<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the quarterly period ended September 30, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the transition period from ____________ to
____________
Commission file number 0-27444
F.Y.I. INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 75-2560895
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
3232 MCKINNEY AVENUE, SUITE 900, DALLAS, TEXAS 75204
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 953-7555
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------------- ---------------
As of October 31, 1997, 10,335,692 shares of the registrant's Common
Stock, $.01 par value per share, were outstanding.
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F.Y.I. INCORPORATED AND SUBSIDIARIES
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1997
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1 Financial Statements 3
Consolidated Balance Sheets - December 31, 1996 and September 30, 1997 (unaudited) 4
Consolidated Statements of Operations - Three months and nine months ended September 30, 1996
and 1997 (unaudited) 5
Consolidated Statements of Cash Flows - Nine months ended
September 30, 1996 and 1997 (unaudited) 6
Notes to Consolidated Financial Statements - September 30, 1997 7
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
Item 3 Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
-----------------
Item 5 Other Information II-1
Item 6 Exhibits and Reports on Form 8-K II-2
SIGNATURES II-3
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
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F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(SEE NOTE 1)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
--------------- ---------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 21,352 $ 7,492
Accounts receivable and notes receivable, less allowance of $1,240 and
$2,174, respectively 19,695 27,684
Inventory 522 1,154
Notes receivable, stockholders - short-term -- 354
Prepaid expenses and other current assets 939 2,038
--------------- ---------------
Total current assets 42,508 38,722
PROPERTY, PLANT AND EQUIPMENT, net 13,303 17,397
GOODWILL AND OTHER INTANGIBLES 43,235 54,978
NOTES RECEIVABLE, STOCKHOLDERS - LONG TERM 643 321
OTHER NONCURRENT ASSETS 2,445 1,969
--------------- ---------------
Total assets $ 102,134 $ 113,387
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $15,219 $11,533
Short-term obligations 250 --
Current maturities of long-term obligations 585 944
Unearned revenue 1,087 1,407
Federal income taxes payable 3,439 1,598
--------------- ---------------
Total current liabilities 20,580 15,482
LONG-TERM OBLIGATIONS, net of current maturities 4,662 3,716
DEFERRED INCOME TAXES, net of current portion 351 967
--------------- ---------------
Total liabilities 25,593 20,165
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
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,
9,728,726 and 10,331,959 shares issued and outstanding at
December 31, 1996 and September 30, 1997, respectively 97 103
Additional paid-in-capital 74,191 84,023
Retained earnings 2,754 9,597
--------------- ---------------
77,042 93,723
Less - Treasury stock, $.01 par value, 36,670 shares
at December 31, 1996 and September 30, 1997, respectively (501) (501)
--------------- ---------------
Total stockholders' equity 76,541 93,222
--------------- ---------------
Total liabilities and stockholders' equity $ 102,134 $ 113,387
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(SEE NOTE 1)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------------------- --------------------------------
1996 1997 1996 1997
-------------- -------------- --------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Service revenue $ 24,023 $ 36,186 $ 53,493 $ 98,948
Product and other revenue 1,915 2,414 4,947 6,228
----------- ---------- ---------- -------------
Total revenue 25,938 38,600 58,440 105,176
COST OF SERVICES 14,975 22,743 33,666 62,469
COST OF PRODUCTS SOLD 1,350 1,750 3,386 4,524
DEPRECIATION 452 894 1,198 2,246
----------- ---------- ---------- -------------
Gross profit 9,161 13,213 20,190 35,937
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 6,518 8,424 14,886 23,016
AMORTIZATION 218 450 290 1,302
----------- ---------- ---------- -------------
Operating income 2,425 4,339 5,014 11,619
OTHER (INCOME) EXPENSE:
Interest expense 401 141 577 496
Interest income (31) (36) (228) (448)
Other (income) expense, net 85 24 27 60
----------- ---------- ---------- -------------
Income before income taxes 1,970 4,210 4,638 11,511
PROVISION FOR INCOME TAXES 727 1,684 1,744 4,668
----------- ---------- ---------- -------------
NET INCOME $ 1,243 $ 2,526 $ 2,894 $ 6,843
=========== ========== ========== =============
PRO FORMA DATA:
Historical net income $ 1,243 $ 2,526 $ 2,894 $ 6,843
Pro forma compensation differential 998 -- 1,710 216
Pro forma provision for income taxes 468 -- 808 139
----------- ---------- ---------- -------------
PRO FORMA NET INCOME $ 1,773 $ 2,526 $ 3,796 $ 6,920
=========== ========== ========== =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 6,977 10,231 6,702 10,008
=========== ========== ========== =============
NET INCOME PER COMMON SHARE $ 0.18 $ 0.25 $ 0.43 $ 0.68
=========== ========== ========== =============
PRO FORMA NET INCOME PER COMMON SHARE $ 0.25 $ 0.25 $ 0.57 $ 0.69
=========== ========== ========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------
September 30, September 30,
1996 1997
------------- -------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,894 $ 6,843
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,488 3,548
Deferred tax benefit (274) --
Change in operating assets and liabilities:
Accounts receivable 807 (3,882)
Inventory (58) (145)
Prepaid expenses and other assets (326) (61)
Accounts payable and accrued liabilities (1,761) (4,702)
Unearned revenue 103 206
---------- ---------
Net cash provided by operating activities 2,873 1,807
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,573) (4,350)
Distribution from partnership 106 60
Proceeds from sale of property and equipment -- 24
Cash paid for acquisitions, net of cash received (27,365) (10,090)
---------- ---------
Net cash used in investing activities (29,832) (14,356)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance, net of underwriting
discounts and other costs 23,448 691
Distribution to shareholders of pooled companies -- (100)
Proceeds from short-term obligations 6,128 20
Proceeds from long-term obligations 14,276 --
Cash paid for debt issuance costs (1,602) --
Principal payments on short-term obligations (8,607) (250)
Principal payments on long-term obligations (2,906) (1,672)
---------- ---------
Net cash provided by (used in) financing activities 30,737 (1,311)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,778 (13,860)
CASH AND CASH EQUIVALENTS, beginning of period 63 21,352
---------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 3,841 $ 7,492
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying consolidated financial statements and related notes
to consolidated financial statements include: (i) the accounts of F.Y.I.
Incorporated (the "Company" or "F.Y.I."); (ii) the seven document management
services businesses ("Founding Companies") acquired simultaneously with the
closing of F.Y.I.'s initial public offering (the "IPO") on January 23, 1996
based on an effective date of January 31, 1996; (iii) the companies acquired in
business combinations accounted for under the purchase method of accounting
from their respective acquisition dates; and (iv) the retroactive effect of the
results of companies acquired in business combinations accounted for under the
pooling-of-interests method of accounting for all periods presented.
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 September 30,
1997, its results of operations for the three months and nine months ended
September 30, 1996 and 1997, and its cash flows for the nine months ended
September 30, 1996 and 1997. All significant intercompany transactions 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 consolidated financial
statements of the Company and the related notes thereto in F.Y.I.'s Annual
Report on Form 10-K filed with the Commission on March 11, 1997 and in the
Company's Current Report on Form 8-K filed with the Commission on April 9,
1997. The results of operations for the interim periods ended September 30,
1997 and 1996 will not be indicative of the results for the full year because
of the impact of acquisitions recorded as purchases, whose results are only
included subsequent to the purchase date.
Certain prior period amounts have been reclassified to make their
presentation consistent with the current year.
2. PRO FORMA NET INCOME
The Company acquired The Rust Consulting Group, Inc. ("Rust") in
December 1996, MAVRICC Management Systems, Inc. and a related company, MMS
Escrow and Transfer Agency, Inc. (collectively, "MAVRICC") in March 1997 and
Input of Texas, Inc. ("Input") in March 1997, all in transactions that were
accounted for as poolings-of-interests (collectively, the "Pooled Companies").
The Pooled Companies had previously been managed as independent,
privately-held companies operating under a variety of tax structures.
Therefore, selling, general and administrative expenses for the historical
periods reflect compensation and related benefits that the owners and certain
key employees had received from the businesses during those periods. In
connection with the acquisitions, the owners and certain key employees have
entered into employment agreements that provide for compensation and related
benefits at levels lower than the historical amounts. The differential between
the historical compensation and the compensation set forth in the employment
agreements is referred to as the "Compensation
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Differential." The pro forma data present compensation at the levels the
owners and certain key employees have agreed to receive subsequent to the
acquisitions. In addition, the pro forma data present the incremental
provision for taxes as if all entities had been subject to federal and state
income taxes and include the impact of the Compensation Differential discussed
above.
3. 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 Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1996 1997 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Outstanding F.Y.I. shares 6,961 10,215 6,686 9,992
Warrants to purchase stock under the treasury stock method 16 16 16 16
----- ------ ----- -----
Number of shares used in net income per share calculation 6,977 10,231 6,702 10,008
===== ====== ===== ======
</TABLE>
The Company intends to adopt SFAS No. 128 "Earnings Per Share" effective
December 15, 1997. This statement requires the replacement of primary earnings
per share with basic earnings per share and fully diluted earnings per share
with diluted earnings per share. Management of the Company does not expect
that the adoption of this statement will have a material impact on the earnings
per share calculation.
4. BUSINESS COMBINATIONS
Since the IPO and through December 31, 1996, the Company acquired 18
additional document management businesses, of which 17 were accounted for as
purchases and one was accounted for as a pooling-of-interests.
During the first nine months of 1997, the Company acquired eight
additional document management businesses, six of which were accounted for as
purchases (the "Purchased Companies") and two of which were accounted for under
the pooling- of-interests method. The six acquisitions accounted for as
purchases were Acadian Consultants, Inc., Computer Central Corporation,
Deliverex of San Francisco, Information Management Corporation, Major Legal
Services and Quality Copy Service, QCSInet, Inc. and affiliates. The aggregate
consideration paid for the Purchased Companies consisted of $5,625,000 in cash
and 453,685 shares of Common Stock. The preliminary allocation of the purchase
price is set forth below (in thousands):
<TABLE>
<S> <C>
Consideration Paid $13,185
Estimated Fair Value of Tangible Assets 7,650
Estimated Fair Value of Liabilities 6,337
Goodwill 11,872
</TABLE>
The average fair market value of the shares of Common Stock used in
calculating the consideration paid was $16.67, which represents a 30% to 35%
discount from the average trading price of the Common Stock based on the length
and type of restrictions in the purchase agreements.
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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 allocations are not expected to be materially
different than the final allocations.
All intangibles are considered enterprise goodwill. Based on the
historical profitability of the Purchased Companies and the trend in the
healthcare, legal 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
Purchased Companies is not deductible for income tax purposes.
The two acquisitions completed in 1997 accounted for as
poolings-of-interests are MAVRICC and Input. The Company acquired all of the
outstanding stock of MAVRICC and Input in exchange for 1,083,636 shares of
Common Stock. The Company's consolidated financial statements give retroactive
effect to the acquisitions of MAVRICC and Input for all periods presented
herein. The interim results of the Company for the period from January 1, 1996
to September 30, 1996 have been restated for the MAVRICC and Input
acquisitions. Restated total revenue, net income, pro forma net income and
weighted average shares outstanding after giving effect to the MAVRICC and
Input acquisitions are summarized below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------------------ --------------------------------
As Previously As Previously
As Restated Reported As Restated Reported
----------- ------------- ----------- --------------
(unaudited, in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue $ 25,938 $ 22,613 $ 58,440 $ 48,884
Net income 1,243 1,131 2,894 2,478
Net income per common share $ 0. 18 $ 0.19 $ 0.43 $ 0.43
Pro forma net income 1,773 1,233 3,796 2,591
Pro forma net income per common share $ 0. 25 $ 0.21 $ 0. 57 $ 0.45
Weighted average shares outstanding 6,977 5,894 6,702 5,619
</TABLE>
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements of the Company and the related notes thereto appearing elsewhere in
this Report on Form 10-Q. Additional information concerning factors that could
cause results to differ materially from those in the forward-looking statements
is contained under "Part II. OTHER INFORMATION Item 5. Other Information."
Introduction
The Company's revenue is classified as service revenue and product and
other revenue. Service revenue relates to the following document management
services: (i) document and data conversion services; (ii) records management
services; (iii) database management and related services; (iv) medical records
release of information services; (v) litigation support services; and (vi)
employee and investor services. Product and other revenue represents sales of
micrographic and business imaging supplies and equipment, primarily in
conjunction with film processing and other micrographic services, sales of
filing supplies, shelving and software, commissions on the sales of imaging
systems and equipment and franchising fees.
Cost of services consists primarily of compensation and benefits to
non-administrative employees, occupancy costs, equipment costs and supplies.
Cost of products sold relates to micrographics and business imaging supplies
and equipment, filing supplies, shelving and software.
Selling, general and administrative expenses ("SG&A") consist
primarily of: (i) compensation and related benefits to the sales and marketing,
executive management, accounting, human resources and other administrative
employees of the Company; (ii) other sales and marketing costs; (iii)
communications costs; (iv) insurance costs; and (v) legal and accounting
professional fees and expenses.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Revenue
Total revenue. Total revenue increased 48.8% from $25.9 million for
the three months ended September 30, 1996 to $38.6 million for the three months
ended September 30, 1997. This increase was comprised of a 50.6% increase in
service revenue and a 26.1% increase in product and other revenue.
Service revenue. Service revenue increased $12.2 million from $24.0
million for the three months ended September 30, 1996 to $36.2 million for the
three months ended September 30, 1997. This increase was largely due to: (i)
revenue from the acquisitions completed subsequent to September 30, 1996
accounted for under the purchase method of accounting; (ii) internal growth of
7.0% in service revenue at the Founding Companies and the companies acquired
and accounted for under the purchase method of accounting consummated prior to
September 30, 1996; and (iii)
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internal growth of (9.7%) at the Pooled Companies which were acquired
subsequent to September 30, 1996.
Product and other revenue. Product and other revenue increased
$499,000 from $1.9 million for the three months ended September 30, 1996 to
$2.4 million for the three months ended September 30, 1997. This increase was
largely due to: (i) product revenue from the acquisitions completed subsequent
to September 30, 1996 accounted for under the purchase method of accounting;
and (ii) higher sales of micrographic imaging supplies and equipment.
Gross profit
Gross profit increased 44.2% from $9.2 million for the three months
ended September 30, 1996 to $13.2 million for the three months September 30,
1997, largely due to the increases in revenue discussed above. Gross profit as
a percentage of revenue decreased 1.1% from 35.3% for the three months ended
September 30, 1996 to 34.2% for the three months ended September 30, 1997,
primarily due to reduced gross profit margins at the Pooled Companies
associated with the negative internal revenue growth discussed above.
Selling, general and administrative expenses
SG&A increased 29.2% from $6.5 million, or 25.1% of revenue, for the
three months ended September 30, 1996 to $8.4 million, or 21.8% of revenue, for
the three months ended September 30, 1997, primarily due to SG&A incurred at
companies acquired subsequent to September 30, 1996. After giving effect to the
Compensation Differential in the three months ended September 30, 1996, SG&A
increased 52.6% from $5.5 million, or 21.3% of revenue, to $8.4 million, or
21.8% of revenue. This increase as a percentage of revenue was a result of:
(i) absorption of transition expenses due to the integration of the Company's
direct mail business in California and the relocation of its document and data
conversion activities from its facility in Rosedale, Maryland to its facility
in Upper Marlboro, Maryland; and (ii) increased corporate overhead required to
manage the consolidated group of companies.
Pro forma operating income
Pro forma operating income adjusted for the Compensation Differential
for the three months ended September 30, 1996 increased 26.8% from $3.4
million, or 13.2% of revenue, for the three months ended September 30, 1996 to
$4.3 million, or 11.2% of revenue, for the three months ended September 30,
1997.
Pro forma income before income taxes and pro forma net income
Pro forma income before income taxes adjusted for the Compensation
Differential for the three months ended September 30, 1996 increased 41.8% from
$3.0 million for the three months ended September 30, 1996 to $4.2 million for
the three months ended September 30, 1997, and pro forma net income adjusted
for both the Compensation Differential and pro forma provision for taxes for
the three months ended September 30, 1996 increased 42.5% from $1.8 million for
the three months ended September 30, 1996 to $2.5 million for the three months
ended September 30, 1997, largely attributable to the factors discussed above.
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NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Revenue
Total revenue. Total revenue increased 80.0% from $58.4 million for
the nine months ended September 30, 1996 to $105.2 million for the nine months
ended September 30, 1997. This increase was comprised of a 85.0% increase in
service revenue and a 25.9% increase in product and other revenue.
Service revenue. Service revenue increased $45.5 million from $53.5
million for the nine months ended September 30, 1996 to $98.9 million for the
nine months ended September 30, 1997. This increase was largely due to: (i)
revenue from the acquisitions completed subsequent to September 30, 1996
accounted for under the purchase method of accounting; (ii) internal growth of
7.8% in service revenue at the Founding Companies and the companies acquired
and accounted for under the purchase method of accounting consummated prior to
September 30, 1996; and (iii) internal growth of 12.4% at the Pooled Companies
which were acquired subsequent to September 30, 1996.
Product and other revenue. Product and other revenue increased $1.3
million from $4.9 million for the nine months ended September 30, 1996 to $6.2
million for the nine months ended September 30, 1997. This increase was largely
due to: (i) higher sales of micrographic imaging supplies and equipment; and
(ii) revenue from the acquisitions completed subsequent to September 30, 1996
accounted for under the purchase method of accounting, primarily derived from
sales of shelving and filing supplies.
Gross profit
Gross profit increased 78.0% from $20.2 million for the nine months
ended September 30, 1996 to $35.9 million for the nine months September 30,
1997, largely due to the increases in revenue discussed above. Gross profit as
a percentage of revenue decreased from 34.5% for the nine months ended
September 30, 1996 to 34.2% for the nine months ended September 30, 1997,
primarily due to lower gross profit margins experienced at the Pooled
Companies.
Selling, general and administrative expenses
SG&A increased 54.6% from $14.9 million, or 25.5% of revenue, for the
nine months ended September 30, 1996 to $23.0 million, or 21.9% of revenue, for
the nine months ended September 30, 1997, primarily due to SG&A associated with
acquisitions subsequent to September 30, 1996. After giving effect to the
Compensation Differential in each period, SG&A increased 73.0% from $13.2
million, or 22.5% of revenue, for the nine months ended September 30, 1996 to
$22.8 million, or 21.7% of revenue, for the nine months ended September 30,
1997. This decrease as a percentage of revenue was a result of a decrease in
SG&A as a percentage of revenue at the Founding Companies and Pooled Companies
from 20.6% for the nine months ended September 30, 1996 to 19.1% for the nine
months ended September 30, 1997, primarily due to spreading the companies'
fixed costs over a larger revenue base. These reductions were offset by
increased
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corporate overhead required to manage the consolidated group of companies and
deal costs related to the acquisition of the Pooled Companies.
Pro forma operating income
Pro forma operating income adjusted for the Compensation Differential
increased 76.0% from $6.7 million, or 11.5% of revenue, for the nine months
ended September 30, 1996 to $11.8 million, or 11.3% of revenue, for the nine
months ended September 30, 1997.
Pro forma income before income taxes and pro forma net income
Pro forma income before income taxes adjusted for the Compensation
Differential increased 84.7% from $6.3 million for the nine months ended
September 30, 1996 to $11.7 million for the nine months ended September 30,
1997, and pro forma net income adjusted for both the Compensation Differential
and pro forma provision for taxes increased 82.3% from $3.8 million for the
nine months ended September 30, 1996 to $6.9 million for the nine months ended
September 30, 1997, largely attributable to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had $23.2 million of working
capital and $7.5 million of cash. Cash provided by operating activities for
the nine months ended September 30, 1997 was $1.8 million. Net cash provided
by operating activities for the nine months ended September 30, 1997 was
impacted by: (i) a reduction in accounts payable and accrued liabilities
primarily due to payment of 1996 Federal and state income and franchise taxes;
and (ii) an increase in accounts receivable related to the Company's growth in
revenue. Cash used for investing activities was $14.4 million, as the Company
paid $10.1 million for acquisitions, net of cash acquired. Cash used for
financing activities was $1.3 million.
During the nine months ended September 30, 1996, cash flows provided
by operating activities were $2.9 million. Cash used for investing activities
was $29.8 million, as the Company paid $27.4 million for acquisitions, net of
cash acquired. Cash provided by financing activities was $30.7 million,
primarily due to the Company's IPO in January 1996.
The Company raised $43.6 million in a public stock offering in
December 1996 (the "December Offering"). The Company repaid its outstanding
borrowings on its credit facility (the "Line of Credit") of $22.8 million, and
assumed and repaid $4.1 million of debt for acquisitions subsequent to the
December Offering. The Company has used $11.5 million in acquisitions since
the December Offering and $5.2 million for working capital purposes. As of
September 30, 1997, no proceeds were remaining from the December Offering.
The Company anticipates that cash on hand, cash from operations,
additional bank financing available under the Line of Credit and shares of
Common Stock available under the Acquisition Shelf (as defined below) will
provide sufficient liquidity to execute the Company's acquisition and internal
growth plans for approximately the next 12 months. The availability under the
Line of Credit as of September 30, 1997 was $5.0 million for working capital
and general corporate purposes, and approximately $8.8 million for
acquisitions. Should the Company accelerate its acquisition program, the
Company may need to seek additional financing through the
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public or private sale of equity or debt securities. There can be no assurance
that the Company could secure such financing if and when it is needed or on
terms the Company deems acceptable. The Company has filed an acquisition shelf
Registration Statement on Form S-4 (Registration No. 333-24015) registering
2,500,000 shares of Common Stock for issuance in its acquisition program (the
"Acquisition Shelf"), of which 2,081,324 shares were available at September 30,
1997. The Company expects to renegotiate the Line of Credit in the near future
in order to increase its flexibility in executing its acquisition strategy.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the General Instructions to Rule 304 of Regulation S-K,
the quantitative and qualitative disclosures called for by Item 3 and by Rule
305 of Regulation S-K are inapplicable to the Company at this time.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
RECENT DEVELOPMENTS
Acquisition Activity. The Company has acquired a total of 33
companies. In July 1997, the Company acquired all of the outstanding shares of
Major Legal Services, a litigation support business based in San Francisco,
California. In August 1997, the Company acquired all of the outstanding shares
of Quality Copy Service, QCSInet, Inc. and affiliates, which are medical
records release of information businesses primarily serving hospitals and state
disability departments and headquartered in Miami, Florida with operations in
Massachusetts, Michigan, North Carolina, South Carolina, New York, Oregon,
Colorado and Pennsylvania.
Officers. In November 1997, the Company announced the appointment of
Timothy J. Barker as Senior Vice President and Chief Financial Officer. Mr.
Barker joined F.Y.I. in June 1995 and has been Vice President and Chief
Accounting Officer since July 1996. David Lowenstein was acting Chief Financial
Officer and will continue in his role as Executive Vice President - Corporate
Development and Treasurer.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This filing contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered
by the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainties, including without
limitation, variations in quarterly results, volatility of the Company's stock
price, development by competitors of new or superior products or services, or
entry into the market of new competitors, the sufficiency of the Company's
working capital and the ability of the Company to realize benefits from
consolidating certain general and administrative functions, to assimilate and
integrate acquisitions, to continue its aggressive acquisition program, to
retain management, to implement its focused business strategy to expand its
document management services geographically, to retain customers and attract
customers from other businesses, to increase revenue by cross-selling services
and to successfully defend itself in ongoing and future litigation. Although
the Company believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and, therefore, there can be no assurance that the forward-looking
statements included in this filing will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
II-1
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<S> <C>
10.30 Amended and Restated Employment Agreement between F.Y.I. Incorporated and Joe A. Rose
21 List of subsidiaries of F.Y.I. Incorporated
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None.
II-2
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized.
F.Y.I. Incorporated
Date: November 10, 1997 By: /s/ Ed H. Bowman, Jr.
---------------------
Ed H. Bowman, Jr.
Chief Executive Officer
Date: November 10, 1997 By: /s/ Timothy J. Barker
---------------------
Timothy J. Barker
Chief Financial Officer
(Principal Financial and Accounting Officer)
II-3
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.30 Amended and Restated Employment Agreement between F.Y.I. Incorporated and Joe A. Rose
21 List of subsidiaries of F.Y.I. Incorporated
27 Financial Data Schedule
</TABLE>
II-4
<PAGE> 1
Exhibit 10.30
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
(JOE A. ROSE)
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
the 17th day of June, 1997 by and between Joe A. Rose ("Employee") and F.Y.I.
Incorporated, a Delaware corporation (the "Company"). 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 document management services business (the "Business").
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:
A G R E E M E N T S
1. Employment and Duties.
(a) The Company hereby employs Employee as a Senior Vice
President. As such, Employee shall have responsibilities, duties and authority
reasonably accorded to and expected of a Senior Vice President and will report
directly to the President 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
<PAGE> 2
extent that such activity does not interfere with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed
as prohibiting Employee from making personal investments in such form or manner
as will neither require his services in the operation or affairs of the
companies or enterprises in which such investments are made.
2. Compensation. For all services rendered by Employee, the
Company shall compensate Employee as follows:
(a) Base Salary; Annual Bonus. The base salary payable to
Employee shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly
(pro-rated for any year in which Employee is employed for less than the full
year). For 1997 and subsequent years, it is the Company's intent to develop a
written Incentive Bonus Plan setting forth the criteria under which Employee
and other officers and key employees will be eligible to receive year-end bonus
awards. Employee shall be eligible for a bonus opportunity of up to 50% of
Employee's annual base salary in accordance with this Incentive Bonus Plan,
pro-rated for any year in which Employee was employed for less than the full
year. The award of any bonus shall be based on the total performance of the
business unit managed and shall be payable in various increments based on the
performance of the business unit versus targeted goals. The incremental
payments and the Company's targeted performance shall be determined by the
Board of Directors (the "Board") or the compensation committee thereof.
(b) 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
Employee's dependent family members under health, hospitalization,
disability, dental and other insurance plans that the Company may have
in effect from time to time.
(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 and a $500 per
month car allowance (determined on a pre-tax basis). 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).
2
<PAGE> 3
(iv) 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 may include
participation in the Company's 1996 Long-Term Incentive Compensation
Plan.
(v) Employee shall be granted options (the "Options") to
acquire 65,000 shares of Common Stock at the fair market value on the
date hereof. The Options shall become exercisable as to 40% of the
underlying shares one year following the date hereof and as to the
remainder, 20% of the underlying shares of Common Stock on each of the
next three (3) anniversaries of the date hereof. The Options shall
expire on the tenth anniversary of the date of grant.
(vi) The Company shall pay Employee a lump sum payment not
to exceed $30,000 to cover Employee's relocation expenses, upon
completing the relocation. If the employee leaves the Company,
voluntarily, prior to two years from the date of this Agreement,
employee shall reimburse the Company for 100% of the relocation
payment.
3. Place of Performance.
(a) Employee understands that he may be requested by the Board of
Directors of the Company (the "Board") to relocate from his then current
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 such event, if Employee
agrees to relocate, the Company will pay relocation costs up to $30,000 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; and closing costs on the sale of
Employee's present residence and on the purchase of a comparable residence in
the new location. The general intent of the foregoing is to assist Employee
with the cost 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 4(c).
4. Term; Termination; Rights on Termination. The term of this
Agreement shall begin on the date hereof and continue for one (1) year (the
"Term"). This Agreement and Employee's employment may be terminated in any one
of the following ways:
3
<PAGE> 4
(a) Death. The death of Employee shall immediately terminate the
Agreement with no severance compensation due to Employee's estate.
(b) Disability. The Company will make efforts to reasonably
accommodate Employee as required by applicable state or federal disability
laws. However, the parties irrebutably presume that, given Employee's
position, it would be an undue hardship to the Company if Employee is absent
for more than three (3) consecutive months. Therefore, 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 three (3) consecutive
months, then thirty (30) days after receiving written notice (which notice may
occur before or after the end of such three (3) month period, but which shall
not be effective earlier than the last day of such three (3) 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 Term of this Agreement or for six
(6) months, whichever amount is greater.
(c) Good Cause. The Company may terminate the Agreement five (5)
days after written notice to Employee for good cause, which shall be: (i)
Employee's breach of this Agreement; (ii) Employee's negligence in the
performance or nonperformance (continuing for five (5) days after receipt of
the written notice) of any of Employee's material duties and responsibilities
hereunder; (iii) Employee's dishonesty, fraud or misconduct with respect to the
business or affairs of the Company that adversely affects the operations or
reputation of the Company; (iv) Employee's conviction of a felony crime; or (v)
chronic alcohol abuse or illegal drug abuse by Employee. In the event of a
termination for good cause, as enumerated above, Employee shall have no right
to any severance compensation.
(d) Without Cause. At any time after the commencement of
employment, the Company may, without cause, terminate this Agreement and
Employee's employment, effective ten (10) days after written notice is provided
to Employee. Employee may only be terminated without cause by the Company
during the Term hereof if such termination is approved by the Board of
Directors of the Company. Should Employee be terminated by the Company without
cause, Employee shall receive from the Company, in a lump-sum payment due on
the effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the Term of this Agreement or for
six (6) months, whichever amount is greater.
4
<PAGE> 5
(e) Termination by Employee for Good Reason. Employee may
terminate his employment hereunder for "Good Reason." As used herein, "Good
Reason" shall mean the continuance of any of the following after fifteen (15)
days' prior written notice by Employee to the Company, specifying the basis for
such Employee's having Good Reason to terminate this Agreement:
(i) Employee's removal from, or failure to be reappointed
or reelected to, Employee's position under this Agreement, except as
contemplated by paragraphs 4(a), (b) and (c); or
(ii) 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 dispute with respect to the termination by the Employee for
Good Reason, such dispute shall be resolved pursuant to the provisions of
paragraph 16 below. In the event that it is determined that Good Reason did
exist, 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. Should Employee terminate his employment for
Good Reason, Employee shall receive from the Company, in a lump-sum payment due
on the effective date of termination, the base salary at the rate then in
effect for whatever time period is remaining under the Term of this Agreement
or for six (6) months, whichever amount is greater.
(f) Termination by Employee Without Cause. If Employee resigns
or otherwise terminates his employment without Good Reason pursuant to
paragraph 4(e), Employee shall receive no severance compensation.
Upon termination of this Agreement for any reason provided in clauses (a)
through (f) above, Employee shall be entitled to receive all compensation
earned and all benefits and reimbursements vested or 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 10 herein and Employee's obligations under paragraphs 5, 6, 7, 10 and
11 herein shall survive such termination in accordance with their terms.
5. 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
their representatives, vendors or customers which pertain to the business of
the Company shall be and remain the property of the Company, as the case may
be, and be subject at all times to their discretion and control. Likewise, all
5
<PAGE> 6
correspondence, reports, records, charts, advertising materials and other
similar data pertaining to the business, activities or future plans of the
Company that is collected by Employee shall be delivered promptly to the
Company without request by it upon termination of Employee's employment.
6. 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 that 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.
7. 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 their respective 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.
8. Disclosure of Information. Employee agrees that for a period
of three (3) years after the date hereof or during the term of this Agreement
and for a period of three (3) years thereafter, whichever is longer, without
the prior written consent of the Company, Employee shall not, directly or
indirectly, through any form of ownership, in any individual or representative
or affiliated capacity whatsoever, except as may be required by law, reveal,
divulge, disclose or communicate to any person, firm, association, corporation
or other entity in any manner whatsoever information of any kind, nature or
description concerning: (i) the names of any prior or present suppliers or
customers with respect to the Business, (ii) the prices for products or
services with respect to the Business, (iii) the names of personnel with
respect to the Business, (iv) the manner of operation with respect to the
Business, (v) the plans, trade secrets, or other data of any kind, nature or
description, whether tangible or intangible, with respect to the Business, or
(vi) any other financial, statistical or other information regarding the
business acquired by the Company that the Company designates or treats as
confidential or proprietary. The agreements set forth herein shall not apply
to any information that at the time of disclosure or thereafter is generally
available to and known by the public (other than as a result of a disclosure
directly or indirectly by Employee in violation of this Agreement). Without
regard to whether any or all of the foregoing matters would be deemed
confidential, material or important, the parties hereto stipulate that as
between them, the same are important, material and confidential and gravely
affect the effective and successful conduct of the Business and its goodwill.
6
<PAGE> 7
9. Noncompetition. (a) Employee agrees that during the term of
this Agreement and, upon termination of Employee's employment by the Company
for a period of three (3) years thereafter, he shall not:
(i) Call upon, solicit, divert, take away or attempt to
call upon, solicit, divert or take away any existing customers, suppliers,
businesses, or accounts of the Business in connection with any business
substantially similar to the Business in the territory defined as 100 miles in
and around the Company's and its affiliates operations (the "Territory");
(ii) Hire, attempt to hire, contact or solicit with
respect to hiring for himself or on behalf of any other person any present
employee of the Company in the Business;
(iii) Lend credit, money or reputation for the purpose of
establishing or operating a business substantially similar to the Business in
the Territory;
(iv) Do any act that Employee knew or reasonably should
have known might directly injure the Company in any material respect or that
might divert customers, suppliers or employees from the Business; and
(v) Without limiting the generality of the foregoing
provisions, conduct a business substantially similar to the Business under the
name "F.Y.I. Incorporated" or any other trade names, trademarks or service
marks heretofore used by the Company or its affiliates.
The covenants in subsections (i) through (v) are intended to restrict
Employee from competing in any manner with the Company or the Business in the
activities that have heretofore been carried on by the Company or its
affiliates. The obligations set forth in subsections (i) through (v) above
shall apply to actions by Employee, through any form of ownership, and whether
as principal, officer, director, agent, employee, employer, consultant,
stockholder or holder of any equity security (beneficially or as trustee of any
trust), lender, partner, joint venturer or in any other individual or
representative or affiliated capacity whatsoever. However, none of the
foregoing shall prevent Employee from being the holder of up to 5.0% in the
aggregate of any class of securities of any corporation engaged in the
activities described in subsection (i) through (v) above, provided that such
securities are listed on a national securities exchange or reported on the
Nasdaq National Market.
10. 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, then the Company shall indemnify Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith. 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
7
<PAGE> 8
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 shall not be held liable to
the Company for errors or omissions made in good faith where Employee has not
exhibited negligence or performed criminal and fraudulent acts which damage the
business of the Company.
11. 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.
12. 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, 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.
13. Complete Agreement. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the
final, complete and exclusive statement and expression of the agreement between
the Company and Employee and of all the terms of this Agreement, and it cannot
be varied, contradicted or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This 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 T. Lebenberg, Esq.
8
<PAGE> 9
To Employee: Joe A. Rose
4604 Mystic Drive
Atlanta, GA 30342
Notice shall be deemed given and effective three (3) days after the deposit in
the United States mail of a writing addressed as above and sent first class
mail, certified, return receipt requested, or when actually received. Either
party may change the address for notice by notifying the other party of such
change in accordance with this paragraph 14.
15. Severability; Headings. If any portion of this Agreement is
held invalid or inoperative, the other portions of this Agreement shall be
deemed valid and operative and, so far as is reasonable and possible, effect
shall be given to the intent manifested by the portion held invalid or
inoperative. The paragraph headings herein are for reference purposes only and
are not intended in any way to describe, interpret, define or limit the extent
or intent of the Agreement or of any part hereof.
16. Arbitration. Any unresolved dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three (3) arbitrators in Dallas,
Texas, in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to,
detract from, or modify any provision hereof nor to award punitive damages to
any injured party. The arbitrators shall have the authority to order back-pay,
severance compensation, vesting of 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 4(b) and 4(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 Texas.
18. 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.
19. Attorneys' Fees. In the event of any litigation or
arbitration arising under or in connection with this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees as determined by the
court or arbitration panel, as the case may be. Each party to this Agreement
represents and warrants that it has been represented by counsel in the
negotiation and execution of this Agreement, including without limitation the
provisions set forth in this paragraph 19.
9
<PAGE> 10
20. 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 the equivalent of Employee's salary for one year 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 the equivalent of Employee's salary for one year and the
non-competition provisions of paragraph 3 shall all apply for a period of one
(1) year from the effective date of termination.
(d) For purposes of applying paragraph 5 under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Employee must be paid in
full by the Company at or prior to such closing. Further, Employee will be
given an 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.
10
<PAGE> 11
(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 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
11
<PAGE> 12
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.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
F.Y.I. INCORPORATED
By: /s/ ED H. BOWMAN, JR.
-------------------------------------
Title: President and CEO
EMPLOYEE:
/s/ JOE A. ROSE
-----------------------------------------
Joe A. Rose
13
<PAGE> 1
Exhibit 21
SUBSIDIARIES
Acadian Consultants Corp.
B&B (Baltimore-Washington) Acquisition Corp.
California Medical Record Service Acquisition Corp.
CH Acquisition Corp.
Computer Central Corporation
Deliverex Acquisition Corp.
Deliverex Sacramento Acquisition Corp.
DISC Acquisition Corp.
DPAS Acquisition Corp.
Imagent Acquisition Corp.
Information Management Acquisition Corp.
Input of Texas, Inc.
Leonard Archives Acquisition Corp.
Major Acquisition Corp.
MAVRICC Management Systems, Inc.
Minnesota Medical Record Service Acquisition Corp.
MMS Escrow and Transfer Agency, Inc.
Permanent Records Acquisition Corp.
Premier Acquisition Corp.
QCS Inet Acquisition Corp.
Quality Copy Acquisition Corp.
RAC (California) Acquisition Corp.
Recordex Acquisition Corp.
Researchers Acquisition Corp.
Robert A. Cook Acquisition Corp.
The Rust Consulting Group, Inc.
Texas Medical Record Service Acquisition Corp.
ZIA Information Analysis Group, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,492
<SECURITIES> 0
<RECEIVABLES> 27,684
<ALLOWANCES> 2,174
<INVENTORY> 1,154
<CURRENT-ASSETS> 38,722
<PP&E> 33,522
<DEPRECIATION> 16,125
<TOTAL-ASSETS> 113,387
<CURRENT-LIABILITIES> 15,482
<BONDS> 4,660
0
0
<COMMON> 103
<OTHER-SE> 93,119
<TOTAL-LIABILITY-AND-EQUITY> 113,387
<SALES> 6,228
<TOTAL-REVENUES> 105,176
<CGS> 4,524
<TOTAL-COSTS> 66,993
<OTHER-EXPENSES> (388)
<LOSS-PROVISION> 1,155
<INTEREST-EXPENSE> 496
<INCOME-PRETAX> 11,511
<INCOME-TAX> 4,668
<INCOME-CONTINUING> 6,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,843
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
</TABLE>
