<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1996
REGISTRATION NO. 333-1084
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT
NO. 3 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 Classification Code Number) Identification Number)
organization)
</TABLE>
3232 MCKINNEY AVENUE -- SUITE 900
DALLAS, TEXAS 75204
(214) 953-7555
(Address, including zip code and telephone
number, including area code, of registrant's principal executive offices)
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ED H. BOWMAN, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
F.Y.I. INCORPORATED
3232 MCKINNEY AVENUE -- SUITE 900
DALLAS, TEXAS 75204
(214) 953-7555
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
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Copy to:
<TABLE>
<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 AVENUE -- 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.
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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
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.
SUBJECT TO COMPLETION, SEPTEMBER 9, 1996
2,000,000 SHARES
[FYI LOGO]
COMMON STOCK
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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.
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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
467,973 shares of Common Stock pursuant to this Registration Statement. Of such
issued shares, 36,670 shares of Common Stock are held by a wholly-owned
subsidiary of the Company. After giving effect to the Company's pending
acquisition (see "Recent Developments"), the Company will have issued an
additional 154,286 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 September 4, 1996, the closing price of the Common Stock on
the Nasdaq National Market was $19.25 per share as published in The Wall Street
Journal on September 5, 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> 3
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. 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."
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 (the
"Acquisitions"), 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. Since the Offering, the Company has
acquired 10 additional companies (together with the Founding Companies, the
"Operating Companies") which provide document management services in Baltimore,
Houston, Los Angeles, Minneapolis, Sacramento, San Jose, Seattle and Washington,
D.C. The Operating Companies operate in over 25 states. The Company had pro
forma fiscal 1995 annual revenues of approximately $78 million and pro forma
fiscal 1995 net income of $5.1 million after giving effect to the New
Acquisitions as defined below. 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.
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<PAGE> 4
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.
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SUMMARY 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 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>
SIX MONTHS SIX MONTHS ENDED JUNE 30, 1996
ENDED JUNE (UNAUDITED)(5)
FISCAL YEARS ENDED DECEMBER 31, 30,(4) -------------------------------------
----------------------------------------------- ------------ FOUNDING F.Y.I.
1991 1992 1993 1994 1995 1995 COMPANIES INCORPORATED SUPPLEMENTAL
----------- ------- ------- ------- ------- ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Statement of Operations
Data:
Total revenue........... $29,525 $35,696 $38,396 $43,032 $47,626 $ 23,829 $ 3,916 $ 24,651 $ 28,567
Operating income(1)..... 1,444 2,708 3,401 3,454 4,966 2,827 503 2,173 2,676
Interest and other
expense (income),
net................... 132 272 248 29 139 99 (45) (123) (168)
Income before income
taxes(1).............. 1,312 2,436 3,153 3,425 4,827 2,728 548 2,296 2,844
Provision for income
taxes(2).............. 474 895 1,261 1,256 1,794 1,024 221 923 1,144
Net income(1)(2)........ 838 1,541 1,892 2,169 3,033 1,704 327 1,373 1,700
Net income per
share(1)(2)(3)........ $0.23 $0.42 $0.52 $0.60 $0.83 $0.06 $0.26 $0.32
======= ======= ======= ======= ======= ====== ====== =======
Weighted average shares
outstanding(3)........ 3,644 3,644 3,644 3,644 3,644 5,335 5,335 5,335
======= ======= ======= ======= ======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30, 1996
1995 1996 --------------
------------ ----------- PRO FORMA
ACTUAL ACTUAL AS ADJUSTED(6)
------------ ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital.................................................... $ 1,663 $ 4,260 $ 5,155
Total assets....................................................... 19,681 45,695 56,628
Long-term debt less current portion................................ 2,777 11,071 15,678
Stockholders' equity............................................... 7,111 22,916 27,453
</TABLE>
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SUMMARY PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED FOR
NEW ACQUISITIONS(6)
---------------------------
YEAR ENDED SIX MONTHS
DECEMBER ENDED JUNE
31, 1995 30, 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Statement of Operations Data:
Total revenue........................................................................ $78,001 $42,675
Operating income..................................................................... 9,724 5,682
Interest and other expense, net...................................................... 1,454 431
Income before income taxes........................................................... 8,270 5,251
Provision for income taxes........................................................... 3,172 2,107
Net income........................................................................... 5,098 3,144
Pro forma net income per share....................................................... $0.87 $0.54
======= =======
Pro forma weighted average shares outstanding(3)..................................... 5,872 5,872
</TABLE>
4
<PAGE> 6
(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 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 and the additional 253,252 shares of
Common Stock issued in acquisitions consummated in May 1996. Pro forma
weighted average shares also include an additional 332,337 shares issued or
to be issued in connection with the acquisition of Medical Record and the
pending acquisition of ZIA. 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 588,670 shares of Common Stock are
currently outstanding; and (ii) warrants outstanding to purchase 50,000
shares of Common Stock.
(4) The Statement of Operations Data for the six months ended June 30, 1995,
represent the unaudited results of the combined Founding Companies for the
period.
(5) The Statement of Operations Data for the six months ended June 30, 1996, for
the Founding Companies represent the one month of operations prior to the
consummation of the Acquisitions. The Statement of Operations Data for the
six months ended June 30, 1996, for F.Y.I. Incorporated and Subsidiaries
represent the results of operations subsequent to the consummation of the
Acquisitions. The Supplemental Data represent the combined operations of the
Founding Companies and F.Y.I. during the six months ended June 30, 1996. The
Supplemental Data are provided for informational purposes only and do 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
are they necessarily indicative of the results of operations which may be
achieved in the future.
(6) Gives effect to: (i) the acquisition of Robert A. Cook and Staff, Inc. and
RAC Services, Inc. ("Cook"), B&B Information and Management, Inc. ("B&B"),
Premier Document Management, Inc. and PDM Services, Inc. ("Premier"),
C.M.R.S. Incorporated. ("CMRS"), Minnesota Medical Record Service, Inc.
("Minnesota Medical Record") and Texas Medical Record Service, Inc. ("Texas
Medical Record") and the pending acquisition of ZIA Information Analysis
Group (collectively the "New Acquisitions") as if the transactions were
consummated for the balance sheet data based upon the earlier of June 30,
1996 or the respective acquisition date and for 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
the separate unaudited pro forma financial statements and notes thereto
located elsewhere within this Prospectus.
5
<PAGE> 7
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 10
additional acquisitions since the Offering. Prior to their acquisition, the
Operating Companies operated as separate independent entities. Currently, the
Company has a decentralized financial reporting system and initially relies 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," "Business -- 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> 8
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 September 3, 1996, the availability under the Line of
Credit was approximately $2.0 million for working capital and approximately
$16.7 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> 9
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., David Lowenstein, Timothy J. Barker, 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 52.9% 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 467,973 shares of Common Stock in connection with the
acquisitions which closed in May 1996 and in August 1996. Of such issued shares,
36,670 shares are held by a wholly-owned subsidiary of the Company. These
467,973 shares of Common Stock were registered under this Registration
Statement, but are subject to certain contractual transfer restrictions. After
giving effect to the Company's pending acquisition (see "Recent Developments"),
the Company will have issued an additional 154,286 shares of Common Stock
pursuant to this Registration Statement.
8
<PAGE> 10
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 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 165,000
shares of Common Stock.
The former owners of the Founding Companies and the initial stockholders of
the Company 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).
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> 11
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 were acquired, see
"Business -- Organization" and "Certain Transactions."
Imagent. Imagent Corporation (together with Mobile Information Services
Corporation, an affiliate 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, electronic imaging, data entry and microfilm
storage and research services. 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> 12
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> 13
RECENT DEVELOPMENTS
Since the closing of the Offering in January 1996, the Company has acquired
10 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. ("B&B 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. ("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.
Medical Record. C.M.R.S. Incorporated ("CMRS"), Texas Medical Record
Service, Inc. ("Texas Medical Record") and Minnesota Medical Record Service,
Inc. ("Minnesota Medical Record") (CMRS, Texas Medical Record and Minnesota
Medical Record, are referred to herein collectively, as "Medical Record"). CMRS
was acquired by California Medical Record Service Acquisition Corp. ("California
Acquisition Corp."), a wholly-owned subsidiary of the Company. Texas Medical
Record was acquired by Texas Medical Record Service Acquisition Corp. ("Texas
Acquisition Corp."), a wholly-owned subsidiary of the Company. Minnesota Medical
Record was acquired by Minnesota Medical Service Acquisition Corp. ("Minnesota
Acquisition Corp."), a wholly-owned subsidiary of the Company. CMRS, Texas
Medical Record and Minnesota Medical Record were affiliated corporations. CMRS,
Texas Medical Record and Minnesota Medical Record were acquired in August 1996
and provide medical records release services. CMRS, Texas Medical Record and
Minnesota Medical Record are based in Los Angeles, California, Houston, Texas
and Minneapolis, Minnesota, respectively, and were founded in 1985, 1986, and
1987, respectively. Medical Record had 1995 combined revenues of $5.5 million.
ZIA. ZIA Information Analysis Group ("ZIA"). The Company and ZIA
Acquisition Corp. ("ZIA Acquisition Corp."), a wholly-owned subsidiary of the
Company entered into a definitive agreement with ZIA and its shareholders, dated
as of August 1996, to acquire ZIA. ZIA was founded in 1994, is based in San
Francisco, California and provides litigation consulting services, including
discovery assistance, document coding, forensic analysis and trial support
services to law firms, corporations and regulated entities in California. ZIA
had 1995 revenues of $2.3 million. The acquisition of ZIA is subject to
customary closing conditions, and there can be no assurance that such
acquisition will be consummated. See "Business -- Subsequent Acquisitions and
Pending Acquisition."
In addition, substantially all of the assets of Sacramento Valley Records
Management Co. ("Sacramento"), a medical records storage and delivery franchise
company, were acquired by Deliverex Sacramento Acquisition Corp. ("Deliverex
Sacramento"), a wholly-owned subsidiary of the Company, in March 1996. The
former employees of Sacramento report to Deliverex. In February 1996, certain of
the assets of Microfilm Associates, Ltd. ("Microfilm"), also 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. In July 1996,
substantially all of the assets of (i) Domor Data Processing ("Domor"), a data
processing business, were acquired by DPAS;
12
<PAGE> 14
(ii) Rushmore Legal Support ("Rushmore"), a litigation support business, were
acquired by Researchers; and (iii) Index Records Management ("Index"), a medical
records release business, were acquired by Deliverex.
Since the Offering, the Company has 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. Effective July 22, 1996, David
Lowenstein, co-founder of the Company, Executive Vice President and a Director
of the Company reassumed the responsibility of Chief Financial Officer, the
position he held prior to the Offering. Additionally, Timothy J. Barker was
promoted to the position of Vice President and Chief Accounting Officer. See
"Management -- Stock Option Plan."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on the Nasdaq National Market since
January 23, 1996. On September 4, 1996, the last sale price of the Common Stock
was $19.25 per share, as published in The Wall Street Journal on September 5,
1996. At August 30, 1996, there were 42 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 September 4, 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 30, 1996....................... $22.50 $16.00
July 1, 1996 through
September 4, 1996................... $23.00 $17.00
</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> 15
CAPITALIZATION
The following table sets forth the short-term debt and capitalization at
June 30, 1996 of F.Y.I. and pro forma to reflect: (i) the term debt issued and
the stock issued or to be issued in connection with the acquisition of Medical
Record and the pending acquisition of ZIA; and (ii) the debt assumed with the
acquisition of Medical Record. 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>
JUNE 30, 1996
---------------------
ACTUAL PRO FORMA
------- ---------
<S> <C> <C>
Short-term debt (including current portion of long-term debt)... $ 1,331 $ 1,339
======= =======
Long-term debt, excluding current portion....................... $11,071 $15,678
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,
5,522,867 issued and outstanding, 5,891,874 issued and
5,855,204 outstanding pro forma(1)(2)...................... 55 58
Additional paid-in-capital.................................... 21,488 26,022
Retained earnings............................................. 1,373 1,373
------- -------
Total Stockholders' equity............................ 22,916 27,453
------- -------
Total Capitalization............................................ $35,318 $44,470
======= =======
</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 165,000 shares of Common Stock.
(2) A total of 36.670 shares of Common Stock, resulting from the acquisition of
Medical Record, are held by a wholly-owned subsidiary of the Company.
14
<PAGE> 16
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 June 30, 1996 give
effect to the New Acquisitions as if they had occurred on the earlier of June
30, 1996 or the respective acquisition date. The pro forma statement of
operations data give effect to the Acquisitions of the Founding Companies for
periods prior to February 1, 1996, and give 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 statement of operations data give 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 Selected Financial Data
is based on available information and certain assumptions described in the
footnotes set forth below, all of which the Company believes are reasonable. The
Founding Company, Supplemental Data and 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> 17
SELECTED 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
Financial Data set forth below for the periods prior to December 31, 1995, are
derived from the Founding Companies Combined Financial Statements contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS ENDED JUNE 30, 1996
ENDED (UNAUDITED)(5)
FISCAL YEAR ENDED DECEMBER 31, JUNE 30(4) ---------------------------------------
--------------------------------------------------- ------------ FOUNDING F.Y.I.
1991 1992 1993 1994 1995 1995 COMPANIES INCORPORATED SUPPLEMENTAL
----------- ------- ------- ------- ------- ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
STATEMENT OF
OPERATIONS DATA:
Service
revenue........ $22,958 $29,442 $32,067 $36,081 $40,615 $ 20,207 $ 3,487 $ 21,714 $ 25,201
Product
revenue........ 5,899 5,378 5,123 5,923 6,138 3,187 395 2,640 3,035
Other revenue.... 668 876 1,206 1,028 873 435 34 297 331
------- ------- ------- ------- ------- -------- ------- -------- --------
Total
revenue... 29,525 35,696 38,396 43,032 47,626 23,829 3,916 24,651 28,567
Cost of
services....... 14,742 18,348 20,318 23,650 25,937 12,729 2,196 13,630 15,826
Cost of products
sold........... 5,050 4,628 4,464 4,892 4,972 2,604 307 1,974 2,281
Depreciation..... 771 873 883 1,055 1,238 584 90 633 723
------- ------- ------- ------- ------- -------- ------- -------- --------
Gross
profit... 8,962 11,847 12,731 13,435 15,479 7,912 1,323 8,414 9,737
Selling, general
and
administrative
expenses(1).... 7,457 8,940 9,218 9,921 10,449 5,053 814 6,169 6,983
Amortization..... 61 199 112 60 64 32 6 72 78
------- ------- ------- ------- ------- -------- ------- -------- --------
Operating
income(1).. 1,444 2,708 3,401 3,454 4,966 2,827 503 2,173 2,676
Interest and
other expense
(income),
net............ 132 272 248 29 139 99 (45) (123) (168)
------- ------- ------- ------- ------- -------- ------- -------- --------
Income before
income
taxes(1)....... 1,312 2,436 3,153 3,425 4,827 2,728 548 2,296 2,844
Provision for
income
taxes(2)....... 474 895 1,261 1,256 1,794 1,024 221 923 1,144
------- ------- ------- ------- ------- -------- ------- -------- --------
Net
income(1)(2)... $ 838 $ 1,541 $ 1,892 $ 2,169 $ 3,033 $ 1,704 $ 327 $ 1,373 $ 1,700
======= ======= ======= ======= ======= ======== ======= ======== ========
Net income per
share(1)(2)(3)... $0.23 $0.42 $0.52 $0.60 $0.83 $0.06 $0.26 $ 0.32
======= ======= ======= ======= ======= ======= ======== ========
Weighted average
shares
outstanding(3)... 3,644 3,644 3,644 3,644 3,644 5,335 5,335 5,335
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
DECEMBER 31, 1995 ----------------------------
----------------------------------------- ------------ AS ADJUSTED
1991 1992 1993 1994 ACTUAL ACTUAL PRO FORMA(6)
----------- ------- ------- ------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
BALANCE SHEET DATA:
Working capital....................... $ 1,341 $ 1,223 $ 2,081 $ 1,404 $ 1,663 $ 4,260 $ 5,155
Total assets.......................... 13,989 14,124 15,143 19,130 19,681 45,695 56,628
Long-term debt less current portion... 2,809 2,713 3,077 3,185 2,777 11,071 15,678
Stockholders' equity.................. 4,315 4,797 5,223 6,410 7,111 22,916 27,453
</TABLE>
16
<PAGE> 18
SUMMARY PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED FOR
NEW ACQUISITIONS(6)
------------------------------
YEAR ENDED SIX MONTHS
DECEMBER ENDED JUNE 30,
31, 1995 1996
----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue.............................................................................. 69,405 38,936
Product revenue.............................................................................. 7,688 3,397
Other revenue................................................................................ 908 342
------- --------
Total revenue.......................................................................... 78,001 42,675
Cost of services............................................................................. 42,027 23,096
Cost of products sold........................................................................ 6,222 2,594
Depreciation................................................................................. 1,632 888
------- --------
Gross profit........................................................................... 28,120 16,097
Selling, general and administrative expenses................................................. 17,500 9,990
Amortization of intangibles.................................................................. 896 425
------- --------
Operating income....................................................................... 9,724 5,682
Interest and other expense (income), net..................................................... 1,454 431
------- --------
Income before income taxes................................................................... 8,270 5,251
Provision for income taxes................................................................... 3,172 2,107
------- --------
Net income................................................................................... 5,098 3,144
======= ========
Pro forma net income per share............................................................... $ 0.87 $ 0.54
Pro forma weighted average shares outstanding(3)............................................. 5,872 5,872
</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 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 and the additional 253,252 shares of
Common Stock issued in acquisitions consummated in May 1996. Pro forma
weighted average shares also include an additional 332,337 shares issued or
to be issued in connection with the acquisition of Medical Record and the
pending acquisition of ZIA. 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 588,670 shares of Common Stock are
currently outstanding; and (ii) warrants outstanding to purchase 50,000
shares of Common Stock.
(4) The Statement of Operations Data for the six months ended June 30, 1995,
represent the unaudited results of the combined Founding Companies for the
period.
(5) The Statement of Operations Data for the six months ended June 30, 1996, for
the Founding Companies represent the one month of operations prior to the
consummation of the Acquisitions. The Statement of Operations Data for the
six months ended June 30, 1996, for F.Y.I. Incorporated and Subsidiaries
represent the results of operations subsequent to the consummation of the
Acquisitions. The Supplemental Data represent the combined operations of the
Founding Companies and F.Y.I. during the six months ended June 30, 1996. The
Supplemental Data are provided for informational purposes only and do 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
are they 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 based upon the earlier of June 30,
1996 or the respective acquisition date 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 the separate unaudited pro forma financial statements and the
notes thereto located elsewhere in this Prospectus.
17
<PAGE> 19
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:(2)
Imagent................................................................. $ 1,775 $ 2,036 $ 2,264 $ 2,471
Researchers............................................................. 1,425 1,458 1,590 1,458
Recordex................................................................ 1,729 1,978 2,216 2,715
Leonard................................................................. 1,359 1,385 1,517 1,482
Other................................................................... 2,652 2,361 2,334 2,323
------- ------- ------- -------
Total............................................................. $ 8,940 $ 9,218 $ 9,921 $10,449
======= ======= ======= =======
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
======= ======= ======= =======
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> 20
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.
Statements throughout this report 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 results to differ materially from those in the forward-looking statements
is contained under the "Risk Factors."
Overview
The Company effected the Acquisitions of the Founding Companies
simultaneously with the Offering on January 23, 1996. Prior to the consummation
of the Offering, the Company had not conducted any operations and all activities
related to completing the Offering and 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 shares of Common
Stock and Preferred Stock. Additional costs associated with the Offering and the
Acquisitions were paid with proceeds of the Offering.
The Acquisitions have been accounted for in accordance with generally
accepted accounting principles as a combination of the Founding Companies at
historical cost. For accounting purposes, January 31, 1996 has been used as the
effective date of the Acquisitions. Accordingly, the actual operating results of
the Company included in the Statement of Operations for the six months ended
June 30, 1996 represents the five months of operations subsequent to the
consummation of the Acquisitions.
Since the Offering and the Acquisitions, the Company acquired: (i) six
additional document management businesses through June 30, 1996; (ii) an
additional four document management businesses subsequent to June 30, 1996; and
(iii) signed a definitive agreement to acquire another document management
business, subject to satisfactory completion of customary closing conditions.
All of these acquisitions have been or will be accounted for using the purchase
method of accounting. The results of operations for these acquisitions are
reflected in the Company's financial statements based upon their individual
acquisition date.
Supplemental statement of operations data are presented in the footnotes to
the financial statements and discussed herein in order to present the results of
the Company since the consummation of the Acquisitions compared to the results
of the combined Founding Companies for periods prior to the Acquisitions. The
Supplemental Data are provided for information purposes only and do not purport
to present the results of operations of the Company had the transactions assumed
therein occurred on or as of the dates indicated. The Founding Companies were
not under common control or management. Accordingly, such historical combined
results may not be comparable to, or indicative of, future performance.
The Company's revenue is classified as service revenue, product revenue and
other revenue. Service revenue relates to: (i) micrographics; (ii) electronic
imaging; (iii) active document storage; (iv) archival storage of inactive
documents; (v) information and data base management; (vi) litigation support
services; (vii) medical records release services; and (viii) remittance
processing. Product revenue represents sales of micrographic and business
imaging supplies and equipment, 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 micrographics
and business imaging supplies and equipment.
Selling, general and administrative expenses ("SG&A") includes the SG&A
cost at all of the individual Operating Companies and the corporate overhead
cost required to: (i) execute the acquisition program; (ii) manage the
operations; and (iii) comply with regulatory, legal and accounting issues of a
public company. The Company expects to realize benefits from consolidating
certain general and administrative functions,
19
<PAGE> 21
including reductions in accounting, audit, insurance and benefit plan expenses.
The Company is in the process of evaluating the consolidation of certain of
these functions. No significant savings have been realized in the results of
operations as of June 30, 1996.
RESULTS OF OPERATIONS
Except as otherwise noted, the following table sets forth various items as
a percentage of revenue 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 SIX MONTHS ENDED
DECEMBER 31, JUNE 30,(3)
-------------------------- -----------------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service revenue..................... 83.5% 83.8% 85.3% 84.8% 88.2%
Product revenue..................... 13.4 13.8 12.9 13.4 10.6
Other revenue....................... 3.1 2.4 1.8 1.8 1.2
------ ------ ------ ------ ------
Total revenues............ 100.0 100.0 100.0 100.0 100.0
Cost of services(1)................. 61.1 63.7 62.5 61.7 62.0
Cost of products sold(2)............ 87.1 82.6 81.0 81.7 75.2
Depreciation........................ 2.3 2.5 2.6 2.5 2.5
------ ------ ------ ------ ------
Gross profit.............. 33.2 31.2 32.5 33.2 34.1
Selling, general and administrative
expenses.......................... 28.5 27.4 26.1 25.0 26.8
Amortization........................ 0.3% 0.1% 0.1% 0.1% 0.3%
------ ------ ------ ------ ------
Operating income.......... 4.4 3.7 6.3 8.1 7.0
Compensation differential........... 4.5 4.3 4.1 3.8 2.4
------ ------ ------ ------ ------
Adjusted operating
income.................. 8.9% 8.0% 10.4% 11.9% 9.4%
====== ====== ====== ====== ======
</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 six months ended June 30, 1995,
represent the unaudited results of the combined Founding Companies for the
period. The Statement of Operations Data for the six months ended June 30,
1996, represent a combination of: (i) Statement of Operations Data for the
combined operations of the Founding Companies for 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 results
of operations subsequent to the consummation of the Acquisitions. The
Supplemental Data are provided for information purposes only and do 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
are they necessarily indicative of the results of operations which may be
achieved in the future.
Results of Operations -- The Company
The Company had 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.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30,
1995 -- F.Y.I. INCORPORATED
For the three months ended June 30, 1996, revenue was $16.2 million, gross
profit was $5.6 million, operating income was $1.6 million, and net income was
$1.0 million. As previously mentioned, F.Y.I. had no operations until February
1996.
20
<PAGE> 22
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30,
1995 -- F.Y.I. INCORPORATED
For the six months ended June 30, 1996, revenue was $24.7 million, gross
profit was $8.4 million, operating income was $2.2 million, and net income was
$1.4 million. As previously mentioned, F.Y.I. had no operations until February
1996. For further discussion of supplemental operations for the six months ended
June 30, 1996 and 1995, see "Results of Operations -- Supplemental Data."
Results of Operations -- Supplemental Data
The Statement of Operations Data for the six months ended June 30, 1995,
represent the audited combined statement of operations of the Founding Companies
for the period adjusted to give effect to: (i) compensation levels the officers
and owners of the Operating Companies have agreed to receive subsequent to the
Offering; and (ii) provision for income taxes as if all entities had been
subject to federal and state income taxes for the period. The Supplemental
Statement of Operations Data for the six months ended June 30, 1996, represent a
combination of: (i) the unaudited results of the combined Founding Companies for
the one month of operations prior to the consummation of the Acquisitions; and
(ii) the unaudited results of F.Y.I. Incorporated and Subsidiaries for the five
months subsequent to the consummation of the Acquisitions (which includes
acquisitions subsequent to the Offering from the date of their respective
acquisition). The Supplemental Data are provided for information purposes only
and do 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 are
they necessarily indicative of the results of operations which may be achieved
in the future.
<TABLE>
<CAPTION>
SUPPLEMENTAL DATA
-------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1995 1996
---------- ----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue............................................ $ 20,207 $ 25,201
Product revenue............................................ 3,187 3,035
Other revenue.............................................. 435 331
-------- --------
Total revenue...................................... 23,829 28,567
Cost of services........................................... 12,729 15,826
Cost of products sold...................................... 2,604 2,281
Depreciation............................................... 584 723
-------- --------
Gross profit....................................... 7,912 9,737
Selling, general and administrative expenses(a)............ 5,053 6,983
Amortization............................................... 32 78
-------- --------
Operating income................................... 2,827 2,676
Interest and other expenses (income),net................... 99 (168)
-------- --------
Income before income taxes................................. 2,728 2,844
Provision for income taxes (b)............................. 1,024 1,144
-------- --------
Net income................................................. $ 1,704 $ 1,700
======== ========
Net income per share....................................... $ 0.32
========
Weighted average shares outstanding........................ 5,335
--------
</TABLE>
- ---------------
(a) Adjusted for Founding Company pro forma Compensation Differential of $897
for 1995 and $683 for 1996.
(b) Adjusted for pro forma provision for taxes of $887 for 1995 and $351 for
1996.
21
<PAGE> 23
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30,
1995 -- F.Y.I. INCORPORATED COMBINED WITH FOUNDING COMPANIES
The $4,738,000 or 20% increase in revenue was attributable to a 25%
increase in service revenue of $4,994,000. The increase in service revenue was
offset by a $256,000 or 7% decrease in product and other revenue.
The increase in service revenue was largely due to: (i) an increase in
scanning and microfilming revenue of approximately $1,751,000, primarily due to
the purchase of B&B in May 1996, the purchase of Microfilm in February 1996 and
an overall increase in microfilming projects; (ii) an increase in medical
records release revenue of $1,758,000, primarily attributable to the expansion
into additional healthcare institutions in the U.S. during 1995 and 1996 and the
purchase of Premier in May 1996; (iii) an increase in litigation support revenue
of $1,133,000, primarily due to the purchase of Cook in June 1996; and (iv) an
increase in records storage and retrieval revenue of $537,000 attributable to
the purchase of Sacramento in February 1996 and increases in volume in 1996.
These increases were offset by a slight decline in data input and fulfillment
revenue. The decrease in product revenue primarily resulted from a decline in
one major customer's film purchases in the first quarter of 1996, caused by a
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. Film sales to this customer have resumed at levels
greater than the prior year during the second quarter of 1996. This decline in
product revenue was offset by increased product revenue associated with the
purchase of B&B in May 1996.
Gross profit increased $1,825,000 or 23% largely due to the increases in
revenue discussed above. The gross profit margin increased from 33% for the six
months ended June 30, 1995, to 34% for the six months ended June 30, 1996,
primarily due to the change in the mix of revenue associated with acquisitions
subsequent to the Offering in 1996.
SG&A increased $1,930,000, or 38%, primarily due to the establishment of
corporate overhead required to execute the acquisition program and to manage the
consolidated group of companies and due to the SG&A associated with acquisitions
subsequent to the Offering.
Earnings before taxes increased $116,000 to $2,844,000 and net income
remained constant at $1,700,000 largely attributable to the factors discussed
above. Net income was impacted by (i) a higher effective tax rate attributable
to the elimination of graduated tax rates as the Operating Companies are now
taxed on a consolidated basis; and (ii) the impact of nondeductible goodwill
associated with the B&B and Premier acquisitions.
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
22
<PAGE> 24
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 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 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 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
23
<PAGE> 25
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 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.
24
<PAGE> 26
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 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 revenue, in 1993 to $10.0 million, or
23.2% of revenue, in 1994. This decrease in SG&A as a percentage of revenues is
primarily related to an increase in Recordex's revenue 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.
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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 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
As of June 30, 1996, the Company had $4.3 million of working capital and
$2.5 million of cash. Cash flows provided by operating activities for the six
months ended June 30, 1996 were $1.7 million. Cash used for investing activities
was $21.8 million, as the Company paid $20.7 million for acquisitions, net of
cash acquired. Cash provided by financing activities was $22.6 million. The
Company raised $23.1 million in the Offering, net of underwriting discounts and
other costs associated with the Offering. The Company assumed $8.5 million of
debt in the Acquisitions and subsequently retired all of this debt with the
proceeds of the Offering, with the exception of approximately $0.4 million of
debt with favorable interest rates and capital lease obligations of
approximately $0.4 million. In April 1996, the Company entered into a $35.0
million line of credit ("Line of Credit"). See Note 4 in the Notes to Financial
Statements. The Company paid $1.5 million in costs to secure this financing. In
June, the Company borrowed $9.2 million through the Line of Credit to help fund
the acquisition program. The Company assumed $2.8 million of debt in the
acquisitions subsequent to the Offering and retired $0.4 million. The assumed
debt remaining has interest rates more favorable than the Company's Line of
Credit.
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
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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.
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 for the next twelve months.
As of September 4, 1996, the availability under the Line of Credit was $2.0
million for working capital and general corporate purposes, and approximately
$16.7 million for acquisitions. 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 10 businesses recently acquired by the
Company consisted of cash or 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. Since the Offering, the
Company has acquired 10 additional companies (together with the Founding
Companies, the "Operating Companies") which provide document management services
in Baltimore, Houston, Los Angeles, Minneapolis, Sacramento, San Jose, Seattle
and Washington, D.C. The Operating Companies operate in over 25 states. The
Company had pro forma fiscal 1995 annual revenues of approximately $78 million
and pro forma fiscal 1995 net income of $5.1 million after giving effect to the
New 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.
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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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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 and Chief
Financial Officer, 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, Permanent Records and Medical Record 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
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be used to distribute output to multiple locations. Electronic imaging services
are typically billed on a job-by-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, Permanent Records and
Medical Record 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.
34
<PAGE> 36
SUBSEQUENT ACQUISITIONS AND PENDING ACQUISITION
Since the closing of the Offering, the Company has acquired 10 additional
document management services businesses, including B&B, Premier, Cook and
Medical Record. 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., 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 (the "Premier
Stockholders"), Premier Acquisition Corp., 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. The
Company will make an additional lump-sum, cash and stock earnout payment on
March 1, 1997 to the Premier Stockholders, up to a maximum earnout of
$6,000,000. 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.
Medical Record. Under an agreement with CMRS and Alan Simon, California
Acquisition Corp. acquired by merger all of the outstanding stock of CMRS in
August 1996. CMRS has been operating as a medical records release business for
11 years in Los Angeles, California. Under an agreement with Texas Medical
Record, Jill Simon and California Acquisition Corp., Texas Acquisition Corp.
acquired by merger all of the outstanding stock of Texas Medical Record in
August 1996. Texas Medical Record has been operating as a medical records
release business for ten years in Houston, Texas. Under an agreement with
Minnesota Medical Record and Alan Simon, Minnesota Acquisition Corp. acquired by
merger all of the outstanding stock of Minnesota Medical Record. Minnesota
Medical Record has been operating as a medical records release business for nine
years in Minneapolis, Minnesota. CMRS, Texas Medical Record and Minnesota
Medical Record were affiliated corporations. The aggregate consideration paid by
the Company for Medical Record consisted of $2.3 million in cash and 214,721
shares of Common Stock (of which 36,670 shares of Common Stock were issued to
California Acquisition Corp.). The Company may make an additional lump-sum, cash
and stock earnout payment in September 1997 to Alan Simon, up to a maximum
amount of $2,500,000. A total amount of $196,000 in cash and 11,657 shares of
Common Stock will be retained by the Company for a period of 90 days from the
date of closing as security against any indemnification claim.
ZIA. The Company and ZIA Acquisition Corp. entered into a definitive
agreement with ZIA and its shareholders, dated as of August 1996, to acquire ZIA
through its wholly-owned subsidiary, ZIA Acquisition Corp. ZIA has been
operating a litigation consulting business for 2 years in California. The
aggregate consideration to be paid by the Company for ZIA consists of $2.3
million in cash, and 154,286 shares of Common Stock. A total amount of $183,998
in cash and 12,343 shares of Common Stock will be retained by the Company for a
period of 120 days from the date of closing as security against an
indemnification claim. The acquisition of ZIA is subject to customary closing
conditions, and there can be no assurance that such acquisition will be
consummated.
35
<PAGE> 37
In addition, substantially all of the assets of Sacramento, a medical
records storage and delivery franchise company, were acquired by Deliverex
Sacramento in March 1996. Deliverex Sacramento reports 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. In July 1996, substantially all of the assets of (i)
Domor, a data processing company, were acquired by DPAS; (ii) Rushmore, a
litigation support business, were acquired by Researchers; and (iii) Index, a
medical records release business, were acquired by Deliverex.
The aggregate consideration for Sacramento, Microfilm Associates, Octo,
Domor, Rushmore and Index consisted of approximately $3.0 million in cash.
EMPLOYEES
As of August 15, 1996, the Company had approximately 1,302 full-time
employees, 214 of whom were employed primarily in management and administration.
In addition, the Company utilized the services of approximately 209 part-time
and 103 temporary employees. As of such date, the Company had 128 employees
represented by a labor union. The Company considers its relations with its
employees to be good.
PROPERTY AND EQUIPMENT
The Company operates 54 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.
<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
Century City, CA 1,200 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
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION OF FACILITY SQUARE FOOTAGE FUNCTION
- ---------------------------- -------------- ----------------------------------------
<S> <C> <C>
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
Detroit, MI 15,000 Archive Storage
Detroit, MI 67,500 Archive Storage
Farmington Hills, MI 45,000 Archive Storage
Ann Arbor, MI 30,000 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
Permanent Records
Ft. Worth, TX 22,000 Medical Records Microfilming, Storage
and Administrative Offices
B&B
Marlboro, MD(1) 30,000 Administrative Office, Warehouse and
Production
Upper Marlboro, MD 2,000 Warehouse Space
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
Medical Record
Bloomington, MN 3,200 Administrative Office, Invoicing and
Mailing
Canoga Park, CA 1,000 Administrative Office, Invoicing and
Mailing
Houston, TX 2,000 Administrative Office
Houston, TX 2,400 Production
</TABLE>
- ---------------
(1) Owned facility.
The Company also operates on-site at over 175 client locations on a
contractual basis and from time to time at many other client locations for
specific projects.
37
<PAGE> 39
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 100 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 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.
38
<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)..... 50 President and Chief Executive Officer; Director
David Lowenstein(3)......... 34 Executive Vice President -- Corporate Development
and Acquisitions and Chief Financial Officer;
Director
Timothy J. Barker........... 34 Vice President and Chief Accounting Officer
Margot T. Lebenberg......... 29 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).... 52 Director
Donald F. Moorehead,
Jr.(1)(2)................. 46 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.
39
<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.
David Lowenstein has reassumed the responsibility of Chief Financial
Officer of F.Y.I., the position he held prior to the Offering and 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.
Timothy J. Barker has been Vice President and Chief Accounting Officer of
F.Y.I. since July 1996. Prior to July 1996, Mr. Barker held the position of
Controller of F.Y.I. His primary responsibilities have included: (i) the
preparation of combined financial statements of the Founding Companies; and (ii)
the financial analysis, due diligence, audit coordination and completion and SEC
reporting compliance for the acquisitions of the Founding Companies and all
acquisitions since the Offering. Prior to joining F.Y.I., Mr. Barker was a
Manager with Arthur Andersen LLP, where he served in various capacities over a
nine year period. Mr. Barker served as Vice President of Financial Planning and
Analysis for Sunbelt National Mortgage Corporation from June 1993 to October
1994. Mr. Barker holds a B.A. degree in Accounting from Texas Tech University
and has been a C.P.A. since 1985.
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.
40
<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. Bellenghi -- $150,000, Mr.
Melanson -- $150,000, Mr. Shaw -- $140,000, Mr. Lowenstein -- $120,000, Ms.
Lebenberg -- $100,000, Mr. Barker -- $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,
Lowenstein, Lebenberg and Barker commenced employment with F.Y.I. in November
1995, December 1994, February 1995, May 1996 and November 1995 (from June 1995
to November 1995, Mr. Barker served as a full-time consultant for the Company),
respectively. See "-- Employment Agreements; Covenants-Not-To-
41
<PAGE> 43
Compete." Pursuant to such employment agreements, each such officer is eligible
to earn additional year-end bonus 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, Ms. Lebenberg and Mr. Barker entered into employment agreements
with F.Y.I. dated as of November 1995, July 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, Walker, Lowenstein
and Ms. 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 (150%
in the case of Mr. Barker) 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
42
<PAGE> 44
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.
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
403,670 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 and Mr.
Barker warrants to purchase 100,000 and 15,000 shares of Common Stock,
respectively, each at $10.00 per share. The warrants are 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 additional options to purchase 76,000 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
23,000 shares of Common Stock were granted at fair market value at the date of
grant in connection with the Cook and Octo acquisitions in June 1996. In August
1996, additional nonqualified options to purchase 16,000 shares of Common Stock
were granted at fair market value at the date of grant in connection with the
Medical Record acquisition.
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 to Mr. Bowman, Mr. Barker 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(5) GRANTED OUTSTANDING PRICE EXPIRATION DATE 0% 5% 10%
------- -------- ----------- -------- --------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ed H. Bowman, Jr. (options)............ 80,000 10.6% $13.00 (2) $ -- $654,048 $1,657,496
Ed H. Bowman, Jr. (warrant)............ 100,000 13.3% $10.00 (3) $300,000 $874,960 $1,660,000
Ed H. Bowman, Jr. (warrant)............ 50,000 6.6% $20.00 (4) $ -- $407,100 $ 948,717
Timothy J. Barker (options)............ 15,000 2.0% $13.00 (2) $ -- $122,634 $ 310,780
Timothy J. Barker (warrant)............ 15,000 2.0% $10.00 (3) $ 45,000 $131,244 $ 249,000
Timothy J. Barker (options)............ 15,000 2.0% $17.00 (2) $ -- $160,368 $ 406,404
Margot T. Lebenberg (options).......... 45,000 6.0% $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.
(5) Effective July 22, 1996, the Company's then Executive Vice President and
Chief Financial Officer resigned. Under the terms of the separation
agreement, the Company will pay the former Executive Vice President and
Chief Financial Officer an aggregate of $195,000 payable as follows:
$120,000 on August 19, 1996, $50,000 on January 30, 1997 and $25,000 on
August 19, 1997. Furthermore, in addition to the options for 8,000 shares
that vested, additional options for 22,000 shares were accelerated and
vested. All of such options have been exercised.
43
<PAGE> 45
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.
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.
44
<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 10.7%
Thomas C. Walker......................................... 337,590 5.9
Jerral W. Jones Family Limited Partnership............... 301,420 5.3
David Lowenstein......................................... 265,250 4.6
Jonathan B. Shaw......................................... 265,198 4.6
Jerry F. Leonard, Jr..................................... 253,274 4.4
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 *
Timothy J. Barker(5)..................................... 7,000 *
Hon. Edward M. Rowell(6)................................. 2,000 *
All executive officers and directors as a group (12
persons)(7)............................................ 1,975,448 34.4%
</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) Includes 200 shares Ms. Lebenberg purchased directly from the Underwriters
in the Offering and does not include 36,000 shares which may be acquired
upon the exercise of options not exercisable within 60 days.
(5) Includes 1,000 shares Mr. Barker purchased directly from the Underwriters in
the Offering and does not include 39,000 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 not exercisable within 60 days.
(7) Includes 11,200 shares which Mr. Bowman, Ms. Lebenberg and Mr. Barker
purchased directly from the Underwriters in the Offering and does not
include 316,000 shares which may be acquired upon the exercise of options
and warrants not exercisable within 60 days.
45
<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 August 30, 1996, the
Company had outstanding 5,735,148 shares of Common Stock and no shares of
Preferred Stock and had 42 record holders of Common Stock. After giving effect
to the Company's pending acquisition (see "Recent Developments") the Company
will have issued an additional 154,286 shares of Common Stock pursuant to this
Registration Statement.
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
46
<PAGE> 48
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 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.
47
<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 six months ending June 30,
1996 the pre-tax earnings of such business was $267,000.
WARRANT TO PURCHASE COMMON STOCK
In November 1995, the Company granted to Mr. Bowman and Mr. Barker warrants
to purchase 100,000 and 15,000 shares of Common Stock, respectively each at
$10.00 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.
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
48
<PAGE> 50
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 5,735,148 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 467,973 outstanding shares issued in
connection with the B&B, Premier and Medical Record acquisitions are subject to
contractual restrictions on the transfer therefor. Of such shares, 36,670 shares
of Common Stock are held by a wholly-owned subsidiary of the Company. An
additional 154,286 shares of Common Stock will be issued upon consummation of
the pending acquisition of ZIA. These contractual restrictions generally 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 period, 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 former owners of the Founding Companies and the initial stockholders of
the Company 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).
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.
49
<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
report 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 report of Moss
Adams LLP, independent 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 report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
The financial statements of ZIA Information Analysis Group for the year
ended December 31, 1995 included in this Prospectus and elsewhere in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
The financial statements of C.M.R.S. Incorporated for the year ended
February 29, 1996 included in this Prospectus and elsewhere in this Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The financial statements of Minnesota Medical Record Service, Inc. for the
year ended September 30, 1995 included in this Prospectus and elsewhere in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
The financial statements of Texas Medical Record Service, Inc. for the year
ended February 29, 1996 included in this Prospectus and elsewhere in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included in reliance upon the authority of said firm as experts in giving said
report.
50
<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 Commission maintains an Internet web site that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission. The address of that site is
http://www.sec.gov.
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.
51
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
F.Y.I. INCORPORATED
Report of Independent Public Accountants........................................... F-4
Balance Sheet as of December 31, 1995 and Consolidated Balance Sheet as of June 30,
1996............................................................................ F-5
Consolidated Statements of Operations.............................................. F-6
Consolidated Statements of Cash Flows.............................................. F-7
Notes to Consolidated Financial Statements......................................... F-8
FOUNDING COMPANIES
Report of Independent Public Accountants........................................... F-13
Report of Independent Public Accountants........................................... F-14
Combined Balance Sheets............................................................ F-15
Combined Statements of Operations.................................................. F-16
Combined Statements of Stockholders' Equity........................................ F-17
Combined Statements of Cash Flows.................................................. F-18
Notes to Combined Financial Statements............................................. F-19
IMAGENT CORPORATION AND RELATED COMPANY
Report of Independent Public Accountants........................................... F-32
Combined Balance Sheets............................................................ F-33
Combined Statements of Operations.................................................. F-34
Combined Statements of Stockholders' Equity........................................ F-35
Combined Statements of Cash Flows.................................................. F-36
Notes to Combined Financial Statements............................................. F-37
MELANSON AND ASSOCIATES, INC. AND RELATED COMPANY
Report of Independent Public Accountants........................................... F-42
Combined Balance Sheets............................................................ F-43
Combined Statements of Operations.................................................. F-44
Combined Statements of Stockholders' Equity........................................ F-45
Combined Statements of Cash Flows.................................................. F-46
Notes to Combined Financial Statements............................................. F-47
RECORDEX SERVICES, INC.
Report of Independent Public Accountants........................................... F-53
Report of Independent Public Accountants........................................... F-54
Balance Sheets..................................................................... F-55
Statements of Operations........................................................... F-56
Statements of Changes in Stockholder's Equity...................................... F-57
Statements of Cash Flows........................................................... F-58
Notes to Financial Statements...................................................... F-59
LEONARD ARCHIVES, INC.
Report of Independent Public Accountants........................................... F-65
Balance Sheets..................................................................... F-66
Statements of Operations........................................................... F-67
Statements of Stockholders' Equity................................................. F-68
Statements of Cash Flows........................................................... F-69
Notes to Financial Statements...................................................... F-70
</TABLE>
F-1
<PAGE> 54
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
C. & T. MANAGEMENT SERVICES, INC. AND RELATED COMPANY
Report of Independent Public Accountants........................................... F-76
Combined Balance Sheets............................................................ F-77
Combined Statements of Operations.................................................. F-78
Combined Statements of Stockholders' Equity........................................ F-79
Combined Statements of Cash Flows.................................................. F-80
Notes to Combined Financial Statements............................................. F-81
DELIVEREX, INCORPORATED AND SUBSIDIARY AND RELATED COMPANY
Report of Independent Public Accountants........................................... F-86
Combined Balance Sheets............................................................ F-87
Combined Statements of Operations.................................................. F-88
Combined Statements of Stockholders' Equity........................................ F-89
Combined Statements of Cash Flows.................................................. F-90
Notes to Combined Financial Statements............................................. F-91
PERMANENT RECORDS, INC.
Report of Independent Public Accountants........................................... F-97
Balance Sheets..................................................................... F-98
Statements of Operations........................................................... F-99
Statements of Stockholders' Equity................................................. F-100
Statements of Cash Flows........................................................... F-101
Notes to Financial Statements...................................................... F-102
NEW ACQUISITIONS
COOK AND STAFF, INC. AND RELATED COMPANY
Report of Independent Public Accountants........................................... F-105
Combined Balance Sheets............................................................ F-106
Combined Statements of Operations.................................................. F-107
Combined Statements of Stockholder's Equity........................................ F-108
Combined Statements of Cash Flows.................................................. F-109
Notes to Combined Financial Statements............................................. F-110
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
Report of Independent Public Accountants........................................... F-113
Balance Sheets..................................................................... F-114
Statements of Operations........................................................... F-115
Statements of Stockholder's Equity................................................. F-116
Statements of Cash Flows........................................................... F-117
Notes to Financial Statements...................................................... F-118
PREMIER DOCUMENT MANAGEMENT, INC.
Report of Independent Public Accountants........................................... F-122
Combined Balance Sheets............................................................ F-123
Combined Statements of Operations.................................................. F-124
Combined Statements of Stockholders' Equity........................................ F-125
Combined Statements of Cash Flows.................................................. F-126
Notes to Combined Financial Statements............................................. F-127
C.M.R.S. INCORPORATED
Report of Independent Public Accountants........................................... F-132
Balance Sheets..................................................................... F-133
Statements of Operations........................................................... F-134
Statements of Stockholder's Equity................................................. F-135
Statements of Cash Flows........................................................... F-136
Notes to Financial Statements...................................................... F-137
</TABLE>
F-2
<PAGE> 55
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
MINNESOTA MEDICAL RECORD SERVICE, INC.
Report of Independent Public Accountants........................................... F-141
Balance Sheets..................................................................... F-142
Statements of Operations........................................................... F-143
Statements of Stockholder's Equity................................................. F-144
Statements of Cash Flows........................................................... F-145
Notes to Financial Statements...................................................... F-146
TEXAS MEDICAL RECORD SERVICE, INC.
Report of Independent Public Accountants........................................... F-149
Balance Sheets..................................................................... F-150
Statements of Operations........................................................... F-151
Statements of Stockholders' Equity................................................. F-152
Statements of Cash Flows........................................................... F-153
Notes to Financial Statements...................................................... F-154
ZIA INFORMATION ANALYSIS GROUP
Report of Independent Public Accountants........................................... F-157
Balance Sheets..................................................................... F-158
Statements of Operations........................................................... F-159
Statements of Stockholders' Equity................................................. F-160
Statements of Cash Flows........................................................... F-161
Notes to Financial Statements...................................................... F-162
PRO FORMA FINANCIAL STATEMENTS
F.Y.I. INCORPORATED AND SUBSIDIARIES
Pro Forma Balance Sheet -- June 30, 1996 (unaudited)............................... F-168
Pro Forma Statement of Operations for the Year Ended December 31, 1995
(unaudited)..................................................................... F-169
Pro Forma Statement of Operations for the Six Months Ended June 30, 1996
(unaudited)..................................................................... F-170
Notes to Pro Forma Financial Statements (unaudited)................................ F-171
</TABLE>
F-3
<PAGE> 56
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-4
<PAGE> 57
F.Y.I. INCORPORATED AND SUBSIDIARIES
BALANCE SHEET AS OF DECEMBER 31, 1995
AND CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 52 $ 2,521
Accounts receivable and notes receivable, less allowance.......... -- 12,107
Accounts receivable, officers and employees....................... -- 12
Inventory......................................................... -- 536
Prepaid expenses and other current assets......................... 52 678
------ -------
Total current assets...................................... 104 15,854
PROPERTY, PLANT AND EQUIPMENT, net.................................. 15 8,995
GOODWILL, DEFERRED OFFERING COSTS AND OTHER INTANGIBLES............. 2,190 18,516
ACCOUNTS RECEIVABLE, OFFICER-LONG TERM.............................. -- 570
OTHER NONCURRENT ASSETS............................................. 6 1,760
------ -------
Total assets.............................................. $2,315 $45,695
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.......................... $1,101 $10,263
Short-term obligations............................................ -- 1,049
Current maturities of long-term obligations....................... -- 282
------ -------
Total current liabilities................................. 1,101 11,594
LONG-TERM OBLIGATIONS,
net of current maturities......................................... -- 11,071
DEFERRED INCOME TAXES,
net of current portion............................................ -- 114
------ -------
Total liabilities......................................... 1,101 22,779
------ -------
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 June 30, 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 5,522,867 shares issued and outstanding at December
31, 1995 and June 30, 1996, respectively....................... 7 55
Additional paid-in-capital........................................ 1,207 21,488
Retained earnings................................................. -- 1,373
------ -------
Total stockholders' equity................................ 1,214 22,916
------ -------
Total liabilities and stockholders' equity........... $2,315 $45,695
====== =======
</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 OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(SEE NOTE 1)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1995 1996 1995 1996
------ ------- ------ -------
<S> <C> <C> <C> <C>
REVENUE:
Service revenue........................................ $ -- $14,307 $ -- $21,714
Product revenue........................................ -- 1,727 -- 2,640
Other revenue.......................................... -- 204 -- 297
------ ------- ------ -------
Total revenue.................................. -- 16,238 -- 24,651
COST OF SERVICES......................................... -- 8,929 -- 13,630
COST OF PRODUCTS SOLD.................................... -- 1,255 -- 1,974
DEPRECIATION............................................. -- 421 -- 633
------ ------- ------ -------
Gross profit................................... -- 5,633 -- 8,414
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................................... -- 3,925 -- 6,169
AMORTIZATION............................................. -- 63 -- 72
------ ------- ------ -------
Operating income............................... -- 1,645 -- 2,173
OTHER (INCOME) EXPENSE:
Interest expense....................................... -- 104 -- 117
Interest income........................................ -- (74) -- (180)
Other income, net...................................... -- (21) -- (60)
------ ------- ------ -------
Income before income taxes..................... -- 1,636 -- 2,296
PROVISION FOR INCOME TAXES............................... -- 661 -- 923
------ ------- ------ -------
NET INCOME............................................... $ -- $ 975 $ -- $ 1,373
====== ======= ====== =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............... -- 5,454 -- 5,335
====== ======= ====== =======
NET INCOME PER COMMON SHARE.............................. $ -- $ 0.18 $ -- $ 0.26
====== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 59
F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
(SEE NOTE 1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JUNE 30, JUNE 30,
1995 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ -- $ 1,373
Adjustments to reconcile net income to net cash provided by operating
activities Depreciation and amortization............................ -- 705
Change in operating assets and liabilities:
Accounts receivable............................................... -- 104
Inventory......................................................... -- (20)
Prepaid expenses and other assets................................. -- 100
Accounts payable and accrued liabilities.......................... -- (578)
------ --------
Net cash provided by operating activities...................... -- 1,684
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment.............................. (1) (1,078)
Cash paid for acquisitions, net of cash received....................... -- (20,749)
------ --------
Net cash used for investing activities......................... (1) (21,827)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance, net of underwriting discounts and
other costs......................................................... (280) 23,088
Proceeds from preferred stock issuance................................. 135 --
Proceeds from short-term obligations................................... -- 1,000
Proceeds from long-term obligations.................................... -- 8,150
Cash paid for debt issuance costs...................................... -- (1,487)
Principal payments on short-term obligations........................... -- (1,857)
Principal payments on long-term obligations............................ -- (6,282)
------ --------
Net cash (used in) provided by financing activities............ (145) 22,612
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..................... (146) 2,469
CASH AND CASH EQUIVALENTS, beginning of period........................... 669 52
------ --------
CASH AND CASH EQUIVALENTS, end of period................................. $ 523 $ 2,521
====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 60
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
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 (the
"Acquisitions"), simultaneously with the closing of its initial public offering
(the "Offering") on January 23, 1996, seven document management services
businesses (the "Founding Companies"). The Founding Companies are headquartered
in San Francisco (2), San Jose, Fort Worth, Detroit, Malvern (Philadelphia) and
Baltimore, and operate in over 23 states. The consideration for the Founding
Companies consisted of a combination of cash and common stock (the "Common
Stock") of F.Y.I.
Between September 1994 and the consummation of the Offering and the
Acquisitions, F.Y.I. did not conduct any significant operations. For accounting
purposes and for the purposes of the presentation of the financial statements
herein, January 31, 1996 has been used as the effective date of the
Acquisitions. Accordingly, the actual operating results of the Company included
in the Statement of Operations for the six months ended June 30, 1996, represent
the five months of operations subsequent to the consummation of the
Acquisitions. Supplemental Statement of Operations Data for the six months ended
June 30, 1996 is presented in Note 2 herein.
In the opinion of F.Y.I.'s management, the accompanying consolidated
financial statements include the accounts of the Company and all adjustments
necessary to present fairly the Company's financial position at June 30, 1996,
its results of operations for the three and six months ended June 30, 1995 and
1996, and its cash flows for the six months ended June 30, 1995 and 1996. 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 (the "Commission"). These
consolidated financial statements should be read in conjunction with the
combined financial statements of the Founding Companies and the related notes
thereto in F.Y.I.'s Annual Report on Form 10-K filed with the Commission on
April 10, 1996, as amended by F.Y.I.'s Annual Report on Form 10-K/A filed with
the Commission on April 29, 1996, and the Company's Current Report on Form 8-K
filed June 14, 1996, as amended by the Current Report on Form 8-K/A filed July
5, 1996. The results of operations for the interim periods ended June 30, 1996
and 1995, may not be indicative of the results for the full year.
2. INITIAL PUBLIC OFFERING OF COMMON STOCK AND THE ACQUISITIONS
INITIAL PUBLIC OFFERING
On January 26, 1996, the Company completed the Offering of 2,185,000 shares
of Common Stock (including the exercise of the underwriters' over-allotment
option) at $13.00 per share. Proceeds from the Offering, net of underwriting
commissions and offering costs, were approximately $23.1 million. Of these net
proceeds, approximately $7.1 million was used to pay a portion of the
consideration for the Acquisitions, approximately $7.7 million was used to
retire certain indebtedness of the Founding Companies, approximately $8.0
million was used for acquisitions subsequent to the Offering, and $0.3 million
was used as working capital.
Upon the closing of the Offering, the Company converted the 9,000 shares of
Series A Preferred Stock then outstanding into 542,557 shares of Common Stock.
ACQUISITIONS OF THE FOUNDING COMPANIES
Simultaneously with the closing of the Offering, the Company acquired the
Founding Companies. The aggregate consideration paid by F.Y.I. to acquire the
Founding Companies was approximately $35 million,
F-8
<PAGE> 61
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 certain Founding Company stockholders of S corporations
in the amount of $3,450,000, representing the undistributed retained earnings of
S corporations, upon which taxes have been paid by the stockholders.
The Acquisitions have been accounted for in accordance with generally
accepted accounting principles ("GAAP") as a combination of F.Y.I. and the
Founding Companies at historical cost, because: (i) the Founding Companies'
stockholders transferred assets to F.Y.I. in exchange for Common Stock and cash
simultaneously, with the Offering; (ii) the nature of future operations of the
Company will be substantially identical to the combined operations of the
Founding Companies; and (iii) no former stockholder group of any of the Founding
Companies obtained a majority of the outstanding voting shares of the Company.
SUPPLEMENTAL DATA
Statement of Operations -- Supplemental Data
The Statement of Operations Data for the six months ended June 30, 1995
represent the audited combined statement of operations of the Founding Companies
for the period adjusted to give effect to: (i) compensation levels the officers
and owners have agreed to receive subsequent to the Offering; and (ii) provision
for income taxes as if all entities had been subject to federal and state income
taxes for the period. The Supplemental Statement of Operations Data for the six
months ended June 30, 1996 represent a combination of: (i) the unaudited results
of the combined Founding Companies for the one month of operations prior to the
consummation of the Acquisitions; and (ii) the unaudited results of F.Y.I.
Incorporated and Subsidiaries for the five months subsequent to the consummation
of the Acquisitions (which includes acquisitions subsequent to the Offering from
the date of their respective acquisition). The Supplemental Data are provided
for information purposes only and do not purport to present the results of
F-9
<PAGE> 62
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations of the Company had the transactions assumed therein occurred on or as
of the dates indicated, nor are they necessarily indicative of the results of
operations which may be achieved in the future.
<TABLE>
<CAPTION>
SUPPLEMENTAL DATA
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1995 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue............................................. $ 20,207 $ 25,201
Product revenue............................................. 3,187 3,035
Other revenue............................................... 435 331
-------- --------
Total revenue....................................... 23,829 28,567
Cost of services............................................ 12,729 15,826
Cost of products sold....................................... 2,604 2,281
Depreciation................................................ 584 723
-------- --------
Gross profit........................................ 7,912 9,737
Selling, general and administrative expenses(a)............. 5,053 6,983
Amortization................................................ 32 78
-------- --------
Operating income.................................... 2,827 2,676
Interest and other expenses (income), net................... 99 (168)
-------- --------
Income before income taxes.................................. 2,728 2,844
Provision for income taxes(b)............................... 1,024 1,144
-------- --------
Net income.................................................. $ 1,704 $ 1,700
======== ========
Net income per share........................................ $ 0.32
========
Weighted average shares outstanding......................... 5,335
--------
</TABLE>
- ---------------
(a) Adjusted for Founding Company pro forma Compensation Differential of $897
for 1995 and $683 for 1996.
(b) Adjusted for pro forma provision for taxes of $887 for 1995 and $351 for
1996.
WEIGHTED AVERAGE SHARES OUTSTANDING
The number of shares (in thousands) used in calculating net income per
share was determined as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1996
------------ ----------
<S> <C> <C>
Outstanding F.Y.I. shares after the Offering and the
acquisitions of the Operating Companies..................... 5,438 5,319
Warrants to purchase stock under the treasury stock method.... 16 16
----- -----
Number of shares used in net income per share
calculation....................................... 5,454 5,335
===== =====
</TABLE>
3. BUSINESS COMBINATIONS
Since the Offering, the Company has acquired six additional businesses
(together with the Founding Companies, the "Operating Companies") which provide
document management services and are headquar-
F-10
<PAGE> 63
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tered in Washington, D.C., Baltimore (2), San Jose, Sacramento, and Seattle. All
of the acquisitions are accounted for under the purchase method of accounting.
In May 1996, the Company acquired the stock of 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"). B&B, Premier
and Cook are considered significant subsidiaries of the Company. The aggregate
consideration paid for B&B, Premier and Cook consisted of $15,522,000 in cash
and 253,252 shares of Common Stock. The preliminary allocation of the purchase
price is set forth below:
<TABLE>
<S> <C>
Consideration Paid...................................................... $18,979,000
Estimated Fair Value of Tangible Assets................................. 8,133,000
Estimated Fair Value of Liabilities..................................... 5,739,000
Goodwill................................................................ 16,585,000
</TABLE>
The fair market value of the shares of Common Stock used in calculating the
consideration paid was $13.65, which represents a 35% discount from the average
trading price of the Common Stock based on the length and type of restrictions
in the purchase agreements.
The Company acquired substantially all of the assets of Sacramento Valley
Records Management Co. ("Sacramento") in February 1996; Microfilm Associated,
Ltd. ("Microfilm") in February 1996 and Octo, Incorporated ("Octo") in June
1996. The aggregate consideration paid for Sacramento, Microfilm and Octo
consisted of $1,567,000 in cash. The preliminary allocation of the purchase
price is set forth below:
<TABLE>
<S> <C>
Consideration Paid....................................................... $1,567,000
Estimated Fair Value of Tangible Assets.................................. 637,000
Estimated Fair Value of Liabilities...................................... 318,000
Goodwill................................................................. 1,248,000
</TABLE>
The estimated fair market values reflected above 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.
All intangibles are considered enterprise goodwill. Based on the historical
profitability of the purchased companies and trends in the legal, healthcare and
other industries to outsource document management functions in the foreseeable
future, the enterprise goodwill will be amortized over a period of 30 years.
Management continually evaluates whether events and circumstances indicate that
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, management uses an estimate of
undiscounted net income over the remaining life of the intangibles or other
long-lived assets. The goodwill associated with the B&B and Premier acquisitions
is not deductible for income tax purposes.
Set forth below is a pro forma income statement for the six months ended
June 30, 1996 and for the year ended December 31, 1995. The unaudited pro forma
data give effect to: (i) the acquisitions of B&B, Premier and Cook; (ii) the
acquisitions of the Founding Companies; and (iii) compensation and tax
adjustments for all transactions as if the transactions had occurred on January
1, 1995. The acquisitions of Sacramento,
F-11
<PAGE> 64
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Microfilm and Octo have not been included in the pro forma financial statements
for periods prior to their acquisition date as the effect is immaterial.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED PRO FORMA
DECEMBER 31, SIX MONTHS ENDED
1995 JUNE 30, 1996
------------ ----------------
<S> <C> <C>
Revenue................................................ $ 70,681 $ 38,330
Income before income taxes............................. 7,667 4,514
Net income............................................. 4,737 2,702
Net income per common share............................ $ 0.86 $ 0.49
Average shares outstanding............................. 5,539 5,539
======== ========
</TABLE>
4. CREDIT FACILITY
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 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 an aggregate $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 an
aggregate $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 borrowings 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. As
of September 4, 1996, the Company had $3.0 million in borrowings outstanding
under this facility for working capital and corporate purposes, and $13.3
million in commitments outstanding under the term loans for acquisitions.
F-12
<PAGE> 65
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-13
<PAGE> 66
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-14
<PAGE> 67
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-15
<PAGE> 68
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-16
<PAGE> 69
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-17
<PAGE> 70
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-18
<PAGE> 71
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-19
<PAGE> 72
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-20
<PAGE> 73
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-21
<PAGE> 74
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-22
<PAGE> 75
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-23
<PAGE> 76
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-24
<PAGE> 77
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-25
<PAGE> 78
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-26
<PAGE> 79
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-27
<PAGE> 80
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-28
<PAGE> 81
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-29
<PAGE> 82
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-30
<PAGE> 83
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-31
<PAGE> 84
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-32
<PAGE> 85
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-33
<PAGE> 86
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-34
<PAGE> 87
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-35
<PAGE> 88
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-36
<PAGE> 89
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-37
<PAGE> 90
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-38
<PAGE> 91
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-39
<PAGE> 92
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-40
<PAGE> 93
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-41
<PAGE> 94
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-42
<PAGE> 95
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-43
<PAGE> 96
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-44
<PAGE> 97
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-45
<PAGE> 98
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-46
<PAGE> 99
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-47
<PAGE> 100
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-48
<PAGE> 101
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-49
<PAGE> 102
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-50
<PAGE> 103
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-51
<PAGE> 104
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-52
<PAGE> 105
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-53
<PAGE> 106
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-54
<PAGE> 107
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-55
<PAGE> 108
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-56
<PAGE> 109
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-57
<PAGE> 110
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-58
<PAGE> 111
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-59
<PAGE> 112
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-60
<PAGE> 113
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-61
<PAGE> 114
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-62
<PAGE> 115
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-63
<PAGE> 116
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-64
<PAGE> 117
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-65
<PAGE> 118
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-66
<PAGE> 119
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-67
<PAGE> 120
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-68
<PAGE> 121
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-69
<PAGE> 122
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-70
<PAGE> 123
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-71
<PAGE> 124
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-72
<PAGE> 125
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-73
<PAGE> 126
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-74
<PAGE> 127
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-75
<PAGE> 128
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-76
<PAGE> 129
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-77
<PAGE> 130
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-78
<PAGE> 131
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-79
<PAGE> 132
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-80
<PAGE> 133
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-81
<PAGE> 134
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-82
<PAGE> 135
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-83
<PAGE> 136
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-84
<PAGE> 137
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-85
<PAGE> 138
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-86
<PAGE> 139
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-87
<PAGE> 140
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-88
<PAGE> 141
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-89
<PAGE> 142
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-90
<PAGE> 143
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-91
<PAGE> 144
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-92
<PAGE> 145
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-93
<PAGE> 146
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-94
<PAGE> 147
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-95
<PAGE> 148
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-96
<PAGE> 149
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-97
<PAGE> 150
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-98
<PAGE> 151
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-99
<PAGE> 152
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-100
<PAGE> 153
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-101
<PAGE> 154
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-102
<PAGE> 155
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-103
<PAGE> 156
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-104
<PAGE> 157
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-105
<PAGE> 158
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-106
<PAGE> 159
COOK AND STAFF, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
--------------------------------------- MARCH 31,
1993 1994 1995 -----------------------
----------- ----------- ----------- 1995 1996
---------- ----------
(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-107
<PAGE> 160
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-108
<PAGE> 161
COOK AND STAFF, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH
---------------------------------------- 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-109
<PAGE> 162
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 ("F.Y.I.") pursuant to which the
Company will sell selected assets to F.Y.I. (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-110
<PAGE> 163
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-111
<PAGE> 164
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-112
<PAGE> 165
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-113
<PAGE> 166
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-114
<PAGE> 167
B&B INFORMATION AND IMAGE MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 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-115
<PAGE> 168
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-116
<PAGE> 169
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-117
<PAGE> 170
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-118
<PAGE> 171
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-119
<PAGE> 172
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-120
<PAGE> 173
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-121
<PAGE> 174
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-122
<PAGE> 175
PREMIER DOCUMENT MANAGEMENT, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
<S> <C> <C>
(UNAUDITED)
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-123
<PAGE> 176
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-124
<PAGE> 177
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-125
<PAGE> 178
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-126
<PAGE> 179
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-127
<PAGE> 180
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-128
<PAGE> 181
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-129
<PAGE> 182
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
YEAR ENDED MARCH 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-130
<PAGE> 183
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
("F.Y.I."). Under the terms of the Agreement and Plan of Reorganization, Company
stockholders received consideration consisting of cash and shares of F.Y.I.
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
F.Y.I. 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-131
<PAGE> 184
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To C.M.R.S. Incorporated:
We have audited the accompanying balance sheet of C.M.R.S. Incorporated (a
California corporation) as of February 29, 1996, and the related statements of
operations, stockholder's equity, and cash flow 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 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 C.M.R.S. Incorporated as of
February 29, 1996, and the results of its operations and its cash flow for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
August 28, 1996
F-132
<PAGE> 185
C.M.R.S. INCORPORATED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 29, JUNE 30,
1996 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash.............................................................. $ 38,247 $ 31,873
Accounts receivable, less allowance for doubtful accounts of
$136,000 for each period....................................... 255,830 311,660
Loan receivable -- affiliates..................................... 15,000 33,830
Employee advances................................................. 1,664 6,299
Prepaid expenses.................................................. -- 12,668
Loan receivable -- shareholder.................................... 28,210 8,210
-------- ---------
Total current assets...................................... 338,951 404,540
PROPERTY AND EQUIPMENT, net......................................... 66,409 82,038
OTHER ASSETS:
Investment in subsidiary.......................................... 54,621 61,946
Deposits.......................................................... 1,958 1,958
-------- ---------
Total other assets........................................ 56,579 63,904
-------- ---------
Total assets.............................................. $461,939 $ 550,482
======== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................. $ 15,843 $ 16,112
Accrued liabilities............................................... 22,230 19,730
Sales tax payable................................................. 4,552 3,890
Income taxes payable.............................................. 15,268 22,778
Loan payable -- affiliates........................................ 20,568 20,568
Deferred income taxes............................................. 123,565 151,576
-------- ---------
Total liabilities......................................... 202,026 234,654
-------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, par value $1; 100,000 shares authorized, 500 shares
issued and outstanding for all periods......................... 500 500
Retained earnings................................................. 259,413 315,328
-------- ---------
Total stockholder's equity................................ 259,913 315,828
-------- ---------
Total liabilities and stockholder's equity................ $461,939 $ 550,482
======== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-133
<PAGE> 186
C.M.R.S. INCORPORATED.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 29, 1996
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
JUNE 30,
1996 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
SERVICE REVENUE..................................................... $1,019,960 $ 492,796
COST OF SERVICES.................................................... 635,887 297,505
DEPRECIATION AND AMORTIZATION....................................... 30,970 3,183
---------- ---------
Gross profit.............................................. 353,103 192,108
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES....................... 798,535 401,603
---------- ---------
Operating loss............................................ (445,432) (209,495)
OTHER INCOME:
Income from investment in subsidiary.............................. 36,164 7,325
Management fees received.......................................... 500,500 314,000
---------- ---------
Other income.............................................. 536,664 321,325
INCOME BEFORE INCOME TAXES.......................................... 91,232 111,830
PROVISION FOR INCOME TAXES.......................................... 45,987 55,915
---------- ---------
Net income................................................ $ 45,245 $ 55,915
========== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-134
<PAGE> 187
C.M.R.S. INCORPORATED
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED FEBRUARY 29, 1996 AND
FOUR MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, February 28, 1995............................ 500 $500 $214,168 $ 214,668
Net income.......................................... -- -- 45,245 45,245
--- ---- -------- ---------
BALANCE, February 29, 1996............................ 500 500 259,413 259,913
Net income (unaudited).............................. -- -- 55,915 55,915
--- ---- -------- ---------
BALANCE, June 30, 1996 (unaudited).................... 500 $500 $315,328 $ 315,828
=== ==== ======== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-135
<PAGE> 188
C.M.R.S. INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 29, 1996
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
JUNE 30,
1996 1996
-------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................... $ 45,245 $ 55,915
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization expense........................... 30,970 3,183
Provision for deferred income taxes............................. 26,387 28,011
Income in subsidiary............................................ (36,164) (7,325)
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable, net...................................... (36,522) (55,830)
Loan receivable............................................... -- (18,830)
Employee advances............................................. 1,567 (4,635)
Prepaid expenses.............................................. -- (12,668)
Increase (decrease) in --
Accounts payable and accrued liabilities...................... 11,564 (2,231)
Sales tax payable............................................. 3,030 (662)
Income taxes payable.......................................... 14,243 7,510
-------- ---------
Net cash provided by (used in) operating activities........ 60,320 (7,562)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of equipment.......................................... (28,019) (18,812)
-------- ---------
Net used in provided by investing activities............... (28,019) (18,812)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Disbursement of loan receivable -- shareholder..................... (25,000) --
Collection of loan receivable -- shareholder....................... -- 20,000
-------- ---------
Net cash (used in) provided by financing activities........ (25,000) 20,000
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................................ 7,301 (6,374)
CASH, at beginning of period......................................... 30,946 38,247
-------- ---------
CASH, at end of period............................................... $ 38,247 $ 31,873
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for --
Income taxes.................................................... $ 5,357 $ 21,680
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-136
<PAGE> 189
C.M.R.S. INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
1. BUSINESS AND ORGANIZATION:
C.M.R.S. Incorporated (the "Company") is a California Corporation. The
Company is an in-house correspondence service for doctors and hospitals.
In August 1996, the Company and its stockholders intend to enter into a
definitive agreement with F.Y.I. Incorporated ("F.Y.I.") pursuant to which the
Company will be acquired by F.Y.I. All outstanding shares of the Company will be
exchanged for cash and shares of F.Y.I. common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are computed using accelerated methods over the estimated useful lives of the
individual assets which range from five to seven years.
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
financial statements.
Revenue Recognition
Revenue is recognized when services are rendered to the Company's
customers.
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.
Interim Financial Statements
The accompanying balance sheet and statements of operations, stockholder's
equity and cash flow as of and for the four months ended June 30, 1996 are
unaudited. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments necessary for a fair presentation for the period
presented.
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 attorneys and insurance companies. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and other
information.
F-137
<PAGE> 190
C.M.R.S. INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Income taxes are provided based upon the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred income taxes under the asset and liability
method.
The Company is a C corporation for income tax purposes and, accordingly,
any income tax liabilities are the responsibility of the corporation.
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 the recognition of revenues and
various accruals and reserves being deductible for tax purposes in different
periods.
3. LOAN RECEIVABLE -- AFFILIATE:
The Company has loaned monies to an affiliate, 50% owned by the sole
shareholder, for operations. The loan is due upon demand and non-interest
bearing.
4. LOAN RECEIVABLE -- SHAREHOLDER:
The Company has loaned monies to its shareholder. The loan is due upon
demand and non-interest bearing.
5. INVESTMENT IN SUBSIDIARY:
The Company owns forty-nine percent of the commons stock of Texas Medical
Record Service, Inc., a Texas Corporation. The Company accounts for this
investment using the equity method.
6. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at February 29:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(YEARS) 1996
------------ --------
<S> <C> <C>
Autos......................................................... 5-7 $ 49,407
Equipment..................................................... 7 99,442
Furniture and fixtures........................................ 7 3,854
--------
152,703
Less -- Accumulated depreciation.............................. (86,294)
--------
$ 66,409
========
</TABLE>
7. LOAN PAYABLE -- AFFILIATE:
The Company has borrowed monies from its affiliate (Minnesota Medical
Record Service, Inc.) for operations. The loan is payable upon demand.
8. EMPLOYEE BENEFIT PLAN:
In 1996, the Company adopted a deferred compensation 401(k) plan (the
"Plan"). Employees who have completed twelve months of service and have attained
age 21 are eligible to participate in the Plan. The Plan allows for employee and
employer contributions. Employer contributions are at the discretion of the
Company. The Company's contributions were $453 in fiscal year 1996.
F-138
<PAGE> 191
C.M.R.S. INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES:
The provision for income taxes for February 29, 1996 is comprised as
follows:
<TABLE>
<S> <C>
Current provision
Federal................................................................. $ 11,819
State................................................................... 7,781
Deferred provision........................................................ 26,387
--------
Total provision for income taxes................................ $ 45,987
========
</TABLE>
Deferred income tax liabilities for February 29, 1996 are comprised as
follows:
<TABLE>
<S> <C>
Income from investment in subsidiary...................................... 21,824
Cash to accrual........................................................... 93,740
Property and Equipment.................................................... 8,001
--------
Net current deferred tax liability.............................. $123,565
========
</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>
<S> <C>
Tax at statutory rate..................................................... $ 31,019
Add (deduct)
State income taxes, net of federal...................................... 5,419
Nondeductible expenses.................................................. 11,391
Effect of graduated tax rates........................................... (1,842)
--------
Total provision for income taxes................................ $ 45,987
========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases office facilities in California under noncancelable
lease agreements which expire at various dates. The leases provide for lease
terms over three to five years through September 2001, with monthly lease
payments of $328 to $3,991. The property lease agreements provide that the
Company pay all related taxes and insurance. The total lease expense for the
year ended 1996 totaled approximately $13,825. Minimum future lease payments
under operating leases as of February 29, 1996, for each of the next five years
and in the aggregate are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 25,890
1998.............................................................. 47,887
1999.............................................................. 47,887
2000.............................................................. 47,887
2001.............................................................. 47,887
Thereafter........................................................ 27,934
--------
Total................................................... $245,372
========
</TABLE>
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 position or results of
operations of the Company.
F-139
<PAGE> 192
C.M.R.S. INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. RELATED PARTY:
The Company receives a management fee from its subsidiary (Texas Medical
Record Service, Inc.) and another affiliate (Minnesota Medical Record Service,
Inc.). The management fee income for fiscal year 1996 was $500,500.
F-140
<PAGE> 193
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Minnesota Medical Record Service, Inc.:
We have audited the accompanying balance sheet of Minnesota Medical Record
Service, Inc. (a Minnesota corporation) as of September 30, 1995, and the
related statements of operations, stockholder's equity, and cash flow 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 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 Minnesota Medical Record
Service, Inc. as of September 30, 1995, and the results of its operations and
its cash flow for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
August 28, 1996
F-141
<PAGE> 194
MINNESOTA MEDICAL RECORD SERVICE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................. $ 3,395 $ 16,683
Accounts receivable, less allowance for doubtful accounts of
$107,000 for each period...................................... 173,265 169,151
Prepaid expenses................................................. 328 6,413
Loans receivable -- affiliates................................... 105,568 105,568
--------- ---------
Total current assets..................................... 282,556 297,815
PROPERTY AND EQUIPMENT, net........................................ 89,778 101,625
--------- ---------
Total assets............................................. $ 372,334 $ 399,440
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $ 1,132 $ 3,038
Accrued liabilities.............................................. 28,001 25,006
Retrieval fees payable........................................... 11,161 14,156
Income taxes payable............................................. 14,218 8,832
Deferred income taxes............................................ 73,355 82,652
--------- ---------
Total liabilities........................................ 127,867 133,684
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, no par value, 1,000 shares authorized, 3,000 shares
issued and outstanding for all periods........................ 33,051 33,051
Retained earnings................................................ 211,416 232,705
--------- ---------
Total stockholder's equity............................... 244,467 265,756
--------- ---------
Total liabilities and stockholder's equity............... $ 372,334 $ 399,440
========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-142
<PAGE> 195
MINNESOTA MEDICAL RECORD SERVICE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JUNE 30,
1995 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
SERVICE REVENUE..................................................... $2,187,451 $1,733,826
COST OF SERVICES.................................................... 476,207 402,410
DEPRECIATION........................................................ 32,175 28,678
---------- ----------
Gross profit.............................................. 1,679,069 1,302,738
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES....................... 1,232,516 930,222
---------- ----------
Operating income.......................................... 446,553 372,516
OTHER EXPENSE:
Management fees expense........................................... 515,000 334,500
---------- ----------
(LOSS) INCOME BEFORE INCOME TAXES................................... (68,447) 38,016
(BENEFIT) PROVISION FOR INCOME TAXES................................ (30,117) 16,727
---------- ----------
Net (loss) income......................................... $ (38,330) $ 21,289
========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-143
<PAGE> 196
MINNESOTA MEDICAL RECORD SERVICE, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1995 AND
NINE MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, September 30, 1994.......................... 3,000 $33,051 $249,746 $ 282,797
Net loss........................................... -- -- (38,330) (38,330)
----- ------- -------- ---------
BALANCE, September 30, 1995.......................... 3,000 33,051 211,416 244,467
Net income (unaudited)............................. -- -- 21,289 21,289
----- ------- -------- ---------
BALANCE, June 30, 1996 (unaudited)................... 3,000 $33,051 $232,705 $ 265,756
===== ======= ======== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-144
<PAGE> 197
MINNESOTA MEDICAL RECORD SERVICE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JUNE 30,
1995 1996
-------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.................................................. $(38,330) $ 21,289
Adjustments to reconcile net (loss) income to net cash provided by
operating activities --
Depreciation expense............................................ 32,175 28,678
Provision for deferred income taxes............................. (44,335) 9,297
Changes in operating assets and liabilities -- (Increase)
decrease in --
Accounts receivable, net...................................... 58,304 4,114
Prepaid expenses.............................................. 917 (6,085)
Increase (decrease) in --
Accounts payable and accrued liabilities...................... 1,132 1,906
Income taxes payable.......................................... 14,218 (5,386)
-------- ---------
Net cash provided by operating activities.................. 24,081 53,813
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of equipment.......................................... (34,379) (40,525)
-------- ---------
Net cash used in investing activities...................... (34,379) (40,525)
-------- ---------
NET (DECREASE) INCREASE IN CASH...................................... (10,298) 13,288
CASH, at beginning of period......................................... 13,693 3,395
-------- ---------
CASH, at end of period............................................... $ 3,395 $ 16,683
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for --
Income taxes.................................................... $ -- $ 15,042
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-145
<PAGE> 198
MINNESOTA MEDICAL RECORD SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. BUSINESS AND ORGANIZATION:
Minnesota Medical Record Service, Inc. (the "Company") is a Minnesota
Corporation. The Company is an in-house correspondence service for doctors and
hospitals.
In August 1996, the Company and its stockholders intend to enter into a
definitive agreement with F.Y.I. Incorporated ("F.Y.I.") pursuant to which the
Company will be acquired by F.Y.I. All outstanding shares of the Company will be
exchanged for cash and shares of F.Y.I. common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are computed using accelerated methods over the estimated useful lives of the
individual assets which range from five to seven years.
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
financial statements.
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 according to specific
contract terms.
Revenue Recognition
Revenue is recognized when services are rendered to the Company's
customers.
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.
Interim Financial Statements
The accompanying balance sheet and statements of operations, stockholder's
equity and cash flow as of and for the nine months ended June 30, 1996 are
unaudited. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments necessary for a fair presentation for the period
presented.
F-146
<PAGE> 199
MINNESOTA MEDICAL RECORD SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 Minnesota and the
primary customers are attorneys and insurance companies. The Company establishes
an allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, historical trends, and other information.
Income Taxes
Income taxes are provided based upon the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred income taxes under the asset and liability
method.
The Company is a C corporation for income tax purposes and, accordingly,
any income tax liabilities are the responsibility of the corporation.
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 the recognition of revenues and
various accruals and reserves being deductible for tax purposes in different
periods.
3. LOANS RECEIVABLE -- AFFILIATES:
The Company has loaned monies to two affiliate companies, 50% and 100%
(California Medical Record Service, Inc.) owned by the sole shareholder, for
operations. The loans are due upon demand and non-interest bearing.
4. PROPERTY AND EQUIPMENT:
PROPERTY AND EQUIPMENT CONSISTS OF THE FOLLOWING AT SEPTEMBER 30:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(YEARS) 1995
------------ ---------
<S> <C> <C>
Equipment.................................................. 5-7 $ 195,894
Leasehold improvements..................................... 7 5,850
Furniture and fixtures..................................... 7 7,708
---
209,452
Less -- Accumulated depreciation and amortization.......... (119,674)
---------
$ 89,778
=========
</TABLE>
5. EMPLOYEE BENEFIT PLAN:
In 1996, the Company adopted a deferred compensation 401(k) plan (the "Plan").
Employees who have completed twelve months of service and have attained age 21
are eligible to participate in the Plan. The Plan allows for employee and
employer contributions. Employer contributions are at the discretion of the
Company.
F-147
<PAGE> 200
MINNESOTA MEDICAL RECORD SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The provision for income taxes for September 30 is comprised as follows:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Current provision
Federal................................................................. $ 7,499
State................................................................... 6,719
Deferred benefit.......................................................... (44,335)
---------
Total provision for income taxes................................ $(30,117)
=========
</TABLE>
Deferred income tax liabilities for September 30 are comprised of the
following:
<TABLE>
<S> <C>
Property and equipment.................................................... $ 14,848
Cash to accrual........................................................... 58,507
---------
Net deferred income tax liability............................... $ 73,355
=========
</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>
<S> <C>
Tax at statutory rate..................................................... $(23,272)
Add (deduct) State income taxes........................................... (6,845)
---------
Total provision for income taxes........................................ $(30,117)
=========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases office facilities in Minnesota under month to month
lease agreements. Monthly lease payments range from $254 to $1,008. The property
lease agreements provide that the Company pay all related taxes and insurance.
The total lease expense for the year ended 1995 totaled approximately $42,644.
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 position or results of
operations of the Company.
8. RELATED PARTY:
The Company pays a management fee to California Medical Record Service,
Inc. The management fee for fiscal year 1995 was $515,000.
F-148
<PAGE> 201
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Texas Medical Record Service, Inc.:
We have audited the accompanying balance sheet of Texas Medical Record
Service, Inc. (a Texas corporation) as of February 29, 1996, and the related
statements of operations, stockholders' equity, and cash flow for the 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 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 Texas Medical Record
Service, Inc. as of February 29, 1996, and the results of its operations and its
cash flow for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
August 28, 1996
F-149
<PAGE> 202
TEXAS MEDICAL RECORD SERVICE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 29, JUNE 30,
1996 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................... $ 4,326 $ 19,702
Accounts receivable, less allowance for doubtful accounts of
$47,000 for both periods........................................ 172,339 175,265
Employee advances.................................................. 2,475 200
Shareholder loan................................................... 1,500 1,500
-------- ---------
Total current assets....................................... 180,640 196,667
PROPERTY AND EQUIPMENT, net.......................................... 68,994 64,662
OTHER ASSETS......................................................... 2,465 6,004
-------- ---------
Total assets............................................... $252,099 $ 267,333
======== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................... $ 26,637 $ 27,659
Accrued liabilities................................................ 28,405 30,632
Equipment contract payable......................................... 13,000 9,000
Retrieval fee payable.............................................. 6,879 1,863
Income taxes payable............................................... 1,972 1,416
Deferred income taxes.............................................. 52,972 59,580
-------- ---------
Total liabilities.......................................... 129,865 130,150
-------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $1; 100,000 shares authorized, 1,235 shares
issued and outstanding for all periods.......................... 1,235 1,235
Additional paid-in capital......................................... 3,263 3,263
Retained earnings.................................................. 117,736 132,685
-------- ---------
Total stockholders' equity................................. 122,234 137,183
-------- --------
Total liabilities and stockholders' equity................. $252,099 $ 267,333
======== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-150
<PAGE> 203
TEXAS MEDICAL RECORD SERVICE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 29, 1996
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
JUNE 30,
1996 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
SERVICE REVENUE..................................................... $2,280,037 $ 834,849
COST OF SERVICES.................................................... 1,717,441 580,555
DEPRECIATION........................................................ 23,272 5,377
---------- ---------
Gross profit.............................................. 539,324 248,917
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES....................... 379,163 165,982
---------- ---------
Operating income.......................................... 160,161 82,935
OTHER EXPENSE:
Management fees expense........................................... 60,000 60,000
---------- ---------
INCOME BEFORE INCOME TAXES.......................................... 100,161 22,935
PROVISION FOR INCOME TAXES.......................................... 33,992 7,986
---------- ---------
Net income................................................ $ 66,169 $ 14,949
========== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-151
<PAGE> 204
TEXAS MEDICAL RECORD SERVICE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED FEBRUARY 29, 1996 AND
FOUR MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, February 28, 1995................... 1,235 $1,235 $3,263 $ 51,567 $ 56,065
Net income................................. -- -- -- 66,169 66,169
----- ------ ------ -------- ---------
BALANCE, February 29, 1996................... 1,235 1,235 3,263 117,736 122,234
Net income (unaudited)..................... -- -- -- 14,949 14,949
----- ------ ------ -------- ---------
BALANCE, June 30, 1996 (unaudited)........... 1,235 $1,235 $3,263 $132,685 $ 137,183
===== ====== ====== ======== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-152
<PAGE> 205
TEXAS MEDICAL RECORD SERVICE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 29, 1996
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
JUNE 30,
1996 1996
-------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 66,169 $14,949
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation expense........................................... 23,272 5,377
Provision for deferred income taxes............................ 31,428 6,608
Changes in operating assets and liabilities
(Increase) decrease in --
Accounts receivable, net..................................... (70,342) (2,926)
Employee advances............................................ 1,650 2,275
Increase (decrease) in --
Accounts payable, accrued liabilities, equipment contract
payable and retrieval fees payable.......................... 4,466 (5,767)
Income taxes payable......................................... 1,273 (556)
-------- -------
Net cash provided by operating activities................. 57,916 19,960
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment............................ (53,140) (1,045)
Change in other assets............................................ (450) (3,539)
-------- -------
Net cash used in investing activities..................... (53,590) (4,584)
-------- -------
NET INCREASE IN CASH................................................ 4,326 15,376
CASH, at beginning of period........................................ -- 4,326
-------- -------
CASH, at end of period.............................................. $ 4,326 $19,702
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for --
Income taxes................................................... $ 1,291 $ 1,923
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-153
<PAGE> 206
TEXAS MEDICAL RECORD SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
1. BUSINESS AND ORGANIZATION:
Texas Medical Record Service, Inc. (the "Company") is a Texas Corporation.
The Company is an in-house correspondence service for doctors and hospitals.
In August 1996, the Company and its stockholders intend to enter into a
definitive agreement with F.Y.I. Incorporated ("F.Y.I.") pursuant to which the
Company will be acquired by F.Y.I. All outstanding shares of the Company will be
exchanged for cash and shares of F.Y.I. common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
accelerated methods over the estimated useful lives of the individual assets
which range from five to seven years.
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
financial statements.
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 the 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 services are rendered to the Company's
customers.
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.
Interim Financial Statements
The accompanying balance sheet and statements of operations, stockholders'
equity and cash flow as of and for the four months ended June 30, 1996 are
unaudited. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments necessary for a fair presentation for the period
presented.
F-154
<PAGE> 207
TEXAS MEDICAL RECORD SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 Southern United
States and the primary customers are attorneys and insurance companies. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and other
information.
Income Taxes
Income taxes are provided based upon the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred income taxes under the asset and liability
method.
The Company is a C corporation for income tax purposes and, accordingly,
any income tax liabilities are the responsibility of the corporation.
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 the recognition of revenues and
various accruals and reserves being deductible for tax purposes in different
periods.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at February 29:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(YEARS) 1996
------------ ---------
<S> <C> <C>
Equipment.................................................... 5-7 218,010
Furniture and fixtures....................................... 5-7 8,985
---------
226,995
Less -- Accumulated depreciation............................. (158,001)
---------
$ 68,994
=========
</TABLE>
4. EMPLOYEE BENEFIT PLAN:
In 1996, the Company adopted a deferred compensation 401(k) plan (the
"Plan"). Employees who have completed twelve months of service and have attained
age 21 are eligible to participate in the Plan. The Plan allows for employee and
employer contributions. Employer contributions are at the discretion of the
Company. The Company's contributions were $585 in fiscal year 1996.
5. INCOME TAXES:
The provision for income taxes for February 29, 1996 is comprised as
follows:
<TABLE>
<S> <C>
Current provision
Federal.................................................................. $ 1,972
State.................................................................... 592
Deferred provision......................................................... 31,428
-------
Total provision for income taxes................................. $33,992
=======
</TABLE>
F-155
<PAGE> 208
TEXAS MEDICAL RECORD SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax liabilities for February 29, 1996 are comprised as
follows:
<TABLE>
<S> <C>
Cash to accrual difference................................................. 45,898
Property and equipment..................................................... 7,074
-------
Total deferred tax liability..................................... $52,972
=======
</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>
<S> <C>
Tax at statutory rate...................................................... $34,055
Add (deduct)
State income taxes, net of federal....................................... 592
Nondeductible expenses................................................... 1,381
Effect of graduated tax rates............................................ (2,036)
-------
Total provision for income taxes................................. $33,992
=======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases office facilities in Texas and various office equipment
under noncancelable lease agreements which expire at various dates. The leases
provide for lease terms over three to six years commencing June 1993, through
November 2000, with monthly lease payments of $116 to $1,662. The property lease
agreements provide that the Company pay all related taxes and insurance. The
total lease expense for the fiscal year ended 1996 totaled approximately
$42,959. Minimum future lease payments under operating leases as of February 29,
1996, for each of the next five years and in the aggregate are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 50,240
1998.............................................................. 47,085
1999.............................................................. 44,088
2000.............................................................. 16,953
2001.............................................................. 8,649
--------
Total................................................... $167,015
========
</TABLE>
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 position or results of
operations of the Company.
7. RELATED PARTY:
The Company pays a management fee to California Medical Record Service,
Inc., who owns 49% of the Company's outstanding common stock. The management fee
for fiscal year 1996 was $60,000.
F-156
<PAGE> 209
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ZIA Information Analysis Group:
We have audited the accompanying balance sheet of ZIA Information Analysis
Group (a California corporation) as of December 31, 1995, and the related
statements of operations, stockholders' equity, and cash flow 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 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 ZIA Information Analysis
Group as of December 31, 1995, and the results of its operations and its cash
flow for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
August 23, 1996
F-157
<PAGE> 210
ZIA INFORMATION ANALYSIS GROUP
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 41,610 $ 107,363
Accounts receivable............................................... 575,302 984,795
Unbilled work-in-process.......................................... 121,651 139,788
Prepaid expenses and other current assets......................... 14,816 34,348
Deferred income taxes............................................. 35,600 --
-------- ----------
Total current assets...................................... 788,979 1,266,294
PROPERTY AND EQUIPMENT, net......................................... 119,596 180,685
-------- ----------
Total assets.............................................. $908,575 $1,446,979
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payable..................................................... $225,025 $ 166,362
Income taxes payable.............................................. 24,800 82,311
Accrued liabilities --
Officers' bonus................................................ 500,000 500,000
Employee bonus................................................. 15,000 57,510
Payroll and related benefits................................... 7,975 96,024
Other.......................................................... 34,572 23,480
Note payable to bank -- revolver.................................. 30,000 --
Current portion of deferred income taxes.......................... -- 114,420
-------- ----------
Total current liabilities................................. 837,372 1,040,107
DEFERRED INCOME TAXES............................................... 19,000 19,000
-------- ----------
Total liabilities......................................... 856,372 1,059,107
-------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 1,000,000 shares authorized, 2,000
issued and outstanding for all periods......................... 50,000 50,000
Retained earnings................................................. 2,203 337,872
-------- ----------
Total stockholders' equity................................ 52,203 387,872
-------- ----------
Total liabilities and stockholders' equity................ $908,575 $1,446,979
======== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-158
<PAGE> 211
ZIA INFORMATION ANALYSIS GROUP
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1995 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
SERVICE REVENUE, net................................................ $2,291,032 $ 1,718,971
COST OF SERVICES.................................................... 999,654 702,767
DEPRECIATION........................................................ 34,710 19,034
---------- -----------
Gross profit.............................................. 1,256,668 997,170
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES....................... 1,237,720 436,399
---------- -----------
Operating income.......................................... 18,948 560,771
OTHER (INCOME) EXPENSE:
Interest expense.................................................. 4,016 795
Interest income................................................... (924) (800)
Other expense, net................................................ 2,871 394
---------- -----------
INCOME BEFORE INCOME TAXES.......................................... 12,985 560,382
PROVISION FOR INCOME TAXES.......................................... 7,600 224,713
---------- -----------
Net income................................................ $ 5,385 $ 335,669
========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-159
<PAGE> 212
ZIA INFORMATION ANALYSIS GROUP
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TOTAL
----------------- EARNINGS STOCKHOLDERS'
SHARES AMOUNT (DEFICIT) EQUITY
------ ------- -------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994........................... 2,000 $50,000 $ (3,182) $ 46,818
Net income......................................... -- -- 5,385 5,385
----- ------- -------- --------
BALANCE, December 31, 1995........................... 2,000 50,000 2,203 52,203
Net income (unaudited)............................. -- -- 335,669 335,669
----- ------- -------- --------
BALANCE, June 30, 1996 (unaudited)................... 2,000 $50,000 $337,872 $387,872
===== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-160
<PAGE> 213
ZIA INFORMATION ANALYSIS GROUP
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1995 1996
--------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 5,385 $ 335,669
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation expense........................................... 34,710 19,034
Provision for deferred income taxes............................ (18,000) 150,020
Loss on disposal of property and equipment..................... 598 --
Changes in operating assets and liabilities -- Increase in --
Accounts receivable, net and unbilled work-in-process........ (346,248) (427,630)
Prepaid expenses and other current assets.................... (5,292) (19,532)
Increase (decrease) in --
Trade payable................................................ 82,157 (58,663)
Accrued liabilities.......................................... 306,721 119,467
Income taxes payable......................................... 24,800 57,511
--------- ---------
Net cash provided by operating activities................. 84,831 175,876
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of equipment......................................... (28,124) (80,123)
--------- ---------
Net cash used in investing activities..................... (28,124) (80,123)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes to officers..................................... (13,750) --
Proceeds from line of credit...................................... 876,518 270,000
Repayment of line of credit....................................... (883,018) (300,000)
--------- ---------
Net cash used in financing activities..................... (20,250) (30,000)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................... 36,457 65,753
CASH AND CASH EQUIVALENTS, at beginning of period................... 5,153 41,610
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period......................... $ 41,610 $ 107,363
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for --
Income taxes................................................... $ 800 $ 8,000
Interest....................................................... $ 4,016 $ 411
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-161
<PAGE> 214
ZIA INFORMATION ANALYSIS GROUP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. BUSINESS AND ORGANIZATION:
ZIA Information Analysis Group (the "Company") is a California Corporation
which commenced operations on June 1, 1994. The Company provides litigation and
regulatory support services, including information management and fact finding
relating to liability, damage and regulatory issues. The Company provides its
services to law firms, corporations and regulated entities throughout
California.
In August 1996, the Company and its stockholders intend to enter into a
definitive agreement with F.Y.I. Incorporated ("F.Y.I.") pursuant to which the
Company will be acquired by F.Y.I. All outstanding shares of the Company will be
exchanged for cash and shares of F.Y.I. common stock.
During 1995, the Company outsourced approximately $230,000 of services to
companies that were acquired by F.Y.I. in 1996.
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 lives of the individual assets which range
from five to seven years.
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
financial statements.
Revenue Recognition
Service revenue consists of fee revenue and client job expenses. Fee
revenue, net of adjustments, is recognized when services are rendered. Client
job expenses consist of out-of-pocket expenditures made on behalf of clients.
Client job expense is recognized when the expense is incurred.
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.
F-162
<PAGE> 215
ZIA INFORMATION ANALYSIS GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interim Financial Statements
The accompanying balance sheet and statements of operations, stockholders'
equity and cash flow as of and for the six months ended June 30, 1996 are
unaudited. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments necessary for a fair presentation for the period
presented.
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 legal institutions. The Company establishes
an allowance for doubtful accounts when factors surrounding the credit risk of
specific customers, historical trends, and other information indicate that such
reserve is needed.
Income Taxes
Income taxes are provided based upon the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred income taxes under the asset and liability
method.
The Company is a C corporation for income tax purposes and, accordingly,
any income tax liabilities are the responsibility of the corporation.
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 the recognition of revenues and
various accruals and reserves being deductible for tax purposes in different
periods.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(YEARS) 1995
------------ --------
<S> <C> <C>
Computer equipment............................................ 5 $ 73,622
Office equipment.............................................. 7 50,422
Furniture and fixtures........................................ 7 45,915
--------
169,959
Less -- Accumulated depreciation (50,363)
--------
$119,596
========
</TABLE>
4. NOTE PAYABLE TO BANK:
At December 31, 1995, the Company had a bank line of credit that provided
for maximum borrowings of $150,000 at an interest rate of 2% over the bank's
index rate. The credit line was secured by accounts receivable and property and
equipment and was personally guaranteed by the Company's three officers. The
line of credit agreement contained certain terms and conditions including
financial covenants with respect to tangible net worth and profitability. As of
December 31, 1995, the Company had complied with all terms and conditions of the
agreement, except for the completion of annual financial statements within
ninety days after the fiscal year end. The Company has received a waiver from
the Bank for this breach of the agreement. The bank line of credit expired May
20, 1996. The Company executed a credit agreement on June 20, 1996 which
consisted of a $250,000 revolving credit facility (the "Revolver"). Under the
Revolver, the outstanding
F-163
<PAGE> 216
ZIA INFORMATION ANALYSIS GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
balance is due June 30, 1997. Interest accrues at prime plus 1.5%, and is
payable monthly. As of June 30, 1996, there was no outstanding balance under the
Revolver.
5. EMPLOYEE BENEFIT PLAN:
In 1995, the Company adopted a defined compensation (401(k) plan, the
"Plan"). Employees who have completed three months of service and have attained
age 21 are eligible to participate in the Plan. The Plan allows for employee and
employer contributions. Employer contributions are at the discretion of the
Company's board of directors. The Company's contributions were $10,637 in 1995,
to be funded during 1996.
6. INCOME TAXES:
The provision for income taxes for December 31, 1995 is comprised as
follows:
<TABLE>
<S> <C>
Current provision
Federal................................................................. $ 15,200
State................................................................... 10,400
Deferred benefit.......................................................... (18,000)
--------
Total provision for income taxes................................ $ 7,600
========
</TABLE>
Deferred income tax liabilities and assets for December 31, 1995 are
comprised as follows:
<TABLE>
<S> <C>
Deferred income tax liabilities --
Property and equipment.................................................. $ 19,000
Accrual to cash differences, net........................................ 195,500
--------
Total deferred income tax liabilities........................... 214,500
Deferred income tax assets --
Accrued expenses........................................................ 231,100
--------
Total deferred income tax assets................................ 231,100
--------
Net current deferred tax asset.................................. $ 16,600
========
</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>
<S> <C>
Tax at statutory rate..................................................... $ 4,415
Add (deduct)
State income taxes...................................................... 6,346
Nondeductible expenses.................................................. 3,381
Effect of graduated tax rates........................................... (6,542)
--------
Total provision for income taxes................................ $ 7,600
========
</TABLE>
F-164
<PAGE> 217
ZIA INFORMATION ANALYSIS GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases its office facility in California and various office
equipment under noncancelable lease agreements which expire at various dates.
The leases provide for lease terms over two to three years commencing February
1995, through June 1998, with monthly lease payments of $200 to $18,686. The
property lease agreements provide that the Company pay all related taxes and
insurance. The total lease expense for the year ended 1995 totaled approximately
$190,248. Future minimum future lease payments under operating leases as of
December 31, 1995, for the remainder of the term and in the aggregate are as
follows:
<TABLE>
<S> <C>
1996.............................................................. $224,235
1997.............................................................. 205,549
--------
Total................................................... $429,784
========
</TABLE>
Subleases
The Company subleases a portion of its office facility in California under
noncancelable lease agreements which expire at various dates to two unrelated
businesses. Future minimum sublease rental income as of December 31, 1995, for
the remainder of the term and in the aggregate are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 56,870
1997.............................................................. 53,064
--------
Total................................................... $109,934
========
</TABLE>
8. SIGNIFICANT CUSTOMER:
At December 31, 1995, the Company had two customers which each accounted
for 56% and 14% of gross service revenue and 22% and 3% of accounts receivable,
respectively.
F-165
<PAGE> 218
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 and
New Acquisitions 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 transferred 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").
In August 1996, the Company acquired C.M.R.S. Incorporated ("CMRS"),
Minnesota Medical Record Service, Inc. ("Minnesota Medical Record") and Texas
Medical Record Service, Inc. ("Texas Medical Record") (collectively "Medical
Record"). CMRS and Texas Medical Record have previously reported on a fiscal
year ending February 29 and Minnesota Medical Record has previously reported on
a fiscal year ending September 30. As such, the accounts of CMRS, Texas Medical
Record and Minnesota Medical Record for their last fiscal year have been
combined with the results of F.Y.I. for the year ended December 31, 1995. The
results of CMRS, Texas Medical Record and Minnesota Medical Record for the
interim period from January 1, 1996 through June 30, 1996 have been recast and
combined with the results of F.Y.I. for the six months ended June 30, 1996.
As of August, 1996, the Company signed a definitive agreement to acquire
ZIA Information Analysis Group ("ZIA"), subject to certain closing conditions.
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, Cook, Medical Record, and the pending acquisition of ZIA 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 June 30,
1996, which includes the purchase accounting for B&B, Premier and Cook; and
(ii) the unaudited balance sheets of Medical Record purchased during
August 1996 and the pending acquisition of ZIA as if the acquisitions had
occurred on June 30, 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
F-166
<PAGE> 219
(ii) the audited financial statements of B&B, Premier, Cook, ZIA and
Medical Record for the year ended December 31, 1995.
The unaudited pro forma statement of operations for the six months ended
June 30, 1996 is based upon:
(i) the unaudited statement of operations of F.Y.I. for the period
from February 1, 1996 to June 30, 1996 combined with the unaudited
statement of operations for the Founding Companies for the one month ended
January 31, 1996;
(ii) the unaudited statements of operations for B&B, Premier and Cook
from January 1, 1996 to the respective effective date of the acquisition;
and
(iii) the unaudited statements of operations for ZIA and Medical
Records from January 1, 1996 to June 30, 1996.
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.
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. 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.
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 do 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-167
<PAGE> 220
F.Y.I. INCORPORATED AND SUBSIDIARIES
PRO FORMA BALANCE SHEET (UNAUDITED)
JUNE 30, 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............................ $ 2,521 $ 126(A) $ 2,647
Accounts receivable, less allowance.................. 12,107 1,880(A) 13,987
Prepaids and other current assets.................... 1,226 290(A) 1,516
-------- -------- -------
Total current assets......................... 15,854 2,296 18,150
PROPERTY AND EQUIPMENT, net............................ 8,995 316(A) 9,311
INTANGIBLE ASSETS, net................................. 18,516 8,307(A) 26,823
OTHER NON CURRENT ASSETS............................... 2,330 14(A) 2,344
-------- -------- -------
Total assets................................. $ 45,695 $ 10,933 $56,628
======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities............. $ 10,263 $ 1,393(A) $11,656
Short-term obligations............................... 1,049 --(A) 1,049
Current maturities of long-term obligations.......... 282 8(A) 290
-------- -------- -------
Total current liabilities.................... 11,594 1,401 12,995
LONG-TERM OBLIGATIONS, net of current.................. 11,071 4,607(A) 15,678
DEFERRED INCOME TAXES, net............................. 114 388(A) 502
-------- -------- -------
Total liabilities............................ 22,779 6,396 29,175
STOCKHOLDERS' EQUITY
Preferred Stock...................................... -- -- --
Common Stock......................................... 55 3(A) 58
Additional paid-in capital........................... 21,488 4,534(A) 26,022
Retained earnings.................................... 1,373 -- 1,373
-------- -------- -------
Total stockholders' equity................... 22,916 4,537 27,453
-------- -------- -------
Total liabilities and stockholders' equity... $ 45,695 $ 10,933 $56,628
======== ======== =======
</TABLE>
F-168
<PAGE> 221
F.Y.I. INCORPORATED AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR DECEMBER 31, 1995 (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<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 $ -- $ 29,248 $ (458)(I) $69,405
Product revenue........................ -- 6,138 -- 1,550 -- 7,688
Other revenue.......................... -- 873 -- 35 -- 908
------ ------- ----- -------- ------- -------
Total revenue.................... -- 47,626 -- 30,833 (458) 78,001
COST OF SERVICES......................... -- 25,937 -- 16,548 (458)(I) 42,027
COST OF PRODUCTS SOLD.................... -- 4,972 -- 1,250 -- 6,222
DEPRECIATION............................. -- 1,238 -- 765 (371)(B) 1,632
------ ------- ----- -------- ------- -------
Gross profit..................... -- 15,479 -- 12,270 371 28,120
SELLING, GENERAL AND ADMINISTRATIVE...... -- 12,425 (1,976)(F) 8,463 (1,412)(C) 17,500
AMORTIZATION............................. 64 832(B) 896
------ ------- ----- -------- ------- -------
Operating income................. -- 2,990 1,976 3,807 951 9,724
OTHER (INCOME) EXPENSE:
Interest expense....................... -- 492 -- 229 1,135(H) 1,856
Interest income........................ -- (139) -- (59) -- (198)
Other.................................. -- (214) -- 48 (38)(J) (204)
------ ------- ----- -------- ------- -------
Income before income taxes....... -- 2,851 1,976 3,589 (146) 8,270
PROVISION FOR INCOME TAXES............... -- 163 1,631 (G) 130 1,248(D) 3,172
------ ------- ----- -------- ------- -------
NET INCOME............................... $ -- $ 2,688 $ 345 $ 3,459 $(1,394) $ 5,098
====== ======= ===== ======== ======= =======
NET INCOME PER COMMON SHARE.............. $ 0.87
=======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................ 5,286 586(E) 5,872
====== ======= =======
</TABLE>
F-169
<PAGE> 222
F.Y.I. INCORPORATED AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<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............................ $ 21,714 $ 3,487 $ -- $ 14,130 $(395)(I) $38,936
Product revenue............................ 2,640 395 -- 362 -- 3,397
Other revenue.............................. 297 34 -- 11 -- 342
------ ------ ----- -------- ----- -------
Total revenue........................ 24,651 3,916 -- 14,503 (395) 42,675
COST OF SERVICES............................. 13,630 2,196 -- 7,665 (395)(I) 23,096
COST OF PRODUCTS SOLD........................ 1,974 307 -- 313 -- 2,594
DEPRECIATION................................. 633 90 -- 307 (142)(B) 888
------ ------ ----- -------- ----- -------
Gross profit......................... 8,414 1,323 -- 6,218 142 16,097
SELLING, GENERAL AND ADMINISTRATIVE.......... 6,169 1,497 (683)(F) 3,759 (752)(C) 9,990
AMORTIZATION................................. 72 6 347(B) 425
------ ------ ----- -------- ----- -------
Operating income..................... 2,173 (180) 683 2,459 547 5,682
OTHER (INCOME) EXPENSE
Interest expense........................... 117 24 -- 58 568(H) 767
Interest income............................ (180) -- -- (15) -- (195)
Other...................................... (60) (69) -- (24) 12(J) (141)
------ ------ ----- -------- ----- -------
Income before income taxes........... 2,296 (135) 683 2,440 (33) 5,251
PROVISION FOR INCOME TAXES................... 923 (130) 351 (G) 319 644(D) 2,107
------ ------ ----- -------- ----- -------
NET INCOME................................... $ 1,373 $ (5) $ 332 $ 2,121 $(677) $ 3,144
======== ======= ===== ======== ===== =======
NET INCOME PER COMMON SHARE.................. $ 0.26 $ 0.54
======== =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING... 5,335 537(E) 5,872
======== ===== ======
</TABLE>
F-170
<PAGE> 223
NOTES TO PRO FORMA FINANCIAL STATEMENTS
THE PRO FORMA ADJUSTMENTS TO THE ACCOMPANYING BALANCE SHEET AS OF JUNE 30,
1996 ARE SUMMARIZED AS BELOW:
A. To record the purchase of B&B, Premier Cook, ZIA and Medical Record assets
and liabilities including the preliminary allocation of the purchase price
(including estimated direct costs) and the disbursement of $20,129,000 cash
and issuance of 585,589 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 approximately 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.............................................. $28,123,000
Estimated Fair Value of Assets.................................. $10,758,000
Estimated Fair Value of Liabilities............................. $ 7,527,000
Goodwill........................................................ $24,892,000
</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. Management continually evaluates
whether events and circumstances indicate that 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 management uses an estimate of
undiscounted net income over the remaining life of the intangibles or other
long-lived assets.
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, Premier, ZIA and Medical Record 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, Premier, ZIA and
Medical Record.
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 $12,757,000 term debt issued for the
purchase of Cook, ZIA and Medical Records. Proceeds remaining from the
Offering were used for the purchase of B&B and Premier, and a portion of
Cook.
I. To eliminate intercompany revenue between the New Acquisitions and the
Founding Companies.
J. To eliminate net management fees due to the different fiscal year ends of
Medical Record.
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 in the "Risk Factors" section of this
Prospectus.
F-171
<PAGE> 224
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......................... 14
Selected Financial Data................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 19
<CAPTION>
SECTION PAGE
- --------------------------------------- ----
<S> <C>
Business............................... 28
Management............................. 39
Principal Stockholders................. 45
Description of Capital Stock........... 46
Certain Transactions................... 48
Shares Eligible for Future Sale........ 49
Legal Matters.......................... 49
Experts................................ 50
Additional Information................. 51
Index to Financial Statements.......... F-1
</TABLE>
---------------------
<PAGE> 225
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
SEPTEMBER 9, 1996
[F.Y.I. 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 September 4, 1996, the last sale price of the Common Stock on the Nasdaq
National Market was $19.25 per share as reported in the Wall Street Journal on
September 5, 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> 226
[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> 227
[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.................... 14
Selected Financial Data........... 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 19
<CAPTION>
SECTION PAGE
- ---------------------------------- ----
<S> <C>
Business.......................... 28
Management........................ 39
Principal Stockholders............ 45
Description of Capital Stock...... 46
Certain Transactions.............. 48
Shares Eligible for Future Sale... 49
Legal Matters..................... 49
Experts........................... 50
Additional Information............ 51
Index to Financial Statements..... F-1
</TABLE>
---------------------
<PAGE> 228
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*............................................. 25,000
Legal Fees and Expenses*.................................................. 55,000
Accounting Fees and Expenses*............................................. 25,000
Transfer Agent and Registrar Fees and Expenses*........................... 1,000
Miscellaneous*............................................................ 6,448
--------
Total........................................................... $125,000
========
</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> 229
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> 230
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
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)
2.11 -- 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. (Exhibit 10.17 of the Registrant's Registration Statement
on Amendment No. 2 to the Form S-1 (Registration No. 333-1084) is
hereby incorporated by reference)
2.12 -- 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. Sievert.
(Exhibit 10.18 of the Registrant's Registration Statement on
Amendment No. 2 to the Form S-1 (Registration No. 333-1084) is hereby
incorporated by reference)
</TABLE>
II-3
<PAGE> 231
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
2.13 -- Asset Purchase Agreement, dated as of June 28, 1996, by an 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.
(Exhibit 10.19 of the Registrant's Registration Statement on
Amendment No. 2 to the Form S-1 (Registration No. 333-1084) is hereby
incorporated by reference)
2.14 -- Agreement and Plan of Reorganization, dated as of August 30, 1996, by
and among F.Y.I. Incorporated, California Medical Record Service
Acquisition Corp., C.M.R.S. Incorporated and Alan Simon
2.15 -- Agreement and Plan of Reorganization, dated as of August 30, 1996, by
and among F.Y.I. Incorporated, Texas Medical Record Service
Acquisition Corp., Texas Medical Record Service, Inc., California
Medical Record Service Acquisition Corp. and Karen Jill Simon
2.16 -- Agreement and Plan of Reorganization, dated as of August 30, 1996, by
and among F.Y.I. Incorporated, Minnesota Medical Record Service
Acquisition Corp., Minnesota Medical Record Service, Inc. and Alan
Simon
2.17 -- Agreement and Plan of Reorganization, dated as of August 30, 1996, by
and among F.Y.I. Incorporated, ZIA Acquisition Corp., ZIA Information
Analysis Group and the shareholders named therein
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)
</TABLE>
II-4
<PAGE> 232
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
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
</TABLE>
II-5
<PAGE> 233
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.21* -- Warrant issued to Ed H. Bowman, Jr.
10.22* -- Warrant issued to Robert C. Irvine
10.23 -- Employment Agreement between F.Y.I. Incorporated and Timothy J.
Barker
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-6
<PAGE> 234
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
September 9, 1996.
Date: September 9, 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 September 9, 1996
- --------------------------------------------- Executive Officer (Principal
Ed H. Bowman, Jr. Executive Officer)
/s/ DAVID LOWENSTEIN Director, Executive Vice September 9, 1996
- --------------------------------------------- President, Chief Financial
David Lowenstein Officer (Principal Financial
Officer)
/s/ TIMOTHY J. BARKER Vice President and Chief September 9, 1996
- --------------------------------------------- Accounting Officer
Timothy J. Barker (Principal Financial
Officer)
/s/ THOMAS C. WALKER Chairman of the Board and September 9, 1996
- --------------------------------------------- Chief Development Officer
Thomas C. Walker
/s/ DONALD F. MOOREHEAD, JR. Director September 9, 1996
- ---------------------------------------------
Donald F. Moorehead, Jr.
/s/ G. MICHAEL BELLENGHI Director September 9, 1996
- ---------------------------------------------
G. Michael Bellenghi
/s/ JERRY F. LEONARD, JR. Director September 9, 1996
- ---------------------------------------------
Jerry F. Leonard, Jr.
/s/ GREG MELANSON Director September 9, 1996
- ---------------------------------------------
Greg Melanson
/s/ JONATHAN B. SHAW Director September 9, 1996
- ---------------------------------------------
Jonathan B. Shaw
/s/ MICHAEL J. BRADLEY Director September 9, 1996
- ---------------------------------------------
Michael J. Bradley
/s/ HON. EDWARD M. ROWELL Director September 9, 1996
- ---------------------------------------------
Hon. Edward M. Rowell
*By: /s/ ED H. BOWMAN, JR.
- ---------------------------------------------
Ed H. Bowman, Jr.
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 235
INDEX TO 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)
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)
</TABLE>
<PAGE> 236
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------------------------------------------------------------------------
<C> <S>
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)
2.11 -- 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.
(Exhibit 10.17 of the Registrant's Registration Statement on Amendment No.
2 to the Form S-1 (Registration No. 333-1084) is hereby incorporated by
reference)
2.12 -- 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. Sievert. (Exhibit 10.18 of the
Registrant's Registration Statement on Amendment No. 2 to the Form S-1
(Registration No. 333-1084) is hereby incorporated by reference)
2.13 -- Asset Purchase Agreement, dated as of June 28, 1996, by an 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. (Exhibit 10.19 of the
Registrant's Registration Statement on Amendment No. 2 to the Form S-1
(Registration No. 333-1084) is hereby incorporated by reference)
2.14 -- Agreement and Plan of Reorganization, dated as of August 30, 1996, by and
among F.Y.I. Incorporated, California Medical Record Service Acquisition
Corp., C.M.R.S. Incorporated and Alan Simon
2.15 -- Agreement and Plan of Reorganization, dated as of August 30, 1996, by and
among F.Y.I. Incorporated, Texas Medical Record Service Acquisition Corp.,
Texas Medical Record Service, Inc., California Medical Record Service
Acquisition Corp. and Karen Jill Simon
2.16 -- Agreement and Plan of Reorganization, dated as of August 30, 1996, by and
among F.Y.I. Incorporated, Minnesota Medical Record Service Acquisition
Corp., Minnesota Medical Record Service, Inc. and Alan Simon
2.17 -- Agreement and Plan of Reorganization, dated as of August 30, 1996, by and
among F.Y.I. Incorporated, ZIA Acquisition Corp., ZIA Information Analysis
Group and the shareholders named therein
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
</TABLE>
<PAGE> 237
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------------------------------------------------------------------------
<C> <S>
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)
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.
</TABLE>
<PAGE> 238
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------------------------------------------------------------------------
<C> <S>
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
10.23 -- Employment Agreement between F.Y.I. Incorporated and Timothy J. Barker
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 2.14
--------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 30th day of August, 1996
by and among
F.Y.I. INCORPORATED
CALIFORNIA MEDICAL RECORD SERVICE ACQUISITION CORP.
C.M.R.S. INCORPORATED
and
THE STOCKHOLDER named herein
--------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Manner of Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Calculation of FYI Shares for the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Earnings Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. DELIVERY OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Delivery Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(A) Representations and Warranties of the Company and
the Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.2 Organization, Existence and Good Standing of the Company . . . . . . . . . . . . . . . . . . . . . . 6
5.3 Capital Stock of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.6 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.7 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.9 Assets and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.10 Real Property Leases; Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.11 Environmental Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.13 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.14 Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.15 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.16 Litigation and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.19 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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5.20 Employees; Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.22 Interests in Customers, Suppliers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.23 Business Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.25 Bank Accounts and Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.26 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(B) Representations and Warranties of the Stockholder. . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.27 Authority; Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.28 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.29 No Intention to Dispose of FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.30 Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.31 No Other Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6. REPRESENTATIONS OF FYI AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.6 Capitalization of FYI and Ownership of FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.8 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.9 Business; Real Property; Material Agreements;
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.10 Conformity with Law and Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.11 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.13 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDER AND THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Representations and Warranties; Performance of Obligations . . . . . . . . . . . . . . . . . . . . . 26
7.2 Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.5 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.6 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.7 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.8 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF FYI AND
NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.1 Representations and Warranties; Performance of Obligations . . . . . . . . . . . . . . . . . . . . . 27
8.2 Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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8.4 Repayment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6 Stockholder Release; Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.7 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.8 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.9 Noncompetition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.10 Lock-Up Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.11 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.12 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9. COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.1 [Intentionally Left Blank] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.2 Preservation of Tax and Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.3 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.4 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.1 FYI Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.3 Employee Compensation and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.4 Stockholder Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.5 Indemnification for Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.6 Notice of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.7 Right to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.8 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.9 Satisfaction of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.10 Limitations of Indemnification; Proportionate Payments . . . . . . . . . . . . . . . . . . . . . . . 34
10.11 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11. SECURITIES ACT REPRESENTATIONS AND TRANSFER
RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.1 Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.2 Economic Risk; Sophistication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.2 Survival of Covenants, Agreements, Representations
and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.6 Brokers and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.10 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
12.11 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.12 Reformation and Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.13 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.14 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.15 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
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<PAGE> 6
SCHEDULES AND ANNEXES
SCHEDULES
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1.1 Articles of Merger and Plan and Agreement of Merger
1.3(d) Officers of the Surviving Corporation
5.2 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
5.16 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
9.4 Optionees
ANNEXES
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I Stockholder of the Company
II Aggregate Consideration to be paid to the Stockholder
III FYI Charter Documents
IV Opinion of Counsel to FYI and Newco
V Employment Agreement
VI Opinion of Counsel to the Company
VII Noncompetition Agreement
VIII Lock-Up Agreement
IX Subordination Agreement
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<PAGE> 7
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of the 30th day of August, 1996, by and among F.Y.I. INCORPORATED, a
Delaware corporation ("FYI"), CALIFORNIA MEDICAL RECORD SERVICE ACQUISITION
CORP., a Delaware corporation ("Newco"), C.M.R.S. INCORPORATED, a California
corporation (the "Company"), and ALAN D. SIMON, holding shares in the Company
in the amount set forth on Annex I (the "Stockholder") and constituting the
sole stockholder of the Company.
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Delaware, having been incorporated on August 20, 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 the transactions with respect to
the Company 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 State of California, on or before the
Closing Date (as defined in Section 4). The Articles of Merger and related
Plan and Agreement of Merger are attached hereto as Schedule 1.1.
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 California Medical Record
Service Acquisition Corp. Newco shall be the surviving party in
<PAGE> 8
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 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:
Ed H. Bowman, Jr.
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 thousand
(100,000) shares of Common Stock, no par value per share (the "Company
Stock"), of which one thousand (1,000) shares are issued and
outstanding and held by the Stockholder;
(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
-2-
<PAGE> 9
per share ("FYI Stock"), of which five million five hundred
twenty-three thousand one hundred forty-seven (5,523,147) shares were
issued and outstanding at July 31, 1996, 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 chooses 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, vested in the
Company 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 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
2.1 MANNER OF CONVERSION. The manner of converting the shares of
(a) the 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:
-3-
<PAGE> 10
As of the Effective Time of the Merger:
(a) All of the shares of the 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 II hereto;
(b) All shares of the 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 11.1 hereof, have the same rights as all of the other shares of
outstanding FYI Stock and shall be registered under the 1933 Act (as
hereinafter defined). 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 FOR THE COMPANY. All the 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 II attached hereto.
2.3 EARNINGS ADJUSTMENT. All net earnings and net cash flow of
the Company for the period from July 31, 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:
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<PAGE> 11
(a) The Stockholder, as the holder of all outstanding
certificates representing shares of the 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 the sum of $49,005.00 in cash and 2,914 shares
of FYI Stock to be retained by FYI 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
the Company and the Stockholder, and for the Stockholder's
indemnification obligations, in the manner and to the extent set forth
herein; and
(b) Until the certificates representing the Company Stock
have been surrendered by the Stockholder and replaced by the FYI
Stock, the certificates for the Company 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 Stockholder is entitled to receive
as a result of the Merger, as set forth in Section 2.2 above,
notwithstanding the number of shares of the Company 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 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 (at
the option of the Stockholder) in amounts equal to the aggregate 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
with respect to the Company and its business and operations set forth in this
Section 5(A) are true and correct at the time of the Closing.
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
-5-
<PAGE> 12
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 not qualified or licensed
as a foreign corporation in any other jurisdiction and the character or
location of the property owned, leased or operated by it or the nature of the
business conducted by it does not make 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 or results of operations of
the Company. 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 Stockholder (i) owns of record and beneficially
(subject to the community property interest of the Stockholder's
spouse) 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 other than standard state and federal securities law
private offering legends and restrictions or arising under any
buy-sell or stockholders' or similar agreement existing and to which
the Stockholder is a party (each of which shall be terminated on or
before the Closing) (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 incorporation
-6-
<PAGE> 13
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 Richard
Gralitzer & Company, certified public accountants, together with
management's statements of operations and stockholder's equity for the
seven-month period ended July 31, 1996 ("Gralitzer Financial
Statements"). The Company has furnished to FYI the audited balance
sheet of the Company as of July 31, 1996 and the related statements of
operations, stockholder's equity and cash flows for the fiscal year
then ended, as reviewed by Arthur Andersen LLP, independent public
accountants (the "AA Financial Statements," and together with the
Gralitzer Financial Statements, the "Financial Statements"). The
Gralitzer Financial Statements and, to the best knowledge of the
Company and the Stockholder, the AA 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 Richard Gralitzer & Company and Arthur Andersen LLP.
(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 or any other
schedule attached hereto, the Company has no liabilities or
obligations (including, without limitation, Taxes (as defined in
Section 5.8)) 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, or liabilities
arising under any Contract listed on Schedule 5.12 hereto or which are
not required to be listed on such schedule because of their
immateriality.
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
July 31, 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 Stockholder. The
Company shall provide FYI with an aging of all accounts and notes
-7-
<PAGE> 14
receivable through July 31, 1996 showing amounts due in 30-day aging
categories. Except to the extent reflected on Schedule 5.6, all such accounts
and notes are legal, valid and binding obligations of the obligors 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), licenses,
franchises, certificates, trademarks, trade names 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. The licenses, franchises, permits and other
governmental authorizations listed on Schedule 5.7 are valid, and the Company
has not received any written 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, the breach or violation of which would constitute
a Material Adverse Effect.
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. To the best knowledge of the Company and the Stockholder, 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 July 31, 1996, or for any period
ending after July 31, 1996 with respect to any portion of such tax
period that includes or is prior to July 31, 1996 other than
-8-
<PAGE> 15
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, 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, 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 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, 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 the 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 Company 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 the Company
exceeds the sum of its liabilities, plus the amount of liabilities, if
any, to which the assets are subject.
(h) 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.
(i) 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.
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<PAGE> 16
(j) 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.
(k) There is no plan or intention by the Stockholder to
sell, exchange, or otherwise dispose of any shares of FYI Stock
received by such Stockholder in the Merger as of the Effective Time of
the Merger or otherwise described in Annex II. For purposes of this
representation, shares of the Company Stock exchanged for cash or
other property and shares of the Company Stock exchanged for cash in
lieu of fractional shares of FYI Stock will be treated as outstanding
shares of the Company Stock on the date of the transaction. Moreover,
shares of the 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
received by such Stockholder pursuant to Section 10.10.
(l) The Company and the Stockholder will each pay their
respective expenses, if any, incurred in connection with the Merger.
(m) 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.
(n) None of the shares of FYI Stock received by the
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 described
in Section 7.5, 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) The Company is a C corporation within the meaning of
Subchapter C of the Code. The Company presently files its federal
income tax returns on a cash basis of accounting.
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
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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 and such imperfections of title and encumbrances as would
not detract in any material respect from the value of the property
encumbered (collectively, the "Permitted Liens").
(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 Stockholder has 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. 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 the violation of which would
have a Material Adverse Effect. To the best knowledge of the
Stockholder, 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, the violation
of which would have a Material Adverse Effect.
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)
Permitted Liens 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 by the
Company or, to the best knowledge of the Company and the Stockholder, by any
other party thereto, 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,
except where any such default would not have a Material Adverse Effect.
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<PAGE> 18
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 Stockholder, 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 Stockholder, 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 materially violates or
requires remediation under Environmental Requirements; (iii) to the
best knowledge of the Company and the Stockholder, 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, to the best knowledge of the Company and the Stockholder,
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 Stockholder, 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 to be pollutants,
hazardous or toxic under Environmental Requirements.
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<PAGE> 19
"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 Stockholder, no other party to any Contract is in
default thereunder, except in all cases where any such default would
not have a Material Adverse Effect.
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) except as set forth
on Schedule 5.8, 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, in each event except where such
breach or violation would not have a Material Adverse Effect.
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<PAGE> 20
5.14 GOVERNMENT CONTRACTS. 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 are parties 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 any
such consent, approval or other authorization would not have a Material Adverse
Effect.
5.16 LITIGATION AND RELATED MATTERS. Set forth on Schedule 5.8 and
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 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").
None of the actions, suits, proceedings or investigations listed on Schedule
5.8 and 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. Except as set forth on Schedule 5.8,
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,
except where the failure to possess the same 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
license fees therefor. Unless otherwise indicated on Schedule 5.18, the
Company has the right to use and license the Intellectual Property, and
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<PAGE> 21
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, there are no pending proceedings or adverse claims
made or, to the best 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. Each Plan that is intended to be "qualified" within the meaning of
Section 401(a) of the Code has applied for or received a favorable
determination letter from the Internal Revenue Service (the "IRS") and, to the
best knowledge of the Company and the Stockholder, no event has occurred and no
condition exists that could be expected to result in the denial or 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 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
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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 and PBGC insurance premiums). 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 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) except to the extent otherwise provided by
applicable law, entitle any current or former employee of the Company to
severance pay, unemployment compensation or any similar payment, (ii) except to
the extent otherwise provided by applicable law, 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 planned increase of greater than $5,000 per annum 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 planned increase of greater than $5,000
per annum 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 or other similar 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 other than in the ordinary
course, and (vi) all accrued but unpaid vacation pay owing to any
officer or employee that is not disclosed on the Financial Statements.
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(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 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 National
Labor Relations Board, or similar agency, exist, or to the best
knowledge of the Company and the Stockholder, are threatened.
(c) In the reasonable opinion of the Company and the
Stockholder, the relationships enjoyed by the Company with its
employees are good, and the Company and the Stockholder have not been
advised by any employee that such employee does not intend to continue
in the employ of the Company following the Closing. Except as
disclosed on Schedule 5.20, the Company is not a party to any
employment contract with any individual or employee (other than oral
employment arrangements terminable at will without further obligation
by either party), 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 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. 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 July 31,
1996.
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<PAGE> 24
(d) The Company is in compliance in all respects with the
provisions of the Americans with Disabilities Act, except where the
failure to be in such compliance would not have a Material Adverse
Effect.
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 by their terms are scheduled to remain in full force
and effect through the Closing Date and, in the reasonable opinion of the
Company and the Stockholder, are adequate for the business engaged in by the
Company. 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 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;
provided, however, that the direct interest of the Stockholder in Minnesota
Medical Record Service, Inc. and the indirect interest of the Stockholder in
Texas Medical Record Service, Inc. shall not be deemed a breach of this Section
5.22. 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, neither the
Company nor the Stockholder has received any written or, to the best knowledge
of the Company and the Stockholder, any other notice or information that any
such customer 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. 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
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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 material damage, destruction or casualty
loss to the physical properties of the Company (whether or not covered by
insurance), (b) other than events or circumstances affecting the medical
records release business in general, any event or circumstance in the business,
operations, financial condition or results of operations of the Company that
would have a Material 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 of greater than $5,000 per annum in the
compensation payable or to become payable by the Company to its officers,
directors, employees or agents or any increase in the rate or terms of any
bonuses, pension or other employee benefit plan, payment or arrangement made
to, for or with any such officers, directors, 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 (other than to the extent set forth in Schedule 5.23)
or suppliers, or 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 STOCKHOLDER.
The Stockholder represents and warrants that the representations and
warranties in this Section 5(B) as they apply to him 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 spouse) and of
record the shares of the Company Stock set forth opposite such Stockholder's
name on Annex I and such shares of the Company Stock, together with the other
shares of the 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 shares of the Company Stock owned by the Stockholder
are
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owned free and clear of all Liens other than standard state and federal
securities laws private offering legends and restrictions or arising under any
buy-sell or stockholders' or similar agreement existing and to which the
Stockholder is a party (each of which shall be terminated on or before the
Closing). 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 the 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. The Stockholder
represents that there is no current plan or intention by such Stockholder to
sell, exchange or otherwise dispose of any shares of FYI Stock received by such
Stockholder in the Merger as of the Effective Time of the Merger or otherwise
described in Annex II. For purposes of this representation, shares of the
Company Stock exchanged for cash or other property and shares of the Company
Stock exchanged for cash in lieu of fractional shares of FYI Stock will be
treated as outstanding shares of the Company Stock on the date of the
transaction. Moreover, shares of the 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, the Stockholder represents that there is not any
current plan or intention by such Stockholder to sell, exchange or otherwise
dispose of FYI Stock, if any, received by such Stockholder pursuant to Section
10.10 hereof.
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 in accordance with their respective terms.
5.31 NO OTHER REPRESENTATIONS. Except to the extent set forth in
Article 5 of this Agreement, the Company and the Stockholder have made no
representation or warranty whatsoever to FYI or Newco and hereby disclaim all
liability or responsibility for any other representation or warranty made,
communicated or furnished (orally or in writing) to FYI or Newco or their
representatives .
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
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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 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 Stockholder
pursuant to this Agreement will be registered under the Securities Act of 1933,
as amended (the "1933 Act"), and conform in all material respects to the
information with respect thereto contained in FYI's Registration Statement on
Form S-1 and Prospectus Supplement dated August 12, 1996 described in Section
6.9 hereof.
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 and to each of the agreements described in
Section 6.3 hereof to which FYI and/or Newco is to be a party. FYI and Newco,
have the full legal right, power and authority to enter into this Agreement and
the Articles of 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
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(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(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, register, 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 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 June 30, 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 Stockholders with true, complete and correct copies of its
Registration Statements on Form S-1 (Registration No. 33-98608 and Registration
No. 333-1084) and Prospectus Supplement to Prospectus dated August 12, 1996.
The information scheduled or provided pursuant to this Section 6.9 does not
contain any material misstatements of fact. Newco was formed on August 20,
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
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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 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 the Company are true and
correct.
6.12 TAXES.
(a) 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.
(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
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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
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 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 in the ordinary course of
business.
(g) FYI and Newco will each pay their respective
expenses, if any, incurred in connection with the Merger.
(h) 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.
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(i) None of the shares of FYI Stock received by the
Stockholder in the Merger will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to
the Stockholder in their capacity as an employee, including but not
limited to amounts paid pursuant to the Employment Agreement described
in Section 7.5, will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
(j) Neither FYI nor Newco is an investment company as
defined in section 368(a)(2)(F)(iii) and (iv) of the Code.
(k) 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.
(l) The proposed Merger is effected through the laws of
the United States, or a State or the District of Columbia.
(m) The proposed Merger is being undertaken for reasons
germane to the business of the Company.
(n) Assuming the correctness of the representation
contained in Section 5.8(d) herein, 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 the Company
immediately prior to the Closing Date, with such amount determined
based on the same methodology described in Section 5.8(d).
6.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 6.13 or as otherwise contemplated in this Agreement, since July 31,
1996 there has not been any event or circumstance in the business, operations,
financial condition or results of operations of the Company that would have or
constitute an FYI Adverse Effect.
6.14 NO OTHER REPRESENTATIONS. Except to the extent set forth in
Article 6 of this Agreement, FYI and Newco have made no representation or
warranty whatsoever to the Company or the Stockholder and hereby disclaim all
liability or responsibility for any other representation or warranty made,
communicated or finished (orally or in writing) to the Company or the
Stockholder or their representatives.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY
The obligations of the Stockholder and of 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
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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, except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true and correct
in all material respects as of the specified 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 the
Company and the Stockholder and their respective 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 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 and Newco, dated the Closing Date, in the form
annexed hereto as Annex IV.
7.5 EMPLOYMENT AGREEMENT. Newco shall have executed and delivered
to the Stockholder the Employment Agreement in substantially the form attached
hereto as Annex V (the "Employment Agreement").
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 the Company as a
result of which the Company deems it inadvisable to proceed with the
transactions hereunder.
7.7 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.
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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
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,
except to the extent that any such representation or warranty is made as of a
specified date, in which case such representation or warranty shall have been
true and correct in all material respects as of the specified 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 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 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 or Newco deems it inadvisable to proceed with the transactions
hereunder.
8.4 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.
8.5 INSURANCE. FYI shall be named as an additional named insured
on all of the insurance policies of the Company.
8.6 STOCKHOLDER RELEASE; RELATED PARTY AGREEMENTS. The
Stockholder shall have delivered to FYI immediately prior to the Closing Date
an instrument dated the Closing Date in a form reasonably satisfactory to FYI
releasing the Company from any and all claims of such Stockholder against the
Company and obligations of the Company to the Stockholder, except for items
specifically identified on Schedule 8.6 as being claims of or obligations to
the Stockholder and continuing obligations to Stockholder relating to his
employment by the Surviving Corporation or arising in connection with or
pursuant to this Agreement. Except as set forth on Schedule 8.6 or as
otherwise disclosed pursuant to this Agreement, all existing agreements between
the Company and the Stockholders or business
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or personal affiliates of the Company or the Stockholders and all existing
bonus and incentive plans and arrangements of the Company shall have been
terminated or cancelled.
8.7 OPINION OF COUNSEL. FYI shall have received an opinion from
Gardere Wynne Sewell & Riggs, L.L.P., counsel to the Company and the
Stockholder, dated the Closing Date, in the form annexed hereto as Annex VI.
8.8 EMPLOYMENT AGREEMENT. The Stockholder shall have executed and
delivered to FYI and Newco the Employment Agreement.
8.9 NONCOMPETITION AGREEMENT. The Stockholder shall have executed
and delivered to FYI and Newco a Noncompetition Agreement with FYI and Newco in
substantially the form attached hereto as Annex VII (the "Noncompetition
Agreement").
8.10 LOCK-UP AGREEMENT. The Stockholder shall have executed and
delivered to FYI and Newco a Lock-Up Agreement in substantially the form
annexed hereto as Annex VIII (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.
8.11 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.
8.12 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred that would constitute a Material Adverse Effect.
9. COVENANTS OF THE PARTIES
9.1 [INTENTIONALLY LEFT BLANK].
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 the Company,
including, to the extent such action would jeopardize the tax-free
status of the reorganization of the Company:
(i) The retirement or reacquisition, directly or
indirectly, of all or part of the FYI Stock issued in
connection with the transactions contemplated hereby;
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(ii) The entering into of financial arrangements
for the benefit of the Stockholder in his capacity as such;
(iii) 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;
(iv) The discontinuance of the historic business
of the Company; 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 August 1, 1997 FYI shall maintain the separate
corporate existence of the Surviving Corporation and shall operate the
business of the Company 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 II.
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 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 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.
9.4 STOCK OPTIONS. No later than September 30, 1996, FYI shall
grant to employees of the Surviving Corporation set forth on Schedule 9.4
nonqualified stock options to acquire an aggregate of five thousand (5,000)
shares of FYI Stock in minimum lots of one thousand shares (1,000) in
accordance with the terms of FYI's 1995 Stock Option Plan (the "Stock Option
Plan"), with such options to have a per share exercise price equal to the Fair
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Market Value (as defined in the Stock Option 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.
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) being untrue
or incorrect in any respect; (ii) any liability for warranty claims
arising from the provision of services by the Company through the
Closing Date; (iii) 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; (iv) 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; or (v) any failure by the Company
or the Stockholder to observe or perform its or his covenants and
agreements set forth in this Agreement or (solely with respect to the
Company) in any other agreement or document executed by it in
connection with the transactions contemplated hereby.
(b) "FYI Losses" shall mean all damages (including,
without limitation, amounts paid in settlement pursuant to the
provisions of this Article 10), 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.
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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 own negligence.
(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.
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<PAGE> 38
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 and the rights so claimed
are not scheduled pursuant to this Agreement or reserved for on the
Financial Statements, or if the claim asserted is based upon or arises
under applicable law rather than an agreement or undertaking by the
Company, then only if the claim asserted arose or is based upon acts
or omissions occurring prior to the Closing Date and was not disclosed
as required by the terms of this Agreement (collectively, "Pre-Closing
Employee Claims").
(b) Each of FYI and Newco jointly and severally agrees to
indemnify and hold the Stockholder and his agents and attorneys
harmless from and against any and all claims made by employees of the
Surviving Corporation, 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, except as otherwise
expressly provided herein, to the extent the same are based on
employment service rendered to the Surviving Corporation after the
Closing Date or injury or sickness occurring after the Closing Date
(collectively, "Post-Closing Employee Claims").
10.4 STOCKHOLDER LOSSES.
(a) FYI and Newco jointly and severally agree to
indemnify and hold harmless the Stockholder, and his 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
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 provision of services by the Company
subsequent to the Closing Date; or (iv) any liability of the
Stockholder as a guarantor under any Real Property Lease, except in
any instance and to the extent Stockholder Losses result from the
negligence or misconduct of the Stockholder (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
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<PAGE> 39
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 or
such other persons to indemnification hereunder.
10.5 INDEMNIFICATION FOR CERTAIN TAX MATTERS. The Stockholder
shall indemnify, defend and hold harmless the Surviving Corporation from and
against the liability of the Company 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 the Company into Newco
fails to qualify as a tax-free transaction as to the Company 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 Company or the Stockholder. FYI and the Surviving Corporation shall
indemnify, defend and hold harmless the Stockholder from and against the
liability of the Stockholder, the Company and the Surviving Corporation with
respect to all Taxes, resulting from any final determination (or settlement)
that the Merger of the Company into Newco, fails to qualify as a tax-free
transaction as to the Stockholder, the Company 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, Pre-Closing Employee Claims and the matters
described in Section 10.5, 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, Post-Closing Employee Claims and the matters
described in the second sentence of Section 10.5, FYI and Newco shall be the
Indemnifying Party and the Stockholder and his 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 and to make any compromise or
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<PAGE> 40
settlement thereof 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 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 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. FYI and Newco shall first recover
amounts owing thereto pursuant to Sections 10.1, 10.2 and 10.3 for FYI Losses,
Environmental Costs and Pre-Closing Employee Claims first from the funds held
by it as described in Section 3.1(a) and thereafter from the Stockholder.
10.10 LIMITATIONS OF INDEMNIFICATION; PROPORTIONATE PAYMENTS. FYI,
Newco, the Surviving Corporation and the other persons or entities indemnified
pursuant to Sections
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<PAGE> 41
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
with respect to a single claim or $11,000 with respect to all claims,
regardless of amount. No Indemnifying Party shall be obligated to indemnify
and hold harmless any Indemnified Party with respect to any claim for
indemnification hereunder exceeding an aggregate of $1,192,325; provided,
however, that the foregoing limitation shall not be applicable to any breach of
the representations and warranties contained in Sections 5.3 and 6.2 hereof.
Any amounts paid for Stockholder Losses 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 II.
10.11 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.
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 TRANSFER RESTRICTIONS. Except for transfer upon death or to
immediate family members who agree in writing to be bound by the restrictions
set forth below (or trusts for the benefit of the undersigned or family
members, the trustees of which so agree in writing), for a period of two (2)
years from the Closing, the Stockholder shall not (a) sell, assign, exchange,
transfer, distribute or otherwise dispose of (i) any shares of FYI Stock
received by the Stockholder at the Effective Time of the Merger or otherwise
described in Annex II, 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 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:
EXCEPT FOR TRANSFER UPON DEATH OR TO IMMEDIATE FAMILY MEMBERS WHO
AGREE IN WRITING TO BE BOUND BY THE RESTRICTIONS SET FORTH BELOW (OR
TRUSTS FOR THE BENEFIT OF THE UNDERSIGNED OR FAMILY MEMBERS, THE
TRUSTEES OF WHICH SO AGREE IN WRITING), THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED,
DISTRIBUTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
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<PAGE> 42
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 a
Lock-Up Agreement containing the foregoing agreements. The agreements in this
Section 11.1 shall apply to any FYI Stock to be received by the Stockholder
pursuant to the Earnout (as defined in Annex II).
11.2 ECONOMIC RISK; SOPHISTICATION. The Stockholder represents and
warrants to FYI and Newco that such Stockholder is an "accredited investor" as
defined in Regulation D promulgated under the 1933 Act; that such Stockholder
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 knowledge and experience in financial and business
matters that such Stockholder is capable of evaluating the merits and risks of
the proposed investment in the FYI Stock; and that such Stockholder 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.
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 the purpose of
carrying out this Agreement. The Company 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 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
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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
Section 5.3 and Section 6.2 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. 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
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
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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. In the event the transactions herein contemplated are
consummated, the Stockholder will pay from personal funds and not from the
funds of the Company, the fees, expenses and disbursements of its agents,
representatives, accountants and counsel (other than with respect to the AA
Financial Statements) incurred in connection with the subject matter of this
Agreement. 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, and all sales, use, real property
transfer, recording, gains, stock transfer and other similar fees in connection
with the transactions contemplated by this Agreement.
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
California Medical Record Service 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 Stockholder, 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;
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<PAGE> 45
(iii) If to the Company, addressed to:
C.M.R.S. Incorporated
7334 Topanga Canyon Boulevard
Suite 220
Canoga Park, California 91303
Telecopy No.: (818) 887-7352
Attn: Alan D. Simon
and marked "Personal and Confidential"
with copies to:
Gardere Wynne Sewell & Riggs, L.L.P.
333 Clay Street
Suite 800
Houston, Texas 77002-4086
Telecopy No.: (713) 308-5555
Attn: Daniel L. Cohen, 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 TEXAS.
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.
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<PAGE> 46
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 Company
transaction be structured as a tax-free reorganization under Section 368(a) of
the Code.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
F.Y.I. INCORPORATED
ATTEST:
/s/ Kent Jamison By: /s/ David Lowenstein
- ---------------------------------- -------------------------------
Name: David Lowenstein
Title: Executive Vice President
CALIFORNIA MEDICAL RECORD SERVICE
ACQUISITION CORP.
ATTEST:
/s/ Kent Jamison By: /s/ David Lowenstein
- ---------------------------------- -------------------------------
Name: David Lowenstein
Title: Vice President
C.M.R.S. INCORPORATED
ATTEST:
/s/ Colleen Montes By: /s/ Alan Simon
- ---------------------------------- -------------------------------
Name: Alan Simon
Title: President
<PAGE> 48
THE STOCKHOLDER:
ATTEST:
/s/ Colleen Montes /s/ Alan D. Simon
- ---------------------------------- ----------------------------
Alan D. Simon
<PAGE> 49
ANNEX I
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF AUGUST 30, 1996
BY AND AMONG
F.Y.I. INCORPORATED
CALIFORNIA MEDICAL RECORD SERVICE ACQUISITION CORP.
C.M.R.S. INCORPORATED
AND
THE STOCKHOLDER NAMED THEREIN
STOCKHOLDER OF THE COMPANY:
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Company Stock Date of Acquisition
- ---------------- ---------------- -------------------
<S> <C> <C>
Alan D. Simon 1,000 November 1, 1985
7334 Topanga Canyon Boulevard
Suite 220
Canoga Park, California 91303
</TABLE>
<PAGE> 50
ANNEX II
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF AUGUST 30, 1996
BY AND AMONG
F.Y.I. INCORPORATED
CALIFORNIA MEDICAL RECORD SERVICE ACQUISITION CORP.
C.M.R.S. INCORPORATED
AND
THE STOCKHOLDER NAMED THEREIN
Aggregate consideration to be paid to the Stockholders:
Cash - $898,685, of which $849,680.00 of such amount shall be paid at
the Closing, and of which $49,005.00 of such amount shall be held by
FYI pursuant to Section 3.1(a) hereof.
Stock - 53,450 shares of FYI Stock, of which 50,536 shares of FYI
Stock shall be delivered at the Closing, and of which 2,914 shares of
FYI Stock shall be held by FYI pursuant to Section 3.1(a) hereof.
Earnout - As a method of reconciling valuation differences, Seller
shall be entitled to receive a "growth" earnout (the "Earnout") equal
to 500% 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 twelve- month period:
EBITDA Target
$182,703.00 For the Twelve-Month Period Beginning
August 1, 1996 and Ending July 31, 1997
(the "Twelve-Month Period")
; provided, however, in no event may the Earnout amount exceed
$2,500,000.00. FYI corporate overhead shall not be allocated to the
Surviving Corporation, and (i) expenses related to the transactions
effected pursuant to the Agreement, (ii) reasonable expenses related
to attendance by the Stockholder at the request of FYI at various
conferences such as the AHIMA Conference in October 1996 and (iii)
reasonable expenses related to the planned facility relocation in
California as determined by FYI and the Stockholder shall not be
considered as expenses for purposes of the foregoing calculation. The
Stockholder recognizes and agrees that travel and related expenses
associated with FYI's quarterly management meetings shall be deducted
from such EBITDA calculation.
In the event that the twelve-month capital expenditures of the
Surviving Corporation are in excess of $20,000, the Earnout EBITDA
target will be increased
<PAGE> 51
by an amount equal to the amount of twelve-month capital expenditures
in excess of $20,000 times 10%.
Payment of the Earnout, if earned, will be made by delivery
not later than September 1, 1997 of not more than 49% of the aggregate
Earnout payment in cash payable to the Stockholder, with the balance
payable by delivery of FYI Stock on such date valued at the simple
average closing price thereof on the Nasdaq National Market System for
the ten (10) consecutive business day period ending on August 31, 1997
(the "Closing Price") lessthe amount of Earnout holdback (the "Earnout
Holdback"). The Earnout Holdback will be calculated by multiplying
the net accounts receivable of the Surviving Corporation (the "Net
Accounts Receivable") by five (5). In no event shall the Earnout
Holdback exceed the aggregate Earnout payment, if any, to be made
under this Annex II. The Net Accounts Receivable will be calculated
as follows: Revenues billed by the Surviving Corporation for the
Twelve-Month Period less collections received by the Surviving
Corporation for the Twelve- Month Period less bad debt write-offs
associated with the Twelve-Month Period. The amount of the Earnout
Holdback may be satisfied at the Stockholder's option with FYI Common
Stock or cash or a combination of both; provided, always that the FYI
Stock consideration is not to be less than 51% of the Earnout
Holdback. FYI will release to the Stockholder by September 1, 1998
all or a portion of the Earnout Holdback, in the same proportion of
FYI Stock and cash as comprises the Earnout Holdback, with the FYI
Stock valued at the Closing Price, to be calculated as follows: For
the twelve months beginning August 1, 1997 and ending July 31, 1998,
the actual cash collection of the accounts receivable of the Surviving
Corporation attributable to the Twelve- Month Period multiplied by
five (5). After calculation of the Earnout, the Surviving Corporation
shall provide the Stockholder with copies of all work papers 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.
The Stockholder shall not sell, assign, exchange or otherwise
transfer his rights to the Earnout amount, in whole or in part, and
any such attempted transfer shall be treated as void and ineffective
for any purposes.
<PAGE> 1
Exhibit 2.15
--------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 30th day of August, 1996
by and among
F.Y.I. INCORPORATED
TEXAS MEDICAL RECORD SERVICE ACQUISITION CORP.
TEXAS MEDICAL RECORD SERVICE, INC.
and
THE STOCKHOLDERS named herein
--------------------------------------------------
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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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Manner of Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Calculation of FYI Shares for the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Earnings Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. DELIVERY OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Delivery Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SIMON . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(A) Representations and Warranties of the Company
and Simon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
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 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.6 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.7 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.9 Assets and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.10 Real Property Leases; Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.11 Environmental Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.13 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.14 Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.15 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.16 Litigation and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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5.19 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Employees; Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.22 Interests in Customers, Suppliers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.23 Business Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.25 Bank Accounts and Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(B) Representations and Warranties of Simon. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.27 Authority; Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.28 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.29 No Intention to Dispose of FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.30 Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.31 No Other Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6. REPRESENTATIONS OF FYI AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.6 Capitalization of FYI and Ownership of FYI Stock . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.8 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.9 Business; Real Property; Material Agreements;
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.10 Conformity with Law and Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.11 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.13 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDERS AND THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1 Representations and Warranties; Performance
of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.2 Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.5 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.6 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.7 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.8 Lock-Up Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.9 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF FYI
AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.1 Representations and Warranties; Performance
of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.2 Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Repayment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.6 Stockholder Releases; Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . 28
8.7 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.8 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.9 Noncompetition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.10 Lock-Up Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.11 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.12 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9. COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.1 [Intentionally Left Blank] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.2 Preservation of Tax and Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.3 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.4 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.5 Automobile Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.1 FYI Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.3 Employee Compensation and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.4 Stockholder Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.5 Indemnification for Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.6 Notice of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.7 Right to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.8 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.9 Satisfaction of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.10 Limitations of Indemnification; Proportionate
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.11 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11. SECURITIES ACT REPRESENTATIONS AND TRANSFER
RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.1 Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.2 Economic Risk; Sophistication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.2 Survival of Covenants, Agreements, Representations
and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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12.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.6 Brokers and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.10 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.11 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.12 Reformation and Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.13 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.14 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.15 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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SCHEDULES AND ANNEXES
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SCHEDULES
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1.1 Articles of Merger and Plan and Agreement of Merger
1.3(d) Officers of the Surviving Corporation
5.2 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
5.16 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
9.4 Optionees
ANNEXES
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I Stockholders of the Company
II Aggregate Consideration to be paid to the Stockholder
III FYI Charter Documents
IV Opinion of Counsel to FYI and Newco
V Employment Agreement
VI Opinion of Counsel to the Company
VII Noncompetition Agreement
VIII 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 30th day of August, 1996, by and among F.Y.I. INCORPORATED, a
Delaware corporation ("FYI"), TEXAS MEDICAL RECORD SERVICE ACQUISITION CORP., a
Delaware corporation ("Newco"), TEXAS MEDICAL RECORD SERVICE, INC., a Texas
corporation (the "Company"), and CALIFORNIA MEDICAL RECORD SERVICE ACQUISITION
CORP., a Delaware corporation, and KAREN JILL SIMON ("Simon"), each of
California Medical Record Service Acquisition Corp. and Karen Jill Simon
holding shares in the Company in the respective amounts set forth on Annex I
(each a "Stockholder" and collectively the "Stockholders") and constituting all
the stockholders of the Company.
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Delaware, having been incorporated on August 20, 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 the transactions with respect to
the Company 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 State of Texas, on or before the Closing
Date (as defined in Section 4). The Articles of Merger and related Plan and
Agreement of Merger are attached hereto as Schedule 1.1.
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
<PAGE> 8
separate existence of the Company shall cease and the corporate name of Newco
shall be Texas Medical Record Service 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 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:
Ed H. Bowman, Jr.
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 ten thousand (10,000) shares
of Common Stock, no par value per share (the "Company Stock"), of
which (i) one thousand two-hundred thirty-five (1,235) shares are
issued and outstanding and (ii) one thousand seven-hundred sixty-five
(1,765) shares are held by the Company as treasury shares;
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(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 share ("FYI Stock"), of
which five million five hundred twenty-three thousand one hundred
forty-seven (5,523,147) shares were issued and outstanding at July 31,
1996, 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 chooses 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, vested in the
Company 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 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
2.1 MANNER OF CONVERSION. The manner of converting the shares of
(a) the 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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As of the Effective Time of the Merger:
(a) All of the shares of the 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 Stockholders
as provided in Annex II hereto;
(b) All shares of the 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 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 and shall be registered under the 1933 Act (as
hereinafter defined). 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 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 THE COMPANY. All the 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 II attached hereto.
2.3 EARNINGS ADJUSTMENT. All net earnings and net cash flow of
the Company for the period from July 31, 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:
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(a) The Stockholders, as the holders of all outstanding
certificates representing shares of the 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 the sum of $24,502.50 in cash and 1,457 shares
of FYI Stock to be retained by FYI 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
the Company and the Stockholders, and for the Stockholders'
indemnification obligations, in the manner and to the extent set forth
herein; and
(b) Until the certificates representing the Company Stock
have been surrendered by the Stockholders and replaced by the FYI
Stock, the certificates for the Company 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 above,
notwithstanding the number of shares of the Company 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 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 (at
the option of the Stockholders) 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 SIMON
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SIMON
Each of the Company and Simon represent and warrant that all of the
following representations and warranties with respect to the Company and its
business and operations set forth in this Section 5(A) are true and correct at
the time of the Closing. Each of the Company and each Stockholder (with
respect to each Stockholder solely with respect to such Stockholder),
represents and warrants that Sections 5.8 and 5.29 is true and correct at the
time of the Closing. For purposes of this Section 5(A), all references to
Stockholders except for Sections 5.8 and 5.29 shall refer only to Simon.
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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 not qualified or licensed
as a foreign corporation in any other jurisdiction and the character or
location of the property owned, leased or operated by it or the nature of the
business conducted by it does not make 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 or results of operations of
the Company. 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 or arising under any
buy-sell or stockholders' or similar agreement existing among the
Stockholders (each of which shall be terminated on or before the
Closing) (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
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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 Richard
Gralitzer & Company, certified public accountants, together with
management's statements of operations and stockholders' equity for the
seven-month period ended July 31, 1996 ("Gralitzer Financial
Statements"). The Company has furnished to FYI the audited balance
sheet of the Company as of July 31, 1996 and the related statements of
operations, stockholders' equity and cash flows for the fiscal year
then ended, as reviewed by Arthur Andersen LLP, independent public
accountants (the "AA Financial Statements," and together with the
Gralitzer Financial Statements, the "Financial Statements"). The
Gralitzer Financial Statements and, to the best knowledge of the
Company and the Stockholders, the AA 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 Richard Gralitzer & Company and Arthur Andersen LLP.
(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 or any other
schedule attached hereto, the Company has no liabilities or
obligations (including, without limitation, Taxes (as defined in
Section 5.8)) 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, or liabilities
arising under any Contract listed on Schedule 5.12 hereto or which are
not required to be listed on such schedule because of their
immateriality.
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
July 31, 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
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Stockholders. The Company shall provide FYI with an aging of all accounts and
notes receivable through July 31, 1996 showing amounts due in 30-day aging
categories. Except to the extent reflected on Schedule 5.6, all such accounts
and notes are legal, valid and binding obligations of the obligors 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), licenses,
franchises, certificates, trademarks, trade names 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. The licenses, franchises, permits and other
governmental authorizations listed on Schedule 5.7 are valid, and the Company
has not received any written 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, the breach or violation of which would constitute
a Material Adverse Effect.
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. To the best knowledge of the Company and the Stockholders, 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 July 31, 1996, or for any period
ending after July 31, 1996 with respect
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to any portion of such tax period that includes or is prior to July
31, 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,
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, 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 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, 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 the 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 Company 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 the Company
exceeds the sum of its liabilities, plus the amount of liabilities, if
any, to which the assets are subject.
(h) 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.
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(i) 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.
(j) The fair market value of the FYI stock and other
consideration received by the 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 Stockholder to
sell, exchange, or otherwise dispose of any shares of FYI Stock
received by such Stockholder in the Merger as of the Effective Time of
the Merger or otherwise described in Annex II. For purposes of this
representation, shares of the Company Stock exchanged for cash or
other property and shares of the Company Stock exchanged for cash in
lieu of fractional shares of FYI Stock will be treated as outstanding
shares of the Company Stock on the date of the transaction. Moreover,
shares of the Company Stock and shares of FYI stock held by the
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
Stockholder to sell, exchange or otherwise dispose of FYI Stock
received by such Stockholder pursuant to Section 10.10.
(l) The Company and the Stockholders will each pay their
respective expenses, if any, incurred in connection with the Merger.
(m) 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.
(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 capacity as an employee, including but not
limited to amounts paid pursuant to the Employment Agreement described
in Section 7.5, 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) The Company is a C corporation within the meaning of
Subchapter C of the Code. The Company presently files its federal
income tax returns on a cash basis of accounting.
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.
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(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 and such imperfections of title
and encumbrances as would not detract in any material respect from the
value of the property encumbered (collectively, the "Permitted
Liens").
(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. 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 the violation of which would
have a Material Adverse Effect. To the best knowledge of 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, the violation
of which would have a Material Adverse Effect.
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)
Permitted Liens 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 by the
Company or, to the best knowledge of the Company and the Stockholders, by any
other party thereto, and (y) no event has occurred that with notice, lapse of
time or both would constitute a default by the Company or, to the
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best knowledge of the Company and the Stockholders, by any other party thereto,
except where any such default would not have a Material Adverse Effect.
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 materially violates or
requires 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, to the best knowledge of the Company and the Stockholders,
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
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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.
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, except in all cases where any such default would
not have a Material Adverse Effect.
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
Stockholders and the consummation of the transactions contemplated hereby will
not (i) violate any provision of any Charter Document, (ii) except as set forth
on Schedule 5.8, 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
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properties or assets is bound, in each event except where such breach or
violation would not have a Material Adverse Effect.
5.14 GOVERNMENT CONTRACTS. 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
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, except where the failure
to obtain any such consent, approval or other authorization would not have a
Material Adverse Effect.
5.16 LITIGATION AND RELATED MATTERS. Set forth on Schedule 5.8 and
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
5.8 and 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. Except as set forth on Schedule 5.8,
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,
except where the failure to possess the same 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
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(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 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 applied for or received a favorable
determination letter from the Internal Revenue Service (the "IRS") and, to the
best knowledge of the Company and the Stockholders, no event has occurred and
no condition exists that could be expected to result in the denial or
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"
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(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 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) except to the extent otherwise
provided by applicable law, entitle any current or former employee of the
Company to severance pay, unemployment compensation or any similar payment,
(ii) except to the extent otherwise provided by applicable law, 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 planned increase of greater than $5,000 per annum 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 planned increase of greater than $5,000
per annum 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 or other similar 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,
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officer or employee thereof since December 31, 1995 other than in the
ordinary course, 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, 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) In the reasonable opinion of the Company and the
Stockholders, the relationships enjoyed by the Company with its
employees are good, and the Company and the Stockholders have not been
advised by any employee that such employee does not intend to continue
in the employ of the Company following the Closing. Except as
disclosed on Schedule 5.20, the Company is not a party to any
employment contract with any individual or employee (other than oral
employment arrangements terminable at will without further obligation
by either party), 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
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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 July 31, 1996.
(d) The Company is in compliance in all respects with the
provisions of the Americans with Disabilities Act, except where the
failure to be in such compliance would not have a Material Adverse
Effect.
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 by their terms are scheduled to remain in full force
and effect through the Closing Date and, in the reasonable opinion of the
Company and the Stockholders, are adequate for the business engaged in by the
Company. Neither the Company nor the Stockholders have 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;
provided, however, that the interests of the Stockholders in C.M.R.S.
Incorporated and Minnesota Medical Record Service, Inc. shall not be deemed a
breach of this Section 5.22. 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, neither the
Company nor any Stockholder has received any written or, to the best knowledge
of the Company and the Stockholders, any other notice or information that any
such customer 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. 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.
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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 material damage, destruction or casualty
loss to the physical properties of the Company (whether or not covered by
insurance), (b) other than events or circumstances affecting the medical
records release business in general, any event or circumstance in the business,
operations, financial condition or results of operations of the Company that
would have a Material 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 of greater than $5,000 per annum in the
compensation payable or to become payable by the Company to its officers,
directors, employees or agents or any increase in the rate or terms of any
bonuses, pension or other employee benefit plan, payment or arrangement made
to, for or with any such officers, directors, 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 (other than to the extent set forth in Schedule 5.23)
or suppliers, or 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 SIMON.
Simon represents and warrants that the representations and warranties
in this Section 5(B) as they apply to her are true and correct as of the date
of this Agreement and at the time of the Closing. For purposes of this Section
5(B), all references to Stockholders shall refer only to Simon.
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
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Stock set forth opposite such Stockholder's name on Annex I and such shares of
the Company Stock, together with the other shares of the 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 shares of
the Company Stock owned by the Stockholder is owned free and clear of all Liens
other than standard state and federal securities laws private offering legends
and restrictions or arising under any buy-sell or stockholders' or similar
agreement existing among the Stockholders (each of which shall be terminated on
or before the Closing). 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 the 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 Stockholder
represents that there is no current plan or intention by such Stockholder to
sell, exchange or otherwise dispose of any shares of FYI Stock received by such
Stockholder in the Merger as of the Effective Time of the Merger. For purposes
of this representation, shares of the Company Stock exchanged for cash or other
property and shares of the Company Stock exchanged for cash in lieu of
fractional shares of FYI Stock will be treated as outstanding shares of the
Company Stock on the date of the transaction. Moreover, shares of the 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, each Stockholder
represents that there is not any current plan or intention by such Stockholder
to sell, exchange or otherwise dispose of FYI Stock, if any, received by such
Stockholder pursuant to Section 10.10 hereof.
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 NO OTHER REPRESENTATIONS. Except to the extent set forth in
Article 5 of this Agreement, the Company and the Stockholders have made no
representation or warranty whatsoever to FYI or Newco and hereby disclaim all
liability or responsibility for any other representation or warranty made,
communicated or furnished (orally or in writing) to FYI or Newco or their
representatives .
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.
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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 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"), and conform in all material respects to the
information with respect thereto contained in FYI's Registration Statement on
Form S-1 and Prospectus Supplement dated August 12, 1996 described in Section
6.9 hereof.
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 and to each of the agreements described in
Section 6.3 hereof to which FYI and/or Newco is to be a party. FYI and Newco,
have the full legal right, power and authority to enter into this Agreement and
the Articles of 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
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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(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, register, 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 June 30, 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 Stockholders with true, complete and correct copies of its
Registration Statements on Form S-1 (Registration No. 33-98608 and Registration
No. 333-1084) and Prospectus Supplement to Prospectus dated August 12, 1996.
The information scheduled or provided pursuant to this Section 6.9 does not
contain any material misstatements of fact. Newco was formed on August 20,
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,
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<PAGE> 29
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 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 the Company 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 fair market value of the Company 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.
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(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
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 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 in the ordinary course of
business.
(g) FYI and Newco will each pay their respective
expenses, if any, incurred in connection with the Merger.
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(h) 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.
(i) None of the shares of FYI Stock received by the
Stockholder in the Merger will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to
the Stockholder in their capacity as an employee, including but not
limited to amounts paid pursuant to the Employment Agreement described
in Section 7.5, will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
(j) Neither FYI nor Newco is an investment company as
defined in section 368(a)(2)(F)(iii) and (iv) of the Code.
(k) 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.
(l) The proposed Merger is effected through the laws of
the United States, or a State or the District of Columbia.
(m) The proposed Merger is being undertaken for reasons
germane to the business of the Company.
(n) Assuming the correctness of the representation
contained in Section 5.8(d) herein, 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 the Company
immediately prior to the Closing Date, with such amount determined
based on the same methodology described in Section 5.8(d).
6.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 6.13 or as otherwise contemplated in this Agreement, since July 31,
1996 there has not been any event or circumstance in the business, operations,
financial condition or results of operations of the Company that would have or
constitute an FYI Adverse Effect.
6.14 NO OTHER REPRESENTATIONS. Except to the extent set forth in
Article 6 of this Agreement, FYI and Newco have made no representation or
warranty whatsoever to the Company or the Stockholders and hereby disclaim all
liability or responsibility for any other representation or warranty made,
communicated or finished (orally or in writing) to the Company or the
Stockholders or their representatives.
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7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY
The obligations of the Stockholders and of 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 this
Agreement shall be true and correct as of the Closing Date, except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true and correct
in all material respects as of the specified 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 the
Company and the Stockholders and their respective 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 deems it inadvisable to proceed with the transactions hereunder.
7.4 OPINION OF COUNSEL. The Company and the Stockholders shall
have received an opinion from Locke Purnell Rain Harrell (A Professional
Corporation), counsel for FYI and Newco, dated the Closing Date, in the form
annexed hereto as Annex IV.
7.5 EMPLOYMENT AGREEMENT. Newco shall have executed and delivered
to Karen Jill Simon the Employment Agreement in substantially the form attached
hereto as Annex V (the "Employment Agreement").
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 the Company as a
result of which the Company deems it inadvisable to proceed with the
transactions hereunder.
7.7 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
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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 LOCK-UP AGREEMENT. California Medical Record Service
Acquisition Corp. shall have executed and delivered to FYI and Newco a Lock-Up
Agreement in substantially the form annexed hereto as Annex VIII (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.
7.9 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
the Company 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 the Company
contained in this Agreement shall be true and correct as of the Closing Date,
except to the extent that any such representation or warranty is made as of a
specified date, in which case such representation or warranty shall have been
true and correct in all material respects as of the specified date; and each
and all of the terms, covenants and conditions of this Agreement to be complied
with and performed by the Stockholders 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 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 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 or Newco deems it inadvisable to proceed with the transactions
hereunder.
8.4 REPAYMENT OF INDEBTEDNESS. Prior to the Closing Date, the
Stockholders shall have repaid the Company in full all amounts owing by the
Stockholders to the Company.
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8.5 INSURANCE. FYI shall be named as an additional named insured
on all of the insurance policies of the Company.
8.6 STOCKHOLDER RELEASES; RELATED PARTY AGREEMENTS. Each of the
Stockholders shall have delivered to FYI immediately prior to the Closing Date
an instrument dated the Closing Date in a form reasonably satisfactory to FYI
releasing the Company from any and all claims of such Stockholder against the
Company and obligations of the Company to the Stockholder, except for items
specifically identified on Schedule 8.6 as being claims of or obligations to
the Stockholder and continuing obligations to Stockholder relating to his or
her employment by the Surviving Corporation or arising in connection with or
pursuant to this Agreement. Except as set forth on Schedule 8.6 or as
otherwise disclosed pursuant to this Agreement, all existing agreements between
the Company and the Stockholders or business or personal affiliates of the
Company or the Stockholders and all existing bonus and incentive plans and
arrangements of the Company shall have been cancelled or terminated.
8.7 OPINIONS OF COUNSEL. FYI shall have received an opinion from
Gardere Wynne Sewell & Riggs, L.L.P., counsel to the Company and Simon, dated
the Closing Date, in the form annexed hereto as Annex VI.
8.8 EMPLOYMENT AGREEMENT. Karen Jill Simon shall have executed
and delivered to FYI and Newco the Employment Agreement.
8.9 NONCOMPETITION AGREEMENTS. Simon shall have executed and
delivered to FYI and Newco a Noncompetition Agreement with FYI and Newco in
substantially the form attached hereto as Annex VII (the "Noncompetition
Agreement").
8.10 LOCK-UP AGREEMENT. Simon shall have executed and delivered to
FYI and Newco a Lock-Up Agreement in substantially the form annexed hereto as
Annex VIII 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.
8.11 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.
8.12 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred that would constitute a Material Adverse Effect.
9. COVENANTS OF THE PARTIES
9.1 [INTENTIONALLY LEFT BLANK].
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9.2 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 of the Company, including, to the extent such action would
jeopardize the tax-free status of the reorganization of the Company:
(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 Stockholders in their capacities 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) of the Code.
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 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 Company, 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 STOCK OPTIONS. No later than September 30, 1996, FYI shall
grant to employees of the Surviving Corporation as set forth on Schedule 9.4
nonqualified stock options to acquire an aggregate of four thousand (4,000)
shares of FYI Stock in minimum lots of one thousand shares (1,000) in
accordance with the terms of FYI's 1995 Stock Option Plan (the "Stock Option
Plan"), with such options to have a per share exercise price equal
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to the Fair Market Value (as defined in the Stock Option 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.
9.5 AUTOMOBILE OBLIGATIONS. Simon covenants that from and after
the Closing Date she will assume full responsibility for the automobile lease
payments with respect to the 1992 Lexus LS400 presently described on the
schedules to this Agreement.
10. INDEMNIFICATION
Simon, FYI and Newco each make the following covenants that are
applicable to them, respectively. For purposes of this Article 10, all
references to Stockholders shall refer only to Simon.
10.1 FYI LOSSES.
(a) Each of the Stockholders jointly (except to the
extent set forth in Article 5(B)) and severally 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 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; (ii) any liability for warranty claims
arising from the provision of services by the Company through the
Closing Date; (iii) 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; (iv) 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; or (v) any failure by the Company
or the Stockholders to observe or perform its or his or her covenants
and agreements set forth in this Agreement or (solely with respect to
the Company) in any other agreement or document executed by it in
connection with the transactions contemplated hereby.
(b) "FYI Losses" shall mean all damages (including,
without limitation, amounts paid in settlement pursuant to the
provisions of this Article 10), 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
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or enforce the rights of FYI, Newco and the Surviving Corporation or
such other persons to indemnification hereunder.
10.2 ENVIRONMENTAL INDEMNITY.
(a) Each of the Stockholders jointly and severally 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 own
negligence.
(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
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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.
(a) Each of the Stockholders jointly and severally 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
and the rights so claimed are not scheduled pursuant to this Agreement
or reserved for on the Financial Statements, or if the claim asserted
is based upon or arises under applicable law rather than an agreement
or undertaking by the Company, then only if the claim asserted arose
or is based upon acts or omissions occurring prior to the Closing Date
and was not disclosed as required by the terms of this Agreement
(collectively, "Pre-Closing Employee Claims").
(b) Each of FYI and Newco jointly and severally agrees to
indemnify and hold the Stockholders and their respective directors,
officers, employees, representatives, agents and attorneys harmless
from and against any and all claims made by employees of the Surviving
Corporation, 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, except as otherwise expressly
provided herein, to the extent the same are based on employment
service rendered to the Surviving Corporation after the Closing Date
or injury or sickness occurring after the Closing Date (collectively,
"Post-Closing 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; (iii) any
liability for warranty claims arising from the provision of services
by the Company subsequent to the Closing Date; or (iv) any liability
of a Stockholder as a guarantor under any Real
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Property Lease, 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. The Stockholders
shall indemnify, defend and hold harmless the Surviving Corporation from and
against the liability of the Company 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 the Company into Newco
fails to qualify as a tax-free transaction as to the Company 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 Company or a Stockholder. FYI and the Surviving Corporation shall
indemnify, defend and hold harmless the Stockholders from and against the
liability of the Stockholders, the Company and the Surviving Corporation with
respect to all Taxes, resulting from any final determination (or settlement)
that the Merger of the Company into Newco, fails to qualify as a tax-free
transaction as to the Stockholders, the Company 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, Pre-Closing Employee Claims and the matters
described in Section 10.5, the Stockholders 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, Post-Closing Employee Claims and the matters
described in the second sentence of Section 10.5, FYI and
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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 and to make any compromise or settlement thereof 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 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.
-34-
<PAGE> 41
10.9 SATISFACTION OF CLAIMS. FYI and Newco shall first recover
amounts owing thereto pursuant to Sections 10.1, 10.2 and 10.3 for FYI Losses,
Environmental Costs and Pre-Closing Employee Claims first from the funds held
by it as described in Section 3.1(a) and thereafter from the Stockholders.
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 with respect to a single claim or $13,000 with
respect to all claims, regardless of amount. No Indemnifying Party shall be
obligated to indemnify and hold harmless any Indemnified Party with respect to
any claim for indemnification hereunder exceeding an aggregate of the Purchase
Price; provided, however, that the foregoing limitation shall not be applicable
to any breach of the representations and warranties contained in Sections 5.3
and 6.2 hereof. Any amounts paid for Stockholder Losses 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 II.
10.11 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.
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. Except for transfer upon death or to
immediate family members who agree in writing to be bound by the restrictions
set forth below (or trusts for the benefit of the undersigned or family
members, the trustees of which so agree in writing), for a period of two (2)
years from the Closing, no Stockholder shall (a) sell, assign, exchange,
transfer, distribute or otherwise dispose of (i) any shares of FYI Stock
received by the Stockholder at the Effective Time of the Merger or otherwise
described in Annex II, 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:
-35-
<PAGE> 42
EXCEPT FOR TRANSFER UPON DEATH OR TO IMMEDIATE FAMILY MEMBERS WHO
AGREE IN WRITING TO BE BOUND BY THE RESTRICTIONS SET FORTH BELOW (OR
TRUSTS FOR THE BENEFIT OF THE UNDERSIGNED OR FAMILY MEMBERS, THE
TRUSTEES OF WHICH SO AGREE IN WRITING), THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED,
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.
11.2 ECONOMIC RISK; SOPHISTICATION. Each of the Stockholders
represents and warrants to FYI and Newco that such Stockholder is an
"accredited investor" as defined in Regulation D promulgated under the 1933
Act; that such Stockholder 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 knowledge and experience in
financial and business matters that such Stockholder is capable of evaluating
the merits and risks of the proposed investment in the FYI Stock; and that such
Stockholder 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.
12. GENERAL
12.1 COOPERATION. The Company, 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. The Company 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 or pursuant hereto or in connection with the
transactions contemplated
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<PAGE> 43
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 6.12hereof 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 Section 5.3 and
Section 6.2 shall survive indefinitely.
(c) No Knowledge of Claims. Each of FYI and Newco
represents and warrants to the Company and the Stockholders 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 Stockholders 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 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, the Company, 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, 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
-37-
<PAGE> 44
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. In the event the transactions herein contemplated are
consummated, the Stockholders will pay from personal funds and not from the
funds of the Company, the fees, expenses and disbursements of their respective
agents, representatives, accountants and counsel (other than with respect to
the AA Financial Statements) incurred in connection with the subject matter of
this Agreement. 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, and all sales, use, real property
transfer, recording, gains, stock transfer and other similar fees in connection
with the transactions contemplated by this Agreement.
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
Texas Medical Record Service 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;
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<PAGE> 45
(iii) If to the Company, addressed to:
Texas Medical Record Service, Inc.
10878 Westheimer
Suite 109
Houston, Texas 77042
Telecopy No.: (713) 266-5164
Attn: Karen Jill Simon
and marked "Personal and Confidential"
with copies to:
Gardere Wynne Sewell & Riggs, L.L.P.
333 Clay Street
Suite 800
Houston, Texas 77002-4086
Telecopy No.: (713) 308-5555
Attn: Daniel L. Cohen, 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 TEXAS.
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.
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<PAGE> 46
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 Company
transaction be structured as a tax-free reorganization under Section 368(a) of
the Code.
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<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
F.Y.I. INCORPORATED
ATTEST:
/s/ Kent Jamison By: /s/ David Lowenstein
- ------------------------------ -----------------------------------
Name: David Lowenstein
Title: Executive Vice President
TEXAS MEDICAL RECORD SERVICE
ACQUISITION CORP.
ATTEST:
/s/ Kent Jamison By: /s/ David Lowenstein
- ------------------------------ -----------------------------------
Name: David Lowenstein
Title: Vice President
TEXAS MEDICAL RECORD SERVICE, INC.
ATTEST:
/s/ William Mark Young By: /s/ Karen J. Simon
- ------------------------------ -----------------------------------
Name: Karen J. Simon
Title: President
<PAGE> 48
THE STOCKHOLDERS:
ATTEST:
/s/ William Mark Young /s/ Karen Jill Simon
- ------------------------------ --------------------------------------
Karen Jill Simon
CALIFORNIA MEDICAL RECORD SERVICE
ACQUISITION CORP.
ATTEST:
/s/ Kent Jamison By: /s/ David Lowenstein
- ------------------------------ -----------------------------------
Name: David Lowenstein
Title: Vice President
<PAGE> 49
ANNEX I
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF AUGUST 30, 1996
BY AND AMONG
F.Y.I. INCORPORATED
TEXAS MEDICAL RECORD SERVICE ACQUISITION CORP.
TEXAS MEDICAL RECORD SERVICE, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
STOCKHOLDERS OF THE COMPANY:
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Company Stock Date of Acquisition
- ---------------- ---------------- -------------------
<S> <C> <C>
California Medical Record 605 August 30, 1996
Service Acquisition Corp.
3232 McKinney Avenue
Suite 900
Dallas, Texas 75204
Karen Jill Simon 630 August 8, 1986
10878 Westheimer
Suite 109
Houston, Texas 77042
</TABLE>
<PAGE> 50
ANNEX II
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF AUGUST 30, 1996
BY AND AMONG
F.Y.I. INCORPORATED
TEXAS MEDICAL RECORD SERVICE ACQUISITION CORP.
TEXAS MEDICAL RECORD SERVICE, INC.
AND
THE STOCKHOLDERS NAMED THEREIN
Aggregate consideration to be paid to the Stockholders:
California Medical Record Service Acquisition Corp.
Stock - 36,670 shares of FYI Stock, all of which shares of FYI Stock
shall be delivered at the Closing.
Karen Jill Simon
Stock - 19,465 shares of FYI Stock, of which 18,008 shares of FYI
Stock shall be delivered at the Closing, and of which 1,457 shares of
FYI Stock shall be held by FYI pursuant to Section 3.1(a) hereof.
Cash - $327,291.50, of which $302,789 of such amount shall be paid at
the Closing, and of which $24,502.50 of such amount shall be held by
FYI pursuant to Section 3.1(a) hereof.
<PAGE> 1
Exhibit 2.16
------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 30th day of August, 1996
by and among
F.Y.I. INCORPORATED
MINNESOTA MEDICAL RECORD SERVICE ACQUISITION CORP.
MINNESOTA MEDICAL RECORD SERVICE, INC.
and
THE STOCKHOLDER 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 Company, FYI and Newco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Manner of Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Calculation of FYI Shares for the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Earnings Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. DELIVERY OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Delivery Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(A) Representations and Warranties of the Company
and the Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.2 Organization, Existence and Good Standing of the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.3 Capital Stock of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.6 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.7 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.9 Assets and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.10 Real Property Leases; Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.11 Environmental Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.13 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.14 Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.15 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.16 Litigation and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
5.19 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20 Employees; Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.22 Interests in Customers, Suppliers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.23 Business Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.25 Bank Accounts and Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.26 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(B)Representations and Warranties of the Stockholder.. . . . . . . . . . . . . . . . . . . . . . . . 19
5.27 Authority; Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.28 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.29 No Intention to Dispose of FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.30 Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.31 No Other Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6. REPRESENTATIONS OF FYI AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.6 Capitalization of FYI and Ownership of FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.8 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.9 Business; Real Property; Material Agreements;
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.10 Conformity with Law and Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.11 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.13 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDER AND THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Representations and Warranties; Performance
of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.2 Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.6 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.7 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF FYI
AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.1 Representations and Warranties; Performance
of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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8.2 Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Repayment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6 Stockholder Release; Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.7 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.8 Noncompetition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.9 Lock-Up Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.10 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.11 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9. COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.1 [Intentionally Left Blank] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.2 Preservation of Tax and Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.3 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.4 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.1 FYI Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.2 Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.3 Employee Compensation and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.4 Stockholder Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.5 Indemnification for Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.6 Notice of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.7 Right to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.8 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.9 Satisfaction of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.10 Limitations of Indemnification; Proportionate
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.11 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11. SECURITIES ACT REPRESENTATIONS AND TRANSFER
RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.1 Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.2 Economic Risk; Sophistication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.2 Survival of Covenants, Agreements, Representations
and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.6 Brokers and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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12.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.10 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.11 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.12 Reformation and Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.13 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.14 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.15 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
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<PAGE> 6
SCHEDULES AND ANNEXES
SCHEDULES
1.1 Articles of Merger and Plan and Agreement of Merger
1.3(d) Officers of the Surviving Corporation
5.2 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
5.16 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
9.4 Optionees
ANNEXES
I Stockholder of the Company
II Aggregate Consideration to be paid to the Stockholder
III FYI Charter Documents
IV Opinion of Counsel to FYI and Newco
V Opinion of Counsel to the Company
VI Noncompetition Agreement
VII Lock-Up Agreement
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<PAGE> 7
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of the 30th day of August, 1996, by and among F.Y.I. INCORPORATED, a
Delaware corporation ("FYI"), MINNESOTA MEDICAL RECORD SERVICE ACQUISITION
CORP., a Delaware corporation ("Newco"), MINNESOTA MEDICAL RECORD SERVICE,
INC., a Minnesota corporation (the "Company"), and ALAN D. SIMON, holding
shares in the Company in the amount set forth on Annex I (the "Stockholder")
and constituting the sole stockholder of the Company.
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Delaware, having been incorporated on August 20, 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 the transactions with respect to
the Company 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 State of Minnesota, on or before the
Closing Date (as defined in Section 4). The Articles of Merger and related
Plan and Agreement of Merger are attached hereto as Schedule 1.1.
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 Minnesota Medical Record
Service Acquisition Corp. Newco shall be the surviving party in
<PAGE> 8
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 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:
Ed H. Bowman, Jr.
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 thousand (1,000) shares
of Common Stock, no par value per share (the "Company Stock"), of
which one thousand (1,000) shares are issued and outstanding and held
by the Stockholder;
(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
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<PAGE> 9
per share ("FYI Stock"), of which five million five hundred
twenty-three thousand one hundred forty-seven (5,523,147) shares were
issued and outstanding at July 31, 1996, 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 chooses 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, vested in the
Company 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 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
2.1 MANNER OF CONVERSION. The manner of converting the shares of
(a) the 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> 10
As of the Effective Time of the Merger:
(a) All of the shares of the 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 II hereto;
(b) All shares of the 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 11.1 hereof, have the same rights as all of the other shares of
outstanding FYI Stock and shall be registered under the 1933 Act (as
hereinafter defined). 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 FOR THE COMPANY. All the 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 II attached hereto.
2.3 EARNINGS ADJUSTMENT. All net earnings and net cash flow of
the Company for the period from July 31, 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:
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<PAGE> 11
(a) The Stockholder, as the holder of all outstanding
certificates representing shares of the 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 the sum of $122,495.00 in cash and 7,286 shares
of FYI Stock to be retained by FYI 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
the Company and the Stockholder, and for the Stockholder's
indemnification obligations, in the manner and to the extent set forth
herein; and
(b) Until the certificates representing the Company Stock
have been surrendered by the Stockholder and replaced by the FYI
Stock, the certificates for the Company 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 Stockholder is entitled to receive
as a result of the Merger, as set forth in Section 2.2 above,
notwithstanding the number of shares of the Company 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 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 (at
the option of the Stockholder) in amounts equal to the aggregate 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
with respect to the Company and its business and operations set forth in this
Section 5(A) are true and correct at the time of the Closing.
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
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<PAGE> 12
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 not qualified or licensed
as a foreign corporation in any other jurisdiction and the character or
location of the property owned, leased or operated by it or the nature of the
business conducted by it does not make 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 or results of operations of
the Company. 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 Stockholder (i) owns of record and beneficially
(subject to the community property interest of the Stockholder's
spouse) 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 other than standard state and federal securities law
private offering legends and restrictions or arising under any
buy-sell or stockholders' or similar agreement existing and to which
the Stockholder is a party (each of which shall be terminated on or
before the Closing) (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 incorporation
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<PAGE> 13
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 Richard
Gralitzer & Company, certified public accountants, together with
management's statements of operations and stockholder's equity for the
seven-month period ended July 31, 1996 ("Gralitzer Financial
Statements"). The Company has furnished to FYI the audited balance
sheet of the Company as of July 31, 1996 and the related statements of
operations, stockholder's equity and cash flows for the fiscal year
then ended, as reviewed by Arthur Andersen LLP, independent public
accountants (the "AA Financial Statements," and together with the
Gralitzer Financial Statements, the "Financial Statements"). The
Gralitzer Financial Statements and, to the best knowledge of the
Company and the Stockholder, the AA 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 Richard Gralitzer & Company and Arthur Andersen LLP.
(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 or any other
schedule attached hereto, the Company has no liabilities or
obligations (including, without limitation, Taxes (as defined in
Section 5.8)) 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, or liabilities
arising under any Contract listed on Schedule 5.12 hereto or which are
not required to be listed on such schedule because of their
immateriality.
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
July 31, 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 Stockholder. The
Company shall provide FYI with an aging of all accounts and notes
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<PAGE> 14
receivable through July 31, 1996 showing amounts due in 30-day aging
categories. Except to the extent reflected on Schedule 5.6, all such accounts
and notes are legal, valid and binding obligations of the obligors 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), licenses,
franchises, certificates, trademarks, trade names 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. The licenses, franchises, permits and other
governmental authorizations listed on Schedule 5.7 are valid, and the Company
has not received any written 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, the breach or violation of which would constitute
a Material Adverse Effect.
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. To the best knowledge of the Company and the Stockholder, 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 July 31, 1996, or for any period
ending after July 31, 1996 with respect to any portion of such tax
period that includes or is prior to July 31, 1996 other than
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<PAGE> 15
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, 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, 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 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, 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 the 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 Company 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 the Company
exceeds the sum of its liabilities, plus the amount of liabilities, if
any, to which the assets are subject.
(h) 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.
(i) 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.
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<PAGE> 16
(j) 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.
(k) There is no plan or intention by the Stockholder to
sell, exchange, or otherwise dispose of any shares of FYI Stock
received by such Stockholder in the Merger as of the Effective Time of
the Merger or otherwise described in Annex II. For purposes of this
representation, shares of the Company Stock exchanged for cash or
other property and shares of the Company Stock exchanged for cash in
lieu of fractional shares of FYI Stock will be treated as outstanding
shares of the Company Stock on the date of the transaction. Moreover,
shares of the 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
received by such Stockholder pursuant to Section 10.10.
(l) The Company and the Stockholder will each pay their
respective expenses, if any, incurred in connection with the Merger.
(m) 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.
(n) None of the shares of FYI Stock received by the
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 described
in Section 7.5, 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) The Company is a C corporation within the meaning of
Subchapter C of the Code. The Company presently files its federal
income tax returns on a cash basis of accounting.
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
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<PAGE> 17
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 and such imperfections of title and encumbrances as would
not detract in any material respect from the value of the property
encumbered (collectively, the "Permitted Liens").
(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 Stockholder has 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. 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 the violation of which would
have a Material Adverse Effect. To the best knowledge of the
Stockholder, 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, the violation
of which would have a Material Adverse Effect.
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)
Permitted Liens 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 by the
Company or, to the best knowledge of the Company and the Stockholder, by any
other party thereto, 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,
except where any such default would not have a Material Adverse Effect.
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<PAGE> 18
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 Stockholder, 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 Stockholder, 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 materially violates or
requires remediation under Environmental Requirements; (iii) to the
best knowledge of the Company and the Stockholder, 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, to the best knowledge of the Company and the Stockholder,
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 Stockholder, 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 to be pollutants,
hazardous or toxic under Environmental Requirements.
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<PAGE> 19
"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 Stockholder, no other party to any Contract is in
default thereunder, except in all cases where any such default would
not have a Material Adverse Effect.
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) except as set forth
on Schedule 5.8, 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, in each event except where such
breach or violation would not have a Material Adverse Effect.
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<PAGE> 20
5.14 GOVERNMENT CONTRACTS. 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 are parties 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 any
such consent, approval or other authorization would not have a Material Adverse
Effect.
5.16 LITIGATION AND RELATED MATTERS. Set forth on Schedule 5.8 and
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 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").
None of the actions, suits, proceedings or investigations listed on Schedule
5.8 and 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. Except as set forth on Schedule 5.8,
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,
except where the failure to possess the same 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
license fees therefor. Unless otherwise indicated on Schedule 5.18, the
Company has the right to use and license the Intellectual Property, and
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<PAGE> 21
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, there are no pending proceedings or adverse claims
made or, to the best 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. Each Plan that is intended to be "qualified" within the meaning of
Section 401(a) of the Code has applied for or received a favorable
determination letter from the Internal Revenue Service (the "IRS") and, to the
best knowledge of the Company and the Stockholder, no event has occurred and no
condition exists that could be expected to result in the denial or 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 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
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<PAGE> 22
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 and PBGC insurance premiums). 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 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) except to the extent otherwise provided by
applicable law, entitle any current or former employee of the Company to
severance pay, unemployment compensation or any similar payment, (ii) except to
the extent otherwise provided by applicable law, 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 planned increase of greater
than $5,000 per annum 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 planned increase of greater than $5,000 per annum
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 or other
similar 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 other than in the ordinary
course, and (vi) all accrued but unpaid vacation pay owing to any officer or
employee that is not disclosed on the Financial Statements.
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(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 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 National
Labor Relations Board, or similar agency, exist, or to the best
knowledge of the Company and the Stockholder, are threatened.
(c) In the reasonable opinion of the Company and the
Stockholder, the relationships enjoyed by the Company with its
employees are good, and the Company and the Stockholder have not been
advised by any employee that such employee does not intend to continue
in the employ of the Company following the Closing. Except as
disclosed on Schedule 5.20, the Company is not a party to any
employment contract with any individual or employee (other than oral
employment arrangements terminable at will without further obligation
by either party), 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 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. 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 July 31, 1996.
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(d) The Company is in compliance in all respects with the
provisions of the Americans with Disabilities Act, except where the
failure to be in such compliance would not have a Material Adverse
Effect.
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 by their terms are scheduled to remain in full force
and effect through the Closing Date and, in the reasonable opinion of the
Company and the Stockholder, are adequate for the business engaged in by the
Company. 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 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;
provided, however, that the direct interest of the Stockholder in C.M.R.S.
Incorporated and the indirect interest of the Stockholder in Texas Medical
Record Service, Inc. shall not be deemed a breach of this Section 5.22.
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, neither the
Company nor the Stockholder has received any written or, to the best knowledge
of the Company and the Stockholder, any other notice or information that any
such customer 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. 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
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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 material damage, destruction or casualty
loss to the physical properties of the Company (whether or not covered by
insurance), (b) other than events or circumstances affecting the medical
records release business in general, any event or circumstance in the business,
operations, financial condition or results of operations of the Company that
would have a Material 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 of greater than $5,000 per annum in the
compensation payable or to become payable by the Company to its officers,
directors, employees or agents or any increase in the rate or terms of any
bonuses, pension or other employee benefit plan, payment or arrangement made
to, for or with any such officers, directors, 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 (other than to the extent set forth in Schedule 5.23)
or suppliers, or 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 STOCKHOLDER.
The Stockholder represents and warrants that the representations and
warranties in this Section 5(B) as they apply to him 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 spouse) and of
record the shares of the Company Stock set forth opposite such Stockholder's
name on Annex I and such shares of the Company Stock, together with the other
shares of the 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 shares of the Company Stock owned by the Stockholder
are
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owned free and clear of all Liens other than standard state and federal
securities laws private offering legends and restrictions or arising under any
buy-sell or stockholders' or similar agreement existing and to which the
Stockholder is a party (each of which shall be terminated on or before the
Closing). 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 the 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. The Stockholder
represents that there is no current plan or intention by such Stockholder to
sell, exchange or otherwise dispose of any shares of FYI Stock received by such
Stockholder in the Merger as of the Effective Time of the Merger or otherwise
described in Annex II. For purposes of this representation, shares of the
Company Stock exchanged for cash or other property and shares of the Company
Stock exchanged for cash in lieu of fractional shares of FYI Stock will be
treated as outstanding shares of the Company Stock on the date of the
transaction. Moreover, shares of the 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, the Stockholder represents that there is not any
current plan or intention by such Stockholder to sell, exchange or otherwise
dispose of FYI Stock, if any, received by such Stockholder pursuant to Section
10.10 hereof.
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 in accordance with their respective terms.
5.31 NO OTHER REPRESENTATIONS. Except to the extent set forth in
Article 5 of this Agreement, the Company and the Stockholder have made no
representation or warranty whatsoever to FYI or Newco and hereby disclaim all
liability or responsibility for any other representation or warranty made,
communicated or furnished (orally or in writing) to FYI or Newco or their
representatives .
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
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<PAGE> 27
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 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 Stockholder
pursuant to this Agreement will be registered under the Securities Act of 1933,
as amended (the "1933 Act"), and conform in all material respects to the
information with respect thereto contained in FYI's Registration Statement on
Form S-1 and Prospectus Supplement dated August 12, 1996 described in Section
6.9 hereof.
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 and to each of the agreements described in
Section 6.3 hereof to which FYI and/or Newco is to be a party. FYI and Newco,
have the full legal right, power and authority to enter into this Agreement and
the Articles of 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
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(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(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, register, 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 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 June 30, 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 true, complete and correct copies of its
Registration Statements on Form S-1 (Registration No. 33-98608 and Registration
No. 333-1084) and Prospectus Supplement to Prospectus dated August 12, 1996.
The information scheduled or provided pursuant to this Section 6.9 does not
contain any material misstatements of fact. Newco was formed on August 20,
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
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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 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 the Company are true and
correct.
6.12 TAXES.
(a) 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.
(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
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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
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 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 in the ordinary course of
business.
(g) FYI and Newco will each pay their respective
expenses, if any, incurred in connection with the Merger.
(h) 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.
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(i) None of the shares of FYI Stock received by the
Stockholder in the Merger will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to
the Stockholder in their capacity as an employee, including but not
limited to amounts paid pursuant to the Employment Agreement described
in Section 7.5, will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
(j) Neither FYI nor Newco is an investment company as
defined in section 368(a)(2)(F)(iii) and (iv) of the Code.
(k) 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.
(l) The proposed Merger is effected through the laws of
the United States, or a State or the District of Columbia.
(m) The proposed Merger is being undertaken for reasons
germane to the business of the Company.
(n) Assuming the correctness of the representation
contained in Section 5.8(d) herein, 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 the Company
immediately prior to the Closing Date, with such amount determined
based on the same methodology described in Section 5.8(d).
6.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 6.13 or as otherwise contemplated in this Agreement, since July 31,
1996 there has not been any event or circumstance in the business, operations,
financial condition or results of operations of the Company that would have or
constitute an FYI Adverse Effect.
6.14 NO OTHER REPRESENTATIONS. Except to the extent set forth in
Article 6 of this Agreement, FYI and Newco have made no representation or
warranty whatsoever to the Company or the Stockholder and hereby disclaim all
liability or responsibility for any other representation or warranty made,
communicated or finished (orally or in writing) to the Company or the
Stockholder or their representatives.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY
The obligations of the Stockholder and of 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
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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, except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true and correct
in all material respects as of the specified 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 the
Company and the Stockholder and their respective 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 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 and Newco, dated the Closing Date, in the form
annexed hereto as Annex IV.
7.5 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 the Company as a
result of which the Company deems it inadvisable to proceed with the
transactions hereunder.
7.6 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.
7.7 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred that would constitute an FYI Material Adverse Effect.
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<PAGE> 33
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,
except to the extent that any such representation or warranty is made as of a
specified date, in which case such representation or warranty shall have been
true and correct in all material respects as of the specified 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 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 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 or Newco deems it inadvisable to proceed with the transactions
hereunder.
8.4 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.
8.5 INSURANCE. FYI shall be named as an additional named insured
on all of the insurance policies of the Company.
8.6 STOCKHOLDER RELEASE; RELATED PARTY AGREEMENTS. The
Stockholder shall have delivered to FYI immediately prior to the Closing Date
an instrument dated the Closing Date in a form reasonably satisfactory to FYI
releasing the Company from any and all claims of such Stockholder against the
Company and obligations of the Company to the Stockholder, except for items
specifically identified on Schedule 8.6 as being claims of or obligations to
the Stockholder and continuing obligations to Stockholder relating to his
employment by the Surviving Corporation or arising in connection with or
pursuant to this Agreement. Except as set forth on Schedule 8.6 or as
otherwise disclosed pursuant to this Agreement, all existing agreements between
the Company and the Stockholder or business or personal affiliates of the
Company or the Stockholder and all existing bonus and incentive plans and
arrangements of the Company shall have been terminated or cancelled.
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8.7 OPINION OF COUNSEL. FYI shall have received an opinion from
Gardere Wynne Sewell & Riggs, L.L.P., counsel to the Company and the
Stockholder, dated the Closing Date, in the form annexed hereto as Annex V.
8.8 NONCOMPETITION AGREEMENT. The Stockholder shall have executed
and delivered to FYI and Newco a Noncompetition Agreement with FYI and Newco in
substantially the form attached hereto as Annex VI (the "Noncompetition
Agreement").
8.9 LOCK-UP AGREEMENT. The Stockholder shall have executed and
delivered to FYI and Newco a Lock-Up Agreement in substantially the form
annexed hereto as Annex VII (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.
8.10 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.
8.11 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred that would constitute a Material Adverse Effect.
9. COVENANTS OF THE PARTIES
9.1 [INTENTIONALLY LEFT BLANK].
9.2 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 of the Company, including, to the extent such action would
jeopardize the tax-free status of the reorganization of the Company:
(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
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(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) of the Code.
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 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 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.
9.4 STOCK OPTIONS. No later than September 30, 1996, FYI shall
grant to the employees of the Surviving Corporation as set forth on Schedule
9.4 nonqualified stock options to acquire an aggregate of seven thousand
(7,000) shares of FYI Stock in minimum lots of one thousand shares (1,000) in
accordance with the terms of FYI's 1995 Stock Option Plan (the "Stock Option
Plan"), with such options to 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
grant and to vest in twenty percent (20%) increments on each of the first
through fifth anniversaries of the date of grant.
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
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representations and warranties contained in any certificate delivered
pursuant hereto) being untrue or incorrect in any respect; (ii) any
liability for warranty claims arising from the provision of services
by the Company through the Closing Date; (iii) 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; (iv) 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;
or (v) any failure by the Company or the Stockholder to observe or
perform its or his covenants and agreements set forth in this
Agreement or (solely with respect to the Company) in any other
agreement or document executed by it in connection with the
transactions contemplated hereby.
(b) "FYI Losses" shall mean all damages (including,
without limitation, amounts paid in settlement pursuant to the
provisions of this Article 10), 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 own negligence.
(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
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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.
(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 and the rights so claimed
are not scheduled pursuant to this Agreement or reserved for on the
Financial Statements, or if the claim asserted is based upon or arises
under applicable law rather than an agreement or undertaking by the
Company, then only if the claim asserted arose or is based upon acts
or omissions occurring prior to the Closing Date and was not disclosed
as required by the terms of this Agreement (collectively, "Pre-Closing
Employee Claims").
(b) Each of FYI and Newco jointly and severally agrees to
indemnify and hold the Stockholder and his agents and attorneys
harmless from and against any and all claims made by employees of the
Surviving Corporation, regardless of when made,
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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, except as
otherwise expressly provided herein, to the extent the same are based
on employment service rendered to the Surviving Corporation after the
Closing Date or injury or sickness occurring after the Closing Date
(collectively, "Post-Closing Employee Claims").
10.4 STOCKHOLDER LOSSES.
(a) FYI and Newco jointly and severally agree to
indemnify and hold harmless the Stockholder, and his 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
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 provision of services by the Company
subsequent to the Closing Date; or (iv) any liability of the
Stockholder as a guarantor under any Real Property Lease, except in
any instance and to the extent Stockholder Losses result from the
negligence or misconduct of the Stockholder (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 Stockholder or such other persons to indemnification
hereunder.
10.5 INDEMNIFICATION FOR CERTAIN TAX MATTERS. The Stockholder
shall indemnify, defend and hold harmless the Surviving Corporation from and
against the liability of the Company 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 the Company into Newco
fails to qualify as a tax-free transaction as to the Company 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 Company or the Stockholder. FYI and the Surviving Corporation shall
indemnify, defend and hold harmless the Stockholder from and against the
liability of the Stockholder, the Company and the Surviving Corporation with
respect to all Taxes, resulting from any final determination (or settlement)
that the Merger of the Company into Newco, fails to qualify as a tax-free
transaction as to the Stockholder, the Company and/or the Surviving
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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, Pre-Closing Employee Claims and the matters
described in Section 10.5, 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, Post-Closing Employee Claims and the matters
described in the second sentence of Section 10.5, FYI and Newco shall be the
Indemnifying Party and the Stockholder and his 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 and to make any compromise or settlement thereof 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 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
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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 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. FYI and Newco shall first recover
amounts owing thereto pursuant to Sections 10.1, 10.2 and 10.3 for FYI Losses,
Environmental Costs and Pre-Closing Employee Claims first from the funds held
by it as described in Section 3.1(a) and thereafter from the Stockholder.
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 with respect to a single claim or $29,000 with
respect to all claims, regardless of amount. No Indemnifying Party shall be
obligated to indemnify and hold harmless any Indemnified Party with respect to
any claim for indemnification hereunder exceeding an aggregate of the Purchase
Price; provided, however, that the foregoing limitation shall not be applicable
to any breach of the representations and warranties contained in Sections 5.3
and 6.2 hereof. Any amounts paid for Stockholder Losses 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 II.
10.11 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.
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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 TRANSFER RESTRICTIONS. Except for transfer upon death or to
immediate family members who agree in writing to be bound by the restrictions
set forth below (or trusts for the benefit of the undersigned or family
members, the trustees of which so agree in writing), for a period of two (2)
years from the Closing with respect to 85,136 of the shares of FYI Stock and
for a period of six (6) months from the Closing with respect to 20,000 shares
of FYI Stock, the Stockholder shall not (a) sell, assign, exchange, transfer,
distribute or otherwise dispose of (i) the shares of FYI Stock received by the
Stockholder at the Effective Time of the Merger or otherwise described in Annex
II, 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 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:
EXCEPT FOR TRANSFER UPON DEATH OR TO IMMEDIATE FAMILY MEMBERS WHO
AGREE IN WRITING TO BE BOUND BY THE RESTRICTIONS SET FORTH BELOW (OR
TRUSTS FOR THE BENEFIT OF THE UNDERSIGNED OR FAMILY MEMBERS, THE
TRUSTEES OF WHICH SO AGREE IN WRITING), THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED,
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] [SIX MONTHS FOLLOWING
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 a
Lock-Up Agreement containing the foregoing agreements.
11.2 ECONOMIC RISK; SOPHISTICATION. The Stockholder represents and
warrants to FYI and Newco that such Stockholder is an "accredited investor" as
defined in Regulation D promulgated under the 1933 Act; that such Stockholder
is able to bear the economic risk
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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 knowledge and
experience in financial and business matters that such Stockholder is capable
of evaluating the merits and risks of the proposed investment in the FYI Stock;
and that such Stockholder 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.
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 the purpose of
carrying out this Agreement. The Company 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 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 6.12hereof 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 Section 5.3 and
Section 6.2 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
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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. 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
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. In the event the transactions herein contemplated are
consummated, the Stockholder will pay from personal funds and not from the
funds of the Company, the fees, expenses and disbursements of its agents,
representatives, accountants and counsel (other than with respect to the AA
Financial Statements) incurred in connection with the subject matter of this
Agreement. 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, and all sales, use, real property
transfer, recording, gains, stock transfer and other similar fees in connection
with the transactions contemplated by this Agreement.
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
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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
Minnesota Medical Record Service 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 Stockholder, addressed thereto at
the address set forth on Annex I, with copies to such counsel
as is set forth with respect to the Stockholder on such Annex
I;
(iii) If to the Company, addressed to:
Minnesota Medical Record Service, Inc.
7334 Topanga Canyon Boulevard
Suite 220
Canoga Park, California 91303
Telecopy No.: (818) 887-7352
Attn: Alan D. Simon
and marked "Personal and Confidential"
with copies to:
Gardere Wynne Sewell & Riggs, L.L.P.
333 Clay Street
Suite 800
Houston, Texas 77002-4086
Telecopy No.: (713) 308-5555
Attn: Daniel L. Cohen, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 12.8 from time to time.
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12.9 GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas.
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 Company
transaction be structured as a tax-free reorganization under Section 368(a) of
the Code.
-39-
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
F.Y.I. INCORPORATED
ATTEST:
/s/ Kent Jamison By: /s/ David Lowenstein
- ---------------------------------- ------------------------------
Name: David Lowenstein
Title: Executive Vice President
MINNESOTA MEDICAL RECORD SERVICE
ACQUISITION CORP.
ATTEST:
/s/ Kent Jamison By: /s/ David Lowenstein
- ---------------------------------- ------------------------------
Name: David Lowenstein
Title: Vice President
MINNESOTA MEDICAL RECORD SERVICE, INC.
ATTEST:
/s/ Colleen Montes By: /s/ Alan Simon
- ---------------------------------- ------------------------------
Name: Alan Simon
Title: President
<PAGE> 47
THE STOCKHOLDER:
ATTEST:
/s/ Colleen Montes /s/ Alan D. Simon
- ---------------------------------- ----------------------------
Alan D. Simon
<PAGE> 48
ANNEX I
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF AUGUST 30, 1996
BY AND AMONG
F.Y.I. INCORPORATED
MINNESOTA MEDICAL RECORD SERVICE ACQUISITION CORP.
MINNESOTA MEDICAL RECORD SERVICE, INC.
AND
THE STOCKHOLDER NAMED THEREIN
STOCKHOLDER OF THE COMPANY:
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Company Stock Date of Acquisition
- ---------------- ---------------- -------------------
<S> <C> <C>
Alan D. Simon 1,000 July 15, 1990
7334 Topanga Canyon Boulevard
Suite 220
Canoga Park, California 91303
</TABLE>
<PAGE> 49
ANNEX II
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF AUGUST 30, 1996
BY AND AMONG
F.Y.I. INCORPORATED
MINNESOTA MEDICAL RECORD SERVICE ACQUISITION CORP.
MINNESOTA MEDICAL RECORD SERVICE, INC.
AND
THE STOCKHOLDER NAMED THEREIN
Aggregate consideration to be paid to the Stockholder:
Cash - $1,081,450, of which $958,955.50 of such amount shall be paid
at the Closing, and of which $122,495.00 of such amount shall be held
by FYI pursuant to Section 3.1(a) hereof.
Stock - 105,136 shares of FYI Stock, of which 97,850 shares of FYI
Stock shall be delivered at the Closing, and of which 7,286 shares of
FYI Stock shall be held by FYI pursuant to Section 3.1(a) hereof.
<PAGE> 1
EXHIBIT 2.17
------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 30th day of August, 1996
by and among
F.Y.I. INCORPORATED
ZIA ACQUISITION CORP.
ZIA INFORMATION ANALYSIS GROUP
and
the SHAREHOLDERS 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 Certificate 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Manner of Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Calculation of FYI Shares for the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Earnings Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. DELIVERY OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Delivery Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(A) Representations and Warranties of the Company
and the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
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 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.10 Real Property Leases; Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.11 Environmental Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.13 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.14 Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.15 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.16 Litigation and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.18 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<TABLE>
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5.20 Employees; Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.22 Interests in Customers, Suppliers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.23 Business Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.24 Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Bank Accounts and Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.26 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(B) Representations and Warranties of the Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . 19
5.27 Authority; Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.28 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.29 No Intention to Dispose of FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.30 Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.31 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6. REPRESENTATIONS OF FYI AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.6 Capitalization of FYI and Ownership of FYI Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.8 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.9 Business; Real Property; Material Agreements;
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.10 Conformity with Law and Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.11 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1 Access and Cooperation; Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.2 Conduct of Business Pending Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.4 No Shop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.6 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
SHAREHOLDERS AND THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.1 Representations and Warranties; Performance of Obligations . . . . . . . . . . . . . . . . . . . . . 30
8.2 Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.5 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.6 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.7 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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<TABLE>
<S> <C> <C>
8.8 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.9 Loan Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.10 Effectiveness of Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.11 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF FYI
AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.1 Representations and Warranties; Performance of Obligations . . . . . . . . . . . . . . . . . . . . . 31
9.2 Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.4 Examination of Final Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.5 Repayment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.7 Shareholder Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.8 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.9 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.10 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.11 Noncompetition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.12 Lock-Up Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.13 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.14 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.15 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.16 Loan Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.17 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10. COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.1 Permitted Payments of Compensation by the Company . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.2 Preservation of Tax and Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.3 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.4 Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.5 Receivables Guaranteed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.6 Termination of Shareholders Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.7 Acknowledgments of the Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.8 Zia Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.1 FYI Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.2 Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.3 Employee Compensation and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.4 Shareholder Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.5 Indemnification for Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.6 Notice of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.7 Right to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.8 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.9 Satisfaction of Claims From Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.10 Limitations of Indemnification; Proportionate Payments . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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<TABLE>
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12. SECURITIES ACT REPRESENTATIONS AND TRANSFER
RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.1 Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
13. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
13.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
13.2 Liabilities in Event of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
14.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
14.2 Survival of Covenants, Agreements, Representations
and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
14.3 Nondisclosure of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
14.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.7 Brokers and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.11 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.12 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.13 Reformation and Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.14 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.15 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
14.16 Tax Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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SCHEDULES AND ANNEXES
<TABLE>
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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
5.15 Consent
5.16 Litigation
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
7.2 Conduct of Business
7.3 Prohibited Activities
9.7 Shareholder Releases
9.8 Continuing Related Party Agreements
11.1(a) Questionnaire for Subsidiaries
14.7 Brokers and Agents
ANNEXES
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I Shareholders of the Company
II Aggregate Consideration to be paid to the Shareholders
III FYI Charter Documents
IV Opinion of Counsel to FYI and Newco
V Employment Agreement
</TABLE>
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<TABLE>
<S> <C>
VI Escrow Agreement
VII Shareholder Release
VIII Opinion of Counsel to the Company
IX Noncompetition Agreement
X Lock-Up Agreement
</TABLE>
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<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of the 30th day of August, 1996, by and among F.Y.I. INCORPORATED, a
Delaware corporation ("FYI"), ZIA ACQUISITION CORP., a Delaware corporation
("Newco"), ZIA INFORMATION ANALYSIS GROUP, a California corporation (the
"Company"), and the shareholders listed on Annex I hereto (each a "Shareholder"
and collectively the "Shareholders") who constitute all the shareholders of the
Company.
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Delaware, having been incorporated on August 20, 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 shareholders that the Company merge with and
into Newco pursuant to this Agreement and the applicable provisions of the laws
of the States of California and 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 the transactions with respect to
the Company 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 CERTIFICATE OF MERGER. The Constituent
Corporations will cause a Certificate of Merger with respect to the Merger (the
"Certificate 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 California, on or before the
Closing Date (as defined in Section 4). The Surviving Corporation shall take
all action necessary to make the Merger effective under California law as of
the Effective Time.
1.2 EFFECTIVE TIME OF THE MERGER. The "Effective Time of the
Merger" shall be the date and time of the filing of the Certificate of Merger
with the Delaware Secretary of State. At the Effective Time of the Merger, the
Company shall be merged with and into Newco, in accordance with this Agreement,
the Certificate of Merger and California and Delaware law, the separate
existence of the Company shall cease and the corporate name of Newco shall be
Zia Information Analysis Group, Inc. 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, except that the corporate name of Newco shall be changed
in the materials filed pursuant to this Article I to "Zia Information
Analysis Group, Inc."; 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:
David L. Delgado
Ed H. Bowman, Jr.
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 Million (1,000,000)
shares of Common Stock, no par value (the "Company Stock"), of which
Two Thousand (2,000) shares are issued and outstanding;
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<PAGE> 10
(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 share ("FYI Stock"), of
which Five Million Five Hundred Twenty-three Thousand One Hundred
Forty-seven (5,523,147) shares were issued and outstanding at July 31,
1996, 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, vested in the
Company 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 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
2.1 MANNER OF CONVERSION. The manner of converting the shares of
(a) the 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 the 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 Shareholders
as provided in Annex II hereto;
(b) All shares of the Company Stock that are held by the
Company as treasury stock 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 Shareholders as of the Effective Time of
the Merger shall, except for restrictions on resale or transfer described in
Section 12.1 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
Shareholders shall be fully exercisable by the Shareholders and the
Shareholders 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 Shareholders, 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 FOR THE COMPANY. All the 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 II attached hereto. By
their signatures hereto, the Shareholders hereby elect to receive the portions
of such cash and FYI Stock set forth opposite their names on such Annex II.
2.3 EARNINGS TREATMENT. All earnings and cash flow of the Company
for the period from August 1, 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. As of the Effective Time of the Merger
and at the Closing:
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<PAGE> 12
(a) The Shareholders, as the holders of all outstanding
certificates representing shares of the 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 the sum of $183,997.49 in cash and 12,343
shares of FYI Stock 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 8); and
(b) Until the certificates representing the Company Stock
have been surrendered by the Shareholders and replaced by the FYI
Stock, the certificates for the Company 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 Shareholders are entitled to
receive as a result of the Merger, as set forth in Section 2.2 above
and Annex II hereto, notwithstanding the number of shares of the
Company 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 the filing with the
appropriate state authorities of the Certificate 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 on a date agreed upon by the
parties within four (4) business days following the date that the Registration
Statement (as described in Section 8.10 hereof) shall have become effective
under the Securities Act of 1933 and all other closing conditions set forth
herein have been satisfied or waived by the appropriate parties. The date on
which the Closing shall occur shall be referred to as the "Closing Date." On
the Closing Date, the Certificate of Merger shall be filed with the Delaware
Secretary of State (and a copy thereof certified by the Delaware Secretary of
State filed with the California Secretary of State as soon as practicable
thereafter, together with all other documents required by California law), 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 in amounts equal to the aggregate cash portion of the
consideration that the Shareholders shall be entitled to receive pursuant to
the Merger referred to in Section 2 hereof, shall occur and be deemed to be
completed.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS
Each of the Company and the Shareholders, jointly and severally,
represent and warrant that all of the following representations and warranties
with respect to the Company and its business and operations set forth in this
Section 5(A) are true and correct at the date of this Agreement and shall be
true and correct at the time of the Closing.
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 against
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<PAGE> 13
the Company 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 "Equitable Exceptions"). The Company has full corporate
power, capacity and authority to execute this Agreement 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 (as defined in Section 5.7). 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 (the "Charter Documents"). Except as set forth on
Schedule 5.2, the minute books containing records of the actions and meetings
of the Board of Directors and the shareholders 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), except that, prior to the Effective Time of
the Merger, the Company may have redeemed up to seventy-three (73)
shares of Company Stock. 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, except as provided in the Company's
Articles of Incorporation. Each of the Shareholders received the
shares held thereby upon the Company's original issuance thereof
following its incorporation and there have been no subsequent
issuances by the Company of any shares of its capital stock. 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 Shareholders (i) own of record and beneficially
(subject to the community property interest of any Shareholder'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
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<PAGE> 14
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, shareholders' equity and cash
flows for the fiscal year then ended, as compiled by Hood & Strong,
certified public accountants, together with management's statements of
operations and shareholders' equity for the seven-month period ended
July 31, 1996 (the "Hood & Strong Financial Statements"). The Company
has furnished to FYI the audited balance sheet of the Company as of
December 31, 1995 and the related statements of operations,
shareholders' equity and cash flows for the fiscal year then ended, as
audited by Arthur Andersen LLP, independent public accountants engaged
by FYI (the "AA Financial Statements," and together with the Hood &
Strong Financial Statements, the "Financial Statements"). To the
knowledge of the Shareholders, the audited 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 Hood & Strong and Arthur Andersen LLP.
(b) Except to the extent (and not in excess of the
amounts) reflected in the July 31, 1996 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 July 31, 1996) 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
(including without limitation liability for 1996 Taxes), 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 and reasonably estimable in accordance
with F.S.A.S. No. 5, a reasonable estimate, as of the date of this
Agreement, of the maximum amount that may be payable (it being
understood that any actually realized or suffered liability may be
less than or greater than such estimate). For
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<PAGE> 15
each such contingent liability, the Company has provided or made
available to FYI the following information in the possession of the
Company:
(i) A summary description of the liability
together with the following (to the knowledge of the
Shareholders):
(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 (it being understood that any actually realized or
suffered liability may be less than or greater than such
estimate). 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
July 31, 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 Shareholders. The
Company shall provide FYI with an aging, as of the date of this Agreement, of
all such accounts and notes receivable 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 not 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"). An accurate list is
set forth on Schedule 5.7 hereto of all such licenses, franchises, permits and
other governmental authorizations. The licenses, franchises, permits and other
governmental authorizations listed on Schedule 5.7 are valid, and the Company
has not received any written 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,
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<PAGE> 16
criteria and conditions set forth in such permits, licenses, franchises and
governmental authorizations 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 by the Company 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, other than a default, breach, violation or effect
which would not have a Material Adverse Effect.
5.8 TAX MATTERS.
(a) The Company has filed all income tax returns required
to be filed by the Company and all returns of other Taxes (as defined
below) required to be filed 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. The Company has withheld or will
withhold all amounts for payroll Taxes of the Company required by law
with respect to the Shareholders through 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 in writing against the Company that has not been
fully paid or finally settled; and (iii) no issue has been formally
raised in writing 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 through the date
hereof 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 December 31, 1995 (or, in the
case of payroll Taxes, as of the Closing), 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, 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, 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
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reorganization expenses, amounts paid by the Company pursuant to
Section 10.1 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 Effective
Time of 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 the 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 Company 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 the Company
exceeds the sum of its liabilities, plus the amount of liabilities, if
any, to which the assets are subject.
(h) 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.
(i) 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.
(j) There is no plan or intention by the Shareholders to
sell, exchange or otherwise dispose of more than four percent (4%) of
the number of shares of FYI Stock received by the Shareholders in the
Merger as of the Effective Time of the Merger or otherwise described
in Annex II. For purposes of this representation, shares of the
Company Stock exchanged for cash or other property and shares of the
Company Stock exchanged for cash in lieu of fractional shares of FYI
Stock will be treated as outstanding shares of the Company Stock on
the date of the transaction. Moreover, except as set forth on
Schedule 5.3, shares of the Company Stock and shares of FYI stock held
by the Shareholders 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
Shareholder to sell, exchange or otherwise dispose of FYI Stock, if
any, received by such Shareholder pursuant to Section 11.10.
(k) The Company and the Shareholders will each pay their
respective expenses, if any, incurred in connection with the Merger as
provided in this Agreement.
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(l) There is no intercorporate indebtedness existing
between FYI and the Company or between Newco and the Company that was
issued, acquired, or to be settled, in each event at a discount.
(m) None of the shares of FYI Stock received by the
Shareholders in the Merger will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to
the Shareholders in their capacities as employees, including but not
limited to amounts paid pursuant to the Employment Agreements
described in Section 8.5 and any options granted to the Shareholders
pursuant to Section 10.4, will be for services actually rendered and
will be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
(n) All amounts paid by the Company to the Shareholders
pursuant to Section 10.1 represent reasonable compensation for
services performed by the Shareholders for the Company.
(o) The Company is a C corporation within the meaning of
Subchapter C of the Code. The Company presently files its federal
income tax returns on a cash basis of accounting.
5.9 ASSETS AND PROPERTIES.
(a) REAL PROPERTY. The Company does not own or hold any
fee 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, 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 tangible personal property owned or leased by the
Company and, to the knowledge of the Company and the Shareholders, the
leasehold estates that are the subject of the Real Property Leases (as
defined in Section 5.10) and occupied by the Company, are in good
operating condition and repair, ordinary wear and tear excepted; and
neither the Company nor the Shareholders 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.
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
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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 or 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, to the
knowledge of the Shareholders the other parties thereto, subject to the
Equitable Exceptions, 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 knowledge of the Company and the Shareholders, by any
other party thereto which is reasonably likely to have a Material Adverse
Effect.
5.11 ENVIRONMENTAL LAWS AND REGULATIONS.
(a) (i) The Company's occupancy of the "Subject
Property" (as defined below) and the Company's operations have been in
compliance with "Environmental Requirements" (as defined below); (ii)
during the occupancy and operation of the Subject Property by the
Company no release, leak, discharge, spill, disposal or emission of
Hazardous Substances (as defined below) has occurred in, on or, to the
knowledge of the Company and the Shareholders, under the Subject
Property in a quantity or manner that materially violates or requires
remediation under Environmental Requirements; (iii) to the knowledge
of the Company and the Shareholders, the Subject Property is free of
Hazardous Substances as of the date of this Agreement and the Closing
Date, except for the presence of small quantities of Hazardous
Substances utilized by the Company in the ordinary course of its
business; (iv) to the knowledge of the Company and the Shareholders,
there is no pending or threatened litigation or administrative
investigation or proceeding concerning the Subject Property involving
Hazardous Substances or Environmental Requirements; and (v) 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 of any
governmental authority in effect on the date of this Agreement,
including, without limitation, federal, state and local authorities,
relating to the regulation or protection of human health and safety,
natural resources, 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.
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<PAGE> 20
"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 (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 classified
or considered through the date of this Agreement and the Closing Date
to be pollutants, hazardous or toxic under Environmental Requirements.
"Subject Property" means all property leased by the Company
pursuant to the Real Property Leases, but shall not include common
areas or parking areas.
5.12 CONTRACTS.
(a) Set forth on Schedule 5.12 is a list of all material
contracts, agreements, arrangements and commitments 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"). For purposes of this Agreement, any contract,
agreement, arrangement or commitment that (A) involves annual payments
or receipts of less than $10,000 or (B) is terminable or cancelable by
a party thereto on less than thirty (30) days' notice without penalty
or premium, shall not be deemed material.
(b) Except as set forth on Schedule 5.12, each Contract
is in full force and effect on the date hereof (subject to the
Equitable Exceptions), the Company is not in default under any
Contract (other than a default which would not have a Material Adverse
Effect), the Company has not given or received written notice of any
default under any Contract, and, to the knowledge of the Company and
the Shareholders, no other party to any Contract is in default
thereunder (other than a default which would not have a Material
Adverse Effect).
5.13 NO VIOLATIONS. The execution, delivery and performance of
this Agreement and the other agreements and documents contemplated hereby by
the Company and the Shareholders and the consummation of the transactions
contemplated hereby by the same is not reasonably likely to (i) violate any
provision of any Charter Document, (ii) violate any statute, rule,
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<PAGE> 21
regulation, order or decree of any public body or authority by which the
Company or the Shareholders 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, to the knowledge
of the Shareholders, 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 listed on Schedule 5.7 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 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, to the knowledge of the Company and the Shareholders, other
agreement or commitment to which the Company or the Shareholders 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 by the Company
and the Shareholders and the other agreements and documents to be executed by
the Company and the Shareholders or the consummation by the Company and the
Shareholders of the transactions contemplated hereby, except where the failure
to obtain the same would not have 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 pending
against the Company or, to the knowledge of the Company and the Shareholders,
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 results in or, if
adversely determined, would have a Material Adverse Effect. The Company is not
subject to any continuing court or Agency order, writ, injunction or decree
applicable specifically to the Company's 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 (other than any default not reasonably likely to have a Material
Adverse Effect). Schedule 5.16 lists (x) all worker's compensation claims
outstanding against the Company as of the date of this Agreement and (y) all
actions, suits or proceedings filed by or against the Company since December
31, 1995 or known to the Shareholders.
5.17 COMPLIANCE WITH LAWS. The Company 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 is not reasonably likely to have a Material Adverse Effect.
5.18 INTELLECTUAL PROPERTY RIGHTS. Except for printed licenses on
purchased software, the Company does not own or use any domestic or foreign
trade names, trademarks, service marks, trademark registrations and
applications, service mark registrations and applications,
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<PAGE> 22
patents, patent applications, patent licenses, software licenses and copyright
registrations and applications in the operation of its business (collectively,
the "Intellectual Property"). To the knowledge of the Company and the
Shareholders, 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 impairment of any rights of the Company in the
Intellectual Property, except any loss or impairment not reasonably likely to
have a Material Adverse Effect. There are no pending proceedings or adverse
claims made or, to the knowledge of the Company and the Shareholders,
threatened against the Company with respect to the Intellectual Property; and
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.
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
or is a contributory plan, 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). The Company and, to the knowledge of the
Company and the Shareholders, 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 Shareholders, 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 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
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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 since it was incorporated. Except as set forth on
Schedule 5.20, there are no labor disputes existing, or to the
knowledge of the Company and the Shareholders, 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 knowledge
of the Company and the Shareholders, are threatened.
(c) The relationships enjoyed by the Company with its
employees are good and the Company and the Shareholders have no
knowledge of any facts as of the date of this Agreement that would
indicate that the employees of the Company are not reasonably likely
to continue in the employ thereof following the Closing on a basis
similar to that existing on the date of this Agreement. Except as set
forth on Schedule 5.20, since December 31, 1995, the Company has not
experienced any difficulties in obtaining any qualified personnel
necessary for the operation of its business, and, to the knowledge of
the Company and the Shareholders, no such shortage of qualified
personnel is threatened or pending. Except as disclosed on Schedule
5.20, the Company is not a party to any
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<PAGE> 24
employment contract with any individual or employee, either express or
implied, other than with respect to employees terminable at will under
oral employment contracts. No legal proceedings, charges, complaints
or similar actions are pending against the Company 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 knowledge of the Company and the Shareholders, no
proceedings, charges, or complaints are threatened under any such laws
or regulations and, to the knowledge of the Company and the
Shareholders, 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, 1995 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 July 31,
1996.
(d) To the knowledge of the Company and the Shareholders,
the Company is in compliance in all material respects with the
provisions of the Americans with Disabilities Act required to be
complied with by it, except where (i) the lessors under any Real
Property Leases have failed to effect such compliance as required by
applicable law, order or contract or (ii) the failure to so comply is
not reasonably likely to have a Material Adverse Effect.
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, in the reasonable opinion of the Company and the
Shareholders, are adequate for the business engaged in by the Company. Neither
the Company nor the Shareholders have received any written 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 claims pending made
by or on behalf of the Company under such policies have been denied or are
being defended against third
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parties under a reservation of rights by an insurer thereof. All premiums due
prior to the date of this Agreement and the Closing Date for periods prior to
the date of this Agreement and the Closing Date with respect to such policies
have been timely paid.
5.22 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. No shareholder,
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
knowledge of the Company and the Shareholders, 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. 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 that would have a Material 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, (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
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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, 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, or any loss of business or increase in the cost of inventory items
or change in the terms offered to customers, that 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 SHAREHOLDERS.
Each Shareholder 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 Shareholder has the full legal
right, power and authority to enter into this Agreement. The Shareholder 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
Shareholder's name on Annex I and such shares of the Company Stock, together
with the other shares of the 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 shares of the Company Stock owned by
the Shareholder are owned free and clear of all Liens other than standard state
and federal securities laws private offering restrictions. The Shareholder has
owned the Company Stock since the date set forth on Annex I.
5.28 PREEMPTIVE RIGHTS. The Shareholder does not have, or hereby
waives, any preemptive or other right to acquire shares of the Company Stock or
FYI Stock, that the Shareholder has or may have had other than rights of the
Shareholder 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. Except as set forth on
Schedule 5.3, each Shareholder represents that there is no current plan or
intention by such Shareholder to sell, exchange or otherwise dispose of any of
the shares of FYI Stock received by such Shareholder in the Merger as of the
Effective Time of the Merger or otherwise described in Annex II. For purposes
of this representation, shares of the Company Stock exchanged for cash or other
property and shares of the Company Stock exchanged for cash in lieu of
fractional shares of FYI Stock will be treated as outstanding shares of the
Company Stock on the date of the transaction. Moreover, except as set forth on
Schedule 5.3, shares of the Company Stock and shares of FYI Stock held by the
Shareholder 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 Shareholder represents that there is not any current plan or
intention by such Shareholder to sell, exchange or otherwise dispose of FYI
Stock, if any, received by such Shareholder pursuant to Section 11.10.
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<PAGE> 27
5.30 VALIDITY OF OBLIGATIONS. This Agreement, 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 Shareholder that is a party thereto, enforceable
in accordance with their respective terms, subject to the Equitable Exceptions
(it being understood and agreed by the parties hereto that each Shareholder is
making this representation and warranty solely with respect to such Shareholder
alone and not with respect to any other Shareholder).
5.31 PAYMENTS. All amounts paid by the Company to the Shareholders
pursuant to Section 10.1 represents reasonable compensation for services
performed by the Shareholders for the Company.
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 date of this Agreement and shall be 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 Shareholders
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 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 Shareholders
pursuant to this Agreement will be registered under the Securities Act of 1933,
as amended (the "1933 Act"), and otherwise offered, issued and delivered in
compliance with all applicable laws, regulations, orders and decrees of any
Agency. When issued to the Shareholders, such FYI Stock will be listed and
eligible for trading on the Nasdaq National Market System.
6.3 VALIDITY OF OBLIGATIONS.
(a) The execution and delivery of this Agreement, the
Employment Agreements, the Noncompetition Agreements, the Lock-Up
Agreements 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 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, the Lock-Up Agreements 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 to the extent that it
is a
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party thereto, enforceable against such party thereto in accordance
with their respective terms, subject to the Equitable Exceptions.
(b) The execution and delivery of this Agreement, the
Employment Agreements, the Noncompetition Agreements, the Lock-Up
Agreements and the Escrow Agreement by FYI and Newco do not, and the
performance of the same by FYI and Newco will not, require either FYI
or Newco to obtain any consent, approval, authorization, license,
waiver, qualification, order or permit of, or require the Company or
Newco to make any filing with or notification to, any Agency or third
party.
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, the Employment Agreements, the
Noncompetition Agreements, the Lock-Up Agreements and the Escrow Agreement.
FYI and Newco have the full legal right, power and authority to enter into such
agreements and consummate the transactions contemplated thereby.
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.
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
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the Shareholders 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 June 30, 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 Shareholders with a true, complete and correct copy of its
Registration Statements 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 August 12, 1996 and has made available
thereto all other filings made by it with the Securities and Exchange
Commission through the date of this Agreement (collectively, the "SEC
Reports"). The SEC Reports were prepared in accordance with the requirements
of the 1933 Act or the Exchange Act, as the case may be, and the rules and
regulations promulgated thereunder. The information scheduled or provided
pursuant to this Section 6.9 does not contain any material misstatements of
fact. Newco was formed on August 20, 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 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
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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 the Company are true and correct.
6.12 TAXES.
(a) 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.
(b) (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.
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(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.
(c) FYI has no plan or intention to reacquire any of its
stock issued in the Merger.
(d) 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 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.
(e) 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 in the ordinary course of
business.
(f) FYI and Newco will each pay their respective
expenses, if any, incurred in connection with the Merger.
(g) There is no intercorporate indebtedness existing
between FYI and the Company or between Newco and the Company that was
issued, acquired, or to be settled, in each event at a discount.
(h) Neither FYI nor Newco is an investment company as
defined in section 368(a)(2)(F)(iii) and (iv) of the Code.
(i) None of the shares of FYI Stock received by the
Shareholders in the Merger will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to
the Shareholders in their capacities as employees, including but not
limited to amounts paid pursuant to the Employment Agreements
described in Section 8.5 and any options granted to the Shareholders
pursuant to Section 10.4, will be for services actually rendered and
will be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
(j) The proposed Merger is effected through the laws of
the United States, or a State or the District of Columbia.
(k) The proposed Merger is being undertaken for reasons
germane to the business of the Company.
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(l) Assuming the accuracy of the representation contained
in Section 5.8(d) hereof, 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 the Company 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 10.1.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Closing
Date, the Company and the Shareholders will afford to the officers and
authorized representatives of FYI and Newco access to all of the
Company's key employees, sites, properties, books and records and will
furnish FYI and Newco with such additional financial and operating
data and other information as to the business and properties of the
Company as FYI or Newco may from time to time reasonably request. The
Company will cooperate with FYI and Newco, its representatives,
auditors and counsel in the preparation of any documents or other
material that may be required in connection with any documents or
materials required by this Agreement. FYI and Newco will cause all
information obtained in connection with the negotiation and
performance of this Agreement to be treated as confidential in
accordance with the provisions of Section 14.3 hereof.
(b) Between the date of this Agreement and the Closing
Date, FYI and Newco will afford to the officers and authorized
representatives of the Company and the Shareholders access to all of
FYI's and Newco's public information regarding key employees, sites,
properties, books and records and will furnish the Company and the
Shareholders with such additional financial and operating data and
other information as to the business and properties of FYI and Newco
as the Company or the Shareholders may from time to time reasonably
request. FYI and Newco will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any
documents or other material that may be required in connection with
any documents or materials required by this Agreement. The Company
and the Shareholders will cause all information obtained in connection
with the negotiation and performance of this Agreement to be treated
as confidential in accordance with the provisions of Section 14.3
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Closing Date, without FYI's prior written consent (which
shall not be unreasonably withheld) the Company will, except as contemplated by
this Agreement or set forth on Schedule 7.2:
(a) Carry on its respective businesses in substantially
the same manner as it has heretofore and not introduce any material
new method of management, operation or accounting;
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(b) Maintain its respective properties and facilities,
including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(c) Perform all of its respective obligations under
agreements relating to or affecting its respective assets, properties
or rights;
(d) Keep in full force and effect present insurance
policies or other comparable insurance coverage;
(e) Use reasonable commercial efforts to maintain and
preserve its business organization intact, retain its respective
present employees and maintain its respective relationships with
customers, suppliers and others having business relations with the
Company;
(f) Maintain compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities; and
(g) Maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments over $2,500,
without the knowledge and consent of FYI (which consent shall not be
unreasonably withheld).
7.3 PROHIBITED ACTIVITIES. Except as contemplated by this
Agreement or disclosed on Schedule 7.3, between the date of this Agreement and
the Closing Date, the Company has not and, without the prior written consent of
FYI (which shall not be unreasonably withheld), will not:
(a) Make any change in its Articles of Incorporation or
By-laws;
(b) Issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of any
kind;
(c) Declare or pay any dividend, or make any distribution
in respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares
of its stock;
(d) Enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with past
practice) or involves an amount not in excess of $25,000, including
contracts to provide services to customers;
(e) Increase the compensation payable or to become
payable to any Shareholder, officer, director, employee or agent, or
make any bonus or management fee payment to any such person;
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(f) Create, assume or permit to exist any mortgage,
pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired, except (i) with respect to
purchase money liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $5,000 necessary or
desirable for the conduct of the businesses of the Company, or (ii)
liens for taxes either not yet due or materialmen's, mechanics,
workers', repairmen's, employees' or other like liens arising in the
ordinary course of business;
(g) Sell, assign, lease or otherwise transfer or dispose
of any property or equipment except in the normal course of business
consistent with past practice;
(h) Negotiate for the acquisition of any business or the
start-up of any new business;
(i) Merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(j) Waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills in the course
of good faith disputes with customers in a manner consistent with past
practice;
(k) Commit a material breach or amend or terminate any
Contract, or material permit, license or other right of the Company;
or
(l) Enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Shareholders, the Company nor any agent,
officer, director or any representative of any of the foregoing will, during
the period commencing on the date of this Agreement and ending with the earlier
to occur of the Closing Date or the termination of this Agreement in accordance
with its terms, directly or indirectly:
(a) Solicit or initiate the submission of proposals or
offers from any person for;
(b) Participate in any discussions pertaining to; or
(c) Furnish any information to any person other than FYI
or Newco relating to;
any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, the Company or a merger, consolidation or business
combination of the Company.
7.5 NOTIFICATION OF CERTAIN MATTERS. The Shareholders and the
Company shall give prompt notice to FYI of (a) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would be reasonably
likely to cause any representation or warranty of
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the Company of the Shareholders contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (b) any material failure of
any Shareholder or the Company to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such person
hereunder; provided no such notice shall be required until the Closing Date
with respect to the occurrence in the ordinary course of business of any event
which would cause Schedules 5.5 5.6, 5.9 or 5.10 to be incorrect. FYI and
Newco shall give prompt notice to the Company of (a) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
reasonably likely to cause any representation or warranty of FYI or Newco
contained herein to be untrue or inaccurate in any material respect at or prior
to the Closing and (b) any material failure of FYI or Newco to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder. The delivery of any notice pursuant to this Section 7.5 shall
not be deemed to (a) modify the representations or warranties hereunder of the
party delivering such notice, which modification may only be made pursuant to
Section 7.6, (b) modify the conditions set forth in Sections 8 and 9, or (c)
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
7.6 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules; provided, however, that supplements and amendments to Schedules 5.5,
5.6, 5.9 and 5.10 shall only have to be delivered at the Closing Date, unless
such Schedule is to be amended to reflect an event occurring other than in the
ordinary course of business. No amendment or supplement to a Schedule prepared
by the Company that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect shall be effective unless FYI consents to such
amendment or supplement, and no amendment or supplement to a Schedule prepared
by FYI or Newco that constitutes or reflects an event or occurrence that would
have a FYI Material Adverse Effect shall be effective unless the Company
consents to such amendment or supplement. For all purposes of this Agreement,
including without limitation for purposes of determining whether the conditions
set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto
shall be deemed to be the Schedules as amended or supplemented pursuant to this
Section 7.6. In the event that the Company or a Shareholder amends or
supplements a Schedule pursuant to this Section 7.6 and FYI and Newco do not
consent to the effectiveness of such amendment or supplement (within three (3)
business days of submission), this Agreement shall be deemed terminated by
mutual consent as set forth in Section 13.1(a) hereof. In the event that FYI
or Newco amends or supplements a Schedule pursuant to this Section 7.6 and the
Company and the Shareholders do not consent to the effectiveness of such
amendment or supplement (within three (3) business days of submission), this
Agreement shall be deemed terminated by mutual consent as set forth in Section
13.1(a) hereof. No party to this Agreement shall be liable to any other party
if this Agreement shall be terminated pursuant to the provisions of this
Section 7.6.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDERS AND THE
COMPANY
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The obligations of the Shareholders and of 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.
8.1 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 as though such
representations and warranties had been made as of that time; and a certificate
to the foregoing effect dated the Closing Date and signed by the President or
Vice President of FYI and of Newco shall have been delivered to the Company and
the Shareholders; 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 in all
material respects.
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 the
Company and the Shareholders and their respective 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 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 deems it inadvisable to proceed with the transactions
hereunder.
8.4 OPINION OF COUNSEL. The Company and the Shareholders 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.
8.5 EMPLOYMENT AGREEMENTS. Newco shall have executed and
delivered to David L. Delgado, Christopher R. Yowell and Rebecca D. Homan
Employment Agreements in substantially the forms attached hereto as Annex V
(the "Employment Agreements").
8.6 ESCROW AGREEMENT. FYI and Newco shall have executed and
delivered to the Shareholders the Escrow Agreement with the Shareholders and
U.S. Trust Company of Texas, N.A. as escrow agent (the "Escrow Agent") in
substantially the form attached hereto as Annex VI (the "Escrow Agreement").
8.7 CONSENTS AND APPROVALS. All necessary consents of and filings
with any Agency or any third party relating to the consummation of the
transactions contemplated herein shall have been obtained and made. Newco
shall use all reasonable efforts to assist the Company in its efforts to obtain
and file the certificate of satisfaction described in Section 9.14 hereof.
8.8 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
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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.
8.9 LOAN AGREEMENT. The Company's loan agreement with The Bank of
California, N.A. and all obligations of the Company thereunder shall have
terminated and there shall be no continuing obligations of the Company or the
Shareholders thereunder. The Bank of California, N.A. shall have provided
evidence reasonably satisfactory to the Company and the Shareholders of the
release of all of its security interests in the stock and assets of the
Company.
8.10 EFFECTIVENESS OF REGISTRATION STATEMENT. FYI's Registration
Statement (Registration No. 333-1084) shall be effective under the 1933 Act and
no stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose instituted.
8.11 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall
have occurred that would constitute an FYI Material Adverse Effect.
9. 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.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All of the representations and warranties of the Shareholders and the Company
contained in this Agreement shall be true and correct as of the Closing Date as
though such representations and warranties had been made as of that time; and a
certificate to the foregoing effect dated the Closing Date and signed by the
President or Vice President of the Company and by each Shareholder shall been
delivered to FYI and Newco; and each and all of the terms, covenants and
conditions of this Agreement to be complied with and performed by the
Shareholders and the Company on or before the Closing Date shall have been duly
complied with and performed in all material respects.
9.2 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.
9.3 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 or Newco reasonably deems it inadvisable to proceed with the
transactions hereunder.
9.4 EXAMINATION OF FINAL FINANCIAL STATEMENTS. Prior to the
Closing Date, FYI shall have had sufficient time to review the unaudited
balance sheets of the Company for the seven-month period ended July 31, 1996,
and the unaudited statements of income, cash flows and
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retained earnings of the Company for the seven-month period ended July 31,
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.
9.5 REPAYMENT OF INDEBTEDNESS. Prior to the Closing Date, the
Shareholders shall have repaid the Company in full all amounts, if any, owing
by the Shareholders to the Company.
9.6 INSURANCE. FYI shall be named as an additional named insured
on all of the insurance policies of the Company.
9.7 SHAREHOLDER RELEASES. Each of the Shareholders shall have
delivered to FYI immediately prior to the Closing Date an instrument dated the
Closing Date in substantially the form of Annex VII releasing the Company from
any and all claims of the Shareholder against the Company and obligations of
the Company to the Shareholder, except for items specifically identified on
Schedule 9.7 as being claims of or obligations to the Shareholder and
continuing obligations to Shareholder relating to his or her employment by the
Surviving Corporation.
9.8 TERMINATION OF RELATED PARTY AGREEMENTS. All existing
agreements between the Company and the Shareholders or business or personal
affiliates of the Company or the Shareholders and all existing bonus and
incentive plans and arrangements of the Company, other than those set forth on
Schedule 9.8, shall have been cancelled or terminated.
9.9 OPINION OF COUNSEL. FYI shall have received an opinion from
Orrick, Herrington & Sutcliffe, counsel to the Company and the Shareholders,
and/or such other counsel reasonably acceptable to FYI and Newco, dated the
Closing Date, as to the matters set forth in Annex VIII.
9.10 EMPLOYMENT AGREEMENTS. David L. Delgado, Christopher R.
Yowell and Rebecca D. Homan shall have executed and delivered to FYI and Newco
the Employment Agreements.
9.11 NONCOMPETITION AGREEMENTS. Each of the Shareholders shall
have executed and delivered to FYI and Newco a Noncompetition Agreement with
FYI and Newco in substantially the forms attached hereto as Annex IX (the
"Noncompetition Agreements").
9.12 LOCK-UP AGREEMENTS. Each of the Shareholders shall have
executed and delivered to FYI and Newco a Lock-Up Agreement in substantially
the forms annexed hereto as Annex X (the "Lock-Up Agreement") with respect to
the shares of FYI Stock to be acquired thereby pursuant to Section 2 hereof
containing the Shareholder's undertakings as set forth in Section 12.1 hereof.
9.13 ESCROW AGREEMENT. The Shareholders shall have executed and
delivered to the Escrow Agent and FYI and Newco the Escrow Agreement.
9.14 CONSENTS AND APPROVALS. All necessary consents of and filings
with any Agency or any third party relating to the consummation of the
transactions contemplated herein shall have been obtained and made. A
certificate of satisfaction of the California Franchise Tax
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Board with respect to the Merger shall have been filed with the California
Secretary of State in accordance with Chapter 11 of the California Corporations
Code.
9.15 GOOD STANDING CERTIFICATES. The Company shall have delivered
to FYI certificates, dated as of a date not more than fifteen (15) days prior
to the Closing Date, duly issued by the appropriate governmental authorities
showing that the Company is in good standing and authorized to do business in
California and that all California state franchise taxes for all periods prior
to the Closing have been paid.
9.16 LOAN AGREEMENT. The Company's loan agreement with The Bank of
California, N.A. and all obligations of the Company thereunder shall have
terminated and there shall be no continuing obligations of the Company
thereunder. The Bank of California, N.A. shall have provided evidence
reasonably satisfactory to FYI and Newco of the release of all of its security
interests in the stock and assets of the Company.
9.17 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred that would constitute a Material Adverse Effect.
10. COVENANTS OF THE PARTIES
10.1 PERMITTED PAYMENTS OF COMPENSATION BY THE COMPANY. Each of
FYI and Newco acknowledges and agrees that (i) prior to the Effective Time of
the Merger, the Company may pay compensation for services consisting of
salaries and bonuses to the Shareholders not to exceed (in the aggregate) the
sum of $500,000 which was accrued as of December 31, 1995 and (ii) the payment
of such bonuses may cause the Company to have a deficit cash position at
Closing. The parties to this Agreement further acknowledge and agree that the
Company shall retain and shall not distribute to the Shareholders any amounts
after the date of this Agreement (other than compensation paid in accordance
with the terms of the Employment Agreements).
10.2 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 of the Company, 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 Shareholders in their capacities 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
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(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) of the Code.
10.3 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 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 Company, the Shareholders, FYI and Newco
acknowledge that to the best of their knowledge the following
statement is correct, and each of the Company, the Shareholders, FYI
and Newco agree not to take a position for purposes of the tax
reporting of the transaction contemplated by this Agreement
inconsistent with the following statement:
(i) The fair market value of the FYI stock and
other consideration received by the Shareholders will be
approximately equal to the fair market value of the Company
Stock surrendered in the Merger.
(c) Each of the Company, Newco, FYI and the Shareholders
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.
10.4 STOCK OPTIONS. No later than thirty (30) days following the
Closing, FYI shall grant to employees of the Surviving Corporation as selected
by the Surviving Corporation and the Shareholders nonqualified stock options to
acquire an aggregate of sixteen thousand (16,000) shares of FYI Stock in
minimum lots of one thousand shares (1,000) in accordance with the terms of
FYI's 1995 Stock Option Plan (the "Stock Option Plan"), with such options to
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 grant and to vest in twenty
percent (20%) increments on each of the first through fifth anniversaries of
the date of grant.
10.5 RECEIVABLES GUARANTEED. Each of the Shareholders jointly and
severally warrants to FYI, Newco and the Surviving Corporation that all
accounts receivable of the Company as of the Effective Date (the "Receivables")
will be collected by the Surviving Corporation in the
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aggregate full face amount thereof, net of reserves as shown on the Company's
Financial Statements, no later than December 31, 1996. If the Surviving
Corporation shall fail to collect the aggregate full face amount of the
Receivables net of the reserves by December 31, 1996, then the Surviving
Corporation may collect from the Escrow Agent an amount of cash and FYI Stock
equal to the sum of all such uncollected Receivables plus any unpaid interest
accrued thereon. Receivables collected after December 31, 1996 and for which
the Surviving Corporation has received payment under this Section 10.5 shall be
promptly delivered by the Surviving Corporation to the Shareholders. Any such
amount collected from the Escrow Agent by the Surviving Corporation shall be in
an allocation of cash and FYI Stock that will not adversely affect the parties'
treatment of this transaction as a tax-free reorganization under Section 368(a)
of the Code. Upon payment of such amount to the Surviving Corporation by the
Escrow Agent, the Surviving Corporation will continue to diligently collect the
then unpaid balances of the Receivables in the ordinary course of business
consistent with past practice and remit to the Shareholders any amounts so
collected. Any distribution by the Escrow Agent or amount remitted to the
Shareholders pursuant to this Section 10.5 shall be deemed an adjustment of the
amount of the consideration payable or issuable to the Shareholders as a result
of the Merger.
10.6 TERMINATION OF SHAREHOLDERS AGREEMENT. By execution of this
Agreement the Company and each Shareholder does hereby covenant and agree that
the Shareholders Agreement by and among the Company and the Shareholders dated
August 31, 1994 shall be terminated as of the Closing.
10.7 ACKNOWLEDGMENTS OF THE PARTIES. THE REPRESENTATIONS AND
WARRANTIES SET FORTH IN SECTIONS 5.1 THROUGH 5.31 OF THIS AGREEMENT CONSTITUTE
THE SOLE AND EXCLUSIVE REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS TO FYI AND NEWCO IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED
HEREBY. THE REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTIONS 6.1 THROUGH
6.12 OF THIS AGREEMENT CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS AND
WARRANTIES OF FYI AND NEWCO TO THE COMPANY AND THE SHAREHOLDERS IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED HEREBY. THERE ARE NO REPRESENTATIONS,
WARRANTIES, COVENANTS, UNDERSTANDINGS OR AGREEMENTS, ORAL OR WRITTEN, IN
RELATION THERETO BETWEEN THE PARTIES OTHER THAN THOSE INCORPORATED IN THIS
AGREEMENT AND TO BE DELIVERED EXPRESSLY PURSUANT TO THIS AGREEMENT. EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN SUCH SECTIONS OF THIS
AGREEMENT, EACH OF FYI AND NEWCO, ON THE ONE HAND, AND THE COMPANY AND THE
SHAREHOLDERS, ON THE OTHER HAND, DISCLAIMS RELIANCE ON ANY REPRESENTATIONS OR
WARRANTIES, EITHER EXPRESS OR IMPLIED, BY THE COMPANY, THE SHAREHOLDERS OR
THEIR EMPLOYEES, REPRESENTATIVES OR AGENTS, ON THE ONE HAND, AND FYI, NEWCO OR
THEIR EMPLOYEES, REPRESENTATIVES OR AGENTS, ON THE OTHER HAND.
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10.8 ZIA NAME. Each of the Shareholders acknowledges and
agrees that the names "Zia" and "Zia Information Analysis Group" are important
elements of the Company's business and goodwill and covenants that following
the Closing Date he or she shall not conduct a business utilizing the
above-described names without the prior written consent of the Surviving
Corporation, which shall not be unreasonably withheld.
11. INDEMNIFICATION
The Shareholders, FYI and Newco each make the following covenants that
are applicable to them, respectively.
11.1 FYI LOSSES.
(a) Each of the Shareholders jointly and severally 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 (1) any
representation or warranty made by the Company or the Shareholders in
Sections 5.1 through 5.31 hereof being untrue or incorrect in any
respect; (2) any liability for warranty claims arising from the sale
of goods or services by the Company through the Closing Date; (3) 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; (4) 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; (5) any failure by the Company or any Shareholder to
observe or perform its or his or her covenants and agreements set
forth in this Agreement or in any other agreement executed by it or
him or her expressly pursuant to this Agreement; or (6) any untrue
statement of a material fact relating to the Company or the
Shareholders in the Questionnaire for Subsidiaries completed by the
Company and attached hereto as Schedule 11.1(a) (provided, that to the
extent that matters are subject to indemnification under Sections
11.2, 11.3(a) and 11.5 hereof, such matters shall not be subject to
indemnification under this Section 11.1);
(b) "FYI Losses" shall mean all damages (including,
without limitation, amounts paid in settlement with the Shareholders'
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. An FYI Loss shall not include any
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Taxes to the extent that such Taxes are attributable to FYI or the
Surviving Corporation taking a position on an amended Tax return for a
Tax period ending on or before December 31, 1995, that is inconsistent
with the position that had originally been taken by the Company on the
Tax return prior to amendment unless either (i) such position is
required by law or (ii) the Shareholders have consented to FYI or the
Surviving Corporation taking such position, which consent may not be
unreasonably withheld or denied.
11.2 ENVIRONMENTAL INDEMNITY.
(a) Each of the Shareholders jointly and severally 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 a breach of any representation or warranty
set forth in Section 5.11 hereof. This Section 11.2(a) 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 own negligence.
(b) The obligations of this Section 11.2 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
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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.
11.3 EMPLOYEE COMPENSATION AND BENEFITS.
(a) Each of the Shareholders jointly and severally 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
and are not scheduled pursuant to this Agreement or reserved for on
the Financial Statements (collectively, "Pre-Closing Employee
Claims").
(b) Each of FYI and Newco jointly and severally agrees to
indemnify and hold the Shareholders and their respective directors,
officers, employees, representatives, agents and attorneys harmless
from and against any and all claims made by employees of the Surviving
Corporation, 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, except as otherwise expressly
provided herein, to the extent the same are based on employment
service rendered to the Surviving Corporation after the Closing Date
or injury or sickness occurring after the Closing Date (collectively,
"Post-Closing Employee Claims").
11.4 SHAREHOLDER LOSSES.
(a) FYI and Newco jointly and severally agree to
indemnify and hold harmless the Shareholders, and their respective
agents, and attorneys, for and in respect of any and all Shareholder
Losses (as defined below) suffered, sustained, incurred or required to
be paid by any of the Shareholders by reason of (1) 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; (2) 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; (3) 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 Shareholder Losses result from the
negligence or misconduct of the Shareholders or any of them (with
respect to periods prior to the Closing Date); or (4) any untrue
statement of a material fact contained in the Registration Statement
described in Section 8.10 hereof, or in any amendment thereof or
supplement thereto, other than as provided to FYI or its counsel by
the Company or the Shareholders and attached hereto as Schedule
11.1(a) (provided, that to the extent that matters are subject to
indemnification under
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Sections 11.3(b) and 11.5 hereof, such matters shall not be deemed to
be subject to indemnification under this Section 11.4).
(b) "Shareholder 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 Shareholders or such other persons to indemnification
hereunder.
11.5 INDEMNIFICATION FOR CERTAIN TAX MATTERS. The Shareholders
shall indemnify, defend and hold harmless the Surviving Corporation from and
against the liability of the Company 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 the Company into Newco
fails to qualify as a tax-free transaction as to the Company and/or the
Surviving Corporation pursuant to Section 368(a)(1)(A) and Section 368(a)(2)(D)
of the Code solely as a result of any breach of a representation or warranty as
set forth in Sections 5.8(d)-(m) and 5.29 or a covenant of the Company or a
Shareholder as set forth in Section 10.3 hereof. FYI and the Surviving
Corporation shall indemnify, defend and hold harmless the Shareholders from and
against the liability of the Shareholders, the Company and the Surviving
Corporation with respect to all Taxes, resulting from any final determination
(or settlement) that the Merger of the Company into Newco, fails to qualify as
a tax-free transaction as to the Shareholders, the Company and/or the Surviving
Corporation pursuant to Section 368(a)(1)(A) and Section 368(a)(2)(D) of the
Code solely as a result of any breach of a representation or, warranty as set
forth in Section 6.12 or a covenant of FYI or Newco as set forth in Sections
10.2 and 10.3 hereof.
11.6 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 11, except to the extent the Indemnifying
Party is actually prejudiced by such failure to give notice. With respect to
FYI Losses, Environmental Costs, Pre-Closing Employee Claims and the matters
described in Section 11.5, the Shareholders 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 Shareholder Losses, Post-Closing Employee Claims and the matters
described in the second sentence of Section 11.5, FYI and
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Newco shall be the Indemnifying Party and the Shareholders and their respective
agents and attorneys 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 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 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.
11.8 COOPERATION. Each of FYI Newco, the Surviving Corporation,
the Company and the Shareholders, 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.
11.9 SATISFACTION OF CLAIMS FROM ESCROW. FYI and Newco shall have
the option of recovering amounts owing thereto pursuant to Sections 11.1, 11.2,
11.3 and 11.5 for FYI
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Losses, Environmental Costs and Pre-Closing Employee Claims or the matters set
forth in Section 11.5 from the Shareholders or from the funds or shares of FYI
Stock held in escrow in accordance with the Escrow Agreement described in
Section 8.6.
11.10 LIMITATIONS OF INDEMNIFICATION; PROPORTIONATE PAYMENTS. FYI,
Newco, the Surviving Corporation and the other persons or entities indemnified
pursuant to Sections 11.1, 11.2, 11.3 and 11.5 shall not assert any claim for
indemnification hereunder until such time as the aggregate of all claims that
such persons may have against the Indemnifying Parties shall exceed $50,000,
but upon reaching such amount, from the first dollar of all claims. Any
amounts paid to the Shareholders pursuant to this Section 11 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 II. Notwithstanding any other provision of this
Agreement, no Indemnified Party shall be obligated to indemnify and hold
harmless an Indemnified Party with respect to any claim for indemnification
hereunder exceeding the aggregate consideration set forth on Annex II hereto.
12. SECURITIES ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The FYI Stock acquired by the Shareholders 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.
12.1 TRANSFER RESTRICTIONS. For a period of two (2) years from the
Closing, no Shareholder shall (a) sell, assign, exchange, transfer, distribute
or otherwise dispose of (i) any shares of FYI Stock received by the Shareholder
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 Shareholders 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, DISTRIBUTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, 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 Shareholders will execute and deliver to FYI prior to or at the
Closing a Lock-Up Agreement containing the foregoing agreements.
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13. TERMINATION OF AGREEMENT
13.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date solely:
(a) By the mutual consent of the Boards of
Directors of FYI and the Company;
(b) By the Shareholders or the Company (acting
through its Board of Directors), on the one hand, or by FYI or
Newco (each acting through its Board of Directors), on the
other hand, if the transactions contemplated by this Agreement
to take place at the Closing shall not have been consummated
by October 15, 1996 unless the failure of such transactions to
be consummated is due to the willful failure of the party
seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
(c) By the Shareholders or the Company, on the
one hand, or by FYI or Newco, on the other hand, if a material
breach or default shall be made by the other party in the
observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein, and the
curing of such default shall not have been made on or before
the Closing Date and shall not reasonably be expected to
occur; or
(d) Pursuant to Section 7.6 hereof.
13.2 LIABILITIES IN EVENT OF TERMINATION. In the event of
termination of this Agreement as provided in this Section, there shall be no
liability or obligation on the part of any party hereto except to the extent
that such liability is based on the breach by a party of any of its
representations, warranties or covenants set forth in this Agreement.
14. GENERAL
14.1 COOPERATION. The Company, the Shareholders, 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. The Company 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.
14.2 SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS AND
WARRANTIES.
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(a) Covenants and Agreements. 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 and Section 6.12hereof 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.
14.3 NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Shareholders. The Shareholders recognize and
acknowledge that they had in the past, currently have, and in the
future will have, access to certain confidential information of the
Company and/or FYI, including without limitation lists of customers,
operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's and/or FYI's respective
businesses. The Shareholders agree that they will not disclose such
confidential information to any person, firm, corporation, association
or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of FYI, (b) following the Closing, such
information may be disclosed by the Shareholders as is required in the
course of performing their duties for FYI and the Surviving
Corporation and (c) to counsel and other advisers, provided that such
advisers (other than counsel) agree to the confidentiality provisions
of this Section 14.3(a); provided, further, that confidential
information shall not include (i) such information that becomes known
to the public generally through no fault of the Shareholders, (ii)
information required to be disclosed by law or the order of any
governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the
Shareholders shall, if possible, give prior written notice thereof to
FYI and Newco and provide FYI and Newco with the opportunity to
contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a
breach or threatened breach by any of the Shareholders of the
provisions of this Section 14.3, FYI and Newco shall be entitled to an
injunction restraining such Shareholders from disclosing, in whole or
in part, such confidential information. Nothing herein shall be
construed as prohibiting FYI and Newco from pursuing any other
available remedy for such breach or threatened breach, including the
recovery of damages.
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<PAGE> 50
(b) FYI and Newco. FYI and Newco recognize and
acknowledge that they had in the past and currently have access to
certain confidential information of the Company, including without
limitation lists of customers, operational policies, and pricing and
cost policies that are valuable, special and unique assets of the
Company's business. FYI and Newco agree that, prior to the Closing,
they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of the
Company, and (b) to counsel and other advisers, provided that such
advisers (other than counsel) agree to the confidentiality provisions
of this Section 14.3(b); provided further, that confidential
information shall not include (i) such information that becomes known
to the public generally through no fault of FYI or Newco, (ii)
information required to be disclosed by law or the order of any
governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), FYI and Newco
shall, if possible, give prior written notice thereof to the Company
and the Shareholders and provide the Company and the Shareholders with
the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party.
In the event of a breach or threatened breach by FYI or Newco of the
provisions of this section, the Company and the Shareholders shall be
entitled to an injunction restraining FYI and Newco from disclosing,
in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting the Company and the Shareholders
from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
(c) Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants
in this Section 14.3, and because of the immediate and irreparable
damage that would be caused for which they would have no other
adequate remedy, the parties hereto agree that, in the event of a
breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining
orders.
(d) Survival. The obligations of the parties under this
Section 14.3 shall survive the termination of this Agreement.
14.4 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 Shareholders.
14.5 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
Shareholders, the Company, 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
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<PAGE> 51
hereto may be modified or amended only by a written instrument executed by the
Shareholders, the Company, Newco and FYI, acting through their respective
officers.
14.6 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.
14.7 BROKERS AND AGENTS. Except as disclosed on Schedule 14.7,
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.
14.8 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 Shareholders will pay from personal funds
and not from the funds of the Company, the fees, expenses and disbursements of
its counsel incurred in connection with the subject matter of this Agreement.
The Shareholders acknowledge that they, and not the Company or FYI, will pay
all taxes due upon receipt of the consideration payable to the Shareholders
pursuant to Section 2 hereof.
14.9 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
Zia Information Analysis Group, Inc.
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.
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<PAGE> 52
(ii) If to the Shareholders, addressed thereto at
the address set forth on Annex I, with copies to such counsel
as is set forth with respect to the Shareholders on such Annex
I;
(iii) If to the Company, addressed to:
Zia Information Analysis Group
345 California Street
9th Floor
San Francisco, California 94104
Telecopy No.: (415) 288-4500
Attn: David L. Delgado, President
and marked "Personal and Confidential"
with copies to:
Orrick, Herrington & Sutcliffe
Old Federal Reserve Bank
400 Sansome Street
San Francisco, California 94111
Telecopy No.: (415) 773-5759
Attn: Richard V. Smith, Esq.
Maria Gray, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 14.9 from time to time.
14.10 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF. ANY LEGAL ACTION, SUIT OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY SHALL BE INSTITUTED IN THE FEDERAL COURT OF THE NORTHERN DISTRICT OF
CALIFORNIA, OR IN THE ABSENCE OF ANY JURISDICTION IN SUCH COURT, IN ANY STATE
COURT LOCATED IN SAN FRANCISCO COUNTY, CALIFORNIA, AND EACH PARTY AGREES NOT TO
ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH ACTION, SUIT
OR PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION
OF SUCH COURT, THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT THE VENUE OF THE ACTION, SUIT OR PROCEEDING IS
IMPROPER OR THAT THIS AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE
ENFORCED IN OR BY SUCH COURT. EACH PARTY FURTHER IRREVOCABLY SUBMITS TO THE
JURISDICTION OF SUCH COURT IN ANY SUCH ACTION, SUIT OR PROCEEDING.
14.11 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
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<PAGE> 53
any single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
14.12 TIME. Time is of the essence with respect to this Agreement.
14.13 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.
14.14 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.
The indemnification provided for in Section 11 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. Except in the event of
fraud, no action, suit or proceeding for termination or rescission, or claiming
repudiation, of this Agreement or any agreement executed expressly pursuant to
this Agreement may be brought or maintained by any party hereto against the
others following the Closing Date and the consummation of the transactions
contemplated under this Agreement no matter how severe, grave or fundamental
any such breach, default or nonperformance may be by one party. Accordingly,
the parties hereby expressly waive and forego any and all rights they may
possess to bring any such action except in the event of fraud.
14.15 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.
14.16 TAX STRUCTURE. It is the intent of the parties that the
transaction contemplated by this Agreement be structured as a tax-free
reorganization under Section 368(a) of the Code.
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<PAGE> 54
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
F.Y.I. INCORPORATED
ATTEST:
By: /s/ THOMAS C. WALKER
- ---------------------------------- -------------------------------
Name:
Title:
ZIA ACQUISITION CORP.
ATTEST:
By: /s/ THOMAS C. WALKER
- ---------------------------------- -------------------------------
Name:
Title:
ZIA INFORMATION ANALYSIS GROUP
ATTEST:
By: /s/ DAVID L. DELGADO
- ---------------------------------- -------------------------------
Name:
Title:
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<PAGE> 55
THE SHAREHOLDERS:
ATTEST:
/s/ DAVID L. DELGADO
- ---------------------------------- ---------------------------------------
David L. Delgado
ATTEST:
/s/ CHRISTOPHER R. YOWELL
- ---------------------------------- ---------------------------------------
Christopher R. Yowell
ATTEST:
/s/ REBECCA D. HOMAN
- ---------------------------------- ---------------------------------------
Rebecca D. Homan
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<PAGE> 56
SPOUSAL CONSENT
The undersigned, the spouses of the above-listed Shareholders, 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 Zia Information Analysis Group.
/s/ LORI DELGADO /s/ ARTHUR W. HOMAN
- ---------------------------------- ---------------------------------------
Lori Delgado Arthur W. Homan
/s/ RACHELLE L. YOWELL
- ----------------------------------
Rachelle L. Yowell
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<PAGE> 57
ANNEX I
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF AUGUST 30, 1996
BY AND AMONG
F.Y.I. INCORPORATED
ZIA ACQUISITION CORP.
ZIA INFORMATION ANALYSIS GROUP
AND
THE SHAREHOLDERS NAMED THEREIN
SHAREHOLDERS OF THE COMPANY:
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Company Stock Date of Acquisition
---------------- ---------------- -------------------
<S> <C> <C>
David L. Delgado 1,080 August 31, 1994
345 California Street
9th Floor
San Francisco, California 94104
Christopher R. Yowell 400 August 31, 1994
345 California Street
9th Floor
San Francisco, California 94104
Rebecca D. Homan 447 August 31, 1994
345 California Street
9th Floor
San Francisco, California 94104
</TABLE>
<PAGE> 58
ANNEX II
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF AUGUST 30, 1996
BY AND AMONG
F.Y.I. INCORPORATED
ZIA ACQUISITION CORP.
ZIA INFORMATION ANALYSIS GROUP
AND
THE SHAREHOLDERS NAMED THEREIN
Aggregate consideration to be paid to the Shareholders:
The aggregate consideration to be paid to the Shareholders shall be
Five Million and Five Dollars ($5,000,005), which shall be paid by
delivery of (i) One Hundred Fifty-Four Thousand Two Hundred Eight-Six
(154,286) shares of FYI Stock (including the Twelve Thousand Three
Hundred Forty-Three (12,343) shares of FYI Stock to be delivered to
the Escrow Agent pursuant to Section 3.1(a) hereof) and cash of Two
Million Three Hundred Thousand Dollars ($2,300,000) (including the One
Hundred Eighty-Three Thousand Nine Hundred Ninety-Seven and 49/100
Dollars ($183,997.49) to be delivered to the Escrow Agent pursuant to
Section 3.1(a) hereof). Such consideration shall be distributed to
the Shareholders as follows:
<TABLE>
<CAPTION>
Name Number of Shares Amount of Cash
---- ---------------- --------------
<S> <C> <C>
David L. Delgado 80,229(1) $ 1,398,000(1)
Christopher R. Yowell 40,114(2) $ 336,000(2)
Rebecca D. Homan 33,943(3) $ 566,000(3)
</TABLE>
- --------------------
(1) Of these amounts, 6,418 shares of FYI Stock and $111,838.48 will
be escrowed as provided in this Agreement.
(2) Of these amounts, 3,209 shares of FYI Stock and $26,879.63 will be
escrowed as provided in this Agreement.
(3) Of these amounts, 2,716 shares of FYI Stock and $45,279.38 will be
escrowed as provided in this Agreement.
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between F.Y.I. Incorporated,
a Delaware corporation (the "Company"), and Timothy J. Barker ("Employee") is
hereby entered into and effective as of July 31, 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 his 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:
<PAGE> 2
A G R E E M E N T S
1. Employment and Duties.
(a) The Company hereby employs Employee as Vice President and
Chief Accounting Officer. As such, Employee shall have responsibilities,
duties and authority reasonably accorded to and expected of a Vice President
and Chief Accounting Officer and will report directly to the Chief Financial
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 his working time, attention and efforts to promote and further the
business of the Company.
(b) Employee shall not, during the term of his 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 his 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 November 1995 through December 1996
Employee shall be eligible for a bonus opportunity of up to $50,937.50 based
one half on total corporate financial performance and one half on achievement
of Employee specific objectives. For 1997 and subsequent years, it is the
Company's
-2-
<PAGE> 3
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 his 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 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 his 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 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 his 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).
-3-
<PAGE> 4
(iv) An automobile allowance in the amount of $500 per
month.
(v) 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.
(vi) 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.
(vii) The Company shall grant the Employee additional
options (the "Options") to acquire 15,000 shares of Common Stock of
the Company at the price of $17.00 per share. The Options shall
become exercisable as to 20% of the underlying shares of Common Stock
on the 30th day following the date of grant and as to the remainder,
20% of the underlying shares of Common Stock on each of the first four
anniversaries of July 31, 1996 (July 31, 1997, July 31, 1998, July 31,
1999 and July 31, 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.
(viii) The Company shall pay for Employee's attendance at
continuing education seminars to maintain Certified Public Accounting
certification to the extent that Employees' schedule allows and
reimburse Employee for (x) any registration fee (y) travel and lodging
to the extent such seminars are not available in Dallas, Texas, and
(z) fees for AICPA and other state and local CPA associations.
(ix) 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.
-4-
<PAGE> 5
(x) The Company shall provide Employee with such other
compensation as may be determined by the Board or compensation
committee.
3. Non-Competition Agreement.
(a) Subject to Section 5(d), Employee will not, during the period
of his employment by or with the Company, and for a period of two (2) years
immediately following the termination of his employment under this Agreement,
for any reason whatsoever, directly or indirectly, for himself or on behalf of
or in conjunction with any other person, persons, company, partnership,
corporation or business of whatever nature:
(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 his 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,
-5-
<PAGE> 6
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 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 his 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
-6-
<PAGE> 7
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, 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.
-7-
<PAGE> 8
4. Place of Performance.
(a) Employee understands that he may be again requested by the
Board to relocate from his present residence to another geographic location in
order to more efficiently carry out his 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,
his 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 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 his 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 his 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 through January 31,
1999 (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.
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<PAGE> 9
(b) Disability. If, as a result of incapacity due to
physical or mental illness or injury, Employee shall have been absent
from his 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 his full-time duties
at the conclusion of such notice period. Also, Employee may terminate
his employment hereunder if his health should become impaired to an
extent that makes the continued performance of his duties hereunder
hazardous to his physical or mental health or his life, provided that
Employee shall have furnished the Company with a written 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
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<PAGE> 10
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 Employee. 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 one (1)
year ("Severance Pay"). Further, any termination without cause by the
Company shall operate to shorten the period set forth in 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 his 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 he 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
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<PAGE> 11
(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 he 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 his rights hereunder, provided, that Employee need not seek any such
determination prior to terminating his employment 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 one (1) year. 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 his employment without Good Reason
pursuant to paragraph 5(f), Employee shall give a minimum of thirty
(30) days written notice to the Company and 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,
-11-
<PAGE> 12
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 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 his
employment by the Company. Employee hereby assigns and agrees to assign all
his 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 he 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 he 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
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<PAGE> 13
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 his best efforts to faithfully discharge his duties under this
Agreement, Employee cannot be held liable to the Company for errors or
omissions made in good faith where Employee 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 his
employment by the Company and the performance of his 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 he has
been selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his 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.
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<PAGE> 14
12. Change in Control.
(a) Unless he 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
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 150% 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 his 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
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<PAGE> 15
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 his 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 he 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 he so desires.
(e) 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
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
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<PAGE> 16
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 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 his 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
-16-
<PAGE> 17
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.
14. Notice. Whenever any notice is required hereunder, it shall
be given in writing addressed as follows:
To the Company: F.Y.I. Incorporated
3232 McKinney Avenue
Suite 900
Dallas, Texas 75204
Attn. Margot Lebenberg, General Counsel
with a copy to: Charles C. Reeder, Esq.
Locke Purnell Rain Harrell
2200 Ross Avenue
Suite 2200
Dallas, Texas 75201
To Employee: Timothy J. Barker
6627 Northwood Road
Dallas, TX 75225
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.
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<PAGE> 18
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 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/ TIMOTHY J. BARKER
----------------------------------------
F.Y.I. INCORPORATED
/s/ ED H. BOWMAN, JR.
----------------------------------------
By: Ed H. Bowman, Jr.
Title: President and Chief
Executive Officer
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<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.
Recordex Services, Inc.
California Medical Record Service Acquisition Corp.
Texas Medical Record Service Acquisition Corp.
Minnesota Medical Record Service Acquisition Corp.
ZIA 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
September 5, 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
September 5, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report dated March 20, 1996 and to all
references to our Firm and included in the Post-Effective Amendment No. 3 to the
Registration Statement on Form S-1 (Registration No. 333-1084) of F.Y.I.
Incorporated 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 Post-Effective Amendment No. 3 to the Form S-1 of the
Registration Statement of F.Y.I. Incorporated.
C. W. AMOS & COMPANY, LLC
September 5, 1996
<PAGE> 1
EXHIBIT 23.5
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. 3 to Form S-1 of F.Y.I. Incorporated. We also
consent to the reference to our Firm as experts in the same registration
statement.
MOSS ADAMS LLP
Seattle, Washington
September 5, 1996
