<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 March 31, 1998 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 May 5, 1998, 11,815,034 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 MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements 3
Consolidated Balance Sheets - December 31, 1997 and March 31,
1998 (unaudited) 4
Consolidated Statements of Operations - Three months ended
March 31, 1997 and 1998 (unaudited) 5
Consolidated Statements of Cash Flows - Three months ended
March 31, 1997 and 1998 (unaudited) 6
Notes to Consolidated Financial Statements - March 31, 1998 7
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
PART II. OTHER INFORMATION
Item 2 Changes in Securities II-1
Item 5 Other Information II-1
Item 6 Exhibits and Reports on Form 8-K II-3
SIGNATURES II-4
</TABLE>
2
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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, March 31,
1997 1998
----------- ------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,926 $ 7,630
Accounts receivable and notes receivable, less allowance of $3,122 and
$3,291, respectively 29,468 36,205
Inventory 1,675 1,399
Notes receivable, shareholders - short term 351 673
Prepaid expenses and other current assets 2,134 2,357
--------- ---------
Total current assets 40,554 48,264
PROPERTY, PLANT AND EQUIPMENT, net 19,888 22,361
GOODWILL AND OTHER INTANGIBLES, net 64,278 88,534
NOTES RECEIVABLE, SHAREHOLDERS - LONG TERM 321 --
OTHER NONCURRENT ASSETS 1,197 1,778
--------- ---------
Total assets $ 126,238 $ 160,937
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 12,962 $ 16,760
Current maturities of long-term obligations 856 565
Income taxes payable 1,660 4,365
Current portion of deferred income taxes 980 980
Other current liabilities 1,991 3,661
--------- ---------
Total current liabilities 18,449 26,331
LONG-TERM OBLIGATIONS, net of current maturities 5,692 18,639
DEFERRED INCOME TAXES, net of current portion 874 1,449
OTHER LONG-TERM OBLIGATIONS 707 745
--------- ---------
Total liabilities 25,722 47,164
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,
10,946,286 and 11,801,324 shares issued and outstanding at
December 31, 1997 and March 31, 1998, respectively 109 118
Additional paid-in-capital 89,541 101,527
Retained earnings 11,367 12,629
--------- ---------
101,017 114,274
Less - Treasury stock, $.01 par value, 36,670 shares
at December 31, 1997 and March 31, 1998, respectively (501) (501)
--------- ---------
Total stockholders' equity 100,516 113,773
--------- ---------
Total liabilities and stockholders' equity $ 126,238 $ 160,937
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
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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
Ended
March 31,
--------------------------
1997 1998
---------- ----------
(unaudited)
<S> <C> <C>
REVENUE $ 33,488 $ 50,606
COST OF SERVICES 21,426 31,514
DEPRECIATION 679 1,157
-------- --------
Gross profit 11,383 17,935
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 7,411 11,241
AMORTIZATION 415 708
-------- --------
Operating income 3,557 5,986
OTHER (INCOME) EXPENSE:
Interest expense 197 187
Interest income (247) (46)
Other (income) expense, net 30 34
-------- --------
Income before income taxes 3,577 5,811
PROVISION FOR INCOME TAXES 1,414 2,322
-------- --------
NET INCOME $ 2,163 $ 3,489
======== ========
PRO FORMA DATA:
Historical net income $ 2,163 $ 3,489
Pro forma compensation differential 243 --
Pro forma provision for income taxes 150 --
-------- --------
PRO FORMA NET INCOME $ 2,256 $ 3,489
======== ========
NET INCOME PER COMMON SHARE
BASIC $ 0.21 $ 0.30
======== ========
DILUTED $ 0.21 $ 0.29
======== ========
PRO FORMA NET INCOME PER COMMON SHARE
BASIC $ 0.22 $ 0.30
======== ========
DILUTED $ 0.22 $ 0.29
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC 10,129 11,609
======== ========
DILUTED 10,295 11,897
======== ========
</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>
Three Months Ended
--------------------------
March 31, March 31,
1997 1998
--------- ----------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,163 $ 3,489
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,094 1,865
Change in operating assets and liabilities:
Accounts receivable (2,124) (3,320)
Inventory (348) 280
Prepaid expenses and other assets (285) (764)
Accounts payable and other current liabilities (2,210) 4,324
-------- --------
Net cash (used in) provided by operating activities (1,710) 5,874
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,192) (2,298)
Distribution from partnership 60 --
Cash paid for acquisitions, net of cash acquired (4,380) (15,426)
-------- --------
Net cash used in investing activities (5,512) (17,724)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance, net of underwriting
discounts and other costs (101) 336
Distribution to shareholders of pooled companies (100) --
Proceeds from short-term obligations 220 --
Proceeds from long-term obligations -- 15,000
Principal payments on short-term obligations (277) --
Principal payments on long-term obligations (458) (2,782)
-------- --------
Net cash (used in) provided by financing activities (716) 12,554
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,938) 704
CASH AND CASH EQUIVALENTS, beginning of period 22,014 6,926
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 14,076 $ 7,630
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
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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 the accounts of F.Y.I. Incorporated
and its subsidiaries (the "Company" or "F.Y.I."), which include: (i) the
companies acquired in business combinations accounted for under the purchase
method of accounting from their respective acquisition dates; and (ii) the
companies acquired in business combinations accounted for under the
pooling-of-interests method of accounting either for all periods presented or
from the date of acquisition based upon their financial materiality.
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 March 31, 1998,
its results of operations for the three months ended March 31, 1997 and 1998,
and its cash flows for the three months ended March 31, 1997 and 1998. 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,
1998, and the Company's Current Report on Form 8-K filed with the Commission on
March 20, 1998. The results of operations for the interim periods ended March
31, 1997 and 1998 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 MAVRICC Management Systems, Inc. and a related
company, MMS Escrow and Transfer Agency, Inc., in March 1997; Input of Texas,
Inc. in March 1997 and Micro Publishing Systems, Inc. in December 1997, all in
transactions that were accounted for as poolings-of-interests. These companies
were managed through their acquisition dates as independent private companies
and represent a variety of tax structures. Therefore, selling, general and
administrative expenses for the historical periods reflect compensation and
related benefits that the former owners have received from the businesses during
those periods. In connection with the acquisitions, the owners have entered into
employment agreements that provide for compensation and benefits at levels lower
than the historical amounts (the "Compensation Differential"). The pro forma
data present compensation at the level the owners have agreed to receive
subsequent to the acquisitions. In addition, the pro forma data present the
incremental provision for income taxes as if all entities had been subject to
federal and state
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income taxes and the related income tax impact of the Compensation Differential
discussed above.
3. WEIGHTED AVERAGE SHARES OUTSTANDING
Basic and diluted net income per common share were computed in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share." The differences between basic weighted average common shares and
diluted weighted average common shares and common stock equivalents are as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
----------------------
MARCH 31, MARCH 31,
1997 1998
-------- --------
<S> <C> <C>
Basic weighted average common shares 10,129 11,609
Weighted average options and warrants 166 288
------ ------
Diluted weighted average common shares 10,295 11,897
====== ======
</TABLE>
4. BUSINESS COMBINATIONS
F.Y.I. acquired seven document management services businesses
simultaneously with the closing of its initial public offering (the "IPO") on
January 26, 1996. Since the IPO and through December 31, 1997, the Company
acquired 29 additional document management businesses, of which 25 were
accounted for as purchases and four were accounted for as poolings-of-interests.
During the first three months of 1998, the Company acquired five
additional document management businesses, four of which were accounted for as
purchases (the "Purchased Companies") and one of which was accounted for as a
pooling-of-interests. The four acquisitions accounted for as purchases were
Medicopy, Inc., Associate Record Technician Services, Inc., DeBari Associates,
Inc. and ACT Medical Record Services, Inc. The aggregate consideration paid for
the Purchased Companies consisted of $11.4 million in cash and 506,699 shares of
Common Stock. The preliminary allocation of the purchase price is set forth
below (in thousands):
<TABLE>
<S> <C>
Consideration Paid $21,407
Estimated Fair Value of Tangible Assets 4,792
Estimated Fair Value of Liabilities 4,964
Goodwill 21,579
</TABLE>
The weighted average fair market values of the shares of Common Stock
used in calculating the consideration paid was $19.33, which represents a 20%
discount from the average trading price of the Common Stock based on the length
and type of restrictions in the purchase agreements.
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
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not expected to be materially different than the final allocations. Certain of
the acquisitions are subject to additional consideration based upon the
achievement of specified earning targets over one to three year periods.
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 is being 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 a majority
of the acquisitions is not deductible for income tax purposes.
The acquisition of Lifo Systems, Inc. ("Lifo") in February 1998 for
326,659 shares of Common Stock was accounted for as a pooling-of-interests. The
consolidated financial statements of the Company were not restated for periods
prior to January 1, 1998 due to the financial immateriality of Lifo.
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 forward-looking statements is
contained under "Item 5. Other Information."
Introduction
The Company's revenue relates to the following document and
information outsourcing services: (i) document and data conversion services;
(ii) data capture services; (iii) direct marketing services; (iv) records
management services; (v) healthcare services; (vi) litigation support services;
and (vii) employee and investor services. The Company's revenue also consists of
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. The
Company's cost of services also consists of cost of products sold for
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 MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenue
Revenue increased $17.1 million, or 51.1%, from $33.5 million for the
three months ended March 31, 1997 to $50.6 million for the three months ended
March 31, 1998. This increase was largely due to: (i) revenue from the
acquisitions completed subsequent to March 31, 1997; and (ii) internal growth of
6.8% in revenue at the companies acquired prior to March 31, 1997 and accounted
for under the purchase method of accounting. Assuming all acquisitions were
consummated as of January 1, 1997, pro forma internal revenue increased 11.5%
for the three months ended March 31, 1998 compared to the prior period.
Gross profit
Gross profit increased 57.6% from $11.4 million for the three months
ended March 31, 1997 to $17.9 million for the three months ended March 31, 1998,
largely due to the increases in revenue discussed above. Gross profit as a
percentage of revenue increased from 34.0% for the three months ended March 31,
1997 to 35.4% for the three months ended March 31, 1998,
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<PAGE> 11
primarily due to the higher margin mix of revenue associated with the
acquisitions completed subsequent to March 31, 1997.
Selling, general and administrative expenses
SG&A increased 51.7% from $7.4 million, or 22.1% of revenue, for the
three months ended March 31, 1997 to $11.2 million, or 22.2% of revenue, for the
three months ended March 31, 1998, primarily due to SG&A associated with the
acquisitions subsequent to March 31, 1997. After giving effect to the
Compensation Differential in each period, SG&A increased 56.8% from $7.2
million, or 21.4% of revenue, for the three months ended March 31, 1997 to $11.2
million, or 22.2% of revenue, for the three months ended March 31, 1998. This
increase in SG&A was a result of: (i) SG&A incurred at companies acquired
subsequent to March 31, 1997; and (ii) increased corporate overhead required to
manage the consolidated group.
Pro forma operating income
Pro forma operating income adjusted for the Compensation Differential
increased 57.5% from $3.8 million, or 11.3% of revenue, for the three months
ended March 31, 1997 to $6.0 million, or 11.8% of revenue, for the three months
ended March 31, 1998.
Pro forma income before income taxes and pro forma net income
Pro forma income before income taxes adjusted for the Compensation
Differential increased 52.1% from $3.8 million for the three months ended March
31, 1997 to $5.8 million for the three months ended March 31, 1998, and pro
forma net income adjusted for the Compensation Differential and pro forma
provision for taxes increased 54.7% from $2.3 million for the three months ended
March 31, 1997 to $3.5 million for the three months ended March 31, 1998,
largely attributable to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had $21.9 million of working capital and
$7.6 million of cash. Cash flows provided by operating activities for the three
months ended March 31, 1998 were $5.9 million. Net cash provided by operating
activities for the three months ended March 31, 1998 was positively impacted by
an increase in accounts payable and other current liabilities primarily due to
the accrual of 1998 federal and state income and franchise taxes and increases
in other current liabilities. This change was partially offset by an increase in
revenue and a corresponding increase in accounts receivable. Net cash used in
investing activities was $17.7 million, as the Company paid $15.4 million for
acquisitions, net of cash acquired. Net cash provided by financing activities
was $12.6 million primarily due to borrowings on the Company's line of credit.
During the three months ended March 31, 1997, net cash flows used in
operating activities were $1.7 million. Net cash used in investing activities
was $5.5 million, as the Company paid $4.4 million for acquisitions, net of cash
acquired. Net cash used in financing activities was $700,000.
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The Company anticipates that cash on hand, cash from operations,
additional bank financing available under the 1998 Credit Agreement (as defined
below), 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. In
February 1998, the Company entered into a new credit agreement (the "1998 Credit
Agreement") with Banque Paribas and Bank of America Texas, N.A., as co-agents
and lenders named therein. Under the 1998 Credit Agreement, the Company and its
subsidiaries can borrow on a revolving credit basis loans in an aggregate
outstanding principal amount up to $50.0 million, subject to certain customary
borrowing capacity requirements. The availability under the 1998 Credit
Agreement as of March 31, 1998 was $22.7 million. Should the Company accelerate
its acquisition program, the Company may need to seek additional financing
through the 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 an effective
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 1,394,529 shares were
available at March 31, 1998.
12
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The following information relates to securities of the Company issued
or sold during the first quarter of 1998 which were not registered under the
Securities Act of 1933, as amended (the "Securities Act"):
In January and February 1998, the Company issued 417,450 shares of
Common Stock for $.01 par value per share to the stockholders of ACT Medical
Record Services, Inc. ("ACT") and Lifo in connection with the acquisitions by
the Company of all of the outstanding shares of ACT and Lifo.
Each of these transactions was completed without registration of the
relevant securities under the Securities Act in reliance upon the exemption
provided by Section 4(2) of the Securities Act for transactions not involving
any public offering. On April 28, 1998, the Company filed a Registration
Statement on Form S-3 registering 49% of such shares for resale by the holders
thereof.
ITEM 5. OTHER INFORMATION
RECENT DEVELOPMENTS
Since December 31, 1997, the Company has acquired the following
document and information outsourcing solutions businesses (the "Recent
Acquisitions"): (i) ACT Medical Record Services, Inc., a medical release of
information business in Wisconsin; (ii) Lifo Systems, Inc., a database creation
and management business in Texas; (iii) Medicopy, Inc., a medical records
release of information business in Mississippi; (iv) Associate Record Technician
Services, Inc., a medical records temporary staffing agency in California; and
(v) DeBari Associates, Inc., a litigation support and systems integration
company in New York City and St. Vincent, The Grenadines.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This filing contains certain forward-looking statements such as the
Company's or management's intentions, hopes, beliefs, expectations, strategies,
predictions or any other variation thereof or comparable phraseology of the
Company's future activities or other future events or conditions within the
meaning of Section 27A of the Securities Act 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 uncertainty, 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 or to attract customers from other
businesses, to increase revenue
II-1
<PAGE> 14
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-2
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 F.Y.I. Incorporated 1995 Stock Option Plan, as amended
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K with the Commission on
March 20, 1998, reporting under Item 5 thereto the agreement between
the New York State Workers Compensation Board and QCSinet Acquisition
Corp.
II-3
<PAGE> 16
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: May 11, 1998 By: /s/ Ed H. Bowman, Jr.
---------------------
Ed H. Bowman, Jr.
Chief Executive Officer and
President
Date: May 11, 1998 By: /s/ Timothy J. Barker
---------------------
Timothy J. Barker
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
II-4
<PAGE> 17
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
10.1 F.Y.I. Incorporated 1995 Stock Option Plan, as amended
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
F.Y.I. INCORPORATED
1995 STOCK OPTION PLAN*
SECTION 1. Purpose
The Plan (i) authorizes the Committee to provide to Employees and
Consultants of the Corporation and its Subsidiaries, who are in a position to
contribute materially to the long-term success of the Corporation, with options
to acquire Common Stock, par value $.01 per share, of the Corporation, and (ii)
provides for the automatic grant of options to Non-Employee Directors of the
Corporation in accordance with the terms specified herein. The Corporation
believes that this incentive program will cause those persons to increase their
interest in the Corporation's welfare, and aid in attracting and retaining
Employees, Consultants and Directors of outstanding ability.
SECTION 2. Definitions
Unless the context clearly indicates otherwise, the following terms, when
used in this Plan, shall have the meanings set forth in this Section:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Corporation or an employee benefit plan
of the Corporation, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Exchange Act) of any voting
security of the Corporation 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 Corporation;
(ii) the individuals (A) who, as of the closing date of the Initial
Public Offering, constitute the Board (the "Original Directors") or (B) who
thereafter are elected to the Board and whose election, or nomination for
election, to the Board was approved by a vote of at least two-thirds ( 2/3)
of the Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their election) or
(C) who are elected to the Board and whose election, or nomination for
election, to the Board was approved by a vote of at least two-thirds ( 2/3)
of the Original Directors and Additional Original Directors then still in
office (such directors also becoming "Additional Original Directors"
immediately following their election) (such individuals being the
"Continuing Directors"), cease for any reason to constitute a majority of
the members of the Board;
(iii) the stockholders of the Corporation shall approve a merger,
consolidation, recapitalization, or reorganization of the Corporation, 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 Corporation 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 Corporation shall approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or a substantial portion of the
Corporation's assets (i.e., 50% or more of the total assets of the
Corporation).
(c) "Code" shall mean the Internal Revenue Code of 1986 as it may be
amended from time to time.
- ---------------
* Incorporating amendments through March 5, 1998.
<PAGE> 2
(d) "Committee" shall mean the Board, or any Committee of two or more
Directors that may be designated by the Board to administer the Plan.
(e) "Consultant" shall mean (i) any person who is engaged to perform
services for the Corporation or its Subsidiaries, other than as an Employee or
Director, or (ii) any person who has agreed to become a consultant within the
meaning of clause (i).
(f) "Control Person" shall mean any person who, as of the date of grant of
an Option, owns (within the meaning of Section 422(b)(6) of the Code) stock
possessing more than ten percent (10%) of the total combined voting power or
value of all classes of stock of the Corporation or of any parent or Subsidiary.
(g) "Corporation" shall mean F.Y.I. Incorporated, a Delaware corporation.
(h) "Director" shall mean any member of the Board.
(i) "Employee" shall mean (i) any full-time employee of the Corporation or
its Subsidiaries (including Directors who are otherwise employed on a full-time
basis by the Corporation or its Subsidiaries), or (ii) any person who has agreed
to become an employee within the meaning of clause (i).
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934 as it may
be amended from time to time.
(k) "Fair Market Value" of the Stock on a given date shall be based upon:
(i) if the Stock is listed on a national securities exchange or quoted in an
interdealer quotation system, the last sales price or, if unavailable, the
average of the closing bid and asked prices per share of the Stock on such date
(or, if there was no trading or quotation in the Stock on such date, on the next
preceding date on which there was trading or quotation) as provided by one of
such organizations; or (ii) if the Stock is not listed on a national securities
exchange or quoted in an interdealer quotation system, as determined by the
Board in good faith in its sole discretion; provided, however, that the "fair
market value" of Stock on the date on which shares of Stock are first issued and
sold pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission shall be the Initial Public Offering
price of the shares so issued and sold, as set forth in the first final
prospectus used in such offering.
(l) "Grantee" shall mean a person granted an Option under the Plan.
(m) "Initial Public Offering" shall mean an initial public offering of
shares of Stock in a firm commitment underwriting registered with the Securities
and Exchange Commission in compliance with the provisions of the 1933 Act.
(n) "ISO" shall mean an Option granted pursuant to the Plan to purchase
shares of the Stock and intended to qualify as an incentive stock option under
Section 422 of the Code, as now or hereafter constituted.
(o) "1933 Act" shall mean the Securities Act of 1933, as amended.
(p) "Non-Employee Director" shall mean a Director of the Corporation who is
not an Employee, nor has been an Employee at any time during the prior one year
period.
(q) "NQSO" shall mean an Option granted pursuant to the Plan to purchase
shares of the Stock that is not an ISO.
(r) "Options" shall refer collectively to NQSOs and ISOs issued under and
subject to the Plan.
(s) "Parent" shall mean any parent corporation as defined in Section 424 of
the Code.
(t) "Plan" shall mean this 1995 Stock Option Plan as set forth herein and
as amended from time to time.
(u) "Stock" shall mean shares of the Common Stock of the Corporation.
2
<PAGE> 3
(v) "Stock Option Agreement" shall mean a written agreement between the
Corporation and the Grantee, or a certificate accepted by the Grantee,
evidencing the grant of an Option hereunder and containing such terms and
conditions, not inconsistent with the Plan, as the Committee shall approve.
(w) "Subsidiary" shall mean (i) any corporation with respect to which the
Corporation owns, directly or indirectly, 50% or more of the total combined
voting power of all classes of stock of such corporation, or (ii) any entity
which the Committee reasonably expects to become a subsidiary within the meaning
of clause (i).
SECTION 3. Shares of Stock Subject to the Plan
The total amount of Stock that may be subject to outstanding Options,
determined immediately after the grant of any Option, shall not exceed the
greater of 650,000 shares or sixteen percent (16%) of the total number of shares
of Stock outstanding. Notwithstanding the foregoing, the number of shares that
may be delivered upon exercise of ISOs shall not exceed 650,000, provided,
however, that shares subject to ISOs shall not be deemed delivered if such
Options are forfeited, expire or otherwise terminate without delivery of shares
to the Grantee. Any shares of Stock delivered pursuant to an Option may consist,
in whole or in part, of authorized and unissued shares or treasury shares.
SECTION 4. Administration of the Plan
The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have the authority to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of Stock Option Agreements
thereunder and to make all other determinations necessary or advisable for the
administration of the Plan. Any controversy or claim arising out of or related
to this Plan or the Options granted thereunder shall be determined unilaterally
by, and at the sole discretion of, the Committee. Any action of the Committee
with respect to the Plan shall be final, conclusive, and binding on all persons,
including the Corporation, its Subsidiaries, Grantees, any person claiming any
rights under the Plan from or through any Grantee, and stockholders. The express
grant of any specific power to the Committee, and the taking of any action by
the Committee, shall not be construed as limiting any power or authority of the
Committee. The Committee may delegate to officers or managers of the Corporation
or any Subsidiary of the Corporation the authority, subject to such terms as the
Committee shall determine, to perform such functions as the Committee may
determine, to the extent permitted under applicable law. Other provisions of the
Plan notwithstanding, the Board may perform any function of the Committee under
the Plan. In any case in which the Board is performing a function of the
Committee under the Plan, each reference to the Committee herein shall be deemed
to refer to the Board.
SECTION 5. Types of Options
Options granted under the Plan may be of two types: ISOs or NQSOs. The
Committee shall have the authority and discretion to grant to an eligible
Employee either ISOs, NQSOs or both, but shall clearly designate the nature of
each Option at the time of grant in the Stock Option Agreement. Grantees who are
not Employees (determined with reference to Section 2(i)(i) only) of the
Corporation or a Subsidiary (determined with reference to Section 2(w)(i) only)
on the date an Option is granted shall only receive NQSOs.
SECTION 6. Grant of Options to Employees and Consultants
(a) Employees and Consultants of the Corporation and its Subsidiaries shall
be eligible to receive Options under the Plan.
(b) The exercise price per share of Stock subject to an Option granted to
an Employee or Consultant shall be determined by the Committee and specified in
the Stock Option Agreement, provided, however, that the exercise price of each
share subject to an Option shall be not less than 100%, or, in the case of an
ISO granted to a Control Person, 110%, of the Fair Market Value of a share of
the Stock on the date such Option is granted.
3
<PAGE> 4
(c) The term of each Option granted to an Employee or Consultant shall be
determined by the Committee and specified in a Stock Option Agreement, provided
that no Option shall be exercisable more than ten years from the date such
Option is granted, and provided further that no ISO granted to a Control Person
shall be exercisable more than five years from the date of Option grant.
(d) The Committee shall determine and designate from time to time Employees
or Consultants who are to be granted Options, and shall specify in the Stock
Option Agreement the nature of each Option granted and the number of shares of
Stock subject to each such Option, provided, however, that in any calendar year,
no Employee or Consultant may be granted an Option to purchase more than 500,000
shares of Stock (determined without regard to when such Option is exercisable),
subject to adjustment pursuant to Section 10.
(e) Notwithstanding any other provisions hereof, the aggregate Fair Market
Value (determined at the time the ISO is granted) of the Stock with respect to
which ISOs are exercisable for the first time by any Employee during any
calendar year under all plans of the Corporation and any Parent or Subsidiary
corporation shall not exceed $100,000. To the extent the limitation set forth in
the preceding sentence is exceeded, the Options with respect to such excess
shall be treated as NQSOs.
(f) The Committee shall determine whether any Option granted to an Employee
or Consultant shall become exercisable in one or more installments and specify
the installment dates in the Stock Option Agreement. The Committee may also
specify in the Stock Option Agreement such other provisions, not inconsistent
with the terms of this Plan, as it may deem desirable, including such provisions
as it may deem necessary to qualify any ISO under the provisions of Section 422
of the Code. Unless otherwise determined by the Committee and specified in the
Stock Option Agreement, all Options shall immediately become exercisable upon a
Change in Control.
(g) All Options granted hereunder prior to the Initial Public Offering
shall be conditional upon, and for all purposes hereunder, deemed granted upon,
the Initial Public Offering.
(h) The Committee may, at any time, grant new or additional options to any
eligible Employee or Consultant who has previously received Options under this
Plan, or options under other plans, whether such prior Options or other options
are still outstanding, have been exercised previously in whole or in part, or
have been canceled. The exercise price of such new or additional Options may be
established by the Committee, subject to Section 6(b) hereof, without regard to
such previously granted Options or other options.
SECTION 7. Grants of Options to Non-Employee Directors
(a) Non-Employee Directors of the Corporation shall be eligible to receive
Options under the Plan only pursuant to the provisions of this Section 7. Each
individual who agrees to become a Non-Employee Director prior to the
consummation of the Corporation's Initial Public Offering shall receive, without
the exercise of the discretion of any person, an NQSO under the Plan relating to
the purchase of 10,000 shares of Stock at an exercise price per share equal to
the Initial Public Offering price per share. Such option grant shall be
conditional upon, and for all purposes hereunder, deemed granted upon, the
Initial Public Offering. Thereafter, on the day after the first annual meeting
of stockholders next following the date of an Initial Public Offering, and no
later than the day after each subsequent annual meeting, each person who is a
continuing Non-Employee Director on any such date shall receive, without the
exercise of the discretion of any person, an NQSO under the Plan relating to the
purchase of 5,000 shares of Stock, and each person who is a new, first-time
Non-Employee Director on any such date shall receive, without the exercise of
the discretion of any person, an NQSO under the Plan relating to the purchase of
10,000 shares of Stock. In the event that there are not sufficient shares
available under this Plan to allow for the grant to each Non-Employee Director
of an NQSO for the number of shares provided herein, each Non-Employee Director
shall receive an NQSO for his pro rata share of the total number of shares of
Stock available under the Plan.
(b) Except as set forth in Section 7(a), the exercise price of each share
of Stock subject to an Option granted to a Non-Employee Director shall equal the
Fair Market Value of a share of Stock on the date such Option is granted.
Payment of the exercise price for the shares being purchased shall be made in
cash.
4
<PAGE> 5
(c) Each Option granted to a Non-Employee Director shall become exercisable
in equal annual installments on the date of grant and on each of the first two
anniversaries of the date of grant; provided, however, that each such Option
shall immediately become exercisable upon a Change in Control. The Option shall
have a term of five years from the date of grant; provided, however, that upon
termination of a Non-Employee Director's period of directorship for any reason,
such Non-Employee Director may exercise any Options until the earlier to occur
of (i) the end of such five year period, or (ii) the date which is three-months
after the date of such termination, but only to the extent such Option was
exercisable immediately prior to such termination.
SECTION 8. Exercise of Options
(a) A Grantee shall exercise an Option by delivery of written notice to the
Corporation setting forth the number of shares with respect to which the Option
is to be exercised, together with cash, certified check, bank draft, wire
transfer, or postal or express money order payable to the order of the
Corporation for an amount equal to the Option price of such shares and any
income tax required to be withheld. The Committee may, in its sole discretion,
permit a Grantee to pay all or a portion of the exercise price by delivery of
Stock or other property (including notes or other contractual obligations of
Grantees to make payment on a deferred basis, such as through "cashless
exercise" arrangements, to the extent permitted by applicable law), and the
methods by which Stock will be delivered or deemed to be delivered to Grantees.
(b) Except as provided pursuant to Section 9(a), no Option granted to an
Employee or Consultant shall be exercised unless at the time of such exercise
the Grantee is then an Employee (determined with reference to Section 2(i)(i)
only) or Consultant (determined with reference to Section 2(e)(i) only) of the
Corporation or a Subsidiary (determined with reference to Section 2(w)(i) only).
(c) Except as provided in Section 9(a), no Option granted to a Non-Employee
Director shall be exercised unless at the time of such exercise the Grantee is
then a Non-Employee Director.
SECTION 9. Exercise of Options upon Termination
(a) Unless otherwise determined by the Committee, upon termination of
(other than a Non-Employee Director) with the Corporation and its Subsidiaries,
such Grantee may exercise any Options during the three month period following
such termination, but only to the extent such Option was exercisable immediately
prior to such termination. Notwithstanding the foregoing, if the Committee
determines that such termination is for cause, all Options held by such Grantee
shall immediately terminate. In addition, all Options granted on the basis of
clause (ii) of Section 2(e), (i) or (w) shall immediately terminate if the
Committee determines, in its sole discretion, that the Consultant, Employee, or
Subsidiary, as the case may be, will not become a Consultant, Employee or
Subsidiary within the meaning of clause (i) of such Sections.
(b) Unless otherwise determined by the Committee and specified in the Stock
Option Agreement, in no event shall any Option be exercisable for more than the
maximum number of shares that the Grantee was entitled to purchase at the date
of termination of the relationship with the Corporation and its Subsidiaries.
(c) The sale of any Subsidiary shall be treated as a termination of
employment with respect to any Grantee employed by such Subsidiary.
(d) Subject to the foregoing, in the event of death, Options may be
exercised by a Grantee's legal representative.
SECTION 10. Adjustment Upon Changes in Capitalization
In the event of any dividend or other distribution (whether in the form of
cash, Stock, or other property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate transaction or event, affects the
Stock such that an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Grantees under the Plan, then the Committee shall,
in such manner as it may deem equitable, adjust any or all of (i) the number and
kind of shares of Stock deemed to be available thereafter for grants of Options
under Section 3, (ii) the
5
<PAGE> 6
number and kind of shares of Stock that may be delivered or deliverable in
respect of outstanding Options, (iii) the number of shares with respect to which
Options may be granted to a given Grantee in the specified period as set forth
in Section 6(d), and (iv) the exercise price (or, if deemed appropriate, the
Committee may make provision for a cash payment with respect to any outstanding
Option). In addition, the Committee is authorized to make adjustments in the
terms and conditions of, and the criteria included in, Options (including,
without limitation, cash payments in exchange for an Option or substitution of
Options using stock of a successor or other entity) in recognition of unusual or
nonrecurring events (including, without limitation, events described in the
preceding sentence) affecting the Corporation or any Subsidiary or the financial
statements of the Corporation or any Subsidiary, or in response to changes in
applicable laws, regulations, or accounting principles.
SECTION 11. Restrictions on Issuing Shares
The Corporation shall not be obligated to deliver Stock upon the exercise
or settlement of any Option or take other actions under the Plan until the
Corporation shall have determined that applicable federal and state laws, rules,
and regulations have been complied with and such approvals of any regulatory or
governmental agency have been obtained and contractual obligations to which the
Option may be subject have been satisfied. The Corporation, in its discretion,
may postpone the issuance or delivery of Stock under any Option until completion
of such stock exchange listing or registration or qualification of such Stock or
other required action under any federal or state law, rule, or regulation as the
Corporation may consider appropriate, and may require any Grantee to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of Stock under the Plan.
SECTION 12. Tax Withholding
The Corporation shall have the right to require that the Grantee make such
provision, or furnish the Corporation such authorization, necessary or desirable
so that the Corporation may satisfy its obligation, under applicable laws, to
withhold or otherwise pay for income or other taxes of the Grantee attributable
to the grant or exercise of Options granted under the Plan or the sale of Stock
issued with respect to Options. This authority shall include authority to
withhold or receive Stock or other property and to make cash payments in respect
thereof in satisfaction of a Grantee's tax obligations.
SECTION 13. Transferability
Unless otherwise determined by the Committee, no Option shall be subject to
anticipation, sale, assignment, pledge, encumbrance, charge or transfer except
by will or the laws of descent and distribution, and an Option shall be
exercisable during the Grantee's lifetime only by the Grantee. In the case of
any transfer, the transferee's rights and obligations with respect to the Option
shall be determined by reference to the Grantee and the Grantee's rights and
obligations with respect to the Option had no transfer been made.
Notwithstanding such transfer, the Grantee shall remain obligated pursuant to
Section 12 if required by applicable law.
SECTION 14. General Provisions
(a) Each Option shall be evidenced by a Stock Option Agreement. The terms
and provisions of such Stock Option Agreements may vary among Grantees and among
different Options granted to the same Grantee.
(b) The grant of an Option in any year shall not give the Grantee any right
to similar grants in future years, any right to continue such Grantee's
employment relationship with the Corporation or its Subsidiaries, or, until such
Option is exercised and share certificates are issued, any rights as a
Stockholder of the Corporation. All Grantees shall remain subject to discharge
to the same extent as if the Plan were not in effect.
(c) No Grantee, and no beneficiary or other persons claiming under or
through the Grantee shall have any right, title or interest by reason of any
Option to any particular assets of the Corporation or its
6
<PAGE> 7
Subsidiaries, or any shares of Stock allocated or reserved for the purposes of
the Plan or subject to any Option except as set forth herein. The Corporation
shall not be required to establish any fund or make any other segregation of
assets to assure the payment of any Option.
(d) The issuance of shares of Stock to Grantees or to their legal
representatives shall be subject to any applicable taxes and other laws or
regulations of the United States or of any state having jurisdiction thereof.
SECTION 15. Amendment or Termination
The Board may, at any time, alter, amend, suspend, discontinue or terminate
this Plan; provided, however, that no such action shall adversely affect the
rights of Grantees to Options previously granted hereunder and, provided
further, however, that any shareholder approval necessary or desirable in
connection with any federal or state law or regulation or the rules of any stock
exchange or automated quotation system on which the Common Stock may then be
listed or quoted, shall be obtained in an appropriate manner. The Committee may
waive any conditions or rights under, or amend, alter, suspend, discontinue, or
terminate, any Option theretofore granted and any Stock Option Agreement
relating thereto; provided, however, that, without the consent of an affected
Grantee, no such action may materially impair the rights of such Grantee under
such Option.
SECTION 16. Effective Date of Plan
This Plan is effective upon its adoption by the Board and shall continue in
effect until terminated by the Board. No ISO may be granted more than ten years
after such date.
7
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