994 and 1995.
6. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Mortgage payable -- bank, monthly payment of $3,981 through
July 1993, $4,771 from August 1993, to July 1994, and
$4,694 through maturity date of July 2003; payment
includes principal and interest of 9.45% and 9.25%,
respectively; secured by deed of trust on real
property. ............................................... $ 564,851 $ 560,716
Note payable -- bank, monthly principal of $1,650 plus
interest at prime plus 1.75% (9.25% and 10.5% at December
31, 1994 and 1995, respectively) and a maturity date of
September 15, 1998....................................... 74,250 54,450
Note payable -- bank, monthly principal of $1,667 plus
interest at prime plus 1.5% (9.0% and 10.25% at December
31, 1994 and 1995, respectively) and a maturity date of
October 15, 1999......................................... 96,667 76,667
Note payable -- bank, monthly payment of $5,456 through
maturity of November 2025; payment includes principal
plus interest at 8%, secured by deed of trust on real
property................................................. 738,094 739,498
Note payable -- bank, monthly principal of $1,667 plus
interest at prime plus 1.75% (9.25% and 10.5% at December
31, 1994 and 1995, respectively) and a maturity date of
September 15, 1997, guaranteed by the principal
stockholder.............................................. 55,000 35,000
Note payable -- Xerox, monthly payment of $748, payment
includes principal and interest at 15.5% and a maturity
date of November 1999.................................... 44,872 33,287
Note payable -- bank, monthly payment of $768; payment
includes principal plus interest at 8.5%; maturity dates
of November 1998......................................... 36,671 29,584
---------- ----------
Total obligation................................. 1,610,405 1,529,202
Less -- Current maturities................................. 77,936 93,388
---------- ----------
$1,532,469 $1,435,814
========== ==========
</TABLE>
As of December 31, 1994 and 1995, the Company has complied with all loan
covenants.
As of December 31, 1995, the aggregate amounts of annual principal
maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996............................................................. $ 93,388
1997............................................................. 88,095
1998............................................................. 68,915
1999............................................................. 39,660
2000............................................................. 17,532
Thereafter....................................................... 1,221,612
----------
Total.................................................. $1,529,202
==========
</TABLE>
F-47
<PAGE> 100
MELANSON AND ASSOCIATES, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASE COMMITMENTS AND RELATED-PARTY TRANSACTIONS:
The Company leases office facilities in Sacramento and San Francisco,
California, along with certain equipment from the Company's principal
shareholder. The Company also leases office facilities in Los Angeles and San
Jose, California, from third parties. The leases provide for lease terms on a
month to month basis as well as over five to ten year periods commencing on
August 1, 1991, through July 31, 2001, with monthly lease payments of $1,950 to
$8,500. The lease agreements provide that the Company pay all related taxes and
insurance. The total lease expense for the years ended July 31, 1993 and
December 31, 1994 and 1995, totaled approximately $373,000 $429,000 and
$520,000, respectively, including total lease payments to the Company's
principal shareholder of approximately $187,000, $177,000 and $242,000,
respectively. Minimum future lease payments under operating leases as of
December 31, 1995, for each of the next five years and in the aggregate are as
follows:
<TABLE>
<S> <C>
1996............................................................. $ 368,886
1997............................................................. 284,400
1998............................................................. 284,400
1999............................................................. 284,400
2000............................................................. 273,300
Thereafter....................................................... 828,000
----------
Total.................................................. $2,323,386
==========
</TABLE>
8. EMPLOYEE BENEFIT PLAN:
On January 1, 1993, the Company adopted a qualified 401(k) plan covering
substantially all eligible employees who meet certain age and length of service
requirements. The plan allows for employee and employer contributions. The plan
also requires an employer matching contribution unless changed in writing by the
employer. Employer contributions charged to operations for the years ended July
31, 1993, and December 31, 1994 and 1995, were approximately $0, $15,000, and
$17,172, respectively.
The Company offers no postretirement or postemployment benefits.
9. INCOME TAXES:
The following income tax information for Researchers is presented in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109).
This statement provides for a liability approach to accounting for income taxes.
Federal and state income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
DECEMBER 31,
JULY 31, ----------------------
1993 1994 1995
-------- --------- --------
<S> <C> <C> <C>
Federal --
Current......................................... $ 98,578 $ 551,458 $ 76,491
Deferred........................................ (34,605) (419,015) (82,071)
State --
Current......................................... 30,888 158,478 23,067
Deferred........................................ (6,572) (107,775) (24,750)
-------- --------- --------
$ 88,289 $ 183,146 $ (7,263)
======== ========= ========
</TABLE>
F-48
<PAGE> 101
MELANSON AND ASSOCIATES, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
DECEMBER 31,
JULY 31, ----------------------
1993 1994 1995
-------- --------- --------
<S> <C> <C> <C>
Tax at statutory rate............................. $ 93,038 $ 258,237 $ 65,971
Add (deduct) --
State income taxes.............................. 16,418 26,498 (1,110)
Nondeductible expenses.......................... 5,747 -- --
Effect of sole partnership nontaxable income.... (26,914) (101,589) (72,124)
-------- --------- --------
$ 88,289 $ 183,146 $ (7,263)
======== ========= ========
</TABLE>
The components of deferred income tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995
-------- --------
<S> <C> <C>
Deferred income tax liabilities --
Property and equipment....................................... $ 63,171 $ 73,175
Accrual to cash differences, net............................. 361,747 176,370
-------- --------
Total deferred income tax liabilities................ 424,918 249,545
Deferred income tax assets --
Allowance for doubtful accounts.............................. 35,286 31,408
Accrued expenses............................................. 212,338 147,664
-------- --------
Total deferred income tax assets..................... 247,624 179,072
-------- --------
Total net deferred income tax liabilities............ $177,294 $ 70,473
======== ========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for workers'
compensation incurred in connection with its operations. Management believes
that none of these actions will have a material adverse effect on the financial
position or results of operations of the Company.
Employment Agreements
The Company has employment agreements with certain personnel to pay
specific amounts annually. The employment agreements provide for a total annual
compensation amount of $595,500 to be disbursed to certain personnel of the
Company in accordance with the terms of each employee's employment agreement
11. RELATED-PARTY TRANSACTION:
The Company purchases digital coding services from Researchers LLC, an
affiliated entity. The Company's principal shareholder has a controlling
interest in Researchers LLC. During the years ended December 31, 1994 and 1995,
the Company incurred expenses related to purchases and services of approximately
$28,000 and $10,642 and had billings of approximately $3,500 and $40,377 to
Researchers, LLC.
F-49
<PAGE> 102
MELANSON AND ASSOCIATES, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Stockholder receivable results from advances to the stockholder in excess
of his earned salary and estimated bonus. Amounts are settled at year-end.
12. SIGNIFICANT CUSTOMER:
For the year ended July 31, 1993, the Company had one customer which
accounted for approximately 11% of combined revenue. For the year ended December
31, 1994, the Company had two customers which accounted for approximately 13%
and 11% of combined revenue. For the year ended December 31, 1995, the Company
had two customers which each accounted for approximately 12% of combined
revenue.
13. PRO FORMA NET INCOME (UNAUDITED):
Selling, general, and administrative expenses for the periods presented
reflect compensation and related benefits that owners and certain key employees
received during the periods. These owners and key employees have agreed to
certain reductions in salaries and benefits in connection with the Merger.
In connection with this merger, each stockholder has entered into a three
year employment agreement with FYI which provides for set base salary,
participation in any future FYI incentive bonus plans, four weeks paid vacation,
a car allowance, health benefits and a two year covenant-not-to-compete
following termination of such person's employment. The stockholders' employment
agreements provide for an aggregate base salary of $250,000.
The unaudited pro forma data presents compensation at the level the
officers and owners of the Company have agreed to receive subsequent to the
Offering. In addition, the following pro forma data presents the provision for
income taxes as if the sole proprietorship had been subject to federal and state
income taxes and adjusted for the impact of the compensation differential
discussed above.
14. SUBSEQUENT EVENTS:
On January 26, 1996 the Company was acquired by FYI. In connection with the
Merger, the Company will dividend land, building, and related improvements of
$1,488,327 and the related mortgage payable of $1,300,224 to the principal
stockholder. In addition the Company will make a cash distribution of $250,000
prior to the closing of the Merger. Had these transactions been recorded at
December 31, 1995, the effect on the accompanying balance sheet would be a
decrease in assets of $1,738,327, liabilities of $1,300,224, and stockholders'
equity of $438,103.
F-50
<PAGE> 103
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Recordex Services, Inc.:
We have audited the accompanying balance sheet of Recordex Services, Inc.
(a wholly owned subsidiary of Paragon Management Group, Inc.) as of December 31,
1995, and the related statements of operations, changes in stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Recordex Services, Inc. for the years ended December 31, 1994 and
1993, were audited by other auditors whose report dated September 15, 1995,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Recordex Services, Inc. (a
wholly owned subsidiary of Paragon Management Group, Inc.) as of December 31,
1995, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 15, 1996
F-51
<PAGE> 104
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Recordex Services, Inc.
Malvern, Pennsylvania
We have audited the accompanying balance sheet of Recordex Services, Inc.
(a wholly-owned subsidiary of Paragon Management Group, Inc.) as of December 31,
1994, and the related statements of operations, changes in stockholder's equity,
and cash flows for the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Recordex Services, Inc. (a
wholly-owned subsidiary of Paragon Management Group, Inc.) as of December 31,
1994, and the results of its operations and its cash flows for the two years
then ended in conformity with generally accepted accounting principles.
ELKO, FISCHER, McCABE & RUDMAN, LTD.
Certified Public Accountants
Media, Pennsylvania
September 15, 1995
F-52
<PAGE> 105
RECORDEX SERVICES, INC.
(A WHOLLY OWNED SUBSIDIARY OF PARAGON MANAGEMENT GROUP, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash.............................................................. $ 2,538 $ --
Accounts receivable, net of contractual allowances and provision
for uncollectible accounts of $470,000 and $363,032............ 1,364,193 1,585,322
Prepaid expenses and other assets................................. 34,280 74,007
Deferred tax asset................................................ 27,000 133,389
---------- ----------
Total current assets...................................... 1,428,011 1,792,718
---------- ----------
PROPERTY AND EQUIPMENT:
Equipment......................................................... 946,450 1,281,427
Less accumulated depreciation..................................... 442,077 683,875
---------- ----------
Net property and equipment................................ 504,373 597,552
---------- ----------
OTHER ASSETS:
Security deposits................................................. 15,039 19,471
Advances to parent................................................ 721,328 816,335
---------- ----------
Total other assets........................................ 736,367 835,806
---------- ----------
Total assets.............................................. $2,668,751 $3,226,076
========== ==========
CURRENT LIABILITIES:
Line of credit.................................................... $ 142,527 $ 250,000
Accounts payable.................................................. 325,718 960,568
Accrued expenses.................................................. 197,189 118,363
Accrued payroll and payroll taxes................................. 195,052 282,442
Retrieval fees payable............................................ 425,699 127,989
Income taxes payable.............................................. 44,750 125,480
Current maturities --
Capitalized lease obligations.................................. 59,510 101,287
Notes payable.................................................. 86,249 105,125
---------- ----------
Total current liabilities................................. 1,476,694 2,071,254
---------- ----------
LONG-TERM LIABILITIES:
Less current maturities --
Capitalized lease obligations.................................. 89,844 89,468
Notes payable.................................................. 188,380 86,867
Deferred income taxes.......................................... 41,600 48,200
---------- ----------
Total long-term liabilities............................... 319,824 224,535
---------- ----------
Total liabilities......................................... 1,796,518 2,295,789
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 1)
STOCKHOLDERS' EQUITY:
Common stock -- par value $1; 1,000 shares authorized, issued, and
outstanding.................................................... 1,000 1,000
Additional paid-in capital.......................................... 774,000 774,000
Retained earnings................................................... 97,233 155,287
---------- ----------
Total stockholder's equity................................ 872,233 930,287
---------- ----------
Total liabilities and stockholders' equity................ $2,668,751 $3,226,076
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 106
RECORDEX SERVICES, INC.
(A WHOLLY OWNED SUBSIDIARY OF PARAGON MANAGEMENT GROUP, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
NET SERVICE REVENUE.................................... $5,464,798 $6,825,633 $8,549,947
COSTS OF SERVICES...................................... 3,076,365 4,165,625 5,233,447
DEPRECIATION........................................... 130,073... 166,486 224,602
---------- ---------- ----------
Gross profit................................. 2,258,360 2,493,522 3,091,898
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES.......... 2,185,239 2,368,242 2,923,065
---------- ---------- ----------
Operating income............................. 73,121 125,280 168,833
INTEREST EXPENSE....................................... 26,357 58,038 85,088
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE.......................... 46,764 67,242 83,745
PROVISION FOR INCOME TAXES............................. 19,000 22,600 25,691
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE... 27,764 44,642 58,054
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME
TAXES................................................ (17,500) -- --
---------- ---------- ----------
NET INCOME............................................. $ 10,264 $ 44,642 $ 58,054
========== ========== ==========
PRO FORMA DATA (Unaudited -- See Note 10):
HISTORICAL NET INCOME.................................. $ 10,264 $ 44,642 $ 58,054
PRO FORMA COMPENSATION DIFFERENTIAL.................... 94,696 109,710 207,666
PRO FORMA PROVISION FOR INCOME TAXES................... 38,475 36,873 82,941
---------- ---------- ----------
PRO FORMA NET INCOME................................... $ 66,485 $ 117,479 $ 182,779
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 107
RECORDEX SERVICES, INC.
(A WHOLLY OWNED SUBSIDIARY OF PARAGON MANAGEMENT GROUP, INC.)
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- --------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992....................... $1,000 $ 774,000 $ 42,327 $817,327
Net income..................................... -- -- 10,264 10,264
------ --------- -------- --------
BALANCE, December 31, 1993....................... 1,000 774,000 52,591 827,591
Net income..................................... -- -- 44,642 44,642
------ --------- -------- --------
BALANCE, December 31, 1994....................... 1,000 774,000 97,233 872,233
Net income..................................... -- -- 58,054 58,054
------ --------- -------- --------
BALANCE, December 31, 1995....................... $1,000 $ 774,000 $155,287 $930,287
====== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-55
<PAGE> 108
RECORDEX SERVICES, INC.
(A WHOLLY OWNED SUBSIDIARY OF PARAGON MANAGEMENT GROUP, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 10,264 $ 44,642 $ 58,054
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization...................... 241,832 208,024 224,602
Loss on investment................................. -- 16,667 --
Deferred income taxes.............................. 36,500 (21,900) (99,789)
(Increase) decrease in assets --
Accounts receivable, net......................... (62,820) (398,111) (221,129)
Prepaid expenses and other assets.................. (8,097) 1,700 (39,727)
Security deposits.................................. 4,913 (5,614) (4,432)
Advances to parent................................. (217,609) (51,815) (95,007)
Increase (decrease) in liabilities --
Accounts payable................................. (32,192) 35,398 634,850
Accrued expenses................................. (17,332) 46,862 (78,826)
Accrued payroll and payroll taxes................ 68,824 63,893 87,390
Retrieval fees................................... 20,509 214,220 (297,710)
Income taxes payable............................. -- 44,750 80,730
--------- --------- ---------
Total adjustments............................. 34,528 154,074 190,952
--------- --------- ---------
Net cash provided by operating activities..... 44,792 198,716 249,006
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................... (94,923) (86,703) (186,779)
Purchase of investment................................ (30,000) -- --
--------- --------- ---------
Net cash used in investing activities......... (124,923) (86,703) (186,779)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable............................. -- (15,371) (82,637)
Borrowings on notes payable........................... 150,000 -- --
Borrowings (payments) on line of credit............... 134,500 (1,973) 107,473
Repayment of capital lease obligations................ (65,014) (50,261) (89,601)
Advances to parent.................................... (134,500) (46,725) --
--------- --------- ---------
Net cash provided by (used in) financing
activities.................................. 84,986 (114,330) (64,765)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH......................... 4,855 (2,317) (2,538)
CASH, BEGINNING OF YEAR................................. -- 4,855 2,538
--------- --------- ---------
CASH, END OF YEAR....................................... $ 4,855 $ 2,538 $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid......................................... $ 26,357 $ 58,038 $ 85,088
NONCASH TRANSACTIONS:
Equipment acquired through capital lease
obligations........................................ $ 26,397 $ 160,828 $ 131,002
Sale of investment.................................... -- 13,333 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE> 109
RECORDEX SERVICES, INC.
(A WHOLLY OWNED SUBSIDIARY OF PARAGON MANAGEMENT GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
On October 16, 1991, Paragon Management Group, Inc. (the "Parent"),
acquired all of the issued and outstanding shares of common stock of Recordex
Services, Inc. (the "Company"). Established in 1987, the Company is a supplier
of computerized correspondence management systems to hospital medical records
departments. The Company provides services to over 100 hospitals in 11 states.
In October 1995, the Company, its Parent, and the shareholders of its
Parent entered into a definitive agreement with F.Y.I. Incorporated (FYI),
pursuant to which the Company will be acquired by FYI (the "Merger"). All
outstanding shares of the Company will be exchanged for cash and shares of FYI
Common Stock concurrent with the consummation of the initial public offering
(the "Offering") of the common stock of FYI. (See Note 11.)
Accounts Receivable
The Company follows the reserve method of providing for doubtful accounts
receivable.
Transactions with Parent
The Company pays management fees to its Parent for management, consulting,
and other services. These costs are presented in selling, general, and
administrative costs on the statement of operations.
The Company pays certain expenses on behalf of its Parent including
salaries, occupancy costs, and benefits. These payments are recorded as advances
to Parent on the Company's books until the Company is reimbursed by the Parent.
These advances are noninterest bearing obligations. (See Note 11.)
Equipment
Capital additions including assets acquired under capital leases are stated
at cost. Maintenance, repairs, and minor renewals are charged to operations as
incurred. Depreciation is provided over the estimated useful lives of the assets
using the straight-line method for financial reporting purposes and accelerated
methods for tax purposes. The estimated useful lives used for depreciation vary
for financial reporting and tax purposes. The range of lives for equipment is
three to five years for financial reporting purposes.
Intangible and Other Long-Lived Assets
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" (SFAS 121) which establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 to have any effect on the financial
statements. The Company will adopt SFAS 121 in 1996.
Supplemental Cash Flow Information
The Company purchased an investment for $30,000 in 1993. As of December 31,
1994, the Company had accepted an offer to have the investee buy back the
investment for $13,333 and a $16,667 loss was recorded in the 1994 statement of
operations. The Company did not receive the proceeds of the sale until January
1995, and a $13,333 receivable was presented as part of other current assets on
the 1994 balance sheet.
F-57
<PAGE> 110
RECORDEX SERVICES, INC.
(A WHOLLY OWNED SUBSIDIARY OF PARAGON MANAGEMENT GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company and its Parent file a consolidated return for federal income
tax purposes. The Company prospectively adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," on January 1, 1993
and 1993 statement of operations includes a cumulative effect adjustment of
$17,500 to record a deferred tax liability.
The Company provides for income taxes based on its share of the
consolidated income tax expense in accordance with SFAS No. 109. The allocation
is performed by treating the Company as if it were a separate taxpayer.
Income taxes, after adopting SFAS No. 109, are provided for the tax effects
of transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between the
basis of fixed assets, contractual allowances, and provision for uncollectible
accounts and retrieval fees and accrued expenses for financial and income tax
reporting. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Retrieval Fees Payable
The Company pays retrieval fees to various healthcare organizations with
which it has contracts. Those fees represent charges to the Company by the
healthcare organization for each medical record retrieved from the
organization's records department. Those fees are payable upon receipt of cash
for the billing of the Company's services or upon the billing of its services,
according to specific contract terms.
Revenue Recognition
Revenue is recognized when the service is rendered. Net service revenues is
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Gross service revenue.......................... $6,034,321 $7,553,828 $9,240,603
Less -- Contractual allowances and provision
for uncollectible accounts................... 569,523 728,195 690,656
---------- ---------- ----------
Net service revenue.................. $5,464,798 $6,825,633 $8,549,947
========== ========== ==========
</TABLE>
2. LINE OF CREDIT:
The Company has a line of credit agreement with a bank for $300,000. The
interest rate on the line is the lending bank's prime rate plus 0.75% (10.5% and
10.25% at December 31, 1995 and 1994, respectively), payable monthly on
outstanding borrowings. The line is secured by all assets of the Company and
guarantees of the Parent and certain stockholders of the Parent. Payment of
principal is due on demand and the line is reviewed annually by the bank.
The outstanding borrowings on the line were $250,000 and $142,527 at
December 31, 1995 and 1994, respectively. Interest expense on the line was
$30,121, $26,829, and $15,387 for the years ended December 31, 1995, 1994, and
1993, respectively.
3. TERM LOANS:
In October 1993, the Company entered into an agreement with a bank whereby
the outstanding balance on its line of credit of $150,000 was converted to a
term loan. The term loan is payable in monthly installments
F-58
<PAGE> 111
RECORDEX SERVICES, INC.
(A WHOLLY OWNED SUBSIDIARY OF PARAGON MANAGEMENT GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of $4,167 plus interest at prime plus 1% (10.75% and 10.5% at December 31, 1995
and 1994, respectively) with the full balance due December 22, 1996. The
balances at December 31, 1995 and 1994, were $41,658 and $95,829, respectively.
In April 1994, the Company entered into a $50,000 term loan agreement with
a bank. The loan is payable in monthly installments of $1,400 plus interest at
the bank's prime rate plus 1% (10.75% and 10.5% at December 31, 1995 and 1994,
respectively), maturing April 1, 1997. The balance at December 31, 1995 and 1994
were $22,000 and $38,800, respectively.
On July 26, 1995, the Company converted $140,000 of the balance on its line
of credit to a term loan. The term loan is payable in monthly installments of
$3,889, plus interest of prime plus 1% (10.75% at December 31, 1995) with the
full balance due June 30, 1998. Accordingly, the line of credit and notes
payable balances have been adjusted at December 31, 1995, to reflect this
transaction. The balance at December 31, 1995, was $128,334.
The term loans are secured by all assets of the Company, its Parent, and
guarantees of certain stockholders of the Parent.
Aggregate annual maturities of the term loans at December 31, 1995, as
adjusted for the conversion described above are as follows:
<TABLE>
<S> <C>
1996.............................................................. $105,125
1997.............................................................. 51,867
1998.............................................................. 35,000
1999.............................................................. --
2000.............................................................. --
--------
Total................................................... $191,992
========
</TABLE>
Interest expense on the term loans was $14,660, $14,395 and $37,500 for the
years ended December 31, 1995, 1994 and 1993, respectively.
4. CAPITALIZED LEASE OBLIGATIONS:
The Company leases certain of its equipment under noncancelable leases
which meet the capital lease criteria as defined by the Financial Accounting
Standards Board in Statement No. 13. Accordingly, the present value of future
minimum lease payments has been recorded as leased property under capital lease,
net of depreciation, and obligations under capital lease. At December 31, 1995,
the future minimum lease payments are as follows:
<TABLE>
<S> <C>
1996.............................................................. $120,727
1997.............................................................. 83,163
1998.............................................................. 9,904
1999.............................................................. 1,744
2000.............................................................. 1,163
--------
Total................................................... 216,701
Less -- Amounts representing interest............................. 25,946
--------
Net present value of minimum lease payments....................... 190,755
Less -- Current portion........................................... 101,287
--------
Long-term obligation.............................................. $ 89,468
========
</TABLE>
F-59
<PAGE> 112
RECORDEX SERVICES, INC.
(A WHOLLY OWNED SUBSIDIARY OF PARAGON MANAGEMENT GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Equipment purchased under capital leases included in the balance sheets is
as follows at December 31:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Equipment...................................................... $202,711 $333,508
Less -- Accumulated depreciation............................... 30,722 77,516
-------- --------
Total................................................ $171,989 $255,992
======== ========
</TABLE>
Total interest expense on capital lease obligations for the years ended
December 31, 1995, 1994, and 1993, was $40,307, $16,353, and $10,970,
respectively.
5. INTANGIBLES:
A covenant not to compete was incorporated in the stock purchase agreement
for the Company dated October 16, 1991. The covenant provided for noncompetition
by the seller and its affiliates directly or indirectly in the business
conducted by the Company for a three-year period. Amortization was provided over
the three-year period commencing October 16, 1991.
The Company contracts with various healthcare organizations to provide
services over a given time period. The value of these contracts was determined
as of October 16, 1991, by an appraisal performed in conjunction with the stock
purchase agreement. The contracts were amortized over their remaining lives
commencing October 16, 1991.
Both the covenant not to compete and the contracts are fully amortized at
December 31, 1995.
6. INCOME TAXES:
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1993 1994 1995
------- -------- --------
<S> <C> <C> <C>
Currently payable:
Federal........................................... $ -- $ 32,200 $ 96,699
State............................................. -- 12,300 28,781
------- -------- --------
-- 44,500 125,480
------- -------- --------
Deferred:
Federal........................................... 14,700 (16,900) (79,455)
State............................................. 4,300 (5,000) (20,334)
------- -------- --------
Total..................................... $19,000 $ 22,600 $ 25,691
======= ======== ========
</TABLE>
Deferred taxes result from the effect of transactions which are recognized
in different periods for financial and tax reporting purposes and relate
primarily to depreciation and contractual allowances and provision for
uncollectible accounts. Deferred income taxes are recognized for tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years, to differences between the financial reporting and
the tax basis of existing assets and liabilities.
F-60
<PAGE> 113
RECORDEX SERVICES, INC.
(A WHOLLY OWNED SUBSIDIARY OF PARAGON MANAGEMENT GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
TAX EFFECTS
DECEMBER 31,
----------------------
1994 1995
--------- --------
<S> <C> <C>
Deferred tax assets:
Contractual allowances and provision for uncollectible
accounts................................................. $ 96,000 $127,649
Accrual of legal settlement................................. 11,000 5,740
--------- --------
107,000 133,389
--------- --------
Deferred tax liabilities:
Retrieval fees and accrued expenses......................... (80,000) --
Fixed assets and depreciation............................... (41,600) (48,200)
--------- --------
(121,600) (48,200)
--------- --------
Total net deferred assets (liabilities)....................... $ (14,600) $ 85,189
========= ========
</TABLE>
The Company prospectively adopted Financial Accounting Standards No. 109,
"Accounting for Income Taxes," on January 1, 1993, and the 1993 statement of
income includes a cumulative effect adjustment of $17,500 to record a deferred
tax liability.
The provision for income taxes differs from the tax at the statutory rate
due to the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Income before income taxes and cumulative effect of
accounting
changes............................................. $46,764 $67,242 $83,745
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Taxes using federal statutory rates at 34%............ $15,900 $22,900 $28,473
State income taxes, net of the federal tax benefit.... 2,800 4,000 5,568
Nondeductible travel and entertainment................ 100 4,600 3,400
Effects of utilizing graduated tax rates for current
provision........................................... -- (8,700) (11,750)
Other................................................. 200 (200) --
------- ------- -------
Provision for income taxes.................. $19,000 $22,600 $25,691
======= ======= =======
</TABLE>
For purposes of the consolidated federal tax return, the Parent has a net
operating loss carryforward available to offset taxable income of the Company in
1994. The net operating loss carryforward will be fully utilized for the tax
year 1994.
7. 401(K) PLAN:
The Company has adopted a contributory 401(k) plan (the "Plan") as of
September 1, 1993. The Plan allows employees to make elective contributions
through salary reduction. The Plan allows for discretionary employer matching.
Participation in the Plan is limited based on certain age and service
requirements. The Company made no contribution to the Plan for the years ended
December 31, 1995 and 1994.
F-61
<PAGE> 114
RECORDEX SERVICES, INC.
(A WHOLLY OWNED SUBSIDIARY OF PARAGON MANAGEMENT GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. OPERATING LEASES
The Company leases office space under an operating lease which expires in
1998. The future minimum annual rental payments required under this operating
lease as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996..................................................................... $69,804
1997..................................................................... 69,804
1998..................................................................... 29,805
</TABLE>
Rent expense charged against operations for the years ended December 31, 1995,
1994 and 1993 was $77,172, $55,173, and $47,175, respectively.
9. COMMITMENTS AND CONTINGENCIES:
The Company is named as a defendant, with other medical records copying
copy services and numerous hospitals, in a federal and three state lawsuits
contesting the reasonableness of the fees charged for medical records
reproduction. The plaintiff's in each of these cases are seeking class
certification. In November 1994, the plaintiff's motion for class certification
and all other claims were denied in the federal lawsuit. The plaintiffs filed an
appeal on January 3, 1995. On April 4, 1996, the Court of Appeals affirmed the
decision in favor of the Company on the substantive claims, but remanded the
case to the District Court for a hearing on the individual plaintiff's request
for injunctive relief.
The three state lawsuits, two in Pennsylvania, and one in Ohio, are similar
to the federal suit described above. In February 1996, one of the Pennsylvania
lawsuits was concluded favorably to the Company. Management of the Company and
its counsel believe that the outcome of the remaining cases will be influenced
by the outcome of the other cases.
Although the ultimate outcome of the remaining litigation is not presently
determinable, management of the Company and its counsel believe that they can
successfully defend these cases and any liability resulting from them will not
have a material effect on the Company's financial statements.
10. PRO FORMA NET INCOME (UNAUDITED):
Selling, general, and administrative expenses for the periods presented
reflect compensation and related benefits that owners and certain key employees
received during the periods. These owners and key employees have agreed to
certain reductions in salaries and benefits in connection with the Merger.
In connection with the Merger, two of the Parent's stockholders have
entered into a three year employment agreement with FYI which provides for set
base salary, participation in any future FYI incentive bonus plans, four weeks,
paid vacation, a car allowance, health benefits, and a two year covenant-not-to-
compete following termination of such person's employment. The stockholders'
employment agreements provide for an aggregate base salary of $300,000.
The unaudited pro forma data presents compensation at the level the
officers and owners of the Company have agreed to receive subsequent to the
Offering. In addition, the pro forma data presents the incremental provision for
income taxes for the impact of the compensation differential discussed above.
11. SUBSEQUENT EVENTS:
On January 26, 1996, the Company was acquired by FYI. In connection with
the Merger, the Company assumed a note payable to the Parent's stockholders in
the amount of $190,590 and distributed advances receivable from the Parent of
$816,335. Had these transactions been recorded at December 31, 1995, the effect
on the accompanying balance sheet would be an increase in liabilities of
$190,590, a decrease in assets of $816,335 and a decrease in stockholders'
equity of $1,006,925. (See Note 1.)
F-62
<PAGE> 115
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Leonard Archives, Inc.:
We have audited the accompanying balance sheets of Leonard Archives, Inc.
(a Michigan corporation) as of December 31, 1994 and 1995, and the related
statements of operations, stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Leonard Archives, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 15, 1996
F-63
<PAGE> 116
LEONARD ARCHIVES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 36,190 $ 13,414
Accounts receivable, less allowance for doubtful accounts of
$35,000 for each period........................................ 901,459 888,352
Accounts receivable -- affiliates................................. 280,033 259,236
Accounts receivable -- officer and employees...................... 14,189 67,043
Prepaids and other current assets................................. 104,702 124,106
---------- ----------
Total current assets...................................... 1,336,573 1,352,151
PROPERTY AND EQUIPMENT, net......................................... 1,670,307 1,962,635
OTHER NONCURRENT ASSETS............................................. 14,275 16,775
---------- ----------
Total assets.............................................. $3,021,155 $3,331,561
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term obligations............................................ $ 625,431 $ 315,797
Short-term obligations to stockholder............................. -- 500,000
Current maturities of long-term obligations....................... 219,823 707,241
Accounts payable and accrued liabilities.......................... 846,065 662,379
Unearned income................................................... 377,372 333,590
---------- ----------
Total current liabilities................................. 2,068,691 2,519,007
LONG-TERM OBLIGATIONS, net of current maturities.................... 664,926 723,603
LONG-TERM OBLIGATIONS TO AFFILIATES, net of current
maturities........................................................ 42,484 19,326
---------- ----------
Total liabilities......................................... 2,776,101 3,261,936
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $10, 8,500 shares authorized, 4,293 shares
outstanding for all periods.................................... 42,930 42,930
Retained earnings................................................. 202,124 26,695
---------- ----------
Total stockholders' equity................................ 245,054 69,625
---------- ----------
Total liabilities and stockholders' equity................ $3,021,155 $3,331,561
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE> 117
LEONARD ARCHIVES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
SERVICE REVENUE........................................ $4,372,109 $5,006,725 $5,858,023
COST OF SERVICES....................................... 2,395,102 3,135,573 3,136,965
DEPRECIATION........................................... 133,668 231,261 305,614
---------- ---------- ----------
Gross profit................................. 1,843,339 1,639,891 2,415,444
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES.......... 1,543,994 1,576,865 1,627,377
---------- ---------- ----------
Operating income............................. 299,345 63,026 788,067
OTHER (INCOME) EXPENSE:
Interest expense..................................... 74,354 114,894 144,155
Interest income...................................... (14,657) (18,653) (18,320)
Other (income) expense, net.......................... 5,062 (44,161) 2,661
---------- ---------- ----------
NET INCOME............................................. $ 234,586 $ 10,946 $ 659,571
========== ========== ==========
PRO FORMA DATA (Unaudited -- See Note 11):
HISTORICAL NET INCOME.................................. $ 234,586 $ 10,946 $ 659,571
PRO FORMA COMPENSATION DIFFERENTIAL.................... 159,470 60,000 144,821
PRO FORMA PROVISION FOR INCOME TAXES................... 130,175 35,485 276,893
---------- ---------- ----------
PRO FORMA NET INCOME................................... $ 263,881 $ 35,461 $ 527,499
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE> 118
LEONARD ARCHIVES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992....................... 4,293 $42,930 $ 145,492 $ 188,422
Dividends declared............................. -- -- (107,900) (107,900)
Net income..................................... -- -- 234,586 234,586
----- ------- --------- ---------
BALANCE, December 31, 1993....................... 4,293 42,930 272,178 315,108
Dividends declared............................. -- -- (81,000) (81,000)
Net income..................................... -- -- 10,946 10,946
----- ------- --------- ---------
BALANCE, December 31, 1994....................... 4,293 42,930 202,124 245,054
Dividends declared............................. -- -- (835,000) (835,000)
Net income..................................... -- -- 659,571 659,571
----- ------- --------- ---------
BALANCE, December 31, 1995....................... 4,293 $42,930 $ 26,695 $ 69,625
===== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE> 119
LEONARD ARCHIVES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1994 1995
--------- --------- -----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income........................................... $ 234,586 $ 10,946 $ 659,571
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization..................... 133,668 231,261 305,614
Changes in operating assets and liabilities--
(Increase) decrease in--
Accounts receivable, net..................... (209,273) (183,387) (18,950)
Prepaid and other assets..................... (13,578) (5,796) (21,904)
Increase (decrease) in--
Accounts payable and accrued liabilities..... 131,010 229,416 (183,686)
Unearned income.............................. 74,525 94,280 (43,782)
--------- --------- -----------
Net cash provided by operating
activities............................ 350,938 376,720 696,863
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.................. (139,750) (607,035) (504,023)
--------- --------- -----------
Net cash used in investing activities... (139,750) (607,035) (504,023)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on short-term obligations......... -- (79,434) (1,546,196)
Principal payments on long-term obligations.......... (118,084) (127,115) (170,982)
Proceeds from short-term obligations................. 16,401 531,515 1,736,562
Proceeds from long-term obligations.................. -- -- 600,000
Payment of dividends................................. (107,900) (81,000) (835,000)
--------- --------- -----------
Net cash provided by (used in) financing
activities............................ (209,583) 243,966 (215,616)
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 1,605 13,651 (22,776)
CASH AND CASH EQUIVALENTS, at beginning of period...... 20,934 22,539 36,190
--------- --------- -----------
CASH AND CASH EQUIVALENTS, at end of period............ $ 22,539 $ 36,190 $ 13,414
========= ========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for--
Interest.......................................... $ 69,378 $ 102,951 $ 136,029
NONCASH TRANSACTIONS:
Equipment acquired through capital lease
obligations....................................... $ 90,111 $ 149,500 $ 93,919
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE> 120
LEONARD ARCHIVES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Leonard Archives, Inc. (the "Company") stores records, computer media and
microfilm for all industries. The Company also provides document destruction as
a complement to complete records management. The Company operates out of two
Detroit facilities and three other facilities, in Ann Arbor and Farmington
Hills, Michigan, and in Toledo, Ohio.
In October 1995, the Company and its stockholder entered into a definitive
agreement with F.Y.I. Incorporated ("FYI") pursuant to which the Company will
merge with FYI (the "Merger"). All outstanding shares of the Company's common
stock will be exchanged for cash and shares of FYI's common stock concurrent
with the consummation of the initial public offering (the "Offering") of the
common stock of FYI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates market value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets. Building
improvements are depreciated over the lesser of the asset's useful life or the
lease-term.
Unearned Income
Unearned income represents customer storage services which are billed in
advance.
Other Long-Lived Assets
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" (SFAS 121), which is establishing
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 to have any effect on the financial
statements. The Company will adopt SFAS 121 in 1996.
Revenue Recognition
Revenue is recognized when the services are rendered.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk, as defined by Statement of Financial Accounting
Standards (SFAS) No. 105, consist primarily of trade receivables.
Trade receivables are primarily short-term receivables from clients located
in Michigan and Ohio. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical
trends, and other information.
F-68
<PAGE> 121
LEONARD ARCHIVES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company is an S corporation for income tax purposes and, accordingly,
any income tax liabilities are the responsibility of the stockholder. The
Company's S corporation status will terminate with the effective date of the
Merger discussed in Note 1.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ---------------------------
(YEARS) 1994 1995
------------ ----------- -----------
<S> <C> <C> <C>
Land......................................... NA $ 2,581 $ 2,581
Building and building improvements........... 7-18 900,015 904,524
Warehouse and vault equipment................ 5-15 1,306,586 1,696,107
Transportation equipment..................... 3-7 65,752 72,572
Equipment under capital leases............... 5 274,833 359,088
Office equipment............................. 5-7 236,280 327,851
Data disintegration equipment................ 10 249,644 261,245
----------- -----------
3,035,691 3,623,968
Less -- Accumulated depreciation and
amortization............................... 1,365,384 1,661,333
----------- -----------
$ 1,670,307 $ 1,962,635
=========== ===========
</TABLE>
Accumulated depreciation of equipment under capital leases amounted to
$72,587 and $125,137 at December 31, 1994 and 1995, respectively.
4. SHORT-TERM OBLIGATIONS:
Short-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Bank demand note, expiring June 1999, interest at prime plus
0.75% (9.25% at December 31, 1994), secured by accounts
receivable and machinery and equipment....................... $118,621 $ --
Bank master equipment line of credit, each borrowing payable on
demand and is termed-out over 36 equal monthly payments,
accrued interest at prime plus 0.75% (9.25% at December 31,
1994), payable monthly, secured by accounts receivable and
machinery and equipment...................................... 241,810 --
Bank working capital line of credit, payable on demand, accrued
interest at prime plus 1.25% (9.75% at December 31, 1995),
secured by a first security interest in all accounts
receivable, machinery, and equipment, and a personal
guarantee by the stockholder ................................ -- 315,797
Bank demand master equipment note, monthly payment of $5,000
plus accrued interest at prime plus 0.75% (9.25% at December
31, 1994), matures 1999, secured by accounts receivable and
machinery and equipment...................................... 265,000 --
-------- --------
$625,431 $315,797
======== ========
</TABLE>
F-69
<PAGE> 122
LEONARD ARCHIVES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Short-term obligations to affiliates consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
-------- ----------
<S> <C> <C>
Note payable -- stockholder, payable on demand, accrued
interest at 8.75%, unsecured............................... $ -- $ 500,000
</TABLE>
5. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
-------- ----------
<S> <C> <C>
Mortgage payable -- bank, monthly payment of $8,500,
including principal and interest at prime plus 0.75% (9%
and 9.5% at December 31, 1994 and 1995, respectively),
maturing October 1, 1996, secured by a first mortgage on
the land, building, and certain equipment and guaranteed by
the stockholder and a former stockholder................... $561,644 $ 503,529
Note payable -- Detroit Economic Growth Council, monthly
payment of $1,353, including principal and interest at
6.1%, maturing June 1, 1995, secured by certain assets of
the Company and guaranteed by the stockholder and his
wife....................................................... 7,979 --
Mortgage payable -- bank, monthly payment of $7,978,
including principal and interest at prime plus 1.25% (9.75%
at December 31, 1995), maturing December 1, 2000, secured
by a second mortgage on the land, building, and certain
equipment and guaranteed by the stockholder. .............. -- 600,000
Note payable -- bank, monthly payment of $517, including
principal and interest at 12%, maturing May 1998, secured
by automobile.............................................. 17,310 12,895
Capital lease obligations -- interest rates ranging from 3%
to 15.9%, maturing at dates from January 1996 to September
2000....................................................... 202,249 233,951
-------- ----------
Total.............................................. 789,182 1,350,375
Less -- Current maturities................................... 124,256 626,772
-------- ----------
$664,926 $ 723,603
======== ==========
</TABLE>
Long-term obligations to affiliates consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
-------- -------
<S> <C> <C>
Note payable -- Leonard Investments, monthly payment of $1,185,
including principal and interest at prime plus 1% (9.5% at
December 31, 1994 and 1995), maturing in 1998, unsecured...... $ 37,193 $26,157
Note payable -- Leonard Investments, monthly payment of $861,
including principal and interest at prime plus 1% (9.5% at
December 31, 1994 and 1995), maturing January 1996,
unsecured..................................................... 31,691 14,471
</TABLE>
F-70
<PAGE> 123
LEONARD ARCHIVES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
-------- --------
<S> <C> <C>
Note payable -- Leonard Investments, interest payable annually
at prime plus 1% (9.5% and 8.75% at December 31, 1994 and
1995, respectively), maturing January 1996, unsecured......... $ 69,167 $59,167
-------- --------
Total................................................. 138,051 99,795
Less -- Current maturities...................................... 95,567 80,469
-------- --------
$ 42,484 $19,326
======== ========
</TABLE>
The stockholder of the Company also has a personal note obligation which
has as collateral substantially all of the assets of the Company. The security
interests in these assets is subordinate to the security interest of the bank.
Maturities for December 31, 1996, 1997, 1998, 1999, 2000, and thereafter are
$707,241, $110,255, $115,257, $79,699, $437,718, and $0, respectively.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Accounts payable............................................... $582,185 $409,972
Accrued compensation, benefits, and taxes...................... 117,582 179,009
Other.......................................................... 146,298 73,398
-------- --------
$846,065 $662,379
======== ========
</TABLE>
7. LEASE OBLIGATIONS:
The Company leases its buildings, transportation equipment, and office
equipment under noncancelable lease agreements which expire at various dates.
Minimum future lease payments under capital and operating leases as of December
31, 1995, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
1996......................................................... $100,136 $ 459,882
1997......................................................... 65,156 672,467
1998......................................................... 66,179 657,903
1999......................................................... 27,234 590,892
2000......................................................... 10,840 475,280
Thereafter................................................... -- 2,355,520
-------- ----------
Total minimum lease payments................................. 269,545 $5,211,944
==========
Less -- Amounts representing interest........................ 35,594
--------
Present value of net minimum lease payments.................. 233,951
Less -- Current portion of obligations under capital
leases..................................................... 82,083
--------
Long-term portion of obligations under capital leases........ $151,868
========
</TABLE>
Rental expense for all operating leases was approximately $354,894,
$569,762, and $531,735 for the years ended December 31, 1993, 1994 and 1995,
respectively.
F-71
<PAGE> 124
LEONARD ARCHIVES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLAN:
In 1994, the Company adopted a discretionary retirement plan covering
substantially all of its employees. Retirement expenses are funded through
annual contributions to the plan. Expenses related to the plan were $15,982 and
$24,227 for the years ended December 31, 1994 and 1995, respectively.
9. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for workers'
compensation, unemployment, and property damage incurred in connection with its
operations. Management believes none of these actions will have a material
adverse effect on the financial position or results of operations of the
Company.
10. RELATED-PARTY TRANSACTIONS:
The Company leases its operating facilities in Toledo and Trumbull
(Detroit) from Leonard Investments. These leases are for various lengths and
annual amounts. The rental expense for these operating leases for the years
ended December 31, 1993, 1994 and 1995, were $127,000, $126,000, and $127,000,
respectively. The Company is also borrowing funds from Leonard Investments as
described in Note 5. Leonard Investments is a partnership owned by the
stockholder and a former stockholder of the Company. The Ann Arbor facility is
leased from a former stockholder. Rental expense for the Ann Arbor facility was
$62,064 for the years ended December 31, 1993, 1994, and 1995.
Accounts receivable -- affiliate represents amounts due from Accumed
Billing, Inc. and Pathfinders, Inc. The sole stockholder of the Company and his
relatives own a 78% interest in Accumed Billing, Inc. and a 33% interest in
Pathfinders, Inc. The receivables relate primarily to employee services provided
to Accumed Billing, Inc. and Pathfinders, Inc.
Leonard has guaranteed a promissory note in the principal amount of
approximately $636,000 as of December 31, 1995, with interest at 10%, payable in
monthly installments in varying amounts through December 1, 2004. The promissory
note is from the stockholder to the former joint owner in Leonard. Leonard's
guarantee and security interest are subordinate to all other notes payable to
the bank and the Detroit Economic Growth Council.
11. PRO FORMA NET INCOME (UNAUDITED):
Selling, general, and administrative expenses for the periods presented
reflect compensation and related benefits that owners and certain key employees
received during these periods. These owners and key employees have agreed to
certain reductions in salaries and benefits in connection with the Merger.
In connection with this merger, the stockholder has entered into a three
year employment agreement with FYI which provides for set base salary,
participation in any future FYI incentive bonus plans, four week paid vacation,
a car allowance, health benefits, and a two year covenant-not-to-compete
following termination of such person's employment. The stockholder's employment
agreement provides for a $100,000 base salary.
The unaudited pro forma data presents compensation at the level the
officers and owners of the Company have agreed to receive subsequent to the
Offering. In addition, the pro forma data presents the provision for income
taxes as if the Company had been subject to federal and state income taxes and
adjusted for the impact of the compensation differential discussed above.
F-72
<PAGE> 125
LEONARD ARCHIVES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS:
In October 1995, the Company and its stockholder entered into a definitive
agreement to be acquired by FYI. This transaction was subsequently closed on
January 26, 1996. In conjunction with this merger, prior to year-end, the
Company distributed cash to its stockholder in the amount of $700,000 which
represented the AAA account of the Company. In addition, the Company can make an
additional distribution corresponding to the increase in net stockholders'
equity from June 30, 1995 to November 30, 1995, not to exceed $75,000. The
amount available for the additional distribution at December 31, 1995, is
$75,000. Had these transactions been recorded at December 31, 1995, the effect
on the accompanying balance sheet would be a decrease in total assets and a
decrease in stockholder's equity of $75,000.
F-73
<PAGE> 126
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To C.&T. Management Services, Inc.:
We have audited the accompanying combined balance sheets of C.&T.
Management Services, Inc. (a California corporation) and Related Company as of
December 31, 1994 and 1995, and the related combined statements of operations,
stockholders' deficit, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of C.&T. Management
Services, Inc. and Related Company as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 15, 1996
F-74
<PAGE> 127
C.&T. MANAGEMENT SERVICES, INC. AND RELATED COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 24,115 $ 58,823
Accounts receivable, less allowance of $44,265 and $19,286.......... 820,896 956,089
Note receivable -- current.......................................... 52,386 424,649
Prepaid and other current assets.................................... 34,259 36,748
----------- ----------
Total current assets........................................ 931,656 1,476,309
PROPERTY AND EQUIPMENT, net........................................... 221,773 257,716
NOTE RECEIVABLE, NET OF CURRENT PORTION............................... 429,219 --
OTHER NONCURRENT ASSETS, net.......................................... 25,108 17,255
----------- ----------
Total assets................................................ $1,607,756 $1,751,280
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term obligations.............................................. $ 757,189 $ 496,809
Current maturities of long-term obligations......................... 24,034 26,234
Accounts payable and accrued liabilities............................ 429,799 468,845
Stockholder note payable -- current................................. 519,808 563,514
Current portion of deferred income taxes............................ 15,857 15,857
----------- ----------
Total current liabilities................................... 1,746,687 1,571,259
LONG-TERM OBLIGATIONS:
Notes payable....................................................... 6,221 --
Stockholder note payables, net of current........................... 35,126 19,969
----------- ----------
Total liabilities................................................ 1,788,034 1,591,228
----------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par value and no par (Note 12), authorized 125,000
shares, 3,100 shares issued and outstanding...................... 4,000 4,000
Additional paid-in capital.......................................... 1,285 1,285
Retained (deficit) earnings......................................... (185,563) 154,767
----------- ----------
Total stockholders' equity (deficit)........................ (180,278) 160,052
----------- ----------
Total liabilities and stockholders' equity (deficit)........ $1,607,756 $1,751,280
=========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-75
<PAGE> 128
C.&T. MANAGEMENT SERVICES, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES............................................... $5,804,738 $5,337,100 $5,369,412
COST OF SERVICES....................................... 4,001,734 3,975,161 3,560,791
DEPRECIATION EXPENSE................................... 66,999 52,797 53,007
---------- ---------- ----------
Gross profit................................. 1,736,005 1,309,142 1,755,614
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES.......... 1,633,876 1,508,037 1,414,629
---------- ---------- ----------
Operating income (loss)........................... 102,129 (198,895) 340,985
OTHER (INCOME) EXPENSE:
Interest expense..................................... 93,815 102,969 126,406
Interest income...................................... (10,969) (50,116) (51,460)
Other income, net.................................... (46,255) (135,809) (95,891)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES...................... 65,538 (115,939) 361,930
PROVISION FOR INCOME TAXES............................. 1,600 1,600 1,600
---------- ---------- ----------
Net income (loss)............................ $ 63,938 $ (117,539) $ 360,330
========== ========== ==========
PRO FORMA DATA (Unaudited -- See Note 14):
HISTORICAL NET INCOME (LOSS)........................... $ 63,938 $ (117,539) $ 360,330
PRO FORMA COMPENSATION DIFFERENTIAL.................... 224,187 177,531 171,383
PRO FORMA PROVISION FOR INCOME
TAXES................................................ 119,101 22,231 199,326
---------- ---------- ----------
PRO FORMA NET INCOME................................... $ 169,024 $ 37,761 $ 332,387
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-76
<PAGE> 129
C.&T. MANAGEMENT SERVICES, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
---------------- PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992................. 3,100 4,000 1,285 (131,962) (126,677)
Net income............................... -- -- -- 63,938 63,938
----- ------ ------ --------- ---------
BALANCE, December 31, 1993................. 3,100 4,000 1,285 (68,024) (62,739)
Net loss................................. -- -- -- (117,539) (117,539)
----- ------ ------ --------- ---------
BALANCE, December 31, 1994................. 3,100 4,000 1,285 (185,563) (180,278)
Dividend................................. -- -- -- (20,000) (20,000)
Net income............................... -- -- -- 360,330 360,330
----- ------ ------ --------- ---------
BALANCE, December 31, 1995................. 3,100 $4,000 $1,285 $ 154,767 $ 160,052
===== ====== ====== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-77
<PAGE> 130
C.&T. MANAGEMENT SERVICES, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 63,938 $(117,539) $ 360,330
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities --
Depreciation/amortization.............................. 66,999 52,797 53,007
Gain on sale........................................... -- (40,000) --
Deferred tax benefit................................... (3,307) -- --
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable, net.......................... 74,750 (49,785) (135,193)
Prepaid and other assets.......................... (77,165) 39,161 5,364
Increase (decrease) in --
Accounts payable and accrued liabilities.......... (49,645) 107,135 39,046
--------- --------- ---------
Net cash provided by (used in) operating
activities................................. 75,570 (8,231) 322,554
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Additions) dispositions of property and equipment........ (15,696) (34,967) (88,950)
--------- --------- ---------
Net cash (used in) investing activities...... (15,696) (34,967) (88,950)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit.......................... 25,000 -- --
Principal payments on stockholder notes payable........... (179,195) (116,970) (13,451)
Proceeds from stockholder notes payable................... -- 310,000 42,000
Principal payments on short-term obligations.............. (204,117) (210,990) (260,380)
Principal payments on long-term obligations............... (146,687) (17,606) (24,036)
Proceeds from short-term borrowings....................... 253,352 11,162 20,015
Principal collected on note receivable.................... 14,157 78,092 56,956
Issuance of note receivable............................... (14,410) -- --
Dividends paid............................................ -- -- (20,000)
--------- --------- ---------
Net cash provided by (used in) financing
activities................................. (251,900) 53,688 (198,896)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (192,026) 10,490 34,708
CASH AND CASH EQUIVALENTS, at beginning of year............. 205,651 13,625 24,115
--------- --------- ---------
CASH AND CASH EQUIVALENTS, at end of year................... $ 13,625 $ 24,115 $ 58,823
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for --
Interest............................................. $ 92,397 $ 105,757 $ 128,192
Taxes................................................ 4,300 1,600 1,600
NONCASH TRANSACTIONS:
Note receivable received in connection with sale of
building............................................... $ 550,000 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-78
<PAGE> 131
C.&T. MANAGEMENT SERVICES, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The accompanying combined financial statements include the accounts of
C.&T. Management Services, Inc. (dba DPAS) and Qualidata, Inc. (dba The Mail
House -- the "Related Company") (collectively the "Company"). The Company's
principal business is providing data processing, information management, and
bulk mailing services for its customers who are located primarily on the West
Coast.
The Company and its stockholders entered into a definitive agreement with
F.Y.I. Incorporated ("FYI") pursuant to which the Company will merge with FYI
(the "Merger"). All outstanding shares of the Company's common stock will be
exchanged for cash and shares of FYI's common stock concurrent with the
consummation of the initial public offering (the "Offering") of the common stock
of FYI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The companies discussed in Note 1 are all under common control of two
stockholders. All significant intercompany transactions have been eliminated in
combination.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates market value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Intangible and Other Long-Lived Assets
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 121: Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of (SFAS 121) which establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 to have any effect on the combined financial
statements. The Company will adopt SFAS 121 in 1996.
Revenue Recognition
Revenue is recognized when services are rendered.
Income Taxes
The companies are S corporations for income tax purposes and, accordingly,
any federal income tax liabilities are the responsibility of the stockholders.
The Company's S corporation status will terminate with the effective date of the
Merger discussed in Note 1.
Reclassifications
Certain prior year amounts have been reclassified to make their
presentation consistent with the current year.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration
of credit risk, as defined by Statement of Financial Accounting Standards (SFAS)
No. 105, consist primarily of trade accounts receivable. The Company's customers
are concentrated in the Western United States and the primary
F-79
<PAGE> 132
C.&T. MANAGEMENT SERVICES, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
customers are state and public institutions. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends, and other information.
3. NOTES RECEIVABLE:
Notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Sunrise Mushroom -- interest rate at 12% with monthly principal
and interest payments of $9,125, balloon payment due at
maturity on January 16, 1996. The note is secured by a
commercial building sold to Sunrise Mushroom by the Company
in 1993...................................................... $480,000 $424,649
Other notes receivable, noninterest bearing.................... 1,605 --
-------- --------
Total notes receivable............................... 481,605 424,649
Less -- Current portion........................................ 52,386 424,649
-------- --------
$429,219 $ --
======== ========
</TABLE>
The Company sold a commercial building to Sunrise Mushroom on February 1,
1993, for $625,000, including $75,000 of cash and a note receivable of $550,000.
The gain of $40,000 was deferred in 1993 and subsequently recognized in 1994
upon fulfillment of the requirements for gain recognition under SFAS No. 66,
"Accounting for Sales of Real Estate."
The Sunrise Mushroom note receivable was refinanced in January 1995 and is
due in full on January 16, 1996 (see Note 15).
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------------
(YEARS) 1994 1995
------------- ---------- -----------
<S> <C> <C> <C>
Autos and trucks.............................. 5 $ 198,794 $ 198,794
Furniture and equipment....................... 5-10 1,754,905 1,842,360
---------- -----------
1,953,699 2,041,154
Less -- Accumulated depreciation.............. 1,731,926 1,783,438
---------- -----------
$ 221,773 $ 257,716
========== ===========
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Accounts payable............................................... $282,972 $384,967
Sales tax payable.............................................. 17,027 15,991
Other accrued liabilities...................................... 114,766 59,498
Accrued compensation, benefits, and taxes...................... 15,034 8,389
-------- --------
$429,799 $468,845
======== ========
</TABLE>
F-80
<PAGE> 133
C.&T. MANAGEMENT SERVICES, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. SHORT-TERM OBLIGATION:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Note payable -- bank; interest at the bank's index rate prime
plus 1.0%; monthly payments of $10,000, 9.5% and 10.75% at
December 31, 1994 and 1995, maturing January 1, 1998......... $300,000 $252,724
Trust deed payable; interest at the Bank's index rate prime
plus 1.5% (floor of 9.0%); monthly payments of $6,085;
maturity January 15, 1998; at December 31, 1994 and 1995, the
interest rate was 11% and 11.25% secured by first trust deed
on commercial property....................................... 197,189 144,085
Note payable -- bank; monthly principal of $8,333 plus interest
at prime plus 2% and a maturity date of December 1996;
interest rate at December 31, 1994 and 1995, was 10.5% and
10.75%; secured by non-real estate assets of the Company..... 200,000 100,000
Note payable -- bank; monthly principal of $5,000 plus interest
at prime plus 2% and a maturity date of January 1996; secured
by non-real estate assets of the Company..................... 60,000 --
-------- --------
Total................................................ $757,189 $496,809
======== ========
</TABLE>
7. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Note payable -- EMC Corp.; interest rate at 14.658% with monthly
payments of $1,004 and a maturity date of June, 1996........... $16,129 $ 5,772
Note payable -- bank; interest rate at 11.25% with monthly
payments of $227 and a maturity date of February 1996; secured
by 1990 Ford truck............................................. 2,964 447
Vendor notes payable............................................. 11,162 20,015
------- -------
Total.................................................. 30,255 26,234
Less -- Current maturities....................................... 24,034 26,234
------- -------
$ 6,221 $ --
======= =======
</TABLE>
As of December 31, 1994 and 1995, the Company has complied with all loan
covenants.
8. OPERATING LEASES:
The Company leases its office buildings, office equipment, and computer
software under noncancelable lease agreements which expire at various dates.
Lease payments for the years ended December 31, 1993, 1994,
F-81
<PAGE> 134
C.&T. MANAGEMENT SERVICES, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and 1995, totaled approximately, $460,000, $455,000, and $293,000. Future
minimum lease payments under operating leases as of December 31, 1995, for each
of the next five years and in the aggregate are as follows:
<TABLE>
<S> <C>
1996............................................................. $ 262,465
1997............................................................. 266,917
1998............................................................. 261,969
1999............................................................. 245,081
2000............................................................. 226,147
Thereafter....................................................... 709,259
----------
Total.................................................. $1,971,838
==========
</TABLE>
9. EMPLOYEE BENEFIT PLAN:
The Company sponsors a profit sharing plan. Employees become eligible after
one year of service to the Company. The employees are not allowed to make
contributions to the plan; Company contributions are determined by the Board of
Directors. The profit sharing plan expense was $19,392, $12,422, and $19,866 for
1993, 1994 and 1995, respectively.
The Company offers no postretirement or postemployment benefits.
10. INCOME TAXES:
The Company has elected S corporation status under the Internal Revenue
Code. In lieu of federal income taxes, the shareholder is taxed on the Company's
taxable income. Therefore, no provision or liability for federal income tax has
been included in the financial statements for the years ended December 31, 1993,
1994, and 1995. Due to the losses recorded in 1992 and 1994, only the California
minimum corporate tax of $800 has been due. A deferred state tax liability
exists primarily due to the cash basis method of reporting for income tax
purposes. The deferred tax liability of $15,857 at December 31, 1994 and 1995,
represents the 2.5% State of California corporate tax on the net temporary
differences.
State income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
------- ------ ------
<S> <C> <C> <C>
Current......................................... $ 4,907 $1,600 $1,600
Deferred........................................ (3,307) -- --
------- ------ ------
$ 1,600 $1,600 $1,600
======= ====== ======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involve workers' compensation and
unemployment claims incurred in connection with its operations. Management
believes that none of these actions will have a material adverse effect on the
financial position or results of operations of the Company.
F-82
<PAGE> 135
C.&T. MANAGEMENT SERVICES, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMON STOCK:
Common stock at December 31, 1994 and 1995, consists of the following:
<TABLE>
<CAPTION>
SHARES
--------------------------
PAR ISSUED AND TOTAL
VALUE AUTHORIZED OUTSTANDING VALUE
------ ---------- ----------- ------
<S> <C> <C> <C> <C>
C&T Management Services, Inc.............. $1.00 25,000 3,000 $3,000
Qualidata, Inc. .......................... No par 100,000 100 1,000
------- ----- ------
125,000 3,100 $4,000
======= ===== ======
</TABLE>
13. RELATED-PARTY TRANSACTIONS:
A stockholder has advanced funds to the Company of $503,502 and $545,502 as
of December 31, 1994 and 1995, respectively. The amounts advanced bear interest
at a rate of 9% and are payable on demand.
The Company has a 12% interest-bearing stockholder note payable totaling
$51,432 and $37,981 at December 31, 1994 and 1995, that has monthly principal
and interest payments of $1,800 and a maturity date of October 1997.
The maturity for this obligation is as follows:
<TABLE>
<S> <C>
1996............................................................... $18,012
1997............................................................... 19,969
-------
$37,981
=======
</TABLE>
14. PRO FORMA NET INCOME (UNAUDITED):
Selling, general, and administrative expenses for the periods presented
reflect compensation and related benefits that the owner and certain key
employees received during the periods. The owner and key employees have agreed
to certain reductions in salaries and benefits in connection with the Merger.
In connection with the Merger, each stockholder has entered into a
three-year employment agreement with FYI which provides for set base salary,
participation in any future FYI incentive bonus plans, four week paid vacation,
a car allowance, health benefits and a two year covenant-not-to-compete
following termination of such person's employment. The stockholders' employment
agreements provide for an aggregate base salary of $220,000.
The unaudited pro forma data presents compensation at the level the
officers and owner of the Company have agreed to receive subsequent to the
Offering. In addition, the following pro forma data presents the provision for
income taxes as if the Company had been subject to federal and state income
taxes and adjusted for the impact of the compensation differential discussed
above.
15. SUBSEQUENT EVENTS:
In October 1995, the Company and its stockholders entered into a definitive
agreement to be acquired by FYI. This transaction was subsequently closed on
January 26, 1996.
In conjunction with the Merger, the Company will dividend to the
stockholders, a note receivable totaling $424,649 and related mortgage note
payable of $144,085. In addition, the Company will make a cash distribution of
$250,000 prior to the closing of the merger of which $20,000 was distributed
prior to year-end. Had these transactions been recorded at December 31, 1995,
the effect on the accompanying balance sheet would be a decrease in total assets
of $654,649, total liabilities of $144,085, and stockholders' equity of
$510,564.
In addition certain cash proceeds of the Offering will be used to repay the
stockholder notes payable of $583,483.
F-83
<PAGE> 136
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Deliverex, Incorporated:
We have audited the accompanying combined balance sheets of Deliverex,
Incorporated (a California corporation) and Subsidiary and Related Company as of
September 30, 1994, and December 31, 1995, and the related combined statements
of operations, stockholders' equity, and cash flows for each of the years ended
September 30, 1993 and 1994, and December 31, 1995. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Deliverex,
Incorporated and Subsidiary and Related Company as of September 30, 1994 and
December 31, 1995, and the combined results of their operations and their
combined cash flows for each of the years ended September 30, 1993 and 1994, and
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 15, 1996
F-84
<PAGE> 137
DELIVEREX, INCORPORATED AND SUBSIDIARY AND RELATED COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1995
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 120,948 $ 210,444
Accounts receivable.............................................. 129,397 288,197
Accounts receivable -- stockholder............................... 314,731 314,731
Deferred tax assets current...................................... 112,030 --
Prepaid and other current assets................................. 3,180 9,410
--------- ----------
Total current assets..................................... 680,286 822,782
PROPERTY AND EQUIPMENT, net........................................ 172,675 172,926
ADVANCES TO OFFICER................................................ 73,403 73,403
OTHER NONCURRENT ASSETS, net....................................... 48,948 48,948
--------- ----------
Total assets............................................. $ 975,312 $1,118,059
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term obligations........................................... $ 47,270 $ 39,258
Deferred tax liabilities......................................... -- 10,964
Current maturities of long-term obligations...................... 27,564 22,098
Accounts payable and accrued liabilities......................... 250,614 196,725
--------- ----------
Total current liabilities................................ 325,448 269,045
LONG-TERM OBLIGATIONS, net of current maturities................... 430,318 403,263
OTHER LONG-TERM LIABILITIES........................................ 49,728 --
--------- ----------
Total liabilities........................................ 805,494 672,308
--------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, authorized 510,000 shares, 107,000 shares
issued........................................................ 9,900 9,900
Retained earnings................................................ 160,918 435,851
--------- ----------
170,818 445,751
Less -- Treasury stock, 10,000 shares in 1994, no par; $1,000
assigned value................................................ 1,000 --
--------- ----------
Total stockholders' equity............................... 169,818 445,751
--------- ----------
Total liabilities and stockholders' equity............... $ 975,312 $1,118,059
========= ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-85
<PAGE> 138
DELIVEREX, INCORPORATED AND SUBSIDIARY AND RELATED COMPANY
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
SEPTEMBER 30,
------------------------- DECEMBER 31,
1993 1994 1995
---------- ---------- ------------
<S> <C> <C> <C>
REVENUES:
Service revenue..................................... $2,321,024 $2,338,379 $2,555,394
Other revenue....................................... 251,026 267,601 311,653
---------- ---------- ----------
2,572,050 2,605,980 2,867,047
COST OF SERVICES...................................... 1,647,265 1,684,738 1,643,271
DEPRECIATION.......................................... 75,656 58,320 52,393
---------- ---------- ----------
Gross profit................................ 849,129 862,922 1,171,383
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES......... 672,894 798,407 822,942
---------- ---------- ----------
Operating income............................ 176,235 64,515 348,441
OTHER (INCOME) EXPENSE:
Interest expense.................................... 24,934 21,937 23,435
Interest income..................................... (140) (135) (3,614)
Other (income) expense, net......................... (592) (9,112) (1,665)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES............................ 152,033 51,825 330,285
PROVISION (BENEFIT) FOR INCOME TAXES.................. 51,846 (10,519) 99,529
---------- ---------- ----------
Net income.................................. $ 100,187 $ 62,344 $ 230,756
========== ========== ==========
PRO FORMA DATA (Unaudited -- see Note 13):
HISTORICAL NET INCOME................................. $ 100,187 $ 62,344 $ 230,756
PRO FORMA COMPENSATION DIFFERENTIAL................... 80,679 189,200 211,864
PRO FORMA PROVISION FOR INCOME TAXES.................. 41,268 75,868 103,150
---------- ---------- ----------
PRO FORMA NET INCOME.................................. $ 139,598 $ 175,676 $ 339,470
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-86
<PAGE> 139
DELIVEREX, INCORPORATED AND SUBSIDIARY AND RELATED COMPANY
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON SHARES RETAINED TREASURY STOCK TREASURY TOTAL
---------------- EARNINGS ----------------- STOCK STOCKHOLDERS'
SHARES AMOUNT (DEFICIT) SHARES AMOUNT SUBSCRIBED EQUITY
------- ------ -------- ------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, September 30, 1992......... 107,000 $9,900 $ (1,613) 10,000 $(1,000) $ -- $ 7,287
Net income........................ -- -- 100,187 -- -- -- 100,187
------- ------ -------- ------- ------- -------- ---------
BALANCE, September 30, 1993......... 107,000 9,900 98,574 10,000 (1,000) -- 107,474
Net income........................ -- -- 62,344 -- -- -- 62,344
------- ------ -------- ------- ------- -------- ---------
BALANCE, September 30, 1994......... 107,000 9,900 160,918 10,000 (1,000) -- 169,818
Treasury stock subscribed......... -- -- -- -- -- 1,000 1,000
Net income -- October 1, 1994, to
December 31, 1994............... -- -- 44,177 -- -- -- 44,177
------- ------ -------- ------- ------- -------- ---------
BALANCE, January 1, 1995............ 107,000 9,900 205,095 10,000 (1,000) 1,000 214,995
Reissuance of treasury stock...... -- -- -- (10,000) 1,000 (1,000) --
Net income........................ -- -- 230,756 -- -- -- 230,756
------- ------ -------- ------- ------- -------- ---------
BALANCE, December 31, 1995.......... 107,000 $9,900 $435,851 -- $ -- $ -- $ 445,751
======= ====== ======== ======= ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-87
<PAGE> 140
DELIVEREX, INCORPORATED AND SUBSIDIARY AND RELATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
SEPTEMBER 30, DECEMBER 31,
---------------------- ------------
1993 1994 1995
--------- -------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 100,187 $ 62,344 $ 230,756
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation....................................... 75,656 58,320 52,393
Deferred tax expense (benefit)..................... 26,965 (8,396) 107,970
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable, net...................... (33,803) 8,711 (143,461)
Prepaid expenses and other assets............. 16,001 1,138 (6,230)
Increase (decrease) in --
Accounts payable and accrued liabilities...... (157,655) (8,998) (48,277)
Other liabilities............................. 77,641 (46,568) (19,402)
--------- -------- ----------
Net cash provided by operating
activities............................. 104,992 66,551 173,749
--------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................... (65,477) (60,150) (63,350)
Decrease in notes receivable.......................... (40,193) (4,575) --
--------- -------- ----------
Net cash used in investing activities.... (105,670) (64,725) (63,350)
--------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on short-term obligations.............. -- 47,270 (6,674)
Proceeds from long-term obligations................... 30,178 6,267 --
Principal payments on long-term obligations........... (47,121) (35,274) (21,964)
--------- -------- ----------
Net cash provided by (used in) financing
activities............................. (16,943) 18,263 (28,638)
--------- -------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (17,621) 20,089 81,761
ADJUSTMENT TO CONFORM FISCAL YEAR-END TO A CALENDAR
YEAR-END.............................................. -- -- 7,735
CASH AND CASH EQUIVALENTS,
at beginning of period................................ 118,480 100,859 120,948
--------- -------- ----------
CASH AND CASH EQUIVALENTS,
at end of period...................................... $ 100,859 $120,948 $ 210,444
========= ======== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for --
Interest.............................................. $ 24,934 $ 21,824 $ 23,548
Income taxes.......................................... 12,813 9,496 24,934
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-88
<PAGE> 141
DELIVEREX, INCORPORATED AND SUBSIDIARY AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The accompanying combined financial statements include the accounts of
Deliverex, Incorporated (DLX), its wholly owned subsidiary Peninsula Records
Management, Inc. (PRM) and ASK Record Management, Inc. (ASK -- the "Related
Company") (collectively the "Company"). The Company specializes in storing and
managing active and inactive files for hospitals throughout the United States
but has customers primarily located on the West Coast. The Company also has
franchises that are located in San Francisco, Sacramento, Seattle, and Denver.
In October 1995, the Company's stockholders entered into a definitive
agreement with F.Y.I. Incorporated ("FYI") pursuant to which the Company will be
acquired by FYI (the "Merger"). All outstanding shares of the Company's common
stock will be exchanged for cash and shares of FYI's common stock concurrent
with the consummation of the initial public offering (the "Offering") of the
common stock of FYI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The companies referred to in Note 1 are all under common control. All
significant intercompany transactions have been eliminated in combination.
Fiscal Year-Ends
ASK has a December 31 year-end. The accompanying combined financial
statements reflect the accounts and results of ASK combined with the September
30 year-end accounts and results of DLX and PRM. DLX and PRM's net income for
the period from October 1 through December 31, 1994, of $44,177 is reflected as
an adjustment to retained earnings on the combined statement of stockholders'
equity.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates market value.
Receivable from Shareholder
Receivable from shareholder represents advances made to the shareholder
which are payable on demand and will be repaid as a result of the transaction
discussed in Note 14.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are depreciated over the lesser of the asset's useful
life or the lease term.
Franchise and License Agreements
DLX has four franchise agreements and three licensee agreements. Initial
franchise fees are recognized as DLX's initial services and material obligations
are performed. Franchise and license agreements are for periods of up to twenty
years and contain options to renew.
Revenue Recognition
Revenue is recognized by PRM and ASK when the services are rendered to the
Company's customers. DLX's revenue is derived from monthly royalties under its
franchise and licensee agreements and is
F-89
<PAGE> 142
DELIVEREX, INCORPORATED AND SUBSIDIARY AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
recognized in the month earned. Royalties earned are shown in other revenue on
the combined statements of operations.
Income Taxes
ASK is an S corporation for income tax purposes and, accordingly, any
income tax liabilities are the responsibility of the stockholders. For purposes
of these combined financial statements, no federal and state income taxes have
been provided for ASK. ASK's corporation status will terminate with the
effective date of the Merger discussed in Note 1.
Deferred income taxes are provided for temporary differences in the
recognition of revenues and expenses for income tax and financial reporting
purposes for DLX and PRM. Temporary differences result primarily from various
accruals and reserves being deductible for tax purposes in different periods.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration
of credit risk, as defined by Statement of Financial Accounting Standards (SFAS)
No. 105, consist primarily of trade accounts receivable. The Company's customers
are concentrated in the Western-Pacific states and the primary customers are
healthcare institutions. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends, and other information.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES SEPTEMBER 30, DECEMBER 31,
(YEARS) 1994 1995
------------ ------------- ------------
<S> <C> <C> <C>
Vehicles...................................... 5 $ 78,317 $ 81,189
Leasehold improvements........................ 5-7 17,462 20,806
Machinery and equipment....................... 7 310,169 335,032
Furniture and fixtures........................ 7 96,015 125,363
Computer equipment............................ 5 13,691 13,691
Computer system development................... 5 13,784 19,941
--------- ----------
529,438 596,022
Less -- Accumulated depreciation and
amortization................................ (356,763) (423,096)
--------- ----------
$ 172,675 $ 172,926
========= ==========
</TABLE>
Leasehold improvements are depreciated over the lesser of the asset's
useful life or the lease term.
F-90
<PAGE> 143
DELIVEREX, INCORPORATED AND SUBSIDIARY AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1995
------------- ------------
<S> <C> <C>
Accounts payable........................................... $ 53,932 $100,599
Sales tax payable.......................................... 1,866 153
Income taxes payable....................................... 15,542 --
Other accrued liabilities.................................. 179,274 95,973
--------- --------
$ 250,614 $196,725
========= ========
</TABLE>
5. SHORT-TERM OBLIGATIONS:
The Company has a $50,000 bank line of credit at prime plus a premium, as
defined, on the outstanding principal balance. The line of credit has no defined
expiration date. The Company had draws outstanding of $47,270 and $39,258 at
September 30, 1994, and December 31, 1995, respectively. At September 30, 1994,
and December 31, 1995, the total interest rate was 14% and 12.25%.
6. LONG-TERM OBLIGATIONS:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1995
------------- ------------
<S> <C> <C>
Notes payable -- Small Business Administration, due
November 17, 2014, interest at 4%; monthly payments of
$2,702 secured by deed of trust on real estate and
non-real estate assets of the Company.................... $ 429,699 $ 409,766
Notes payable -- bank, due April 15, 1998, interest at
prime plus 4% (12.5% and 13.0% at September 30, 1994 and
December 31, 1995, respectively); monthly principal
payments of $155 plus accrued interest; secured by 1993
Toyota truck............................................. 6,676 4,816
Notes payable -- bank, due September 15, 1998, interest at
10.15%; monthly payments of $191; secured by 1991 Ford
van...................................................... 7,333 5,244
Notes payable -- bank, due April 15, 1998, interest at
prime plus 3% (11.50% and 12% at September 30, 1994 and
December 31, 1995, respectively); monthly principal
payments of $197, plus accrued interest; secured by 1993
Toyota trucks............................................ 7,908 5,535
Other...................................................... 6,266 --
----------- ----------
457,882 425,361
Less -- Current maturities................................. 27,564 22,098
----------- ----------
$ 430,318 $ 403,263
=========== ==========
</TABLE>
The Small Business Administration note payable is secured by machinery and
equipment, furniture and fixtures, and leasehold improvements of PRM as well as
by personal guarantees of DLX's stockholder. DLX's stockholder has also
guaranteed certain of the bank notes payable.
As of September 30, 1994, and through December 31, 1995, the Company has
complied with all loan covenants.
F-91
<PAGE> 144
DELIVEREX, INCORPORATED AND SUBSIDIARY AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1995, the aggregate amounts of annual principal
maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 22,098
1997.............................................................. 22,943
1998.............................................................. 21,263
1999.............................................................. 18,127
2000.............................................................. 14,991
Thereafter........................................................ 325,939
--------
$425,361
========
</TABLE>
7. OPERATING LEASES:
The Company leases its office buildings and certain of its automobiles.
Lease payments for the years ended September 30, 1993 and 1994, and December 31,
1995, totaled approximately $547,300, $545,000, and $446,000. Minimum future
lease payments under operating leases as of December 31, 1995, for each of the
next five years and in the aggregate are as follows:
<TABLE>
<S> <C>
1996............................................................. $ 473,607
1997............................................................. 442,924
1998............................................................. 454,330
1999............................................................. 452,785
2000............................................................. --
----------
Total.................................................. $1,823,646
==========
</TABLE>
8. EMPLOYEE BENEFIT COSTS:
The Company pays health and dental insurance premiums for the majority of
its employees. Premiums paid in the years ended September 30, 1993, 1994, and
December 31, 1995, were approximately $72,500, $79,600, and $84,000,
respectively.
The Company offers no postretirement or postemployment benefits.
9. INCOME TAXES:
The following income tax information for DLX and PRM is presented in
accordance with Statement of Financial Accounting Standards No. 109. This
statement provides for a liability approach to accounting for income taxes.
Federal and state income taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------- ------------
1993 1994 1995
------- -------- ------------
<S> <C> <C> <C>
Federal --
Current......................................... $17,756 $ (2,878) $ (8,085)
Deferred........................................ 21,014 (6,488) 82,774
State --
Current......................................... 7,124 755 (356)
Deferred........................................ 5,952 (1,908) 25,196
------- --------- --------
$51,846 $(10,519) $ 99,529
======= ========= ========
</TABLE>
F-92
<PAGE> 145
DELIVEREX, INCORPORATED AND SUBSIDIARY AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------- ------------
1993 1994 1995
------- -------- ------------
<S> <C> <C> <C>
Tax at statutory rate............................. $51,691 $ 17,620 $113,316
Add (deduct) --
State income taxes.............................. 14,370 4,948 16,666
Nondeductible expenses.......................... 255 551 --
Effect of graduated tax rates................... (5,484) (9,068) (5,027)
Effect of S corporation nontaxable income....... (8,986) (24,570) (25,426)
------- -------- --------
$51,846 $(10,519) $ 99,529
======= ======== ========
</TABLE>
The components of deferred income tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1995
------------- ------------
<S> <C> <C>
Deferred income tax liabilities --
Accrual to cash differences.............................. $ 49,389 $ 81,637
--------- --------
Total deferred income tax liabilities............ 49,389 81,637
Deferred income tax assets
Accrual to cash differences.............................. 102,841 54,352
Accrued expenses......................................... 58,578 16,321
--------- --------
Total deferred income tax assets................. 161,419 70,673
--------- --------
Total net deferred income tax assets
(liabilities).................................. $ 112,030 $(10,964)
========= ========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for workers'
compensation and unemployment incurred in connection with its operations.
Management believes that none of these actions will have a material adverse
effect on the financial position or results of operations of the Company.
11. CAPITAL STOCK:
Common stock at December 31, 1995, consists of the following:
<TABLE>
<CAPTION>
SHARES
PAR ---------------------- ASSIGNED
VALUE AUTHORIZED ISSUED VALUE
----- ---------- ------- --------
<S> <C> <C> <C> <C>
Deliverex, Incorporated...................... None 10,000 7,000 $ 900
ASK Record Management, Inc................... None 500,000 100,000 9,000
------- ------- ------
510,000 107,000 $9,900
======= ======= ======
</TABLE>
ASK's common stock is 65% owned by the 100% stockholder of DLX. PRM has
10,000 shares of no par value common stock authorized, issued, and outstanding.
PRM's common stock is owned by DLX.
In December 1994, ASK approved the reissuance of 10,000 shares of treasury
stock to its minority stockholder. Compensation expense was recorded in 1994,
equivalent to the repurchase cost in 1992. The shares were reissued on January
1, 1995.
F-93
<PAGE> 146
DELIVEREX, INCORPORATED AND SUBSIDIARY AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. SIGNIFICANT CUSTOMER:
In 1994 and 1995, the Company had one customer that accounted for 15% and
16%, respectively, of combined revenues.
13. PRO FORMA NET INCOME (UNAUDITED):
Selling, general and administrative expenses for the periods presented
reflect compensation and related benefits that owners and certain key employees
received during the periods. These owners and key employees have agreed to
certain reductions in salaries and benefits in connection with the Merger.
In connection with this merger, each stockholder has entered into a
three-year employment agreement with FYI which provides for set base salary,
participation in any future FYI incentive bonus plans, four-week paid vacations,
a car allowance, health benefits, and a two-year covenant-not-to-compete
following termination of such person's employment. The stockholders' employment
agreements provide for an aggregate base salary of $247,000.
The unaudited pro forma data presents compensation at the level the
officers and owners of the Company have agreed to receive subsequent to the
Offering. In addition, the following pro forma data presents the provision for
income taxes as if the S corporation had been subject to federal and state
income taxes and adjusted for the impact of the compensation differential
discussed above.
14. SUBSEQUENT EVENTS
On January 26, 1996 the Company was acquired by FYI. In conjunction with
the Merger, the Company can make an additional distribution corresponding to the
increase in net stockholders' equity from June 30, 1995 to November 30, 1995,
not to exceed $200,000. The amount available for the additional distribution at
December 31, 1995, is $80,000. Had this transaction been recorded at December
31, 1995, the effect on the accompanying balance sheet would be a decrease in
total assets and stockholders' equity of $80,000, respectively.
F-94
<PAGE> 147
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Permanent Records, Inc.:
We have audited the accompanying balance sheets of Permanent Records, Inc.
(a Texas corporation) as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Permanent Records, Inc. as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 15, 1996
F-95
<PAGE> 148
PERMANENT RECORDS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 16,879 $ 56,010
Accounts receivable, net of allowance for uncollectible accounts of
$0 and $26,308.................................................... 163,663 266,431
Inventories.......................................................... 4,313 25,000
Prepaids and other current assets.................................... 20,841 58,395
-------- --------
Total current assets......................................... 205,696 405,836
PROPERTY AND EQUIPMENT, net............................................ 61,411 105,738
NOTE RECEIVABLE........................................................ 6,000 34,500
-------- --------
Total assets................................................. $273,107 $546,074
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term obligations............................................... $ 3,155 $115,000
Accounts payable and accrued liabilities............................. 32,303 66,383
Current portion of deferred income taxes............................. 54,761 93,041
-------- --------
Total current liabilities.................................... 90,219 274,424
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $1, 100,000 shares authorized, 91,660 shares
outstanding for all periods....................................... 91,660 91,660
Retained earnings.................................................... 91,228 179,990
-------- --------
Total stockholders' equity................................... 182,888 271,650
-------- --------
Total liabilities and stockholders' equity................... $273,107 $546,074
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE> 149
PERMANENT RECORDS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
SERVICE REVENUE........................................ $1,192,633 $1,148,926 $1,562,883
COST OF SERVICE........................................ 671,845 685,235 944,747
DEPRECIATION........................................... 30,902.... 12,000 12,739
---------- ---------- ----------
Gross profit................................. 489,886 451,691 605,397
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES.......... 359,430 393,533 466,939
---------- ---------- ----------
Operating income............................. 130,456 58,158 138,458
OTHER (INCOME) EXPENSE:
Interest expense..................................... -- 2,338 1,350
Interest income...................................... (2,052) (1,174) (290)
Other income, net.................................... (1,599) (8,929) (11,730)
---------- ---------- ----------
Income before income taxes................... 134,107 65,923 149,128
PROVISION FOR INCOME TAXES............................. 40,797 13,859 43,358
---------- ---------- ----------
NET INCOME............................................. $ 93,310 $ 52,064 $ 105,770
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE> 150
PERMANENT RECORDS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992....................... 91,660 $91,660 $ 31,401 $ 123,061
Dividends declared............................. -- -- (46,201) (46,201)
Net income..................................... -- -- 93,310 93,310
------ ------- -------- ---------
BALANCE, December 31, 1993....................... 91,660 91,660 78,510 170,170
Dividends declared............................. -- -- (39,346) (39,346)
Net income..................................... -- -- 52,064 52,064
------ ------- -------- ---------
BALANCE, December 31, 1994....................... 91,660 91,660 91,228 182,888
Dividends declared............................. -- -- (17,008) (17,008)
Net income..................................... -- -- 105,770 105,770
------ ------- -------- ---------
BALANCE, December 31, 1995....................... 91,660 $91,660 $179,990 $ 271,650
====== ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-98
<PAGE> 151
PERMANENT RECORDS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 93,310 $ 52,064 $ 105,770
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation...................................... 30,902 12,000 12,739
Deferred tax expense.............................. 37,306 2,431 38,280
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable, net..................... (104,709) 28,727 (102,768)
Prepaid and other assets..................... -- (20,841) (37,554)
Inventory.................................... -- -- (20,687)
Note receivable.............................. (5,000) (1,000) (28,500)
Increase (decrease) in --
Accounts payable and accrued liabilities..... (1,016) 3,378 34,080
--------- -------- ---------
Net cash provided by operating
activities.............................. 50,793 76,759 1,360
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.................... (16,795) (41,555) (57,066)
--------- -------- ---------
Net cash used in investing activities..... (16,795) (41,555) (57,066)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on line of credit, net........... (5,248) (6,767) 111,845
Payment of dividends................................... (46,201) (39,346) (17,008)
--------- -------- ---------
Net cash (used in) provided by financing
activities.............................. (51,449) (46,113) 94,837
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... (17,451) (10,909) 39,131
CASH AND CASH EQUIVALENTS, at beginning of period........ 45,239 27,788 16,879
--------- -------- ---------
CASH AND CASH EQUIVALENTS, at end of period.............. $ 27,788 $ 16,879 $ 56,010
========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for --
Interest............................................ $ -- $ 2,338 $ 1,350
Taxes............................................... $ 4,125 $ 3,491 $ 12,017
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<PAGE> 152
PERMANENT RECORDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The accompanying financial statements include the accounts of Permanent
Records, Inc. (the "Company"). The Company provides offsite active and inactive
storage and retrieval services, microfilming, and medical records release
services to its customers from its office in Fort Worth, Texas.
The Company and its stockholders entered into a definitive agreement with
F.Y.I. Incorporated ("FYI") in October 1995, pursuant to which the Company will
merge with FYI (the "Merger"). All outstanding shares of the Company's common
stock will be exchanged for cash and shares of FYI's common stock concurrent
with the consummation of the initial public offering of the common stock of FYI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates market value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Revenue Recognition
Revenue is recognized when services are rendered.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk, as defined by Statement of Financial Accounting
Standards (SFAS) No. 105, consist primarily of trade receivables.
Trade receivables are primarily short-term receivables from healthcare
institutions in Northern Central Texas. The Company's management reviews
receivables for collectibility.
Income Taxes
The Company is a C corporation. Deferred income taxes are provided for
timing differences in the recognition of revenues and expenses for tax and
financial reporting purposes. Temporary differences result primarily from
accelerated depreciation for tax purposes, deferred contract revenues being
taxed when billed and various accruals and reserves being deductible for tax
purposes in different periods.
F-100
<PAGE> 153
PERMANENT RECORDS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -----------------------
(YEARS) 1994 1995
------------ --------- ---------
<S> <C> <C> <C>
Machinery and equipment......................... 5-7 $ 224,580 $ 282,717
Auto and trucks................................. 5-7 17,979 17,979
Construction-in-progress........................ 13,346 --
Computer software............................... 3-5 -- 12,275
--------- ---------
255,905 312,971
Less -- Accumulated depreciation................ 194,494 207,233
--------- ---------
$ 61,411 $ 105,738
========= =========
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Income taxes payable............................................. $ 7,303 $ 5,078
Other accrued liabilities........................................ 25,000 61,305
------- -------
Total accounts payable and accrued liabilities......... $32,303 $66,383
======= =======
</TABLE>
5. SHORT-TERM OBLIGATIONS:
The Company has a $175,000 line of credit with interest payable at 1% over
the bank's base rate (10.5% at December 31, 1995) on the outstanding principal
balance. The line of credit, which expires in January 1996, is secured by
non-real estate assets of the Company and a life insurance policy on a
stockholder. The Company had amounts outstanding of $3,155 and $115,000 at
December 31, 1994 and 1995.
6. LEASE COMMITMENTS AND RELATED PARTY TRANSACTIONS:
Operating Leases
The Company leases office and warehouse facilities in Fort Worth, Texas.
The Company entered into an agreement to lease a building, beginning on July 1,
1995, from the Company's stockholders. Lease expense per year will be
approximately $90,000. The lease term is 15 years. The Company also leases
vehicles and equipment from unrelated parties. The total lease expense for the
years ended December 31, 1993, 1994 and 1995, totaled approximately $35,100,
$56,700, and $122,323, respectively. Minimum future lease payments under
operating leases as of December 31, 1995, for each of the next five years and
thereafter are as follows:
<TABLE>
<S> <C>
1996............................................................. $ 109,278
1997............................................................. 105,120
1998............................................................. 90,637
1999............................................................. 90,000
2000............................................................. 90,000
Thereafter....................................................... 780,000
----------
Total.................................................. $1,265,035
==========
</TABLE>
F-101
<PAGE> 154
PERMANENT RECORDS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
The following income tax information is presented in accordance with SFAS
No. 109, which provides for a liability approach to accounting for income taxes.
Federal income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Federal --
Current............................................. $ 3,491 $11,428 $ 5,078
Deferred............................................ 37,306 2,431 38,280
------- ------- -------
$40,797 $13,859 $43,358
======= ======= =======
</TABLE>
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
------- -------- -------
<S> <C> <C> <C>
Tax at statutory rate................................ $45,596 $ 22,414 $50,703
Add (deduct) --
Effect of graduated tax rates...................... (4,422) (10,914) (9,044)
Other.............................................. (377) 2,359 1,699
------- -------- -------
$40,797 $ 13,859 $43,358
======= ======== =======
</TABLE>
The components of deferred income tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1994 1995
------- --------
<S> <C> <C>
Deferred income tax liabilities --
Tax over book depreciation.................................... $ 862 $ 7,539
Accrual to cash differences, net.............................. 62,732 107,388
------- --------
Total deferred income tax liabilities................. 63,594 114,927
Deferred income tax assets --
Accrued expenses.............................................. 8,833 21,886
------- --------
Total deferred income tax assets...................... 8,833 21,886
------- --------
Total deferred income tax liabilities................. $54,761 $ 93,041
======= ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for workers'
compensation and unemployment incurred in connection with its operations.
Management believes that none of these actions will have a material adverse
effect on the financial position or results of operations of the Company.
9. SUBSEQUENT EVENTS
On January 26, 1996, the Company was acquired by FYI.
F-102
<PAGE> 155
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cook and Staff, Inc.:
We have audited the accompanying combined balance sheets of Cook and Staff,
Inc. (a California corporation) and Related Company as of December 31, 1994 and
1995, and the related combined statements of operations, stockholder's equity,
and cash flows for the three years in the period ended December 31, 1995. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Cook and
Staff, Inc. and Related Company as of December 31, 1994 and 1995, and the
combined results of their operations and their combined cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
June 22, 1996
F-103
<PAGE> 156
COOK AND STAFF, INC. AND RELATED COMPANY
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $1,153,664 $1,261,271 $ 1,943,773
Accounts receivable, less allowance for doubtful
accounts of $100,000, $150,000, and $150,000
respectively........................................ 1,587,782 1,856,161 1,850,460
---------- ---------- -----------
Total current assets........................... 2,741,446 3,117,432 3,794,233
PROPERTY AND EQUIPMENT, net.............................. 449,230 346,493 309,587
OTHER NONCURRENT ASSETS.................................. 40,786 41,586 41,586
---------- ---------- -----------
Total assets................................... $3,231,462 $3,505,511 $ 4,145,406
========== ========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities............... $ 220,140 $ 185,044 $ 199,896
Sales tax payable...................................... 48,445 42,427 57,406
Accrued compensation and benefits...................... 168,970 199,176 116,804
---------- ---------- -----------
Total current liabilities...................... 437,555 426,647 374,106
---------- ---------- -----------
DEFERRED INCOME TAXES.................................... 27,902 32,134 34,837
---------- ---------- -----------
Total liabilities.............................. 465,457 458,781 408,943
---------- ---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock........................................... 13,851 13,851 13,851
Additional paid in capital............................. 405 405 405
Retained earnings...................................... 2,751,749 3,032,474 3,722,207
---------- ---------- -----------
Total stockholder's equity..................... 2,766,005 3,046,730 3,736,463
---------- ---------- -----------
Total liabilities and stockholder's equity..... $3,231,462 $3,505,511 $ 4,145,406
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-104
<PAGE> 157
COOK AND STAFF, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, -----------------------
--------------------------------------- 1995 1996
1993 1994 1995 ---------- ----------
----------- ----------- ----------- (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUE................. $11,448,402 $12,014,034 $11,951,513 $2,845,343 $3,173,373
COST OF SERVICES................ 7,210,020 7,549,289 7,427,090 1,969,407 2,004,298
DEPRECIATION AND AMORTIZATION... 278,731 254,750 226,912 56,703 56,703
----------- ----------- ----------- ---------- ----------
Gross profit.......... 3,959,651 4,209,995 4,297,511 819,233 1,112,372
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES....... 3,184,328 1,555,595 1,709,945 381,875 418,919
----------- ----------- ----------- ---------- ----------
Operating income...... 775,323 2,654,400 2,587,566 437,358 693,453
OTHER (INCOME) EXPENSE:
Interest income............... (29,499) (44,240) (49,445) (1,788) (3,372)
Other (income) expense, net... (340,188) (13,055) 690 (309) (1,736)
----------- ----------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES...... 1,145,010 2,711,695 2,636,321 439,455 698,561
PROVISION FOR INCOME TAXES...... 28,626 54,234 39,596 6,592 8,828
----------- ----------- ----------- ---------- ----------
Net income............ $ 1,116,384 $ 2,657,461 $ 2,596,725 $ 432,863 $ 689,733
=========== =========== =========== ========== ==========
PRO FORMA DATA
(Unaudited -- see Note 8)
HISTORICAL NET INCOME........... $ 1,116,384 $ 2,657,461 $ 2,596,725 $ 432,863 $ 689,733
PRO FORMA COMPENSATION
DIFFERENTIAL.................. 1,572,002 -- -- -- --
PRO FORMA PROVISION FOR INCOME
TAXES......................... 1,058,179 1,030,444 1,014,932 169,190 267,065
----------- ----------- ----------- ---------- ----------
PRO FORMA NET INCOME............ $ 1,630,207 $ 1,627,017 $ 1,581,793 $ 263,673 $ 422,668
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-105
<PAGE> 158
COOK AND STAFF, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992............. 100 $10,000 $405 $ 2,159,329 $ 2,169,734
Dividends declared................... -- -- -- (681,425) (681,425)
Net income........................... -- -- -- 1,116,384 1,116,384
--- ------- ---- ----------- ------------
BALANCE, December 31, 1993............. 100 10,000 405 2,594,288 2,604,693
Contribution......................... 100 3,851 -- -- 3,851
Dividends declared................... -- -- -- (2,500,000) (2,500,000)
Net income........................... -- -- -- 2,657,461 2,657,461
--- ------- ---- ----------- ------------
BALANCE, December 31, 1994............. 200 13,851 405 2,751,749 2,766,005
Dividends declared................... -- -- -- (2,316,000) (2,316,000)
Net income........................... -- -- -- 2,596,725 2,596,725
--- ------- ---- ----------- ------------
BALANCE, December 31, 1995............. 200 13,851 405 3,032,474 3,046,730
Net income (unaudited)............... -- -- -- 689,733 689,733
--- ------- ---- ----------- ------------
BALANCE, March 31, 1996 (unaudited).... 200 $13,851 $405 $ 3,722,207 $ 3,736,463
=== ======= ==== =========== ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-106
<PAGE> 159
COOK AND STAFF, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $1,116,384 $ 2,657,461 $ 2,596,725 $ 432,863 $ 689,733
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation and amortization expense... 278,731 254,750 226,912 56,703 56,703
Deferred income taxes................... 9,399 (6,923) 4,232 6,177 2,703
Loss on disposal of assets.............. 36,337 -- 8,847 -- 822
Changes in operating assets and
liabilities --
Increase) decrease in --
Accounts receivable, net........... (366,286) 298,333 (268,379) (131,857) 5,701
Increase (decrease) in --
Accounts payable and accrued
liabilities...................... (74,072) (37,696) (35,096) (57,906) 14,852
Sales tax payable.................. 49,575 (1,084) (6,018) (38,582) 14,979
Accrued compensation and
benefits......................... 1,231 (3,183) 30,206 65,811 (82,372)
---------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities..................... 1,051,299 3,161,658 2,557,429 333,209 703,121
---------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment,
net..................................... (305,045) (166,222) (137,422) (75,781) (20,619)
Proceeds from sales of property........... 24,781 -- 4,400 -- --
Other..................................... (3,878) (610) (800) -- --
---------- ----------- ----------- ----------- -----------
Net cash used in investing
activities....................... (284,142) (166,832) (133,822) (75,781) (20,619)
---------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends............................ (681,425) (2,500,000) (2,316,000) -- --
---------- ----------- ----------- ----------- -----------
Net cash used in financing
activities....................... (681,425) (2,500,000) (2,316,000) -- --
---------- ----------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS... 85,732 494,826 107,607 257,428 682,502
CASH AND CASH EQUIVALENTS, at beginning of
period.................................... 573,106 658,838 1,153,664 1,153,664 1,261,271
---------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, at end of
period.................................... $ 658,838 $ 1,153,664 $ 1,261,271 $ 1,411,092 $ 1,943,773
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for --
Income taxes............................ $ 800 $ 52,500 $ 39,750 $ 18,000 $ 9,756
NONCASH FINANCING TRANSACTIONS:
Contribution, equipment................... $ -- $ 3,851 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-107
<PAGE> 160
COOK AND STAFF, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The accompanying combined financial statements include the accounts of Cook
and Staff, Inc. and RAC Services, Inc. (the "Related Company", collectively the
"Company"). The Company provides litigation support services to its customers
from its offices in California.
In June 1996, the Company and its stockholder intend to enter into a
definitive agreement with F.Y.I. Incorporated ("FYI") pursuant to which the
Company will sell selected assets to FYI (the "Acquisition").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Cook and Staff, Inc. and Related Company are under common control. All
significant intercompany transactions have been eliminated in combination.
Fiscal Year-Ends
RAC Services, Inc. has a December 31 year-end. Cook and Staff, Inc. has a
June 30 year-end. Cook and Staff, Inc. accounts and results for the three years
have been recast to a December 31 year-end. The accounts and results of RAC
Services, Inc., using a December 31 year-end, have been combined with the recast
December 31 year-end accounts and results of Cook and Staff, Inc. in the
accompanying combined financial statements for 1993, 1994, and 1995.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates market value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
accelerated methods over the estimated useful lives of the assets.
Other Long-Lived Assets
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (SFAS 121), which established
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 would have any material effect on the
combined financial statements.
Revenue Recognition
Revenue is recognized when services are rendered to the Company's
customers.
Income Taxes
The Company is an S corporation for income tax purposes and, accordingly,
any income tax liabilities are the responsibility of the stockholder.
F-108
<PAGE> 161
COOK AND STAFF, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration
of credit risk, as defined by SFAS No. 105, consist primarily of trade accounts
receivable. The Company's customers are concentrated in the Western United
States and the primary customers are insurance companies and legal institutions.
The Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and other
information.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(YEARS) 1994 1995
------------ ----------- -----------
<S> <C> <C> <C>
Machinery and equipment...................... 5-7 $ 1,038,070 $ 1,109,464
Computer equipment........................... 5 706,630 756,677
Autos........................................ 5 50,203 50,203
----------- -----------
1,794,903 1,916,344
Less -- Accumulated depreciation............. (1,345,673) (1,569,851)
----------- -----------
$ 449,230 $ 346,493
=========== ===========
</TABLE>
4. INCOME TAXES:
The Company has elected S corporation status under the Internal Revenue
Code. In lieu of federal income taxes, the shareholder is taxed on the Company's
taxable income. Therefore, no provision or liability for federal income tax has
been included in the financial statements for the years ended December 31, 1993,
1994, and 1995. A deferred state tax liability exists primarily due to the cash
basis method of reporting for income tax purposes. The deferred tax liability
represents the State of California S corporation tax on the net temporary
differences.
State income taxes are as follows at December 31:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Current............................................... $19,227 $61,157 $35,364
Deferred.............................................. 9,399 (6,923) 4,232
------- ------- -------
$28,626 $54,234 $39,596
======= ======= =======
</TABLE>
F-109
<PAGE> 162
COOK AND STAFF, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases office facilities in California. The leases provide for
lease terms over five years commencing on November 1, 1989, through June 30,
1999, with monthly lease payments of $2,534 to $20,866. The lease agreements
provide that the Company pay all related taxes and insurance. The total lease
expense for the years ended 1993, 1994, and 1995, totaled approximately
$399,000, $411,000 and $416,000, respectively. Minimum future lease payments
under operating leases as of December 31, 1995, for each of the next five years
and in the aggregate are as follows:
<TABLE>
<S> <C>
1996.............................................. $385,863
1997.............................................. 136,455
1998.............................................. 86,135
1999.............................................. 15,966
Thereafter........................................ --
--------
Total................................... $624,419
========
</TABLE>
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for workers'
compensation incurred in connection with its operations. Management believes
that none of these actions will have a material adverse effect on the financial
position or results of operations of the Company.
6. COMMON STOCK:
Common stock at December 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
PAR ASSIGNED
VALUE AUTHORIZED ISSUED VALUE
----- ---------- ------ --------
<S> <C> <C> <C> <C>
Cook and Staff, Inc....................................... $ 100 1,000 100 $ 10,000
RAC Services, Inc......................................... None 1,000,000 100 3,851
--------- --- -------
1,001,000 200 $ 13,851
========= === =======
</TABLE>
7. SIGNIFICANT CUSTOMER:
The Company has two litigation support customer relationships which
combined billings to the respective customer branches and their independent
vendor attorneys were approximately 25% and 12% for the year ended December 31,
1995, 23% and 12% for the year ended December 31, 1994, and 11% and 12% for the
year ended December 31, 1993.
8. PRO FORMA NET INCOME (UNAUDITED):
Selling, general, and administrative expenses for the periods presented
reflect compensation and related benefits that owners and certain key employees
received during the periods. These owners and key employees have agreed to
certain reductions in salaries and benefits in connection with the Acquisition.
The unaudited pro forma data present compensation at the level the officers
and owners of the Company have agreed to receive subsequent to the Acquisition.
In addition, the pro forma data present the incremental provision for income
taxes as if the Company had been subject to federal and state income taxes and
adjusted for the impact of the compensation differential discussed above.
F-110
<PAGE> 163
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
B & B Information and Image Management, Inc.
Upper Marlboro, Maryland
We have audited the accompanying balance sheets of B & B Information and
Image Management, Inc. (an S Corporation) as of December 31, 1995 and 1994, and
the related statements of income, stockholder's equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of B & B Information and Image
Management, Inc. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
C.W. AMOS & COMPANY, LLC
Baltimore, Maryland
March 20, 1996 (except for Note 8
for which the date is May 31, 1996)
F-111
<PAGE> 164
B & B INFORMATION AND IMAGE MANAGEMENT, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................................. $ 246,350 $ 173,189 $ 242,353
Trade and other receivables, less allowance for
doubtful accounts in 1994 of $11,200 and 1995 of
$20,200........................................... 1,280,436 1,851,326 1,756,097
Inventories.......................................... 172,700 154,715 242,023
Prepaid expenses..................................... 56,812 80,627 46,779
---------- ---------- ----------
Total current assets......................... $1,756,298 $2,259,857 $2,287,252
---------- ---------- ----------
PROPERTY AND EQUIPMENT, net............................ $3,083,803 $3,125,103 $3,156,065
---------- ---------- ----------
OTHER ASSETS
Prepaid expenses and deposits........................ $ 30,260 $ 1,418 $ 2,243
Debt issuance costs, net of accumulated amortization
in 1994 of $90,303 and 1995 of $131,389........... 87,893 103,235 101,848
---------- ---------- ----------
$ 118,153 $ 104,653 $ 104,091
$4,958,254 $5,489,613 $5,547,408
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Note payable, bank................................... $ -- $ 50,000 $ 150,000
Current maturities of long-term debt................. 231,827 157,612 159,366
Accounts payable and accrued expenses................ 637,941 984,884 771,692
Dividends payable.................................... -- -- 252,928
Deferred revenue..................................... 241,522 290,599 255,130
---------- ---------- ----------
Total current liabilities.................... $1,111,290 $1,483,095 $1,589,116
---------- ---------- ----------
LONG-TERM DEBT......................................... $2,729,236 2,491,070 $2,450,022
---------- ---------- ----------
CONTINGENCY
STOCKHOLDER'S EQUITY
Capital stock, par value $10 per share; 100 shares
authorized, issued and outstanding................ $ 1,000 $ 1,000 $ 1,000
Additional paid-in capital........................... 81,590 81,590 81,590
Retained earnings.................................... 1,035,138 1,432,858 1,425,680
---------- ---------- ----------
$1,117,728 $1,515,448 $1,508,270
---------- ---------- ----------
$4,958,254 $5,489,613 $5,547,408
========== ========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-112
<PAGE> 165
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
------------------------ ------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Service revenue............................ $5,343,032 $6,495,449 $1,570,720 $1,944,715
Product revenue............................ 777,896 1,549,756 211,982 271,064
Other revenue.............................. 59,910 34,749 14,401 10,945
---------- ---------- ---------- ----------
$6,180,838 $8,079,954 $1,797,103 $2,226,724
COST OF SERVICES............................. 3,108,429 3,658,599 827,515 1,115,918
COST OF PRODUCT SOLD......................... 610,836 1,250,228 162,714 235,779
DEPRECIATION................................. 301,455 332,937 75,519 84,510
---------- ---------- ---------- ----------
Gross profit....................... $2,160,118 $2,838,190 $ 731,355 $ 790,517
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES................................... 1,621,830 1,920,570 439,081 500,153
---------- ---------- ---------- ----------
Operating income................... $ 538,288 $ 917,620 $ 292,274 $ 290,364
OTHER (INCOME) EXPENSE:
Interest income............................ (83) (706) (184) (825)
Interest expense........................... 138,836 183,708 52,383 41,552
Amortization............................... 65,355 41,086 -- 1,387
Other, net................................. (3,918) 6,043 -- (15,000)
---------- ---------- ---------- ----------
Net income......................... $ 338,098 $ 687,489 $ 240,075 $ 263,250
========== ========== ========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-113
<PAGE> 166
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993................ 100 $1,000 $ 81,590 $ 927,406 $1,009,996
Net income.............................. -- -- -- 338,098 338,098
Shareholder dividends................... -- -- -- (230,366) (230,366)
--- ------ -------- ---------- ----------
BALANCE, December 31, 1994................ 100 $1,000 $ 81,590 $1,035,138 $1,117,728
Net income.............................. -- -- -- 687,489 687,489
Shareholder dividends................... -- -- -- (289,769) (289,769)
--- ------ -------- ---------- ----------
BALANCE, December 31, 1995................ 100 $1,000 $ 81,590 $1,432,858 $1,515,448
Net income (unaudited).................. -- -- -- 263,250 263,250
Shareholder dividends (unaudited)....... -- -- -- (270,428) (270,428)
--- ------ -------- ---------- ----------
BALANCE, March 31, 1996 (unaudited)....... 100 $1,000 $ 81,590 $1,425,680 $1,508,270
=== ====== ======== ========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-114
<PAGE> 167
B & B INFORMATION AND IMAGE MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -----------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 338,098 $ 687,489 $ 240,075 $ 263,250
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................ 301,455 332,937 75,519 84,510
Amortization............................ 65,355 41,086 -- 1,387
Increase (decrease) in provision for
doubtful accounts..................... (58,500) 9,000 -- 3,000
(Gain) loss on sale of property and
equipment............................. -- 6,833 -- (15,000)
Changes in assets and liabilities:
(Increase) decrease in:
Trade and other receivables........ (351,096) (579,890) (80,170) 92,229
Inventories........................ 14,649 17,985 (57,052) (87,308)
Prepaid expenses and deposits...... (18,283) 5,027 (3,330) 33,023
Increase (decrease) in:
Accounts payable and accrued
expenses......................... 20,078 256,605 (24,246) (213,192)
Deferred revenue................... 71,781 49,077 (29,350) (35,469)
--------- --------- --------- ---------
Net cash provided by operating
activities.................... $ 383,537 $ 826,149 $ 121,446 $ 126,430
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........ $(245,082) $(359,432) $ (40,667) $(118,166)
Proceeds from sale of property and
equipment............................... -- 68,700 -- 17,694
--------- --------- --------- ---------
Net cash used by investing
activities.................... $(245,082) $(290,732) $ (40,667) $(100,472)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayment) of short-term
borrowings.............................. $(439,000) $ 50,000 $ -- $ 100,000
Proceeds from long-term borrowings......... 565,352 223,787 13,489 --
Payments on long-term debt................. (139,120) (536,168) (45,257) (39,294)
Debt issuance costs........................ -- (56,428) -- --
Shareholder dividends...................... (230,366) (289,769) (120,037) (17,500)
--------- --------- --------- ---------
Net cash used by financing
activities.................... $(243,134) $(608,578) $(151,805) $ 43,206
--------- --------- --------- ---------
Net increase (decrease) in cash.............. $(104,679) $ (73,161) $ (71,026) $ 69,164
Cash, beginning of year...................... 351,029 246,350 246,350 173,189
--------- --------- --------- ---------
Cash, end of year............................ $ 246,350 $ 173,189 $ 175,324 $ 242,353
========= ========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.............................. $ 134,633 $ 180,544 $ 52,383 $ 41,552
========= ========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Purchases of property and equipment
included in accounts payable............ $ -- $ 90,338 $ -- $ --
========= ========= ========= =========
Dividends declared and payable............. $ -- $ -- $ -- $ 252,928
========= ========= ========= =========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-115
<PAGE> 168
NOTES TO FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
B & B Information and Image Management, Inc. ("Company") is in the
principal business of converting paper documents into electronic and microfilm
images for customers in the Mid-Atlantic region.
Significant accounting policies not disclosed elsewhere in the financial
statements are as follows:
Depreciation:
Depreciation is provided on the straight-line method over the
estimated useful lives of the related assets.
Amortization:
Debt issuance costs are being amortized on the straight-line method
over the terms of the related debt.
Income taxes:
The Company has elected to be treated as a Small Business Corporation
(an S Corporation) under the provisions of the Internal Revenue Code. The
financial statements do not include a provision for income taxes since
taxable income is allocated to and reported directly by the shareholder.
Revenue recognition:
Microfilm processing revenue is recognized on a
percentage-of-completion basis. Service contract revenue is recognized on a
straight-line basis over the terms of the individual service contracts.
Revenue from the sale of supplies and equipment is recognized upon
shipment.
Credit risk:
The Company has deposits in a financial institution in excess of
amounts insured by the Federal Deposit Insurance Corporation.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period.
NOTE 2. INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market, and include the following:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Parts and supplies............................................. $167,083 $154,530
Equipment for resale........................................... 5,617 185
-------- --------
$172,700 $154,715
======== ========
</TABLE>
F-116
<PAGE> 169
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment is carried at cost and consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ------------------------
(YEARS) 1994 1995
------------ ---------- ----------
<S> <C> <C> <C>
Land and land improvements....................... -- $ 599,773 $ 599,773
Building......................................... 40 1,961,701 1,972,704
Production equipment............................. 5 to 7 1,590,491 1,892,259
Furniture and fixtures........................... 5 to 7 192,413 203,186
Transportation equipment......................... 3 279,264 282,342
---------- ----------
$4,623,642 $4,950,264
Less accumulated depreciation.................... 1,539,839 1,825,161
---------- ----------
$3,083,803 $3,125,103
========== ==========
</TABLE>
NOTE 4. NOTE PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
INTEREST
DESCRIPTION RATE 1994 1995
---------------------------------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Industrial Revenue Bonds; Variable Rate Variable
Demand/Fixed Rate Revenue Bonds, Prince (3.95% at
George's County, Maryland; due beginning in December 31,
1996 through 2014........................... 1995) $2,400,000 $2,400,000
Consolidated term loan, bank; due December,
1997; paid in full in 1995.................. Prime + 1.0% 460,443 --
Term loan, bank; due April, 1998.............. Prime + 1.0% -- 161,111
Notes payable, vehicles; due at various dates Varies 8.99%
through November, 1998...................... to 13.2% 54,890 58,068
Note payable, equipment; due July, 1997....... 6.00% 16,502 10,237
Note payable, equipment; due August, 1997..... 4.77% 29,228 19,266
---------- ----------
$2,961,063 $2,648,682
Current maturities............................ 231,827 157,612
---------- ----------
Long-term debt................................ $2,729,236 $2,491,070
========== ==========
</TABLE>
During 1995, the Company obtained a $250,000 demand revolving line of
credit for short-term working capital financing which is limited to 80% of
eligible accounts receivable at the bank's prime rate plus 1%, expiring in
April, 1996. The note is collateralized by all assets of the Company excluding
real estate and is guaranteed by the Company's shareholder. Borrowings on the
line of credit at December 31, 1995 were $50,000.
The Industrial Revenue Bonds were issued to provide funds for the
construction of the Company's office and operating facility, for the purchase of
certain equipment to be used in that facility, and for certain related expenses.
All real estate, equipment, and other tangible property at the location are
pledged as collateral to the bond holders.
The Industrial Revenue Bonds are secured by a letter of credit issued by a
bank on behalf of the Company for approximately $2,450,000, expiring on December
31, 1996. The letter of credit is guaranteed by
F-117
<PAGE> 170
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Company's shareholder. The letter of credit was placed with a new bank
during 1995 resulting in issuance costs of $56,428. The Company has the option
to extend the letter of credit based on the bank's annual review.
The Company had a consolidated term loan with its former bank, payable in
monthly installments of $12,500 plus interest at the bank's prime rate plus 1%,
maturing on December 31, 1997. During 1995, the Company borrowed $200,000 from a
bank, and used the proceeds and operating cash to repay the consolidated term
loan. The new term loan is payable in 36 equal monthly installments of
principal, plus interest through April, 1998, and is collateralized by all
assets of the Company, excluding real estate, and is guaranteed by the Company's
shareholder.
The bond indenture, term loan and letter of credit agreements have
covenants which, among other things, require the maintenance of certain
financial ratios. In addition, cross-default provisions exist among the bond
indenture and related agreements.
Notes payable, vehicles and equipment have senior collateral rights to
certain property and equipment, excluding the facility and related land pledged
to the bondholders, and are subordinated to the term loan as to accounts
receivable and inventories.
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996............................................. $ 157,612
1997............................................. 153,098
1998............................................. 87,972
1999............................................. 100,000
2000............................................. 100,000
Thereafter....................................... 2,050,000
----------
$2,648,682
==========
</TABLE>
The fair value of the note payable and long-term debt at December 31, 1995
approximates $2,301,000 based upon loans with similar terms and average
maturities currently being offered to the Company.
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Accounts payable............................................... $355,908 $530,471
Accrued payroll and related benefits........................... 256,178 409,623
Other accrued expenses......................................... 25,855 44,790
-------- --------
$637,941 $984,884
======== ========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
The Company traded with a related party in the amount of $120,000 for the
years ended December 31, 1995 and 1994. At December 31, 1994, $20,000 was
included in accounts payable and accrued expenses.
NOTE 7. CONTINGENCY
A former employee has filed a grievance against the Company with the Equal
Employment Opportunity Commission for discrimination and wrongful termination.
Management and the Company's counsel believe that the allegations and grievance
are without merit, and intend to vigorously contest this claim.
F-118
<PAGE> 171
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. SUBSEQUENT EVENT (UNAUDITED)
On May 31, 1996, the Company and its shareholder entered into an agreement
to be merged into F.Y.I. Incorporated effective May 1, 1996. The Company will
continue to operate as a wholly-owned subsidiary of F.Y.I.
F-119
<PAGE> 172
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Premier Document Management, Inc.
We have audited the accompanying combined balance sheet of Premier Document
Management, Inc. and Affiliate as of December 31, 1995 and the related combined
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Premier Document
Management, Inc. and Affiliate as of December 31, 1995 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
MOSS ADAMS LLP
Seattle, Washington
June 21, 1996
F-120
<PAGE> 173
PREMIER DOCUMENT MANAGEMENT, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents......................................... $ 87,550 $ 267,258
Accounts receivable -- trade, net of allowance for doubtful
accounts of $13,494 in 1995 and $13,778 in 1996................ 196,655 229,729
Refundable income taxes........................................... 23,000 10,100
Prepaid expenses.................................................. 86,846 65,962
-------- --------
Total current assets...................................... 394,051 573,049
PROPERTY AND EQUIPMENT, net......................................... 311,090 341,335
DEPOSITS............................................................ 10,888 10,888
-------- --------
$716,029 $ 925,272
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................................. $ 12 $ 49,697
Notes payable..................................................... 34,944 34,944
Accrued liabilities
Wages.......................................................... 11,170 105,037
Vacation....................................................... 20,000 32,600
Payroll taxes.................................................. 346 21,803
Business taxes................................................. 14,669 4,435
Deferred income taxes............................................. 82,900 81,900
-------- --------
Total current liabilities................................. 164,041 330,416
-------- --------
COMMITMENTS AND CONTINGENCY (Notes 7 and 10)
STOCKHOLDERS' EQUITY
Common stock...................................................... 21,000 21,000
Additional paid-in capital........................................ 72,229 72,229
Retained earnings................................................. 458,759 501,627
-------- --------
551,988 594,856
-------- --------
$716,029 $ 925,272
======== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-121
<PAGE> 174
PREMIER DOCUMENT MANAGEMENT, INC. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------------------
1995 1996 1995
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
SERVICE REVENUE........................................ $3,022,691 $ 866,752 $ 696,022
COST OF SERVICES....................................... 1,632,568 498,389 371,472
DEPRECIATION........................................... 84,367 27,733 16,235
---------- -------- --------
Gross profit................................. 1,305,756 340,630 308,315
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 1,185,033 286,571 256,466
---------- -------- --------
Operating income............................. 120,723 54,059 51,849
OTHER INCOME (EXPENSE)
Interest income...................................... 8,379 709 3,242
Interest expense..................................... (209) -- --
---------- -------- --------
Income before income taxes................... 128,893 54,768 55,091
PROVISION FOR INCOME TAXES............................. 32,243 11,900 12,100
---------- -------- --------
NET INCOME............................................. $ 96,650 $ 42,868 $ 42,991
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-122
<PAGE> 175
PREMIER DOCUMENT MANAGEMENT, INC. AND AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994, as previously
reported (Unaudited)..................... 120,000 $21,000 $ 72,229 $374,109 $467,338
Prior period adjustment (Note 11)........ (12,000) (12,000)
------- ------- -------- -------- --------
BALANCE, December 31, 1994, as restated.... 120,000 21,000 72,229 362,109 455,338
Net income....................... 96,650 96,650
------- ------- -------- -------- --------
BALANCE, December 31, 1995................. 120,000 21,000 72,229 458,759 551,988
Net income....................... 42,868 42,868
------- ------- -------- -------- --------
BALANCE, March 31, 1996 (Unaudited)........ 120,000 $21,000 $ 72,229 $501,627 $594,856
======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-123
<PAGE> 176
PREMIER DOCUMENT MANAGEMENT, INC. AND AFFILIATE
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------------
1995 1996 1995
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 96,650 $ 42,868 $ 42,991
Adjustments to reconcile income from operations to net
cash from operating activities
Depreciation and amortization......................... 118,555 37,154 24,324
Deferred income taxes................................. 15,000 (1,000) (5,600)
Changes in assets and liabilities
Accounts receivable -- trade, net................... (37,851) (33,074) (28,704)
Refundable income taxes............................. (40,000) 12,900 (4,400)
Prepaid expenses.................................... (16,825) 20,884 35,303
Deposits............................................ 1,406 -- --
Accounts payable.................................... (3,275) 49,685 42,028
Accrued liabilities................................. 16,338 117,690 46,183
---------- --------- ---------
149,998 247,107 152,125
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment...................... (240,063) (67,399) (59,166)
Receipts (advances) on note receivable................... 45,500 -- (3,156)
---------- --------- ---------
(194,563) (67,399) (62,322)
---------- --------- ---------
CHANGE IN CASH............................................. (44,565) 179,708 89,803
CASH AND CASH EQUIVALENTS
Beginning of period...................................... 132,115 87,550 132,116
---------- --------- ---------
End of period............................................ $ 87,550 $ 267,258 $ 221,919
---------- --------- ---------
SUPPLEMENTAL INFORMATION
Cash paid during the period for
Interest.............................................. $ 209 $ -- $ --
---------- --------- ---------
Income tax............................................ $ 57,243 $ -- $ 22,100
---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-124
<PAGE> 177
PREMIER DOCUMENT MANAGEMENT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS -- Premier Document Management, Inc. and Affiliate (the
"Company") provides medical records reproduction and management services on
behalf of hospitals and medical clinics in the Pacific Northwest. The amount the
Company can charge requesting parties for reproduction services is regulated by
law. It operates out of facilities located throughout Washington and in San
Jose, California.
On May 31, 1996, the Company merged with Premier Acquisition Corp., a
wholly-owned subsidiary of F.Y.I. Incorporated (see Note 12).
PRINCIPLES OF COMBINATION -- The combined financial statements include the
accounts of Premier Document Management, Inc. and PDM Services, Inc., an
affiliate controlled through common ownership. All material intercompany
transactions have been eliminated.
USE OF ESTIMATES -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS -- For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
DEPRECIATION AND AMORTIZATION -- Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are amortized using the straight-line method over the
estimated useful lives of the related assets or the length of the lease,
whichever is less.
INCOME TAXES -- Income taxes are provided for the effect of transactions
reported in the financial statements tax provision consists of taxes currently
due plus deferred taxes related to differences in the financial statement and
tax bases of certain assets and liabilities.
PDM Services, Inc., with consent of its stockholder, has elected to be
taxed as an S corporation. In lieu of corporate income taxes, the stockholders
of an S corporation are taxed on their proportionate share of taxable income. On
May 31, 1996, the Company merged with Premier Acquisition Corp. and ceased to be
an S corporation (see Note 12).
INTERIM FINANCIAL STATEMENTS -- The accompanying combined statements of
income and cash flows for the three months ended March 31, 1996 and 1995 are
unaudited. The unaudited results of operations and cash flows have been prepared
on the same basis as the audited combined financial statements and, in the
opinion of management, include all adjustments necessary for a fair presentation
for the periods presented.
F-125
<PAGE> 178
PREMIER DOCUMENT MANAGEMENT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Copying equipment........................................... $189,907 $ 209,845
Vehicles.................................................... 144,054 158,467
Computer hardware........................................... 222,120 249,792
Computer software........................................... 20,352 20,352
Office furniture............................................ 56,857 62,233
Production equipment........................................ 29,574 29,574
Leasehold improvements...................................... 7,233 7,233
-------- ---------
670,097 737,496
Less accumulated depreciation and amortization.............. 359,007 396,161
-------- ---------
$311,090 $ 341,335
======== =========
</TABLE>
NOTE 3 -- RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE -- At December 31, 1994, the Company held a $45,500
promissory note receivable from its President and majority stockholder. During
1995, payment was received in full, along with $3,326 of interest.
NOTES PAYABLE -- The Company has four unsecured promissory notes totaling
$34,944 payable to its President and majority stockholder. The notes are payable
on demand and bear interest at 4%. Subsequent to March 31, 1996, the stockholder
contributed the notes to the Company. Accordingly, the balance was reclassified
to additional paid-in capital.
NOTE 4 -- INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------------------
1995 1996 1995
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current expense.................................. $ 17,243 $12,900 $12,600
Deferred expense (benefit)....................... 15,000 (1,000) (500)
-------- ------- -------
$ 32,243 $11,900 $12,100
======== ======= =======
</TABLE>
F-126
<PAGE> 179
PREMIER DOCUMENT MANAGEMENT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the amount determined by
applying U.S. statutory federal income tax rates to income before income taxes
as a result of the following differences:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------------------
1995 1996 1995
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Tax at statutory rates........................... $ 30,332 $ 8,692 $ 9,186
Non-deductible loss of PDM Services, Inc., an S
corporation................................. 940 379 (17)
Non-deductible items........................... 1,262 143 61
Effect of estimated higher rates used to
calculate deferred tax assets and
liabilities................................. (291) 2,686 2,870
-------- ------- -------
Provision for income taxes....................... $ 32,243 $11,900 $12,100
======== ======= =======
</TABLE>
Deferred income taxes are computed based on temporary differences between
the financial statement and tax bases of certain assets and liabilities. The
Company has elected to prepare its income tax return using the cash method of
accounting. Accordingly, temporary differences relate to accrual basis assets
and liabilities as well as differences in accumulated depreciation. Gross
deferred income tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Deferred tax liabilities
Accrual basis income...................................... $ 92,100 $ 92,100
Depreciation.............................................. 8,600 7,600
-------- ---------
100,700 99,700
Deferred tax assets
Accrual basis expenses.................................... (17,800) (17,800)
-------- ---------
Net deferred tax liability.................................. $ 82,900 $ 81,900
======== =========
</TABLE>
Income taxes for the three months ended March 31, 1995 and 1996 were
computed using the effective tax rate estimated to be applicable for the full
fiscal year.
NOTE 5 -- COMMON STOCK
Common stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Premier Document Management, Inc.
$1 par value; 50,000 shares authorized; 20,000 shares
issued and outstanding.................................... $ 20,000 $20,000
PDM Services, Inc.
No par value, 1,000,000 shares authorized; 100,000 shares
issued and outstanding.................................... 1,000 1,000
-------- -------
$ 21,000 $21,000
======== =======
</TABLE>
F-127
<PAGE> 180
PREMIER DOCUMENT MANAGEMENT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- RETIREMENT PLAN
The Company sponsors a defined contribution employee retirement plan
qualified under IRC Section 401(k). The plan covers substantially all employees
18 years of age or older with one year of service. The Company makes annual
matching contributions to the plan ranging up to 1.5% of eligible participants'
compensation. Total pension expense for the year ended December 31, 1995 and the
three months ended March 31, 1996 (unaudited) and 1995 (unaudited) was $6,068,
$1,524 and $1,479, respectively. The Company may also make contributions that
are discretionary, as determined by the Board of Directors. No discretionary
contributions were made during 1995 or the first three months of 1996.
NOTE 7 -- COMMITMENTS
The Company is obligated under operating lease agreements for three office
facilities. Future minimum lease payments under these leases for years ending
December 31 are as follows:
<TABLE>
<CAPTION>
SEATTLE SPOKANE TACOMA TOTAL
------- ------- ------ -------
<S> <C> <C> <C> <C>
1996.......................................... $70,400 $ 5,400 $4,300 $80,100
1997.......................................... -- 5,400 2,100 7,500
1998.......................................... -- 4,500 -- 4,500
------- ------- ------ -------
$70,400 $15,300 $6,400 $92,100
======= ======= ====== =======
</TABLE>
Future minimum lease payments at March 31, 1996 were not materially
different from the amounts at December 31, 1995. The Company also leases office
space in San Jose, California for $500 per month. The lease may be terminated by
either party with 60 days notice.
Rent expense for the year ended December 31, 1995 and three months ended
March 31, 1996 (unaudited) and 1995 (unaudited) was approximately $75,500,
$18,200 and $20,100, respectively.
NOTE 8 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Notes payable to stockholder are carried at $34,944, bear interest at 4%,
and are payable on demand. Because of the related party nature of these
financial instruments, which allows for possible modification to their terms and
maturities, it is not practicable to estimate fair value.
NOTE 9 -- CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMER
CONCENTRATIONS OF CREDIT RISK -- Financial instruments that potentially
subject the Company to credit risk consist of cash and cash equivalents and
trade receivables. The Company places its temporary cash investments with major
financial institutions. At times, deposits may exceed federally insured limits.
The Company generally does not require collateral on trade receivables, however,
prepayment is required from customers whose outstanding balance exceeds 90 days.
Historically, credit related losses have not been significant.
MAJOR CUSTOMER -- The Company receives more than ten percent of its revenue
from the State of Washington Department of Social and Human Services. Following
is a summary of the percentage of revenue earned and accounts receivable due
from this customer:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED 31,
DECEMBER 31, --------------------------
1995 1996 1995
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues......................................... 15.8% 12.6% 15.2%
========== ========= =========
Accounts receivable.............................. 14.3% 14.9%
------------ -----------
</TABLE>
F-128
<PAGE> 181
PREMIER DOCUMENT MANAGEMENT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- CONTINGENCY
The Company is a co-defendant in a lawsuit alleging improper disclosure of
an individual's medical records. The amount of damages has not been specified.
Defense of the claim has been assumed by the Company's insurance carrier.
Management believes the suit is without merit and will not have a material
effect on the Company's financial position.
NOTE 11 -- PRIOR PERIOD ADJUSTMENT
Management has determined that accrued vacation expense was not recorded in
prior years. Accrual of this liability, net of tax, resulted in a $12,000
decrease in retained earnings at December 31, 1994.
NOTE 12 -- SUBSEQUENT EVENTS
COMPANY MERGER -- On May 31, 1996, the Company merged with Premier
Acquisition Corp. ("Premier"), a wholly-owned subsidiary of F.Y.I. Incorporated
("FYI"). Under the terms of the Agreement and Plan of Reorganization, Company
stockholders received consideration consisting of cash and shares of FYI common
stock. Additional consideration is contingent on the performance of Premier
during the eight month period ended December 31, 1996.
In connection with the merger, the Company President and majority
stockholder executed a five year noncompetition agreement with Premier and FYI.
All other stockholders executed similar agreements with terms of three years.
The majority stockholder also entered into a three year employment agreement as
President of Premier.
EXECUTIVE BONUS -- On May 30, 1996, the Company paid a $225,000 bonus to
its President.
F-129
<PAGE> 182
F.Y.I. INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
These pro forma combined financial statements should be read in conjunction
with the historical financial statements of the Founding Companies Combined,
F.Y.I. Incorporated financial statements and the individual Founding Company
financial statements. See "Index to Financial Statements."
F.Y.I. acquired, simultaneously with and as a condition to the closing of
the Offering in January 1996, Imagent, Researchers, Recordex, DPAS, Leonard,
Deliverex and Permanent Records. The Acquisitions have been accounted for in
accordance with generally accepted accounting principles ("GAAP") as a
combination of the Founding Companies at historical cost, because the Founding
Companies' stockholders transfered assets to F.Y.I. in exchange for Common Stock
and cash simultaneously with F.Y.I.'s initial public offering, the nature of
future operations of the Company will be substantially identical to the combined
operations of the Founding Companies, and no former stockholder group of any of
the Founding Companies obtained a majority of the outstanding voting shares of
the Company. Accordingly, historical financial statements of these Founding
Companies have been combined throughout all relevant periods as if the Founding
Companies had always been members of the same operating group. However, since
the Founding Companies were not under common control or management, historical
combined results may not be comparable to, or indicative of, future performance.
For accounting purposes the acquisitions of the Founding Companies were recorded
by the Company as of January 31, 1996.
In May 1996, the Company acquired B&B Information and Image Management,
Inc. ("B&B") and Premier Document Management, Inc. and PDM Services, Inc.
("Premier"). In June 1996, the Company acquired all of the non-cash assets of
Robert A. Cook and Staff, Inc. and RAC Services, Inc. ("Cook"). All of the New
Acquisitions are accounted for under the purchase method of accounting.
The following unaudited pro forma financial statements of F.Y.I.
Incorporated and subsidiaries gives effect to: (i) the Acquisitions of B&B,
Premier and Cook and (ii) the acquisition of the Founding Companies for the
periods prior to the consummation of the acquisitions (January 31, 1996).
The unaudited pro forma balance sheet is based upon:
(i) the unaudited consolidated balance sheet of F.Y.I. as of March 31,
1996; and
(ii) the unaudited balance sheet of B&B and Premier purchased during
May 1996 and Cook purchased during June 1996 as if the acquisitions had
occurred on March 31, 1996.
The unaudited pro forma statement of operations for the three months ended
March 31, 1996 is based upon:
(i) the unaudited statement of operations of F.Y.I. for the period
from February 1, 1996 to March 31, 1996 combined with the unaudited
statement of operations for the Founding Companies for the one month ended
January 31, 1996;
(ii) the unaudited statement of operations for B&B, Premier and Cook
from January 1, 1996 to March 31, 1996.
The unaudited pro forma statement of operations for the year ended December
31, 1995 is based upon:
(i) the audited combined financial statements of the Founding
Companies for the year ended December 31, 1995; and
(ii) the audited financial statements of B&B, Premier and Cook for the
year ended December 31, 1995.
The pro forma financial statements have been prepared based upon certain
assumptions and include all adjustments as detailed in the Notes to Pro Forma
Financial Statements.
F-130
<PAGE> 183
The Company has preliminarily analyzed the savings that it expects to be
realized by consolidating certain general and administrative functions,
including reductions in accounting, audit, insurance and benefit plan expenses.
In addition, the Company anticipates that it will realize significant benefits
from: (i) the reduction in interest payments related to the prepayment of
outstanding Founding Company debt; (ii) its ability to borrow at lower interest
rates than the Founding Companies; and (iii) the interest earned on the net
proceeds of the Offering remaining after payment of the expenses of the Offering
and the cash portion of the consideration for the Founding Companies. The
Company has not and cannot quantify these savings at the present time. These
savings will be offset by the costs of being a public company and the
incremental increase in costs related to the Company's new management. However,
these costs, like the savings that they offset, cannot be quantified accurately.
Accordingly, neither the anticipated savings nor the anticipated costs have been
included in the pro forma financial information of F.Y.I. Incorporated and
Subsidiaries for the periods prior to the acquisition of the Founding Companies.
The pro forma financial data does not purport to represent what the
Company's financial position or results of operations would actually have been
if such transaction in fact had occurred on those dates or to project the
Company's financial position or results of operations for any future period.
F-131
<PAGE> 184
F.Y.I. INCORPORATED AND SUBSIDIARIES
PRO FORMA BALANCE SHEET (UNAUDITED)
MARCH 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
F.Y.I. NEW PRO FORMA
INCORPORATED ACQUISITIONS COMBINED
------------ ------------ ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 10,037 $ (7,098)(A) $ 2,939
Accounts receivable, less allowance.................. 8,369 3,577(A) 11,946
Prepaids and other current assets.................... 925 598(A) 1,523
------- ------- -------
Total current assets......................... 19,331 (2,923) 16,408
PROPERTY AND EQUIPMENT, net............................ 5,116 3,407(A) 8,523
INTANGIBLE ASSETS, net................................. 1,749 16,673(A) 18,422
OTHER NON CURRENT ASSETS............................... 1,203 203(A) 1,406
------- ------- -------
Total assets................................. $ 27,399 $ 17,360 $44,759
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities............. $ 7,155 $ 2,798(A) $ 9,953
Short-term obligations............................... 47 88(A) 135
Current maturities of long-term obligations.......... 227 243(A) 470
------- ------- -------
Total current liabilities.................... 7,429 3,129 10,558
LONG-TERM OBLIGATIONS, net of current.................. 634 10,687(A) 11,321
DEFERRED INCOME TAXES, net............................. 129 88(A) 217
OTHER NON CURRENT LIABILITIES..........................
------- ------- -------
Total liabilities............................ 8,192 13,904 22,096
STOCKHOLDERS' EQUITY
Preferred Stock...................................... -- -- --
Common Stock......................................... 53 3(A) 56
Additional paid-in capital........................... 18,756 3,453(A) 22,209
Retained earnings.................................... 398 -- 398
------- ------- -------
Total stockholders' equity................... 19,207 3,456 22,663
------- ------- -------
Total liabilities and stockholders' equity... $ 27,399 $ 17,360 $44,759
======= ======= =======
</TABLE>
F-132
<PAGE> 185
F.Y.I. INCORPORATED AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR DECEMBER 31, 1995 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
F.Y.I. FOUNDING NEW PRO FORMA
INCORPORATED COMPANIES ADJUST ACQUISITIONS ADJUST COMBINED
------------ --------- ------ ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Service revenue........................ $ -- $40,615 $ -- $ 21,470 $ -- $62,085
Product revenue........................ -- 6,138 -- 1,550 -- 7,688
Other revenue.......................... -- 873 -- 35 -- 908
------ ------- ----- -------- ------- -------
Total revenue.................... -- 47,626 -- 23,055 -- 70,681
COST OF SERVICES......................... -- 25,937 -- 12,719 38,656
COST OF PRODUCTS SOLD.................... -- 4,972 -- 1,250 6,222
DEPRECIATION............................. -- 1,238 -- 644 (305)(B) 1,577
------ ------- ----- -------- ------- -------
Gross profit..................... -- 15,479 -- 8,442 305 24,226
SELLING, GENERAL AND ADMINISTRATIVE...... -- 12,489 (1,976)(F) 4,815 563 (B) 15,513
(378)(C)
------ ------- ----- -------- ------- -------
Operating income................. -- 2,990 1,976 3,627 120 8,713
OTHER (INCOME) EXPENSE:
Interest expense....................... -- 492 -- 225 733 (H) 1,450
Interest income........................ -- (139) -- (58) (197)
Other.................................. -- (214) -- 7 (207)
------ ------- ----- -------- ------- -------
Income before income taxes....... -- 2,851 1,976 3,453 (613) 7,667
PROVISION FOR INCOME TAXES............... -- 163 1,631 (G) 72 1,064 (D) 2,930
------ ------- ----- -------- ------- -------
NET INCOME............................... $ -- $ 2,688 $ 345 $ 3,381 $(1,677) $ 4,737
====== ======= ===== ======== ======= =======
NET INCOME PER COMMON SHARE.............. $ 0.86
=======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................ 5,286 253 (E) 5,539
====== ======= =======
</TABLE>
F-133
<PAGE> 186
F.Y.I. INCORPORATED AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS MARCH 31, 1996 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
F.Y.I. FOUNDING NEW PRO FORMA
INCORPORATED COMPANIES ADJUST ACQUISITIONS ADJUST COMBINED
------------ --------- ------ ------------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Service revenue............................ $7,407 $ 3,487 $ -- $5,985 $ -- $16,879
Product revenue............................ 913 395 -- 271 -- 1,579
Other revenue.............................. 93 35 -- 11 -- 139
------ ------- ----- ------ ----- -------
Total revenue........................ 8,413 3,917 -- 6,267 -- 18,597
COST OF SERVICES............................. 4,701 2,195 -- 3,618 10,514
COST OF PRODUCTS SOLD........................ 718 308 -- 236 -- 1,262
DEPRECIATION................................. 212 91 -- 170 (77) (B) 396
------ ------- ----- ------ ----- -------
Gross profit......................... 2,782 1,323 -- 2,243 77 6,425
SELLING, GENERAL AND ADMINISTRATIVE.......... 2,253 1,503 (683) (F) 1,206 (88) (C) 4,331
140 (B)
------ ------- ----- ------ ----- -------
Operating income..................... 529 (180) 683 1,037 25 2,094
OTHER (INCOME) EXPENSE
Interest expense........................... 14 24 -- 43 180 (H) 261
Interest income............................ (106) -- -- (7) -- (113)
Other...................................... (39) (69) -- (15) -- (C) (123)
------ ------- ----- ------ ----- -------
Income before income taxes........... 660 (135) 683 1,016 (155) 2,069
PROVISION FOR INCOME TAXES................... 262 (130) 351 (G) 21 323 (D) 827
------ ------- ----- ------ ----- -------
NET INCOME................................... $ 398 $ (5) $ 332 $ 995 $(478) $ 1,242
====== ======= ===== ====== ===== =======
NET INCOME PER COMMON SHARE.................. $ 0.08 $ 0.22
====== ===== =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING... 5,286 253 (E) 5,539
====== ===== =======
</TABLE>
F-134
<PAGE> 187
NOTES TO PRO FORMA FINANCIAL STATEMENTS
THE PRO FORMA ADJUSTMENTS TO THE ACCOMPANYING BALANCE SHEET AS OF MARCH 31,
1996 ARE SUMMARIZED AS BELOW:
A. To record the purchase of B&B, Premier and Cook assets and liabilities
including the preliminary allocation of the purchase price (including
estimated direct costs) and the disbursement of $15,522,000 cash and
issuance of 253,252 shares of Common Stock to consummate the acquisitions.
The estimated fair market values reflected below are based on preliminary
estimates and assumptions and are subject to revision. In management's
opinion, the preliminary allocation is not expected to be materially
different than the final allocation. The fair market value of the shares of
Common Stock used in calculating the Consideration Paid was $13.65 which is
based on a 35% discount from the average trading price of the Common Stock
based on the length and type of restrictions in the purchase agreements.
<TABLE>
<S> <C>
Consideration Paid............................................... 18,979,000
Estimated Fair Value of Assets................................... 8,060,000
Estimated Fair Value of Liabilities.............................. 5,754,000
Goodwill......................................................... 16,673,000
</TABLE>
All intangibles are considered enterprise goodwill. Based on the historical
profitability of the purchased companies and the trends in the legal,
healthcare and other industries to outsource document management functions
further in the foreseeable future, the enterprise goodwill will be
amortized over a period of 30 years. The carrying value of intangible
assets will be reviewed at each reporting period on an acquisition by
acquisition basis to determine if facts and circumstances exist which would
suggest that the intangible assets may be impaired or that the amortization
period needs to be modified.
THE PRO FORMA ADJUSTMENTS TO THE ACCOMPANYING STATEMENTS OF OPERATIONS ARE
SUMMARIZED BELOW:
B. Adjustment to depreciation and amortization expense related to the
preliminary purchase price allocations described above.
C. To record the difference between the compensation paid to the stockholders
of B&B and Premier for the historical periods presented and the F.Y.I.
employment contract compensation to the stockholders.
D. Adjustment of the federal and state income tax provisions based on the pro
forma combined operations.
E. To adjust the weighted average shares outstanding to reflect the pro forma
effect of the shares issued for the purchase of B&B and Premier.
F. To record the difference between the compensation paid to the stockholders'
of the Founding Companies and the F.Y.I. employment contract compensation
for the one month ended January 31, 1996 and the year ended December 31,
1995.
G. Adjustment of the federal and state income tax provisions based on the pro
forma combined operations of F.Y.I. and the Founding Companies.
H. To record interest expense on the $8,150,000 term debt issued for the
purchase of Cook. Proceeds remaining from the Offering were used for the
purchase of B&B and Premier, and a portion of Cook.
Statements throughout this Registration Statement that state the Company's
or management's intentions, hopes, beliefs, anticipations, expectations or
predictions of the future are forward-looking statements. It is important to
note that the Company's actual results could differ materially from those
projected in such forward-looking statements. Additional information concerning
factors that could cause actual results to differ materially from those in the
forward-looking statements is contained in the Risk Factor section of this
Registration Statement.
F-135
<PAGE> 188
NO DEALER, REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
- --------------------------------------- PAGE
----
<S> <C>
Prospectus Summary..................... 2
Risk Factors........................... 6
The Company............................ 10
Recent Developments.................... 12
Price Range of Common Stock............ 13
Dividend Policy........................ 13
Capitalization Table................... 14
Selected Financial Data................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 19
<CAPTION>
SECTION
- ---------------------------------------
PAGE
----
<S> <C>
Business............................... 27
Subsequent Acquisitions................ 34
Management............................. 38
Principal Stockholders................. 44
Description of Capital Stock........... 45
Certain Transactions................... 47
Shares Eligible for Future Sale........ 48
Legal Matters.......................... 48
Experts................................ 49
Additional Information................. 50
Index to Financial Statements.......... F-1
</TABLE>
---------------------
<PAGE> 189
PART I-B
F.Y.I. INCORPORATED
The Prospectus contained in Part I-B may be used from time to time by
stockholders will seek to sell shares of Common Stock in transactions in which
they or the broker-dealers through whom such shares are sold may be deemed to be
underwriters under the Securities Act of 1933, as amended. The Prospectus will
consist of the same Prospectus contained in Part I, but with the alternate pages
included in this Part I-B.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K.
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
----------------------------------------------- ----------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus;
Additional Information
3. Summary Information. Risk Factors and Ratio of
Earnings to Fixed Charges...................... Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds................................ Manner of Offering
5. Determination of Offering Price................ Outside Front Cover Page of Prospectus
6. Dilution....................................... Not Applicable
7. Selling Security Holders....................... Outside Front Cover Page of Prospectus;
Manner of Offering
8. Plan of Distribution........................... Outside Front Cover Page of Prospectus;
Manner of Offering
9. Description of Securities to be Registered..... Dividend Policy; Description of Capital
Stock
10. Interests of Named Experts and Counsel......... Legal Matters; Experts
11. Information with Respect to Registrant......... Outside Front Cover Page of Prospectus;
Prospectus Summary; The Company; Risk
Factors; Dividend Policy; Selected
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Principal Stockholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Not Applicable
</TABLE>
<PAGE> 190
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
(ALTERNATE COVER)
SUBJECT TO COMPLETION
JULY 5, 1996
[LOGO]
COMMON STOCK
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------------
This Prospectus, as appropriately amended or supplemented, may be used from
time to time principally by persons who have received shares of Common Stock,
$.01 par value (the "Common Stock" or the "Shares"), of F.Y.I. Incorporated (the
"Company") in mergers or acquisitions of other businesses or properties made by
the Company (See "Business -- Strategy"), or their transferees, and who wish to
offer and sell such Shares in transactions in which they and any broker-dealer
through whom such Shares are sold may be deemed to be underwriters within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), as
more fully described herein. Any commissions paid or concessions allowed to any
broker-dealer, and, if any broker-dealer purchases such Shares as principal, any
profits received on the resale of such Shares, may be deemed to be underwriting
discounts and commissions under the Securities Act. Printing, certain legal,
filing and other similar expenses of this offering will be paid by the Company.
Selling Shareholders will bear all other expenses of this offering, including
brokerage fees, any underwriting discounts or commissions.
On July 1, 1996, the last sale price of the Common Stock on the Nasdaq
National Market was $19.00 per share as reported in the Wall Street Journal on
July 2, 1996.
The Company has filed a registration statement with the Securities and
Exchange Commission relating to the registration of 2,000,000 shares of Common
Stock.
The Company is a Delaware corporation and all references herein refer to
the Company and its subsidiaries unless the context requires otherwise. The
Company's principal executive offices are located at 3232 McKinney Avenue, Suite
900, Dallas Texas 75204 and its telephone number is (214) 953-7555.
The date of this Prospectus is , 1996.
<PAGE> 191
[ALTERNATE PAGE]
MANNER OF OFFERING
This Prospectus, as appropriately amended or supplemented, may be used from
time to time principally by persons who have received shares of Common Stock in
acquisitions made by the Company of other businesses or properties, or their
transferees, and who wish to offer and sell such Shares (such persons are herein
referred to as the "Selling Shareholder" or "Selling Shareholders") in
transactions in which they and any broker-dealer through whom such Shares are
sold may be deemed to be underwriters within the meaning of the Securities Act.
The Company will receive none of the proceeds from any such sales. There
presently are no arrangements or understandings, formal or informal, pertaining
to the distribution of the Shares described herein. Upon the Company being
notified by a Selling Shareholder that any material arrangement has been entered
into with a broker-dealer from the sale of Shares bought through a block trade,
special offering, exchange distribution or secondary distribution, a
supplemented Prospectus will be filed, pursuant to Rule 424(b) under the
Securities Act, setting forth (i) the name of each Selling Shareholder and the
participating broker-dealer(s), (ii) the number of Shares involved, (iii) the
price at which the Shares were sold, (iv) the commissions paid or the discounts
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out in this Prospectus and (vi) other facts material to the transaction.
Selling Shareholders may sell the Shares being offered hereby from time to
time in transactions (which may involve crosses and block transactions) on the
Nasdaq National Market in negotiated transactions or otherwise, at market prices
prevailing at the time of the sale or at negotiated prices. Selling Shareholders
may sell some or all of the shares in transactions involving broker-dealers, who
may act solely as agent and/or may acquire Shares as principal. Broker-dealers
participating in such transactions as agent may receive commissions from Selling
Shareholders (and, if they act as agent for the purchaser of such Shares, from
such purchaser), such commissions computed in appropriate cases in accordance
with the applicable rules of the Nasdaq National Market, which commissions may
be at negotiated rates where permissible under such rules. Participating
broker-dealers may agree with Selling Shareholders to sell a specified number of
Shares at a stipulated price per share and, to the extent such broker-dealer is
unable to do so acting as an agent for Selling Shareholders, to purchase as
principal any unsold Shares at the price required to fulfill the broker-dealer's
commitment to Selling Shareholders. In addition or alternatively, Shares may be
sold by Selling Shareholders and/or by or through other broker-dealers in
special offerings, exchange distributions or secondary distributions pursuant to
and in compliance with the governing rules of the Nasdaq National Market.
Broker-dealers who acquire Shares as principal may thereafter resell such Shares
from time to time in transactions (which may involve crosses and block
transactions and which may involve sales to or through other broker-dealers,
including transactions of the nature described in the preceding two sentences)
on the Nasdaq National Market, in negotiated transactions or otherwise, at
market prices prevailing at the time of sale or at negotiated prices, and in
connection with such resales may pay to or receive commissions from the purchase
of such Shares.
The Company may agree to indemnify each Selling Shareholder as an
underwriter under the Securities Act against certain liabilities, including
liabilities arising under the Securities Act. Each Selling Shareholder may
indemnify any broker-dealer that participates in transactions involving sales of
the Shares against certain liabilities, including liabilities arising under the
Securities Act.
2-A
<PAGE> 192
[ALTERNATE PAGE]
NO PERSON HAS BEEN AUTHORIZED TO GIVE INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ---------------------------------- ----
<S> <C>
Prospectus Summary................ 2
Manner of Offering................ 2A
Risk Factors...................... 6
The Company....................... 10
Recent Developments............... 12
Price Range of Common Stock....... 13
Dividend Policy................... 13
Capitalization Table.............. 14
Selected Financial Data........... 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 19
<CAPTION>
SECTION PAGE
- ---------------------------------- ----
<S> <C>
Business.......................... 27
Subsequent Acquisitions........... 34
Management........................ 38
Principal Stockholders............ 44
Description of Capital Stock...... 45
Certain Transactions.............. 47
Shares Eligible for Future Sale... 48
Legal Matters..................... 48
Experts........................... 49
Additional Information............ 50
Index to Financial Statements..... F-1
</TABLE>
---------------------
<PAGE> 193
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
compensation expected to be incurred) in connection with the offering described
in this Registration Statement. All of such amounts (except the SEC Registration
Fee) are estimated.
<TABLE>
<CAPTION>
COMPANY
----------
<S> <C>
SEC Registration Fee..................................................... $ 11,552
Blue Sky Fees and Expenses*.............................................. 1,000
Printing and Engraving Costs*............................................ 20,000
Legal Fees and Expenses*................................................. 50,000
Accounting Fees and Expenses*............................................ 10,000
Transfer Agent and Registrar Fees and Expenses*.......................... 1,000
Miscellaneous*........................................................... 6,448
----------
Total.................................................................. $ 100,000
==========
</TABLE>
- ---------------------
* estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's By-Laws provide that the Company shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Article Six of the Company's Certificate of Incorporation provides that the
Company's directors will not be personally liable to the Company or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except (a) for any breach of the duty of loyalty to the
Company or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of the State of Delaware, which makes
directors liable for unlawful dividends or unlawful stock repurchases or
redemptions or (d) for transactions from which directors derive improper
personal benefit.
In accordance with Delaware law, the Company has entered into
indemnification agreements with its directors, pursuant to which it has agreed
to pay certain expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement incurred by such directors in connection with certain
actions, suits or
II-1
<PAGE> 194
proceedings. These agreements require directors to repay the amount of any
expenses advanced if it shall be determined that they shall not have been
entitled to indemnification.
The Company maintains liability insurance for the benefit of its directors
and officers.
ITEM 15. RECENT SALES UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act of 1933, as amended (the "Securities Act"):
(i) In October 1994, the Company issued 10,000 shares of Common Stock
to the founders of the Company for $.01 per share;
(ii) In January 1995, the Company issued 9,000 shares of preferred
stock at a price of $100 per share. The preferred stock was converted into
shares of Common Stock upon consummation of the Offering;
(iii) In March 1995, the Company issued 350 shares of Common Stock for
$.01 per share in connection with an agreement by the recipient to perform
consulting services to the Company related to the Acquisitions and the
Offering; and
(iv) In September 1995, the Company issued 650 shares of Common Stock
at a price of $500 per share to a holder of preferred stock of the Company.
Subsequent to the issuance of the foregoing shares, and prior to the
Offering, the Company issued 60.28 shares of Common Stock for each share of
Common Stock then outstanding and adjusted the conversion ratio of the
outstanding preferred stock proportionately.
Simultaneously with the completion of the Offering, the Company issued
1,878,933 shares of its Common Stock in connection with the acquisition of seven
document management services businesses. See "Business -- Organization."
Each of these transactions was completed without registration of the
relevant security under the Securities Act in reliance upon the exemptions
provided by Section 4(2) of the Securities Act for transactions not involving a
public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------------------------------------------------------------------------------------------
<C> <S>
2.1 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among F.Y.I. Incorporated, Deliverex, Incorporated, ASK Record
Management, Inc., Deliverex Acquisition Corp., and the Stockholders
named therein (Exhibit 2.1 of the Registrant's Registration Statement
on Form S-1 (Registration No. 33-98608) effective January 12, 1996,
is hereby incorporated by reference)
2.2 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among F.Y.I. Incorporated, C. & T. Management Services, Inc.,
Qualidata, Inc., DPAS Acquisition Corp., and the Stockholders named
therein (Exhibit 2.2 of the Registrant's Registration Statement on
Form S-1 (Registration No. 33-98608) effective January 12, 1996, is
hereby incorporated by reference)
2.3 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among F.Y.I. Incorporated, Melanson & Associates, Inc., Bay
Area Micrographics, Researchers Acquisition Corp., and the
Stockholders named therein (Exhibit 2.3 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
</TABLE>
II-2
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------ -------------------------------------------------------------------------
<S> <C>
2.4 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among F.Y.I. Incorporated, Paragon Management Group, Inc.,
Recordex Acquisition Corp., Recordex Services, Inc. and the
Stockholders named therein (Exhibit 2.4 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
2.5 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among F.Y.I. Incorporated, Permanent Records Inc., Permanent
Records Acquisition Corp., and the Stockholders named therein
(Exhibit 2.5 of the Registrant's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996, is hereby
incorporated by reference)
2.6 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among F.Y.I. Incorporated, Leonard Archives Inc., Leonard
Acquisition Corp. and the Stockholders named therein (Exhibit 2.6 of
the Registrant's Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996, is hereby incorporated by
reference)
2.7 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among Imagent Corporation, Imagent Acquisition Corp. and the
Stockholders named therein (Exhibit 2.7 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
2.8 -- Agreement and Plan of Reorganization dated as of October 25, 1995, by
and among Mobile Information Services Corporation, Inc., Imagent
Acquisition Corp. and the Stockholders named therein (Exhibit 2.8 of
the Registrant's Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996, is hereby incorporated by
reference)
2.9 -- First Amendment to Agreement and Plan of Reorganization, dated as of
October 25, 1995, by and among F.Y.I. Incorporated, Leonard Archives
Inc., Leonard Acquisition Corp. and the Stockholders named therein
(Exhibit 2.9 of the Registrant's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996, is hereby
incorporated by reference)
2.10 -- First Amendment to Agreement and Plan of Reorganization, dated as of
November 14, 1995, by and among F.Y.I. Incorporated, C. & T.
Management Services, Inc., Qualidata, Inc., DPAS Acquisition Corp.,
and the Stockholders named therein (Exhibit 2.10 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
3.1 -- Amended and Restated Certificate of Incorporation of F.Y.I.
Incorporated (Exhibit 3.1 of the Registrant's Registration Statement
on Form S-1 (Registration No. 33-98608) effective January 12, 1996,
is hereby incorporated by reference)
3.2 -- By-Laws of F.Y.I. Incorporated (Exhibit 3.2 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
4.1 -- Amended and Restated Certificate of Incorporation of F.Y.I.
Incorporated (included in Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
4.2 -- Form of certificate evidencing ownership of Common Stock of F.Y.I.
Incorporated (Exhibit 4.2 of the Registrant's Registration Statement
on Form S-1 (Registration No. 33-98608) effective January 12, 1996,
is hereby incorporated by reference)
5.1* -- Opinion of Morgan, Lewis & Bockius LLP
10.1 -- F.Y.I. Incorporated 1995 Stock Option Plan (Exhibit 10.1 of the
Registrant's Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996, is hereby incorporated by
reference)
10.2 -- Employment Agreement between F.Y.I. Incorporated and Thomas C. Walker
(Exhibit 10.2 of the Registrant's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996, is hereby
incorporated by reference)
</TABLE>
II-3
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------------------------------------------------------------------------------------------
<C> <S>
10.3 -- Employment Agreement between F.Y.I. Incorporated and David Lowenstein
(Exhibit 10.3 of the Registrant's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996, is hereby
incorporated by reference)
10.4 -- Employment Agreement between F.Y.I. Incorporated and Jerry F.
Leonard, Jr. (Exhibit 10.4 of the Registrant's Registration Statement
on Form S-1 (Registration No. 33-98608) effective January 12, 1996,
is hereby incorporated by reference)
10.5 -- Employment Agreement between F.Y.I. Incorporated and Greg Melanson
(Exhibit 10.5 of the Registrant's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996, is hereby
incorporated by reference)
10.6 -- Employment Agreement between F.Y.I. Incorporated and Jonathan B. Shaw
(Exhibit 10.6 of the Registrant's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996, is hereby
incorporated by reference)
10.7 -- Employment Agreement between F.Y.I. Incorporated and G. Michael
Bellenghi (Exhibit 10.7 of the Registrant's Registration Statement on
Form S-1 (Registration No. 33-98608) effective January 12, 1996, is
hereby incorporated by reference)
10.8 -- Form of Indemnification Agreement between F.Y.I. and each director
(Exhibit 10.8 of the Registrant's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996, is hereby
incorporated by reference)
10.9 -- Employment Agreement between F.Y.I. Incorporated and Ed H. Bowman,
Jr. (Exhibit 10.9 of the Registrant's Registration Statement on Form
S-1 (Registration No. 33-98608) effective January 12, 1996, is hereby
incorporated by reference)
10.10 -- Form of Registration Rights Agreement, dated as of November 14, 1995,
by and among Thomas C. Walker, David Lowenstein and the persons named
therein (Exhibit 10.10 of the Registrant's Registration Statement on
Form S-1 (Registration No. 33-98608) effective January 12, 1996, is
hereby incorporated by reference)
10.11 -- Warrant issued to Ed H. Bowman, Jr. (Exhibit 10.11 of the
Registrant's Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996, is hereby incorporated by
reference)
10.12 -- Five Year Media Purchase Agreement, dated as of August 9, 1994,
between Eastman Kodak Company and Jonathan B. Shaw (Exhibit 10.12 of
the Registrant's Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996, is hereby incorporated by
reference)
10.13* -- Employment Agreement between F.Y.I. Incorporated and Robert C. Irvine
10.14* -- Credit Agreement, dated as of April 18, 1996, by and among F.Y.I.
Incorporated and its subsidiaries and Banque Parabas, IBJ Schroder
Bank & Trust, and First Source Financial LLP
10.15* -- Lease Agreement between F.Y.I. Incorporated and One McKinney Plaza,
Inc.
10.16 -- Employment Agreement between F.Y.I. Incorporated and Margot T.
Lebenberg
10.17 -- Agreement and Plan of Reorganization, dated as of May 31, 1996, by
and among F.Y.I. Incorporated, B&B (Baltimore-Washington) Acquisition
Corp., B&B Information and Image Management, Inc. and Charles J.
Bauer, Jr.
10.18 --Agreement and Plan of Reorganization, dated as of May 31, 1996, by and
among F.Y.I. Incorporated, Premier Acquisition Corp., Premier
Document Management, Inc., PDM Services, Inc., Brian E. Whiteside,
Christopher S. Moore, Lynnette C. Pomerville and Gary T. Siervert
10.19 -- Asset Purchase Agreement, dated as of June 28, 1996, by and among
F.Y.I. Incorporated, Robert A. Cook Acquisition Corp., Robert A. Cook
and Staff, Inc. and RAC Services, Inc., Robert A. Cook and Robert A.
Cook and Anna M. Cook, as Co-Trustees of the Cook 1993 Living Trust
10.20 -- First Amendment to Credit Agreement, dated as of June 26, 1996, by
and among F.Y.I. Incorporated and its subsidiaries and Banque
Parabas, IBJ Schroder Bank & Trust, and First Source Financial LLP
10.21 -- Warrant issued to Ed H. Bowman, Jr.
10.22 -- Warrant issued to Robert C. Irvine
</TABLE>
II-4
<PAGE> 197
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------- ------------------------------------------------------------------------
<C> <S>
21.1 -- List of subsidiaries of F.Y.I. Incorporated
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Elko, Fischer, McCabe & Rudman, Ltd.
23.3* -- Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)
23.4 -- Consent of C.W. Amos & Company, LLC
23.5 -- Consent of Moss Adams, LLP
24.1* -- Power of Attorney
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed by the Act and is therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which any offers or sales are being
made, a post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed on the registration statement
or any other material change to such information in the registration
statement.
(2) That for the purpose of determining any liability under the Act
each such post-effective amendment may be deemed to be a new registration
statement relating to the securities being offered therein and the offering
of such securities at that time may be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities which are being registered which remain unsold at the
termination of the offering.
II-5
<PAGE> 198
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of Dallas, Texas, on July 5,
1996.
Date: July 5, 1996
F.Y.I. INCORPORATED
By: /s/ ED H. BOWMAN, JR.
--------------------------------
Ed H. Bowman, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- --------------------------------------------- ---------------------------------- -------------
<C> <S> <C>
/s/ ED H. BOWMAN, JR. Director, President and Chief July 5, 1996
- --------------------------------------------- Executive Officer (Principal
Ed H. Bowman, Jr. Executive Officer)
/s/ ROBERT C. IRVINE Executive Vice President and Chief July 5, 1996
- --------------------------------------------- Financial Officer (Principal
Robert C. Irvine Financial and Accounting
Officer)
/s/ THOMAS C. WALKER Chairman of the Board and Chief July 5, 1996
- --------------------------------------------- Development Officer
Thomas C. Walker
/s/ DAVID LOWENSTEIN Director and Executive Vice July 5, 1996
- --------------------------------------------- President
David Lowenstein
/s/ DONALD F. MOOREHEAD, JR. Director July 5, 1996
- ---------------------------------------------
Donald F. Moorehead, Jr.
/s/ G. MICHAEL BELLENGHI Director July 5, 1996
- ---------------------------------------------
G. Michael Bellenghi
/s/ JERRY F. LEONARD, JR. Director July 5, 1996
- ---------------------------------------------
Jerry F. Leonard, Jr.
/s/ GREG MELANSON Director July 5, 1996
- ---------------------------------------------
Greg Melanson
/s/ JONATHAN B. SHAW Director July 5, 1996
- ---------------------------------------------
Jonathan B. Shaw
/s/ MICHAEL J. BRADLEY Director July 5, 1996
- ---------------------------------------------
Michael J. Bradley
/s/ HON. EDWARD M. ROWELL Director July 5, 1996
- ---------------------------------------------
Hon. Edward M. Rowell
*By: /s/ ED H. BOWMAN, JR.
--------------------------------------
Ed H. Bowman, Jr.
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 199
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------- -----------
<C> <S> <C>
2.1 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among F.Y.I. Incorporated, Deliverex, Incorporated, ASK
Record Management, Inc., Deliverex Acquisition Corp., and the
Stockholders named therein (Exhibit 2.1 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
2.2 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among F.Y.I. Incorporated, C. & T. Management Services,
Inc., Qualidata, Inc., DPAS Acquisition Corp., and the Stockholders
named therein (Exhibit 2.2 of the Registrant's Registration
Statement on Form S-1 (Registration No. 33-98608) effective January
12, 1996, is hereby incorporated by reference)
2.3 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among F.Y.I. Incorporated, Melanson & Associates, Inc., Bay
Area Micrographics, Researchers Acquisition Corp., and the
Stockholders named therein (Exhibit 2.3 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
2.4 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among F.Y.I. Incorporated, Paragon Management Group, Inc.,
Recordex Acquisition Corp., Recordex Services, Inc. and the
Stockholders named therein (Exhibit 2.4 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
2.5 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among F.Y.I. Incorporated, Permanent Records Inc., Permanent
Records Acquisition Corp., and the Stockholders named therein
(Exhibit 2.5 of the Registrant's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996, is hereby
incorporated by reference)
2.6 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among F.Y.I. Incorporated, Leonard Archives Inc., Leonard
Acquisition Corp. and the Stockholders named therein (Exhibit 2.6
of the Registrant's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996, is hereby
incorporated by reference)
2.7 -- Agreement and Plan of Reorganization, dated as of October 25, 1995,
by and among Imagent Corporation, Imagent Acquisition Corp. and the
Stockholders named therein (Exhibit 2.7 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
2.8 -- Agreement and Plan of Reorganization dated as of October 25, 1995,
by and among Mobile Information Services Corporation, Inc., Imagent
Acquisition Corp. and the Stockholders named therein (Exhibit 2.8
of the Registrant's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996, is hereby
incorporated by reference)
2.9 -- First Amendment to Agreement and Plan of Reorganization, dated as
of October 25, 1995, by and among F.Y.I. Incorporated, Leonard
Archives Inc., Leonard Acquisition Corp. and the Stockholders named
therein (Exhibit 2.9 of the Registrant's Registration Statement on
Form S-1 (Registration No. 33-98608) effective January 12, 1996, is
hereby incorporated by reference)
2.10 -- First Amendment to Agreement and Plan of Reorganization, dated as
of November 14, 1995, by and among F.Y.I. Incorporated, C. & T.
Management Services, Inc., Qualidata, Inc., DPAS Acquisition Corp.,
and the Stockholders named therein (Exhibit 2.10 of the
Registrant's Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996, is hereby incorporated by
reference)
</TABLE>
<PAGE> 200
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------- -----------
<C> <S> <C>
3.1 -- Amended and Restated Certificate of Incorporation of F.Y.I.
Incorporated (Exhibit 3.1 of the Registrant's Registration
Statement on Form S-1 (Registration No. 33-98608) effective January
12, 1996, is hereby incorporated by reference)
3.2 -- By-Laws of F.Y.I. Incorporated (Exhibit 3.2 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
4.1 -- Amended and Restated Certificate of Incorporation of F.Y.I.
Incorporated (included in Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
4.2 -- Form of certificate evidencing ownership of Common Stock of F.Y.I.
Incorporated (Exhibit 4.2 of the Registrant's Registration
Statement on Form S-1 (Registration No. 33-98608) effective January
12, 1996, is hereby incorporated by reference)
5.1* -- Opinion of Morgan, Lewis & Bockius LLP
10.1 -- F.Y.I. Incorporated 1995 Stock Option Plan (Exhibit 10.1 of the
Registrant's Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996, is hereby incorporated by
reference)
10.2 -- Employment Agreement between F.Y.I. Incorporated and Thomas C.
Walker (Exhibit 10.2 of the Registrant's Registration Statement on
Form S-1 (Registration No. 33-98608) effective January 12, 1996, is
hereby incorporated by reference)
10.3 -- Employment Agreement between F.Y.I. Incorporated and David
Lowenstein (Exhibit 10.3 of the Registrant's Registration Statement
on Form S-1 (Registration No. 33-98608) effective January 12, 1996,
is hereby incorporated by reference)
10.4 -- Employment Agreement between F.Y.I. Incorporated and Jerry F.
Leonard, Jr. (Exhibit 10.4 of the Registrant's Registration
Statement on Form S-1 (Registration No. 33-98608) effective January
12, 1996, is hereby incorporated by reference)
10.5 -- Employment Agreement between F.Y.I. Incorporated and Greg Melanson
(Exhibit 10.5 of the Registrant's Registration Statement on Form
S-1 (Registration No. 33-98608) effective January 12, 1996, is
hereby incorporated by reference)
10.6 -- Employment Agreement between F.Y.I. Incorporated and Jonathan B.
Shaw (Exhibit 10.6 of the Registrant's Registration Statement on
Form S-1 (Registration No. 33-98608) effective January 12, 1996, is
hereby incorporated by reference)
10.7 -- Employment Agreement between F.Y.I. Incorporated and G. Michael
Bellenghi (Exhibit 10.7 of the Registrant's Registration Statement
on Form S-1 (Registration No. 33-98608) effective January 12, 1996,
is hereby incorporated by reference)
10.8 -- Form of Indemnification Agreement between F.Y.I. and each director
(Exhibit 10.8 of the Registrant's Registration Statement on Form
S-1 (Registration No. 33-98608) effective January 12, 1996, is
hereby incorporated by reference)
10.9 -- Employment Agreement between F.Y.I. Incorporated and Ed H. Bowman,
Jr. (Exhibit 10.9 of the Registrant's Registration Statement on
Form S-1 (Registration No. 33-98608) effective January 12, 1996, is
hereby incorporated by reference)
</TABLE>
<PAGE> 201
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------- -----------
<C> <S> <C>
10.10 -- Form of Registration Rights Agreement, dated as of November 14,
1995, by and among Thomas C. Walker, David Lowenstein and the
persons named therein (Exhibit 10.10 of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-98608)
effective January 12, 1996, is hereby incorporated by reference)
10.11 -- Warrant issued to Ed H. Bowman, Jr. (Exhibit 10.11 of the
Registrant's Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996, is hereby incorporated by
reference)
10.12 -- Five Year Media Purchase Agreement, dated as of August 9, 1994,
between Eastman Kodak Company and Jonathan B. Shaw (Exhibit 10.12
of the Registrant's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996, is hereby
incorporated by reference)
10.13* -- Employment Agreement between F.Y.I. Incorporated and Robert C.
Irvine
10.14* -- Credit Agreement, dated as of April 18, 1996, by and among F.Y.I.
Incorporated and its subsidiaries and Banque Parabas, IBJ Schroder
Bank & Trust, and First Source Financial LLP
10.15* -- Lease Agreement between F.Y.I. Incorporated and One McKinney Plaza,
Inc.
10.16 -- Employment Agreement between F.Y.I. Incorporated and Margot T.
Lebenberg
10.17 -- Agreement and Plan of Reorganization, dated as of May 31, 1996, by
and among F.Y.I. Incorporated, B&B (Baltimore-Washington)
Acquisition Corp., B&B Information and Image Management, Inc. and
Charles J. Bauer, Jr.
10.18 --Agreement and Plan of Reorganization, dated as of May 31, 1996, by
and among F.Y.I. Incorporated, Premier Acquisition Corp., Premier
Document Management, Inc., PDM Services, Inc., Brian E. Whiteside,
Christopher S. Moore, Lynnette C. Pomerville and Gary T. Siervert
10.19 -- Asset Purchase Agreement, dated as of June 28, 1996, by and among
F.Y.I. Incorporated, Robert A. Cook Acquisition Corp., Robert A.
Cook and Staff, Inc. and RAC Services, Inc., Robert A. Cook and
Robert A. Cook and Anna M. Cook, as Co-Trustees of the Cook 1993
Living Trust
10.20 -- First Amendment to Credit Agreement, dated as of June 26, 1996, by
and among F.Y.I. Incorporated and its subsidiaries and Banque
Parabas, IBJ Schroder Bank & Trust, and First Source Financial LLP
10.21 -- Warrant issued to Ed H. Bowman, Jr.
10.22 -- Warrant issued to Robert C. Irvine
21.1 -- List of subsidiaries of F.Y.I. Incorporated
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Elko, Fischer, McCabe & Rudman, Ltd.
23.3* -- Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)
23.4 -- Consent of C.W. Amos & Company, LLC
23.5 -- Consent of Moss Adams, LLP
24.1* -- Power of Attorney
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between F.Y.I. Incorporated,
a Delaware corporation (the "Company"), and Margot T. Lebenberg ("Employee") is
hereby entered into and effective as of July 1, 1996. This Agreement hereby
supersedes any other employment agreements or understandings; written or oral,
between the Company and Employee.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing document management services.
Employee is employed hereunder by the Company in a confidential relationship
wherein Employee, in the course of her employment with the Company, has and
will continue to become familiar with and aware of information as to the
Company's customers, specific manner of doing business, including the
processes, techniques and trade secrets utilized by the Company, and future
plans with respect thereto, all of which has been and will be established and
maintained at great expense to the Company; this information is a trade secret
and constitutes the valuable goodwill of the Company.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. Employment and Duties.
(a) The Company hereby employs Employee as Vice President and
General Counsel. As such, Employee shall have
<PAGE> 2
responsibilities, duties and authority reasonably accorded to and expected of a
Vice President and General Counsel and will report directly to the Chief
Executive Officer of the Company. Employee hereby accepts this employment upon
the terms and conditions herein contained and, subject to paragraph 1(b),
agrees to devote her working time, attention and efforts to promote and further
the business of the Company.
(b) Employee shall not, during the term of her employment
hereunder, be engaged in any other business activity pursued for gain, profit
or other pecuniary advantage except to the extent that such activity (i) does
not interfere with Employee's duties and responsibilities hereunder and (ii)
does not violate paragraph 3 hereof. The foregoing limitations shall not be
construed as prohibiting Employee from serving on the boards of directors of
other companies or making personal investments in such form or manner as will
require her services, other than to a minimal extent, in the operation or
affairs of the companies or enterprises in which such investments are made nor
violate the terms of paragraph 3 hereof.
2. Compensation. For all services rendered by Employee, the
Company shall compensate Employee as follows:
(a) Base Salary. The base salary payable to Employee shall be
$100,000 per year, payable on a regular basis in accordance with the Company's
standard payroll procedures but not less than bi-monthly. On at least an
annual basis, the Board of Directors of the Company (the "Board") will review
Employee's performance and may make increases to such base salary if, in its
discretion, any such increase is warranted. Such recommended increase would,
in all likelihood, require approval by the Board or a duly constituted
committee thereof.
(b) Incentive Bonus Plan. For 1996 and subsequent years, it is
the Company's intent to develop a written Incentive Bonus Plan setting forth
the criteria under which Employee and other officers and key employees will be
eligible to receive year-end bonus awards. Employee shall be eligible for a
bonus opportunity of up to 50% of her base salary in accordance with this
Incentive Bonus Plan. The award of any bonus shall be based on the total
performance of the Company, but shall be related to the earnings per share
growth of the Company and shall be payable in various
-2-
<PAGE> 3
increments based on the performance of the Company versus targeted goals. The
incremental payments and the Company's targeted performance shall be determined
by the Board or the compensation committee thereof.
(c) Executive Perquisites, Benefits and Other Compensation.
Employee shall be entitled to receive additional benefits and compensation from
the Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
her dependent family members under health, hospitalization,
disability, dental, life and other employee benefit plans that the
Company may have in effect from time to time, with benefits provided
to Employee under this clause (i) to be at least comparable to the
benefits afforded to Employee in her current position (and to include
coverage for all pre-existing conditions) and not less favorable than
the benefits provided to other Company executives.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of her services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(iii) Four (4) weeks paid vacation for each year during the
period of employment or such greater amount as may be afforded
officers and key employees generally under the Company's policies in
effect from time to time (pro rated for any year in which Employee is
employed for less than the full year).
(iv) An automobile allowance in the amount of $500 per
month.
(v) The Company shall reimburse Employee up to $200 per
month for club dues actually incurred by Employee, provided that such
club is used at least 50 percent of the time for business purposes.
-3-
<PAGE> 4
(vi) The Company shall provide Employee with other
executive perquisites as may be available to or deemed appropriate for
Employee by the Board and participation in all other Company-wide
employee benefits as available from time to time, which will include
participation in the Company's 1995 Long-Term Incentive Compensation
Plan.
(vii) The Company shall provide Employee with reasonable
assistance in personal tax planning from Arthur Andersen.
(viii) The Company shall establish a 401(k) Plan and the
Employee may participate in this 401(k) Plan. The terms of such Plan
shall be approved by the Board or by the compensation committee
thereof.
(ix) The Company shall grant the Employee options (the
"Options") to acquire 40,000 shares of Common Stock of the Company at
the price of the lower of $17 1/4 per share or the lowest price the
shares have traded on the Nasdaq National Market between March 6, 1996
and the date hereof (the "Option Price"). If the shares are not
trading above $20 per share for five consecutive trading days
immediately prior to July 1, 1996, then the Company shall grant
Employee an additional 5,000 shares at the Option Price. The Options
shall become exercisable as to 20% of the underlying shares of Common
Stock on the 180th day following June 1, 1996 and as to the remainder,
20% of the underlying shares of Common Stock on each of the first four
anniversaries of June 1, 1996 (June 1, 1997, June 1, 1998, June 1,
1999 and June 1, 2000), provided that all of the Options shall become
exercisable upon the occurrence of any of the events set forth in
section 5(e). The Options shall expire on the tenth anniversary of
the date of grant.
(x) The Company shall provide Employee with computer
hardware and software which would in Employee's judgement add to her
productivity, subject to the reasonable approval of the Chief
Executive Officer.
(xi) The Company shall pay for all of Employee's fees
for the American Bar Association and other state and local bar
associations.
-4-
<PAGE> 5
(xii) The Company shall pay for Employee's attendance at up
to three continuing education seminars to the extent that Employees'
schedule allows and reimburse Employee for (x) any registration fee
and (y) travel and lodging to the extent such seminars are not
available in Dallas, Texas.
(xiii) The Company shall make funds available for
the purchase of relevant legal publications and other resource
material on an as-needed basis as determined in good faith by the
Employee.
(xiv) The Company shall cover Employee under its Director
and Officer Insurance Policy at the same level of coverage as other
comparably situated executives and will purchase appropriate riders to
such policy to cover malpractice claims.
(xv) The Company shall employ an administrative
assistant/paralegal of the Employee's choosing to assist the Employee,
on terms and conditions of employment similar to those for assistants
to other comparably situated executives.
(xvi) The Company shall provide Employee with such other
compensation as may be determined by the Board or the compensation
committee thereof.
(xvii) The Company shall pay Employee $18,833.33 on or
before July 1, 1996 to cover Employee's relocation expenses.
3. Non-Competition Agreement.
(a) Subject to Section 5(d), Employee will not, during the period
of her employment by or with the Company, and for a period of two (2) years
immediately following the termination of her employment under this Agreement,
for any reason whatsoever, directly or indirectly, for herself or on behalf of
or in conjunction with any other person, persons, company, partnership,
corporation or business of whatever nature:
-5-
<PAGE> 6
(i) engage, as an officer, director, shareholder,
owner, partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant or
advisor, or as a sales representative, in any business selling
any products or services in direct competition with the
Company, within 100 miles of (i) the principal executive
offices of the Company or (ii) any place to which the Company
provides products or services or in which the Company is in
the process of initiating business operations during the term
of this covenant (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company (including the subsidiaries
thereof) in a managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the employ of the
Company (including the subsidiaries thereof), provided that Employee
shall be permitted to call upon and hire any member of her immediate
family;
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of the Company (including the subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or
services in direct competition with the Company within the Territory;
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was either called upon by the Company (including the subsidiaries
thereof) or for which the Company made an acquisition analysis, for
the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the Company (or the Subsidiaries thereof) to any person, firm,
partnership, corporation or business for any reason or purpose
whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than three
percent (3%) of the capital stock of a
-6-
<PAGE> 7
competing business, whose stock is traded on a national securities
exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Company for which
it would have no other adequate remedy, Employee agrees that the foregoing
covenant may be enforced by the Company in the event of breach by her by
injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in
this paragraph 3 impose a reasonable restraint on Employee in light of the
activities and business of the Company (including the Company's subsidiaries)
on the date of the execution of this Agreement and the current plans of the
Company (including the Company's subsidiaries); but it is also the intent of
the Company and Employee that such covenants be construed and enforced in
accordance with the changing activities, business and locations of the Company
(including the Company's subsidiaries) throughout the term of this covenant,
whether before or after the date of termination of the employment of Employee,
subject to the following paragraph. For example, if, during the term of this
Agreement, the Company (including the Company's subsidiaries) engages in new
and different activities, enters a new business or established new locations
for its current activities or business in addition to or other than the
activities or business enumerated under the Recitals above or the locations
currently established therefore, then Employee will be precluded from
soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business
within 100 miles of its then-established operating location(s) through the term
of this covenant.
It is further agreed by the parties hereto that, in the event
that Employee shall cease to be employed hereunder, and shall enter into a
business or pursue other activities not in competition with the Company
(including the Company's subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Employee's
obligations under this paragraph 3,
-7-
<PAGE> 8
if any, Employee shall not be chargeable with a violation of this paragraph 3
if the Company (including the Company's subsidiaries) shall thereafter enter
the same, similar or a competitive (i) business, (ii) course of activities or
(iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate,
and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of the
parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as
an agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two (2) years stated at the beginning of
this paragraph 3, during which the agreements and covenants of Employee made in
this paragraph 3 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 3.
4. Place of Performance.
(a) Employee understands that she may be again requested by the
Board to relocate from her present residence to another geographic location in
order to more efficiently carry out her duties and responsibilities under this
Agreement or as part of a promotion or other increase in duties and
responsibilities. In the event that Employee is requested to relocate and
agrees to do so, the Company will pay all relocation costs to move Employee,
her immediate family and their personal property and effects. Such costs may
include, by way of example, but are not limited to, pre- move visits to search
for a new residence, investigate schools or for other purposes; temporary
lodging and living costs prior to moving into a new permanent residence;
duplicate home carrying costs; all closing costs on the sale of Employee's
present residence and on the purchase of a comparable residence
-8-
<PAGE> 9
in the new location; and added income taxes that Employee may incur, as a
result of any payment hereunder, to the extent any relocation costs are not
deductible for tax purposes. The general intent of the foregoing is that
Employee shall not personally bear any out-of-pocket cost as a result of the
relocation, with an understanding that Employee will use her best efforts to
incur only those costs which are reasonable and necessary to effect a smooth,
efficient and orderly relocation with minimal disruption to the business
affairs of the Company and the personal life of Employee and her family.
(b) Notwithstanding the above, if Employee is requested by the
Board to relocate and Employee refuses, such refusal shall not constitute "good
cause" for termination of this Agreement under the terms of paragraph 5(c).
5. Term; Termination; Rights on Termination. The term of this
Agreement shall begin on the date hereof and continue for three (3) years (the
"Initial Term"), and, unless terminated sooner as herein provided, shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein. This Agreement and Employee's employment may be terminated
in any one of the following ways:
(a) Death. The death of Employee shall immediately
terminate the Agreement with no severance compensation due to
Employee's estate.
(b) Disability. If, as a result of incapacity due to
physical or mental illness or injury, Employee shall have been absent
from her full-time duties hereunder for four (4) consecutive months,
then thirty (30) days after receiving written notice (which notice may
occur before or after the end of such four (4) month period, but which
shall not be effective earlier than the last day of such four (4)
month period), the Company may terminate Employee's employment
hereunder provided Employee is unable to resume her full-time duties
at the conclusion of such notice period. Also, Employee may terminate
her employment hereunder if her health should become impaired to an
extent that makes the continued performance of her duties hereunder
hazardous to her physical or mental health or her life, provided that
Employee shall have furnished the Company with a written
-9-
<PAGE> 10
statement from a qualified doctor to such effect and provided,
further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Employee shall submit to an
examination by a doctor selected by the Company who is reasonably
acceptable to Employee or Employee's doctor and such doctor shall have
concurred in the conclusion of Employee's doctor. In the event this
Agreement is terminated as a result of Employee's disability, Employee
shall receive from the Company, in a lump-sum payment due within ten
(10) days of the effective date of termination, the base salary at the
rate then in effect for whatever time period is remaining under the
Initial Term of this Agreement or for one (1) year, whichever amount
is greater.
(c) Good Cause. The Company may terminate the Agreement
ten (10) days after written notice to Employee for good cause, which
shall be: (1) Employee's material and irreparable breach of this
Agreement; (2) Employee's gross negligence in the performance or
intentional nonperformance (continuing for ten (10) days after receipt
of the written notice) of any of Employee's material duties and
responsibilities hereunder; (3) Employee's dishonesty, fraud or
misconduct with respect to the business or affairs of the Company
which materially and adversely affects the operations or reputation of
the Company; (4) Employee's conviction of a felony crime; or (5)
chronic alcohol abuse or illegal drug abuse by Employee. In the event
of a termination for good cause, as enumerated above, Employee shall
have no right to any severance compensation.
(d) Without Cause. At any time after the commencement of
employment, the Company may, without cause, terminate this Agreement
and Employee's employment, effective thirty (30) days after written
notice is provided to the Company. Should Employee be terminated by
the Company without cause, Employee shall receive from the Company, in
a lump-sum payment due on the effective date of termination, the base
salary at the rate then in effect for whatever time period is
remaining under the Initial Term of this Agreement or for two (2)
years, whichever amount is greater ("Severance Pay"). Further, any
termination without cause by the Company shall operate to shorten the
period set forth in
-10-
<PAGE> 11
paragraph 3(a) and during which the terms of paragraph 3 apply to one
(1) year from the date of termination of employment.
(e) Change in Control. Refer to paragraph 12 below.
(f) Termination by Employee for Good Reason. The
Employee may terminate her employment hereunder for "Good Reason." As
used herein, "Good Reason" shall mean the continuance of any of the
following after 10 days' prior written notice by Employee to the
Company, specifying the basis for such Employee's having Good Reason
to terminate this Agreement:
(i) the assignment to Employee of any duties
materially and adversely inconsistent with the Employee's
position as specified in paragraph 1 hereof (or such other
position to which she may be promoted), including status,
offices, responsibilities or persons to whom the Employee
reports as contemplated under paragraph 1 of this Agreement,
or any other action by the Company which results in a material
and adverse change in such position, status, offices, titles
or responsibilities;
(ii) Employee's removal from, or failure to be
reappointed or reelected to, Employee's position under this
Agreement, except as contemplated by paragraphs 5(a), (b), (c)
and (e); or
(iii) any other material breach of this Agreement by
the Company, including the failure to pay Employee on a timely
basis the amounts to which she is entitled under this
Agreement.
In the event of any termination by the Employee for Good Reason, as determined
by a court of competent jurisdiction or pursuant to the provisions of paragraph
16 below, the Company shall pay all amounts and damages to which Employee may
be entitled as a result of such breach, including interest thereon and all
reasonable legal fees and expenses and other costs incurred by Employee to
enforce her rights hereunder, provided, that Employee need not seek any such
determination prior to terminating her employment
-11-
<PAGE> 12
for Good Reason and receiving the Severance Pay set forth in the following
sentence. In addition, Employee shall be entitled to receive Severance Pay
for two (2) years. Further, none of the provisions of paragraph 3 shall apply
in the event this Agreement is terminated by Employee for Good Reason.
(g) Termination by Employee Without Cause. If Employee
resigns or otherwise terminates her employment without Good Reason
pursuant to paragraph 5(f), Employee shall receive no severance
compensation.
Upon termination of this Agreement for any reason provided in clauses (a)
through (g) above, Employee shall be entitled to receive all compensation
earned and all benefits vested and reimbursements due through the effective
date of termination. Additional compensation subsequent to termination, if
any, will be due and payable to Employee only to the extent and in the manner
expressly provided above or in paragraph 16. All other rights and obligations
of the Company and Employee under this Agreement shall cease as of the
effective date of termination, except that the Company's obligations under
paragraph 9 herein and Employee's obligations, if any, under paragraphs 3, 6,
7, 8 and 10 herein shall survive such termination in accordance with their
terms.
6. Return of Company Property. All records, designs, patents,
business plans, financial statements, manuals, memoranda, lists and other
property delivered to or compiled by Employee by or on behalf of the Company or
its representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. Inventions. Employee shall disclose promptly to the Company
any and all significant conceptions and ideas for inventions, improvements and
valuable discoveries, whether patentable or not, which are conceived or made by
Employee, solely or jointly with another, during the period of employment
-12-
<PAGE> 13
or within one (1) year thereafter, and which are directly related to the
business or activities of the Company and which Employee conceives as a result
of her employment by the Company. Employee hereby assigns and agrees to
assign all her interests therein to the Company or its nominee. Whenever
requested to do so by the Company, Employee shall execute any and all
applications, assignments or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
8. Trade Secrets. Employee agrees that she will not, during or
after the term of this Agreement with the Company, disclose the specific terms
of the Company's relationships or agreements with its significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever, except as is disclosed in the
ordinary course of business, unless compelled by court order or upon advice of
counsel.
9. Indemnification. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that she is or was performing services
under this Agreement or is or was an officer of the Company, then the Company
shall indemnify Employee against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, as actually and reasonably
incurred by Employee in connection therewith to the fullest extent authorized
by Delaware law. In the event that both Employee and the Company are made a
party to the same third-party action, complaint, suit or proceeding, the
Company agrees to engage competent legal representation, and Employee agrees to
use the same representation, provided that if counsel selected by the Company
shall have a conflict of interest that prevents such counsel from representing
Employee, Employee may engage separate counsel and the Company shall pay all
attorneys' fees of such separate counsel. Further, while Employee is expected
at all times to use her best efforts to faithfully discharge her duties under
this Agreement, Employee cannot be held liable to the Company for errors or
omissions made in good faith where Employee
-13-
<PAGE> 14
has not exhibited gross, willful and wanton negligence and misconduct or
performed criminal and fraudulent acts which materially damage the business of
the Company.
10. No Prior Agreements. Employee hereby represents and warrants
to the Company that the execution of this Agreement by Employee and her
employment by the Company and the performance of her duties hereunder will not
violate or be a breach of any agreement with a former employer, client or any
other person or entity. Further, Employee agrees to indemnify the Company for
any claim, including, but not limited to, attorneys' fees and expenses of
investigation, by any such third party that such third party may now have or
may hereafter come to have against the Company based upon or arising out of any
non-competition agreement, invention or secrecy agreement between Employee and
such third party which was in existence as of the date of this Agreement.
11. Assignment; Binding Effect. Employee understands that she has
been selected for employment by the Company on the basis of her personal
qualifications, experience and skills. Employee agrees, therefore, she cannot
assign all or any portion of her performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. Change in Control.
(a) Unless she elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder.
(b) In the event of a pending Change in Control wherein the
Company and Employee have not received written notice at least fifteen (15)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial
portion of the Company's business and/or assets that such successor is willing
as of the closing to assume and agree to perform the Company's obligations
-14-
<PAGE> 15
under this Agreement in the same manner and to the same extent that the Company
is hereby required to perform, then such Change in Control shall be deemed to
be a termination of this Agreement by the Company without cause and the
applicable portions of paragraph 5(d) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to Employee
shall be triple the amount calculated under the terms of paragraph 5(d) and the
non-competition provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation in which Employee has
received written notice from the successor to the Company that such successor
is willing to assume the Company's obligations hereunder, Employee may
nonetheless, at her sole discretion, elect to terminate this Agreement by
providing written notice to the Company at least five (5) business days prior
to the anticipated closing of the transaction giving rise to the Change in
Control. In such case, the applicable provisions of paragraph 5(d) will apply
as though the Company had terminated the Agreement without cause; however,
under such circumstances, the amount of the lump-sum severance payment due to
Employee shall be 150% the amount calculated under the terms of paragraph 5(d)
and the non-competition provisions of paragraph 3 shall all apply for a period
of one (1) year from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Employee must be paid in
full by the Company at or prior to such closing. Further, Employee will be
given sufficient time and opportunity to elect whether to exercise all or any
of her vested options to purchase Common Stock of the Company, including any
options with accelerated vesting under the provisions of the Company's 1995
Stock Option Plan, such that she may convert the options to shares of Common
Stock of the Company at or prior to the closing of the transaction giving rise
to the Change in Control, if she so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
-15-
<PAGE> 16
(i) any person, other than the Company or an employee
benefit plan of the Company, acquires directly or indirectly the
Beneficial Ownership (as defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended) of any voting security of the
Company and immediately after such acquisition such Person is,
directly or indirectly, the Beneficial Owner of voting securities
representing 50% or more of the total voting power of all of the
then-outstanding voting securities of the Company;
(ii) the individuals (A) who, as of the effective date of
the Company's registration statement with respect to its initial
public offering, constitute the Board of Directors of the Company (the
"Original Directors") or (B) who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a
vote of at least two-thirds (2/3) of the Original Directors then still
in office (such directors becoming "Additional Original Directors"
immediately following their election) or (C) who are elected to the
Board of Directors of the Company and whose election, or nomination
for election, to the Board of Directors of the Company was approved by
a vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors
also becoming "Additional Original Directors" immediately following
their election), cease for any reason to constitute a majority of the
members of the Board of Directors of the Company;
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation
of any such transaction if stockholder approval is not sought or
obtained, other than any such transaction which would result in at
least 75% of the total voting power represented by the voting
securities of the surviving entity outstanding immediately after such
transaction being Beneficially Owned by at least 75% of the holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder
relative to other such
-16-
<PAGE> 17
continuing holders not substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the
Company).
(f) Employee must be notified in writing by the Company at any
time that the Company or any member of its Board anticipates that a Change in
Control may take place.
(g) Employee shall be reimbursed by the Company or its successor
for any excise taxes and/or interest or penalties with respect to such excise
taxes that Employee incurs under Section 4999 of the Internal Revenue Code of
1986, as amended (or any similar tax that may hereafter be imposed), as a
result of any Change in Control. Such amount will be due and payable by the
Company or its successor within ten (10) days after Employee delivers a written
request for reimbursement accompanied by a copy of her tax return(s) showing
the excise tax actually incurred by Employee.
13. Complete Agreement. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the
final, complete and exclusive statement and expression of the agreement between
the Company and Employee and of all the terms of this Agreement, and it cannot
be varied, contradicted or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of the Company and Employee, and no term of this Agreement may be waived except
by writing signed by the party waiving the benefit of such term.
-17-
<PAGE> 18
14. Notice. Whenever any notice is required hereunder, it shall
be given in writing addressed as follows:
To the Company: F.Y.I. Incorporated
2911 Turtle Creek Blvd.
Suite 300
Dallas, Texas 75219
with a copy to: Charles C. Reeder, Esq.
Locke Purnell Rain Harrell
2200 Ross Avenue
Suite 2200
Dallas, Texas 75201
To Employee: Margot T. Lebenberg
3 Mountain View Drive
Thiells, New York 10984
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party
may change the address for notice by notifying the other party of such change
in accordance with this paragraph 14.
15. Severability; Headings. If any portion of this Agreement is
held invalid or inoperative, the other portions of this Agreement shall be
deemed valid and operative and, so far as is reasonable and possible, effect
shall be given to the intent manifested by the portion held invalid or
inoperative. The paragraph headings herein are for reference purposes only and
are not intended in any way to describe, interpret, define or limit the extent
or intent of the Agreement or of any part hereof.
16. Arbitration. Any unresolved dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three (3) arbitrators in Dallas,
Texas, in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to,
detract from, or modify any provision hereof nor to award punitive damages to
any injured party. The arbitrators shall have the authority to order back-pay,
severance compensation, vesting of
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<PAGE> 19
options (or cash compensation in lieu of vesting of options),
reimbursement of costs, including those incurred to enforce this
Agreement, and interest thereon in the event the arbitrators determine
that Employee was terminated without disability or good cause, as
defined in paragraphs 5(b) and 5(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a
majority of the arbitration panel shall be final and binding.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The direct expense of any arbitration proceeding shall
be borne by the Company.
17. Governing Law. This Agreement shall in all respects be
construed according to the laws of the State of Delaware.
EMPLOYEE:
/s/ Margot T. Lebenberg
--------------------------
F.Y.I. INCORPORATED
/s/ Thomas C. Walker
--------------------------
By: Thomas C. Walker
Title: Chairman and Chief
Development Officer
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<PAGE> 1
EXHIBIT 10.17
------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 31st day of May, 1996
by and among
F.Y.I. INCORPORATED
B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP.
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
and
the STOCKHOLDER named herein
------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
1. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Delivery and Filing of Articles of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Certain Information With Respect to the Capital
Stock of the Company, FYI and Newco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. CONVERSION OF STOCK; ADJUSTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Manner of Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Calculation of FYI Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Earnings Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Accumulated Adjustments Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. DELIVERY OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Delivery Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Delivery by the Stockholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(A) Representations and Warranties of the Company and the
Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Organization, Existence and Good Standing of the Company . . . . . . . . . . . . . . . . . . . . 6
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.4 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.6 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Permits and Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Assets and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.10 Real Property Leases; Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.11 Environmental Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.13 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.14 Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
5.16 Litigation and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.17 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.19 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Employees; Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.22 Interests in Customers, Suppliers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.23 Business Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.24 Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.25 Bank Accounts and Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.26 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.27 Warranty Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(B) Representations and Warranties of the Stockholder . . . . . . . . . . . . . . . . . . . . . . . . 18
5.28 Authority; Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.29 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.30 No Intention to Dispose of FYI Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.31 Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.32 S Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6. REPRESENTATIONS OF FYI AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3 Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.6 Capitalization of FYI and Ownership of FYI . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.7 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.8 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.9 Business; Real Property; Material Agreements; Financial
Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.10 Conformity with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.11 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.13 Litigation Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.14 Antitrust Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.15 Generally Accepted Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDER AND THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.1 Representations and Warranties; Performance of Obligations . . . . . . . . . . . . . . . . . . . 24
7.2 Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
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7.5 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.6 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.7 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.8 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.9 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.10 Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.11 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF FYI AND
NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.1 Representations and Warranties; Performance of Obligations . . . . . . . . . . . . . . . . . . . 25
8.2 Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.4 Examination of Final Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.5 Repayment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.7 Stockholder Release; Amendment of Employment Agreement . . . . . . . . . . . . . . . . . . . . . 26
8.8 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.9 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.10 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.11 Noncompetition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.12 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.13 Lock-Up Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.14 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.15 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.16 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9. COVENANTS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.1 Preservation of Tax and Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.2 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.3 Covenants Concerning Termination of S Election . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.4 Continuation of Employee Bonus Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.5 Minutes of FYI Board of Director's Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.1 FYI Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.2 Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.3 Employee Compensation and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.4 Stockholder Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.5 Indemnification for Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.6 Notice of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.7 Right to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.8 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
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10.9 Satisfaction of Claims From Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.10 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.11 Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11. SECURITIES ACT REPRESENTATIONS AND TRANSFER
RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.1 Economic Risk; Sophistication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.2 Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.2 Survival of Covenants, Agreements, Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.6 Brokers and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.10 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.11 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.12 Reformation and Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.13 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.14 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.15 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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SCHEDULES AND ANNEXES
SCHEDULES
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1.3(d) Officers of the Surviving Corporation
5.2 Jurisdictions of Qualification and Company Charter Documents
5.3 Capital Stock of the Company
5.5 Financial Statements and Contingent Liabilities
5.6 Accounts and Notes Receivable
5.7 Permits and Licenses
5.8 Taxes
5.9 Assets and Properties
5.10 Real Property Leases
5.11 Environmental Matters
5.12 Contracts
5.14 Government Contracts
5.16 Litigation
5.18 Intellectual Property Rights
5.19 Employee Benefit Plans
5.20 Employee Matters
5.21 Insurance
5.23 Business Relations
5.24 Officers and Directors
5.25 Bank Accounts
5.26 Absence of Certain Changes
5.28 Liens on Company Stock
6.6 FYI Capital Stock
6.8 FYI Subsidiaries
6.9 FYI Financial Information
6.10 FYI Compliance with Laws
6.11 No Violations by FYI
6.13 FYI Litigation
8.6 Continuing Obligations
8.7 Continuing Related Party Agreements
ANNEXES
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I Aggregate Consideration to be paid to the Stockholder
II FYI Charter Documents
III Opinion of Counsel to FYI
IV Employment Agreement
V Escrow Agreement
VI Stockholder Release
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VII Opinion of Counsel to the Company
VIII Noncompetition Agreement
IX Lock-Up Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of the 31st day of May, 1996, by and among F.Y.I. INCORPORATED, a Delaware
corporation ("FYI"), B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP., a Delaware
corporation ("Newco"), B&B INFORMATION AND IMAGE MANAGEMENT, INC., a Maryland
close corporation (the "COMPANY"), and CHARLES J. BAUER, JR. (the
"Stockholder").
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Delaware, having been incorporated on May 17, 1996, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of FYI, a corporation organized and existing under the
laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that the Company merge with and
into Newco pursuant to this Agreement and the applicable provisions of the laws
of the State of Delaware, such transaction sometimes being herein called the
"Merger";
WHEREAS, the Boards of Directors of FYI, Newco and the Company have
approved and adopted this Agreement and intend this transaction to qualify as a
partially tax-free transfer of property under Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, for and in consideration of the premises and of the
mutual agreements, representations, warranties, provisions and covenants herein
contained, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause Articles of Merger with respect to the Merger (the
"Articles of Merger") to be signed, verified and delivered to the Secretary of
State of the State of Delaware and, if required, a similar filing to be made
with the relevant authorities in the State of Maryland, on or before the
Closing Date (as defined in Section 4).
1.2 EFFECTIVE TIME OF THE MERGER. The "Effective Time of the
Merger" shall be the Closing Date as defined in Section 4. At the Effective
Time of the Merger, the Company shall be merged with and into Newco in
accordance with the Articles of Merger, the separate existence of the Company
shall cease and the corporate name of Newco shall be B&B Acquisition
(Baltimore-Washington) Corp. Newco shall be the surviving party in the Merger
and is
<PAGE> 9
hereinafter sometimes referred to as the "Surviving Corporation." The Merger
will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(a) The Certificate of Incorporation of Newco then in
effect shall become the Certificate of Incorporation of the Surviving
Corporation; and subsequent to the Effective Time of the Merger, such
Certificate of Incorporation shall be the Certificate of Incorporation
of the Surviving Corporation until changed as provided by law;
(b) The By-laws of Newco then in effect shall become the
By-laws of the Surviving Corporation; and subsequent to the Effective
Time of the Merger, such By-laws shall be the By-laws of the Surviving
Corporation until they shall thereafter be duly amended;
(c) The Board of Directors of the Surviving Corporation
shall consist of the following persons:
Thomas C. Walker
David Lowenstein
The Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Delaware and of
the Certificate of Incorporation and By-laws of the Surviving
Corporation.
(d) The officers of the Surviving Corporation shall be
the persons set forth on Schedule 1.3(d) hereto, each of such officers
to serve, subject to the provisions of the Certificate of
Incorporation and By- laws of the Surviving Corporation and the terms
of any employment agreement executed by any such officer, until such
officer's successor is duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, FYI AND NEWCO. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
Company, FYI and Newco as of the date of this Agreement are as follows:
(a) As of the date of this Agreement, the authorized
capital stock of the Company consists of one hundred (100) shares of
Common Stock, par value $10.00 per share ("Company Stock"), of which
one hundred (100) shares are issued and outstanding;
(b) As of the date of this Agreement, the authorized
capital stock of FYI consists of twenty six million (26,000,000)
shares of Common Stock, $.01 par value per
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<PAGE> 10
share ("FYI Stock"), of which five million two hundred sixty-nine
thousand six hundred and fifteen (5,269,615) shares are issued and
outstanding, and one million (1,000,000) shares of Preferred Stock,
$.01 par value per share, of which no shares are issued and
outstanding; and
(c) As of the date of this Agreement, the authorized
capital stock of Newco consists of 3,000 shares of Common Stock, $.01
par value per share ("Newco Stock"), of which ten (10) shares are
issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the
effect of the Merger shall be as provided in the applicable provisions of the
General Corporation Law of the State of Delaware (the "Delaware GCL"). Except
as herein specifically set forth, the identity, existence, purposes, powers,
objects, franchises, privileges, rights and immunities of the Company shall
continue unaffected and unimpaired by the Merger and the corporate franchises,
existence and rights of the Company shall be merged with and into Newco, and
Newco, as the Surviving Corporation, shall be fully vested therewith. At the
Effective Time of the Merger, the separate existence of the Company shall cease
and, in accordance with the terms of this Agreement, the Surviving Corporation
shall possess all the rights, privileges, immunities and franchises, of a
public as well as of a private nature, and all property, real, personal and
mixed, and all debts due on whatever account, including subscriptions to
shares, all taxes, including those due and owing and those accrued, and all
other choses in action, and all and every other interest of or belonging to or
due to the Company and Newco shall be taken and deemed to be transferred to,
and vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the Company and Newco; and the title to any real
estate, or interest therein, whether by deed or otherwise, under the laws of
the state of incorporation vested in the Company and Newco, shall not revert or
be in any way impaired by reason of the Merger. Except as otherwise provided
herein, the Surviving Corporation shall thenceforth be responsible and liable
for all the liabilities and obligations of the Company and Newco and any claim
existing, or action or proceeding pending, by or against the Company or Newco
may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in their place. Neither the rights of creditors
nor any liens upon the property of the Company or Newco shall be impaired by
the Merger, and all debts, liabilities and duties of the Company and Newco
shall attach to the Surviving Corporation, and may be enforced against such
Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
2. CONVERSION OF STOCK; ADJUSTMENT
2.1 MANNER OF CONVERSION. The manner of converting the shares of
(a) Company Stock and (b) Newco Stock, issued and outstanding immediately prior
to the Effective Time of the Merger, respectively, into (i) FYI Stock and (ii)
shares of Common Stock, $.01 par value per share, of the Surviving Corporation,
shall be as follows:
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<PAGE> 11
As of the Effective Time of the Merger:
(a) All of the shares of Company Stock issued and
outstanding immediately prior to the Effective Time of the Merger, by
virtue of the Merger and without any action on the part of the holder
thereof, automatically shall be deemed to represent (i) that number of
shares of FYI Stock determined pursuant to Section 2.2 below and (ii)
the right to receive the amount of cash determined pursuant to Section
2.2 below, such shares and cash to be distributed to the Stockholder
as provided in Annex I hereto;
(b) All shares of Company Stock that are held by the
Company as treasury stock (as defined in Section 5) shall be cancelled
and retired and no shares of FYI Stock or other consideration shall be
delivered or paid in exchange therefor; and
(c) Each share of Newco Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue
of the Merger and without any action on the part of FYI, automatically
be converted into one fully paid and non-assessable share of Common
Stock of the Surviving Corporation that shall constitute all of the
issued and outstanding shares of Common Stock of the Surviving
Corporation immediately after the Effective Time of the Merger.
All FYI Stock received by the Stockholder as of the Effective Time of
the Merger shall, except for restrictions on resale or transfer described in
Section 11.2 hereof, have the same rights as all the other shares of
outstanding FYI Stock. All voting rights of such FYI Stock received by the
Stockholder shall be fully exercisable by the Stockholder and the Stockholder
shall not be deprived nor restricted in exercising those rights. At the
Effective Time of the Merger, FYI shall have no class of capital stock issued
and outstanding which, as a class, shall have any rights or preferences senior
to the shares of FYI Stock received by the Stockholder, including, without
limitation, any rights or preferences as to dividends or as to the assets of
FYI upon liquidation or dissolution or as to voting rights.
2.2 CALCULATION OF FYI SHARES. All Company Stock shall be
converted, as a result of the Merger, into the number of shares of FYI Stock
and the amount of cash set forth in Annex I attached hereto.
2.3 EARNINGS ADJUSTMENT. All earnings and cash flow of the
Company for the period from and after the close of business on April 30, 1996
(the "Effective Date") through the Effective Time of the Merger shall be for
the benefit of Newco and shall be conveyed to Newco at the Closing pursuant to
the Merger of the Company into Newco. Prior to the time of the Closing, the
Stockholder shall have received as a distribution from the Company the sum of
$236,683, such sum representing the best estimate of the Stockholder and the
Company of the amount of 1996 earnings of the Company prior to April 30, 1996.
Following the Closing and prior to June 30, 1996, the Stockholder and the
Surviving Corporation shall ascertain the actual 1996 earnings of the Company
prior to April 30, 1996. To the extent that actual 1996 earnings of the
Company
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<PAGE> 12
prior to April 30, 1996 are less than $236,683, FYI shall be entitled to a
dollar for dollar reimbursement from the Stockholder in the amount of such
shortfall, which shall be paid by the Stockholder within thirty (30) days after
such shortfall is determined by the parties hereto. To the extent that actual
1996 earnings of the Company prior to April 30, 1996 are in excess of $236,683,
the Stockholder shall be entitled to a dollar for dollar reimbursement from FYI
in the amount of such surplus, which shall be paid by the Company within thirty
(30) days after such surplus is determined by the parties hereto; provided, that
in no event will the surplus paid to the Stockholder pursuant to this sentence
be more than $150,000. Any such dividend shall be payable solely from earnings
of the Company. In no event will FYI directly or indirectly supply the funds
used to pay such dividend.
2.4 ACCUMULATED ADJUSTMENTS ACCOUNT. Immediately prior to the
Effective Time of the Merger, the Company shall distribute to the Stockholder
an amount equal to $252,927, which amount constitutes the Company's Accumulated
Adjustments Account as defined in Section 1368(e) of the Code.
3. DELIVERY OF SHARES
3.1 DELIVERY PROCEDURE. At or after the Effective Time of
the Merger and at the Closing the Stockholder, as the holder of all outstanding
certificates representing shares of Company Stock, shall, upon surrender of
such certificates, be entitled to receive the number of shares of FYI Stock and
the amount of cash calculated pursuant to Section 2.2 above less FYI Stock
valued at $250,000 to be delivered to the Escrow Agent to be held thereby in
accordance with the terms of the Escrow Agreement (each as defined below in
Section 7).
3.2 DELIVERY BY THE STOCKHOLDER. The Stockholder shall deliver to
FYI at Closing (as defined below in Section 4) the certificates representing
Company Stock, duly endorsed in blank by the Stockholder, or accompanied by
blank stock powers, with signatures guaranteed by a national or state chartered
bank, and with all necessary transfer tax and other revenue stamps, acquired at
the Stockholder's expense, affixed and cancelled. The Stockholder agrees
promptly to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to such Company
Stock or with respect to the stock powers accompanying any Company Stock.
4. CLOSING
On the Closing Date (as defined below), the parties shall take all
actions necessary (i) to effect the Merger (including, if permitted by
applicable state law, the filing with the appropriate state authorities of the
Articles of Merger) and (ii) to effect the conversion and delivery of shares
referred to in Section 3 hereof (hereinafter referred to as the "Closing").
The Closing shall take place at the offices of Locke Purnell Rain Harrell (A
Professional Corporation), 2200 Ross Avenue, Suite 2200, Dallas, Texas 75201.
The date on which the Closing shall occur shall be referred to as the "Closing
Date." On the Closing Date, the Articles of Merger shall be filed with
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the appropriate state authorities, or if already filed shall become effective,
and all transactions contemplated by this Agreement, including the conversion
and delivery of shares, the delivery by wire transfer or by a certified check
or checks in an amount equal to the cash portion of the consideration that the
Stockholder shall be entitled to receive pursuant to the Merger referred to in
Section 2 hereof, shall occur and be deemed to be completed. Time is of the
essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDER
Each of the Company and the Stockholder jointly and severally
represent and warrant that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and at the time of
the Closing.
5.1 AUTHORIZATION. This Agreement has been duly executed and
delivered by each of the Stockholder and the Company and constitutes the valid
and binding obligation of each such party, enforceable in accordance with its
terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, (ii) the remedy of specific performance and injunctive relief
are subject to certain equitable defenses and to the discretion of the court
before which any proceedings may be brought and (iii) rights to indemnification
hereunder may be limited under applicable securities laws. The Company has
full corporate power, capacity and authority to execute this Agreement and the
Articles of Merger and all other agreements and documents contemplated hereby.
5.2 ORGANIZATION, EXISTENCE AND GOOD STANDING OF THE COMPANY. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation with all requisite corporate
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted. The Company is duly qualified or licensed
as a foreign corporation and in good standing in each jurisdiction in which the
character or location of the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so duly qualified or licensed would not have a
material adverse effect on the business, financial condition, results of
operations or prospects of the Company. Set forth on Schedule 5.2 is a list of
the jurisdictions in which the Company is qualified or licensed to do business
as a foreign corporation. True, complete and correct copies of the Articles of
Incorporation (as of the date hereof, certified by an officer of the Company
and by the Secretary of State or other appropriate authority of the applicable
states of incorporation) and By-laws (as of the date hereof, certified by an
officer of the Company), of the Company are attached hereto on Schedule 5.2.
Except as set forth on Schedule 5.2, the minute books of the Company, as
heretofore made available to FYI, are correct and complete in all material
respects.
5.3 CAPITAL STOCK OF THE COMPANY.
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(a) The Company's authorized capital stock is as set
forth in Section 1.4(a). All of the Company Stock has been validly
issued and is fully paid and nonassessable and no holder thereof is
entitled to any preemptive rights. There are no outstanding
conversion or exchange rights, subscriptions, options, warrants or
other arrangements or commitments obligating the Company to issue any
shares of capital stock or other securities or to purchase, redeem or
otherwise acquire any shares of capital stock or other securities, or
to pay any dividend or make any distribution in respect thereof.
(b) The Stockholder (i) owns of record and beneficially
and has good and marketable title to all of the issued and outstanding
shares of the Company Stock, free and clear of any and all liens,
mortgages, security interests, encumbrances, pledges, charges, adverse
claims, options, rights or restrictions of any character whatsoever
(collectively, "Liens"), and (ii) has the right to vote the Company
Stock on any matters as to which any shares of the Company Common
Stock are entitled to be voted under the laws of the state of the
Company's incorporation and the Company's Certificate of Incorporation
and By-laws, free of any right of any other person.
5.4 NO SUBSIDIARIES. The Company does not presently own, of
record or beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity nor is the Company, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.5 FINANCIAL STATEMENTS.
(a) The Company has previously furnished to FYI and Newco
the audited balance sheet of the Company as of December 31, 1995 and
the related statements of operations, stockholder's equity and cash
flows for the three fiscal years then ended, together with the report
thereon by C.W. Amos & Company, independent public accountants, and
the footnotes thereto, together with the statements of operations,
stockholder's equity and cash flows for the four-month period ended
April 30, 1996 (collectively, the "Financial Statements"). The
Financial Statements present fairly the financial position and results
of operations of the Company as of the indicated dates and for the
indicated periods, and other than the financial statements for the
four-month period ended April 30, 1996 (which do not contain year-end
accruals or footnotes), have been prepared in accordance with
generally accepted accounting principles consistently applied
("GAAP"). To the extent requested, the Company has previously
permitted FYI and Newco full access to papers pertaining to the
Financial Statements, including those work papers in the possession of
or prepared by C.W. Amos & Company.
(b) Except to the extent (and not in excess of the
amounts) reflected in the December 31, 1995 balance sheet included in
the Financial Statements or as disclosed on Schedule 5.5, the Company
has no known liabilities or obligations (including, without
limitation, Taxes (as defined in Section 5.8) payable and deferred
Taxes and interest
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<PAGE> 15
accrued since December 31, 1995) required to be reflected in the
Financial Statements (or the notes thereto) in accordance with GAAP
other than current liabilities incurred in the ordinary course of
business, consistent with past practice, subsequent to April 30, 1996.
The Company has also delivered to FYI on Schedule 5.5, in the case of
those liabilities that are contingent, a reasonable estimate of the
maximum amount that may be payable. For each such contingent
liability, the Company has provided to FYI the following information:
(i) A summary description of the liability
together with the following:
(A) Copies of all relevant
documentation relating thereto;
(B) Amounts claimed and any other
action or relief sought; and
(C) Name of claimant and all other
parties to the claim, suit or proceeding.
(ii) The name of each court or agency before
which such claim, suit or proceeding is pending; and
(iii) The date such claim, suit or proceeding was
instituted.
5.6 ACCOUNTS AND NOTES RECEIVABLE. Set forth on Schedule 5.6 is
an accurate list of the accounts and notes receivable of the Company as of
April 30, 1996, including any such amounts that are not reflected in the
balance sheet as of April 30, 1996 included within the Financial Statements,
and including receivables from and advances to employees and the Stockholder.
The Company shall provide FYI with an aging of all accounts and notes
receivable showing amounts due in 30-day aging categories. Amounts reserved on
the Financial Statements for uncollectible accounts and notes receivable are
reasonable and adequate.
5.7 PERMITS AND INTANGIBLES. The Company owns or holds all
licenses, franchises, permits and other governmental authorizations, including
permits, titles (including motor vehicle titles and current registrations),
fuel permits, licenses, franchises, certificates, trademarks, trade names,
patents, patent applications and copyrights, the absence of any of which would
have a material adverse effect on the business, operations, properties, assets
or condition (financial or otherwise) of the Company taken as a whole (a
"Material Adverse Effect"). The Company has delivered to FYI an accurate list
and summary description as Schedule 5.7 hereto of all such licenses,
franchises, permits and other governmental authorizations. To the knowledge of
the Company and the Stockholder, the licenses, franchises, permits and other
governmental authorizations listed on Schedule 5.7 are valid, and the Company
has not received any notice that any governmental authority intends to cancel,
terminate or not renew any such license, franchise, permit or other
governmental authorization. To the knowledge of the Company and the
Stockholder, the Company has conducted and is conducting its business in
compliance in all
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<PAGE> 16
material respects with the requirements, standards, criteria and conditions set
forth in applicable permits, licenses, orders, approvals, variances, rules and
regulations, and is not in violation of any of the foregoing except where such
noncompliance or violation would not have a Material Adverse Effect. Except as
specifically provided on Schedule 5.7, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
materially adversely affect the rights and benefits afforded to the Company by,
any such licenses, franchises, permits and governmental authorizations.
5.8 TAX MATTERS.
(a) Except as set forth on Schedule 5.8, the Company has
filed all income tax returns required to be filed by thereby and all returns of
other Taxes (as defined below) required to be filed thereby and have paid or
provided for all Taxes required to be paid in respect of periods for which such
returns were due and has established an adequate accrual or reserve for the
payment of Taxes required to be paid in respect of the period subsequent to the
last of said periods required to be so accrued or reserved up to and including
the Closing Date. Except as set forth on Schedule 5.8, (i) no action or
proceeding for the assessment or collection of any Taxes is pending against the
Company; (ii) no deficiency, assessment or other formal claim for any Taxes has
been asserted or made against the Company that has not been fully paid or
finally settled; and (iii) no issue has been formally raised by any taxing
authority in connection with an audit or examination of any return of Taxes.
No federal, state or foreign income tax returns of the Company have been
examined, and there are no outstanding agreements or waivers extending the
applicable statutory periods of limitation for such Taxes for any period.
Except as set forth on Schedule 5.8, all Taxes that the Company has been
required to collect or withhold have been duly withheld or collected and, to
the extent required, have been paid to the proper taxing authority. For
purposes of this Agreement, "Taxes" shall mean all taxes, charges, fees, levies
or other assessments including, without limitation, income, excise, property,
withholding, sales and franchise taxes, imposed by the United States, or any
state, county, local or foreign government or subdivision or agency thereof,
and including any interest, penalties or additions attributable thereto.
(b) The Company is not a party to any Tax allocation or
sharing agreement.
(c) None of the assets of the Company constitutes
tax-exempt bond financed property or tax-exempt use property, within the
meaning of Section 168 of the Code, except as set forth on Schedule 5.8. No
Acquired Party is a party to any "safe harbor lease" that is subject to the
provisions of Section 168(f)(8) of the Code as in effect prior to the Tax
Reform Act of 1986, or to any "long-term contract" within the meaning of
Section 460 of the Code.
(d) At the Closing Date, the Company will hold at least
ninety percent (90%) of the fair market value of its net assets and at least
seventy percent (70%) of the fair market value of its gross assets held
immediately prior to the Closing Date. For purposes of making this
representation, amounts paid by the Company to pay reorganization expenses, and
all redemptions
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and distributions in anticipation of or as part of the plan of reorganization
by the Company, including, but not limited to the distributions pursuant to
Sections 2.3 and 2.4 hereof, will be included as assets of the Company
immediately prior to the Merger.
(e) At the Closing Date, the Company will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in the Company that, if
exercised or converted, would affect FYI's acquisition or retention of
ownership of more than eighty percent (80%) of the total combined voting power
of all classes of Company stock and more than eighty percent (80%) of the total
number of shares of each class of Company non-voting stock. The Company has no
plan or intention to issue additional shares of its stock that would result in
FYI losing control of the Surviving Corporation within the meaning of Section
368(c) of the Code.
(f) The liabilities of the Company to be assumed by Newco
and the liabilities to which the transferred assets are subject were incurred
by the Company in the ordinary course of its trade or business.
(g) There is no plan or intention by the Stockholder to
sell, exchange, or otherwise dispose of any of the shares of FYI Stock received
in the Merger. For purposes of this representation, shares of Company Stock
exchanged for cash or other property and shares of Company Stock exchanged for
cash in lieu of fractional shares of FYI Stock will be treated as outstanding
Company Stock on the date of the transaction. Moreover, shares of Company
Stock and shares of FYI stock held by the Stockholder and otherwise sold,
redeemed, or disposed of prior to or subsequent to the Closing Date will be
considered in making this representation. In addition, there is no plan or
intention by the Stockholder to sell, exchange or otherwise dispose of FYI
Stock, if any, received by the Stockholder pursuant to Section 10.11.
(h) The Company and the Stockholder will each pay their
respective expenses, if any, incurred in connection with the Merger.
(i) The Company qualifies as an S corporation within the
meaning of Subchapter S of the Code.
5.9 ASSETS AND PROPERTIES.
(a) Real Property. Schedule 5.9 contains a list of all
real properties owned by the Company (the "Real Property"). Except as set
forth on Schedule 5.9, the Company has good and marketable fee simple title to
all Real Property and none of the Real Property is subject to any Lien, except
as set forth in the title policy set forth on Schedule 5.9.
(b) Personal Property. Except as set forth on Schedule
5.9 and except for inventory and supplies disposed of or consumed, and accounts
receivable collected or written off, and cash utilized, all in the ordinary
course of business consistent with past practice, the Company
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<PAGE> 18
owns all of its inventory, equipment and other personal property (both tangible
and intangible) reflected on the latest balance sheet included in the Financial
Statements or acquired since December 31, 1995, to the knowledge of the Company
and the Stockholder, free and clear of any Liens, except for statutory Liens
for current taxes, assessments or governmental charges or levies on property
not yet due and payable.
(c) Condition of Properties. Except as set forth on
Schedule 5.9, the Real Property and all improvements thereto, to the knowledge
of the Company and the Stockholder, the leasehold estates the subject of the
Real Property Leases (as defined in Section 5.10) and the tangible personal
property owned or leased by the Company are in good operating condition and
repair, ordinary wear and tear excepted; and neither the Company nor the
Stockholder has any knowledge of any condition not disclosed herein of the Real
Property, the improvements thereto or any such leasehold estate that is
reasonably likely to materially affect the fair market value, use or operation
of the Real Property, such improvements or any leasehold estate or otherwise
have a Material Adverse Effect.
(d) Compliance. To the knowledge of the Company and the
Stockholder, the ownership, operation, use and occupancy of the Real Property,
the improvements thereto and the leasehold estates the subject of the Real
Property Leases as currently operated, used and occupied are in material
compliance with all applicable zoning, building, health, flood control, fire or
other laws, ordinances, orders or regulations or any restrictive covenants. To
the knowledge of the Company and the Stockholder, there are no material
violations of any federal, state, county or municipal law, ordinance, order,
regulation or requirement affecting any portion of the Real Property, any
improvements thereto or the leasehold estates and no written notice of any such
violation has been issued by any governmental authority.
5.10 REAL PROPERTY LEASES; OPTIONS. Schedule 5.10 sets forth a
list of (i) all leases and subleases under which the Company is lessor or
lessee or sublessor or sublessee of any real property, together with all
amendments, supplements, nondisturbance agreements, brokerage and commission
agreements and other agreements pertaining thereto ("Real Property Leases");
(ii) all material options held by the Company or contractual obligations on the
part of the Company to purchase or acquire any interest in real property; and
(iii) all options granted by the Company or contractual obligations on the part
of the Company to sell or dispose of any material interest in real property.
Copies of all Real Property Leases and such options and contractual obligations
have been delivered to FYI and Newco. The Company has not assigned any Real
Property Leases or any such options or obligations. There are no Liens on the
interest of the Company in the Real Property Leases, subject only to (i) Liens
for taxes and assessments not yet due and payable and (ii) those matters set
forth on Schedule 5.10. The Real Property Leases and options and contractual
obligations listed on Schedule 5.10 are in full force and effect and constitute
binding obligations of the Company and the other parties thereto, and (x) there
are no defaults thereunder and (y) no event has occurred that with notice,
lapse of time or both would constitute a default by the Company or, to the best
knowledge of the Company and the Stockholder, by any other party thereto.
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5.11 ENVIRONMENTAL LAWS AND REGULATIONS. To the knowledge of the
Company and the Stockholder:
(a) (i) The ownership and operations of the "Subject
Property," as defined below, and any use, storage, treatment, disposal, or
transportation of "Hazardous Substances," as defined below, that has occurred
in or on the Subject Property prior to the date of this Agreement have been in
material compliance with "Environmental Requirements," as defined below; (ii)
during the ownership, occupancy and operation of the Subject Property by the
Company, or prior to its ownership, occupancy or operation, no release, leak,
discharge, spill, disposal or emission of Hazardous Substances has occurred in,
on or under the Subject Property in a quantity or manner that violates or
requires remediation under Environmental Requirements; (iii) the Subject
Property is free of Hazardous Substances as of the date of this Agreement that
could reasonably be expected to have a Material Adverse Effect; (iv) there is
no pending or threatened litigation or administrative investigation or
proceeding concerning the Subject Property involving Hazardous Substances or
Environmental Requirements; (v) there is no ACM (as defined below), within the
Subject Property, whether friable or non-friable, and there are no regulated
above-ground or underground storage tank systems as defined pursuant to
applicable Environmental Requirements located at the Subject Property; and (vi)
the Company has never owned, operated, or leased any real property other than
the Subject Property except as set forth on Schedule 5.11 hereto.
(b) Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Environmental Requirements" means all applicable laws,
statutes, rules, regulations, ordinances, judgments, decrees, orders,
agreements and other restrictions and requirements (whether now or
hereafter in effect) of any governmental authority, including, without
limitation, federal, state and local authorities, relating to the
regulation or protection of human health and safety, natural
resources, conservation, the environment, or the storage, treatment,
disposal, transportation, handling or other management of industrial
or solid waste, hazardous waste, hazardous or toxic substances or
chemicals, or pollutants.
"Hazardous Substance" means (i) any "hazardous substance" as
defined in Section 101(14) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended from
time to time (42 U.S.C. Sections 9601 et seq.)("CERCLA") or any
regulations promulgated thereunder; (ii) petroleum and petroleum
by-products; (iii) material containing more than one percent (1%)
asbestos ("ACM"); or (iv) any additional substances or materials that
are currently defined as pollutants, hazardous or toxic under
Environmental Requirements.
"Subject Property" means the Real Property and all property
subject to the Real Property Leases.
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<PAGE> 20
5.12 CONTRACTS.
(a) Set forth on Schedule 5.12 is a list of all
contracts, agreements, arrangements and commitments (whether oral or written)
to which the Company is a party or by which its assets or business are bound
including, without limitation, contracts, agreements, arrangements or
commitments that relate to (i) the sale, lease or other disposition by the
Company of all or any substantial part of its business or assets (otherwise
than in the ordinary course of business), (ii) the purchase or lease by the
Company of a substantial amount of assets (otherwise than in the ordinary
course of business), (iii) the supply by the Company of any customer's
requirements for any item or the purchase by the Company of its requirements
for any item or of a vendor's output of any item, (iv) lending or advancing
funds by the Company, (v) borrowing of funds or guaranteeing the borrowing of
funds by any other person, whether under an indenture, note, loan agreement or
otherwise, (vi) any transaction or matter with any affiliate of the Company,
(vii) noncompetition, (viii) licenses and grants to or from the Company
relating to any intangible property listed on Schedule 5.18, (ix) the
acquisition by the Company of any operating business or the capital stock of
any person since December 31, 1995, or (x) any other matter that is material to
the business, assets or operations of the Company, and excluding with respect
to clauses (i) through (iii) and clause (v) of this Section 5.12(a) contracts,
agreements, arrangements or commitments (a) that may be cancelled upon thirty
(30) days' notice or less by the Company without incurring any Material Adverse
Effect, or (B) involve or are reasonably expected to involve the payment of
consideration having an aggregate value of $50,000 or less during the fiscal
year ending December 31, 1996 ("Contracts").
(b) Except as set forth on Schedule 5.12, each Contract
is in full force and effect on the date hereof, the Company has not given or
received notice of any default under any Contract, and, to the knowledge of the
Company and the Stockholder, neither the Company nor any other party to any
Contract is in default thereunder.
5.13 NO VIOLATIONS. A certified copy of the Articles of
Incorporation and a true, correct and complete copy of the By-laws, both as
amended to date, of the Company (the "Charter Documents") have been delivered
to FYI. The execution, delivery and performance of this Agreement and the
other agreements and documents contemplated hereby by the Company and the
Stockholder and the consummation of the transactions contemplated hereby will
not (i) violate any provision of any Charter Document, (ii) violate any
statute, rule, regulation, order or decree of any public body or authority by
which the Company or the Stockholder or its or his respective properties or
assets are bound, or (iii) result in a violation or breach of, or constitute a
default under, or result in the creation of any encumbrance upon, or create any
rights of termination, cancellation or acceleration in any person with respect
to any Contract or any material license, franchise or permit of the Company or
any other agreement, contract, indenture, mortgage or instrument to which the
Company is a party or by which any of its properties or assets is bound, except
where such violation, breach, default or encumbrance, right of termination,
cancellation or acceleration would not have a Material Adverse Effect.
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5.14 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.14,
the Company is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.15 CONSENTS. Except as set forth on Schedule 5.15, no consent,
approval or other authorization of any governmental authority or under any
Contract or other agreement or commitment to which the Company or the
Stockholder is a party or by which its or his respective assets are bound is
required as a result of or in connection with the execution or delivery of this
Agreement and the other agreements and documents to be executed by the Company
and the Stockholder or the consummation by the Company and the Stockholder of
the transactions contemplated hereby, except where the failure to obtain such
consent, approval or authorization would not constitute a Material Adverse
Effect.
5.16 LITIGATION AND RELATED MATTERS. Set forth on Schedule 5.16 is
a list of all actions, suits, proceedings, investigations or grievances (of
which the Company has received written notice) pending against the Company or,
to the knowledge of the Company and the Stockholder, threatened against the
Company, the business or any property or rights of the Company, at law or in
equity, before or by any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign ("Agencies"). To the knowledge of the Company and the
Stockholder, none of the actions, suits, proceedings or investigations listed
on Schedule 5.16 either (i) results or would, if adversely determined, have a
Material Adverse Effect or (ii) affects or would, if adversely determined,
affect the right or ability of the Company to carry on its business
substantially as now conducted. The Company is not subject to any written
continuing court or Agency order, writ, injunction or decree applicable
specifically to its business, operations or assets or its employees, nor in
default with respect to any order, writ, injunction or decree of any court or
Agency with respect to its assets, business, operations or employees. Schedule
5.16 lists (x) all worker's compensation claims outstanding against the Company
as of the date hereof and (y) all actions, suits or proceedings filed by or
against the Company since December 31, 1995.
5.17 COMPLIANCE WITH LAWS. To the knowledge of the Company and the
Stockholder, the Company (a) is in compliance with all applicable laws,
regulations (including federal, state and local procurement regulations),
orders, judgments and decrees, and (b) possesses all necessary licenses,
franchises, permits and governmental authorizations to conduct its business in
the manner in which and in the jurisdictions and places where such business is
now conducted, except where the failure to so comply would not have a Material
Adverse Effect.
5.18 INTELLECTUAL PROPERTY RIGHTS. Schedule 5.18 lists the
domestic and foreign trade names, trademarks, service marks, trademark
registrations and applications, service mark registrations and applications,
patents, patent applications, patent licenses, software licenses and copyright
registrations and applications owned by the Company or used thereby in the
operation of its business (collectively, the "Intellectual Property"), which
Schedule indicates (i) the term and exclusivity of its rights with respect to
the Intellectual Property and (ii) whether each item of Intellectual Property
is owned or licensed by the Company, and if licensed, the licensor and the
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<PAGE> 22
license fees therefor. Unless otherwise indicated on Schedule 5.18, the
Company has the right to use and license the Intellectual Property, and the
consummation of the transactions contemplated hereby will not result in the
loss or material impairment of any rights of the Company in the Intellectual
Property. Each item constituting part of the Intellectual Property has been,
to the extent indicated on Schedule 5.18, registered with, filed in or issued
by, as the case may be, the United States Patent and Trademark Office or such
other government entity, domestic or foreign, as is indicated on Schedule 5.18;
all such registrations, filings and issuances remain in full force and effect;
and all fees and other charges with respect thereto are current. Except as
stated on Schedule 5.18, to the knowledge of the Company and the Stockholder,
there are no pending proceedings or adverse claims made or, to the knowledge of
the Company and the Stockholder, threatened against the Company with respect to
the Intellectual Property; there has been no litigation commenced or threatened
in writing within the past five (5) years with respect to the Intellectual
Property or the rights of the Company therein; and the Company and the
Stockholder have no knowledge that (i) the Intellectual Property or the use
thereof by the Company conflicts with any trade names, trademarks, service
marks, trademark or service mark registrations or applications, patents, patent
applications, patent licenses or copyright registrations or applications of
others ("Third Party Intellectual Property"), or (ii) such Third Party
Intellectual Property or its use by others or any other conduct of a third
party conflicts with or infringes upon the Intellectual Property or its use by
the Company.
5.19 EMPLOYEE BENEFIT PLANS. Each employee benefit plan within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), maintained or contributed to by the Company or any of its
Group Members (as defined below) (collectively, the "Plans") is listed on
Schedule 5.19, is in substantial compliance with applicable law and has been
administered and operated in all material respects in accordance with its
terms. None of the Plans are employee pension benefit plans within the meaning
of Section 3(2) of ERISA. No Plan is subject to Title IV of ERISA, and neither
the Company nor any Group Member has made any contributions to or participated
in any "multiple employer plan" (within the meaning of the Code or ERISA) or
"multi-employer plan" (as defined in Section 4001(a)(3) of ERISA). Full
payment has been made of all amounts that the Company were required under the
terms of the Plans to have paid as contributions to such Plans on or prior to
the date hereof (excluding any amounts not yet due) and all amounts properly
accrued to date as liabilities of the Company that have not been paid have been
properly recorded on the Financial Statements. The Company and, to the
knowledge of the Company and the Stockholder, no other "disqualified person" or
"party in interest" (within the meaning of Section 4975(e)(2) of the Code and
Section 3(14) of ERISA, respectively) has engaged in any transactions in
connection with any Plan that could be expected to result in the imposition of
a material penalty pursuant to Section 502(i) of ERISA, damages pursuant to
Section 409 of ERISA or a tax pursuant to Section 4975(a) of the Code. No
material claim, action, proceeding, or litigation has been made, commenced or,
to the knowledge of the Company and the Stockholder, threatened with respect to
any Plan (other than for benefits payable in the ordinary course). No Plan or
related trust owns any securities in violation of Section 407 of ERISA.
Neither the Company nor any Group Member has incurred any liability or taken
any action, or has any knowledge of any action or event, that could cause
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it to incur any liability (i) under Section 4971 of the Code or Title IV of
ERISA with respect to any "single employer plan" (within the meaning of Section
4001(a)(15) of ERISA), (ii) on account of a partial or complete withdrawal
(within the meaning of Section 4205 and 4203 of ERISA, respectively) with
respect to any "multi-employer plan" (within the meaning of Section 4001(a)(3)
of ERISA), (iii) on account of unpaid contributions to any such multi-employer
plan, or (iv) to provide health benefits or other non-pension benefits to
retired or former employees, except as specifically required by Section
4980B(f) of the Code. Except as set forth on Schedule 5.19, neither the
execution and delivery of this Agreement by the Company or the consummation of
the transactions contemplated hereby will (i) entitle any current or former
employee of the Company to severance pay, unemployment compensation or any
similar payment, (ii) accelerate the time of payment or vesting, or increase
the amount of, any compensation due to any such employee or former employee, or
(iii) directly or indirectly result in any payment made or to be made to or on
behalf of any person to constitute a "parachute payment" (within the meaning of
Section 280G of the Code). For purposes of this Agreement, "Group Member"
shall mean any member of any "affiliated service group" as defined in Section
414(m) of the Code that, prior to the Closing Date, includes the Company, any
member of any "controlled group of corporations" as defined in Section 1563 of
the Code that, prior to the Closing Date, includes the Company or any member of
any group of "trades or businesses under common control" as defined by Section
414(c) of the Code that, prior to the Closing Date, includes the Company.
5.20 EMPLOYEES; EMPLOYEE RELATIONS.
(a) Schedule 5.20 sets forth (i) the name and current
annual salary (or rate of pay) and other compensation (including, without
limitation, normal bonus, profit-sharing and other compensation) now payable by
the Company to each employee whose current total annual compensation or
estimated compensation is $25,000 or more, (ii) any increase to become
effective after the date of this Agreement in the total compensation or rate of
total compensation payable by the Company to each such person, (iii) any
increase to become payable after the date of this Agreement by the Company to
employees other than those specified in clause (i) of this Section 5.20(a),
(iv) all presently outstanding loans and advances (other than routine travel
advances to be repaid or formally accounted for within sixty (60) days) made by
the Company to, or made to the Company by, any director, officer or employee,
(v) all other transactions between the Company and any director, officer or
employee thereof since April 30, 1996, and (vi) all accrued but unpaid vacation
pay owing to any officer or employee that is not disclosed on the Financial
Statements.
(b) Except as disclosed on Schedule 5.20, the Company is
not a party to, or bound by, the terms of any collective bargaining agreement,
and the Company has not experienced any labor difficulties of a type reasonably
likely to have a Material Adverse Effect during the last five (5) years.
Except as set forth on Schedule 5.20, there are no labor disputes existing, or
to the best knowledge of the Company and the Stockholder, threatened involving,
by way of example, strikes, work stoppages, slowdowns, picketing, or any other
interference with work or production, or any other concerted action by
employees. No charges or proceedings before the
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<PAGE> 24
National Labor Relations Board, or similar agency, exist, or to the knowledge
of the Company and the Stockholder, are threatened.
(c) The relationships enjoyed by the Company with its
respective employees are generally good and the Company and the Stockholder
have no knowledge of any facts that would indicate that the employees of the
Company will not continue in the employ thereof following the Closing on a
basis similar to that existing on the date of this Agreement. Except as
disclosed on Schedule 5.20, the Company is not a party to any employment
contract with any individual or employee, either express or implied, and there
are no employee handbooks issued or adopted by the Company. Except as
disclosed on Schedule 5.20, to the knowledge of the Company and the
Stockholder, no legal proceedings, charges, complaints or similar actions exist
under any federal, state or local laws affecting the employment relationship
including, but not limited to: (i) anti-discrimination statutes such as Title
VII of the Civil Rights Act of 1964, as amended (or similar state or local laws
prohibiting discrimination because of race, sex, religion, national origin, age
and the like); (ii) the Fair Labor Standards Act or other federal, state or
local laws regulating hours of work, wages, overtime and other working
conditions; (iii) requirements imposed by federal, state or local governmental
contracts such as those imposed by Executive Order 11246; (iv) state laws with
respect to tortious employment conduct, such as slander, false light, invasion
of privacy, negligent hiring or retention, intentional infliction of emotional
distress, assault and battery, or loss of consortium; or (v) the Occupational
Safety and Health Act, as amended, as well as any similar state laws, or other
regulations respecting safety in the workplace; and to the best knowledge of
the Company and the Stockholder, no proceedings, charges, or complaints are
threatened under any such laws or regulations and no facts or circumstances
exist that would give rise to any such proceedings, charges, complaints, or
claims, whether valid or not. Except as disclosed on Schedule 5.20, the
Company is not subject to any settlement or consent decree with any present or
former employee, employee representative or any government or Agency relating
to claims of discrimination or other claims in respect to employment practices
and policies; and no government or Agency has issued a judgment, order, decree
or finding with respect to the labor and employment practices (including
practices relating to discrimination) of the Company. Since December 31, 1994
the Company has not incurred any liability or obligation under the Worker
Adjustment and Retraining Notification Act or similar state laws; and the
Company has not laid off more than ten percent (10%) of its employees at any
single site of employment in any ninety (90) day period during the twelve (12)
month period ending April 30, 1996.
5.21 INSURANCE. Schedule 5.21 contains an accurate list of the
policies and contracts (including insurer, named insured, type of coverage,
limits of insurance, required deductibles or co-payments, annual premiums and
expiration date) for fire, casualty, liability and other forms of insurance
maintained by, or for the benefit of, the Company. Except as set forth in
Schedule 5.21, all such policies are in full force and effect and shall remain
in full force and effect through the Closing Date. Neither the Company nor the
Stockholder has received any notice of cancellation or non-renewal or of
significant premium increases with respect to any such policy. Except as
disclosed on Schedule 5.21, no pending claims made by or on behalf of the
Company
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<PAGE> 25
under such policies have been denied or are being defended against third
parties under a reservation of rights by an insurer thereof. All premiums due
prior to the date hereof for periods prior to the date hereof with respect to
such policies have been timely paid.
5.22 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as described
on Schedule 5.22, no stockholder, officer, director or affiliate of the Company
possesses, directly or indirectly, any financial interest in, or is a director,
officer, employee or affiliate of, any corporation, firm, association or
business organization that is a client, supplier, customer, lessor, lessee or
competitor of the Company. Ownership of securities of a corporation whose
securities are registered under the Securities Exchange Act of 1934 not in
excess of five percent (5%) of any class of such securities shall not be deemed
to be a financial interest for purposes of this Section 5.22.
5.23 BUSINESS RELATIONS. Schedule 5.23 contains an accurate list
of all significant customers of the Company (i.e., those customers representing
five percent (5%) or more of the Company's revenues for the twelve (12) months
ended December 31, 1995. Except as set forth on Schedule 5.23, to the actual
knowledge of the Company and the Stockholder, no customer or supplier of the
Company will cease to do business therewith after the consummation of the
transactions contemplated hereby, which cessation would have a Material Adverse
Effect. Except as set forth on Schedule 5.23, since December 31, 1995, the
Company has not experienced any difficulties in obtaining any inventory items
necessary to the operation of its business, and, to the knowledge of the
Company and the Stockholder, no such shortage of supply of inventory items is
threatened or pending. The Company is not required to provide any bonding or
other financial security arrangements in any material amount in connection with
any transactions with any of its customers or suppliers.
5.24 OFFICERS AND DIRECTORS. Set forth on Schedule 5.24 is a list
of the current officers and directors of the Company.
5.25 BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 5.25 sets
forth each bank, savings institution and other financial institution with which
the Company has an account or safe deposit box and the names of all persons
authorized to draw thereon or to have access thereto. Each person holding a
power of attorney or similar grant of authority on behalf of the Company is
identified on Schedule 5.25. Except as disclosed on such Schedule, the Company
has not given any revocable or irrevocable powers of attorney to any person,
firm, corporation or organization relating to its business for any purpose
whatsoever.
5.26 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 5.26 or as otherwise contemplated by this Agreement, since December
31, 1995, there has not been (a) any damage, destruction or casualty loss to
the physical properties of the Company (whether or not covered by insurance),
(b) any event or circumstance in the business, operations, financial condition
or results of operations or prospects of the Company that would have a Material
Adverse Effect, (c) any entry into any transaction, commitment or agreement
(including, without
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<PAGE> 26
limitation, any borrowing) material to the Company, except transactions,
commitments or agreements in the ordinary course of business consistent with
past practice, (d) any declaration, setting aside or payment of any dividend or
other distribution in cash, stock or property with respect to the capital stock
or other securities of the Company, any repurchase, redemption or other
acquisition by the Company of any capital stock or other securities, or any
agreement, arrangement or commitment by the Company to do so, (e) any increase
that is material in the compensation payable or to become payable by the
Company to its directors, officers, employee or agents or any increase in the
rate or terms of any bonus, pension or other employee benefit plan, payment or
arrangement made to, for or with any such directors, officers, employees or
agents, except as set forth on Schedule 5.26, (f) any sale, transfer or other
disposition of, or the creation of any Lien upon, any part of the assets of the
Company, tangible or intangible, except for sales of inventory and use of
supplies and collections of accounts receivables in the ordinary course of
business consistent with past practice, or any cancellation or forgiveness of
any debts or claims by the Company, (g) any change in the relations of the
Company with or loss of its customers or suppliers, of any loss of business or
increase in the cost of inventory items or change in the terms offered to
customers, which would have a Material Adverse Effect, or (h) any capital
expenditure (including any capital leases) or commitment therefor by the
Company in excess of $10,000.
5.27 WARRANTY WORK. The Company does not expect to incur any
liability for warranty claims in excess of $50,000 in the twelve-month period
following the Closing.
(B) REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER.
The Stockholder represents and warrants that the representations and
warranties in this Section 5(B) are true as of the date of this Agreement and
at the time of the Closing.
5.28 AUTHORITY; OWNERSHIP. The Stockholder has the full legal
right, power and authority to enter into this Agreement. The Stockholder owns
beneficially and of record all of the shares of the Company Stock, which
constitutes all of the outstanding shares of capital stock of the Company, and,
except as set forth on Schedule 5.28 hereof, such Company Stock is owned free
and clear of all Liens. The Stockholder has owned the Company Stock since
1992.
5.29 PREEMPTIVE RIGHTS. The Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or FYI
Stock, that the Stockholder has or may have had other than rights of the
Stockholder to acquire FYI Stock pursuant to (i) this Agreement or (ii) any
option granted by FYI.
5.30 NO INTENTION TO DISPOSE OF FYI STOCK. There is no current
plan or intention by the Stockholder to sell, exchange or otherwise dispose of
any of the shares of the FYI Stock received in the Merger. For purposes of
this representation, shares of Company Stock exchanged for cash or other
property and shares of Company Stock exchanged for cash in lieu of fractional
shares of FYI Stock will be treated as outstanding Company Stock on the date of
the transaction.
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<PAGE> 27
Moreover, shares of Company Stock and shares of FYI Stock held by the
Stockholder and otherwise sold, redeemed, or disposed of prior to or subsequent
to the Closing Date will be considered in making this representation. In
addition, there is no plan or intention by the Stockholder to sell, exchange or
otherwise dispose of FYI Stock, if any, received by the Stockholder pursuant to
Section 10.11.
5.31 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement, the Employment Agreement, the Noncompetition Agreement, the Lock-Up
Agreement and the Escrow Agreement (each as defined below) by the Stockholder
and the performance by the Stockholder of the transactions contemplated herein
or therein have been authorized by the Stockholder, and this Agreement and the
Employment Agreement, the Noncompetition Agreement, the Lock-Up Agreement and
the Escrow Agreement have each been duly executed and delivered and are the
legal, valid and binding obligations of the Stockholder in accordance with
their respective terms.
5.32 S CORPORATION. The Company made a valid election under
Section 1362(a) of the Code, effective January 1, 1992, to be taxed as an S
corporation under the Code. As of immediately prior to the Closing, the
Company qualifies as an S corporation within the meaning of Subchapter S of the
Code.
6. REPRESENTATIONS OF FYI AND NEWCO
FYI and Newco severally and jointly represent and warrant that all of
the following representations and warranties in this Section 6 are true as of
the date of this Agreement and shall be true at the time of Closing.
6.1 DUE ORGANIZATION. Each of FYI and Newco is duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and is duly authorized and qualified under all applicable laws, regulations,
and ordinances of public authorities to carry on its businesses in the places
and in the manner as now conducted except for where the failure to be so
authorized or qualified would not have a material adverse effect on its
business, operations, affairs, properties, assets or condition (financial or
otherwise).
6.2 FYI STOCK. The FYI Stock to be delivered to the Stockholder
at the Closing Date shall constitute valid and legally issued shares of FYI,
fully paid and nonassessable, and except as set forth in this Agreement, (a)
will be owned free and clear of all Liens, and (b) will be legally equivalent
in all respects to the FYI Stock issued and outstanding as of the date hereof.
The shares of FYI Stock to be issued to the Stockholder pursuant to this
Agreement will be registered under the Securities Act of 1933, as amended, (the
"1933 Act").
6.3 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement, the Employment Agreement, the Noncompetition Agreement, the Lock-Up
Agreement and the Escrow Agreement by FYI and Newco and the performance by each
of FYI and Newco of the transactions contemplated herein or therein have been
or will be duly and validly authorized by the respective
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<PAGE> 28
Boards of Directors of FYI and Newco, and this Agreement and the Employment
Agreement, the Noncompetition Agreement, the Lock-Up Agreement and the Escrow
Agreement have each been duly and validly authorized by all necessary corporate
action, duly executed and delivered and are the legal, valid and binding
obligations of each of FYI and Newco, enforceable against each of FYI and Newco
in accordance with their respective terms.
6.4 AUTHORIZATION. The representatives of FYI and Newco executing
this Agreement have the corporate authority to enter into and bind FYI and
Newco to the terms of this Agreement. FYI and Newco have the full legal right,
power and authority to enter into this Agreement and the Merger.
6.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated by and the fulfillment of the terms hereof and thereof will not:
(a) Conflict with, or result in a breach or violation of
Certificate of Incorporation or By-laws of either FYI or Newco;
(b) Materially conflict with, or result in a material
default (or would constitute a default but for any requirement of
notice or lapse of time or both) under any document, agreement or
other instrument to which either FYI or Newco is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any
of FYI's or Newco's properties pursuant to (i) any law or regulation
to which either FYI or Newco or any of their respective property is
subject, or (ii) any judgment, order or decree to which FYI or Newco
is bound or any of their respective property is subject; or
(c) Result in termination or any impairment of any
material permit, license, franchise, contractual right or other
authorization of FYI or Newco.
6.6 CAPITALIZATION OF FYI AND OWNERSHIP OF FYI STOCK. The
authorized and outstanding capital stock of FYI and Newco is as set forth in
Sections 1.4(b) and 1.4(c), respectively. All issued and outstanding shares of
FYI stock are duly authorized, validly issued, fully paid and nonassessable.
There are no obligations of FYI to repurchase, redeem or otherwise acquire any
shares of FYI capital stock. Except as set forth on Schedule 6.6, there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which FYI is a party or by which it is bound obligating FYI
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of FYI or obligating FYI to grant, extend, accelerate
the vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement. All of the shares of FYI Stock to be issued to
the Stockholder in accordance herewith will be duly authorized, validly issued,
fully paid and nonassessable.
6.7 TRANSACTIONS IN CAPITAL STOCK. There has been no transaction
or action taken with respect to the equity ownership of FYI or Newco in
contemplation of the transactions described
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<PAGE> 29
in this Agreement that would prevent FYI from accounting for such transactions
on a reorganization accounting basis.
6.8 SUBSIDIARIES. Set forth on Schedule 6.8 hereto is a list of
the subsidiaries of FYI (each an "FYI Subsidiary" and collectively the "FYI
Subsidiaries"). Newco has no subsidiaries.
6.9 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS; FINANCIAL
INFORMATION. Attached hereto as Schedule 6.9 are FYI's audited historical
financial statements for the year ended December 31, 1995 and its financial
statements as filed on Form 10-Q with the Securities and Exchange Commission
for the quarter ended March 31, 1996. Such FYI financial statements have been
prepared in accordance with GAAP and present fairly the financial position of
FYI as of the indicated dates and for the indicated periods. FYI has provided
the Company and the Stockholder with a true, complete and correct copy of its
Registration Statement on Form S-1 (Registration No. 33-98608 and Registration
No. 333-1084) and Prospectus Supplement to Prospectus as filed with the
Securities and Exchange Commission on May 17, 1996 and of all amendments
thereto. Newco was formed in May 1996, and has no historical financial
statements or information.
6.10 CONFORMITY WITH LAW. Neither FYI nor Newco is in violation of
any law or regulation or any order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them that would have a
material adverse effect on the business, operations, affairs, properties,
assets or condition (financial or otherwise) of FYI and the FYI Subsidiaries
taken as a whole (an "FYI Material Adverse Effect"). Except as set forth on
Schedule 6.10, there are no claims, actions, suits or proceedings, pending or,
to the knowledge of FYI or Newco, threatened, against or affecting FYI or
Newco, at law or in equity, or before or by any Agency having jurisdiction over
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. FYI (including the FYI Subsidiaries)
has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing that
would have an FYI Material Adverse Effect.
6.11 NO VIOLATIONS. Copies of the Certificate of Incorporation (as
of the date hereof, certified by the Secretary or an Assistant Secretary of
each of FYI and Newco and by the Secretary of State of the State of Delaware)
and the By-laws (certified by the Secretary or an Assistant Secretary of each
of FYI and Newco), of FYI and Newco (the "FYI Charter Documents") are attached
hereto as Annex II; neither FYI nor Newco is (a) in violation of any FYI
Charter Document or (b) in default, under any material lease, instrument,
agreement, license, permit to which it is a party or by which its properties
are bound (the "FYI Material Documents"); and, (i) the rights and benefits of
FYI (including the FYI Subsidiaries) under the FYI Material Documents will not
be materially and adversely affected by the transactions contemplated hereby
and (ii) the execution of this Agreement and the performance of the
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obligations hereunder and the consummation of the transactions contemplated
hereby will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the FYI Material Documents or
the FYI Charter Documents. Except as set forth on Schedule 6.11, none of the
FYI Material Documents requires notice to, or the consent or approval of, any
Agency or other third party to any of the transactions contemplated hereby to
remain in full force and effect or give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit. The minute books
of FYI and of each FYI Subsidiary as heretofore made available to the Company
are true and correct.
6.12 TAXES.
(a) FYI and Newco will each pay its respective expenses,
if any, incurred in connection with the Merger.
(b) Prior to the Merger, FYI will own all of the
outstanding stock of Newco. At all times prior to the Merger, no
person other than FYI has owned, or will own, any of the outstanding
stock of Newco.
(c) (i) Newco was formed by FYI solely for the
purpose of engaging in the transaction contemplated by the Agreement.
(ii) There were not as of the date of the
Agreement and there will not be at the Closing Date, any outstanding
or authorized options, warrants, convertible securities, calls,
rights, commitments or any other agreements of any character which
Newco is a party to, or may be bound by, requiring it to issue,
transfer, sell, purchase, redeem or acquire any shares of its capital
stock or any securities or rights convertible into, exchangeable for,
evidencing the right to subscribe for or acquire, any shares of its
capital stock.
(iii) As of the date of this Agreement and the
Closing Date, except for obligations or liabilities incurred in
connection with (A) its incorporation or organization and (B) the
transactions contemplated thereby and in the Agreement, Newco has not
and will not have incurred, directly or indirectly through any
subsidiary, any obligations or liabilities or engaged in any business
or activities of any type or kind whatsoever or entered into any
agreement or arrangements with any person or entity.
(iv) Prior to the Closing Date, Newco did not own
any asset other than an amount of cash necessary to incorporate Newco
and to pay the expenses of the Merger attributable to Newco and such
assets as were necessary to perform its obligations under this
Agreement.
(v) FYI has no plan or intention to cause the
Surviving Corporation to issue additional shares of its stock that
would result in FYI losing control of the Surviving
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<PAGE> 31
Corporation within the meaning of Section 368(c) of the Code.
(d) FYI has no plan or intention to reacquire any of its
stock issued in the Merger.
(e) FYI has no plan or intention to liquidate Newco or
merge Newco with or into another corporation (other than the Company);
sell or otherwise dispose of the stock of Newco; or cause Newco or any
of its subsidiaries to sell or otherwise dispose of any of its assets
or of any of the assets acquired from the Company, other than as
contemplated by this Agreement, directly or indirectly, except for (i)
dispositions made in the ordinary course of business, (ii) transfers
of assets to a corporation all of whose outstanding stock is owned
directly by Newco or (iii) transfers of assets by direct or indirect
wholly-owned subsidiaries of Newco to other direct or indirect
wholly-owned subsidiaries of Newco.
(f) Any liabilities of the Company assumed by Newco and
any liabilities to which the transferred assets of the Company are
subject were incurred by the Company as described in Section
6.12(c)(iii).
(g) Based upon the accuracy of the representation in
Section 5.8(d), FYI has no current plan or intention to cause the
Company to hold less than ninety percent (90%) of the fair market
value of its net assets and seventy percent (70%) of the fair market
value of its gross assets immediately prior to the Closing Date, with
such amount determined based on the same methodology described in
Section 5.8(d).
6.13 LITIGATION MATTERS. Except as set forth in Schedule 6.13,
there are no actions, suits, proceedings or investigations pending, or to the
knowledge of FYI or Newco, threatened in any court or before any Agency or
instrumentality against or by FYI or Newco, its stock, assets or business that
are reasonably likely to have an FYI Material Adverse Effect. There are no
actions, suits, proceedings or investigations pending or, to the knowledge of
FYI or Newco, threatened in any court or before any Agency or instrumentality
against or by FYI or Newco that would prevent the consummation of the
transactions contemplated herein.
6.14 ANTITRUST MATTERS. Neither FYI's nor Newco's annual net sales
for the period ended December 31, 1995, nor FYI's nor Newco's total assets as
shown on the last regularly prepared balance sheets of FYI and Newco prepared
prior to the Closing equal or exceed $100 million, so as to subject the
transactions contemplated by this Agreement to the filing and notice
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
6.15 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Neither FYI nor
Newco has used any accounting practices that are not in conformity with
generally accepted accounting principles for the purpose of incorrectly
reflecting on its financial statements or in its books of account, or for the
purpose of not reflecting on its financial statements or in its books of
account, any of the assets, liabilities, revenues or expenses of FYI or Newco.
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<PAGE> 32
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY
The obligations of the Stockholder and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except that no such waiver shall be deemed to affect the survival of the
representations and warranties of FYI and Newco contained in Section 6 hereof.
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All of the representations and warranties of FYI and Newco contained in Section
6 shall be true and correct as of the Closing Date; and each and all of the
terms, covenants and conditions of this Agreement to be complied with and
performed by FYI and Newco on or before the Closing Date shall have been duly
complied with and performed.
7.2 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall be reasonably satisfactory to the Company and
the Stockholder and their counsel.
7.3 NO LITIGATION. No action or proceeding before a court or any
other Agency shall have been instituted or threatened to restrain or prohibit
the merger of Newco with the Company and no Agency shall have taken any other
action or made any request of the Company as a result of which the management
of the Company reasonably and in good faith deems it inadvisable to proceed
with the transactions hereunder.
7.4 OPINION OF COUNSEL. The Company and the Stockholder shall
have received an opinion from Locke Purnell Rain Harrell (A Professional
Corporation), counsel for FYI, dated the Closing Date, in the form annexed
hereto as Annex III.
7.5 EMPLOYMENT AGREEMENT. Newco shall have executed and delivered
to the Stockholder the Employment Agreement with the Stockholder in
substantially the form attached hereto as Annex IV (the "Employment
Agreement").
7.6 ESCROW AGREEMENT. FYI and Newco shall have executed and
delivered to the Stockholder the Escrow Agreement with the Stockholder and U.S.
Trust Company of Texas, N.A. as escrow agent (the "Escrow Agent") in
substantially the form attached hereto as Annex V (the "Escrow Agreement").
7.7 CONSENTS AND APPROVALS. All necessary consents of and filings
with any Agency relating to the consummation of the transactions contemplated
herein shall have been obtained and made and no action or proceeding shall have
been instituted or threatened to restrain or prohibit the Merger and no Agency
shall have taken any other action or made any request of Company as a result of
which Company deems it inadvisable to proceed with the transactions hereunder.
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7.8 GOOD STANDING CERTIFICATES. FYI and Newco each shall have
delivered to the Company a certificate, dated as of a date not more than
fifteen (15) days prior to the Closing Date, duly issued by the Delaware
Secretary of State and in each state in which FYI or Newco is authorized to do
business, showing that each of FYI and Newco is in good standing and authorized
to do business and that all state franchise and/or income tax returns and taxes
for FYI and Newco, respectively, for all periods prior to the Closing have been
filed and paid.
7.9 RELEASES. FYI shall have caused the Stockholder and Antonia
C. Bauer to be released from any and all guarantees on any obligations of the
Company that they personally guaranteed for the benefit of the Company, with
all such guarantees on indebtedness being assumed by FYI.
7.10 STOCK OPTIONS. Effective at the Effective Time of the Merger,
FYI shall have granted to the employees specified by the Stockholder
nonqualified options to acquire an aggregate of 50,000 shares of FYI Stock
pursuant to the terms of FYI 1995 Stock Option Plan (the "Plan"), with such
options to have a per share exercise price equal to the Fair Market Value (as
defined in the Plan) per share on the date of grant and to vest in twenty
percent (20%) increments on each of the first through fifth anniversaries of
the date of grant.
7.11 NO MATERIAL ADVERSE CHANGE. No event or circumstance to that
effect shall have occurred that would constitute an FYI Material Adverse
Effect.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF FYI AND NEWCO
The obligations of FYI and Newco with respect to actions to be taken
on the Closing Date are subject to the satisfaction or waiver on or prior to
the Closing Date of all of the following conditions, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the Company and the Stockholder contained in Section 5 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All of the representations and warranties of the Stockholder and the Company
contained in this Agreement shall be true and correct as of the Closing Date;
and each and all of the terms, covenants and conditions of this Agreement to be
complied with and performed by the Stockholder and the Company on or before the
Closing Date shall have been duly complied with and performed.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall be reasonably satisfactory to FYI and its
counsel.
8.3 NO LITIGATION. No action or proceeding before a court or any
other Agency shall have been instituted or threatened to restrain or prohibit
the Merger of the Company with and into Newco and no Agency shall have taken
any other action or made any request of FYI as a result of which the management
of FYI reasonably and in good faith deems it inadvisable to proceed
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with the transactions hereunder.
8.4 EXAMINATION OF FINAL FINANCIAL STATEMENTS. Prior to the
Closing Date, FYI shall have had sufficient time to review the unaudited
consolidated balance sheets of the Company for the period ended April 30, 1996,
and the unaudited consolidated statement of income, cash flows and retained
earnings of the Company for the period ended April 30, 1996, disclosing no
material adverse change in the financial condition of the Company, taken as a
whole, or the results of its operations from the financial statements as of
December 31, 1995.
8.5 REPAYMENT OF INDEBTEDNESS. Prior to the Closing Date, the
Stockholder shall have repaid the Company in full all amounts owing by the
Stockholder to the Company.
8.6 INSURANCE. FYI shall be named as an additional named insured
on all of the Company's insurance policies.
8.7 STOCKHOLDER RELEASE; AMENDMENT OF EMPLOYMENT AGREEMENT. (i)
The Stockholder shall have delivered to FYI immediately prior to the Closing
Date an instrument dated the Closing Date in substantially the form of Annex VI
releasing the Company from any and all claims of the Stockholder against the
Company and obligations of the Company to the Stockholder, except for items
specifically identified on Schedule 8.7 as being claims of or obligations to
the Stockholder and continuing obligations to Stockholder relating to his
employment by the Surviving Corporation, and (ii) the Company shall have
delivered to FYI an instrument in form and substance reasonably satisfactory to
FYI amending the terms of the Company's employment letter agreement with Edna
M. Bauer dated January 1, 1993 changing the expiration of the term of such
agreement to December 31, 1999.
8.8 TERMINATION OF RELATED PARTY AGREEMENTS. All existing
agreements between the Company and the Stockholder or business or personal
affiliates of the Company or the Stockholder, other than those set forth on
Schedule 8.8, shall have been cancelled.
8.9 OPINION OF COUNSEL. FYI shall have received an opinion from
Sonnenschein Nath & Rosenthal, counsel to the Company and the Stockholder,
dated the Closing Date, in the form annexed hereto as Annex VII.
8.10 EMPLOYMENT AGREEMENT. The Stockholder shall have executed and
delivered to FYI and Newco the Employment Agreement.
8.11 NONCOMPETITION AGREEMENT. The Stockholder shall have executed
and delivered to FYI and Newco the Noncompetition Agreement with FYI and Newco
in substantially the form attached hereto as Annex VIII (the "Noncompetition
Agreement").
8.12 ESCROW AGREEMENT. The Stockholder shall have executed and
delivered to the Escrow Agent and FYI and Newco the Escrow Agreement.
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8.13 LOCK-UP AGREEMENT. The Stockholder shall have executed and
delivered to FYI and Newco the Lock-Up Agreement in substantially the form
annexed hereto as Annex IX (the "Lock-Up Agreement") with respect to the shares
of FYI Stock to be acquired thereby pursuant to Section 2 hereof containing the
Stockholder's undertakings as set forth in Section 11.2 hereof.
8.14 CONSENTS AND APPROVALS. All necessary consents of and filings
with any Agency relating to the consummation of the transactions contemplated
herein shall have been obtained and made and no action or proceeding shall have
been instituted or threatened to restrain or prohibit the Merger and no Agency
shall have taken any other action or made any request of FYI as a result of
which FYI deems it inadvisable to proceed with the transactions hereunder.
8.15 GOOD STANDING CERTIFICATES. The Company shall have delivered
to FYI a certificate, dated as of a date not more than fifteen (15) days prior
to the Closing Date, duly issued by the appropriate governmental authority in
the state of incorporation of the Company and, unless waived by FYI, in each
state in which the Company is authorized to do business, showing the Company is
in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes for the Company for all periods prior to
the Closing have been filed and paid.
8.16 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred that would constitute a Material Adverse Effect.
9. COVENANTS AFTER CLOSING
9.1 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the
Closing Date, FYI shall not and shall not permit any of the FYI Subsidiaries to
undertake any act that would jeopardize the tax-free status of the
reorganization, including:
(a) The retirement or reacquisition, directly or
indirectly, of all or part of the FYI Stock issued in connection with
the transactions contemplated hereby;
(b) The entering into of financial arrangements for the
benefit of the Stockholder in his capacity as such;
(c) The disposition of any material part of the assets of
the Company within the two (2) years following the Closing Date except
in the ordinary course of business or to eliminate duplicate services
or excess capacity;
(d) The discontinuance of the historic business of the
Company; and
(e) The issuance of additional shares of Newco stock that
would result in FYI losing control of Newco within the meaning of
Section 368(c)(1) of the Code.
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9.2 PREPARATION AND FILING OF TAX RETURNS.
(a) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any return, amended return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies at no cost
to the requesting party of all relevant portions of relevant returns,
together with relevant accompanying schedules and relevant work
papers, relevant documents relating to rulings or other determinations
by taxing authorities and relevant records concerning the ownership
and tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient
basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each
party required to file returns pursuant to this Agreement shall bear
all costs of filing such returns.
(b) Each of the Company, Newco, FYI and the Stockholder
shall comply with the tax reporting requirements of Section 1.368-3 of
the Treasury Regulations promulgated under the Code, and shall treat
the transaction as a tax-free reorganization under Section 368(a) of
the Code unless otherwise required by law. The parties have
independently determined and hereby agree that the transaction
constitutes a tax-free reorganization under Section 368(a) of the Code
and specifically that:
(i) Neither the Company, FYI or Newco is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of
the Code.
(ii) The fair market value of the assets of the
Company exceeds the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
(iii) The Company is not under jurisdiction of a
court in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
(iv) The fair market value of the FYI stock and
other consideration received by the Stockholder, will be approximately
equal to the fair market value of the Company Stock surrendered in the
Merger.
(v) There is no intercorporate indebtedness
existing between FYI and the Company or between Newco and the Company
that was issued, acquired, or will be settled at a discount.
(vi) None of the compensation received by any
stockholder-employee of the Company after the Merger will be separate
consideration for, or allocable to, any of their shares of the
Company. None of the shares of FYI Stock received by the
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Stockholder in the Merger will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to
the Stockholder in his capacity as an employee including, but not
limited to, amounts paid pursuant to the Employment Agreement between
the Company and the Stockholder described in Section 7.5 and
compensation in the form of stock options described in Section 7.10,
will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar
services.
(vii) No stock of Newco will be issued in the
transaction.
(viii) The proposed Merger is effected through the
laws of the United States, or a State or the District of Columbia.
(ix) The proposed Merger is being undertaken for
reasons germane to the business of the Company.
9.3 COVENANTS CONCERNING TERMINATION OF S ELECTION.
(a) Taxes.
(i) Liability for Taxes Incurred During S
Corporation Years. The Stockholder shall pay (and shall indemnify,
defend and hold harmless the Surviving Corporation from and against
liability with respect to) any and all Taxes, interest, penalties and
additions to Taxes that are imposed on him or the Company and
attributable to the taxable income of the Company for all taxable
periods during which the Company was an S corporation (the "S
Corporation Period"). The Stockholder shall pay (and shall indemnify,
defend and hold harmless the Surviving Corporation from and against
liability with respect to) any and all Taxes, interest, penalties and
additions to Taxes that are imposed on him and/or the Company as a
result of the Company's S election being treated as invalid or
ineffective for any reason or such election being revoked or
terminated prior to the Merger. Subject to any rights of the
Stockholder under Section 10.4, the Stockholder shall pay (and shall
indemnify, defend and hold harmless the Surviving Corporation from and
against liability with respect to) any and all Taxes, interest,
penalties and additions to Taxes that are imposed on him and/or the
Company (or the Surviving Corporation) as a result of the Merger if
the Merger fails to qualify as a tax- free transaction pursuant to
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
(ii) Liability for Taxes Incurred During C
Corporation Years Including C Short Year. The Surviving Corporation
shall pay or cause to be paid (and shall indemnify, defend and hold
harmless the Stockholder from and against liability with respect to)
any and all Taxes, interest, penalties and additions to Taxes
attributable to the taxable income of the Surviving Corporation for
the period after the Merger (the "C Corporation Period").
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(b) If the Stockholder receives notice of an intention by
a taxing authority to audit any return of the Stockholder that
includes any item of income, gain, deduction, loss or credit reported
by the Company with respect to the S Corporation Period that the
Stockholder has reason to believe may affect the Surviving
Corporation's tax returns during the C Corporation Period, the
Stockholder shall inform the Surviving Corporation, in writing, of the
audit promptly after receipt of such notice. If the Stockholder
receives notice from a taxing authority of any proposed adjustment for
which the Surviving Corporation may be required to indemnify hereunder
(a "Proposed Adjustment"), the Stockholder shall give notice to the
Surviving Corporation of the Proposed Adjustment promptly after
receipt of such notice from a taxing authority. Within twenty (20)
days following its receipt of such notice, the Surviving Corporation
shall give notice to the Stockholder of its determination as to
whether or not it desires the Stockholder to contest such Proposed
Adjustment. Upon such request the Stockholder, at his option and upon
written notice to the Surviving Corporation within ten (10) days after
his receipt of the notice described in the preceding sentence, shall
(i) contest the Proposed Adjustment at the Surviving Corporation's
expense and permit the Surviving Corporation to participate in (but
not to control) such proceedings, or (ii) permit the Surviving
Corporation to contest the Proposed Adjustment (including pursuing all
administrative and judicial appeals and demands). The Surviving
Corporation shall pay to the Stockholder on demand all reasonable
costs and expenses (including reasonable attorneys' and accountants'
fees) that the Stockholder may incur in contesting such Proposed
Adjustments. The Stockholder shall not make, accept or enter into a
settlement or other compromise, with respect to any Taxes indemnified
hereunder, or forego or terminate any proceeding undertaken hereunder
without the consent of the Surviving Corporation, which consent shall
not be unreasonably withheld. The Stockholder will reasonably assist
if the Surviving Corporation contests any Proposed Adjustment.
(c) If the Surviving Corporation receives notice of an
intention by a taxing authority to audit any return of the Surviving
Corporation that includes any item of income, gain, deduction, loss or
credit reported by the Surviving Corporation with respect to the
period after the Merger during which the Surviving Corporation is a C
corporation that the Surviving Corporation has reason to believe may
affect the Stockholder's tax returns during the S Corporation Period,
the Surviving Corporation shall inform the Stockholder in writing, of
the audit promptly after receipt of such notice. If the Surviving
Corporation receives notice from a taxing authority of any proposed
adjustment for which the Stockholder may be required to indemnify the
Surviving Corporation hereunder (a "Surviving Corporation Proposed
Adjustment"), the Surviving Corporation shall give notice to the
Stockholder of the Surviving Corporation Proposed Adjustment promptly
after receipt of such notice from a taxing authority. Upon receipt of
such notice from the Surviving Corporation, the Stockholder may, by in
turn giving prompt written notice to the Surviving Corporation,
request that the Surviving Corporation contest such Surviving
Corporation Proposed Adjustment. If the Stockholder requests that any
Surviving Corporation Proposed Adjustment be contested, then the
Surviving Corporation shall
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contest the Surviving Corporation Proposed Adjustment (including
pursuing all administrative and judicial appeals and processes) at the
Stockholder's expense and shall permit the Stockholder to participate
in (but not to control) such proceeding.
(d) The parties shall cooperate fully with each other in
all matters relating to Taxes and in the determination of amounts
payable hereunder. In the case of disagreement as to the course of
action to be pursued in dealing with taxing authorities (including,
without limitation, matters with respect to preparation and filing of
tax returns, conduct of audits, and proceedings in courts), the
decision of the party (the Surviving Corporation, on the one hand, or
the Stockholder, on the other hand) who will economically benefit from
or be burdened by the course of action (or in the case both parties
benefit and/or are burdened, the decision of the party with the
greatest benefit or burden) shall control.
9.4 CONTINUATION OF EMPLOYEE BONUS PLAN. FYI shall cause the
Surviving Corporation to maintain in full force and effect, for a period of not
less than three (3) years following the Closing, the employee bonus plan of the
Company upon substantially the same terms and conditions as operated on the
date hereof.
9.5 MINUTES OF FYI BOARD OF DIRECTOR'S MEETINGS. For a period of
three (3) years and thereafter for so long as the Stockholder holds not less
than three percent (3.0%) of outstanding FYI Stock, FYI shall furnish the
Stockholder with copies of the minutes of all FYI Board of Director meetings
and unanimous written consents of the FYI Board of Directors promptly after the
preparation, approval and execution thereof by the Secretary of FYI (as to the
minutes) and the directors of FYI (as to the unanimous written consents).
10. INDEMNIFICATION
The Stockholder, FYI and Newco each make the following covenants that
are applicable to them, respectively:
10.1 FYI LOSSES.
(a) The Stockholder agrees to indemnify and hold harmless
FYI, Newco and the Surviving Corporation, and their respective directors,
officers, employees, representatives, agents and attorneys from, against and in
respect of any and all FYI Losses (as defined below) suffered, sustained,
incurred or required to be paid by any of them by reason of (i) any
representation or warranty made by the Company or the Stockholder in or
pursuant to this Agreement (including, without limitation, the representations
and warranties contained in any certificate delivered pursuant hereto but
excluding the representations and warranties set forth in Section 5.11) being
untrue or incorrect in any respect; (ii) any failure by the Company or the
Stockholder to observe or perform their covenants and agreements set forth in
this Agreement or any other agreement or document executed by them in
connection with the transactions contemplated hereby; (iii) the termination of
or withdrawal by the Company or any Group
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Member from any employee pension benefit plan, as defined in Section 3(2)(A) of
ERISA that is maintained pursuant to a collective bargaining agreement under
which more than one employer makes contributions and to which the Company or any
Group Member is then making or accruing an obligation to make contributions or
has within the preceding five (5) plan years made contributions; and (iv) the
items described in Schedules 5.5 and 5.16hereof but solely to the extent that
such claims exceed, individually or in the aggregate, $77,000, except in any
instance to the extent FYI Losses result from the gross negligence or willful
misconduct of FYI, Newco or the Surviving Corporation. This Section 10.1 is
intended to indemnify FYI, Newco and the Surviving Corporation, and their
respective directors, officers, employees, representatives, agents and attorneys
from the results of their negligence. The Stockholder's obligations pursuant to
this Section 10.1 shall expire two (2) years after the Closing, except with
respect to (i) his obligations under Section 5.19 hereof, which shall survive
until the expiration of the applicable period of the statutes of limitations
applicable period of the statutes of limitations applicable to ERISA matters,
(ii) his obligations under Section 5.8 hereof, which shall survive until the
earlier of (A) the expiration of the applicable periods (including any
extensions) of the respective statutes of limitation applicable to the payment
of the Taxes to which such representations and warranties relate without an
assertion of a deficiency in respect thereof by the applicable taxing authority
or (B) the completion of the final audit and determinations by the applicable
taxing authority and final disposition of any deficiency resulting therefrom,
and (iii) his obligations under the representations and warranties contained in
Sections 5.1, 5.2 and 5.3 hereof, which shall survive indefinitely.
(b) "FYI Losses" shall mean all damages (including,
without limitation, amounts paid in settlement with the Stockholder's consent,
which consent may not be unreasonably withheld, but excluding consequential
damages), losses, obligations, liabilities, claims, deficiencies, costs and
expenses (including, without limitation, reasonable attorneys' fees),
penalties, fines, interest and monetary sanctions, including, without
limitation, reasonable attorneys' fees and costs incurred to comply with
injunctions and other court and Agency orders, and other costs and expenses
incident to any suit, action, investigation, claim or proceeding or to
establish or enforce the rights of FYI, Newco and the Surviving Corporation or
such other persons to indemnification hereunder.
10.2 ENVIRONMENTAL INDEMNITY.
(a) The Stockholder agrees to indemnify and hold harmless
FYI, Newco and the Surviving Corporation, and their respective directors,
officers, employees, representatives, agents and attorneys from, against and in
respect of any and all Environmental Costs (as defined below), arising in any
manner in connection with: (i) the release, leak, discharge, spill, disposal,
migration or emission of Hazardous Substances from any property owned, leased
or operated by the Company on or prior to the Closing Date; or (ii) the failure
of the Company to comply with any applicable Environmental Requirements prior
to the Closing Date. This Section 10.2 is intended to indemnify FYI, Newco and
the Surviving Corporation and their respective directors, officers, employees,
representatives, agents and attorneys from the results of their negligence.
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(b) The obligations of this Section 10.2 shall include
the obligation to defend the Indemnified Parties (as defined below) against any
claim or demand for Environmental Costs, the obligation to pay and discharge
any Environmental Costs imposed on Indemnified Parties, and the obligation to
reimburse Indemnified Parties for any Environmental Costs incurred or suffered,
provided in each instance that the claim for Environmental Costs arises in
connection with a matter for which Indemnified Parties are entitled to
indemnification under this Agreement. The obligation to reimburse the
Indemnified Parties shall also include the reasonable costs and expenses
(including, without limitation, reasonable attorneys' fees) to establish or
enforce the rights of FYI, Newco and the Surviving Corporation or such other
persons to indemnification hereunder.
(c) "Environmental Costs" shall mean any of the following
that arise in any manner regardless of whether based in contract, tort, implied
or express warranty, strict liability, Environmental Requirement or otherwise:
all liabilities, losses, judgments, damages, punitive damages, treble damages,
costs and expenses (including, without limitation, reasonable attorneys' fees
and reasonable fees and disbursements of environmental consultants, all costs
related to the performance of any required or necessary assessments,
investigations, remediation, response, containment, closure, restoration,
repair, cleanup or detoxification of any impacted property, the preparation and
implementation of any maintenance, monitoring, closure, remediation, abatement
or other plans required by any governmental agency or by Environmental
Requirements and any other reasonable costs recovered or recoverable under any
Environmental Requirement), fines, penalties, or monetary sanctions.
Environmental Costs shall include without limitation: (i) damages for personal
injury or death, or injury to property or to natural resources; (ii) damage to
real property or damage resulting from the loss of the use of all or any part
of the property; (iii) the reasonable cost of any demolition, rebuilding or
repair of any property required by Environmental Requirements; and (iv) the
reasonable cost of repairing damage caused by remediation of any environmental
condition.
(d) This Section 10.2 shall be the exclusive means by
which FYI, Newco, the Surviving Corporation and their respective directors,
officers, employees, representatives, agents and attorneys shall assert against
the Stockholder any claim arising under Environmental Requirements or connected
in any way to Hazardous Substances.
(e) The Stockholder's obligations pursuant to this
Section 10.2 shall expire two (2) years after the Closing.
(f) As long as the Stockholder is providing a defense in
a timely manner in accordance with and pursuant to this Section 10.2, the
Stockholder (i) shall control any and all relevant communications with third
parties, and (ii) may direct the implementation of any remedy consistent with
generally accepted cleanup standards and remediation principles.
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10.3 EMPLOYEE COMPENSATION AND BENEFITS.
(a) The Stockholder agrees to indemnify and hold FYI,
Newco and the Surviving Corporation, and their respective directors, officers,
employees, representatives, agents and attorneys harmless from and against any
and all claims made by employees of the Company, regardless of when made, for
wages, salaries, bonuses, pension, workmen's compensation, medical insurance,
disability, vacation, severance, pay in lieu of notice, sick benefits or other
compensation or benefit arrangements to the extent the same are based on
employment service rendered to the Company prior to the Closing Date or injury
or sickness occurring prior to the Closing Date (collectively, "Employee
Claims"); provided, that the Stockholder shall not be liable for such claims to
the extent that amounts are reserved for such Employee Claims in the Financial
Statements.
(b) The Stockholder's obligations pursuant to this
Section 10.3 shall expire two (2) years after the Closing.
10.4 STOCKHOLDER LOSSES.
(a) FYI and Newco jointly and severally agree to
indemnify and hold harmless the Stockholder, for and in respect of any and all
Stockholder Losses (as defined below) suffered, sustained, incurred or required
to be paid by the Stockholder by reason of (i) any representation or warranty
made by FYI or Newco in or pursuant to this Agreement (including, without
limitation, the representations and warranties contained in any certificate
delivered pursuant hereto) being untrue or incorrect in any respect; (ii) any
failure by FYI or Newco to observe or perform its covenants and agreements set
forth in this Agreement or any other agreement or document executed by it in
connection with the transactions contemplated hereby; (iii) any liability for
warranty claims arising from the sale of goods or services by the Company
subsequent to the Closing Date, except in any instance to the extent
Stockholder Losses result from the gross negligence or willful misconduct of
the Stockholder (with respect to periods prior to the Closing Date); or (iv)
any claim arising from the ownership and/or operation of the Company or its
assets by FYI or Newco or from the ownership and/or operation of the other
operations of FYI or Newco. This Section 10.4 is intended to indemnify the
Stockholder from the results of his negligence.
(b) "Stockholder Losses" shall mean all damages
(including, without limitation, amounts paid in settlement with the consent of
FYI and Newco, which consent may not be reasonably withheld), losses,
obligations, liabilities, claims, deficiencies, costs and expenses (including,
without limitation, reasonable attorneys' fees), penalties, fines, interest and
monetary sanctions, including, without limitation, reasonable attorneys' fees
and costs incurred to comply with injunctions and other court and Agency
orders, and other costs and expenses incident to any suit, action,
investigation, claim or proceeding or to establish or enforce the right of the
Stockholder to indemnification hereunder.
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10.5 INDEMNIFICATION FOR CERTAIN TAX MATTERS.
(a) Surviving Corporation's Indemnification for Tax
Liabilities. The Surviving Corporation shall indemnify, defend and
hold harmless the Stockholder from and against the Stockholder's
liability with respect to all Taxes, including interest, penalties and
additions to Taxes, resulting from any final determination (or
settlement) of an adjustment (by reason of an amended return, claim
for refund, audit or otherwise) including any increase in items of
income or gain or any decrease in item of loss, deduction or credit
reported to the Stockholder by the Company with respect to the S
Corporation Period resulting in an increase in the Stockholder's S
corporation taxable income, and a corresponding decrease in the
liability for Taxes payable by the Surviving Corporation, provided
however, the amount of any such indemnification payment shall be
reduced by an amount equal to the federal or state tax benefit,
including interest, arising due to deductions allowable for federal or
state tax purposes to the Stockholder for state or local taxes paid by
the Stockholder in respect of any taxable income shifted from the C
Corporation Period to the S Corporation Period which is subject to
indemnification hereunder. Moreover, notwithstanding the foregoing,
the amount of the payment required to be made by the Surviving
Corporation pursuant to this Section 10.5(a) shall not exceed the
amount, if any, by which (i) the amount of the reduction in the
liability for Taxes and interest thereon of the Surviving Corporation
that results from the adjustment exceeds (ii) all reasonable costs
incurred by the Surviving Corporation reasonably attributable to
securing such reduction in liability for Taxes. Notwithstanding
anything to the contrary in this Agreement, this Section 10.5(a) shall
not apply in the event there is a final determination (or adjustment)
that the Merger fails to qualify as a tax-free transaction pursuant to
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
(b) Stockholder Indemnification for Tax Liabilities. The
Stockholder shall indemnify, defend and hold harmless the Surviving
Corporation from and against the Surviving Corporation's liability
with respect to all Taxes, including interest, penalties and additions
to Taxes, resulting from any final determination (or settlement) of an
adjustment (by reason of an amended return, claim for refund, audit or
otherwise) to the Stockholder's taxable income resulting in a decrease
in the Stockholder's S Corporation taxable income, and a corresponding
increase in the liability for Taxes payable by the Surviving
Corporation, provided however, the amount of any such indemnification
payment shall be reduced by an amount equal to the federal or state
tax benefit, including interest, arising due to deductions allowable
for federal or state tax purposes to the Surviving Corporation for
state or local taxes paid by the Surviving Corporation in respect of
any taxable income shifted from the S Corporation Period to the C
Corporation Period which is subject to indemnification hereunder.
Moreover, notwithstanding the foregoing, the amount of the payment
required to be made by the Stockholder pursuant to this Section
10.5(b) shall not exceed the amount, if any, by which (i) the amount
of the reduction in the liability for Taxes and interest thereon of
the Stockholder that results from the adjustment exceeds (ii) all
reasonable costs incurred by the Stockholder reasonably attributable
to securing such
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reduction in liability for Taxes.
10.6 NOTICE OF LOSS. Except to the extent set forth in the next
sentence, a party to the Agreement will not have any liability under the
indemnity provisions of this Agreement with respect to a particular matter
unless a notice setting forth in reasonable detail the breach or other matter
which is asserted has been given to the Indemnifying Party (as defined below)
and, in addition, if such matter arises out of a suit, action, investigation,
proceeding or claim, such notice is given promptly, but in any event within
thirty (30) days after the Indemnified Party (as defined below) has knowledge
of the matter. Notwithstanding the preceding sentence, failure of the
Indemnified Party to give notice hereunder shall not release the Indemnifying
Party from its obligations under this Section 10, except to the extent the
Indemnifying Party is actually prejudiced by such failure to give notice. With
respect to FYI Losses, Environmental Costs, Employee Claims and the matters
described in Section 10.5(a), the Stockholder shall be the Indemnifying Party
and FYI and Newco and their respective directors, officers, employees,
representatives, agents and attorneys shall be the Indemnified Parties. With
respect to Stockholder Losses and the matters described in Section 10.5(b), FYI
and Newco shall be the Indemnifying Party and the Stockholder shall be the
Indemnified Party.
10.7 RIGHT TO DEFEND. Upon receipt of notice of any matter for
which indemnification might be claimed by an Indemnified Party, the
Indemnifying Party shall be entitled to defend, contest or otherwise protect
against any such matter at its own cost and expense, and the Indemnified Party
must cooperate in any such defense or other action. The Indemnified Party
shall have the right, but not the obligation, to participate at its own expense
in defense thereof by counsel of its own choosing, but the Indemnifying Party
shall be entitled to control the defense unless the Indemnified Party has
relieved the Indemnifying Party from liability with respect to the particular
matter or the Indemnifying Party fails to assume defense of the matter. In the
event the Indemnifying Party shall fail to defend, contest or otherwise protect
in a timely manner against any matter, the Indemnified Party shall have the
right, but not the obligation, thereafter to defend, contest or otherwise
protect against the same and make any compromise or settlement thereof and
recover the reasonable cost thereof from the Indemnifying Party including,
without limitation, reasonable attorneys' fees, disbursements and all amounts
paid as a result of such suit, action, investigation, claim or proceeding or
the compromise or settlement thereof; provided, however, that the Indemnified
Party must send a written notice to the Indemnifying Party of any such proposed
settlement or compromise, which settlement or compromise the Indemnifying Party
may reject, in its reasonable judgment, within thirty (30) days of receipt of
such notice. Failure to reject such notice within such thirty (30) day period
shall be deemed an acceptance of such settlement or compromise. The
Indemnified Party shall have the right to effect a settlement or compromise
over the objection of the Indemnifying Party; provided, that if (i) the
Indemnifying Party is contesting such claim in good faith or (ii) the
Indemnifying Party has assumed the defense from the Indemnified Party, the
Indemnified Party waives any right to indemnity therefor. If the Indemnifying
Party undertakes the defense of such matters, the Indemnified Party shall not,
so long as the Indemnifying Party does not abandon the defense thereof, be
entitled to recover from the Indemnifying Party any legal or other expenses
subsequently incurred by the Indemnified Party
-37-
<PAGE> 45
in connection with the defense thereof other than the reasonable costs of
investigation undertaken by the Indemnified Party with the prior written
consent of the Indemnifying Party.
10.8 COOPERATION. Each of FYI, Newco, the Surviving Corporation,
the Company and the Stockholder, and each of their affiliates, successors and
assigns shall cooperate with each other in the defense of any suit, action,
investigation, proceeding or claim by a third party and, during normal business
hours, shall afford each other access to their books and records and employees
relating to such suit, action, investigation, proceeding or claim and shall
furnish each other all such further information that they have the right and
power to furnish as may reasonably be necessary to defend such suit, action,
investigation, proceeding or claim, including, without limitation, reports,
studies, correspondence and other documentation relating to Environmental
Protection Agency, Occupational Safety and Health Administration, and Equal
Employment Opportunity Commission matters.
10.9 SATISFACTION OF CLAIMS FROM ESCROW. FYI and Newco shall have
the option of recovering amounts owing thereto pursuant to Sections 10.1, 10.2
and 10.3 for FYI Losses, Environmental Costs and Employee Claims from the
Stockholder or from the shares of FYI Stock held in escrow in accordance with
the Escrow Agreement described in Section 7.6.
10.10 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 10 shall be the exclusive remedy in any action seeking damages or any
other form of monetary relief brought by any party to this Agreement against
another party, provided that, nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive relief for a breach of
this Agreement.
10.11 LIMITATIONS ON INDEMNIFICATION. FYI, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Sections
10.1, 10.2 and 10.3 shall not assert any claim for indemnification hereunder
against the Stockholder until such time as and solely to the extent that the
aggregate of all claims that such persons may have against the Stockholder
shall exceed $75,000.00. Any amounts paid by FYI or Newco to the Stockholder
pursuant to this Section 10 or Section 9.3(a) shall be paid fifty percent (50%)
in cash and fifty percent (50%) in FYI Stock valued at the then-fair market
value thereof.
11. SECURITIES ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The FYI Stock acquired by the Stockholder pursuant to this Agreement
is being acquired solely for his own account, for investment purposes only, and
with no present intention of distributing, selling or otherwise disposing of it
in connection with a distribution.
11.1 ECONOMIC RISK; SOPHISTICATION. The Stockholder represents and
warrants to FYI and Newco that he is an "accredited investor" as defined in
Regulation D promulgated under the 1933 Act; that he is able to bear the
economic risk of an investment in the FYI Stock acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and has
such
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<PAGE> 46
knowledge and experience in financial and business matters that he is capable
of evaluating the merits and risks of the proposed investment in the FYI Stock;
and that he has had an adequate opportunity to ask questions and receive
answers from the officers of FYI concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of FYI, and the
plans for the operations of the business of FYI.
11.2 TRANSFER RESTRICTIONS. Except for transfers to immediate
family members who agree to be bound by the restrictions set forth in this
Section 11.2 (or trusts for the benefit of the Stockholder or family members,
the trustees of which so agree), for a period of two (2) years from the
Closing, the Stockholder shall not (a) sell, assign, exchange, transfer,
encumber, pledge, distribute or otherwise dispose of (i) any shares of FYI
Stock received by the Stockholder in the Merger, or (ii) any interest
(including, without limitation, an option to buy or sell) in any such shares of
FYI Stock, in whole or in part, and no such attempted transfer shall be treated
as effective for any purpose; or (b) engage in any transaction, whether or not
with respect to any shares of FYI Stock or any interest therein, the intent or
effect of which is to reduce the risk of owning the shares of FYI Stock
acquired pursuant to Section 2 hereof (including, by way of example and not
limitation, engaging in put, call, short-sale, straddle or similar market
transactions). Notwithstanding the foregoing, the Stockholder shall be
entitled to encumber or pledge his shares of FYI Stock to the extent and in the
manner permitted of similar situated senior executives at FYI. The
certificates evidencing the FYI Stock delivered to the Stockholder pursuant to
Section 3 of this Agreement will bear a legend substantially in the form set
forth below and containing such other information as FYI may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED OR OTHERWISE
DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE,
PLEDGE, DISTRIBUTION OR OTHER DISPOSITION PRIOR TO THE SECOND
ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
The Stockholder will execute and deliver to FYI prior to or at the Closing the
Lock-Up Agreement containing the foregoing agreements.
12. GENERAL
12.1 COOPERATION. The Company, the Stockholder, FYI and Newco
shall each deliver or cause to be delivered to the other on the Closing Date,
and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for
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<PAGE> 47
the purpose of carrying out this Agreement. The Company will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the Company cooperate with FYI on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
Tax return filing obligations, actions, proceedings, arrangements or disputes
of any nature with respect to matters pertaining to all periods prior to the
Closing Date.
12.2 SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS AND
WARRANTIES.
(a) Covenants and Agreements. Except as otherwise
provided herein, all covenants and agreements made hereunder or pursuant hereto
or in connection with the transactions contemplated hereby shall survive the
Closing and shall continue in full force and effect thereafter according to
their terms without limit as to duration.
(b) Representations and Warranties. All representations
and warranties contained herein shall survive the Closing and shall continue in
full force and effect thereafter for a period of two (2) years following the
Closing, except that (a) the representations and warranties contained in
Section 5.8 hereof shall survive until the earlier of (i) the expiration of the
applicable periods (including any extensions) of the respective statutes of
limitation applicable to the payment of the Taxes to which such representations
and warranties relate without an assertion of a deficiency in respect thereof
by the applicable taxing authority or (ii) the completion of the final audit
and determinations by the applicable taxing authority and final disposition of
any deficiency resulting therefrom, (b) the representations and warranties
contained in Section 5.19 shall survive until the expiration of the applicable
period of the statutes of limitation applicable to ERISA matters, and (c) the
representations and warranties contained in Sections 5.1, 5.2 and 5.3 shall
survive indefinitely.
(c) No Knowledge of Claims. Each of FYI and Newco
represents and warrants to the Company and the Stockholder that at the date
hereof neither FYI nor Newco knows of any breach or inaccuracy of any
representation or warranty made by the Company and the Stockholder hereunder
and of no basis for any claim under Section 10 hereof.
12.3 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of FYI, and the heirs and legal representatives of the Stockholder.
12.4 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the Stockholder,
the Company, Newco and FYI, and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. Any disclosure made pursuant
to any Section of this Agreement shall be an effective disclosure for any other
Section of this Agreement. This Agreement, upon execution, constitutes a valid
and binding agreement of the parties hereto enforceable in accordance with its
terms and this Agreement and
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<PAGE> 48
the Annexes hereto may be modified or amended only by a written instrument
executed by the Stockholder, the Company, Newco and FYI, acting through their
respective officers, duly authorized by their respective Boards of Directors.
12.5 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument.
12.6 BROKERS AND AGENTS. Except as disclosed on Schedule 12.6,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
12.7 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, (i) FYI and Newco will pay the fees, expenses and
disbursements of FYI and Newco and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by FYI
under this Agreement, and (ii) the Stockholder will pay from personal funds and
not from Company funds, the fees, expenses and disbursements of its counsel
incurred in connection with the subject matter of this Agreement. The
Stockholder shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") incurred in connection with the transactions contemplated by this
Agreement. The Stockholder shall file all necessary documentation and returns
with respect to such Transfer Taxes. In addition, the Stockholder acknowledges
that he, and not the Company or FYI, will pay all taxes due upon receipt of the
consideration payable to the Stockholder pursuant to Section 2 hereof.
12.8 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by (a) depositing the same in
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, (b) delivering the same
in person to an officer or agent of such party, or (c) telecopying the same
with electronic confirmation of receipt.
(i) If to FYI or Newco, addressed to them at:
F.Y.I. Incorporated
B&B (Baltimore-Washington)
Acquisition Corp.
3232 McKinney Avenue, Suite 900
Dallas, Texas 75204
Telecopy No.: (214) 953-7556
Attn: Margot T. Lebenberg, Esq.
with copies to:
Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
-41-
<PAGE> 49
Telecopy No.: (214) 740-8800
Attn: Charles C. Reeder, Esq.
(ii) If to the Stockholder, addressed to him at the
address set forth under (iii) below, with copies
to:
Sonnenschein Nath & Rosenthal
1301 K Street, N.W.
Suite 600, East Tower
Washington, DC 20005
Telecopy No.: (202) 408-6399
Attn: Fred L. Levy, Esq.
(iii) If to the Company, addressed to it at:
B&B Information and Image Management, Inc.
300 Prince George's Boulevard
Upper Marlboro, Maryland 20774
Telecopy No.: (301) 249-4898
and marked "Personal and Confidential"
with copies to:
Sonnenschein Nath & Rosenthal
1301 K Street, N.W.
Suite 600, East Tower
Washington, DC 20005
Telecopy No.: (202) 408-6399
Attn: Fred L. Levy, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 12.8 from time to time.
12.9 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
12.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
-42-
<PAGE> 50
12.11 TIME. Time is of the essence with respect to this Agreement.
12.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
12.13 REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
12.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
12.15 MODIFICATION. It is the intent of the parties that the
transactions be structured as a tax-free reorganization under Section 368(a) of
the Code.
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<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
F.Y.I. INCORPORATED
By: /s/ Ed H. Bowman, Jr.
----------------------------------
Name: Ed H. Bowman, Jr.
Title: President and
Chief Executive Officer
B&B (BALTIMORE-WASHINGTON)
ACQUISITION CORP.
By: /s/ David Lowenstein
----------------------------------
Name: David Lowenstein
Title: Vice President and
Secretary of Treasurer
B&B INFORMATION AND IMAGE
MANAGEMENT, INC.
By: /s/ Charles J. Bauer, Jr.
----------------------------------
Name: Charles J. Bauer, Jr.
Title: President
THE STOCKHOLDER:
/s/ Charles J. Bauer, Jr.
-------------------------------------------
Charles J. Bauer, Jr.
-44-
<PAGE> 52
ANNEX I
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP.
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
AND
THE STOCKHOLDER NAMED THEREIN
AGGREGATE CONSIDERATION TO BE PAID TO THE STOCKHOLDER
Aggregate consideration to be paid to the Stockholder:
Cash - $3,097,073
Stock - 183,333 shares of FYI Stock (and $5.94 in cash in lieu
of fractional shares), the market value of the FYI Stock being
deemed to be $18.00 per share.
<PAGE> 53
ANNEX II
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP.
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
AND
THE STOCKHOLDER NAMED THEREIN
FYI CHARTER DOCUMENTS
<PAGE> 54
ANNEX III
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP.
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
AND
THE STOCKHOLDER NAMED THEREIN
OPINION OF COUNSEL TO FYI
<PAGE> 55
ANNEX IV
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP.
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
AND
THE STOCKHOLDER NAMED THEREIN
EMPLOYMENT AGREEMENT
<PAGE> 56
ANNEX V
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP.
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
AND
THE STOCKHOLDER NAMED THEREIN
ESCROW AGREEMENT
<PAGE> 57
ANNEX VI
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP.
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
AND
THE STOCKHOLDER NAMED THEREIN
STOCKHOLDER RELEASE
<PAGE> 58
ANNEX VII
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP.
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
AND
THE STOCKHOLDER NAMED THEREIN
OPINION OF COUNSEL TO THE COMPANY
<PAGE> 59
ANNEX VIII
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP.
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
AND
THE STOCKHOLDER NAMED THEREIN
NONCOMPETITION AGREEMENT
<PAGE> 60
ANNEX IX
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP.
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
AND
THE STOCKHOLDER NAMED THEREIN
LOCK-UP AGREEMENT
<PAGE> 61
ANNEX IX
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
PREMIER ACQUISITION CORP.
PREMIER DOCUMENT MANAGEMENT, INC.
PDM SERVICES, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
LOCK-UP AGREEMENT
<PAGE> 1
EXHIBIT 10.18
_________________________________________________________________
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 31st day of May, 1996
by and among
F.Y.I. INCORPORATED
PREMIER ACQUISITION CORP.
PREMIER DOCUMENT MANAGEMENT, INC.
PDM SERVICES, INC.
and
the STOCKHOLDERS named herein
_________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Delivery and Filing of Articles of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Certificate of Incorporation, By-laws and
Board of Directors of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Certain Information With Respect to the
Capital Stock of the Premier, PDM, FYI and Newco . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Manner of Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Calculation of FYI Shares for Premier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Calculation of FYI Shares for PDM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Earnings Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. DELIVERY OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Delivery Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(A) Representations and Warranties of the Company
and the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Organization, Existence and Good Standing
of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.7 Permits and Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9 Assets and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.10 Real Property Leases; Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.11 Environmental Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.13 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.14 Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.15 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.16 Litigation and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.17 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.18 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.19 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.20 Employees; Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.21 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.22 Interests in Customers, Suppliers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.23 Business Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.24 Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.25 Bank Accounts and Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.26 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(B) Representations and Warranties of the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.27 Authority; Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.28 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.29 No Intention to Dispose of FYI Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.30 Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.31 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.32 S Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6. REPRESENTATIONS OF FYI AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.2 FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.3 Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.6 Capitalization of FYI and Ownership of FYI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.7 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.8 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.9 Business; Real Property; Material Agreements;
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.10 Conformity with Law and Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.11 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDERS AND PREMIER AND PDM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Representations and Warranties; Performance
of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.5 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.6 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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7.7 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.8 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF FYI
AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.1 Representations and Warranties; Performance
of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.2 Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.4 Examination of Final Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.5 Repayment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.7 Stockholder Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.8 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.9 Termination of Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.10 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.11 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.12 Noncompetition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.13 Lock-Up Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.14 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.15 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.16 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9. COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.1 Permitted Payments of Compensation by Premier and PDM . . . . . . . . . . . . . . . . . . . . . . . 30
9.2 Preservation of Tax and Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.3 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.4 Covenants of PDM Concerning Termination of S Election . . . . . . . . . . . . . . . . . . . . . . . 32
9.5 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.1 FYI Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.2 Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.3 Employee Compensation and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.4 Stockholder Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.5 Indemnification for Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.6 Notice of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.7 Right to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.8 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.9 Satisfaction of Claims From Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.10 Limitations of Indemnification; Proportionate Payments . . . . . . . . . . . . . . . . . . . . . . . 40
11. SECURITIES ACT REPRESENTATIONS AND TRANSFER
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RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.1 Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.2 Survival of Covenants, Agreements, Representations
and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.6 Brokers and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.10 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.11 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.12 Reformation and Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.13 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.14 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.15 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
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SCHEDULES AND ANNEXES
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SCHEDULES
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1.3(d) Officers of the Surviving Corporation
5.2 Jurisdictions of Qualification and Company Charter Documents
5.3 Capital Stock
5.5 Financial Statements and Contingent Liabilities
5.6 Accounts and Notes Receivable
5.7 Permits and Licenses
5.8 Taxes
5.9 Assets and Properties
5.10 Real Property Leases
5.11 Environmental Matters
5.12 Contracts
5.14 Government Contracts
5.16 Litigation
5.18 Intellectual Property Rights
5.19 Employee Benefit Plans
5.20 Employee Matters
5.21 Insurance
5.23 Business Relations
5.24 Officers and Directors
5.25 Bank Accounts
5.26 Absence of Certain Changes
5.27 Liens on Stock
6.6 FYI Capital Stock
6.8 FYI Subsidiaries
6.9 FYI Financial Information
6.10 FYI Compliance with Laws
6.11 No Violations by FYI
8.6 Continuing Obligations
8.7 Continuing Related Party Agreements
ANNEXES
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I Stockholders of Premier and PDM
IIA and IIB Aggregate Consideration to be paid to the Stockholders
III FYI Charter Documents
IV Opinion of Counsel to FYI and Newco
V Employment Agreement
VI Stockholder Release
VII Opinion of Counsel to Premier and PDM
VIII Noncompetition Agreement
IX Lock-Up Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of the 31st day of May, 1996, by and among F.Y.I. INCORPORATED, a Delaware
corporation ("FYI"), PREMIER ACQUISITION CORP., a Delaware corporation
("Newco"), PREMIER DOCUMENT MANAGEMENT, INC. a Washington corporation
("Premier"), and PDM SERVICES, INC., a California corporation ("PDM"), and the
stockholders listed on Annex I hereto (each a "Stockholder" and collectively
the "Stockholders"). The Stockholders constitute all of the Stockholders of
Premier and PDM, and the stockholders of Premier are hereinafter sometimes
referred to as the "Premier Stockholders" and the stockholder of PDM is
hereinafter sometimes referred to as the "PDM Stockholder."
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Delaware, having been incorporated on May 15, 1996, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of FYI, a corporation organized and existing under the
laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco, Premier and PDM
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that each of Premier and PDM
merge with and into Newco pursuant to this Agreement and the applicable
provisions of the laws of the State of Delaware, such transaction sometimes
being herein called the "Merger";
WHEREAS, the Boards of Directors of FYI, Newco and Premier have
approved and adopted this Agreement and intend the transactions with respect to
Premier to qualify as partially tax-free transfers of property under Sections
368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended
(the "Code");
NOW, THEREFORE, for and in consideration of the premises and of the
mutual agreements, representations, warranties, provisions and covenants herein
contained, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. THE MERGER
1.1. DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause Articles of Merger with respect to the Merger (the
"Articles of Merger") to be signed, verified and delivered to the Secretary of
State of the State of Delaware and, if required, a similar filing to be made
with the relevant authorities in the States of Washington and California, on or
before the Closing Date (as defined in Section 4).
1.2. EFFECTIVE TIME OF THE MERGER. The "Effective Time of the
Merger" shall be the Closing Date as defined in Section 4. At the Effective
Time of the Merger, each of Premier and
<PAGE> 8
PDM shall be merged with and into Newco in accordance with the Articles of
Merger, the separate existence of each of Premier and PDM shall cease and the
corporate name of Newco shall be Premier Acquisition Corp. Newco shall be the
surviving party in the Merger and is hereinafter sometimes referred to as the
"Surviving Corporation." The Merger will be effected in a single transaction.
1.3. CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(a) The Certificate of Incorporation of Newco then in
effect shall become the Certificate of Incorporation of the Surviving
Corporation; and subsequent to the Effective Time of the Merger, such
Certificate of Incorporation shall be the Certificate of Incorpor
ation of the Surviving Corporation until changed as provided by law;
(b) The By-laws of Newco then in effect shall become the
By-laws of the Surviving Corporation; and subsequent to the Effective
Time of the Merger, such By-laws shall be the By-laws of the Surviving
Corporation until they shall thereafter be duly amended;
(c) The Board of Directors of the Surviving Corporation
shall consist of the following persons:
Thomas C. Walker
David Lowenstein
Brian E. Whiteside
The Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Delaware and of
the Certificate of Incorporation and By-laws of the Surviving
Corporation.
(d) The officers of the Surviving Corporation shall be
the persons set forth on Schedule 1.3(d) hereto, each of such officers
to serve, subject to the provisions of the Certificate of
Incorporation and By- laws of the Surviving Corporation and the terms
of any employment agreement executed by any such officer, until such
officer's successor is duly elected and qualified.
1.4. CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
PREMIER, PDM, FYI AND NEWCO. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital stock
of Premier, PDM, FYI and Newco as of the date of this Agreement are as follows:
(a) As of the date of this Agreement, the authorized
capital stock of Premier consists of fifty thousand (50,000) shares of
Common Stock, $1.00 par value per share
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<PAGE> 9
("Premier Stock"), of which twenty thousand (20,000) shares are issued
and outstanding;
(b) As of the date of this Agreement, the authorized
capital stock of PDM consists of ten million (10,000,000) shares, no
par value per share ("PDM Stock"), of which one hundred thousand
(100,000) shares are issued and outstanding;
(c) As of the date of this Agreement, the authorized
capital stock of FYI consists of twenty-six million (26,000,000)
shares of Common Stock, $.01 par value per share ("FYI Stock"), of
which five million two hundred sixty-nine thousand six hundred and
fifteen (5,269,615) shares are issued and outstanding, and one million
(1,000,000) shares of Preferred Stock, $.01 par value per share, of
which no shares are issued and outstanding; and
(d) As of the date of this Agreement, the authorized
capital stock of Newco consists of 3,000 shares of Common Stock, $.01
par value per share ("Newco Stock"), of which ten (10) shares are
issued and outstanding.
1.5. EFFECT OF MERGER. At the Effective Time of the Merger, the
effect of the Merger shall be as provided in the applicable provisions of the
General Corporation Law of the State of Delaware (the "Delaware GCL"). Except
as herein specifically set forth, the identity, existence, purposes, powers,
objects, franchises, privileges, rights and immunities of Premier and of PDM
shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of Premier and of PDM shall be merged with and
into Newco, and Newco, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of
Premier and of PDM shall cease and, in accordance with the terms of this
Agreement, the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public as well as of a private nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, all taxes, including those due and owing and
those accrued, and all other choses in action, and all and every other interest
of or belonging to or due to Premier and to PDM and Newco shall be taken and
deemed to be transferred to, and vested in, the Surviving Corporation without
further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of Premier, PDM and
Newco; and the title to any real estate, or interest therein, whether by deed
or otherwise, vested in Premier, PDM and Newco, shall not revert or be in any
way impaired by reason of the Merger. The Surviving Corporation shall
thenceforth be responsible and liable for all the liabilities and obligations
of Premier, PDM and Newco and any claim existing, or action or proceeding
pending, by or against Premier, PDM or Newco may be prosecuted as if the Merger
had not taken place, or the Surviving Corporation may be substituted in their
place. Neither the rights of creditors nor any liens upon the property of
Premier, PDM or Newco shall be impaired by the Merger, and all debts,
liabilities and duties of Premier, PDM and Newco shall attach to the Surviving
Corporation, and may be enforced against such Surviving Corporation to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by such Surviving
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<PAGE> 10
Corporation.
2. CONVERSION OF STOCK
2.1. MANNER OF CONVERSION. The manner of converting the shares of
(a) Premier Stock, (b) PDM Stock and (c) Newco Stock, issued and outstanding
immediately prior to the Effective Time of the Merger, respectively, into (i)
FYI Stock and (ii) shares of Common Stock, $.01 par value per share, of the
Surviving Corporation, shall be as follows:
As of the Effective Time of the Merger:
(a) All of the shares of Premier Stock issued and
outstanding immediately prior to the Effective Time of the Merger, by
virtue of the Merger and without any action on the part of the holder
thereof, automatically shall be deemed to represent (i) that number of
shares of FYI Stock determined pursuant to Section 2.2 below and (ii)
the right to receive the amount of cash determined pursuant to Section
2.2 below, such shares and cash to be distributed to the Premier
Stockholders as provided in Annex IIA hereto;
(b) All of the shares of PDM Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent the right to receive an
amount of cash determined pursuant to Section 2.3 below, such cash to
be distributed to the PDM Stockholder as provided in Annex IIB hereto;
(c) All shares of Premier Stock that are held by Premier
as treasury stock and all shares of PDM Stock that are held by PDM as
treasury stock (as defined in Section 5) shall be cancelled and
retired and no shares of FYI Stock or other consideration shall be
delivered or paid in exchange therefor; and
(d) Each share of Newco Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue
of the Merger and without any action on the part of FYI, automatically
be converted into one fully paid and non-assessable share of Common
Stock of the Surviving Corporation that shall constitute all of the
issued and outstanding shares of Common Stock of the Surviving
Corporation immediately after the Effective Time of the Merger.
All FYI Stock received by the Stockholders as of the Effective Time of
the Merger shall, except for restrictions on resale or transfer described in
Section 11.1 hereof, have the same rights as all of the other shares of
outstanding FYI Stock. All voting rights of such FYI Stock received by the
Stockholders shall be fully exercisable by the Stockholders and the
Stockholders shall not be deprived nor restricted in exercising those rights.
At the Effective Time of the Merger, FYI shall have no class of capital stock
issued and outstanding which, as a class, shall have any rights or preferences
senior to the shares of FYI Stock received by the Stockholders, including,
without
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<PAGE> 11
limitation, any rights or preferences as to dividends or as to the assets of
FYI upon liquidation or dissolution or as to voting rights.
2.2. CALCULATION OF FYI SHARES FOR PREMIER. All Premier Stock
shall be converted, as a result of the Merger, into the number of shares of FYI
Stock and the amount of cash set forth in Annex IIA attached hereto.
2.3. CALCULATION OF FYI SHARES FOR PDM. All PDM Stock shall be
converted, as a result of the Merger, into the amount of cash set forth in
Annex IIB attached hereto.
2.4. EARNINGS ADJUSTMENT. All earnings and cash flow of Premier
and of PDM for the period from April 30, 1996 (the "Effective Date") through
the Effective Time of the Merger shall be for the benefit of Newco and shall be
conveyed to Newco at the Closing pursuant to the Merger of the Company into
Newco.
3. DELIVERY OF SHARES
3.1. DELIVERY PROCEDURE. At or after the Effective Time of
the Merger and at the Closing:
(a) The Stockholders, as the holders of all outstanding
certificates representing shares of Premier Stock and of PDM Stock,
shall, upon surrender of such certificates, be entitled to receive the
number of shares of FYI Stock and the amount of cash calculated
pursuant to Section 2.2 and Section 2.3 above less the sum of $200,000
in cash to be retained by Newco for a period of one hundred twenty
(120) days from the date of the Closing as security and as an offset
for any breach of the representations, warranties, covenants and
agreements of Premier, PDM and the Stockholders, and for the
Stockholders' indemnification obligations, each as set forth herein;
and
(b) Until the certificates representing Premier Stock and
PDM Stock have been surrendered by the Stockholders and replaced by
the FYI Stock, the certificates for Premier Stock and PDM Stock shall,
for all corporate purposes be deemed to evidence the ownership of the
number of shares of FYI Stock and/or cash that such Stockholders are
entitled to receive as a result of the Merger, as set forth in Section
2.2 and Section 2.3 above, notwithstanding the number of shares of
Premier or PDM Stock such certificates represent.
4. CLOSING
On the Closing Date (as defined below), the parties shall take all
actions necessary (i) to effect the Merger (including, if permitted by
applicable state law, the filing with the appropriate state authorities of the
Articles of Merger) and (ii) to effect the conversion and delivery of shares
referred to in Section 3 hereof (hereinafter referred to as the "Closing").
The Closing shall take
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place at the offices of Locke Purnell Rain Harrell (A Professional
Corporation), 2200 Ross Avenue, Suite 2200, Dallas, Texas 75201. The date on
which the Closing shall occur shall be referred to as the "Closing Date." On
the Closing Date, the Articles of Merger shall be filed with the appropriate
state authorities, or if already filed shall become effective, and all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the delivery by wire transfers or by certified checks in
amounts equal to the aggregate cash portion of the consideration that the
Stockholders shall be entitled to receive pursuant to the Merger referred to in
Section 2 hereof, shall occur and be deemed to be completed. Time is of the
essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS
Each of Premier and Brian E. Whiteside, jointly and severally,
represent and warrant that all of the following representations and warranties
with respect to Premier and its business and operations set forth in this
Section 5(A) are true and correct at the time of the Closing, and each of PDM
and the PDM Stockholder jointly and severally represent and warrant that all of
the following representations and warranties with respect to PDM and its
business and operations set forth in this Section 5(A) are true and correct at
the time of the Closing. Accordingly, unless the context clearly requires
otherwise, references to the Company, the Stockholders and the Company Stock in
this Section 5 shall mean Premier, the Premier Stockholders and the Premier
Stock with respect to the representations and warranties made by Premier and
Brian E. Whiteside, and shall mean PDM, the PDM Stockholder and the PDM Stock
with respect to the representations and warranties made by PDM and the PDM
Stockholder.
5.1. AUTHORIZATION. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of
each such party, enforceable in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally, (ii) the
remedy of specific performance and injunctive relief are subject to certain
equitable defenses and to the discretion of the court before which any
proceedings may be brought and (iii) rights to indemnification hereunder may be
limited under applicable securities laws. The Company has full corporate
power, capacity and authority to execute this Agreement and the Articles of
Merger and all other agreements and documents contemplated hereby.
5.2. ORGANIZATION, EXISTENCE AND GOOD STANDING OF THE COMPANY. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation with all requisite corporate
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted. The Company is duly qualified or licensed
as a foreign corporation and in good standing in each jurisdiction in which the
character or location of the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so duly
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<PAGE> 13
qualified or licensed would not have a material adverse effect on the business,
financial condition, results of operations or prospects of the Company. Set
forth on Schedule 5.2 is a list of the jurisdictions in which the Company is
qualified or licensed to do business as a foreign corporation. True, complete
and correct copies of the Articles of Incorporation of the Company certified by
the Secretary of State of the applicable state of incorporation as of the date
not more than twenty (20) days prior to the Closing and of the By-laws of the
Company are all attached hereto on Schedule 5.2. Except as set forth on
Schedule 5.2, the minute books of the Company, as heretofore made available to
FYI, are correct and complete in all material respects.
5.3. CAPITAL STOCK OF THE COMPANY.
(a) The Company's authorized capital stock is as set
forth in Section 1.4(a) or (b), as applicable. All of the Company
Stock has been validly issued and is fully paid and nonassessable and
no holder thereof is entitled to any preemptive rights. There are no
outstanding conversion or exchange rights, subscriptions, options,
warrants or other arrangements or commitments obligating the Company
to issue any shares of capital stock or other securities or to
purchase, redeem or otherwise acquire any shares of capital stock or
other securities, or to pay any dividend or make any distribution in
respect thereof, except as set forth on Schedule 5.3.
(b) The Stockholders (i) own of record and beneficially
(subject to the community property interest of any Stockholder's
spouse) and have good and marketable title to all of the issued and
outstanding shares of the Company Stock, free and clear of any and all
liens, mortgages, security interests, encumbrances, pledges, charges,
adverse claims, options, rights or restrictions of any character
whatsoever other than standard state and federal securities law
private offering legends and restrictions (collectively, "Liens"), and
(ii) have the right to vote the Company Stock on any matters as to
which any shares of the Company Common Stock are entitled to be voted
under the laws of the state of incorporation of the Company and the
Company's Articles of Incorporation and By-laws, free of any right of
any other person.
5.4. SUBSIDIARIES. The Company does not presently own, of record
or beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity nor is the Company, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.5. FINANCIAL STATEMENTS.
(a) The Company has previously furnished to FYI and Newco
the reviewed balance sheet of the Company as of December 31, 1995 and
the related statements of operations, stockholder's equity and cash
flows for the three fiscal years then ended, as reviewed by Moss
Adams, certified public accountants, together with management's
statements of operations and stockholders' equity for the four-month
period ended April
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30, 1996 (collectively, the "Financial Statements"). The Financial
Statements present fairly the financial position and results of
operations of the Company as of the indicated dates and for the
indicated periods and have been prepared in accordance with generally
accepted accounting principles consistently applied ("GAAP"). The
Company has previously permitted FYI and Newco full access to papers
pertaining to the Financial Statements, including those work papers in
the possession of or prepared by Moss Adams.
(b) Except to the extent (and not in excess of the
amounts) reflected in the December 31, 1995 balance sheet included in
the Financial Statements or as disclosed on Schedule 5.5, the Company
has no liabilities or obligations (including, without limitation,
Taxes (as defined in Section 5.8) payable and deferred Taxes and
interest accrued since December 31, 1995) required to be reflected in
the Financial Statements (or the notes thereto) in accordance with
GAAP other than current liabilities incurred in the ordinary course of
business, consistent with past practice, subsequent to December 31,
1995. The Company has also delivered to FYI on Schedule 5.5, in the
case of those liabilities that are contingent, a reasonable estimate
of the maximum amount that may be payable. For each such contingent
liability, the Company has provided to FYI the following information:
(i) A summary description of the liability
together with the following:
(A) Copies of all relevant documentation
relating thereto;
(B) Amounts claimed and any other action
or relief sought; and
(C) Name of claimant and all other
parties to the claim, suit or proceeding.
(ii) The name of each court or agency before which
such claim, suit or proceeding is pending;
(iii) The date such claim, suit or proceeding was
instituted; and
(iv) A reasonable best estimate by the Company of
the maximum amount, if any, which is likely to become payable
with respect to each such liability with respect to each such
liability. If no estimate is provided, the Company's best
estimate shall for purposes of this Agreement be deemed to be
zero.
5.6. ACCOUNTS AND NOTES RECEIVABLE. Set forth on Schedule 5.6 is
an accurate list of the accounts and notes receivable of the Company, as of
April 30, 1996, including any such amounts that are not reflected in the
balance sheet as of December 31, 1995 included within the Financial Statements,
and including receivables from and advances to employees and the Stockholders.
The Company shall provide FYI with an aging of all accounts and notes receivable
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<PAGE> 15
showing amounts due in 30-day aging categories. Except to the extent reflected
on Schedule 5.6, such accounts and notes are collectible in the amount shown on
Schedule 5.6, net of reserves reflected in such balance sheet.
5.7. PERMITS AND INTANGIBLES. The Company holds all licenses,
franchises, permits and other governmental authorizations, including permits,
titles (including motor vehicle titles and current registrations), fuel
permits, licenses, franchises, certificates, trademarks, trade names, patents,
patent applications and copyrights owned or held by the Company, the absence of
any of which would have a material adverse effect on the business, operations,
properties, assets or condition (financial or otherwise) of the Company taken
as a whole (a "Material Adverse Effect"). The Company has delivered to FYI an
accurate list and summary description as Schedule 5.7 hereto of all such
licenses, franchises, permits and other governmental authorizations. To the
knowledge of the Company and the Stockholders, the licenses, franchises,
permits and other governmental authorizations listed on Schedule 5.7 are valid,
and the Company has not received any notice that any governmental authority
intends to cancel, terminate or not renew any such license, franchise, permit
or other governmental authorization. The Company has conducted and is
conducting its business in compliance with the requirements, standards,
criteria and conditions set forth in applicable permits, licenses, orders,
approvals, variances, rules and regulations and is not in violation of any of
the foregoing except where such noncompliance or violation would not have a
Material Adverse Effect. Except as specifically provided on Schedule 5.7, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company by, any such licenses, franchises, permits and
governmental authorizations.
5.8. TAX MATTERS.
(a) The Company has filed all income tax returns required
to be filed thereby and all returns of other Taxes (as defined below) required
to be filed thereby and has paid or provided for all Taxes shown to be due on
such returns and all such returns are accurate and correct in all material
respects. Except as set forth on Schedule 5.8, (i) no action or proceeding for
the assessment or collection of any Taxes is pending against the Company; (ii)
no deficiency, assessment or other formal claim for any Taxes has been asserted
or made against the Company that has not been fully paid or finally settled;
and (iii) no issue has been formally raised by any taxing authority in
connection with an audit or examination of any return of Taxes. No federal,
state or foreign income tax returns of the Company have been examined, and
there are no outstanding agreements or waivers extending the applicable
statutory periods of limitation for such Taxes for any period. All Taxes that
the Company has been required to collect or withhold have been duly withheld or
collected and, to the extent required, have been paid to the proper taxing
authority. No Taxes will be assessed on or after the Closing Date against the
Company for any tax period ending on or prior to April 30, 1996, or for any
period ending after April 30, 1996 with respect to any portion of such tax
period that includes or is prior to April 30, 1996 other than for Taxes
disclosed on Schedule 5.8. For purposes of this Agreement, "Taxes" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, excise,
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<PAGE> 16
property, withholding, sales and franchise taxes, imposed by the United States,
or any state, county, local or foreign government or subdivision or agency
thereof, and including any interest, penalties or additions attributable
thereto.
(b) The Company is not a party to any Tax allocation or
sharing agreement.
(c) None of the assets of the Company constitutes
tax-exempt bond financed property or tax-exempt use property, within the
meaning of Section 168 of the Code. The Company is not a party to any "safe
harbor lease" that is subject to the provisions of Section 168(f)(8) of the
Code as in effect prior to the Tax Reform Act of 1986, or to any "long-term
contract" within the meaning of Section 460 of the Code.
(d) At the Closing Date, Premier will hold at least
ninety percent (90%) of the fair market value of its net assets and at least
seventy percent (70%) of the fair market value of its gross assets held
immediately prior to the Closing Date. For purposes of making this
representation, amounts paid by the Company to pay reorganization expenses,
amounts paid by Premier pursuant to Section 9.1 and all redemptions and
distributions in anticipation of or as part of the plan of reorganization by
the Company will be included as assets of the Company immediately prior to the
Merger.
(e) At the Closing Date, Premier will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in Premier that, if
exercised or converted, would affect FYI's acquisition or retention of
ownership of more than eighty percent (80%) of the total combined voting power
of all classes of Premier stock and more than eighty percent (80%) of the total
number of shares of each class of Premier non-voting stock. Premier has no
plan or intention to issue additional shares of its stock that would result in
FYI losing control of the Surviving Corporation within the meaning of Section
368(c) of the Code.
(f) Premier is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(g) The fair market value of the assets of Premier
exceeds the sum of its liabilities, plus the amount of liabilities, if any, to
which the assets are subject.
(h) Premier is not under jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
(i) The liabilities of Premier to be assumed by Newco and
the liabilities to which the transferred assets are subject were incurred by
Premier in the ordinary course of its trade or business.
(j) The fair market value of the FYI stock and other
consideration received by
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<PAGE> 17
the Premier Stockholders, will be approximately equal to the fair market value
of the Company Stock surrendered in the Merger.
(k) There is no plan or intention by any Premier
Stockholder to sell, exchange, or otherwise dispose of more than five percent
(5%) of the number of shares of FYI Stock received by such Premier Stockholder
in the Merger as of the Effective Time of the Merger. For purposes of this
representation, shares of Premier Stock exchanged for cash or other property
and shares of Premier Stock exchanged for cash in lieu of fractional shares of
FYI Stock will be treated as outstanding Premier Stock on the date of the
transaction. Moreover, shares of Premier Stock and shares of FYI stock held by
the Premier Stockholders and otherwise sold, redeemed, or disposed of prior to
or subsequent to the Closing Date will be considered in making this
representation. In addition, there is no plan or intention by any Premier
Stockholder to sell, exchange or otherwise dispose of FYI Stock, if any,
received by such Premier Stockholder pursuant to (i) Section 10.11 or (ii) the
Earnout provisions described in Annex IIA.
(l) Premier and the Premier Stockholders and to the best
knowledge of Premier, FYI and Newco will each pay their respective expenses, if
any, incurred in connection with the Merger.
(m) There is no intercorporate indebtedness existing
between FYI and Premier or between Newco and Premier that was issued, acquired,
or will be settled at a discount.
(n) None of the shares of FYI Stock received by the
Stockholders in the Merger will be separate consideration for, or allocable to,
any employment agreement; and the compensation paid to the Stockholders in
their capacities as employees, including but not limited to amounts paid
pursuant to the Employment Agreement described in Section 7.5 and any options
granted to the Stockholders pursuant to Section 9.5, will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(o) No stock of Newco will be issued in the transaction.
(p) All amounts paid by the Company to the Stockholders
pursuant to Section 9.1 represent reasonable compensation for services
performed by the Stockholders for the Company.
(q) Premier is a C corporation within the meaning of
Subchapter C of the Code and PDM is an S corporation within the meaning of
Subchapter S of the Code. PDM has qualified as and has properly reported its
operations as an S corporation within the meaning of Subchapter S of the Code
since the inception of its corporate existence. Premier presently files its
federal income tax returns on a cash basis of accounting, and the Surviving
Cooperation will be required to utilize an accrual method of accounting after
the Merger.
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<PAGE> 18
5.9. ASSETS AND PROPERTIES.
(a) Real Property. The Company does not own or hold any
interest in real property other than as set forth in Schedule 5.10.
(b) Personal Property. Except as set forth on Schedule
5.9 and except for inventory and supplies disposed of or consumed, and accounts
receivable collected or written off, and cash utilized, all in the ordinary
course of business consistent with past practice, the Company owns all of its
inventory, equipment and other personal property (both tangible and intangible)
reflected on the latest balance sheet included in the Financial Statements or
acquired since December 31, 1995, free and clear of any Liens, except for
statutory Liens for current taxes, assessments or governmental charges or
levies on property not yet due and payable.
(c) Condition of Properties. Except as set forth on
Schedule 5.9, the leasehold estates the subject of the Real Property Leases (as
defined in Section 5.10) and the tangible personal property owned or leased by
the Company are in good operating condition and repair, ordinary wear and tear
excepted; and neither the Company nor the Stockholders have any knowledge of
any condition not disclosed herein of any such leasehold estate that would
materially affect the fair market value, use or operation of any leasehold
estate or otherwise have a Material Adverse Effect.
(d) Compliance. To the knowledge of the Company and the
Stockholders, the continued use and occupancy of the leasehold estates the
subject of the Real Property Leases as currently operated, used and occupied
will not violate any zoning, building, health, flood control, fire or other
law, ordinance, order or regulation or any restrictive covenant. To the
knowledge of the Company and the Stockholders, there are no violations of any
federal, state, county or municipal law, ordinance, order, regulation or
requirement affecting any portion of the leasehold estates and no written
notice of any such violation has been issued by any governmental authority.
5.10. REAL PROPERTY LEASES; OPTIONS. Schedule 5.10 sets forth a
list of (i) all leases and subleases under which the Company is lessor or
lessee or sublessor or sublessee of any real property, together with all
amendments, supplements, nondisturbance agreements, brokerage and commission
agreements and other agreements pertaining thereto ("Real Property Leases");
(ii) all material options held by the Company or contractual obligations on the
part of the Company to purchase or acquire any interest in real property; and
(iii) all options granted by the Company or contractual obligations on the part
of the Company to sell or dispose of any material interest in real property.
Copies of all Real Property Leases and such options and contractual obligations
have been delivered to FYI and Newco. The Company has not assigned any Real
Property Leases or any such options or obligations. There are no Liens on the
interest of the Company in the Real Property Leases, subject only to (i) Liens
for taxes and assessments not yet due and payable and (ii) those matters set
forth on Schedule 5.10. The Real Property Leases and options and contractual
obligations listed on Schedule 5.10 are in full force and effect and constitute
binding obligations of the Company and the other parties thereto, and (x) there
are no defaults thereunder
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<PAGE> 19
and (y) no event has occurred that with notice, lapse of time or both would
constitute a default by the Company or, to the best knowledge of the Company
and the Stockholders, by any other party thereto.
5.11. ENVIRONMENTAL LAWS AND REGULATIONS.
(a) (i) During the occupancy and operation of the
"Subject Property" (as defined below) by the Company and, to the best knowledge
of the Company and the Stockholders, prior to its occupancy and operation, the
operations of the Subject Property, and any use, storage, treatment, disposal
or transportation of "Hazardous Substances" (as defined below) that has
occurred in or on the Subject Property prior to the date of this Agreement have
been in compliance with "Environmental Requirements" (as defined below); (ii)
during the occupancy and operation of the Subject Property by the Company and,
to the best knowledge of the Company and the Stockholders, prior to its
occupancy or operation, no release, leak, discharge, spill, disposal or
emission of Hazardous Substances has occurred in, on or under the Subject
Property in a quantity or manner that violates or requires further
investigation or remediation under Environmental Requirements; (iii) to the
best knowledge of the Company and the Stockholders, the Subject Property is
free of Hazardous Substances as of the date of this Agreement, except for the
presence of small quantities of Hazardous Substances utilized by the Company or
other tenants of the Subject Property in the ordinary course of their business;
(iv) there is no pending or threatened litigation or administrative
investigation or proceeding concerning the Subject Property involving Hazardous
Substances or Environmental Requirements; (v) to the best knowledge of the
Company and the Stockholders, there are no above-ground or underground storage
tank systems located at the Subject Property; and (vi), except as set forth on
Schedule 5.11, the Company has never owned, operated, or leased any real
property other than the Subject Property.
(b) Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Environmental Requirements" means all laws, statutes, rules,
regulations, ordinances, guidance documents, judgments, decrees,
orders, agreements and other restrictions and requirements (whether
now or hereafter in effect) of any governmental authority, including,
without limitation, federal, state and local authorities, relating to
the regulation or protection of human health and safety, natural
resources, conservation, the environment, or the storage, treatment,
disposal, transportation, handling or other management of industrial
or solid waste, hazardous waste, hazardous or toxic substances or
chemicals, or pollutants.
"Hazardous Substance" means (i) any "hazardous substance" as
defined in Section 101(14) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended from
time to time (42 U.S.C. Sections 9601 et seq.)("CERCLA") or any
regulations promulgated thereunder; (ii) petroleum and petroleum
by-products; or (iii) any additional substances or materials that have
been or are currently classified or considered
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<PAGE> 20
to be pollutants, hazardous or toxic under Environmental Requirements.
"Subject Property" means all property subject to the Real
Property Leases.
5.12. CONTRACTS.
(a) Set forth on Schedule 5.12 is a list of all material
contracts, agreements, arrangements and commitments (whether oral or written)
to which the Company is a party or by which its assets or business are bound
including, without limitation, contracts, agreements, arrangements or
commitments that relate to (i) the sale, lease or other disposition by the
Company of all or any substantial part of its business or assets (otherwise
than in the ordinary course of business), (ii) the purchase or lease by the
Company of a substantial amount of assets (otherwise than in the ordinary
course of business), (iii) the supply by the Company of any customer's
requirements for any item or the purchase by the Company of its requirements
for any item or of a vendor's output of any item, (iv) lending or advancing
funds by the Company, (v) borrowing of funds or guaranteeing the borrowing of
funds by any other person, whether under an indenture, note, loan agreement or
otherwise, (vi) any transaction or matter with any affiliate of the Company,
(vii) noncompetition, (viii) licenses and grants to or from the Company
relating to any intangible property listed on Schedule 5.18, (ix) the
acquisition by the Company of any operating business or the capital stock of
any person since December 31, 1995, or (x) any other matter that is material to
the business, assets or operations of the Company ("Contracts").
(b) Except as set forth on Schedule 5.12, each Contract
is in full force and effect on the date hereof, the Company is not in default
under any Contract, the Company has not given or received notice of any default
under any Contract, and, to the knowledge of the Company and the Stockholders,
no other party to any Contract is in default thereunder.
5.13. NO VIOLATIONS. A certified copy of the Certificate of
Incorporation and a true, correct and complete copy of the By-laws, both as
amended to date, of the Company (the "Charter Documents") have been delivered
to FYI. The execution, delivery and performance of this Agreement and the
other agreements and documents contemplated hereby by the Company and the
Stockholders and the consummation of the transactions contemplated hereby will
not (i) violate any provision of any Charter Document, (ii) violate any
statute, rule, regulation, order or decree of any public body or authority by
which the Company or the Stockholders or its or their respective properties or
assets are bound, or (iii) result in a violation or breach of, or constitute a
default under, or result in the creation of any encumbrance upon, or create any
rights of termination, cancellation or acceleration in any person with respect
to any Contract or any material license, franchise or permit of the Company or
any other agreement, contract, indenture, mortgage or instrument to which the
Company is a party or by which any of its properties or assets is bound.
5.14. GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.14,
the Company is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
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<PAGE> 21
5.15. CONSENTS. Except as set forth on Schedule 5.15, no consent,
approval or other authorization of any governmental authority or under any
Contract or other agreement or commitment to which the Company or the
Stockholders are parties or by which its or their respective assets are bound
is required as a result of or in connection with the execution or delivery of
this Agreement and the other agreements and documents to be executed by the
Company and the Stockholders or the consummation by the Company and the
Stockholders of the transactions contemplated hereby.
5.16. LITIGATION AND RELATED MATTERS. Set forth on Schedule 5.16 is
a list of all actions, suits, proceedings, investigations or grievances pending
against the Company or, to the best knowledge of the Company and the
Stockholders, threatened against the Company, the business or any property or
rights of the Company, at law or in equity, before or by any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign ("Agencies"). None of the
actions, suits, proceedings or investigations listed on Schedule 5.16 either
(i) results or would, if adversely determined, have a Material Adverse Effect
or (ii) affects or would, if adversely determined, affect the right or ability
of the Company to carry on its business substantially as now conducted. The
Company is not subject to any continuing court or Agency order, writ,
injunction or decree applicable specifically to its business, operations or
assets or its employees, nor in default with respect to any order, writ,
injunction or decree of any court or Agency with respect to its assets,
business, operations or employees. Schedule 5.16 lists (x) all worker's
compensation claims outstanding against the Company as of the date hereof and
(y) all actions, suits or proceedings filed by or against the Company since
December 31, 1995.
5.17. COMPLIANCE WITH LAWS. The Company (a) is in compliance with
all applicable laws, regulations (including federal, state and local
procurement regulations), orders, judgments and decrees except where the
failure to so comply would not have a Material Adverse Effect, and (b)
possesses all necessary licenses, franchises, permits and governmental
authorizations to conduct its business in the manner in which and in the
jurisdictions and places where such business is now conducted.
5.18. INTELLECTUAL PROPERTY RIGHTS. Schedule 5.18 lists the
domestic and foreign trade names, trademarks, service marks, trademark
registrations and applications, service mark registrations and applications,
patents, patent applications, patent licenses, software licenses and copyright
registrations and applications owned by the Company or used thereby in the
operation of its business (collectively, the "Intellectual Property"), which
Schedule indicates (i) the term and exclusivity of its rights with respect to
the Intellectual Property and (ii) whether each item of Intellectual Property
is owned or licensed by the Company, and if licensed, the licensor and the
license fees therefor. Unless otherwise indicated on Schedule 5.18, the
Company has the right to use and license the Intellectual Property, and the
consummation of the transactions contemplated hereby will not result in the
loss or material impairment of any rights of the Company in the Intellectual
Property. Each item constituting part of the Intellectual Property has been,
to the extent indicated on Schedule 5.18, registered with, filed in or issued
by, as the case
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<PAGE> 22
may be, the United States Patent and Trademark Office or such other government
entity, domestic or foreign, as is indicated on Schedule 5.18; all such
registrations, filings and issuances remain in full force and effect; and all
fees and other charges with respect thereto are current. Except as stated on
Schedule 5.18, there are no pending proceedings or adverse claims made or, to
the best knowledge of the Company and the Stockholders, threatened against the
Company with respect to the Intellectual Property; there has been no litigation
commenced or threatened in writing within the past five (5) years with respect
to the Intellectual Property or the rights of the Company therein; and the
Company and the Stockholders have no knowledge that (i) the Intellectual
Property or the use thereof by the Company conflicts with any trade names,
trademarks, service marks, trademark or service mark registrations or
applications, patents, patent applications, patent licenses or copyright
registrations or applications of others ("Third Party Intellectual Property"),
or (ii) such Third Party Intellectual Property or its use by others or any
other conduct of a third party conflicts with or infringes upon the
Intellectual Property or its use by the Company.
5.19. EMPLOYEE BENEFIT PLANS. Each employee benefit plan within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), maintained or contributed to by the Company or any of its
Group Members (as defined below) (collectively, the "Plans") is listed on
Schedule 5.19, is in substantial compliance with applicable law and has been
administered and operated in all material respects in accordance with its
terms. Each Plan that is intended to be "qualified" within the meaning of
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service (the "IRS") and no event has occurred and no
condition exists that could be expected to result in the revocation of any such
determination. No event that constitutes a "reportable event" (within the
meaning of Section 4043(b) of ERISA) for which the 30-day notice requirement
has not been waived by the Pension Benefit Guaranty Corporation (the "PBGC")
has occurred with respect to any Plan. No Plan is subject to Title IV of
ERISA, and neither the Company nor any Group Member has made any contributions
to or participated in any "multiple employer plan" (within the meaning of the
Code or ERISA) or "multi-employer plan" (as defined in Section 4001(a)(3) of
ERISA). Full payment has been made of all amounts that the Company was
required under the terms of the Plans to have paid as contributions to such
Plans on or prior to the date hereof (excluding any amounts not yet due) and
all amounts properly accrued to date as liabilities of the Company that have
not been paid have been properly recorded on the Financial Statements, and no
Plan that is subject to Part 3 of Subtitle B of Title 1 of ERISA has incurred
any "accumulated funding deficiency" (within the meaning of Section 302 of
ERISA or Section 412 of the Code), whether or not waived. The Company and, to
the knowledge of the Company and the Stockholders, no other "disqualified
person" or "party in interest" (within the meaning of Section 4975(e)(2) of the
Code and Section 3(14) of ERISA, respectively) has engaged in any transactions
in connection with any Plan that could be expected to result in the imposition
of a material penalty pursuant to Section 502(i) of ERISA, damages pursuant to
Section 409 of ERISA or a tax pursuant to Section 4975(a) of the Code. No
material claim, action, proceeding, or litigation has been made, commenced or,
to the knowledge of the Company and the Stockholders, threatened with respect
to any Plan (other than for benefits payable in the ordinary course and PBGC
insurance premiums). No Plan or related
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<PAGE> 23
trust owns any securities in violation of Section 407 of ERISA. Neither the
Company nor any Group Member has incurred any liability or taken any action, or
has any knowledge of any action or event, that could cause it to incur any
liability (i) under Section 412 of the Code or Title IV of ERISA with respect
to any "single employer plan" (within the meaning of Section 4001(a)(15) of
ERISA), (ii) on account of a partial or complete withdrawal (within the meaning
of Section 4205 and 4203 of ERISA, respectively) with respect to any
"multi-employer plan" (within the meaning of Section 3(37) of ERISA), (iii) on
account of unpaid contributions to any such multi-employer plan, or (iv) to
provide health benefits or other non-pension benefits to retired or former
employees, except as specifically required by Section 4980B(f) of the Code.
Except as set forth on Schedule 5.19, neither the execution and delivery of
this Agreement by the Company or the consummation of the transactions
contemplated hereby will (i) entitle any current or former employee of the
Company to severance pay, unemployment compensation or any similar payment,
(ii) accelerate the time of payment or vesting, or increase the amount of, any
compensation due to any such employee or former employee, or (iii) directly or
indirectly result in any payment made or to be made to or on behalf of any
person to constitute a "parachute payment" (within the meaning of Section 280G
of the Code). For purposes of this Agreement, "Group Member" shall mean any
member of any "affiliated service group" as defined in Section 414(m) of the
Code that includes the Company, any member of any "controlled group of
corporations" as defined in Section 1563 of the Code that includes the Company
or any member of any group of "trades or businesses under common control" as
defined by Section 414(c) of the Code that includes the Company.
5.20. EMPLOYEES; EMPLOYEE RELATIONS.
(a) Schedule 5.20 sets forth (i) the name and current
annual salary (or rate of pay) and other compensation (including, without
limitation, normal bonus, profit-sharing and other compensation) now payable by
the Company to each employee whose current total annual compensation or
estimated compensation is $25,000 or more, (ii) any increase to become
effective after the date of this Agreement in the total compensation or rate of
total compensation payable by the Company to each such person, (iii) any
increase to become payable after the date of this Agreement by the Company to
employees other than those specified in clause (i) of this Section 5.20(a),
(iv) all presently outstanding loans and advances (other than routine travel
advances to be repaid or formally accounted for within sixty (60) days) made by
the Company to, or made to the Company by, any director, officer or employee,
(v) all other transactions between the Company and any director, officer or
employee thereof since December 31, 1995, and (vi) all accrued but unpaid
vacation pay owing to any officer or employee that is not disclosed on the
Financial Statements.
(b) Except as disclosed on Schedule 5.20, the Company is
not a party to, or bound by, the terms of any collective bargaining agreement,
and the Company has not experienced any material labor difficulties during the
last five (5) years. Except as set forth on Schedule 5.20, there are no labor
disputes existing, or to the best knowledge of the Company and the
Stockholders, threatened involving, by way of example, strikes, work stoppages,
slowdowns,
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<PAGE> 24
picketing, or any other interference with work or production, or any other
concerted action by employees. No charges or proceedings before the National
Labor Relations Board, or similar agency, exist, or to the best knowledge of
the Company and the Stockholders, are threatened.
(c) The relationships enjoyed by the Company with its
employees are good and the Company and the Stockholders have no knowledge of
any facts that would indicate that the employees of the Company will not
continue in the employ thereof following the Closing on a basis similar to that
existing on the date of this Agreement. Except as disclosed on Schedule 5.20,
the Company is not a party to any employment contract with any individual or
employee, either express or implied. No legal proceedings, charges, complaints
or similar actions exist under any federal, state or local laws affecting the
employment relationship including, but not limited to: (i) anti-discrimination
statutes such as Title VII of the Civil Rights Act of 1964, as amended (or
similar state or local laws prohibiting discrimination because of race, sex,
religion, national origin, age and the like); (ii) the Fair Labor Standards Act
or other federal, state or local laws regulating hours of work, wages, overtime
and other working conditions; (iii) requirements imposed by federal, state or
local governmental contracts such as those imposed by Executive Order 11246;
(iv) state laws with respect to tortious employment conduct, such as slander,
false light, invasion of privacy, negligent hiring or retention, intentional
infliction of emotional distress, assault and battery, or loss of consortium;
or (v) the Occupational Safety and Health Act, as amended, as well as any
similar state laws, or other regulations respecting safety in the workplace;
and to the best knowledge of the Company and the Stockholders, no proceedings,
charges, or complaints are threatened under any such laws or regulations and no
facts or circumstances exist that would give rise to any such proceedings,
charges, complaints, or claims, whether valid or not. The Company is not
subject to any settlement or consent decree with any present or former
employee, employee representative or any government or Agency relating to
claims of discrimination or other claims in respect to employment practices and
policies; and no government or Agency has issued a judgment, order, decree or
finding with respect to the labor and employment practices (including practices
relating to discrimination) of the Company. Since December 31, 1994 the
Company has not incurred any liability or obligation under the Worker
Adjustment and Retraining Notification Act or similar state laws; and the
Company has not laid off more than ten percent (10%) of its employees at any
single site of employment in any ninety (90) day period during the twelve (12)
month period ending April 30, 1996.
(d) To the best knowledge of the Company and the
Stockholders, the Company is in compliance in all material respects with the
provisions of the Americans with Disabilities Act.
5.21. INSURANCE. Schedule 5.21 contains an accurate list of the
policies and contracts (including insurer, named insured, type of coverage,
limits of insurance, required deductibles or co-payments, annual premiums and
expiration date) for fire, casualty, liability and other forms of insurance
maintained by, or for the benefit of, the Company. All such policies are in
full force and effect and shall remain in full force and effect through the
Closing Date and are adequate for the business engaged in by the Company.
Neither the Company nor the Stockholders have
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<PAGE> 25
received any notice of cancellation or non-renewal or of significant premium
increases with respect to any such policy. Except as disclosed on Schedule
5.21, no pending claims made by or on behalf of the Company under such policies
have been denied or are being defended against third parties under a
reservation of rights by an insurer thereof. All premiums due prior to the
date hereof for periods prior to the date hereof with respect to such policies
have been timely paid.
5.22. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. No stockholder,
officer, director or affiliate of the Company possesses, directly or
indirectly, any financial interest in, or is a director, officer, employee or
affiliate of, any corporation, firm, association or business organization that
is a client, supplier, customer, lessor, lessee or competitor of the Company.
Ownership of securities of a corporation whose securities are registered under
the Securities Exchange Act of 1934 not in excess of five percent (5%) of any
class of such securities shall not be deemed to be a financial interest for
purposes of this Section 5.22.
5.23. BUSINESS RELATIONS. Schedule 5.23 contains an accurate list
of all significant customers of the Company (i.e., those customers representing
five percent (5%) or more of the Company's revenues for the twelve (12) months
ended December 31, 1995). Except as set forth on Schedule 5.23, to the best
knowledge of the Company and the Stockholders, no customer or supplier of the
Company will cease to do business therewith after the consummation of the
transactions contemplated hereby, which cessation would have a Material Adverse
Effect. Except as set forth on Schedule 5.23, since December 31, 1995, the
Company has not experienced any difficulties in obtaining any inventory items
necessary to the operation of its business, and, to the best knowledge of the
Company and the Stockholders, no such shortage of supply of inventory items is
threatened or pending. The Company is not required to provide any bonding or
other financial security arrangements in any material amount in connection with
any transactions with any of its customers or suppliers.
5.24. OFFICERS AND DIRECTORS. Set forth on Schedule 5.24 is a list
of the current officers and directors of the Company.
5.25. BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 5.25 sets
forth each bank, savings institution and other financial institution with which
the Company has an account or safe deposit box and the names of all persons
authorized to draw thereon or to have access thereto. Each person holding a
power of attorney or similar grant of authority on behalf of the Company is
identified on Schedule 5.25. Except as disclosed on such Schedule, the Company
has not given any revocable or irrevocable powers of attorney to any person,
firm, corporation or organization relating to its business for any purpose
whatsoever.
5.26. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 5.26 or as otherwise contemplated by this Agreement, since December
31, 1995, there has not been (a) any damage, destruction or casualty loss to
the physical properties of the Company (whether or not covered by insurance),
(b) any event or circumstance in the business, operations, financial condition
or results of operations or prospects of the Company that would have a Material
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<PAGE> 26
Adverse Effect, (c) any entry into any transaction, commitment or agreement
(including, without limitation, any borrowing) material to the Company, except
transactions, commitments or agreements in the ordinary course of business
consistent with past practice, (d) any declaration, setting aside or payment of
any dividend or other distribution in cash, stock or property with respect to
the capital stock or other securities of the Company, any repurchase,
redemption or other acquisition by the Company of any capital stock or other
securities, or any agreement, arrangement or commitment by the Company to do
so, (e) any increase that is material in the compensation payable or to become
payable by the Company to its directors, officers, employee or agents or any
increase in the rate or terms of any bonus, pension or other employee benefit
plan, payment or arrangement made to, for or with any such directors, officers,
employees or agents, except as set forth on Schedule 5.26, (f) any sale,
transfer or other disposition of, or the creation of any Lien upon, any part of
the assets of the Company, tangible or intangible, except for sales of
inventory and use of supplies and collections of accounts receivables in the
ordinary course of business consistent with past practice, or any cancellation
or forgiveness of any debts or claims by the Company, (g) any change in the
relations of the Company with or loss of its customers or suppliers, of any
loss of business or increase in the cost of inventory items or change in the
terms offered to customers, which would have a Material Adverse Effect, or (h)
any capital expenditure (including any capital leases) or commitment therefor
by the Company in excess of $10,000.
(B) REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.
Each Stockholder severally represents and warrants that the
representations and warranties in this Section 5(B) as they apply to him or her
are true and correct as of the date of this Agreement and at the time of the
Closing.
5.27. AUTHORITY; OWNERSHIP. The Stockholder has the full legal
right, power and authority to enter into this Agreement. The Stockholder owns
beneficially (subject to any community property interest of his or her spouse)
and of record the shares of the Company Stock set forth opposite such
Stockholder's name on Annex I and such Company Stock, together with the other
shares of Company Stock set forth on Annex I, constitutes all of the
outstanding shares of capital stock of the Company, and, except as set forth on
Schedule 5.27 hereof, such Company Stock owned by the Stockholder is owned free
and clear of all Liens other than standard state and federal securities laws
private offering restrictions. The Stockholder has owned the Company Stock
since the date set forth on Annex I.
5.28. PREEMPTIVE RIGHTS. The Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or FYI
Stock, that the Stockholder has or may have had other than rights of the
Stockholder to acquire FYI Stock pursuant to (i) this Agreement or (ii) any
option granted by FYI.
5.29. NO INTENTION TO DISPOSE OF FYI STOCK. Each Premier
Stockholder represents that there is no current plan or intention by such
Premier Stockholder to sell, exchange or otherwise
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<PAGE> 27
dispose of more than five percent (5%) of the number of shares of FYI Stock
received by such Premier Stockholder in the Merger as of the Effective Time of
the Merger. For purposes of this representation, shares of Premier Stock
exchanged for cash or other property and shares of Premier Stock exchanged for
cash in lieu of fractional shares of FYI Stock will be treated as outstanding
Premier Stock on the date of the transaction. Moreover, shares of Premier
Stock and shares of FYI Stock held by the Premier Stockholder and otherwise
sold, redeemed, or disposed of prior to or subsequent to the Closing Date will
be considered in making this representation. In addition, each Premier
Stockholder represents that there is not any current plan or intention by such
Premier Stockholder to sell, exchange or otherwise dispose of FYI Stock, if
any, received by such Premier Stockholder pursuant to (i) Section 10.11 or (ii)
the Earnout provisions described in Annex IIA.
5.30. VALIDITY OF OBLIGATIONS. This Agreement, the Employment
Agreement, the Noncompetition Agreement and the Lock-Up Agreement have each
been duly executed and delivered and are the legal, valid and binding
obligations of the Stockholder that is a party thereto in accordance with their
respective terms (it being understood and agreed by the parties hereto that
each Stockholder is making this representation and warranty solely with respect
to such Stockholder alone and not with respect to any other Stockholder).
5.31. PAYMENTS. All amounts paid by the Company to the Stockholders
pursuant to Section 9.1 represents reasonable compensation for services
performed by the Stockholders for the Company.
5.32. S CORPORATION. The PDM Stockholder hereby represents and
warrants as of the time of the Closing that (i) PDM qualifies as an S
corporation within the meaning of Subchapter S of the Code and (ii) PDM has
qualified as and has properly reported its operations as an S corporation
within the meaning of Subchapter S of the Code since the inception of its
corporate existence.
6. REPRESENTATIONS OF FYI AND NEWCO
FYI and Newco severally and jointly represent and warrant that all of
the following representations and warranties in this Section 6 are true and
correct at the time of the Closing.
6.1. DUE ORGANIZATION. Each of FYI and Newco is duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and is duly authorized and qualified under all applicable laws, regulations,
and ordinances of public authorities to carry on its businesses in the places
and in the manner as now conducted except for where the failure to be so
authorized or qualified would not have a material adverse effect on its
business, operations, affairs, properties, assets or condition (financial or
otherwise).
6.2. FYI STOCK. The FYI Stock to be delivered to the Stockholders
at the Closing Date shall constitute valid and legally issued shares of FYI,
fully paid and nonassessable, and except
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as set forth in this Agreement, (a) will be owned free and clear of all Liens
created by FYI, and (b) will be legally equivalent in all respects to the FYI
Stock issued and outstanding as of the date hereof. The shares of FYI Stock to
be issued to the Stockholders pursuant to this Agreement will be registered
under the Securities Act of 1933, as amended, (the "1933 Act").
6.3. VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement, the Employment Agreements, the Noncompetition Agreements and the
Lock-Up Agreements by FYI and Newco and the performance by each of FYI and
Newco of the transactions contemplated herein or therein have been duly and
validly authorized by the respective Boards of Directors of FYI and Newco to
the extent that it is a party thereto, and this Agreement, the Employment
Agreements, the Noncompetition Agreements and the Lock-Up Agreements have each
been duly and validly authorized by all necessary corporate action, duly
executed and delivered and are the legal, valid and binding obligations of each
of FYI and Newco to the extent that it is a party thereto, enforceable against
such party thereto in accordance with their respective terms.
6.4. AUTHORIZATION. The representatives of FYI and Newco executing
this Agreement have the corporate authority to enter into and bind FYI and
Newco to the terms of this Agreement. FYI and Newco have the full legal right,
power and authority to enter into this Agreement and the Merger.
6.5. NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated by and the fulfillment of the terms hereof and thereof will not:
(a) Conflict with, or result in a breach or violation of
Certificate of Incorporation or By-laws of either FYI or Newco;
(b) Materially conflict with, or result in a material
default (or would constitute a default but for any requirement of
notice or lapse of time or both) under any document, agreement or
other instrument to which either FYI or Newco is a party, or violate
or result in the creation or imposition of any lien, charge or
encumbrance on any of FYI's or Newco's properties pursuant to (i) any
law or regulation to which either FYI or Newco or any of their
respective property is subject, or (ii) any judgment, order or decree
to which FYI or Newco is bound or any of their respective property
is subject; or
(c) Result in termination or any impairment of any
material permit, license, franchise, contractual right or other
authorization of FYI or Newco.
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<PAGE> 29
6.6. CAPITALIZATION OF FYI AND OWNERSHIP OF FYI STOCK. The
authorized and outstanding capital stock of FYI and Newco is as set forth in
Sections 1.4(c) and 1.4(d), respectively. All issued and outstanding shares of
FYI stock are duly authorized, validly issued, fully paid and nonassessable.
There are no obligations of FYI to repurchase, redeem or otherwise acquire any
shares of FYI capital stock. Except as set forth on Schedule 6.6, there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which FYI is a party or by which it is bound obligating FYI
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of FYI or obligating FYI to grant, extend, accelerate
the vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement. All of the shares of FYI Stock to be issued to
the Stockholders in accordance herewith will be duly authorized, validly
issued, fully paid and nonassessable.
6.7. TRANSACTIONS IN CAPITAL STOCK. There has been no transaction
or action taken with respect to the equity ownership of FYI or Newco in
contemplation of the transactions described in this Agreement that would
prevent FYI from accounting for such transactions on a reorganization
accounting basis.
6.8. SUBSIDIARIES. Set forth on Schedule 6.8 hereto is a list of
the subsidiaries of FYI (each an "FYI Subsidiary" and collectively the "FYI
Subsidiaries"). Newco has no subsidiaries.
6.9. BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS; FINANCIAL
INFORMATION. Attached hereto as Schedule 6.9 are FYI's audited historical
financial statements for the year ended December 31, 1995 and its financial
statements as filed on Form 10-Q with the Securities and Exchange Commission
for the quarter ended March 31, 1996. Such FYI financial statements have been
prepared in accordance with GAAP and present fairly the financial position of
FYI as of the indicated dates and for the indicated periods. FYI has provided
Premier, PDM and the Stockholders with a true, complete and correct copy of its
Registration Statement on Form S-1 (Registration No. 33-98608 and Registration
No. 333-1084) and Prospectus Supplement to Prospectus as filed with the
Securities and Exchange Commission on May 17, 1996 and of all amendments
thereto. Newco was formed in May 1996, and has no historical financial
statements or information.
6.10. CONFORMITY WITH LAW AND LITIGATION. Neither FYI nor Newco is
in violation of any law or regulation or any order of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over either of them that would
have a material adverse effect on the business, operations, affairs,
properties, assets or condition (financial or otherwise) of FYI and the FYI
Subsidiaries taken as a whole (an "FYI Material Adverse Effect"). Except as
set forth on Schedule 6.10, there are no claims, actions, suits or proceedings,
pending or, to the knowledge of FYI or Newco, threatened, against or affecting
FYI or Newco, at law or in equity, or before or by any Agency having
jurisdiction over either of them and no notice of any claim, action, suit or
proceeding, whether pending or
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<PAGE> 30
threatened, has been received. FYI (including the FYI Subsidiaries) has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in applicable Federal, state and
local statutes, ordinances, orders, approvals, variances, rules and regulations
and is not in violation of any of the foregoing that would have an FYI Material
Adverse Effect.
6.11. NO VIOLATIONS. Copies of the Certificate of Incorporation (as
of the date hereof, certified by the Secretary or an Assistant Secretary of
each of FYI and Newco and by the Secretary of State of the State of Delaware)
and the By-laws (certified by the Secretary or an Assistant Secretary of each
of FYI and Newco), of FYI and Newco (the "FYI Charter Documents") are attached
hereto as Annex III; neither FYI nor Newco is (a) in violation of any FYI
Charter Document or (b) in default, under any material lease, instrument,
agreement, license, permit to which it is a party or by which its properties
are bound (the "FYI Material Documents"); and, (i) the rights and benefits of
FYI (including the FYI Subsidiaries) under the FYI Material Documents will not
be materially and adversely affected by the transactions contemplated hereby
and (ii) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any
of the terms or provisions of the FYI Material Documents or the FYI Charter
Documents. Except as set forth on Schedule 6.11, none of the FYI Material
Documents requires notice to, or the consent or approval of, any Agency or
other third party to any of the transactions contemplated hereby to remain in
full force and effect or give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit. The minute books of FYI and of
each FYI Subsidiary as heretofore made available to Premier and PDM are true
and correct.
6.12. TAXES.
(a) The fair market value of the FYI Stock and other
consideration received by the Stockholders will be approximately equal
to the aggregate fair market value of the Premier Stock and the PDM
Stock surrendered in the Merger.
(b) Prior to the Merger, FYI will own all of the
outstanding stock of Newco. At all times prior to the Merger, no
person other than FYI has owned, or will own, any of the outstanding
stock of Newco.
(c) (i) Newco was formed by FYI solely for the
purpose of engaging in the transaction contemplated by the Agreement.
(ii) There were not as of the date of the
Agreement and there will not be at the Closing Date, any outstanding
or authorized options, warrants, convertible securities, calls,
rights, commitments or any other agreements of any character which
Newco is a party to, or may be bound by, requiring it to issue,
transfer, sell, purchase, redeem or acquire any shares of its capital
stock or any securities or rights convertible
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<PAGE> 31
into, exchangeable for, evidencing the right to subscribe for or
acquire, any shares of its capital stock.
(iii) As of the date of this Agreement and the
Closing Date, except for obligations or liabilities incurred in
connection with (A) its incorporation or organization and (B) the
transactions contemplated thereby and in the Agreement, Newco has not
and will not have incurred, directly or indirectly through any
subsidiary, any obligations or liabilities or engaged in any business
or activities of any type or kind whatsoever or entered into any
agreement or arrangements with any person or entity.
(iv) Prior to the Closing Date, Newco did not own
any asset other than an amount of cash necessary to incorporate Newco
and to pay the expenses of the Merger attributable to Newco and such
assets as were necessary to perform its obligations under this
Agreement.
(v) FYI has no plan or intention to cause the
Surviving Corporation to issue additional shares of its stock that
would result in FYI losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code.
(d) FYI has no plan or intention to reacquire any of its
stock issued in the Merger.
(e) FYI has no plan or intention to liquidate Newco or
merge Newco with or into another corporation (other than as described
in this Agreement); sell or otherwise dispose of the stock of Newco;
or cause Newco or any of its subsidiaries to sell or otherwise dispose
of any of its assets or of any of the assets acquired from Premier or
PDM, other than as contemplated by this Agreement, directly or
indirectly, except for (i) dispositions made in the ordinary course of
business, (ii) transfers of assets to a corporation all of whose
outstanding stock is owned directly by Newco or (iii) transfers of
assets by direct or indirect wholly-owned subsidiaries of Newco to
other direct or indirect wholly-owned subsidiaries of Newco.
(f) Any liabilities of Premier and PDM assumed by Newco
and any liabilities to which the transferred assets of Premier and PDM
are subject were incurred by Premier and by PDM in the ordinary
course of business.
(g) FYI, Newco, and to the best knowledge of FYI,
Premier, PDM and the Stockholders will each pay their respective
expenses, if any, incurred in connection with the Merger.
(h) There is no intercorporate indebtedness existing
between FYI and Premier and PDM or between Newco and Premier and PDM
that was issued, acquired, or will be settled at a discount.
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(i) Neither FYI nor Newco is an investment company as
defined in section 368(a)(2)(F)(iii) and (iv) of the Code.
(j) None of the compensation received by any
stockholder-employee of Premier or PDM after the Merger will be
separate consideration for, or allocable to, any of their shares of
Premier or PDM, as the case may be; none of the shares of FYI Stock
received by any stockholder-employee in the Merger will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any stockholder- employee after the Merger
pursuant to arrangements entered into after the Merger will be for
services actually rendered and will be commensurate with amounts paid
to third parties bargaining at arm's-length for similar services.
(k) The proposed Merger is effected through the laws of
the United States, or a State or the District of Columbia.
(l) The proposed Merger is being undertaken for reasons
germane to the business of Premier and of PDM.
(m) FYI has no plan or intention to cause the Surviving
Corporation immediately after the Closing Date to hold less than 90%
of the fair market value of its net assets and 70% of the fair market
value of the gross assets of Premier immediately prior to the Closing
Date, with such amount determined based on the same methodology
described in Section 5.8(d) other than the amounts described in
Section 9.1.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND PREMIER
AND PDM
The obligations of the Stockholders and of Premier and PDM with
respect to actions to be taken on the Closing Date are subject to the
satisfaction or waiver on or prior to the Closing Date of all of the following
conditions, except that no such waiver shall be deemed to affect the survival
of the representations and warranties of FYI and Newco contained in Section 6
hereof.
7.1. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All of the representations and warranties of FYI and Newco contained in this
Agreement shall be true and correct as of the Closing Date; and each and all of
the terms, covenants and conditions of this Agreement to be complied with and
performed by FYI and Newco on or before the Closing Date shall have been duly
complied with and performed.
7.2. SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall be reasonably satisfactory to each of
Premier, PDM and the Stockholders and their respective counsel.
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7.3. NO LITIGATION. No action or proceeding before a court or any
other Agency shall have been instituted or threatened to restrain or prohibit
the mergers of Newco with Premier and PDM and no Agency shall have taken any
other action or made any request of Premier or PDM as a result of which the
management of Premier or PDM deems it inadvisable to proceed with the
transactions hereunder.
7.4. OPINION OF COUNSEL. Premier and PDM and the Stockholders
shall have received an opinion from Locke Purnell Rain Harrell (A Professional
Corporation), counsel for FYI, dated the Closing Date, in the form annexed
hereto as Annex IV.
7.5. EMPLOYMENT AGREEMENTS. Newco shall have executed and
delivered to Brian E. Whiteside, Lynnette C. Pomerville, Christopher S. Moore
and Gary T. Sievert Employment Agreements in substantially the form attached
hereto as Annex V (the "Employment Agreements").
7.6. CONSENTS AND APPROVALS. All necessary consents of and filings
with any Agency relating to the consummation of the transactions contemplated
herein shall have been obtained and made and no action or proceeding shall have
been instituted or threatened to restrain or prohibit the Merger and no Agency
shall have taken any other action or made any request of Premier or PDM as a
result of which either Premier or PDM deems it inadvisable to proceed with the
transactions hereunder.
7.7. GOOD STANDING CERTIFICATES. FYI and Newco each shall have
delivered to Premier and to PDM a certificate, dated as of a date not more than
fifteen (15) days prior to the Closing Date, duly issued by the Delaware
Secretary of State and in each state in which FYI or Newco is authorized to do
business, showing that each of FYI and Newco is in good standing and authorized
to do business and that all state franchise and/or income tax returns and taxes
for FYI and Newco, respectively, for all periods prior to the Closing have been
filed and paid.
7.8. NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred that would constitute an FYI Material Adverse Effect.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF FYI AND NEWCO
The obligations of FYI and Newco with respect to actions to be taken
on the Closing Date are subject to the satisfaction or waiver on or prior to
the Closing Date of all of the following conditions, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
Premier, PDM and the Stockholders contained in Section 5 hereof.
8.1. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All of the representations and warranties of the Stockholders and Premier and
PDM contained in this Agreement shall be true and correct as of the Closing
Date; and each and all of the terms, covenants and conditions of this Agreement
to be complied with and performed by the
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Stockholders and Premier and PDM on or before the Closing Date shall have been
duly complied with and performed.
8.2. SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall be reasonably satisfactory to each of FYI and
Newco and their counsel.
8.3. NO LITIGATION. No action or proceeding before a court or any
other Agency shall have been instituted or threatened to restrain or prohibit
the mergers of Premier and PDM with and into Newco and no Agency shall have
taken any other action or made any request of FYI as a result of which the
management of FYI or Newco deems it inadvisable to proceed with the
transactions hereunder.
8.4. EXAMINATION OF FINAL FINANCIAL STATEMENTS. Prior to the
Closing Date, FYI shall have had sufficient time to review the unaudited
balance sheets of Premier and of PDM for the fiscal quarter ended March 31,
1996, and the unaudited statements of income, cash flows and retained earnings
of each of Premier and PDM for the fiscal month ended April 30, 1996,
disclosing no material adverse change in the financial condition thereof, or
the results of its operations from the financial statements as of December 31,
1995.
8.5. REPAYMENT OF INDEBTEDNESS. Prior to the Closing Date, the
Stockholders shall have repaid Premier and PDM in full all amounts owing by the
Stockholders to Premier and PDM.
8.6. INSURANCE. FYI shall be named as an additional named insured
on all of the insurance policies of Premier and of PDM.
8.7. STOCKHOLDER RELEASES. Each of the Stockholders shall have
delivered to FYI immediately prior to the Closing Date an instrument dated the
Closing Date in substantially the form of Annex VI releasing Premier and PDM
from any and all claims of the Stockholder against Premier and PDM and
obligations of Premier and PDM to the Stockholder, except for items
specifically identified on Schedule 8.7 as being claims of or obligations to
the Stockholder and continuing obligations to Stockholder relating to his
employment by the Surviving Corporation.
8.8. TERMINATION OF RELATED PARTY AGREEMENTS. All existing
agreements between Premier and PDM and the Stockholders or business or personal
affiliates of Premier and PDM or the Stockholders and all existing bonus and
incentive plans and arrangements of Premier and PDM, other than those set forth
on Schedule 8.8, shall have been cancelled or terminated.
8.9. TERMINATION OF PENSION PLAN. Premier shall have delivered
evidence reasonably satisfactory to each of FYI and Newco and their respective
counsel of (i) the termination without penalty, effective not later than
December 31, 1996, of the pension plan of Premier and (ii) the termination
without penalty, effective as of May 31, 1996, of Premier's employer matching
plan.
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8.10. OPINIONS OF COUNSEL. FYI shall have received an opinion from
Carr, McClellan, Ingersoll, Thompson & Horn Professional Corporation, counsel
to Premier, PDM and Brian E. Whiteside, dated the Closing Date, in the form
annexed hereto as Annex VII as to matters of California law, and the opinion of
David J. Smith, Washington counsel to Premier, PDM and Brian E. Whiteside,
dated the Closing Date, in the form annexed hereto as Annex VII as to the
matters of Washington law.
8.11. EMPLOYMENT AGREEMENTS. Brian E. Whiteside, Lynnette C.
Pomerville, Christopher S. Moore and Gary T. Sievert shall have executed and
delivered to FYI and Newco the Employment Agreements.
8.12. NONCOMPETITION AGREEMENTS. Each of the Stockholders shall
have executed and delivered to FYI and Newco a Noncompetition Agreement with
FYI and Newco in substantially the form attached hereto as Annex VIII (the
"Noncompetition Agreement"), except that the term of the covenants contained in
the Noncompetition Agreements for the Stockholders other than Brian E.
Whiteside shall be three (3) years.
8.13. LOCK-UP AGREEMENTS. Each of the Stockholders shall have
executed and delivered to FYI and Newco a Lock-Up Agreement in substantially
the form annexed hereto as Annex IX (the "Lock-Up Agreement") with respect to
the shares of FYI Stock to be acquired thereby pursuant to Section 2 hereof
containing the Stockholder's undertakings as set forth in Section 11.1 hereof.
8.14. CONSENTS AND APPROVALS. All necessary consents of and filings
with any Agency relating to the consummation of the transactions contemplated
herein shall have been obtained and made and no action or proceeding shall have
been instituted or threatened to restrain or prohibit the Merger and no Agency
shall have taken any other action or made any request of FYI or Newco as a
result of which either FYI or Newco deems it inadvisable to proceed with the
transactions hereunder.
8.15. GOOD STANDING CERTIFICATES. Each of Premier and PDM shall
have delivered to FYI a certificate, dated as of a date not more than fifteen
(15) days prior to the Closing Date, duly issued by the appropriate
governmental authority in the state of incorporation of Premier and of PDM and
in each state, if any, in which Premier and PDM is authorized to do business,
showing that Premier and PDM is in good standing and authorized to do business
and that all state franchise and/or income tax returns and taxes for all
periods prior to the Closing have been filed and paid.
8.16. NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred that would constitute a Material Adverse Effect.
9. COVENANTS OF THE PARTIES
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9.1. PERMITTED PAYMENTS OF COMPENSATION BY PREMIER AND PDM. Each
of FYI and Newco acknowledges and agrees that prior to the Effective Time of
the Merger, Premier and PDM may pay in a manner consistent with their past
business practices, compensation for services consisting of bonuses to the
Stockholders or their employees not to exceed (in the aggregate) the sum of
$225,000. The parties to this Agreement further acknowledge and agree that
each of Premier and PDM shall retain and shall not distribute to the
Stockholders any amounts after the date of this Agreement.
9.2. PRESERVATION OF TAX AND ACCOUNTING TREATMENT.
(a) After the Closing Date, FYI shall not and shall not
permit any of the FYI Subsidiaries to undertake any act that would
jeopardize the tax-free status of the reorganization of Premier,
including
(i) The retirement or reacquisition, directly or
indirectly, of all or part of the FYI Stock issued in
connection with the transactions contemplated hereby;
(ii) The entering into of financial arrangements
for the benefit of the Stockholders in their capacities as
such;
(iii) The disposition of any material part of the
assets of Premier within the two (2) years following the
Closing Date except in the ordinary course of business or to
eliminate duplicate services or excess capacity;
(iv) The discontinuance of the historic business
of Premier; and
(v) The issuance of additional shares of Newco
stock that would result in FYI losing control of Newco within
the meaning of Section 368(c) of the Code.
(b) Until December 31, 1997 FYI shall maintain the
separate corporate existence of the Surviving Corporation and shall
operate the business of Premier and PDM acquired by the Surviving
Corporation as a result of the Merger within the Surviving Corporation
and shall maintain separate books of account and records therefor in
order to calculate accurately the Earnout described in Annex IIA.
Until January 1, 1997 no FYI overhead or other FYI expenses shall be
paid by the Surviving Corporation.
9.3. PREPARATION AND FILING OF TAX RETURNS.
(a) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any return, amended return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include
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providing copies of all relevant portions of relevant returns,
together with relevant accompanying schedules and relevant work
papers, relevant documents relating to rulings or other determinations
by taxing authorities and relevant records concerning the ownership
and tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient
basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each
party required to file returns pursuant to this Agreement shall bear
all costs of filing such returns.
(b) Each of the Premier, PDM, Newco, FYI and the
Stockholders shall comply with the tax reporting requirements of
Section 1.368-3 of the Treasury Regulations promulgated under the
Code, and shall treat the transaction as a tax-free reorganization
under Section 368(a) of the Code unless otherwise required by law.
9.4. COVENANTS OF PDM CONCERNING TERMINATION OF S ELECTION.
(a) Definitions. The following terms, as used herein, have the
following meanings when used hereinafter:
"C Corporation Period" means the period commencing on the S
Termination Date.
"C Short Year" means that portion of the S Termination Year of PDM as
defined in Section 1362(e)(1)(B) of the Code.
"S Corporation Period" means, as to PDM the period commencing on the
effective date of its S election and ending on the date immediately preceding
the S Termination Date.
"S Corporation Taxable Income" means the taxable income of PDM from
all sources during the S Corporation Period.
"S Short Year" means that portion of the S Termination Year of PDM as
defined in Section 1362(e)(1)(A) of the Code.
"S Termination Date" means the date on which the S corporation status
of PDM is terminated pursuant to Section 1362(d)(2) of the Code.
"S Termination Year" has the meaning set forth in Section 1362(e)(4)
of the Code.
(b) Termination of S Election; S Termination Year
(i) Termination of S Status. PDM made a valid election
under Section 1362(a) of the Code to be taxed in accordance with the provisions
of Subchapter S of the Code for its initial tax year beginning October 7, 1993
and ending December 31, 1993 (the "S Election"). The
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PDM Stockholder acknowledges that the Merger will terminate PDM's S election
pursuant to Section 1362(d)(2) of the Code.
(ii) Effective Date. The S Termination Date shall be on
the date of the Effective Time of the Merger.
(iii) S Termination Year. The fiscal year in which the S
corporation status of PDM is terminated will be an S Termination Year with
respect to PDM for federal income tax purposes, as defined in Section
1362(e)(4) of the Code.
(iv) S Short Year. Pursuant to Section 1362(e)(1)(A) of
the Code, the S Termination Year of PDM shall be divided into two short taxable
years: an S Short Year and a C Short Year. As defined in Section
1362(e)(1)(A) of the Code, the S Short Year of PDM shall be that portion of its
S Termination Year beginning on the initial day of its fiscal year and ending
on the day immediately preceding the S Termination Date. For federal income
tax purposes, PDM will be treated as an S corporation during its S Short Year.
(v) C Short Year. Pursuant to Section 1362(e)(1)(B) of
the Code, the portion of the S Termination Year beginning on the S Termination
Date and ending on the last day of the fiscal year, shall be the C Short Year
of PDM. For federal income tax purposes, PDM will be taxed as a C corporation
during the C Short Year.
(c) Allocation of Income
(i) Allocation Election. Tax items shall be allocated to
the S Short Year and the C Short Year pursuant to normal tax accounting rules
(that is, the "closing of the books method") rather than by the pro rata
allocation method contained in Section 1362(e)(2) of the Code.
(ii) Filing of Tax Returns. In respect to the foregoing
allocation, PDM shall cause to be prepared, at its expense, and shall timely
file all tax returns required by federal, state and local law and, when
appropriate, shall allocate the tax items to the S Short Year and the C Short
Year pursuant to normal tax accounting rules (that is, the "closing of the
books method") rather than the pro rata allocation method contained in Section
1362(e)(2) of the Code.
(d) Taxes
(i) Liability for Taxes Incurred During S Corporation
Years Including S Short Year. The PDM Stockholder shall pay (and shall
indemnify, defend and hold harmless the Surviving Corporation from and against
liability with respect to) any and all Taxes that are imposed on him or PDM and
attributable to the taxable income of PDM, including but not limited to, any
taxable income of PDM recognized as a result of the Merger of PDM into Newco
for all taxable periods (or that portion of any period including the S Short
Year) during which PDM was
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an S corporation. The PDM Stockholder shall pay any and all Taxes that are
imposed on him and/or PDM as a result of PDM's S election being treated as
invalid or ineffective for any reason or such election being revoked or
terminated prior to the S Termination Date.
(ii) Liability for Taxes Incurred During C Corporation
Years Including C Short Year. The Surviving Corporation shall pay or cause to
be paid (and shall indemnify, defend and hold harmless the PDM Stockholder from
and against liability with respect to) any and all Taxes attributable to the
taxable income of the Surviving Corporation for the C Corporation Period. In
no event will the Surviving Corporation be required to pay any Taxes that are
imposed upon PDM as a result of the Merger of PDM into Newco.
(e) If the PDM Stockholder receives notice of an intention by a
taxing authority to audit any return of the PDM Stockholder that includes any
item of income, gain, deduction, loss or credit reported by PDM with respect to
the S Corporation Period that the PDM Stockholder has reason to believe may
affect the Surviving Corporation's tax returns during the C Corporation Period,
the PDM Stockholder shall inform the Surviving Corporation, in writing, of the
audit promptly after receipt of such notice. If the PDM Stockholder receives
notice from a taxing authority of any proposed adjustment for which the
Surviving Corporation may be required to indemnify hereunder (a "Proposed
Adjustment"), the PDM Stockholder shall give notice to the Surviving
Corporation of the Proposed Adjustment promptly after receipt of such notice
from a taxing authority. Upon receipt of such notice from the PDM Stockholder,
the Surviving Corporation may request that the PDM Stockholder contest such
Proposed Adjustment and the PDM Stockholder shall permit the Surviving
Corporation to participate in (but not to control) such proceedings. If the
Surviving Corporation requests that any Proposed Adjustment be contested, then
the PDM Stockholder shall, at the Surviving Corporation's expense, contest the
Proposed Adjustment or at the option of the Surviving Corporation permit the
Surviving Corporation to contest the Proposed Adjustment (including pursuing
all administrative and judicial appeals and processes). The Surviving
Corporation shall pay to the PDM Stockholder all reasonable costs and expenses
(including reasonable attorneys' and accountants' fees) that the PDM
Stockholder may incur in contesting such Proposed Adjustments. The PDM
Stockholder shall not make, accept or enter into a settlement or other
compromise, with respect to any Taxes indemnified hereunder, or forego or
terminate any proceeding undertaken hereunder without the consent of the
Surviving Corporation, which consent shall not be unreasonably withheld. The
PDM Stockholder will reasonably assist if the Surviving Corporation contests
any Proposed Adjustment.
(f) If the Surviving Corporation receives notice of an intention
by a taxing authority to audit any return of the Surviving Corporation that
includes any item of income, gain, deduction, loss or credit reported by the
Surviving Corporation with respect to the period after the Merger during which
the Surviving Corporation is a C corporation that the Surviving Corporation has
reason to believe may affect the PDM Stockholder's tax returns during the S
Corporation Period, the Surviving Corporation shall inform the PDM Stockholder
in writing, of the audit promptly after receipt of such notice. If the
Surviving Corporation receives notice from a taxing authority of any proposed
adjustment for which the PDM Stockholder may be
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required to indemnify the Surviving Corporation hereunder (a "Surviving
Corporation Proposed Adjustment"), the Surviving Corporation shall give notice
to the PDM Stockholder of the Surviving Corporation Proposed Adjustment
promptly after receipt of such notice from a taxing authority. Upon receipt of
such notice from the Surviving Corporation, the PDM Stockholder may, by in turn
giving prompt written notice to the Surviving Corporation, request that the
Surviving Corporation contest such Surviving Corporation Proposed Adjustment.
If the PDM Stockholder requests that any Surviving Corporation Proposed
Adjustment be contested, then the Surviving Corporation shall contest the
Surviving Corporation Proposed Adjustment (including pursuing all
administrative and judicial appeals and processes) at the PDM Stockholder's
expense and shall permit the PDM Stockholder to participate in (but not to
control) such proceeding.
(g) The Surviving Corporation and the PDM Shareholder shall
cooperate fully with each other in all matters relating to Taxes and in the
determination of amounts payable hereunder. In the case of disagreement as to
the course of action to be pursued in dealing with taxing authorities
(including, without limitation, matters with respect to preparation and filing
of tax returns, conduct of audits, and proceedings in courts), the decision of
the party (the Surviving Corporation, on the one hand, or the PDM Stockholder,
on the other hand) who will economically benefit from or be burdened by the
course of action (or in the case both parties benefit and/or are burdened, the
decision of the party with the greatest benefit or burden) shall control.
9.5. STOCK OPTIONS. Promptly after the Effective Time of the
Merger, FYI shall grant to employees of the Surviving Corporation as selected
by Brian E. Whiteside nonqualified stock options to acquire an aggregate of
twenty thousand (20,000) shares of FYI Stock in accordance with the terms of
the FYI 1995 Stock Option Plan (the "Stock Option Plan"). Such stock options
shall have a per share exercise price equal to the Fair Market Value (as
defined in the Stock Option Plan) per share on the date of the Closing and
shall vest and become exercisable in twenty- five percent (25%) increments on
the date of grant and on each of the first through third anniversaries thereof
in accordance with the procedural terms set forth on the Stock Option Plan.
10. INDEMNIFICATION
The Stockholders, FYI and Newco each make the following covenants that
are applicable to them, respectively. It is understood and agreed that
references to the Company shall mean Premier with respect to the Premier
Stockholders and shall mean PDM with respect to the PDM Stockholder.
10.1. FYI LOSSES.
(a) (i) Each of the Stockholders severally in respect of
their respective representations and warranties in Section 5(B), (ii) Brian E.
Whiteside in respect of the representations and warranties in Section 5(A) and
in respect of items (b), (c) and (d) below in this Section 10.1(a), agrees to
indemnify and hold harmless FYI, Newco and the Surviving Corporation, and their
respective directors, officers, employees, representatives, agents and
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attorneys from, against and in respect of any and all FYI Losses (as defined
below) suffered, sustained, incurred or required to be paid by any of them by
reason of (a) any representation or warranty made by the Company or the
Stockholders in or pursuant to this Agreement (including, without limitation,
the representations and warranties contained in any certificate delivered
pursuant hereto) being untrue or incorrect in any respect; (b) any liability
for warranty claims arising from the sale of goods or services by the Company
through the Closing Date; (c) the termination of or withdrawal by the Company
or any Group Member from any employee pension benefit plan, as defined in
Section 3(2)(A) of ERISA that is maintained pursuant to a collective bargaining
agreement under which more than one employer makes contributions and to which
the Company or any Group Member is then making or accruing an obligation to
make contributions or has within the preceding five (5) plan years made
contributions; or (d) the items described in Schedule 5.16 hereof, except in
any instance and to the extent FYI Losses result from the negligence or
misconduct of FYI, Newco or the Surviving Corporation. Brian E. Whiteside
shall indemnify and hold harmless FYI, Newco and the Surviving Corporation, and
their respective representatives, agents and attorneys from, against and in
respect of any and all FYI Losses suffered, sustained, incurred or required to
be paid by them by reason of any failure by the Company and Mr. Whiteside to
observe or perform its or his covenants and agreements set forth in this
Agreement or in any other agreement or document executed by it or him in
connection with the transactions contemplated hereby, and each other
Stockholder shall indemnify and hold harmless on a several basis FYI, Newco and
the Surviving Corporation and their respective directors, officers, employees,
representatives, agents and attorneys from, against and in respect of any and
all FYI Losses suffered, sustained, incurred or required to be paid by them by
reason of any failure by such Stockholder to observe or perform his or her
covenants and agreements set forth in this Agreement or in any other agreement
or document executed by such Stockholder in connection with the transactions
contemplated hereby.
(b) "FYI Losses" shall mean all damages (including,
without limitation, amounts paid in settlement with the Stockholders' consent,
which consent may not be unreasonably withheld), losses, obligations,
liabilities, claims, deficiencies, costs and expenses (including, without
limitation, reasonable attorneys' fees), penalties, fines, interest and
monetary sanctions, including, without limitation, reasonable attorneys' fees
and costs incurred to comply with injunctions and other court and Agency
orders, and other costs and expenses incident to any suit, action,
investigation, claim or proceeding or to establish or enforce the rights of
FYI, Newco and the Surviving Corporation or such other persons to
indemnification hereunder.
10.2. ENVIRONMENTAL INDEMNITY.
(a) Brian E. Whiteside agrees to indemnify and hold
harmless FYI, Newco and the Surviving Corporation, and their respective
directors, officers, employees, representatives, agents and attorneys from,
against and in respect of any and all Environmental Costs (as defined below),
arising in any manner in connection with: (i) the presence with the knowledge
of the Stockholders at or on any property now or formerly owned, operated or
leased by the Company at the time of the Company's operation or lease thereof
of any Hazardous Substances or the
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release, leak, discharge, spill, disposal, migration or emission of Hazardous
Substances from any such property at the time of the Company's operation or
lease thereof; (ii) the failure of the Company to comply with any applicable
Environmental Requirements prior to the Closing Date; or (iii) the
transportation to, disposal at, or migration onto or into adjacent property or
any off-site location of any Hazardous Substances from property now or formerly
owned, operated or leased by the Company at the time of the Company's operation
or lease thereof, whether or not the transportation or disposal was conducted
in full compliance with Environmental Requirements.
(b) The obligations of this Section 10.2 shall include
the obligation to defend the Indemnified Parties (as defined below) against any
claim or demand for Environmental Costs, the obligation to pay and discharge
any Environmental Costs imposed on Indemnified Parties, and the obligation to
reimburse Indemnified Parties for any Environmental Costs incurred or suffered,
provided in each instance that the claim for Environmental Costs arises in
connection with a matter for which Indemnified Parties are entitled to
indemnification under this Agreement. The obligation to reimburse the
Indemnified Parties shall also include the costs and expenses (including,
without limitation, reasonable attorneys' fees) to establish or enforce the
rights of FYI, Newco and the Surviving Corporation or such other persons to
indemnification hereunder.
(c) "Environmental Costs" shall mean any of the following
that arise in any manner regardless of whether based in contract, tort, implied
or express warranty, strict liability, Environmental Requirement or otherwise:
all liabilities, losses, judgments, damages, punitive damages, consequential
damages, treble damages, costs and expenses (including, without limitation,
reasonable attorneys' fees and fees and disbursements of environmental
consultants, all costs related to the performance of any required or necessary
assessments, investigations, remediation, response, containment, closure,
restoration, repair, cleanup or detoxification of any impacted property, the
preparation and implementation of any maintenance, monitoring, closure,
remediation, abatement or other plans required by any governmental agency or by
Environmental Requirements and any other costs recovered or recoverable under
any Environmental Requirement), fines, penalties, or monetary sanctions.
Environmental Costs shall include without limitation: (i) damages for personal
injury or death, or injury to property or to natural resources; (ii) damage to
real property or damage resulting from the loss of the use of all or any part
of the property, including but not limited to business loss; and (iii) the cost
of any demolition, rebuilding or repair of any property required by
Environmental Requirements or necessary to restore such property to its
condition prior to damage caused by an environmental condition or by the
remediation of an environmental condition.
10.3. EMPLOYEE COMPENSATION AND BENEFITS. Brian E. Whiteside agrees
to indemnify and hold FYI, Newco and the Surviving Corporation, and their
respective directors, officers, employees, representatives, agents and
attorneys harmless from and against any and all claims made by employees of the
Company, regardless of when made, for wages, salaries, bonuses, pension,
workmen's compensation, medical insurance, disability, vacation, severance, pay
in lieu of notice, sick benefits or other compensation or benefit arrangements
to the extent the same are
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based on employment service rendered to the Company prior to the Closing Date
or injury or sickness occurring prior to the Closing Date and are not scheduled
pursuant to this Agreement or reserved for on the Financial Statements
(collectively, "Employee Claims").
10.4. STOCKHOLDER LOSSES.
(a) FYI and Newco jointly and severally agree to
indemnify and hold harmless the Stockholders, and their respective agents, and
attorneys, for and in respect of any and all Stockholder Losses (as defined
below) suffered, sustained, incurred or required to be paid by any of the
Stockholders by reason of (i) any representation or warranty made by FYI or
Newco in or pursuant to this Agreement (including, without limitation, the
representations and warranties contained in any certificate delivered pursuant
hereto) being untrue or incorrect in any respect; (ii) any failure by FYI or
Newco to observe or perform its covenants and agreements set forth in this
Agreement or any other agreement or document executed by it in connection with
the transactions contemplated hereby; or (iii) any liability for warranty
claims arising from the sale of goods or services by the Company subsequent to
the Closing Date, except in any instance and to the extent Stockholder Losses
result from the negligence or misconduct of the Stockholders or any of them
(with respect to periods prior to the Closing Date).
(b) "Stockholder Losses" shall mean all damages
(including, without limitation, amounts paid in settlement with the consent of
FYI and Newco, which consent may not be reasonably withheld), losses,
obligations, liabilities, claims, deficiencies, costs and expenses (including,
without limitation, reasonable attorneys' fees), penalties, fines, interest and
monetary sanctions, including, without limitation, reasonable attorneys' fees
and costs incurred to comply with injunctions and other court and Agency
orders, and other costs and expenses incident to any suit, action,
investigation, claim or proceeding or to establish or enforce the right of the
Stockholders or such other persons to indemnification hereunder.
10.5. INDEMNIFICATION FOR CERTAIN TAX MATTERS. (a) The PDM
Stockholder shall indemnify, defend and hold harmless the Surviving Corporation
from and against the Surviving Corporation's liability with respect to all
Taxes, including without limitation interest and additions to Taxes, resulting
from any final determination (or settlement) that all or any portion of the S
Corporation Taxable Income is taxable to the Surviving Corporation because the
S election was not effective or such S election was revoked or the S
corporation status of the Company was terminated prior to the S Termination
Date.
(b) The Premier Stockholders shall indemnify, defend and hold
harmless the Surviving Corporation from and against the liability of Premier or
the Surviving Corporation with respect to all Taxes, including interest and
additions to Taxes, resulting from any final determination (or settlement) that
the Merger of Premier into Newco fails to qualify as a tax-free transaction as
to Premier and/or the Surviving Corporation pursuant to Section 368(a)(1)(A)
and Section 368(a)(2)(D) of the Code as a result of any breach of a
representation, warranty or covenant of the Premier or a Premier Stockholder.
FYI and the Surviving Corporation shall indemnify, defend and hold harmless the
Premier Stockholders from and against the liability of the Premier
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<PAGE> 44
Stockholders, Premier and the Surviving Corporation with respect to all Taxes,
resulting from any final determination (or settlement) that the Merger of
Premier into Newco fails to qualify as a tax- free transaction as to the
Premier Stockholders, Premier and/or the Surviving Corporation pursuant to
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code as a result of any
breach of a representation, warranty or covenant by FYI or Newco.
10.6. NOTICE OF LOSS. Except to the extent set forth in the next
sentence, a party to the Agreement will not have any liability under the
indemnity provisions of this Agreement with respect to a particular matter
unless a notice setting forth in reasonable detail the breach or other matter
which is asserted has been given to the Indemnifying Party (as defined below)
and, in addition, if such matter arises out of a suit, action, investigation,
proceeding or claim, such notice is given promptly, but in any event within
thirty (30) days after the Indemnified Party (as defined below) is given notice
of the claim or the commencement of the suit, action, investigation or
proceeding. Notwithstanding the preceding sentence, failure of the Indemnified
Party to give notice hereunder shall not release the Indemnifying Party from
its obligations under this Section 10, except to the extent the Indemnifying
Party is actually prejudiced by such failure to give notice. With respect to
FYI Losses, Environmental Costs, Employee Claims and the matters described in
Section 10.5, Brian E. Whiteside and the other Premier Stockholders (to the
extent set forth in Section 10.1(a)) shall be the Indemnifying Party and FYI
and Newco and their respective directors, officers, employees, representatives,
agents and attorneys shall be the Indemnified Parties. With respect to
Stockholder Losses and the matters described in the second sentence of Section
10.5(b), FYI and Newco shall be the Indemnifying Party and the Stockholders and
their respective agents and attorneys shall be the Indemnified Party.
10.7. RIGHT TO DEFEND. Upon receipt of notice of any suit, action,
investigation, claim or proceeding for which indemnification might be claimed
by an Indemnified Party, the Indemnifying Party shall be entitled to defend,
contest or otherwise protect against any such suit, action, investigation,
claim or proceeding at its own cost and expense, and the Indemnified Party must
cooperate in any such defense or other action. The Indemnified Party shall
have the right, but not the obligation, to participate at its own expense in
defense thereof by counsel of its own choosing, but the Indemnifying Party
shall be entitled to control the defense unless the Indemnified Party has
relieved the Indemnifying Party from liability with respect to the particular
matter or the Indemnifying Party fails to assume defense of the matter. In the
event the Indemnifying Party shall fail to defend, contest or otherwise protect
in a timely manner against any such suit, action, investigation, claim or
proceeding, the Indemnified Party shall have the right, but not the obligation,
thereafter to defend, contest or otherwise protect against the same and make
any compromise or settlement thereof and recover the entire cost thereof from
the Indemnifying Party including, without limitation, reasonable attorneys'
fees, disbursements and all amounts paid as a result of such suit, action,
investigation, claim or proceeding or the compromise or settlement thereof;
provided, however, that the Indemnified Party must send a written notice to the
Indemnifying Party of any such proposed settlement or compromise, which
settlement or compromise the Indemnifying Party may reject, in its reasonable
judgment, within thirty (30) days of receipt of such notice. Failure to reject
such notice within such thirty (30) day
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<PAGE> 45
period shall be deemed an acceptance of such settlement or compromise. The
Indemnified Party shall have the right to effect a settlement or compromise
over the objection of the Indemnifying Party; provided, that if (i) the
Indemnifying Party is contesting such claim in good faith or (ii) the
Indemnifying Party has assumed the defense from the Indemnified Party, the
Indemnified Party waives any right to indemnity therefor. If the Indemnifying
Party undertakes the defense of such matters, the Indemnified Party shall not,
so long as the Indemnifying Party does not abandon the defense thereof, be
entitled to recover from the Indemnifying Party any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof other than the reasonable costs of investigation undertaken by the
Indemnified Party with the prior written consent of the Indemnifying Party.
10.8. COOPERATION. Each of FYI, Newco, the Surviving Corporation,
the Company and the Stockholders, and each of their affiliates, successors and
assigns shall cooperate with each other in the defense of any suit, action,
investigation, proceeding or claim by a third party and, during normal business
hours, shall afford each other access to their books and records and employees
relating to such suit, action, investigation, proceeding or claim and shall
furnish each other all such further information that they have the right and
power to furnish as may reasonably be necessary to defend such suit, action,
investigation, proceeding or claim, including, without limitation, reports,
studies, correspondence and other documentation relating to Environmental
Protection Agency, Occupational Safety and Health Administration, and Equal
Employment Opportunity Commission matters.
10.9. SATISFACTION OF CLAIMS FROM ESCROW. FYI and Newco shall have
the option of recovering amounts owing thereto pursuant to Sections 10.1, 10.2
and 10.3 for FYI Losses, Environmental Costs and Employee Claims from the
Stockholders or from the funds held by it as described in Section 3.1(a).
10.10. LIMITATIONS OF INDEMNIFICATION; PROPORTIONATE PAYMENTS. FYI,
Newco, the Surviving Corporation and the other persons or entities indemnified
pursuant to Sections 10.1, 10.2 and 10.3 shall not assert any claim for
indemnification hereunder until such time as and solely to the extent that the
aggregate of all claims that such persons may have against the Indemnifying
Parties shall exceed $5,000.00 with respect to a single claim or $25,000.00
with respect to all claims. Any amounts paid to Premier and/or PDM pursuant to
this Section 10 shall be paid in the same proportion of FYI Stock, valued at
the then-fair market value thereof, and cash as set forth on Annex IIA or IIB,
as the case may be.
11. SECURITIES ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The FYI Stock acquired by the Stockholders pursuant to this Agreement
is being acquired solely for their own accounts, for investment purposes only,
and with no present intention of distributing, selling or otherwise disposing
of it in connection with a distribution.
11.1. TRANSFER RESTRICTIONS. For a period of two (2) years from
the Closing, no
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<PAGE> 46
Stockholder shall (a) sell, assign, exchange, transfer, encumber, pledge,
distribute or otherwise dispose of (i) any shares of FYI Stock received by the
Stockholder at the Effective Time of the Merger, or (ii) any interest
(including, without limitation, an option to buy or sell) in any such shares of
FYI Stock, in whole or in part, and no such attempted transfer shall be treated
as effective for any purpose; or (b) engage in any transaction, whether or not
with respect to any shares of FYI Stock or any interest therein, the intent or
effect of which is to reduce the risk of owning the shares of FYI Stock
acquired pursuant to Section 2 hereof (including, by way of example and not
limitation, engaging in put, call, short-sale, straddle or similar market
transactions). The certificates evidencing the FYI Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as FYI may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED OR OTHERWISE
DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE,
PLEDGE, DISTRIBUTION OR OTHER DISPOSITION PRIOR TO THE SECOND
ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
Each of the Stockholders will execute and deliver to FYI prior to or at the
Closing a Lock-Up Agreement containing the foregoing agreements. The
agreements in this Section 11.1 and in the Lock-Up Agreement shall not apply to
the FYI Stock, if any, to be received by the Stockholders pursuant to the
Earnout (as defined in Annex IIA).
12. GENERAL
12.1. COOPERATION. Premier, PDM, the Stockholders, FYI and Newco
shall each deliver or cause to be delivered to the other on the Closing Date,
and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. Each of Premier and PDM will cooperate and use
its reasonable efforts to have the present officers, directors and employees
thereof cooperate with FYI on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
Tax return filing obligations, actions, proceedings, arrangements or disputes
of any nature with respect to matters pertaining to all periods prior to the
Closing Date.
12.2. SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS AND
WARRANTIES.
(a) Covenants and Agreements. All covenants and
agreements made hereunder
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<PAGE> 47
or pursuant hereto or in connection with the transactions contemplated hereby
shall survive the Closing and shall continue in full force and effect thereafter
according to their terms without limit as to duration.
(b) Representations and Warranties. All representations
and warranties contained herein shall survive the Closing and shall continue in
full force and effect thereafter for a period of two (2) years following the
Closing, except that (a) the representations and warranties contained in
Section 5.8 and Section 6.12 hereof shall survive until the earlier of (i) the
expiration of the applicable periods (including any extensions) of the
respective statutes of limitation applicable to the payment of the Taxes to
which such representations and warranties relate without an assertion of a
deficiency in respect thereof by the applicable taxing authority or (ii) the
completion of the final audit and determinations by the applicable taxing
authority and final disposition of any deficiency resulting therefrom, (b) the
representations and warranties contained in Section 5.19 shall survive until
the expiration of the applicable period of the statutes of limitation
applicable to ERISA matters, and (c) the representations and warranties
contained in Sections 5.1, 5.2 and 5.3 and Sections 6.1, 6.2, 6.3 and 6.4 shall
survive indefinitely.
12.3. SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of FYI, and the heirs and legal representatives of the Stockholders.
12.4. ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, Premier, PDM, Newco and FYI, and supersede any prior agreement
and understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and this Agreement and
the Annexes hereto may be modified or amended only by a written instrument
executed by the Stockholders, Premier, PDM, Newco and FYI, acting through their
respective officers, duly authorized by their respective Boards of Directors.
12.5. COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original and
all of which together shall constitute but one and the same instrument.
12.6. BROKERS AND AGENTS. Except as disclosed on Schedule 12.6,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
12.7. EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, (i) FYI and Newco will pay the fees, expenses and
disbursements of FYI and
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<PAGE> 48
Newco and their respective agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in the
performance and compliance with all conditions to be performed by FYI under
this Agreement, and (ii) the Stockholders will pay from personal funds and not
from the funds of Premier or PDM, the fees, expenses and disbursements of its
counsel incurred in connection with the subject matter of this Agreement after
April 30, 1996 and not booked prior to May 1, 1996. The Stockholders
acknowledge that they, and not the Company or FYI, will pay all taxes due upon
receipt of the consideration payable to the Stockholders pursuant to Section 2
hereof.
12.8. NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by (a) depositing the same in
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, (b) delivering the same
in person to an officer or agent of such party, or (c) telecopying the same
with electronic confirmation of receipt.
(i) If to FYI or Newco, addressed to them at:
F.Y.I. Incorporated
Premier Acquisition Corp.
3232 McKinney Avenue, Suite 900
Dallas, Texas 75204
Telecopy No.: (214) 953-7556
Attn: Margot T. Lebenberg, Esq.
with copies to:
Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Telecopy No.: (214) 740-8800
Attn: Charles C. Reeder, Esq.
(ii) If to the Stockholders, addressed thereto at the
address set forth on Annex I, with copies to such
counsel as is set forth with respect to the
Stockholders on such Annex I;
(iii) If to Premier or PDM, addressed to:
Premier Document Management, Inc.
PDM Services, Inc.
1201 4th Avenue S, Suite 202
Seattle, Washington 98134
Telecopy No.: (206) 340-9031
Attn: Brian E. Whiteside
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<PAGE> 49
and marked "Personal and Confidential"
with copies to:
Carr, McClellan, Ingersoll, Thompson & Horn
Professional Corporation
216 Park Road
Burlingame, California 94010
Telecopy No.: (415) 342-7685
Attn: Mark A. Cassanego, Esq.
L. Michael Telleen, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 12.8 from time to time.
12.9. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
12.10. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or
of any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
12.11. TIME. Time is of the essence with respect to this Agreement.
12.12. REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
12.13. REMEDIES CUMULATIVE. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
12.14. CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
12.15. MODIFICATION. It is the intent of the parties that the Premier
transaction be structured as a tax-free reorganization under Section 368(a) of
the Code.
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<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
F.Y.I. INCORPORATED
By: /s/ Ed H. Bowman, Jr.
-------------------------------
Name: Ed H. Bowman, Jr.
Title: President and
Chief Executive Officer
PREMIER ACQUISITION CORP.
By: /s/ David Lowenstein
-------------------------------
Name: David Lowenstein
Title: Vice President
PREMIER DOCUMENT MANAGEMENT, INC.
By: /S/ Brian Whiteside
-------------------------------
Name: Brian Whiteside
Title: President
PDM SERVICES, INC.
By: /S/ Brian Whiteside
-------------------------------
Name: Brian Whiteside
Title: President
-44-
<PAGE> 51
THE STOCKHOLDERS:
PDM STOCKHOLDER:
/s/ Brian E. Whiteside
-----------------------------
Brian E. Whiteside
PREMIER STOCKHOLDERS:
/s/ Brian E. Whiteside
-----------------------------
Brian E. Whiteside
/s/ Christopher S. Moore
-----------------------------
Christopher S. Moore
/s/ Lynnette C. Pomerville
-----------------------------
Lynnette C. Pomerville
/s/ Gary T. Sievert
-----------------------------
Gary T. Sievert
-45-
<PAGE> 52
SPOUSES' CONSENT
The undersigned, the spouses of the above-listed Stockholders, do
hereby consent to the execution and performance of this Agreement by their
respective spouses with respect to any community property interest that the
undersigned may have in the stock of Premier Document Management, Inc. or PDM
Services, Inc.
/s/ Cynthia A. Whiteside /s/ William Pomerville
- ------------------------ ----------------------
Cynthia A. Whiteside William Pomerville
/s/ Pamela S. Russell
- ---------------------
Pamela S. Russell
-46-
<PAGE> 53
ANNEX I
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
PREMIER ACQUISITION CORP.
PREMIER DOCUMENT MANAGEMENT, INC.
PDM SERVICES, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
STOCKHOLDERS OF PREMIER:
<TABLE>
<CAPTION> Number of Shares
Name and Address of Premier Stock Date of Acquisition
- ---------------- ---------------- -------------------
<S> <C> <C>
Brian E. Whiteside 18,200 September 1, 1984
15643 SE 42nd Court and December 31,
Bellevue, Washington 98006 1992
Christopher S. Moore 600 December 31, 1992
520 Second Avenue W., #208
Seattle, Washington 98119
Lynnette C. Pomerville 600 December 31, 1992
12605 E. Gibson Road, #66
Everett, Washington 98204
Gary T. Sievert 600 December 31, 1992
3223 NE 104th Street
Seattle, Washington 98125
</TABLE>
STOCKHOLDERS OF PDM:
<TABLE>
<CAPTION> Number of Shares
Name and Address of PDM Stock Date of Acquisition
- ---------------- --------------- -------------------
<S> <C> <C>
Brian E. Whiteside 100,000 October 7, 1993
15643 SE 42nd Court
Bellevue, Washington 98006
</TABLE>
<PAGE> 54
ANNEX IIA
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
PREMIER ACQUISITION CORP.
PREMIER DOCUMENT MANAGEMENT, INC.
PDM SERVICES, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
Aggregate consideration to be paid to the Premier Stockholders:
Cash - $858,850 ($42.94 per share of Premier Stock),
including $200,000 of such amount to be held by the Surviving
Corporation pursuant to Section 3.1(a) hereof.
Stock - 69,919 shares of FYI Stock (and cash in the amount of
$47.30 in lieu of fractional shares), where the market value
of the FYI Stock shall be deemed to be $17.25, which
constitutes the lowest closing price for the FYI Stock as
reported by the Nasdaq National Market System for the period
from April 17, 1996 to the third trading day preceding (and
not including) the date of the Closing.
Earnout - A "growth" earnout (the "Earnout") equal to 750% of
the amount which the Surviving Corporation's earnings before
interest, taxes, depreciation and amortization ("EBITDA") is
in excess of the following target for the specified 8-month
period:
<TABLE>
<CAPTION>
For the Eight-Month Period
EBITDA Target Ending Dec. 31,
------------- --------------------------
<S> <C>
$406,000 1996
</TABLE>
; provided, however, in no event may the Earnout amount exceed
$6,000,000.
In the event that the eight-month capital
expenditures of the Surviving Corporation are in excess of
$75,000, the Earnout EBITDA target will be increased by an
amount equal to the amount of eight-month capital expenditures
in excess of $75,000 times 15%. For purposes of calculating
EBITDA during the Earnout period, neither the severance
payments to employees of the Surviving Corporation up to
$10,000 nor the $225,000 payment of compensation described in
Section 9.1 shall be considered as an expense. For purposes
of these calculations, the Surviving Corporation's EBITDA and
capital expenditures shall be deemed to include the
<PAGE> 55
aggregate EBITDA and capital expenditures of Premier and PDM
for the period May 1, 1996 through December 31, 1996.
Payment of the Earnout, if earned, will be made by
delivery on March 1, 1997 of not more than 49% of the
aggregate Earnout payment in cash payable to the Stockholders,
with the balance payable by delivery of FYI Stock on such date
valued at the lowest simple average closing price thereof for
any ten consecutive business day period between December 1,
1996 and February 28, 1997 on the Nasdaq National Market
System. Accordingly, the maximum number of shares of FYI
Stock that may be issued to the Premier Stockholders pursuant
to the Earnout may not exceed that whole number of shares of
FYI Stock having a market value equal to $3,060,000. After
calculation of the Earnout, the Surviving Corporation shall
provide the Stockholders with copies of all workpapers and
other relevant documents to verify the calculation of the
Earnout.
FYI agrees that subsequent to the Closing Date and
until the expiration of the period of the Earnout, it shall
maintain the separate corporate existence of the Surviving
Corporation and shall operate the Surviving Corporation as a
wholly- owned subsidiary of FYI with separate books of account
and records as shall be necessary to calculate the Earnout.
No Premier Stockholder shall sell, assign, exchange
or otherwise transfer its rights to the Earnout amount, in
whole or in part, and any such attempted transfer shall be
treated as effective for any purpose.
<PAGE> 56
ANNEX IIB
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
PREMIER ACQUISITION CORP.
PREMIER DOCUMENT MANAGEMENT, INC.
PDM SERVICES, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
Aggregate consideration to be paid to the PDM Stockholder:
Cash - $300,000 ($3.00 per share of PDM Stock).
<PAGE> 57
ANNEX III
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
PREMIER ACQUISITION CORP.
PREMIER DOCUMENT MANAGEMENT, INC.
PDM SERVICES, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
FYI CHARTER DOCUMENTS
<PAGE> 58
ANNEX IV
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
PREMIER ACQUISITION CORP.
PREMIER DOCUMENT MANAGEMENT, INC.
PDM SERVICES, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
OPINION OF COUNSEL TO FYI AND NEWCO
<PAGE> 59
ANNEX V
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
PREMIER ACQUISITION CORP.
PREMIER DOCUMENT MANAGEMENT, INC.
PDM SERVICES, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
EMPLOYMENT AGREEMENT
<PAGE> 60
ANNEX VI
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
PREMIER ACQUISITION CORP.
PREMIER DOCUMENT MANAGEMENT, INC.
PDM SERVICES, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
STOCKHOLDER RELEASE
<PAGE> 61
ANNEX VII
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
PREMIER ACQUISITION CORP.
PREMIER DOCUMENT MANAGEMENT, INC.
PDM SERVICES, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
OPINION OF COUNSEL TO PREMIER AND PDM
<PAGE> 62
ANNEX VIII
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
PREMIER ACQUISITION CORP.
PREMIER DOCUMENT MANAGEMENT, INC.
PDM SERVICES, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
NONCOMPETITION AGREEMENT
<PAGE> 63
ANNEX IX
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BY AND AMONG
F.Y.I. INCORPORATED
PREMIER ACQUISITION CORP.
PREMIER DOCUMENT MANAGEMENT, INC.
PDM SERVICES, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
LOCK-UP AGREEMENT
<PAGE> 1
EXHIBIT 10.19
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 28th day of June, 1996, by and among ROBERT A. COOK AND STAFF,
INC. and RAC SERVICES, INC., each a California corporation with its principal
offices located at 2025 Gateway Place, Suite 330, San Jose, California 95110
(each of Robert A. Cook and Staff, Inc. and RAC Services, Inc. a "Seller" and
collectively, "Sellers"), ROBERT A. COOK, ROBERT A. COOK AND ANNA M. COOK AS
CO- TRUSTEES OF THE COOK 1993 LIVING TRUST, constituting all of the
shareholders of Sellers (collectively, "Shareholder"), ROBERT A. COOK
ACQUISITION CORP. ("Cook Acquisition"), a Delaware corporation with its
principal offices at 3232 McKinney Avenue, Suite 900, Dallas, Texas 75204, RAC
(California) ACQUISITION CORP. ("RAC Acquisition"), a Delaware corporation with
its principal offices at 3232 McKinney Avenue, Suite 900, Dallas, Texas 75204
(each of Cook Acquisition and RAC Acquisition a "Buyer" and collectively,
"Buyers"), and solely for the purposes of Articles IV and VI, Section 8.3,
Section 11.5 and Section 12.1 hereof, F.Y.I. INCORPORATED, a Delaware
corporation with its principal offices at 3232 McKinney Avenue, Suite 900,
Dallas, Texas 75204 ("FYI").
WHEREAS, Sellers desire to sell to Buyers, and Buyers desire to buy
from Sellers, substantially all of the assets of the litigation support
business conducted by Sellers (the "Business"); and
WHEREAS, in connection with the purchase by Buyers from Sellers of the
assets described herein, (i) Buyers and Sellers will enter into a
noncompetition agreement (the "Seller Noncompetition Agreement"), (ii) Buyers
and Robert A. Cook will enter into a noncompetition agreement (the
"Shareholder Noncompetition Agreement" and collectively with the Seller
Noncompetition Agreement, the "Noncompetition Agreements"), and (iii) Robert A.
Cook will enter into a consulting agreement with Buyers (the "Shareholder
Consulting Agreement").
NOW, THEREFORE, for and in consideration of the mutual
representations, warranties, covenants and agreements hereinafter set forth and
other good and valuable consideration, and upon the terms and subject to the
conditions hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase and Sale of Assets. At the Closing (as that term
is defined in Section 9.1), Robert A. Cook and Staff, Inc. will sell, convey,
transfer, assign and deliver to Cook Acquisition, and Cook Acquisition will
acquire and accept from Robert A. Cook and Staff, Inc., and RAC Services, Inc.
will sell, convey, transfer, assign and deliver to RAC Acquisition, and RAC
Acquisition will acquire and accept from RAC Services, Inc., the following
assets and
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properties, free and clear of any and all options, pledges, mortgages, security
interests, liens, charges, adverse claims, rights, restrictions, burdens and
encumbrances whatsoever ("Encumbrances"):
(a) All of the real property leasehold interests of such Seller
described on Schedule 1.1A;
(b) All of the personal property of such Seller located on the
real property described on Schedule 1.1A and all other
tangible assets and properties of such Seller, wherever
located and whether or not described or referred to herein,
including, without limitation, all equipment, machinery,
tools, vehicles, inventories (including raw materials,
work-in-process, finished goods, other than finished goods
delivered by such Seller to others under consignment,
supplies in store, maintenance items and parts (which
hereinafter shall sometimes be collectively referred to as
the "Inventory")), prepaid accounts and prepaid expenses,
furniture, fixtures, fixed assets, books, reports and
records (including customer lists);
(c) The customer accounts, contracts, leases, franchises,
arrangements and commitments listed on Schedule 1.1B and no
others;
(d) All intangible properties and rights (other than contracts,
leases, arrangements and commitments), wherever located and
whether or not described or referred to herein, including,
without limitation, all know-how, trade secrets, technology,
all patents and patent applications and rights and licenses
thereunder, trade names, trademark registrations and
applications, common law trademarks, servicemarks,
copyrights and copyright registrations and applications;
(e) All transferable licenses, permits, certificates and
authorizations relating to the Business operations of such
Seller;
(f) All accounts receivable, evidences of indebtedness and
choses-in-action of such Seller; and
(g) Any other property or right, tangible or intangible, of such
Seller used in the Business (the items in (a) through (g)
hereof hereinafter collectively referred to as the
"Assets");
provided, however, that such Seller will not sell, convey, transfer, assign or
deliver to the applicable Buyer, and the applicable Buyer will not acquire from
such Seller, any and all contracts, leases, arrangements and commitments not
listed on Schedule 1.1B and the assets, properties and rights listed on
Schedule 1.1C (collectively, the "Excluded Assets").
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1.2 Transfer and Conveyance. Sellers shall execute and deliver
to Buyers at the Closing Bills of Sale and Assignment in substantially the
forms attached hereto as Exhibit A-1 and A-2 and all such other assignments,
endorsements and instruments of transfer as shall be necessary or appropriate
to carry out the intent of this Agreement and as shall be sufficient to vest in
Buyers title to all of the Assets and all right, title and interest of Sellers
thereto.
1.3 Assumption of Certain Obligations. Effective at the Closing
and subject to the terms set forth herein, at the Closing Cook Acquisition
shall assume and be liable for the obligations of Robert A. Cook and Staff,
Inc. to render performance arising after May 31, 1996 (the "Effective Date")
under the contracts, leases, arrangements and commitments of Robert A. Cook and
Staff, Inc. listed on Schedule 1.1B, and RAC Acquisition shall assume and be
liable for the obligations of RAC Services, Inc. to render performance arising
after the Effective Date under the contracts, leases, arrangements and
commitments of RAC Services, Inc. listed on Schedule 1.1B (collectively, the
"Assumed Liabilities") (but not any obligation for default or nonperformance
under said contracts, leases, arrangements and commitments arising prior to the
Closing). Buyers will not assume and will not be liable for any other debts,
contracts, leases, liabilities, arrangements, commitments, obligations,
restrictions, disabilities or duties of Sellers, other than those arising at or
after the Effective Date under the Assumed Liabilities listed on Schedule 1.1B.
Buyers shall execute and deliver to Sellers at the Closing Assumption
Agreements in substantially the form attached hereto as Exhibits B-1 and B-2.
ARTICLE II
PURCHASE PRICE AND OTHER PAYMENTS
2.1 Cash Purchase Price. The aggregate purchase price for the
Assets (the "Purchase Price") shall be $11,400,000.00.
2.2 Allocation of Purchase Price; Adjustment of Purchase Price.
The Purchase Price shall be allocated among the Assets as set forth on Schedule
2.2.
2.3 Method of Payment of Purchase Price; Other Amounts Payable
at the Closing. At the Closing, Buyers shall deliver to Sellers by certified
check or wire transfer of next business day funds to a bank account or bank
accounts designated by Sellers the aggregate amount of $10,400,001.00. The
balance of $1,000,000.00 of the Purchase Price shall be retained by Buyers for
a period of ninety (90) days from the date of the Closing as security and as an
offset for any breach of the representations, warranties, covenants and
agreements of Sellers and Shareholder and for Sellers' and Shareholder's
indemnification obligations, each as set forth herein, following which time
such amount shall be delivered to Sellers by certified check or wire transfer
to a bank account or bank accounts designated by Sellers.
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<PAGE> 4
2.4 Stub Amounts to Buyer. All net earnings and net cash flow
of each Seller with respect to the Business (other than earnings and cash flow
in the Excluded Assets) for the period from and after the Effective Date and
through the Closing Date shall be for the benefit of the applicable Buyer and
shall be included in the Assets conveyed to such Buyer at the Closing.
2.5 Bank Accounts. At or immediately prior to the Closing
Sellers shall withdraw an aggregate of $1,300,000.00 from the bank accounts to
be conveyed to Buyers as a portion of the Assets pursuant to this Agreement.
Within ninety (90) days following the Closing, Buyers and Sellers shall effect
reconciliations of such accounts at the Effective Date, with any excess amount
in such bank accounts delivered to Buyers at the Closing as determined by the
reconciliations (net of the monies withdrawn by Sellers) being promptly
returned by Buyers to Sellers, and any shortage in such bank accounts delivered
to Buyers at the Closing as determined by the reconciliations (net of the
monies withdrawn by Sellers) being promptly delivered by Sellers to Buyers (or,
at Buyers' option, being deducted by Buyers from that portion of the Purchase
Price retained pursuant to Section 2.3 hereof).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS AND SHAREHOLDER
Each Seller and Shareholder, jointly and severally, represents and
warrants to Buyers as follows:
3.1 Due Organization and Qualification. Each Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California, and has all requisite corporate power and
authority to own or lease its properties and to carry on its business as it is
presently being operated and in the place where such properties are owned or
leased and such business is conducted.
3.2 Title. Each Seller has, and upon conveyance of the Assets
to the applicable Buyer by Seller at the Closing, such Buyer will acquire and
hold good title to all interests in the leased properties as described in the
instruments of lease referred to in Schedule 1.1A, and good title to all of the
other Assets, whether real, personal or mixed, described in Schedule 3.2A as
owned by it, free and clear of any and all Encumbrances except as set forth on
Schedule 3.2A.
3.3 Inventory. The Inventory consists of current items of a
quality and quantity that are usable or marketable in the ordinary course of
the business of Sellers and items not usable in the business of Sellers have
been written down in value in accordance with the normal business practice of
Sellers to estimated net realizable market values.
3.4 Physical Properties. Set forth on Schedule 3.2A is a
description of (i) all vehicles owned or leased by Sellers and included among
the Assets (showing motor vehicle identification
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<PAGE> 5
numbers and whether owned or leased), (ii) all production and warehouse
machinery and equipment owned or leased by Sellers and included among the
Assets and (iii) all physical properties (other than the types of properties
referred to in (i) and (ii) above), real, personal or mixed, owned by or leased
to Sellers and included among the Assets, having an original cost in excess of
$1,000.00 (exclusive of Inventory). Sellers enjoy peaceable possession of all
properties owned or leased thereby.
3.5 Trademarks, Etc. Set forth on Schedule 3.5 is a list of all
trade names, trademark and servicemark registrations and applications or
registered trade dress rights, common law trademarks, United States and foreign
patents and patent applications and copyright registrations and applications
owned or used by Sellers or which they licensed to use or under which they
possess any rights ("Trademark and Patent Rights"). None of the products,
activities or operations of Sellers infringe, involve or have resulted in (i)
infringement of, or (ii) any claim or infringement of, any patent or patent
application, trade name, trademark or service mark registration or application,
common law trademark or trade dress rights, copyright or copyright registration
or application of any other person, firm or corporation; and no proceedings
have been instituted, are pending, or, to the best knowledge of Sellers and
Shareholder, threatened, which challenge the rights of Sellers in respect
thereof. None of the Trademark and Patent Rights, to the best of each Seller's
and Shareholder's knowledge, are being infringed by the products, activities,
operations, trade names, trademarks, service marks, trade dress rights or
copyrights of any other person or persons and none are subject to any
outstanding order, judgment, decree, stipulation or agreement restricting the
use thereof. Neither Seller has given or is bound by an agreement of
indemnification for patent, trade name, service mark, trademark or copyright
infringement as to any property produced, used or sold by it.
3.6 Compliance with Laws. Sellers (i) have complied with all
laws, regulations, licensing requirements and orders applicable to business or
personnel, (ii) have filed with the proper authorities all statements and
reports required by the laws, regulations, licensing requirements and orders to
which they or any of their employees (because of their activities on behalf of
their employers) are subject, and (iii) possess all necessary licenses,
franchises, permits and governmental authorizations to conduct their business
in the manner in which and in the jurisdictions and places where such
businesses are now conducted. Set forth on Schedule 3.6 is a list of all
material licenses, franchises, permits and governmental authorizations and all
applications pending before any agency or authority for the issuance of any
licenses, franchises, permits or governmental authorizations or the renewal
thereof.
3.7 Contracts. Set forth on Schedule 3.7 is a list of all
contracts, leases, arrangements and commitments (whether oral or written) by
which any of the Assets are directly affected or are bound. Except as set
forth on Schedule 3.7, neither Sellers nor any of the Assets is a party to or
is bound or affected by any contract, lease, arrangement or commitment (whether
oral or written) relating to: (i) the employment of any person other than
personnel employed at the pleasure of Sellers in the ordinary course of their
business at rates of compensation and on terms consistent with good business
practice; (ii) collective bargaining with, or any representation of any
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<PAGE> 6
employees by, any labor union or association; (iii) the acquisition of
services, supplies, equipment or other personal property involving more than
$5,000.00 or that is not terminable by a Seller upon not more than thirty (30)
days' notice without obligation on the part of such Seller; (iv) the purchase,
sale or lease of real property; (v) distribution, agency or construction; (vi)
lease of real or personal property as lessor or lessee or sublessor or
sublessee; (vii) lending or advancing of funds other than the extension of
credit to trade purchasers in the ordinary course of a Seller's business
consistent with good business practice; (viii) borrowing of funds or receipt of
credit other than by a Seller in the ordinary course of business consistent
with good business practice and except for trade payables in amounts and on
terms consistent with past practice; (ix) incurring of any obligation or
liability except for transactions engaged in by a Seller in the ordinary course
of their business consistent with good business practice; (x) the sale of
personal property (other than sales of Inventory in the ordinary course of
business consistent with good business practice) or services under which
payments due after the date of this Agreement exceed $5,000.00; and (xi) any
matter or transaction not in the ordinary course of the business of a Seller or
that is inconsistent with past business practice of such Seller.
3.8 Contract Defaults. Neither Seller is in default in any
material respect under any of the contracts, leases, arrangements and
commitments listed on Schedule 3.7, and such contracts, leases, arrangements
and commitments are legal, valid and binding obligations of the respective
parties thereto in accordance with their terms and, except to the extent
reflected in Schedule 3.7, have not been amended; and no defenses, offsets or
counterclaims thereto have been asserted or to the best knowledge of each
Seller and Shareholder, may be made, by any party thereto other than Sellers
nor has either Seller waived any substantial rights thereunder.
3.9 Litigation. Set forth on Schedule 3.9 is a list of all
actions, suits, proceedings, investigations or grievances pending against
Sellers or, to the best knowledge of each Seller and Shareholder, threatened
against either Seller, the business or any property or rights of a Seller, at
law or in equity or before or by any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign ("Agencies"). None of the actions, suits,
proceedings or investigations listed on Schedule 3.9 either (i) results or
would, if adversely determined, result in any material adverse change in the
business, operations or assets or the condition, financial or otherwise, or
results of operations of a Seller or (ii) affects or would, if adversely
determined, affect the right or ability of a Seller to carry on its business
substantially as now conducted. Neither Seller is subject to any continuing
court or Agency order, writ, injunction or decree applicable specifically to
the Assets, the business operations of such Seller or employees of such Seller,
or in default with respect to any order, writ, injunction or decree of any
court or Agency with respect to the Assets, its business, operations or
employees.
3.10 Corporate Power and Authority. The execution, delivery and
performance of this Agreement by Sellers, and all other agreements by and among
the parties, and the consummation by it of the transactions contemplated hereby
and thereby, have been duly authorized by all requisite corporate action and no
further action or approval is required in order to permit Sellers
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<PAGE> 7
to consummate the transactions contemplated hereby and thereby. This Agreement
constitutes, and all other agreements by and among the parties, when executed
and delivered in accordance with the terms thereof, will constitute the legal,
valid and binding obligations of each Seller, enforceable in accordance with
their terms. Each Seller has full power, authority and legal right to enter
into this Agreement, and all other agreements by and among the parties, and to
consummate the transactions contemplated hereby and thereby. The making and
performance of this Agreement, and all other agreements by and among the
parties, and the consummation of the transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof will not (i) conflict
with the Articles of Incorporation or the Bylaws of Sellers (collectively,
"Sellers' Charter Documents"), (ii) result in any breach or termination of, or
constitute a default under, or constitute an event that with notice or lapse of
time, or both, would become a default under, or result in the creation of any
Encumbrance upon any of the Assets under, or create any rights of termination,
cancellation or acceleration in any person under, any contract, lease,
arrangement or commitment, or violate any order, writ, injunction or decree, to
which either Seller is a party, by which any of the Assets, business or
operations of a Seller may be bound or affected or under which any of the
Assets, business or operations of a Seller receive benefits, (iii) result in
the loss or adverse modification of any license, franchise, permit or other
authorization granted to or otherwise held by a Seller and related to its
business operations or (iv) result in the violation of any provisions of law
applicable to a Seller, the violation of which could have an adverse effect
upon the Assets, business or operations of such Seller.
3.11 Financial Condition and Results of Operations. Each Seller
has delivered to Buyers its balance sheet as of December 31, 1995 for RAC
Services, Inc. and as of June 30, 1995 for Robert Cook and Staff, Inc. and the
related statements of operations, stockholder's equity and cash flows for the
three (3) fiscal years then ended, together with the balance sheet of such
Seller at May 31, 1996, and the related statements of income, cash flow and
operating expenses for the three-month period then ended, all of which are set
forth on Schedule 3.11 (collectively, the "Financial Statements"). The
Financial Statements (i) are accurate and in accordance with the books and
records and accounting methods of Sellers, (ii) constitute true, full and
complete disclosure of the financial position and results of operations of
Sellers as of the dates and for the periods indicated and (iii) have been
prepared in accordance with accounting principles consistently applied
throughout the periods involved except as noted therein. Except as may be set
forth on the Financial Statements or otherwise disclosed herein, there are no
liabilities, contingent or otherwise, by which either Seller or any of the
Assets or the Business may be bound or affected other than those incurred in
the ordinary course of business consistent with good business practice and
which are not materially adverse.
3.12 Employee Benefits. Each employee benefit plan within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), maintained or contributed to by either Seller or any of
the Group Members of Sellers (as defined below) (collectively, the "Plans") is
listed on Schedule 3.12, is in substantial compliance with applicable law and
has been administered and operated in all material respects in accordance with
its terms. Each Plan that is intended to be "qualified" within the meaning of
Section 401(a) of the
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Code has received a favorable determination letter from the Internal Revenue
Service (the "IRS") and no event has occurred and no condition exists that
could be expected to result in the revocation of any such determination. No
event that constitutes a "reportable event" (within the meaning of Section
4043(b) of ERISA) for which the 30-day notice requirement has not been waived
by the Pension Benefit Guaranty Corporation (the "PBGC") has occurred with
respect to any Plan. No Plan is subject to Title IV of ERISA, and neither
Sellers nor any Group Member has made any contributions to or participated in
any "multiple employer plan" (within the meaning of the Code or ERISA) or
"multi-employer plan" (as defined in Section 4001(a)(3) of ERISA). Full
payment has been made of all amounts that Sellers were required under the terms
of the Plans to have paid as contributions to such Plans on or prior to the
date hereof (excluding any amounts not yet due) and all amounts properly
accrued to date as liabilities of Seller that have not been paid have been
properly recorded on the Financials Statements, and no Plan that is subject to
Part 3 of Subtitle B of Title 1 of ERISA has incurred any "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the
Code), whether or not waived. Neither Seller and, to the best knowledge of
each Seller and Shareholder, no other "disqualified person" or "party in
interest" (within the meaning of Section 4975(e)(2) of the Code and Section
3(14) of ERISA, respectively) has engaged in any transactions in connection
with any Plan that could be expected to result in the imposition of a material
penalty pursuant to Section 502(i) of ERISA, damages pursuant to Section 409 of
ERISA or a tax pursuant to Section 4975(a) of the Code. No material claim,
action, proceeding, or litigation has been made, commenced or, to the best
knowledge of each Seller and Shareholder, threatened with respect to any Plan
(other than for benefits payable in the ordinary course and PBGC insurance
premiums). No Plan or related trust owns any securities in violation of Section
407 of ERISA. Neither Sellers nor any Group Member has incurred any liability
or taken any action, or has any knowledge of any action or event, that could
cause it to incur any liability (i) under Section 412 of the Code or Title IV
of ERISA with respect to any "single employer plan" (within the meaning of
Section 4001(a)(15) of ERISA), (ii) on account of a partial or complete
withdrawal (within the meaning of Section 4205 and 4203 of ERISA, respectively)
with respect to any "multi-employer plan" (within the meaning of Section 3(37)
of ERISA), (iii) on account of unpaid contributions to any such multi-employer
plan, or (iv) to provide health benefits or other non-pension benefits to
retired or former employees, except as specifically required by Section
4980B(f) of the Code. Except as set forth in Schedule 3.12, neither the
execution and delivery of this Agreement by Sellers or the consummation of the
transactions contemplated hereby will (i) entitle any current or former
employee of Sellers to severance pay, unemployment compensation or any similar
payment, (ii) accelerate the time of payment or vesting, or increase the amount
of, any compensation due to any such employee or former employee, or (iii)
directly or indirectly result in any payment made or to be made to or on behalf
of any person to constitute a "parachute payment" (within the meaning of
Section 280G of the Code). For purposes of this Agreement, "Group Member"
shall mean any member of any "affiliated service group" as defined in Section
414(m) of the Code that includes Sellers, any member of any "controlled group
of corporations" as defined in Section 1563 of the Code that includes either
Seller, or any member of any group of "trades or businesses under common
control" as defined by Section 414(c) of the Code that includes either Seller.
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3.13 Employees; Employee Relations.
(a) Schedule 3.13 sets forth (i) the name and current
annual salary (or rate of pay) and other compensation (including, without
limitation, normal bonus, profit-sharing and other compensation) now payable by
Sellers to each employee whose current total annual compensation or estimated
compensation is $15,000.00 or more, (ii) any increase to become effective after
the date of this Agreement in the total compensation or rate of total
compensation payable by Sellers to each such person, (iii) any increase to
become payable after the date of this Agreement by Sellers to employees other
than those specified in clause (i) of this Section 3.13(a), (iv) all presently
outstanding loans and advances (other than routine travel advances to be repaid
or formally accounted for within sixty (60) days) made by Sellers to, or made
to Sellers by, any director, officer or employee, (v) all other transactions
between a Seller and any director, officer or employee of such Seller since
December 31, 1995, and (vi) all accrued but unpaid flex-time off owing to any
officer or employee as of May 31, 1996 that is not disclosed on the Financial
Statements.
(b) Except as disclosed on Schedule 3.13, neither Seller
is a party to, or bound by, the terms of any collective bargaining agreement,
and neither Seller has experienced any material labor difficulties during the
last five years. Except as set forth on Schedule 3.13, there are no labor
disputes existing, or to the best knowledge of Sellers, threatened involving,
by way of example, strikes, work stoppages, slowdowns, picketing, or any other
interference with work or production, or any other concerted action by
employees. No charges or proceedings before the National Labor Relations
Board, or similar agency, exist, or to the best knowledge of each Seller and
Shareholder, are threatened.
(c) Each Seller's relationship with its respective
employees is good. Except as disclosed on Schedule 3.13, neither Seller is a
party to any employment contract with any individual or employee, either
express or implied. No legal proceedings, charges, complaints, or similar
actions exist under any federal, state or local laws affecting the employment
relationship including, but not limited to: (i) anti-discrimination statutes
such as Title VII of the Civil Rights Act of 1964, as amended (or similar state
or local laws prohibiting discrimination because of race, sex, religion,
national origin, age and the like); (ii) the Fair Labor Standards Act or other
federal, state or local laws regulating hours of work, wages, overtime and
other working conditions; (iii) requirements imposed by federal, state or local
governmental contracts such as those imposed by Executive Order 11246; (iv)
state laws with respect to tortious employment conduct, such as slander, false
light, invasion of privacy, negligent hiring or retention, intentional
infliction of emotional distress, assault and battery, or loss of consortium;
or (v) the Occupational Safety and Health Act, as amended, as well as any
similar state laws, or other regulations respecting safety in the workplace;
and to the best knowledge of each Seller and Shareholder, no proceedings,
charges, or complaints are threatened under any such laws or regulations and no
facts or circumstances exist that would give rise to any such proceedings,
charges, complaints, or claims, whether valid or not. Neither Seller is
subject to any settlement or consent decree with any present or former
employee, employee representative or any government or Agency relating to
claims of discrimination or other claims in respect to employment practices and
policies; and no
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government or Agency has issued a judgment, order, decree or finding with
respect to the labor and employment practices (including practices relating to
discrimination) of Sellers.
(d) Since December 31, 1994 neither Seller has incurred
any liability or obligation under the Worker Adjustment and Retraining
Notification Act or similar state laws. Neither Seller has laid off more than
ten percent (10%) of its employees at any single site of employment in any
ninety (90) day period during the twelve (12) month period ending April 30,
1996.
3.14 Environmental Laws and Regulations.
(a) (i) During the occupancy and operation of the
"Subject Property" (as defined below) by Sellers and, to the best knowledge of
Sellers and Shareholder, prior to its occupancy and operation, the operations
of the Subject Property, and any use, storage, treatment, disposal, or
transportation of "Hazardous Substances" (as defined below) that has occurred
in or on the Subject Property prior to the date of this Agreement have been in
compliance with "Environmental Requirements" (as defined below); (ii) during
the occupancy and operation of the Subject Property by Sellers, or, to the best
knowledge of each Seller and Shareholder, prior to its occupancy or operation,
no release, leak, discharge, spill, disposal or emission of Hazardous
Substances has occurred in, on or under the Subject Property in a quantity or
manner that violates or requires further investigation or remediation under
Environmental Requirements; (iii) to the best knowledge of Sellers and
Shareholder, the Subject Property is free of Hazardous Substances as of the
date of this Agreement, except for the presence of small quantities of
Hazardous Substances utilized by Sellers or other tenants of the Subject
Property in the ordinary course of their business; (iv) there is no pending or
threatened litigation or administrative investigation or proceeding concerning
the Subject Property involving Hazardous Substances or Environmental
Requirements; and (v) to the best knowledge of Sellers and Shareholders, there
are no above-ground or underground storage tank systems located at the Subject
Property.
(b) Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Environmental Requirements" means all laws, statutes,
rules, regulations, ordinances, guidance documents, judgments,
decrees, orders, agreements and other restrictions and requirements
(whether now or hereafter in effect) of any governmental authority,
including, without limitation, federal, state and local authorities,
relating to the regulation or protection of human health and safety,
natural resources, conservation, the environment, or the storage,
treatment, disposal, transportation, handling or other management of
industrial or solid waste, hazardous waste, hazardous or toxic
substances or chemicals, or pollutants.
"Hazardous Substance" means (i) any "hazardous substance" as
defined in Section 101(14) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended from
time to time (42 U.S.C. Sections 9601 et seq.)("CERCLA") or any
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regulations promulgated thereunder; (ii) petroleum and petroleum
by-products; (iii) asbestos or asbestos- containing material ("ACM");
or (iv) any additional substances or materials that have been or are
currently classified or considered to be pollutants, hazardous or
toxic under Environmental Requirements.
"Subject Property" means all property subject to the Real
Property Leases.
3.15 Consents. Except as set forth on Schedule 3.15, no consent,
approval, authorization or order of any court, Agency or any other person is
required in order to permit Sellers to consummate the transactions contemplated
by this Agreement. With respect to the CSAA Contract (as defined in Section
7.6 hereof), neither Seller nor Shareholder has any knowledge as to whether
CSAA will terminate the CSAA Contract following consummation of the
transactions contemplated hereby and the proposed assignment thereof by Sellers
to Buyers.
3.16 Insurance. Each Seller is adequately insured with
responsible insurers in respect of its properties against business risks
normally insured against by companies in similar lines of business. Set forth
on Schedule 3.16 attached hereto is a summary description of all policies of
fire, casualty, liability and other forms of insurance and all fidelity bonds
held by Sellers.
3.17 Taxes. Each Seller has duly filed all federal, state,
county, local and other excise, franchise, property, payroll, income, capital
stock, sales and use and other tax returns that are required to be filed by it
and such returns are true, correct and complete in all respects. Each Seller
has paid all taxes which have become due or have been assessed against it and
all taxes, penalties and interest which any taxing authority has proposed or
asserted to be owing. All tax liabilities to which the properties of Sellers
may have been subjected have been discharged except for taxes assessed but not
yet payable. There are no tax claims presently being asserted against Sellers
and Sellers know of no basis for any such claim. Neither Seller has granted
any extension to any taxing authority of the limitation period during which any
tax liability may be asserted thereby.
3.18 Business Relations. Schedule 3.18 contains an accurate list
of all significant customers of the Business (i.e., those customers
representing 5% or more of either Seller's revenues for the twelve (12) months
ended March 31, 1996). Except as set forth in Schedule 3.18, neither Seller
has experienced any difficulties in obtaining any inventory items necessary to
the operation of its business, and, to the best knowledge of each Seller and
Shareholder, no such shortage of supply of inventory items is threatened or
pending. Neither Seller is required to provide any bonding or other financial
security arrangements in any material amount in connection with any
transactions with any of its customers or suppliers.
3.19 Absence of Certain Changes or Events. Since December 31,
1995, neither Seller has (i) suffered any extraordinary losses or waived any
rights of substantial value; (ii) amended its Articles of Incorporation or
Bylaws; (iii) made any change in its mode of management or any change in its
method of operation or method of accounting; (iv) made or become obligated to
make any capital expenditures other than such expenditures or commitments not
exceeding
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$5,000.00 in the aggregate; (v) experienced or suffered any adverse change in
its business, operations or assets (whether or not covered by insurance),
condition, financial or otherwise, or results of operations; (vi) entered into
any transaction, except in the ordinary course of its business consistent with
good business practice; (vii) received any notice of any claim asserted against
it by any Agency that could have a material adverse effect on the business or
financial condition of such Seller; or (viii) incurred or agreed to incur any
material obligation outside the ordinary course of business that has not
heretofore been disclosed in writing to Buyers.
3.20 True, Correct and Complete Information. The information
furnished to Buyers by Sellers prior to, at or after the date of this Agreement
and in any Schedule referred to herein is true, correct and complete in all
material respects. Such information states all material facts required to be
stated therein or with respect thereto or necessary to make the statements
therein or with respect thereto, in light of the circumstances under which such
statements are made, true, correct and complete.
3.21 Availability of Documents. Sellers have made available for
inspection by Buyers at the offices of Sellers true, correct and complete
copies of Sellers' Charter Documents and all contracts, leases, arrangements,
commitments and documents referred to herein or in any Schedule referred to
herein, in each case together with all amendments and supplements thereto.
3.22 Broker's and Finder's Fees. Neither Seller has made any
agreement with any person, or taken any action which would cause any person, to
become entitled to an agent's, broker's or finder's fee or commission in
connection with the transactions contemplated by this Agreement.
3.23 Accounts Receivable; Evidences of Indebtedness. Set forth
on Schedule 3.23 is a list of all accounts receivable, promissory notes,
contract rights, commercial paper, debt securities and other rights to receive
money ("Receivables") reflected as assets of Seller in the Financial Statements
as of May 31, 1996, showing the name of the account debtor, maker or obligor,
the unpaid balance, the age of the Receivable and, if applicable, the maturity
date, the interest rate and the collateral securing the obligation. All
Receivables reflected in the Financial Statements or acquired since that date
are legal, valid and binding obligations of the obligors and, except as set
forth on Schedule 3.23, Sellers have no knowledge of any fact impairing the
collectability of such Receivables in accordance with their terms. Since
December 31, 1995, neither Seller has acquired or permitted to be created any
Receivables except in the ordinary course of its business consistent with past
practice. Notwithstanding the above, neither Sellers nor Shareholder represent
or warrant the collectability of the Receivables.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FYI AND BUYERS
Each Buyer and FYI, jointly and severally, represent and warrant to
Sellers and Shareholder as follows:
4.1 Organization and Authority. Each Buyer and FYI is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite corporate power and
authority to own or lease its properties and to carry on its business as it is
presently being operated and in the place where such properties are owned or
leased and such business is conducted. The execution, delivery and performance
of this Agreement by Buyers, and all other agreements by and among the parties,
and the consummation by Buyers of the transactions contemplated hereby and
thereby, have been duly authorized by all requisite corporate action and no
further action or approval is required in order to permit Buyers to consummate
the transactions contemplated hereby and thereby. This Agreement constitutes,
and all other agreements by and among the parties, when executed and delivered
in accordance with the terms thereof, will constitute the legal, valid and
binding obligations of Buyers, enforceable in accordance with their terms.
Buyers have full power, authority and legal right to enter into this Agreement
and all other agreements by and among the parties and to consummate the
transactions contemplated hereby and thereby. The making and performance of
this Agreement, and all other agreements by and among the parties, and the
consummation of the transactions contemplated hereby and thereby in accordance
with the terms hereof and thereof will not (i) conflict with the Certificates
of Incorporation or the Bylaws of Buyers (collectively, "Buyers' Charter
Documents"), (ii) result in any breach or termination of, or constitute a
default under, or constitute an event which with notice or lapse of time, or
both, would become a default under, or result in the creation of any
Encumbrance upon any asset of Buyers under, or create any rights of
termination, cancellation or acceleration in any person under, any contract,
lease, arrangement or commitment, or violate any order, writ, injunction or
decree, to which either Buyer is a party or by which such Buyer or its assets,
business or operations may be bound or affected or under which such Buyer or
its assets, business or operations receive benefits, (iii) result in the loss
or adverse modification of any material license, franchise, permit or other
authorization granted to or otherwise held by Buyers that is material to the
business or financial condition of Buyers or (iv) result in the violation of
any provisions of law applicable to Buyers, the violation of which could have a
material adverse effect upon the business, operations or assets of Buyers.
4.2 Consents. No consent, approval, authorization or order of
any court, Agency or any other person is required in order to permit Buyers to
consummate the transactions contemplated by this Agreement.
4.3 Broker's and Finder's Fees. Neither Buyer has made any
agreement with any person, or taken any action that would cause any person, to
become entitled to an agent's,
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broker's or finder's fee or commission in connection with the transactions
contemplated by this Agreement.
4.4 Litigation. There is no pending or threatened litigation in
any court or any proceeding before any Agency (i) in which it is sought to
restrain, prohibit, invalidate or obtain damages in respect of the consummation
of the purchase and sale of the Assets or the other transactions contemplated
hereby, (ii) that could, if adversely determined, result in any material
adverse change in the business, operations or assets or the condition,
financial or otherwise, or results of operations of Buyers or (iii) that could,
if adversely determined, have a material adverse effect on the right or ability
of Buyers to carry on their business substantially as now conducted.
4.5 Compliance with Laws. To the best of each Buyer's
knowledge, such Buyer (i) has complied with all laws, regulations, licensing
requirements and orders applicable to its business the breach or violation of
which could have a material adverse effect on said business, (ii) has filed
with the proper authorities all statements and reports required by the laws,
regulations, licensing requirements and orders to which it is subject and (iii)
possesses all necessary licenses, franchises, permits and governmental
authorizations to conduct its business in the manner in which and in the
jurisdictions and places where such business is now conducted.
ARTICLE V
COVENANTS OF SELLERS AND SHAREHOLDER
Each Seller and Shareholder covenants and agrees with Buyers as
follows:
5.1 Affirmative Covenants. Prior to the Closing Date (as
hereinafter defined), each Seller will operate its business only in the usual,
regular and ordinary course of business consistent with past business
practices, and will use its best efforts to: (i) preserve intact its business
organization and the Assets; (ii) maintain its properties, machinery and
equipment in good operating condition and repair; (iii) continue all existing
policies of insurance (or comparable insurance) in full force and effect up to
and including the Closing Date (and will not cancel any such insurance or take
(or fail to take) any action that would enable the insurers under such policies
to avoid liability for claims arising out of any occurrence prior to the
Closing Date without the prior written consent of Buyers); (iv) use its best
efforts to keep available the services of its present officers, employees and
agents; (v) use its best efforts to preserve its present relationships with
lending and other financial institutions, suppliers and customers; and (vi)
maintain its books, accounts and records in the usual, regular and ordinary
manner on a basis consistently applied. Each Seller or Shareholder will notify
Buyers in writing within five (5) business days of learning of any facts, event
or circumstance that is reasonably likely to have a material adverse effect on
the business, operations, prospects, properties or condition (financial or
otherwise) of a Seller or on the Assets or the Business.
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5.2 Negative Covenants. Prior to the Closing Date, each Seller
will operate its business only in the usual, regular and ordinary course of
business consistent with past business practices, and will not, without the
prior written consent of Buyers: (i) make any increase in the compensation
payable or to become payable by it to any employee (other than salary increases
in the usual, regular and ordinary course of business and not to exceed $500.00
total per month) or contribute or make any commitment to or representation that
it will contribute any amounts to any bonus or other employee benefit plan for
employees of such Seller except as required by law or by the terms of any such
plan in the ordinary course of business; (ii) make any amendment to its
Articles of Incorporation, Bylaws or other organizational documents; (iii) make
any material change in the character of its business; (iv) incur any obligation
or liability (fixed or contingent) except in the ordinary course of business;
(v) discharge or satisfy any Encumbrance or pay any obligation or liability
(fixed or contingent) other than in the ordinary course of business; (vi)
mortgage, pledge, transfer or otherwise dispose of or subject to any
Encumbrance any of the Assets, except in the ordinary course of business; (vii)
acquire any assets or properties, except in the ordinary course of business;
(viii) cancel or compromise any material debt or claim; (ix) waive or release
any rights of material value; (x) transfer, grant or terminate contract, lease,
arrangement or commitment rights under any concessions, leases, licenses,
agreements, patents, patent licenses, inventions, trademarks, trade names,
service marks, trade dress or copyrights or registrations or licenses thereof
or applications therefor or with respect to any know-how or other proprietary
or trade rights; (xi) modify or change in any material respect or terminate any
existing contract, lease, arrangement or commitment required to be listed on
Schedule 1.1B; (xii) undertake any material borrowing of any nature whatsoever
other than in the ordinary course of business; (xiii) make any loans or
extensions of credit, except in the ordinary course of business; (xiv) make or
become obligated to make any capital expenditures or enter into commitments
therefor exceeding $5,000.00 in the aggregate; and (xv) sell, discount or
otherwise dispose of any accounts receivable. Nothing herein shall be deemed
to prevent Sellers from paying bonuses consistent with past business practices
as contemplated on Schedule 5.2.
5.3 Furnishing of Information by Sellers and Shareholder.
Sellers and Shareholder will keep Buyers promptly advised of all material
developments relevant to the consummation of the transactions contemplated
hereby and will cooperate fully with Buyers in bringing about the consummation
of the transactions contemplated hereby. Each Seller will update by amendment
or supplement each of the Schedules referred to herein and any other disclosure
in writing from such Seller required by this Agreement to be disclosed in
writing by a Seller to Buyers promptly upon any change in the information set
forth in such Schedules or other disclosures, and hereby represents and
warrants that such Schedules and such written disclosures, as so amended or
supplemented, shall be true, correct and complete as of the date or dates
thereof; provided, however, that the inclusion of any information in any such
amendment or supplement, not included in the original Schedule or other
disclosure at or prior to the date of this Agreement, shall not limit or impair
any right that Buyers might otherwise have respecting the representations or
warranties of Sellers and Shareholder contained in this Agreement. No
investigation pursuant to this Section 5.3 shall affect any representations or
warranties or the conditions to the obligations of Buyers to consummate the
transactions contemplated hereby.
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5.4 Employees of Sellers. Each Seller shall pay all salaries,
wages and bonuses, and all amounts due in lieu of holiday, sick or vacation pay
(flex-time off), to all employees of such Seller employed in the Business at
the Closing, and effective on the Closing Date shall terminate all of such
employees. Any such amounts applicable to the period from and after the
Effective Date shall be at the expense of the applicable Buyer and thereby
reduce the net earnings and net cash flow to be conveyed by Sellers to Buyers
at the Closing pursuant to Section 2.4 hereof. Each Seller shall be
responsible for all claims made by its employees for wages, salaries, bonuses,
pension, workmen's compensation, medical insurance, disability, vacation,
severance pay, pay in lieu of notice, sick benefits or other compensation or
benefit arrangements in respect of the service of such employees prior to the
Effective Date. At its option, to the extent permitted by applicable law, each
Seller may elect to pay the applicable Buyer for the accrued flex-time off pay
with respect to periods prior to the Effective Date otherwise payable to its
employees by deduction of a corresponding amount from the Purchase Price
payable to Sellers at the Closing.
5.5 Approvals of Third Parties. As soon as practicable after
the date hereof, each Seller and Shareholder will use its or his best efforts
to secure all necessary consents, approvals and clearances of third parties
(except the consent of the California State Auto Association ("CSAA") under the
CSAA Contract (as defined in Section 7.6 hereof)) that shall be required to
consummate the transactions contemplated hereby and will otherwise use its or
his best efforts to cause the consummation of such transactions in accordance
with the terms and conditions of this Agreement.
5.6 Notices. Each Seller will timely give all notices required
to be given relating to the transactions contemplated hereby, including without
limitation, (i) any notices required or requested to be given to all creditors
and claimants against such Seller and (ii) any notices required or requested to
be given pursuant to applicable bulk sales laws or similar laws.
5.7 Access to Books and Records. Each Seller agrees to provide
Buyers, their accountants, counsel and other representatives, during normal
business hours and upon reasonable notice, for a period of four (4) years after
the Closing Date, access to the books, records, income tax returns, contracts
and other underlying data and documentation of Seller relating to the period
prior to the Closing Date and to make available to Buyers' personnel of such
Seller in Buyers' review thereof for the purpose of enabling Buyers to
determine and calculate any tax liabilities in connection with the Assets.
Each Seller agrees that, for such four-year period, it will preserve and keep
intact all such books and records.
5.8 No Solicitation of Offers. Each Seller and Shareholder
covenants and agrees that it or he will not solicit, entertain, encourage or
assist any acquisition proposal with respect to the purchase or exchange of the
Assets or Business or any portion thereof, or with respect to any proposed
merger, consolidation, sale of securities or other acquisition involving such
Seller (an "Acquisition Proposal"), by or with any person other than Buyer or
its authorized designee until July 31, 1996. In the event that any Seller or
Shareholder receives such an Acquisition Proposal such Seller or Shareholder
shall notify Buyers within three (3) business days of the substance of any
inquiry or proposal received thereby.
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5.9 Capital Commitments. Each Seller covenants and agrees that
it will be liable for and will promptly pay for (i) all capital improvements
completed prior to or in progress at the Effective Date but unpaid at the
Closing Date and (ii) all assets or properties delivered to such Seller prior
to the Effective Date but unpaid at the Closing Date; provided, however, that
such Seller shall not be liable for the cost of installing any such assets or
properties if they are installed after the Effective Date.
5.10 Change of Name by Robert A. Cook and Staff, Inc. Upon
written request of Cook Acquisition within two (2) years following the Closing,
Robert A. Cook and Staff, Inc. shall promptly and in any event within thirty
(30) days following such request change its corporate name to a name other than
`Robert A. Cook and Staff, Inc.' or any variant thereof and promptly file
appropriate notification of its change of name as required by applicable law,
and shall execute and deliver to Cook Acquisition or its designee (i) an
assignment of any and all rights it has in, to and under such name and (ii) a
consent to the use by Cook Acquisition or its designee of such name in form
suitable for filing with the California Secretary of State; provided, however,
that Robert A. Cook and Staff, Inc. shall not be required to change its name
(but shall execute and deliver a consent as described in clause (ii) above) in
the event that at the time of such request Robert A. Cook and Staff, Inc. shall
commence corporate dissolution procedures pursuant to the applicable provisions
of the California Corporations Code.
ARTICLE VI
COVENANTS OF BUYERS
Each Buyer and FYI covenants and agrees with Sellers and Shareholder
as follows:
6.1 Furnishing of Information by Buyers. Buyers will keep
Sellers and Shareholder advised of all material developments relevant to the
consummation of the transactions contemplated hereby and will cooperate fully
with Sellers and Shareholder in bringing about the consummation of the
transactions contemplated hereby. Buyers will update by amendment or
supplement each of the Schedules referred to herein and any other disclosure in
writing from Buyers required by this Agreement to be disclosed in writing by
Buyers to Seller promptly upon any change in the information set forth in such
Schedules or other disclosures, and Buyers and FYI hereby represent and warrant
that such Schedules and such written disclosures, as so amended or
supplemented, shall be true, correct and complete as of the date or dates
thereof; provided, however, that the inclusion of any information in any such
amendment or supplement, not included in the original Schedule or other
disclosure at or prior to the date of this Agreement, shall not limit or impair
any right that Seller or Shareholder might otherwise have respecting the
representations or warranties of Buyers contained in this Agreement. No
investigation pursuant to this Section 6.1 shall affect any representations or
warranties or the conditions to the obligations of Sellers and Shareholder to
consummate the transactions contemplated hereby.
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6.2 Approvals of Third Parties. As soon as practicable after
the date hereof, each Buyer will use its best efforts to secure all necessary
consents, approvals and clearances of third parties that shall be required to
consummate the transactions contemplated hereby and will otherwise use its best
efforts to cause the consummation of such transactions in accordance with the
terms and conditions of this Agreement.
6.3 Access to Books and Records. Each Buyer agrees to provide
each Seller, its accountants, counsel and other representatives during normal
business hours and upon reasonable notice, for a period of four (4) years after
the Closing Date, access to the books, records, tax returns, contracts and
other underlying data and documentation of such Buyer relating to the period
prior to the Closing Date and to make available to such Seller personnel of
such Buyer in such Seller's review thereof for the purpose of enabling such
Seller to determine and calculate any tax liabilities for such period. Each
Buyer agrees that, for such four-year period, it will preserve and keep intact
all such books and records.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYERS
The obligations of Buyers to cause the purchase of the Assets and the
other transactions contemplated hereby to occur at Closing shall be subject to
the satisfaction on or prior to the Closing Date of all of the following
conditions, except such conditions as Buyers may waive in writing:
7.1 Representations and Warranties of Sellers and Shareholder.
All of the representations and warranties of Sellers and Shareholder contained
in this Agreement and in any Schedule or other disclosure in writing from
Sellers or Shareholder shall be true and correct when made, and shall be true
and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date.
7.2 Covenants of Sellers and Shareholder. All of the covenants
and agreements herein on the part of Sellers and Shareholder to be complied
with or performed on or before the Closing Date shall have been fully complied
with and performed.
7.3 Seller's Certificates. There shall be delivered to Buyers a
certificate dated as of the Closing Date and signed by the President or a Vice
President of each Seller and by Shareholder to the effect set forth in Sections
7.1 and 7.2, which certificate shall have the effect of a representation and
warranty made by each Seller and by Shareholder on and as of the Closing Date.
7.4 Noncompetition Agreements. (a) Each Seller shall have
executed and delivered to Buyers the Seller Noncompetition Agreement in
substantially the form attached hereto as
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Exhibit C-1, and (b) Robert A. Cook shall have executed and delivered to Buyers
the Shareholder Noncompetition Agreement in substantially the form attached
hereto as Exhibit C-2.
7.5 Shareholder Consulting Agreement. Robert A. Cook shall have
executed and delivered to Buyers the Shareholder Consulting Agreement in
substantially the form attached hereto as Exhibit D.
7.6 CSAA Contract. Sellers and Shareholder shall have delivered
evidence reasonably satisfactory to Buyers of the June 1996 renewal of Sellers'
contract with CSAA (the "CSAA Contract") for a term of not less than one (1)
year from the date of such renewal.
7.7 No Casualty Losses. The Assets shall not have suffered any
destruction or damage by fire, explosion or other casualty or any taking by
eminent domain which has materially impaired the operation of the Assets or
otherwise had a material adverse effect upon the business conducted by Sellers.
7.8 Certificates of Authorities. Each Seller shall have
furnished to Buyers (i) certificates of the Secretary of State of California
and the California Franchise Tax Board, each dated as of a date not more than
fifteen (15) days prior to the Closing Date, attesting to the organization,
existence and good standing of such Seller, (ii) a copy, certified by the
Secretary of State of California as of a date not more than fifteen (15) days
prior to the Closing Date, of such Seller's Articles of Incorporation and all
amendments thereto, (iii) a copy, certified by the Secretary of such Seller, of
the Bylaws of such Seller, as amended and in effect at the Closing Date and
(iv) a copy, certified by an authorized officer of Seller, of resolutions duly
adopted by the Board of Directors of Seller duly authorizing the transactions
contemplated in this Agreement.
7.9 Litigation. At the Closing Date, there shall not be pending
or threatened any litigation in any court or any proceeding before any Agency,
(i) in which it is sought to restrain, invalidate, set aside or obtain damages
in respect of the consummation of the purchase and sale of the Assets or the
other transactions contemplated hereby, (ii) that could, if adversely
determined, result in any material adverse change in the business, operations
or assets or the condition, financial or otherwise, or results of operations of
a Seller, (iii) that could, if adversely determined, have a material adverse
effect on the right or ability of a Seller to carry on its business as now
conducted or (iv) as a result of which, in the reasonable judgment of Buyers,
Buyers would be deprived of the material benefits of their ownership of the
Assets.
7.10 Satisfactory to Buyers' Counsel. All actions, proceedings,
instruments and documents required to carry out this Agreement or incidental
thereto and all other related matters shall have been satisfactory to Locke
Purnell Rain Harrell (A Professional Corporation), Dallas, Texas, counsel for
Buyers and FYI.
7.11 Opinion of Sellers' Counsel. Buyers shall have received an
opinion of Carr, McClellan, Ingersoll, Thompson & Horn Professional
Corporation, counsel for Sellers and Shareholder, dated the Closing Date, to
the effect that: (i) Each Seller is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
California; (ii) each Seller and Shareholder has full corporate power and
authority to enter into this Agreement and all other agreements by and among
the parties and to consummate the transactions contemplated hereby and thereby;
(iii) all corporate action required to be taken by Sellers to approve this
Agreement and all action required to be taken by Shareholder to approve this
Agreement and all other agreements by and among the parties and the
transactions contemplated hereby and thereby and to authorize execution and
delivery of this Agreement and all other agreements by and among the parties
and the performance by Sellers and Shareholder of their respective obligations
hereunder and thereunder, have been duly and properly taken, and no further
action or approval is required in order to permit Sellers and Shareholder to
consummate the transactions contemplated by this Agreement and all other
agreements by and among the parties; and (iv) this Agreement, the instruments
of transfer of the Assets from Sellers to Buyers and all other agreements by
and among the parties have been duly executed and delivered by Sellers and by
Shareholder and are legal, valid and binding obligations of Sellers and of
Shareholder enforceable in accordance with their terms.
7.12 No Material Adverse Changes. There shall not have occurred
(i) any material adverse change in the Business or the Assets or (ii) any
material loss or damage to any of the Assets (whether or not covered by
insurance) of Sellers. Buyers shall receive a certificate from Sellers, dated
as of the Closing Date and in form and substance reasonably satisfactory to
Buyer, as to the fulfillment of the conditions set forth in this Section 7.11.
7.13 Consents and New Contractor Agreements. Each Seller shall
have obtained all orders, approvals or consents of third parties, including,
without limitation, any consents or approvals deemed necessary by counsel to
Buyers that shall be required to consummate the transactions contemplated
hereby, including, without limitation, consents to the assignment of the
Assumed Liabilities listed on Schedule 1.1B; provided, however, that Seller
shall not be required to deliver the consent to the assignment by Seller to
Buyers of the CSAA Contract. Each Buyer and FYI acknowledges that (i) the
failure to obtain the consent of CSAA to the consummation of the transactions
set forth in this Agreement shall not affect Buyers' obligations under this
Agreement or give rise to any claim by FYI or Buyers under this Agreement or
otherwise and (ii) it shall not contact CSAA with respect to such transactions
prior to the Closing. Sellers shall have obtained written agreements of each
of the contractors set forth on Schedule 3.7 hereto to perform for Buyers the
services previously performed thereby for Sellers and to enter into equipment
leases with Buyers on substantially the same terms and conditions as existed
immediately prior to the Closing Date.
7.14 Approval of Boards of Directors. The Board of Directors of
each Buyer and of FYI shall have approved and ratified the execution by such
Buyer or FYI, as the case may be, of this Agreement and the other agreements to
be executed and delivered by such party in connection with the consummation of
the transactions contemplated hereby.
7.15 Further Assurances. Each Seller and Shareholder shall take
all such further action as may be reasonably requested by Buyers in order to
effectuate the consummation of the
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transactions contemplated by this Agreement. If Buyers shall reasonably
determine that any further conveyance, assignment or other document or any
further action is necessary to vest in them full title to the Assets, Sellers
and Shareholder shall cause the appropriate officers to execute and deliver all
such instruments and take all such action as Buyers may reasonably determine to
be necessary. Sellers shall have provided Buyers with all necessary
cooperation to assist Buyers in obtaining the certificates and permits to be
required of Buyer to operate the Business following the Closing.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLERS AND SHAREHOLDER
The obligations of Sellers and Shareholder to cause the sale of the
Assets and the other transactions contemplated hereby to occur at Closing shall
be subject to the satisfaction on or prior to the Closing Date of all of the
following conditions, except such conditions as Sellers and Shareholder may
waive in writing:
8.1 Representations and Warranties of Buyers. All of the
representations and warranties of Buyers and FYI contained in this Agreement
and in any Schedule or other disclosure in writing from Buyer shall be true and
correct when made, and shall be true and correct in all material respects on
and as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
8.2 Covenants of Buyers. All of the covenants and agreements
herein on the part of Buyers to be complied with or performed on or before the
Closing Date shall have been fully complied with and performed.
8.3 Buyers' Certificate. There shall be delivered to Sellers
and Shareholder a certificate dated as of the Closing Date and signed by the
President or a Vice President of each Buyer and of FYI to the effect set forth
in Sections 8.1 and 8.2, which certificate shall have the effect of a
representation and warranty made by Buyers and FYI on and as of the Closing
Date.
8.4 Noncompetition Agreements. Buyers shall have executed and
delivered to Sellers and to Robert A. Cook the Noncompetition Agreements.
8.5 Shareholder Consulting Agreement. Buyers shall have
executed and delivered to Robert A. Cook the Shareholder Consulting Agreement.
8.6 Employment Agreement for MaryDell K. Rose. Buyers shall
have executed and delivered to MaryDell K. Rose the Employment Agreement in
substantially the form attached hereto as Exhibit E.
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8.7 Certificates of Authorities. Each Buyer shall have
furnished to Sellers (i) a certificate of the Secretary of State of Delaware,
dated as of a date not more than fifteen (15) days prior to the Closing Date,
attesting to the organization, existence and good standing of such Buyer, (ii)
a copy, certified by the Secretary of State of Delaware as of a date not more
than fifteen (15) days prior the Closing Date, of such Buyer's Certificate of
Incorporation and all amendments thereto, (iii) a copy, certified by the
Secretary of such Buyer, of the Bylaws of such Buyer, as amended and in effect
at the Closing Date and (iv) a copy, certified by an authorized officer of such
Buyer, of resolutions duly adopted by the Board of Directors of such Buyer duly
authorizing the transactions contemplated in this Agreement.
8.8 Satisfactory to Sellers' Counsel. All actions, proceedings,
instruments and documents required to carry out this Agreement or incidental
thereto and all other related legal matters shall have been satisfactory to
Carr, McClellan, Ingersoll, Thompson & Horn Professional Corporation, counsel
for Sellers and Shareholder.
8.9 Opinion of Buyers' Counsel. Sellers and Shareholder shall
have received an opinion of Locke Purnell Rain Harrell (A Professional
Corporation), counsel for Buyers and FYI, dated the Closing Date, to the effect
that: (i) Each Buyer and FYI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and each Buyer is
qualified to carry on its business in the State of California; (ii) each Buyer
and FYI has full corporate power and authority to enter into this Agreement and
all other agreements by and among the parties and to consummate the
transactions contemplated hereby and thereby; and (iii) this Agreement and all
other agreements by and among the parties have been duly executed by Buyers and
FYI (to the extent a party thereto) and are legal, valid and binding
obligations of Buyers and FYI enforceable in accordance with their terms.
ARTICLE IX
DATE AND PLACE OF CLOSING
9.1 Date and Place of Closing. Subject to satisfaction or
waiver of the conditions to the obligations of the parties, the purchase and
sale of the Assets pursuant to this Agreement shall be consummated at a closing
(the "Closing") to be held in the offices of Locke Purnell Rain Harrell (A
Professional Corporation), in Dallas, Texas, or such other place or in such
other manner as mutually agreed to by the parties, at 10:00 a.m., Dallas, Texas
time, on June 26, 1996, or such other date as the parties may mutually agree
upon (the "Closing Date").
ARTICLE X
CLOSING
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10.1 Performance by Sellers and Shareholder. At the Closing,
concurrently with performance by Buyers of its obligations to be performed at
the Closing:
(a) Conveyances. Each Seller shall execute and deliver
to the applicable Buyer, in form and substance acceptable to such Buyer (i)
Bills of Sale and Assignment in substantially the forms attached hereto as
Exhibits A-1 and A-2 conveying to such Buyer all items of personalty included
among the Assets, (ii) except as provided in Section 7.13 hereof, assignments
of each of the contracts, leases, arrangements and commitments listed on
Schedule 1.1B and (iii) all other assignments, endorsements and instruments of
transfer as shall be necessary or appropriate to carry out the intent of this
Agreement and as shall be sufficient to vest in Buyers title to all of the
Assets and all right, title and interest of such Seller thereto. If requested
by Buyers, such documents shall be in a form suitable for recording.
(b) Records. Each Seller shall deliver to Buyers all
documents, agreements, reports, books, records and accounts pertaining
specifically to the Assets that are in such Seller's possession.
(c) Certificate. Each Seller shall execute and deliver
the certificate referred to in Section 7.3.
(d) Noncompetition Agreements and Shareholder Consulting
Agreement. Sellers and Robert A. Cook shall execute and deliver to Buyers the
Noncompetition Agreements referred to in Section 7.4, and Robert A. Cook shall
execute and deliver to Buyers the Shareholder Consulting Agreement referred to
in Section 7.5.
(e) Certificates of Authorities. Each Seller shall
deliver to Buyers the certificates of authorities with respect thereto referred
to in Section 7.8.
(f) Opinion of Sellers' Counsel. Sellers shall deliver
to Buyers the opinion of its counsel, dated the Closing Date, as to the matters
specified in Section 7.11.
(g) Consents. Sellers shall deliver to Buyers the
consents and approvals required by Section 7.13.
(h) Other Actions. Each Seller and Shareholder shall
take all such other steps as may be necessary or appropriate to put Buyers in
actual and complete ownership and possession of the Assets.
10.2 Buyer's Performance. At the Closing, concurrently with the
performance by Sellers and Shareholder of their respective obligations to be
performed at the Closing, each Buyer shall:
(a) Purchase Price. Deliver to Sellers that portion of
the Purchase Price specified in the first sentence of Section 2.3.
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<PAGE> 24
(b) Assumption Agreements. Execute and deliver to the
applicable Seller Assumption Agreements in substantially the form attached
hereto as Exhibit B-1 or B-2.
(c) Certificate. Execute and deliver to Sellers the
certificate referred to in Section 8.3.
(d) Noncompetition Agreements and Shareholder Consulting
Agreement. Execute and deliver to Sellers and Robert A. Cook the
Noncompetition Agreements referred to in Section 8.4 and execute and deliver to
Robert A. Cook the Shareholder Consulting Agreement referred to in Section
8.5.
(e) Employment Agreement. Execute and deliver to
MaryDell K. Rose the Employment Agreement.
(f) Certificates of Authorities. Deliver to Sellers the
certificates of authorities referred to in Section 8.7.
(g) Opinion of Counsel to Buyers and FYI. Deliver to
Sellers and Shareholder the opinion of their counsel, dated the Closing Date,
as to the matters specified in Section 8.9.
(h) Hiring of Employees. Deliver to Sellers evidence
reasonably satisfactory thereto of delivery to Sellers' employees (other than
MaryDell K. Rose) immediately prior to the Closing Date of offers of employment
on an at-will basis on substantially the same terms and conditions of
employment as existed therefor immediately prior to the Closing Date.
10.3 Prorations; Other Instruments. In addition to the
foregoing, Buyers, Sellers and Shareholder agree as follows:
(a) Taxes and Utilities; Change of Tax Method. Real
estate and personal property taxes for the current year and utility charges for
the billing periods including the Closing Date shall be apportioned pro rata
among Buyers and Sellers as of the Effective Date. If the amount of real
estate and personal property taxes for the current year and the amount of
utility charges for the billing periods including the Effective Date are not
ascertainable on the Closing Date, such taxes and utility charges shall be
apportioned based on the immediately preceding tax year and billing periods;
provided, however, that such taxes and utility charges shall be reapportioned
based on actual taxes and charges promptly after such amounts are ascertained.
(b) Further Action by Sellers and Shareholder. At any
time and from time to time, at or after the Closing, upon request of Buyers,
each Seller and Shareholder shall do, execute, acknowledge and deliver or shall
cause to be done, executed, acknowledged and delivered all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney and assurances
as may reasonably be required in order to evidence, vest in and confirm to
Buyers full and complete title to, possession of, and the right to use and
enjoy, the Assets.
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<PAGE> 25
(c) Further Action by Buyers. At any time and from time
to time, at or after the Closing, upon request of Sellers or Shareholder,
Buyers shall do, execute, acknowledge and deliver or shall cause to be done,
executed, acknowledged and delivered all such further acts and assurances as
may reasonably be required in order to better assure and confirm to Sellers and
Shareholder the assumption by Buyers of the obligations to render performance
that are to be assumed by Buyers pursuant to this Agreement.
10.4 Stock Options. Promptly after the Closing Date, Buyers
shall cause FYI to grant to such employees of Buyers as selected by Shareholder
and Greg Melanson and FYI nonqualified stock options to acquire an aggregate of
twenty thousand (20,000) shares of Common Stock in accordance with the terms of
the FYI 1995 Stock Option Plan (the "Stock Option Plan"). Such stock options
shall be in minimum lots of at least one thousand (1,000) shares each and shall
have a per share exercise price equal to the Fair Market Value (as defined in
the Stock Option Plan) per share on the Closing Date and vest and become
exercisable in twenty percent (20%) increments on July 22, 1996 and on each of
the first through fourth anniversaries of the date of grant in accordance with
the procedural terms set forth in the Stock Option Plan.
ARTICLE XI
SURVIVAL AND INDEMNIFICATION
11.1 Survival. All representations, warranties, covenants and
agreements made in this Agreement shall survive and shall not be extinguished
by the Closing or any investigation made by or on behalf of any party hereto.
11.2 Buyers' Losses. Each Seller and Shareholder, jointly and
severally, agrees to indemnify Buyers and save and hold Buyers harmless from,
against, for and in respect of any and all damages (including, without
limitation, amounts paid in settlement with Sellers' consent), losses,
obligations, liabilities, liens, deficiencies, costs and expenses, including,
without limitation, reasonable attorneys' fees and other costs and expenses
incident to any suit, action, investigation, claim or proceeding (hereinafter
referred to collectively as "Buyers' Losses") suffered, sustained, incurred or
required to be paid by Buyers by reason of (i) the failure by Sellers to comply
with all applicable laws relating to bulk transfers including the provisions of
the Uniform Commercial Codes of the State of California; (ii) any
representation or warranty made by a Seller and Shareholder in or pursuant to
this Agreement being untrue or incorrect in any respect; (iii) any failure by a
Seller or Shareholder to observe or perform its covenants and agreements set
forth in this Agreement; (iv) any liability for warranties or defective
products arising from sales of goods manufactured or sold or services provided
by a Seller prior to the Closing Date; (v) any failure by a Seller or
Shareholder to satisfy and discharge any other liability or obligation not
expressly assumed by Buyers pursuant to this Agreement; or (vi) the items
disclosed on Schedule 3.9 hereto.
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<PAGE> 26
11.3 Environmental Indemnity.
(a) Each Seller and Shareholder agrees to indemnify and
hold harmless Buyers and their respective directors, officers, employees,
representatives, agents and attorneys from, against and in respect of any and
all Environmental Costs (as defined below), arising in any manner in connection
with: (i) the presence with the knowledge of any Seller or Shareholder at or
on any property now or formerly owned, operated or leased by Sellers during the
time of any Sellers' operation or lease thereof of any Hazardous Substances or
the release, leak, discharge, spill, disposal, migration or emission of
Hazardous Substances from any such property during the time of Sellers'
operation or lease thereof; (ii) the failure of Sellers to comply with any
applicable Environmental Requirements prior to the Closing Date; or (iii) the
transportation to, disposal at, or migration onto or into adjacent property or
any off-site location of any Hazardous Substances from property now or formerly
owned, operated or leased by either Seller during the time of Seller's
operation or lease thereof, whether or not the transportation or disposal was
conducted in full compliance with Environmental Requirements.
(b) The obligations of this Section 11.3 shall include
the obligation to defend the Indemnified Parties (as defined below) against any
claim or demand for Environmental Costs, the obligation to pay and discharge
any Environmental Costs imposed on Indemnified Parties, and the obligation to
reimburse Indemnified Parties for any Environmental Costs incurred or suffered,
provided in each instance that the claim for Environmental Costs arises in
connection with a matter for which Indemnified Parties are entitled to
indemnification under this Agreement. The obligation to reimburse the
Indemnified Parties shall also include the costs and expenses (including,
without limitation, reasonable attorneys' fees) to establish or enforce the
rights of Buyers or such other persons to indemnification hereunder.
(c) "Environmental Costs" shall mean any of the
following that arise in any manner regardless of whether based in contract,
tort, implied or express warranty, strict liability, Environmental Requirement
or otherwise: all liabilities, losses, judgments, damages, punitive damages,
consequential damages, treble damages, costs and expenses (including, without
limitation, reasonable attorneys' fees and fees and disbursements of
environmental consultants, all costs related to the performance of any required
or necessary assessments, investigations, remediation, response, containment,
closure, restoration, repair, cleanup or detoxification of any impacted
property, the preparation and implementation of any maintenance, monitoring,
closure, remediation, abatement or other plans required by any governmental
agency or by Environmental Requirements and any other costs recovered or
recoverable under any Environmental Requirement), fines, penalties, or monetary
sanctions. Environmental Costs shall include without limitation: (i) damages
for personal injury or death, or injury to property or to natural resources;
(ii) damage to real property or damage resulting from the loss of the use of
all or any part of the property, including but not limited to business loss;
and (iii) the cost of any demolition, rebuilding or repair of any property
required by Environmental Requirements or necessary to restore such property to
its condition prior to damage caused by an environmental condition or by the
remediation of an environmental condition.
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<PAGE> 27
11.4 Employee Compensation and Benefits. Each Seller and
Shareholder agrees to indemnify and hold Buyers harmless from and against any
and all claims made by employees of Sellers, regardless of when made, for
wages, salaries, bonuses, pension, workmen's compensation, medical insurance,
disability, vacation, severance, pay in lieu of notice, sick benefits or other
compensation or benefit arrangements to the extent the same are based on
employment service rendered to a Seller prior to the Closing Date or injury or
sickness occurring prior to the Closing Date (collectively, "Employee Claims").
11.5 Sellers' Losses. Each Buyer and FYI, jointly and severally,
agree to indemnify Sellers and Shareholder and save and hold Sellers and
Shareholder harmless from, against, for and in respect of any and all damages
(including, without limitation, amounts paid in settlement with Buyers'
consent), losses, obligations, liabilities, claims, deficiencies, costs and
expenses, including, without limitation, reasonable attorneys' fees and other
costs and expenses incident to any suit, action, investigation, claim or
proceeding (hereinafter referred to collectively as "Sellers' Losses")
suffered, sustained, incurred or required to be paid by Sellers or Shareholder
by reason of (i) any representation or warranty made by a Buyer in or pursuant
to this Agreement being untrue or incorrect in any respect; (ii) any failure by
a Buyer or FYI to observe or perform its covenants and agreements set forth in
this Agreement; (iii) any liability for warranties or defective products
arising from sales of goods manufactured or sold or services provided by a
Buyer on or after the Closing Date; (iv) any failure by a Buyer to satisfy and
discharge any liability or obligation expressly assumed by a Buyer pursuant to
this Agreement; or (v) any and all claims made by employees of Sellers for
workmen's compensation, medical insurance, disability, vacation, severance,
sick benefits or other compensation arrangements to the extent the same are
based on employment service rendered to Buyers on or after the Closing Date.
11.6 Notice of Loss. Notwithstanding anything herein contained,
Buyers and Sellers and Shareholder shall not have any liability under the
indemnity provisions of this Agreement with respect to a particular matter
unless a notice setting forth in reasonable detail the breach which is asserted
has been given to the Indemnifying Party (hereafter defined) and, in addition,
if such matter arises out of a suit, action, investigation or proceeding, such
notice is given promptly after the Indemnified Party (hereafter defined) shall
have been given notice of the commencement of a suit, action, investigation or
proceeding. With respect to Buyers' Losses, Environmental Costs and Employee
Claims, each Seller and Shareholder, jointly and severally, shall be the
Indemnifying Party and Buyers shall be the Indemnified Party. With respect to
Sellers' Losses, each Buyer, jointly and severally, shall be the Indemnifying
Party and Sellers and Shareholder shall be the Indemnified Party.
11.7 Right to Defend. Upon receipt of notice of any suit,
action, investigation, claim or proceeding for which indemnification might be
claimed by an Indemnified Party, the Indemnifying Party shall be entitled
promptly to defend, contest or otherwise protect against such suit, action,
investigation, claim or proceeding at its own cost and expense. The
Indemnified Party shall have the right, but not the obligation, to participate
at its own expense in a defense thereof by counsel of its own choosing, but the
Indemnifying Party shall be entitled to control the defense unless the
Indemnified Party has relieved the Indemnifying Party from liability with
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<PAGE> 28
respect to the particular matter or the Indemnifying Party fails to assume
defense of the matter. In the event the Indemnifying Party shall fail to
defend, contest or otherwise protect in a timely manner against any such suit,
action, investigation, claim or proceeding, the Indemnified Party shall have
the right, but not the obligation, to defend, contest or otherwise protect
against the same and make any compromise or settlement thereof and recover the
entire cost thereof from the Indemnifying Party including reasonable attorneys'
fees, disbursements and all amounts paid as a result of such suit, action,
investigation, claim or proceeding or the compromise or settlement thereof.
However, if the Indemnifying Party undertakes the defense of such matters, the
Indemnified Party shall not be entitled to recover from the Indemnifying Party
any legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than the reasonable costs of
investigation undertaken by the Indemnified Party with the prior written
consent of the Indemnifying Party.
11.8 Satisfaction of Claims. Buyers shall have the option of
recovering amounts owing thereto pursuant to Sections 11.2, 11.3 and 11.4 for
Buyers' Losses, Environmental Costs and Employee Claims from Sellers or, to the
extent available, from the funds held thereby as described in the second
sentence of Section 2.3.
ARTICLE XII
MISCELLANEOUS
12.1 Guarantee. FYI hereby unconditionally guarantees the
performance of Buyers' obligations under this Agreement in accordance with, and
subject to, the terms hereof. FYI hereby authorizes Sellers and Shareholder to
(i) change the terms of all or any part of the obligations guaranteed hereby,
including without limitation, releasing, extending or compromising the same, or
changing the time for payment thereof; (ii) take, or decline to take,
collateral for the payment of the obligations guaranteed hereby, and exchange,
enforce or fail to enforce, fail to attach or perfect, or release its interests
in any such collateral; and (iii) release or substitute, or impair or suspend,
any remedy against, or fail to proceed against, Buyers or any guarantor of, or
anyone else liable on the obligations guaranteed hereby.
12.2 Expenses. Except as otherwise expressly provided herein,
Sellers, Shareholder and Buyers shall each pay their own expenses in connection
with the preparation of this Agreement, and the consummation of the
transactions contemplated hereby, including, without limitation, fees of their
own counsel, auditors and other experts, whether or not such transactions be
consummated.
12.3 Entire Agreement. This Agreement (including the exhibits
and schedules hereto) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties
hereto with respect to the subject matter hereof, and no party shall be liable
or bound to the other in any manner by any representations or warranties not
set forth herein.
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<PAGE> 29
12.4 Confidentiality; Publicity. Each Seller and Shareholder and
each Buyer covenants that it (a) will hold and shall take all steps reasonably
necessary to ensure that its representatives hold, in strict confidence all
information (other than such written information as may be or become publicly
available) furnished by the other parties to this Agreement or its
representatives to it in connection with this Agreement (the "Information");
and (b) will not, without the prior written consent of such other parties,
release or disclose any Information to any other person, except to its
representatives who in its reasonable judgment need to know and have access to
the Information in connection with the consummation of the transactions
contemplated by this Agreement and who are informed by it of the confidential
nature of the Information; provided, however, that this Section 12.4 shall not
(i) prohibit disclosures as may be required by law and (ii) apply after the
Closing Date to any Information with respect to the Assets. Except as
otherwise required by law, no party hereto shall issue any press release or
make any public statement, in either case relating to or in connection with or
arising out of this Agreement or the matters contained herein without obtaining
the prior written approval of the other parties to the content and manner of
presentation and publication thereof. Each party to this Agreement covenants
to the other parties that it shall not unreasonably withhold or delay such
consent.
12.5 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto. Nothing in this Agreement,
express or implied, is intended to confer upon any party, other than the
parties and their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of such agreements.
12.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
12.7 Headings. The headings of the paragraphs and subparagraphs
of this Agreement are inserted for convenience of reference only and shall not
be deemed to constitute part of this Agreement or to affect the construction
hereof.
12.8 Use of Certain Terms. As used in this Agreement, the words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular paragraph, subparagraph or
other subdivision.
12.9 Modification and Waiver. Any of the terms or conditions of
this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof, and this Agreement may be modified or amended
by a written instrument executed by Buyers and Sellers and Shareholder. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by all of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
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<PAGE> 30
12.10 Notices. Any notice, request, instruction, document or
other communication to be given hereunder by any party hereto to any other
party hereto shall be in writing and validly given if (i) delivered personally,
(ii) sent by telecopy with electronic confirmation of receipt, (iii) delivered
by overnight express, or (iv) sent by registered or certified mail, postage
prepaid, as follows:
(i) If to Sellers Robert A. Cook and Staff, Inc.
and/or to RAC Services, Inc.
Shareholder: 2025 Gateway Place
Suite 330
San Jose, California 95110
Attention: Mr. Robert A. Cook
(ii) If to Buyers: Robert A. Cook Acquisition Corp.
RAC (California) Acquisition Corp.
3232 McKinney Avenue
Suite 900
Dallas, Texas 75204
Attention: Margot T. Lebenberg, Esq.
or at such other address for a party as shall be specified by like notice. Any
notice that is delivered personally, or sent by telecopy or overnight express
in the manner provided herein shall be deemed to have been duly given to the
party to whom it is directed upon actual receipt by such party. Any notice
that is addressed and mailed in the manner herein provided shall be
conclusively presumed to have been given to the party to whom it is addressed
at the close of business, local time of the recipient, on the fourth day after
the day it is so placed in the mail.
12.11 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, ENFORCED,
AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO
ITS CHOICE OF LAW PRINCIPLES).
12.12 Brokerage, Financial Advisor or Finder Fees. No agent,
advisor, broker, person or firm acting on behalf of either Buyers, Sellers or
Shareholder is, or will be, entitled to any commission or broker's, advisor's
or finder's fees from each of the parties hereto, or from any of their
respective affiliates, in connection with any of the transactions contemplated
hereby.
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<PAGE> 31
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed in counterparts all as of the date first above written.
SELLERS:
ROBERT A. COOK AND STAFF, INC.
By: /s/ Robert A. Cook
---------------------------------------
Robert A. Cook, President
RAC SERVICES, INC.
By: /s/ Robert A. Cook
---------------------------------------
Robert A. Cook, President
SHAREHOLDER:
/s/ Robert A. Cook
------------------------------------------------
Robert A. Cook
/s/ Robert A. Cook
------------------------------------------------
Robert A. Cook, as Trustee of the Cook 1993
Living Trust
/s/ Anna M. Cook
------------------------------------------------
Anna M. Cook, as Trustee of the Cook 1993 Living
Trust
<PAGE> 32
BUYERS:
ROBERT A. COOK ACQUISITION CORP.
By: /s/ Thomas C. Walker
--------------------------------------------
Printed Name: Thomas C. Walker
Title: President and Chief Executive Officer
RAC (CALIFORNIA) ACQUISITION CORP.
By: /s/ Thomas C. Walker
--------------------------------------------
Printed Name: Thomas C. Walker
Title: President and Chief Executive Officer
Solely for the purposes of Article IV and VI,
Section 8.3, Section 11.5 and Section 12.1
hereof
FYI:
FYI INCORPORATED
By: /s/ Thomas C. Walker
--------------------------------------------
Printed Name: Thomas C. Walker
Title: Chairman of the Board and Chief
Development Officer
<PAGE> 33
ASSET PURCHASE AGREEMENT
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
- ---------
1.1A Real Property Interests
1.1B Assumed Contracts
1.1C Excluded Assets
2.2 Allocation of Purchase Price
3.2A Good Title to Assets; Encumbrances
3.5 Trademarks, Etc.
3.6 Licenses, Franchises, Permits and Governmental
Authorizations
3.7 Contracts
3.9 Litigation
3.11 Financial Statements
3.12 Employee Benefits
3.13 Employees
3.15 Required Consents
3.16 Insurance
3.18 Business Relations
3.23 Receivables
5.2 Bonuses Payable by Sellers
EXHIBITS
- --------
A-1 Bill of Sale and Assignment (Robert A. Cook and Staff, Inc.)
A-2 Bill of Sale and Assignment (RAC Services, Inc.)
B-1 Assumption Agreement (Robert A. Cook and Staff, Inc.)
B-2 Assumption Agreement (RAC Services, Inc.)
C-1 Seller Noncompetition Agreement
C-2 Shareholder Noncompetition Agreement
D Shareholder Consulting Agreement
E Employment Agreement
<PAGE> 34
SCHEDULE 2.2
ALLOCATION OF PURCHASE PRICE
ROBERT A. COOK AND STAFF, INC.
<TABLE>
<S> <C> <C>
(a) Accounts Receivable $ 1,886,634.28
(b) Furniture and Equipment and Vehicle(s) $ 384,954.00
(c) Prepaids/Other $ 31,980.80
(d) Goodwill $ 9,096,430.92
</TABLE>
RAC SERVICES, INC.
<TABLE>
<S <C> <C>
(a Accounts Receivable $
(b Furniture and Equipment and Vehicle(s $
(c Prepaids/Other $
(d Goodwill $ 1.00
</TABLE>
<PAGE> 1
EXHIBIT 10.20
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment") is entered
into to be effective as of June 26, 1996, by and among F.Y.I. Incorporated, a
Delaware corporation ("F.Y.I."), Imagent Acquisition Corp., a Delaware
corporation ("Imagent"), Researchers Acquisition Corp., a Delaware corporation
("Researchers"), Recordex Acquisition Corp., a Delaware corporation
("Recordex"), DPAS Acquisition Corp., a Delaware corporation ("DPAS"), Leonard
Archives Acquisition Corp., a Delaware corporation ("Leonard"), Deliverex
Acquisition Corp., a Delaware corporation ("Deliverex"), Permanent Records
Acquisition Corp., a Delaware corporation ("Permanent"), Deliverex Sacramento
Acquisition Corp., a Delaware corporation ("Sacramento") (F.Y.I., Imagent,
Researchers, Recordex, DPAS, Leonard, Deliverex, Permanent and Sacramento are
collectively referred to as the "Original Borrowers"), B&B
(Baltimore-Washington) Acquisition Corp., a Delaware corporation ("B&B"),
Premier Acquisition Corp., a Delaware corporation ("Premier"), Robert A. Cook
Acquisition Corp., a Delaware corporation ("Cook"), Peninsula Record
Management, Inc., a California corporation ("Peninsula"), and RAC (California)
Acquisition Corp., a Delaware corporation ("RAC") (B&B, Premier, Cook,
Peninsula and RAC are referred to collectively as the "New Borrowers") (the
Original Borrowers and the New Borrowers are referred to collectively as the
"Borrowers"), Banque Paribas, a bank organized under the laws of the Republic
of France, as Agent (the "Agent"), and the Lenders (as such term is defined in
the Credit Agreement, as hereinafter defined) which are parties hereto.
RECITALS
A. The Original Borrowers, the Agent and the Lenders entered into
that certain Credit Agreement dated as of April 18, 1996 (the "Credit
Agreement"), pursuant to which, among other things, the Lenders agreed to make
certain loans available to the Original Borrowers upon the terms and conditions
set forth therein;
B. Each of the New Borrowers has entered into a Borrower Addition
Agreement pursuant to which it has become a Borrower under the Credit
Agreement.
C. The Borrowers, the Agent and the Lenders desire to amend the
Credit Agreement in certain respects as more fully set out herein.
AGREEMENT
NOW, THEREFORE, for and in consideration of the premises and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrowers, the Lenders, and the Agent hereby agree as
follows:
FIRST AMENDMENT TO CREDIT AGREEMENT Page 1
<PAGE> 2
1. Terms. All terms used herein which begin with an initial
capital letter shall, unless otherwise expressly defined herein, have the same
definitions assigned to such terms in the Credit Agreement, as modified by this
Amendment.
2. Addition of Definition of "B&B Letter of Credit." Effective
as of the date hereof, a new definition of "B&B Letter of Credit" is hereby
added to Section 1.1 of the Credit Agreement to read in its entirety as
follows:
"B&B Letter of Credit" means a Letter of Credit issued by the
Issuing Bank in favor of the Fifth Third Bank, as trustee, or any
successor thereto (the "Trustee") for the benefit of the holders of
those certain $2,400,000 Prince George's County, Maryland Variable
Rate Demand/Fixed Rate Revenue Bonds (B&B Records Center, Inc.
Facility) 1989 Issue as a replacement for the letter of credit issued
by Crestar Bank in favor of the Trustee, in a face amount not to
exceed $2,500,000, and issued under the Term Loans Commitments, as
such Letter of Credit may be renewed, extended or replaced.
3. Amendment to Definition of "Aggregate Commitment Percentage."
Effective as of the date hereof, the definition of "Aggregate Commitment
Percentage" contained in Section 1.1 of the Credit Agreement is hereby amended
and restated to read in its entirety as follows:
"Aggregate Commitment Percentage" means, as to any Lender, the
percentage equivalent of a fraction, the numerator of which is the sum
of the outstanding Revolving Credit Loans Commitment of such Lender
(or, if such Commitment has terminated or expired, the outstanding
principal amount of its Revolving Credit Loans and its Letter of
Credit Liabilities relating to Letters of Credit issued pursuant to
the Revolving Credit Loans Commitments), plus the Term Loans
Commitment of such Lender (or if such Commitment has terminated or
expired, the outstanding principal amount of the Term Loans of such
Lender and its Letter of Credit Liabilities relating to Letters of
Credit issued pursuant to the Term Loans Commitments ), and the
denominator of which is the sum of the outstanding Revolving Credit
Loans Commitments of all Lenders (or, if such Commitments have
terminated or expired, the outstanding principal amount of the
Revolving Credit Loans and the Letter of Credit Liabilities relating
to Letters of Credit issued pursuant to the Revolving Credit Loans
Commitments), plus the outstanding Term Loans Commitments of all
Lenders (or if such Commitments have terminated or expired, the
outstanding principal amount of the Term Loans of all Lenders and the
Letter of Credit Liabilities relating to Letters of Credit issued
pursuant to the Term Loans Commitments).
4. Amendment to Definition of "Letter of Credit Liabilities."
Effective as of the date hereof, the definition of "Letter of Credit
Liabilities" contained in Section 1.1 of the Credit Agreement is hereby amended
and restated to read in its entirety as follows:
"Letter of Credit Liabilities" means, at any time, the
aggregate undrawn face amounts of all outstanding Letters of Credit
and all unreimbursed drawings under Letters
FIRST AMENDMENT TO CREDIT AGREEMENT Page 2
<PAGE> 3
of Credit issued pursuant to the Revolving Credit Loans Commitments
and the Term Loans Commitments.
5. Amendment to Definition of "Outstanding Credit." Effective as
of the date hereof, the definition of "Outstanding Credit" contained in Section
1.1 of the Credit Agreement is hereby amended and restated to read in its
entirety as follows:
"Outstanding Credit" means, at any particular time, the sum of
(a) the outstanding principal amount of the Revolving Credit Loans,
plus (b) the outstanding principal amount of the Swing Loans, plus (c)
the Letter of Credit Liabilities relating to Letters of Credit issued
pursuant to the Revolving Credit Loans Commitments.
6. Amendment to Definition of "Required Lenders". Effective as
of the date hereof, the definition of "Required Lenders" contained in Section
1.1 of the Credit Agreement is hereby amended and restated to read in its
entirety as follows:
"Required Lenders" means, at any date of determination,
Lenders having in the aggregate at least 66 2/3% (in Dollar amount as
to any one or more of the following) of the sum of the aggregate
outstanding Revolving Credit Loans Commitments (or, if such
Commitments have terminated or expired, the aggregate outstanding
principal amount of the Revolving Credit Loans and the aggregate
Letter of Credit Liabilities relating to Letters of Credit issued
pursuant to the Revolving Credit Loans Commitments), plus the
aggregate outstanding Term Loans Commitments (or if such Commitments
have terminated or expired, the aggregate outstanding principal amount
of the Term Loans and the aggregate Letter of Credit Liabilities
relating to Letters of Credit issued pursuant to the Term Loans
Commitments).
7. Amendment to Definition of "Term Loans Commitment". Effective
as of the date hereof, the definition of "Term Loans Commitment" contained in
Section 1.1 of the Credit Agreement is hereby amended and restated to read in
its entirety as follows:
"Term Loans Commitment" means, as to any Lender, the
obligation of such Lender to make or continue Term Loans hereunder or
participate in Letter of Credit Liabilities in an aggregate principal
amount up to but not exceeding the amount set forth opposite the name
of such Lender on the signature pages hereto under the heading "Term
Loans Commitment", as the same may be reduced or terminated pursuant
to Section 2.13 or 11.2, and "Term Loans Commitments" means such
obligations of all Lenders. As of the Closing Date, the aggregate
principal amount of the Term Loans Commitments is $30,000,000.
8. Amendment to Section 1.4 of the Credit Agreement. Effective
as of the date hereof, clause (ii) of Section 1.4 of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:
FIRST AMENDMENT TO CREDIT AGREEMENT Page 3
<PAGE> 4
(ii) Capital Expenditures, taxes and EBITDA as components
used in calculating the financial covenants contained in Article 10
shall, for the fiscal quarters of F.Y.I. and its Subsidiaries
commencing after and completed subsequent to the Closing Date and
ending prior to March 31, 1997, be calculated on a combined pro forma
basis based on the actual historic Capital Expenditures, taxes and
EBITDA of F.Y.I. and its Subsidiaries as individual corporations prior
to their consolidation and thereafter shall be calculated based on
the four fiscal quarters of F.Y.I. and its Subsidiaries then most
recently ended, and
9. Amendment to Section 2.3(c) of the Credit Agreement.
Effective as of the date hereof, Section 2.3(c) of the Credit Agreement is
hereby amended by adding two new sentences at the end of such Section 2.3(c) to
read in their entirety as follows:
For purposes of this Section 2.3(c), the face amount of any
Letters of Credit issued pursuant to the Term Loans Commitments shall
be added to the outstanding principal balance of the Term Loans for
purposes of determining if such aggregate amount is at or below the
level to which the balance of the Term Loans is required to be reduced
by this Section 2.3(c). If at any time prior to the Term Loans
Maturity Date when any Letters of Credit are outstanding under the
Term Loans Commitments, the outstanding principal balance of the Term
Loans is required by the terms of this Section 2.3(c) to be reduced to
a level which is below the face amount of such outstanding Letters of
Credit, then following the repayment of all outstanding Term Loans the
Term Loans Borrowers shall deliver to the Agent cash or cash
equivalents in an amount equal to or greater than the difference
between the face amount of such outstanding Letters of Credit and the
level to which the Term Loans Borrowers are required to repay the
outstanding balance of the Term Loans, such cash or cash equivalents
to be pledged to the Agent as security for the Obligations pursuant to
documentation satisfactory to the Agent in form and substance.
10. Amendment to Section 2.7(e) of the Credit Agreement.
Effective as of the date hereof, Section 2.7(e) of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:
(e) Borrowing Base. If at any time the Outstanding
Credit exceeds an amount equal to the lesser of (i) the Aggregate
Borrowing Base or (ii) the Revolving Credit Loans Commitments at such
time, within one Business Day after the occurrence thereof each of the
Revolving Loans Borrowers shall jointly and severally pay to the Agent
the amount of such excess as a prepayment of the Revolving Credit
Loans (or, if the Revolving Credit Loans have been paid in full, to
reduce or to provide cash collateral to secure the outstanding Letter
of Credit Liabilities relating to Letters of Credit issued pursuant to
the Revolving Credit Loans Commitments). If at any time the
Outstanding Credit for which any Revolving Loans Borrower is the
borrower and the account party exceeds such Borrower's Borrowing Base,
such Borrower, within one Business Day of the occurrence thereof,
shall pay to the Agent the amount of such excess as a prepayment of
the Revolving Credit Loans (or if the Revolving Credit Loans have
been paid in full, to
FIRST AMENDMENT TO CREDIT AGREEMENT Page 4
<PAGE> 5
reduce or to provide cash collateral to reduce the outstanding Letter
of Credit Liabilities of such Borrower relating to Letters of Credit
issued pursuant to the Revolving Credit Loans Commitments).
11. Amendment to Section 2.14(a) of the Credit Agreement.
Effective as of the date hereof, Section 2.14(a) of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:
(a) Subject to the terms and provisions of this Agreement,
each of the Revolving Loans Borrowers may utilize the Revolving Credit
Loans Commitments by requesting that the Issuing Bank issue Letters of
Credit; provided, that the aggregate amount of outstanding Letter of
Credit Liabilities under the Revolving Credit Loans Commitments shall
not at any time exceed $1,000,000. Subject to the terms and
provisions of this Agreement, each of the Term Loans Borrowers may
utilize the Term Loans Commitments by requesting that the Issuing Bank
issue the B&B Letter of Credit; provided, that the aggregate amount of
outstanding Letter of Credit Liabilities under the Term Loans
Commitments shall not at any time exceed $2,500,000. Upon the date of
issue of each Letter of Credit, the Issuing Bank shall be deemed,
without further action by any party hereto, to have sold to each
Lender, and each Lender shall be deemed, without further action by any
party hereto, to have purchased from the Issuing Bank, a participation
to the extent of such Lender's Commitment Percentage in such Letter of
Credit.
12. Amendment to Section 2.14(b) of the Credit Agreement.
Effective as of the date hereof, Section 2.14(b) of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:
(b) F.Y.I., with respect to the Revolving Credit Loans or
the Term Loans, as applicable, for and on behalf of itself and the
other Revolving Loans Borrowers or Term Loans Borrowers, as
applicable, shall give the Issuing Bank (with a copy to the Agent) at
least five Business Days irrevocable prior notice (effective upon
receipt) specifying the date of each Letter of Credit and the nature
of the transactions to be supported thereby. Upon receipt of such
notice the Issuing Bank shall promptly notify each applicable Lender
of the contents thereof and of such Lender's Commitment Percentage of
the amount of the proposed Letter of Credit. Each Letter of Credit
shall have an expiration date that does not exceed one year from the
date of issuance (provided, however, that the B&B Letter of Credit may
have an expiration date that is up to eighteen months after the date
of issuance) and that does not extend beyond the Revolving Credit
Loans Maturity Date, shall be payable in Dollars, shall support a
transaction entered into in the ordinary course of the account party's
or parties' business, shall be satisfactory in form and substance to
the Issuing Bank, and shall be issued pursuant to such agreements,
documents and instruments (including a Letter of Credit Agreement) as
the Issuing Bank may reasonably require, none of which shall be
inconsistent with this Section 2.14. Each Letter of Credit shall (i)
provide for the payment of drafts presented for, on or thereunder by
the beneficiary in accordance with the terms thereof, when such drafts
are accompanied by the documents
FIRST AMENDMENT TO CREDIT AGREEMENT Page 5
<PAGE> 6
(if any) described in the Letter of Credit and (ii) to the extent not
inconsistent with the terms hereof or any applicable Letter of Credit
Agreement, be subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500 (together with any subsequent revision thereof
approved by a Congress of the International Chamber of Commerce and
adhered to by the Issuing Bank, the "UCP"), and shall, as to matters
not governed by the UCP, be governed by, and construed and interpreted
in accordance with, the laws of the State of Texas.
13. Amendment to Section 2.14(c) of the Credit Agreement.
Effective as of the date hereof, Section 2.14(c) of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:
(c) Each of the Revolving Loans Borrowers jointly and
severally agrees to pay to the Agent for the account of each Lender
(except as provided in the proviso below), in arrears on each
Quarterly Date beginning on June 30, 1996 and on the Revolving Credit
Loans Maturity Date, a nonrefundable letter of credit fee with respect
to each Letter of Credit issued pursuant to the Revolving Credit Loans
Commitment in an amount equal to (i) the rate per annum equal to the
Applicable Margin (for Revolving Credit Loans) for Eurodollar Loans in
effect on the date of issuance of such Letter of Credit (with respect
to the fee due on the first Quarterly Date after issuance) or on the
first day of the applicable quarterly or other period beginning after
the calendar quarter during which the issuance of such Letter of
Credit occurred (with respect to the fee due on each subsequent
Quarterly Date or on the Revolving Credit Loans Maturity Date),
multiplied by (ii) the daily average face amount of the Letters of
Credit issued pursuant to the Revolving Credit Loans Commitments and
in effect during the applicable period. Each of the Term Loans
Borrowers jointly and severally agrees to pay to the Agent for the
account of each Lender (except as provided in the proviso below), in
arrears on each Quarterly Date beginning on June 30, 1996 and on the
Term Loans Maturity Date, a nonrefundable letter of credit fee with
respect to each Letter of Credit issued pursuant to the Term Loans
Commitment in an amount equal to (i) the rate per annum equal to the
Applicable Margin (for Term Loans) for Eurodollar Loans in effect on
the date of issuance of such Letter of Credit (with respect to the fee
due on the first Quarterly Date after issuance) or on the first day of
the applicable quarterly or other period beginning after the calendar
quarter during which the issuance of such Letter of Credit occurred
(with respect to the fee due on each subsequent Quarterly Date or on
the Term Loans Maturity Date), multiplied by (ii) the daily average
face amount of the Letters of Credit issued pursuant to the Term Loans
Commitments and in effect during the applicable period. The Agent
agrees to pay to each Lender or Issuing Bank (as applicable), promptly
after receiving any payment of letter of credit fees referred to above
in this subsection (c), such Lender's Commitment Percentage of such
fees or such Issuing Bank's fees (as applicable), respectively. The
Borrowers further jointly and severally agree to pay to the Issuing
Bank for its own account, on the date of issuance of such Letter of
Credit and on each anniversary of such date of issuance (if such
Letter of Credit then remains outstanding), an amount equal to the
greater of one-quarter of one percent (0.25%) of the face amount of
the Letter of Credit being issued or $750.00. In
FIRST AMENDMENT TO CREDIT AGREEMENT Page 6
<PAGE> 7
addition to the foregoing fees, each of the Revolving Loans Borrowers
and Term Loans Borrowers, as applicable, depending upon whether the
applicable Letter of Credit was issued pursuant to the Revolving
Credit Loans Commitments or the Term Loans Commitments, shall pay or
reimburse the Issuing Bank for such normal and customary costs and
expenses, including, without limitation, administrative, issuance,
amendment, payment and negotiation charges, as are incurred or charged
by the Issuing Bank in issuing, effecting payment under, amending or
otherwise administering any Letter of Credit.
14. Amendment to Section 2.14(e) of the Credit Agreement.
Effective as of the date hereof, Section 2.14(e) of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:
(e) Each of the Revolving Loans Borrowers shall be irrevocably
and unconditionally and jointly and severally obligated to immediately
reimburse the Issuing Bank for any amounts paid by the Issuing Bank
upon any drawing under any Letter of Credit issued pursuant to the
Revolving Credit Loans Commitments, without presentment, demand,
protest or other formalities of any kind. Each of the Term Loans
Borrowers shall be irrevocably and unconditionally and jointly and
severally obligated to immediately reimburse the Issuing Bank for any
amounts paid by the Issuing Bank upon any drawing under any Letter of
Credit issued pursuant to the Term Loans Commitments, without
presentment, demand, protest or other formalities of any kind. The
Issuing Bank will pay to each such Lender such Lender's Commitment
Percentage of all amounts received from or on behalf of the account
party or parties for application in payment, in whole or in part, of
the Reimbursement Obligation in respect of any Letter of Credit, but
only to the extent such Lender has made payment to the Issuing Bank in
respect of such Letter of Credit pursuant to subsection (d) above.
Outstanding Reimbursement Obligations shall bear interest at the
Default Rate and such interest shall be payable on demand.
15. Amendment to Section 2.15 of the Credit Agreement. Effective
as of the date hereof, Section 2.15 of the Credit Agreement is hereby amended
and restated to read in its entirety as follows:
Section 2.15 Refinancing of Swing Loans. Upon one Business
Day's prior written notice from Paribas to the Agent, the Swing Loans
Borrowers and the Lenders at any time and from time to time
(including, without limitation, at any time following the occurrence
of an Event of Default), each Lender (including, without limitation,
Paribas) agrees, severally and not jointly, as provided in Section
2.1(a), and notwithstanding (i) anything to the contrary contained in
this Article 2 or elsewhere in this Agreement or (ii) any excess of
Outstanding Credit over the Borrowing Base, the existence of any Event
of Default or the inability of or failure by F.Y.I. or any Subsidiary
to comply with any condition precedent set forth in Article 6 (which
conditions precedent shall not apply to this Section 2.15), to make a
Revolving Credit Loan, which Loan shall be a Prime Rate Loan, in an
amount equal to such Lender's pro rata portion, based upon its
Revolving Credit Loans
FIRST AMENDMENT TO CREDIT AGREEMENT Page 7
<PAGE> 8
Commitment, of the aggregate principal amount of the Swing Loans then
outstanding (up to but not in excess of the amount which, when added
to such Lender's pro rata portion, based on its Revolving Credit Loans
Commitment, of the then-outstanding Revolving Credit Loans and Letter
of Credit Liabilities relating to Letters of Credit issued pursuant to
the Revolving Credit Loans Commitments, would equal such Lender's
Revolving Credit Loans Commitment), and the proceeds of all such Loans
by the Lenders shall be promptly applied by the Agent to repay
principal and accrued and unpaid interest with respect to the Swing
Loans then outstanding.
16. Amendment to Section 9.18 of the Credit Agreement. Effective
as of the date hereof, Section 9.18 of the Credit Agreement is hereby amended
and restated to read in its entirety as follows:
Section 9.18 Second-Tier Subsidiaries. No Borrower other
than F.Y.I. shall have any Subsidiaries, and F.Y.I. shall not have any
Subsidiaries which are Subsidiaries of Subsidiaries; provided,
however, that for the period from the Closing Date until (but not
after) April 18, 1998, Deliverex may have as a Subsidiary Peninsula
Record Management, Inc., a California corporation.
17. Representations and Warranties. The representations and
warranties made by the Borrowers in the Loan Documents, as the same are amended
hereby, are true and correct at the time this Amendment is executed and
delivered, except to the extent that such representations and warranties are
expressly by their terms made only as of the Closing Date or another specified
date.
18. Costs. The Borrowers jointly and severally agree to pay all
costs incurred in connection with the negotiation, preparation, execution and
consummation of this Amendment and the transactions contemplated by this
Amendment including, without limitation, the fees and expenses of counsel to
the Agent and the Lenders.
19. Miscellaneous.
(a) Headings. Section headings are for reference only,
and shall not affect the interpretation or meaning of any provision of
this Amendment.
(b) No Waiver. No failure on the part of the Agent or
the Lenders to exercise, and no delay in exercising, and no course of
dealing with respect to, any right, power, or privilege under the Loan
Documents shall operate as a waiver thereof, and no single or partial
exercise of any right, power, or privilege under the Loan Documents
shall preclude any other or further exercise thereof or the exercise
of any other right, power, or privilege.
(c) Effect of this Amendment. The Credit Agreement, as
amended by this Amendment, shall remain in full force and effect
except that any reference therein, or in
FIRST AMENDMENT TO CREDIT AGREEMENT Page 8
<PAGE> 9
any other Loan Document, referring to the Credit Agreement, shall be
deemed to refer to the Credit Agreement, as amended by this Amendment.
(d) Governing Law. EXCEPT TO THE EXTENT THAT THE CREDIT
AGREEMENT EXPRESSLY PROVIDES OTHERWISE, THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF TEXAS.
(e) Counterparts. This Amendment may be executed by the
different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same Amendment.
(f) NO ORAL AGREEMENTS. THE CREDIT AGREEMENT, AS AMENDED
BY THIS AMENDMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS
THE ENTIRE AGREEMENT AMONG THE PARTIES, AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective duly authorized officers as of the date first
above written.
BORROWERS:
F.Y.I. INCORPORATED
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
IMAGENT ACQUISITION CORP.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
FIRST AMENDMENT TO CREDIT AGREEMENT Page 9
<PAGE> 10
RESEARCHERS ACQUISITION CORP.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
RECORDEX ACQUISITION CORP.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
DPAS ACQUISITION CORP.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
LEONARD ARCHIVES ACQUISITION CORP.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
DELIVEREX ACQUISITION CORP.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
FIRST AMENDMENT TO CREDIT AGREEMENT Page 10
<PAGE> 11
PERMANENT RECORDS ACQUISITION CORP.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
DELIVEREX SACRAMENTO ACQUISITION
CORP.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
B&B (BALTIMORE-WASHINGTON)
ACQUISITION CORP.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
PREMIER ACQUISITION CORP.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
ROBERT A. COOK ACQUISITION CORP.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
FIRST AMENDMENT TO CREDIT AGREEMENT Page 11
<PAGE> 12
PENINSULA RECORD MANAGEMENT, INC.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Vice President
RAC (CALIFORNIA) ACQUISITION CORP.
By: /s/ David Lowenstein
----------------------------
Name: David Lowenstein
Title: Executive Vice President
AGENT:
BANQUE PARIBAS, as Agent
By: /s/ Clark C. King III
----------------------------
Name: Clark C. King III
Title: Vice President
By: /s/ Mark A. Radzik
----------------------------
Name: Mark A. Radzik
Title: Vice President
LENDERS:
BANQUE PARIBAS
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
FIRST AMENDMENT TO CREDIT AGREEMENT Page 12
<PAGE> 13
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
FIRST SOURCE FINANCIAL LLP
By: FIRST SOURCE FINANCIAL, INC.,
its Agent/Manager
By: /s/ John Walding
----------------------------
Name: John Walding
Title: Vice President
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Karen Phillips
----------------------------
Name: Karen Phillips
Title: Vice President
FIRST AMENDMENT TO CREDIT AGREEMENT Page 13
<PAGE> 1
EXHIBIT 10.21
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY
INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF
EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED AND THE TERMS
AND CONDITIONS HEREOF. THE HOLDER OF THIS WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH.
VOID AFTER 5:00 P.M. NEW YORK CITY TIME, MAY 21, 2003
****************************************
No. 4
WARRANT
to
PURCHASE COMMON STOCK
of
F.Y.I. INCORPORATED
****************************************
This certifies that, for good and valuable consideration,
F.Y.I. Incorporated, a Delaware corporation (the "Company"), grants to Ed H.
Bowman, Jr. ("Mr. Bowman") or permitted registered assigns (the "Warrantholder"
or "Warrantholders"), the right to subscribe for and purchase from the Company,
at $20.00 per share (the "Exercise Price"), Fifty Thousand (50,000) shares, of
the Company's Common Stock, par value $0.01 per share (the "Common Stock"),
subject to the provisions and upon the terms and conditions herein set forth.
The Exercise Price and the number of Warrant Shares are subject to adjustment
from time to time as provided in Section 5.
<PAGE> 2
1. Duration and Exercise of Warrant; Limitation on Exercise; Payment of
Taxes.
1.1 Duration and Exercise of Warrant.
(a) This Warrant may be exercised to purchase 50% of the
underlying shares from and after 9:00 A.M. New York City time on May 21, 1998
(the "Initial Exercise Date") and the remaining 50% of the underlying shares on
May 21, 1999 (the "Second Exercise Date"), the Initial Exercise Date or the
Second Exercise Date, as applicable (the "Exercise Date") and to and including
5:00 P.M. New York City time on May 21, 2003 (the "Expiration Date"). In
addition, in the event of a Change in Control of the Company, the right to
exercise 100% of the underlying shares shall immediately vest. A "Change in
Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit
plan of the Company, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act")) of any voting security
of the Company and immediately after such acquisition such Person is,
directly or indirectly, the Beneficial Owner of voting securities
representing 50% or more of the total voting power of all of the
then-outstanding voting securities of the Company;
(ii) the individuals (A) who, as of the closing date of the
Initial Public Offering, constitute the Board (the "Original
Directors") or (B) who thereafter are elected to the Board and whose
election, or nomination for election, to the Board was approved by a
vote of at least two-thirds (2/3) of the Original Directors then still
in office (such directors becoming "Additional Original Directors"
immediately following their election) or (C) who are elected to the
Board and whose election, or nomination for election, to the Board was
approved by a vote of at least two-thirds (2/3) of the Original
Directors and Additional Original Directors then still in office (such
directors also becoming "Additional Original Directors" immediately
following their election) (such individuals being the "Continuing
Directors"), cease for any reason to constitute a majority of the
members of the Board;
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation
of any such transaction if stockholder approval is not sought or
obtained, other than any such transaction which would result in at
least 75% of the total voting power represented by the voting
securities of the surviving entity outstanding immediately after such
transaction being Beneficially Owned by at least 75% of the holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder
relative to other such continuing holders not substantially altered in
the transaction; or
-2-
<PAGE> 3
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the Company).
(b) The rights represented by this Warrant may be exercised
by the Warrantholder of record, in whole, or from time to time in part, by (a)
surrender of this Warrant, accompanied by the Exercise Form annexed hereto (the
"Exercise Form") duly executed by the Warrantholder of record and specifying
the number of Warrant Shares to be purchased, to the Company at the office of
the Company located at 3232 McKinney Avenue, Suite 900, Dallas, Texas 75204 (or
such other office or agency of the Company as it may designate by notice to the
Warrantholder at the address of such Warrantholder appearing on the books of
the Company) during normal business hours on any day (a "Business Day") other
than a Saturday, Sunday or a day on which the New York Stock Exchange is
authorized to close or on which the Company is otherwise closed for business (a
"Nonbusiness Day") on or after 9:00 A.M. New York City time on the Exercise
Date but not later than 5:00 P.M. on the Expiration Date (or 5:00 P.M. on the
next succeeding Business Day, if the Expiration Date is a Nonbusiness Day), (b)
delivery of payment to the Company in cash or by certified or official bank
check in New York Clearing House Funds, of the Exercise Price for the number of
Warrant Shares specified in the Exercise Form and (c) such documentation as to
the identity and authority of the Warrantholder as the Company may reasonably
request. Such Warrant Shares shall be deemed by the Company to be issued to
the Warrantholder as the record holder of such Warrant Shares as of the close
of business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. Certificates for the Warrant
Shares specified in the Exercise Form shall be delivered to the Warrantholder
as promptly as practicable, and in any event within 10 business days,
thereafter. The stock certificates so delivered shall be in denominations of
at least 1,000 shares each or such other denomination as may be specified by
the Warrantholder and agreed upon by the Company, and shall be issued in the
name of the Warrantholder or, if permitted by subsection 1.5 and in accordance
with the provisions thereof, such other name as shall be designated in the
Exercise Form. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of the certificates for the Warrant
Shares, deliver to the Warrantholder a new Warrant evidencing the rights to
purchase the remaining Warrant Shares, which new Warrant shall in all other
respects be identical with this Warrant. No adjustments or payments shall be
made on or in respect of Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
1.2 Limitation on Exercise. If this Warrant is not
exercised prior to 5:00 P.M. on the Expiration Date (or the next succeeding
Business Day, if the Expiration Date is a Nonbusiness Day), this Warrant, or
any new Warrant issued pursuant to Section 1.1, shall cease to be exercisable
and shall become void and all rights of the Warrantholder hereunder
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<PAGE> 4
shall cease. This Warrant shall not be exercisable and no Warrant Shares shall
be issued hereunder, prior to 9:00 A.M. New York City time on the Exercise
Date.
1.3 Exercise Upon Termination. Upon termination of Mr.
Bowman's employment with the Company, this Warrant may be exercised after the
Initial Exercise Date and to and including the Expiration Date. Subject to the
foregoing, in the event of Mr. Bowman's death, this Warrant may be exercised by
Mr. Bowman's legal representative through the Expiration Date.
1.4 Payment of Taxes. The issuance of certificates for
Warrant Shares shall be made without charge to the Warrantholder for any stock
transfer or other issuance tax in respect thereto; provided, however, that the
Warrantholder shall be required to pay any and all taxes which may be payable
in respect to any transfer involved in the issuance and delivery of any
certificates for Warrant Shares in a name other than that of the then
Warrantholder as reflected upon the books of the Company.
1.5 Transfer Restriction and Legend. (a) Neither this
Warrant nor any interest or participation therein may be in any manner
transferred or disposed of, in whole or in part, at any time, without the
consent of the Company, except by will or pursuant to the laws of descent and
distribution or otherwise by operation of law.
(b) Without limiting the generality of the foregoing,
neither this Warrant nor any of the Warrant Shares, nor any interest or
participation in either, may be in any manner transferred or disposed of, in
whole or in part, except in compliance with applicable United States federal
and state securities laws. This limitation shall be in addition to the
limitation set forth in Section 1.5(a) above.
Each certificate for Warrant Shares and any Warrant issued at
any time in exchange or substitution for any Warrant bearing such a legend
shall bear a legend similar in effect to the foregoing paragraph unless, in the
opinion of counsel for the Company, the Warrant need no longer be subject to
the restriction contained herein. The provisions of this subsection 1.5 shall
be binding upon all subsequent holders of this Warrant, if any. Warrant Shares
transferred to the public as expressly permitted by, and in accordance with,
the provisions of this Warrant shall thereafter cease to be deemed to be
"Warrant Shares" for purposes hereof.
1.6 Divisibility of Warrant. This Warrant may be divided
into warrants representing one Warrant Share or multiples thereof, upon
surrender at the principal office of the Company on any Business Day, without
charge to any Warrantholder, except as provided below. The Warrantholder will
be charged for reasonable out-of-pocket costs incurred by the Company in
connection with the division of this Warrant into Warrants representing fewer
than one thousand (1,000) Warrant Shares. Upon any such division, and, if
permitted by subsection 1.5 and in accordance with the provisions thereof, the
Warrants may be transferred
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<PAGE> 5
of record to a name other than that of the Warrantholder of record; provided,
however, that the Warrantholder shall be required to pay any and all transfer
taxes with respect thereto.
2. Reservation and Listing of Shares, Etc.
All Warrant Shares which are issued upon the exercise of the
rights represented by this Warrant shall, upon issuance and payment of the
Exercise Price, be validly issued, fully paid and nonassessable and free from
all taxes, liens, security interests, charges and other encumbrances with
respect to the issue thereof other than taxes in respect of any transfer
occurring contemporaneously with such issue. During the period within which
this Warrant may be exercised, the Company shall at all times have authorized
and reserved, and keep available free from preemptive rights, a sufficient
number of shares of Common Stock to provide for the exercise of this Warrant,
and shall at its expense use its best efforts to procure such listing thereof
(subject to official notice of issuance) as then may be required on all stock
exchanges on which the Common Stock is then listed. The Company shall, from
time to time, take all such action as may be required to assure that the par
value per share of the Warrant Shares is at all times equal to or less than the
then effective Exercise Price.
3. Exchange, Loss or Destruction of Warrant.
If permitted by subsection 1.5 or 1.6 and in accordance with
the provisions thereof, upon surrender of this Warrant to the Company with a
duly executed instrument of assignment and funds sufficient to pay any transfer
tax, the Company shall, without charge, execute and deliver a new Warrant of
like tenor in the name of the assignee named in such instrument of assignment
and this Warrant shall promptly be canceled. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of such bond or
indemnification as the Company may reasonably require, and, in the case of such
mutilation, upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant of like tenor. The term "Warrant" as used
herein includes any Warrants issued in substitution or exchange of this
Warrant.
4. Ownership of Warrant.
The Company may deem and treat the person in whose name this
Warrant is registered as the holder and owner hereof (notwithstanding any
notations of ownership or writing hereon made by anyone other than the Company)
for all purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer as provided in
subsections 1.1 and 1.5 or in Section 3.
5. Certain Adjustments.
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<PAGE> 6
The Exercise Price at which Warrant Shares may be purchased
hereunder, and the number of Warrant Shares to be purchased upon exercise
hereof, are subject to change or adjustment as follows:
5.1 The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(a) In case the Company shall (i) pay a dividend in
shares of Common Stock or make a distribution in shares of Common
Stock (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of
Common Stock or (iv) issue by reclassification of its shares of Common
Stock other securities of the Company (including any such
reclassification in connection with a consolidation or merger in which
the Company is the surviving corporation), the number of Warrant
Shares purchasable upon exercise of this Warrant shall be adjusted so
that the Warrantholder shall be entitled to receive the kind and
number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive after the happening
of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date
with respect thereto. An adjustment made pursuant to this paragraph
(a) shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
(b) In case the Company shall:
(I) issue rights, options or warrants to all holders
of its outstanding Common Stock, without any charge
to such holders, entitling them to subscribe for or
purchase shares of Common Stock at a price per share
which is lower at the record date for the
determination of stockholders entitled to receive
such rights, options or warrants than the then
current market price per share of Common Stock, or
(ii) distribute to all holders of its shares of
Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions payable
out of consolidated earnings or earned surplus and
dividends or distributions referred to in paragraph
(a) of this subsection 5.1) or rights, options or
warrants, or convertible or exchangeable securities
containing the right to subscribe for or purchase
shares of Common Stock, appropriate adjustments shall
be made to the number of Warrant Shares purchasable
upon the exercise of the Warrant and/or the Exercise
Price in order to preserve the relative rights and
interests of the Warrantholders, such adjustments to
be made by the good faith determination of the Board
of Directors of the Company.
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<PAGE> 7
5.2 Voluntary Adjustment by the Company. The Company
may, at its option, at any time during the term of the Warrants, reduce the
then current Exercise Price to any amount, consistent with applicable law,
deemed appropriate by the Board of Directors of the Company.
5.3 Notice of Adjustment. Whenever the number of Warrant
Shares or the Exercise Price of such Warrant Shares is adjusted, as herein
provided, the Company shall promptly mail first class, postage prepaid, to all
Warrantholders, notice of such adjustment.
5.4 No Adjustment for Cash Dividends. No adjustment in
respect of any cash dividends shall be made during the term of this Warrant or
upon the exercise of this Warrant.
5.5 Preservation of Purchase Rights Upon Merger,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale, transfer or
lease to another corporation of all or substantially all of the property of the
Company, the Company or such successor or purchasing corporation, as the case
may be, shall execute with the Warrantholders an agreement that the
Warrantholders shall have the right thereafter upon payment of the Exercise
Price in effect immediately prior to such action to purchase upon exercise of
this Warrant the kind and amount of shares and other securities and property
which such holder would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale, transfer or lease had this
Warrant been exercised immediately prior to such action; provided, however,
that no adjustment in respect of cash dividends, interest or other income on or
from such shares or other securities and property shall be made during the term
of this Warrant or upon the exercise of this Warrant. Such agreement shall
provide for adjustments, which shall be as nearly equivalent as practicable to
the adjustments provided for in this Section 5. The provisions of this
subsection 5.5 shall apply similarly to successive consolidations, mergers,
sales, transfers or leases.
6. Registration Rights
6.1 Piggy-Back Registration Rights.
At any time following the closing of the Initial Public
Offering, whenever the Company proposes to register any Company Stock for its
own or others account under the Securities Act of 1933, as amended (the
"Securities Act"), for a public offering for cash, but other than a
registration relating to employee benefit plans, the Company will give each
Warrantholder prompt written notice of its intent to do so. Upon the written
request of any Warrantholder given within 30 days after receipt of such notice,
the Company will use its best efforts to cause to be included in such
registration all of the Company Stock which such Warrantholder requests,
provided that the Company shall have the right to reduce the number of shares
included in such registration if the Company is advised in writing in good
faith by
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<PAGE> 8
any managing underwriter of the securities being offered pursuant to any
registration statement under this Section 6.1 that the number of shares to be
sold by persons other than the Company is greater than the number of such
shares which can be offered without adversely affecting the offering, the
Company may reduce pro rata the number of shares offered for the accounts of
such persons (based upon the number of shares held by such person) to a number
deemed satisfactory by such managing underwriter.
6.2 Other Arrangements. In connection with the
registration of Warrant Shares in accordance with subsections 6.1, the holders
who elect to have their Warrant Shares included therein shall so notify the
Company and furnish the Company with such appropriate information (including,
but not limited to, the manner in which such shares are to be sold) in
connection therewith as the Company shall reasonably request. Such
notification shall be made, and such information furnished, in writing within
ten (10) calendar days of receipt of the notices specified in subsections 6.1.
In connection with any such registration, the Company agrees to:
(a) Use its best efforts to register or qualify the
Warrant Shares for offer or sale under state securities or "blue sky"
laws of such jurisdictions in which the holders thereof shall
reasonably designate, and use its best efforts to do any and all other
acts and things which may be necessary or advisable to enable the
holders to consummate the sale, transfer or other disposition of such
Warrant Shares in any jurisdiction; provided, however, that in no
event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now qualified or to take any other action
which would subject it to general service of process in any
jurisdiction where it is not then so subject or subject itself to
taxation in any such jurisdiction;
(b) Furnish to the holders requesting registration of the
Warrant Shares (I) at least three (3) calendar days before the filing
thereof with the Securities and Exchange Commission (the "Commission")
a proof of the latest draft of the registration statement and, if
requested, to extend invitations to the holders of the Piggy-Back
Shares to attend all meetings at which the Company and the underwriter
of such offering are present at which such registration statement is
discussed, and (ii) promptly after the filing thereof, a copy of the
registration statement as filed and any amendment to such registration
statement and all exhibits thereto and consents of experts filed or to
be filed therewith;
(c) Furnish to the holders requesting registration of the
Warrant Shares at the Company's expense such number of copies of such
registration statement and all amendments thereto and of such
prospectuses (including each preliminary, amended, or supplemental
prospectus) as such persons may reasonably request in order to
facilitate the sale or transfer of his or its Warrant Shares;
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<PAGE> 9
(d) Make available to the Company's security holders, not
later than forty-five (45) calendar days after the end of the
Company's first fiscal quarter in which the first anniversary of the
effective date of the registration statement occurs (or ninety (90)
calendar days if the end of the first fiscal quarter in which the
first anniversary of the effective date occurs coincides with the end
of the Company's fiscal year), an earnings statement covering a period
of at least twelve (12) consecutive months, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act or
Rule 158 promulgated under the Securities Act;
(e) Use its best efforts to list the Warrant Shares on
any securities exchange on which other shares of Common Stock are
listed;
(f) Afford to the persons requesting registration an
opportunity to make such examination and inquiry into the financial
position, business and affairs of the Company and its subsidiaries as
such persons or their counsel may reasonably deem necessary so as to
satisfy themselves as to the accuracy and completeness of the
registration statement; and
(g) Pay all costs incident to such registration other
than the cost of any counsel or other advisers to the holder
requesting registration and any brokerage or underwriting commissions
in connection with the sale of the Warrant Shares so registered.
The Company shall have sole control in connection with the preparation, filing,
amending and supplementing of any registration statement, including the right
to withdraw the same or delay the effectiveness thereof when, in the sole
judgment of the Board of Directors of the Company, the pendency of such
registration statement or the effectiveness thereof would impose an undue
burden upon the ability of the Company to proceed with any other material
financing for its own account or any material corporate transaction, including,
but not limited to, a reorganization, recapitalization, merger, consolidation
or material acquisition of the securities or assets of another firm or
corporation; and the Company shall be required to file a new registration
statement or to proceed with such actions as reasonably may be required to
cause the registration statement to become effective within a reasonable time
after the consummation of the event or transaction which required such
withdrawal or delay.
7. Miscellaneous.
7.1 Entire Agreement. This Warrant constitutes the
entire agreement between the Company and the Warrantholder with respect to this
Warrant and Warrant Shares.
7.2 Binding Effects; Benefits. This Warrant shall inure
to the benefit of and shall be binding upon the Company, the Warrantholder and
holders of Warrant Shares and their respective heirs, legal representatives,
successors and assigns. Nothing in this Warrant,
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<PAGE> 10
expressed or implied, is intended to or shall confer on any person other than
the Company, the Warrantholders and holders of Warrant Shares, or their
respective heirs, legal representatives, successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant or the
Warrant Shares.
7.3 Amendments and Waivers. This Warrant may not be
modified or amended except by an instrument in writing signed by the Company
and Warrantholders that hold Warrants entitling them to purchase at least 50%
of the Warrant Shares. The Company, any Warrantholder or holders of Warrant
Shares may, by an instrument in writing, waive compliance by the other party
with any term or provision of this Warrant on the part of such other party
hereto to be performed or complied with. The waiver by any such party of a
breach of any term or provision of this Warrant shall not be construed as a
waiver of any subsequent breach.
7.4 Section and Other Headings. The section and other
headings contained in this Warrant are for reference purposes only and shall
not be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
7.5 Further Assurances. Each of the Company, the
Warrantholders and holders of Warrant Shares shall do and perform all such
further acts and things and execute and deliver all such other certificates,
instruments and/or documents (including without limitation, such proxies and/or
powers of attorney as may be necessary or appropriate) as any party hereto may,
at any time and from time to time, reasonably request in connection with the
performance of any of the provisions of this Warrant.
7.6 Notices. All demands, requests, notices and other
communications required or permitted to be given under this Warrant shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by United States certified or registered first class mail, postage
prepaid, to the parties hereto at the following addresses or at such other
address as any party hereto shall hereafter specify by notice to the other
party hereto:
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<PAGE> 11
(a) if to the Company, addressed to:
F.Y.I. Incorporated
3232 McKinney Avenue
Suite 900
Dallas, Texas 75204
Attention: Chairman and Chief Development Officer
(b) if to any Warrantholder or holder of Warrant Shares,
addressed to the address of such person appearing on the books of the
Company.
Except as otherwise provided herein, all such demands,
requests, notices and other communications shall be deemed to have been
received on the date of personal delivery thereof or on the third Business Day
after the mailing thereof.
7.7 Separability. Any term or provision of this Warrant
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable any other term or
provision of this Warrant or affecting the validity or enforceability of any of
the terms or provisions of this Warrant in any other jurisdiction.
7.8 Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Warrantholder an amount in cash equal to
such fraction multiplied by the current market price (as determined as of the
date of exercise, and with reference to the applicable trading market, in
accordance with paragraph (d) of subsection 5.1) of a share of such stock as of
the date of such exercise.
7.9 Rights of the Holder. The Warrantholder shall not,
solely by virtue of this Warrant, be entitled to any rights of a stockholder of
the Company, either at law or in equity.
7.10 Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes
shall be governed by and construed in accordance with the laws of such State
applicable to contracts made and performed in Delaware.
7.11 Effect of Stock Splits, etc. Whenever any rights
under this Agreement are available only when at least a specified minimum
number of Warrant Shares is involved, such number shall be appropriately
adjusted to reflect any stock split, stock dividend, combination of securities
into a smaller number of securities or reclassification of stock.
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<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.
F.Y.I. INCORPORATED
By:
--------------------------------
Name: Thomas C. Walker
Title: Chairman and
Chief Development Officer
Dated:
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<PAGE> 13
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned, the record holder of this Warrant, hereby
irrevocably elects to exercise the right, represented by this Warrant, to
purchase __________ of the Warrant Shares and herewith tenders payment for such
Warrant Shares to the order of F.Y.I. INCORPORATED, in the amount of $_______
in accordance with the terms of this Warrant. The undersigned requests that a
certificate for such Warrant Shares be registered in the name of
_________________________________ and that such certificate be delivered to
_________________________ whose address is ____________________________________.
Date Signature
--------------------------- -------------------------------
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<PAGE> 1
EXHIBIT 10.22
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY
INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF
EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED AND THE TERMS
AND CONDITIONS HEREOF. THE HOLDER OF THIS WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH.
VOID AFTER 5:00 P.M. NEW YORK CITY TIME, [5 YEARS FROM THE INITIAL EXERCISE
DATE]
****************************************
No. 3
WARRANT
to
PURCHASE COMMON STOCK
of
F.Y.I. INCORPORATED
****************************************
This certifies that, for good and valuable consideration,
F.Y.I. Incorporated, a Delaware corporation (the "Company"), grants to Robert
Irvine ("Mr. Irvine") or permitted registered assigns (the "Warrantholder" or
"Warrantholders"), the right to subscribe for and purchase from the Company, at
the price per share offered in the Company's initial public offering (the
"IPO") (the "Exercise Price"), Fifty Thousand (50,000) shares, of the Company's
Common Stock, par value $0.01 per share (the "Common Stock"), subject to the
provisions and upon the terms and conditions herein set forth. The Exercise
Price and the number of Warrant Shares are subject to adjustment from time to
time as provided in Section 5.
<PAGE> 2
I. Duration and Exercise of Warrant; Limitation on Exercise;
Payment of Taxes.
A. Duration and Exercise of Warrant.
(a) This Warrant may be exercised to purchase 50% of the
underlying shares from and after 9:00 A.M. New York City time on [2 years from
closing of the initial public offering of shares offered to the public pursuant
to Registration Statement 33-98608 (the "Initial Public Offering")] (the
"Initial Exercise Date") and the remaining 50% of the underlying shares on [3
years from closing of the Initial Public Offering (the "Second Exercise Date"),
the Initial Exercise Date or the Second Exercise Date, as applicable (the
"Exercise Date") and to and including 5:00 P.M. New York City time on [5 years
from closing of the Initial Exercise Date] (the "Expiration Date"). In
addition, in the event of a Change in Control of the Company, the right to
exercise 100% of the underlying shares shall immediately vest. A "Change in
Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit
plan of the Company, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities and Exchange
Act of 1934, as amended (the" Exchange Act")) of any voting security
of the Company and immediately after such acquisition such Person is,
directly or indirectly, the Beneficial Owner of voting securities
representing 50% or more of the total voting power of all of the
then-outstanding voting securities of the Company;
(ii) the individuals (A) who, as of the closing date of the
Initial Public Offering, constitute the Board (the "Original
Directors") or (B) who thereafter are elected to the Board and whose
election, or nomination for election, to the Board was approved by a
vote of at least two-thirds (2/3) of the Original Directors then still
in office (such directors becoming "Additional Original Directors"
immediately following their election) or (C) who are elected to the
Board and whose election, or nomination for election, to the Board was
approved by a vote of at least two-thirds (2/3) of the Original
Directors and Additional Original Directors then still in office (such
directors also becoming "Additional Original Directors" immediately
following their election) (such individuals being the "Continuing
<PAGE> 3
Directors"), cease for any reason to constitute a majority of the
members of the Board;
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation
of any such transaction if stockholder approval is not sought or
obtained, other than any such transaction which would result in at
least 75% of the total voting power represented by the voting
securities of the surviving entity outstanding immediately after such
transaction being Beneficially Owned by at least 75% of the holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder
relative to other such continuing holders not substantially altered in
the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the
Company).
(b) The rights represented by this Warrant may be exercised
by the Warrantholder of record, in whole, or from time to time in part, by (a)
surrender of this Warrant, accompanied by the Exercise Form annexed hereto (the
"Exercise Form") duly executed by the Warrantholder of record and specifying
the number of Warrant Shares to be purchased, to the Company at the office of
the Company located at 2911 Turtle Creek Boulevard, Suite 300, Dallas, Texas
75219 (or such other office or agency of the Company as it may designate by
notice to the Warrantholder at the address of such Warrantholder appearing on
the books of the Company) during normal business hours on any day (a "Business
Day") other than a Saturday, Sunday or a day on which the New York Stock
Exchange is authorized to close or on which the Company is otherwise closed for
business (a "Nonbusiness Day") on or after 9:00 A.M. New York City time on the
Exercise Date but not later than 5:00 P.M. on the Expiration Date (or 5:00 P.M.
on the next succeeding Business Day, if the Expiration Date is a Nonbusiness
Day), (b) delivery of payment to the Company in cash or by certified or
official bank check in New York Clearing House Funds, of the Exercise Price for
the number of Warrant Shares specified in the Exercise Form and (c) such
documentation as to the identity and authority of the Warrantholder as the
Company may reasonably request. Such Warrant Shares shall be deemed by the
Company to be issued to the Warrantholder as the record holder of such Warrant
Shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for the Warrant Shares as aforesaid.
Certificates for the Warrant Shares
<PAGE> 4
specified in the Exercise Form shall be delivered to the Warrantholder as
promptly as practicable, and in any event within 10 business days, thereafter.
The stock certificates so delivered shall be in denominations of at least 1,000
shares each or such other denomination as may be specified by the Warrantholder
and agreed upon by the Company, and shall be issued in the name of the
Warrantholder or, if permitted by subsection 1.5 and in accordance with the
provisions thereof, such other name as shall be designated in the Exercise
Form. If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of the certificates for the Warrant Shares,
deliver to the Warrantholder a new Warrant evidencing the rights to purchase
the remaining Warrant Shares, which new Warrant shall in all other respects be
identical with this Warrant. No adjustments or payments shall be made on or in
respect of Warrant Shares issuable on the exercise of this Warrant for any cash
dividends paid or payable to holders of record of Common Stock prior to the
date as of which the Warrantholder shall be deemed to be the record holder of
such Warrant Shares.
B. Limitation on Exercise. This Warrant may only be
vested if, at the time of such vesting, Mr. Irvine is an Employee of the
Company, except as provided in Section 1.3. If this Warrant is not exercised
prior to 5:00 P.M. on the Expiration Date (or the next succeeding Business Day,
if the Expiration Date is a Nonbusiness Day), this Warrant, or any new Warrant
issued pursuant to Section 1.1, shall cease to be exercisable and shall become
void and all rights of the Warrantholder hereunder shall cease. This Warrant
shall not be exercisable and no Warrant Shares shall be issued hereunder, prior
to 9:00 A.M. New York City time on the Exercise Date.
C. Exercise Upon Termination. Upon termination of Mr.
Irvine's employment with the Company, this Warrant may be exercised during the
three month period following such termination of employment, but only to the
extent that this Warrant was exercisable immediately prior to such termination
of
<PAGE> 5
employment. Notwithstanding the foregoing, if such termination is for cause,
the right to exercise this Warrant shall terminate upon such termination. In
no event shall this Warrant be exercisable for more than the maximum number of
shares that the Warrantholder was entitled to purchase at the date of
termination of the relationship with the Company. Subject to the foregoing, in
the event of Mr. Irvine's death, this Warrant may be exercised by Mr. Irvine's
legal representative through the Expiration Date.
D. Payment of Taxes. The issuance of certificates for
Warrant Shares shall be made without charge to the Warrantholder for any stock
transfer or other issuance tax in respect thereto; provided, however, that the
Warrantholder shall be required to pay any and all taxes which may be payable
in respect to any transfer involved in the issuance and delivery of any
certificates for Warrant Shares in a name other than that of the then
Warrantholder as reflected upon the books of the Company.
E. Transfer Restriction and Legend. 1. Neither this
Warrant nor any interest or participation therein may be in any manner
transferred or disposed of, in whole or in part, at any time, without the
consent of the Company, except by will or pursuant to the laws of descent and
distribution or otherwise by operation of law.
2. Without limiting the generality of the foregoing,
neither this Warrant nor any of the Warrant Shares, nor any interest or
participation in either, may be in any manner transferred or disposed of, in
whole or in part, except in compliance with applicable United States federal
and state securities laws. This limitation shall be in addition to the
limitation set forth in Section 1.5(a) above.
Each certificate for Warrant Shares and any Warrant issued at
any time in exchange or substitution for any Warrant bearing such a legend
shall bear a legend similar in effect to the foregoing paragraph unless, in the
opinion of counsel for the Company, the Warrant need no longer be subject to
the restriction contained herein. The provisions of this subsection 1.5 shall
be binding upon all subsequent holders of this Warrant, if any. Warrant Shares
transferred to the public as expressly permitted by, and in accordance with,
the provisions of this Warrant shall thereafter cease to be deemed to be
"Warrant Shares" for purposes hereof.
<PAGE> 6
F. Divisibility of Warrant. This Warrant may be divided
into warrants representing one Warrant Share or multiples thereof, upon
surrender at the principal office of the Company on any Business Day, without
charge to any Warrantholder, except as provided below. The Warrantholder will
be charged for reasonable out-of-pocket costs incurred by the Company in
connection with the division of this Warrant into Warrants representing fewer
than one thousand (1,000) Warrant Shares. Upon any such division, and, if
permitted by subsection 1.5 and in accordance with the provisions thereof, the
Warrants may be transferred of record to a name other than that of the
Warrantholder of record; provided, however, that the Warrantholder shall be
required to pay any and all transfer taxes with respect thereto.
II. Reservation and Listing of Shares, Etc.
All Warrant Shares which are issued upon the exercise of the
rights represented by this Warrant shall, upon issuance and payment of the
Exercise Price, be validly issued, fully paid and nonassessable and free from
all taxes, liens, security interests, charges and other encumbrances with
respect to the issue thereof other than taxes in respect of any transfer
occurring contemporaneously with such issue. During the period within which
this Warrant may be exercised, the Company shall at all times have authorized
and reserved, and keep available free from preemptive rights, a sufficient
number of shares of Common Stock to provide for the exercise of this Warrant,
and shall at its expense use its best efforts to procure such listing thereof
(subject to official notice of issuance) as then may be required on all stock
exchanges on which the Common Stock is then listed. The Company shall, from
time to time, take all such action as may be required to assure that the par
value per share of the Warrant Shares is at all times equal to or less than the
then effective Exercise Price.
III. Exchange, Loss or Destruction of Warrant.
If permitted by subsection 1.5 or 1.6 and in accordance with
the provisions thereof, upon surrender of this Warrant to the Company with a
duly executed instrument of assignment and funds sufficient to pay any transfer
tax, the Company shall, without charge, execute and deliver a new Warrant of
like tenor in the name of the assignee named in such instrument of assignment
and this Warrant shall promptly be cancelled. Upon receipt by the Company of
evidence satisfactory to it of the
<PAGE> 7
loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of such bond or indemnification as the Company may
reasonably require, and, in the case of such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new
Warrant of like tenor. The term "Warrant" as used herein includes any Warrants
issued in substitution or exchange of this Warrant.
IV. Ownership of Warrant.
The Company may deem and treat the person in whose name this
Warrant is registered as the holder and owner hereof (notwithstanding any
notations of ownership or writing hereon made by anyone other than the Company)
for all purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer as provided in
subsections 1.1 and 1.5 or in Section 3.
V. Certain Adjustments.
The Exercise Price at which Warrant Shares may be purchased
hereunder, and the number of Warrant Shares to be purchased upon exercise
hereof, are subject to change or adjustment as follows:
A. The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
1. In case the Company shall (i) pay a dividend in
shares of Common Stock or make a distribution in shares of Common
Stock (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of
Common Stock or (iv) issue by reclassification of its shares of Common
Stock other securities of the Company (including any such
reclassification in connection with a consolidation or merger in which
the Company is the surviving corporation), the number of Warrant
Shares purchasable upon exercise of this Warrant shall be adjusted so
that the Warrantholder shall be entitled to receive the kind and
number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive after the happening
of any of the events described above, had this
<PAGE> 8
Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made
pursuant to this paragraph (a) shall become effective immediately
after the effective date of such event retroactive to the record date,
if any, for such event.
2. In case the Company shall:
(i) issue rights, options or warrants to all
holders of its outstanding Common Stock, without any
charge to such holders, entitling them to subscribe
for or purchase shares of Common Stock at a price per
share which is lower at the record date for the
determination of stockholders entitled to receive
such rights, options or warrants than the then
current market price per share of Common Stock, or
(ii) distribute to all holders of its shares of
Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions payable
out of consolidated earnings or earned surplus and
dividends or distributions referred to in paragraph
(a) of this subsection 5.1) or rights, options or
warrants, or convertible or exchangeable securities
containing the right to subscribe for or purchase
shares of Common Stock,
appropriate adjustments shall be made to the number of Warrant Shares
purchasable upon the exercise of the Warrant and/or the Exercise Price in order
to preserve the relative rights and interests of the Warrantholders, such
adjustments to be made by the good faith determination of the Board of
Directors of the Company.
B. Voluntary Adjustment by the Company. The Company
may, at its option, at any time during the term of the Warrants, reduce the
then current Exercise Price to any amount, consistent with applicable law,
deemed appropriate by the Board of Directors of the Company.
C. Notice of Adjustment. Whenever the number of Warrant
Shares or the Exercise Price of such Warrant Shares is adjusted, as herein
provided, the Company shall promptly mail
<PAGE> 9
first class, postage prepaid, to all Warrantholders, notice of such adjustment.
D. No Adjustment for Cash Dividends. No adjustment in
respect of any cash dividends shall be made during the term of this Warrant or
upon the exercise of this Warrant.
E. Preservation of Purchase Rights Upon Merger,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale, transfer or
lease to another corporation of all or substantially all of the property of the
Company, the Company or such successor or purchasing corporation, as the case
may be, shall execute with the Warrantholders an agreement that the
Warrantholders shall have the right thereafter upon payment of the Exercise
Price in effect immediately prior to such action to purchase upon exercise of
this Warrant the kind and amount of shares and other securities and property
which such holder would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale, transfer or lease had this
Warrant been exercised immediately prior to such action; provided, however,
that no adjustment in respect of cash dividends, interest or other income on or
from such shares or other securities and property shall be made during the term
of this Warrant or upon the exercise of this Warrant. Such agreement shall
provide for adjustments, which shall be as nearly equivalent as practicable to
the adjustments provided for in this Section 5. The provisions of this
subsection 5.5 shall apply similarly to successive consolidations, mergers,
sales, transfers or leases.
6. Registration Rights
6.1 Piggy-Back Registration Rights.
At any time following the closing of the IPO, whenever the
Company proposes to register any Company Stock for its own or others account
under the Securities Act of 1933, as amended (the "Securities Act"), for a
public offering for cash, but other than a registration relating to employee
benefit plans, the Company will give each Warrantholder prompt written notice
of its intent to do so. Upon the written request of any Warrantholder given
within 30 days after receipt of such notice, the Company will use its best
efforts to cause to be included in such registration all of the Company Stock
which such Warrantholder requests, provided
<PAGE> 10
that the Company shall have the right to reduce the number of shares included
in such registration if the Company is advised in writing in good faith by any
managing underwriter of the securities being offered pursuant to any
registration statement under this Section 6.1 that the number of shares to be
sold by persons other than the Company is greater than the number of such
shares which can be offered without adversely affecting the offering, the
Company may reduce pro rata the number of shares offered for the accounts of
such persons (based upon the number of shares held by such person) to a number
deemed satisfactory by such managing underwriter.
6.2 Other Arrangements. In connection with the
registration of Warrant Shares in accordance with subsections 6.1, the holders
who elect to have their Warrant Shares included therein shall so notify the
Company and furnish the Company with such appropriate information (including,
but not limited to, the manner in which such shares are to be sold) in
connection therewith as the Company shall reasonably request. Such
notification shall be made, and such information furnished, in writing within
ten (10) calendar days of receipt of the notices specified in subsections 6.1.
In connection with any such registration, the Company agrees to:
1. Use its best efforts to register or qualify the
Warrant Shares for offer or sale under state securities or "blue sky"
laws of such jurisdictions in which the holders thereof shall
reasonably designate, and use its best efforts to do any and all other
acts and things which may be necessary or advisable to enable the
holders to consummate the sale, transfer or other disposition of such
Warrant Shares in any jurisdiction; provided, however, that in no
event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now qualified or to take any other action
which would subject it to general service of process in any
jurisdiction where it is not then so subject or subject itself to
taxation in any such jurisdiction;
2. Furnish to the holders requesting registration of the
Warrant Shares (i) at least three (3) calendar days before the filing
thereof with the Securities and Exchange Commission (the "Commission")
a proof of the latest draft of the registration statement and, if
requested, to extend invitations to the holders of the Piggy-Back
Shares to
<PAGE> 11
attend all meetings at which the Company and the underwriter of such
offering are present at which such registration statement is
discussed, and (ii) promptly after the filing thereof, a copy of the
registration statement as filed and any amendment to such registration
statement and all exhibits thereto and consents of experts filed or to
be filed therewith;
3. Furnish to the holders requesting registration of the
Warrant Shares at the Company's expense such number of copies of such
registration statement and all amendments thereto and of such
prospectuses (including each preliminary, amended, or supplemental
prospectus) as such persons may reasonably request in order to
facilitate the sale or transfer of his or its Warrant Shares;
4. Make available to the Company's security holders, not
later than forty-five (45) calendar days after the end of the
Company's first fiscal quarter in which the first anniversary of the
effective date of the registration statement occurs (or ninety (90)
calendar days if the end of the first fiscal quarter in which the
first anniversary of the effective date occurs coincides with the end
of the Company's fiscal year), an earnings statement covering a period
of at least twelve (12) consecutive months, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act or
Rule 158 promulgated under the Securities Act;
5. Use its best efforts to list the Warrant Shares on
any securities exchange on which other shares of Common Stock are
listed;
6. Afford to the persons requesting registration an
opportunity to make such examination and inquiry into the financial
position, business and affairs of the Company and its subsidiaries as
such persons or their counsel may reasonably deem necessary so as to
satisfy themselves as to the accuracy and completeness of the
registration statement; and
7. Pay all costs incident to such registration other
than the cost of any counsel or other advisers to the holder
requesting registration and any brokerage or underwriting
<PAGE> 12
commissions in connection with the sale of the Warrant Shares so
registered.
The Company shall have sole control in connection with the preparation, filing,
amending and supplementing of any registration statement, including the right
to withdraw the same or delay the effectiveness thereof when, in the sole
judgment of the Board of Directors of the Company, the pendency of such
registration statement or the effectiveness thereof would impose an undue
burden upon the ability of the Company to proceed with any other material
financing for its own account or any material corporate transaction, including,
but not limited to, a reorganization, recapitalization, merger, consolidation
or material acquisition of the securities or assets of another firm or
corporation; and the Company shall be required to file a new registration
statement or to proceed with such actions as reasonably may be required to
cause the registration statement to become effective within a reasonable time
after the consummation of the event or transaction which required such
withdrawal or delay.
7. Miscellaneous.
7.1 Entire Agreement. This Warrant constitutes the
entire agreement between the Company and the Warrantholder with respect to this
Warrant and Warrant Shares.
7.2 Binding Effects; Benefits. This Warrant shall inure
to the benefit of and shall be binding upon the Company, the Warrantholder and
holders of Warrant Shares and their respective heirs, legal representatives,
successors and assigns. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company, the
Warrantholders and holders of Warrant Shares, or their respective heirs, legal
representatives, successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Warrant or the Warrant Shares.
7.3 Amendments and Waivers. This Warrant may not be
modified or amended except by an instrument in writing signed by the Company
and Warrantholders that hold Warrants entitling them to purchase at least 50%
of the Warrant Shares. The Company, any Warrantholder or holders of Warrant
Shares may, by an instrument in writing, waive compliance by the other party
with any term or provision of this Warrant on the part of such other party
hereto
<PAGE> 13
to be performed or complied with. The waiver by any such party of a breach of
any term or provision of this Warrant shall not be construed as a waiver of any
subsequent breach.
7.4 Section and Other Headings. The section and other
headings contained in this Warrant are for reference purposes only and shall
not be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
7.5 Further Assurances. Each of the Company, the
Warrantholders and holders of Warrant Shares shall do and perform all such
further acts and things and execute and deliver all such other certificates,
instruments and/or documents (including without limitation, such proxies and/or
powers of attorney as may be necessary or appropriate) as any party hereto may,
at any time and from time to time, reasonably request in connection with the
performance of any of the provisions of this Warrant.
7.6 Notices. All demands, requests, notices and other
communications required or permitted to be given under this Warrant shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by United States certified or registered first class mail, postage
prepaid, to the parties hereto at the following addresses or at such other
address as any party hereto shall hereafter specify by notice to the other
party hereto:
(a) if to the Company, addressed to:
F.Y.I. Incorporated
2911 Turtle Creek Boulevard
Suite 300
Dallas, Texas 75219
Attention: President and Chief Executive Officer
(b) if to any Warrantholder or holder of Warrant Shares,
addressed to the address of such person appearing on the books of the
Company.
Except as otherwise provided herein, all such demands,
requests, notices and other communications shall be deemed to have been
received on the date of personal delivery thereof or on the third Business Day
after the mailing thereof.
<PAGE> 14
7.7 Separability. Any term or provision of this Warrant
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable any other term or
provision of this Warrant or affecting the validity or enforceability of any of
the terms or provisions of this Warrant in any other jurisdiction.
7.8 Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Warrantholder an amount in cash equal to
such fraction multiplied by the current market price (as determined as of the
date of exercise, and with reference to the applicable trading market, in
accordance with paragraph (d) of subsection 5.1) of a share of such stock as of
the date of such exercise.
7.9 Rights of the Holder. The Warrantholder shall not,
solely by virtue of this Warrant, be entitled to any rights of a stockholder of
the Company, either at law or in equity.
7.10 Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes
shall be governed by and construed in accordance with the laws of such State
applicable to contracts made and performed in Delaware.
7.11 Effect of Stock Splits, etc. Whenever any rights
under this Agreement are available only when at least a specified minimum
number of Warrant Shares is involved, such number shall be appropriately
adjusted to reflect any stock split, stock dividend, combination of securities
into a smaller number of securities or reclassification of stock.
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.
F.Y.I. INCORPORATED
/s/ Ed H. Bowman, Jr.
------------------------------
Name: Ed H. Bowman, Jr.
Title: President and
Chief Executive Officer
Dated: January 23, 1996
<PAGE> 16
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned, the record holder of this Warrant, hereby
irrevocably elects to exercise the right, represented by this Warrant, to
purchase __________ of the Warrant Shares and herewith tenders payment for such
Warrant Shares to the order of F.Y.I. INCORPORATED, in the amount of $_______
in accordance with the terms of this Warrant. The undersigned requests that a
certificate for such Warrant Shares be registered in the name of
_________________________________ and that such certificate be delivered to
_________________________ whose address is ____________________________________.
Date Signature
-------------------------- --------------------------------
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
Deliverex Acquisition Corp.
DPAS Acquisition Corp.
Imagent Acquisition Corp.
Leonard Archives Acquisition Corp.
Permanent Records Acquisition Corp.
Recordex Acquisition Corp.
Researchers Acquisition Corp.
Deliverex Sacramento Acquisition Corp.
B&B (Baltimore-Washington) Acquisition Corp.
Premier Acquisition Corp.
Robert A. Cook Acquisition Corp.
RAC (California) Acquisition Corp.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
July 3, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ELKO, FISCHER, McCABE & RUDMAN, Ltd.
Media, Pennsylvania
July 3, 1996
<PAGE> 1
EXHIBIT 23.4
[C.W. AMOS & COMPANY, LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report (and to all references to our Firm)
included in the Current Report on Form 8-K/A, and we consent to the
incorporation by reference in the Registration Statements on Form S-1
(Registration No. 333-1084) of F.Y.I. Incorporated of our report dated March
20, 1996, with respect to the balance sheet of B & B Information and Image
Management, Inc., as of December 31, 1995, and the related statements of
income, stockholder's equity, and cash flows for the year then ended, which
report appears in the Current Report on Form 8-K/A of F.Y.I. Incorporated.
/s/ C. W. Amos & Company, LLC
Baltimore, Maryland
July 3, 1996
<PAGE> 1
EXHIBIT 23.5
[MOSS-ADAMS LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the application of our report dated June 21, 1996 relating
to the combined financial statements of Premier Document Management, Inc. and
Affiliate for the year ended December 31, 1995, which is included in
Post-Effective Amendment No. 2 to Form S-1 (Registration No. 33-1084) of F.Y.I.
Incorporated. We also consent to the reference to our Firm as experts in the
same registration statement
/s/ Moss Adams LLP
Moss Adams, LLP
Seattle, Washington
July 2, 1996
