<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES 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)
<TABLE>
<S> <C>
DELAWARE 75-2560895
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3232 MCKINNEY AVE., SUITE 900, DALLAS, TEXAS 75204
(Address of principal executive offices) (zip code)
</TABLE>
(214) 953-7555
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
---------------------
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X] No [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of February 19, 1999 was $412,035,603, based on the last sale
price of $32.125 of the Registrant's Common Stock, $.01 par value per share, on
the Nasdaq National Market on February 19, 1999.
As of February 19, 1999, 14,086,053 shares of the Registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission not later than 120 days
after the end of the Company's fiscal year ended December 31, 1998 are
incorporated by reference into Part III of this Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
F.Y.I. INCORPORATED
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 12
Item 6. Selected Financial Data..................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 21
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 46
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 46
Item 11. Executive Compensation...................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 46
Item 13. Certain Relationships and Related Transactions.............. 46
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 46
</TABLE>
<PAGE> 3
PART I
This Report 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 of 1993, as amended (the "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, the entry into the market by 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 and information management services
geographically, to retain customers or 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 Report
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.
ITEM 1. BUSINESS
GENERAL
F.Y.I. Incorporated ("F.Y.I." or the "Company") was founded in September
1994 to create a national, single source provider of document and information
outsourcing solutions to document and information intensive industries,
including: healthcare, law, banking, insurance, retailing, manufacturing and
government. The Company's primary strategy is to acquire, integrate and operate
companies in the highly fragmented document and information outsourcing
solutions industry. In January 1996, F.Y.I. acquired, simultaneously with the
closing of its initial public offering (the "IPO"), seven document management
services businesses (the "Founding Companies"). Since the IPO, and through
December 31, 1998, the Company acquired 42 additional companies (the "Subsequent
Acquisitions"). Since December 31, 1998, the Company has acquired one additional
company, for a total of 50 acquisitions since the Company's inception. The
Company intends to continue to aggressively pursue strategic acquisitions in
existing and new markets, cross-sell its full range of services to its current
customer base and expand the marketing of its services to new customers.
An estimated four trillion documents are generated annually in the United
States. A significant portion of the processing, management and storage of these
documents is outsourced to small service companies. Further, the Company
believes that the document and information outsourcing solutions market is
growing due to several factors, including: (i) government regulations that
require lengthy document retention periods and rapid accessibility for many
types of records; (ii) increased customer expectations of low cost access to
records on short notice and, in many instances, at disparate locations; (iii)
the increasing litigiousness of society, necessitating access to relevant
documents and records for extended periods; and (iv) continuing advancements in
computer, networking, facsimile, printing and other technologies which have
greatly facilitated the production and wide distribution of documents.
The Company's target clients generate large volumes of documents and
require specialized processing, distribution, storage and retrieval of these
documents and the information they contain. The Company believes that these
clients will continue to increase their outsourcing of document and information
management in order to maintain their focus on core operating competencies and
revenue generating activities; reduce fixed costs, including labor and equipment
costs; and gain access to new technologies without incurring the expense and
risk of near-term obsolescence of such technologies.
<PAGE> 4
The document and information outsourcing solutions business is highly
fragmented. The Company believes that many small document management services
businesses: (i) have insufficient capital for expansion; (ii) cannot keep
abreast of rapidly changing technologies; (iii) lack effective marketing
programs; and (iv) are unable to meet the needs of large, geographically
dispersed clients. In addition, there are a limited number of options for owners
of such businesses to obtain liquidity by selling their businesses. As a result,
the Company believes that many owners of such businesses will continue to be
receptive to its acquisition program.
BUSINESS STRATEGY
The Company's goal is to become a national, single source provider of
document and information outsourcing solutions to information and document
intensive industries, including: healthcare, law, banking, insurance, retailing,
manufacturing and government. In order to achieve this goal, the Company is
implementing its focused business strategy based on the following key
principles:
Establish Full Service Operations in Multiple Metropolitan Areas. The
Company intends to establish a full range of document management operations to
meet the diverse needs of targeted metropolitan areas by implementing its
"fill-in-the-grid" strategy through selected acquisitions and expansion of
existing businesses. Ultimately, the Company will seek to achieve a national
scope of coverage so that it can implement a national sales and service policy.
Capitalize on Cross-Selling Opportunities. The Company intends to continue
to cross-sell in two primary ways. First, the Company intends to sell its
existing clients additional document and information solutions provided by the
Company's other businesses. Second, the Company intends to use its knowledge
with respect to specific industry segments to sell such services to new clients.
Achieve Cost Savings Through Consolidation and Economies of Scale. The
Company believes that it will continue to achieve significant savings by
combining a number of general and administrative functions at the corporate
level; such as accounting, taxes, human resources and legal, by reducing or
eliminating redundant functions and facilities, and by implementing corporate
purchasing programs. For example, the Company has implemented an insurance plan,
employee benefits programs and purchasing plans for certain items, such as
paper, microfilm, storage racks, long distance services, computer equipment and
overnight delivery for the Company and its subsidiaries, on a combined basis. To
the extent that the Company is able to expand through the acquisition of
additional document and information management businesses, the Company believes
that such cost savings will continue to accrue.
Operate With Business Units and Local Management. The Company believes that
the experienced local management teams of its acquired businesses have a
valuable understanding of their respective markets and businesses and have
existing client relationships upon which they may capitalize. Accordingly, the
Company is operating and expects to continue to operate with business units and
local management. Local management will remain empowered to make most of the
day-to-day operating decisions at each location and will be primarily
responsible for the profitability and growth of that location. Although the
Company intends to have local management operate with a high degree of autonomy,
the Company believes that regular communication between the individual
businesses and the Company's executive management team or business unit head is
integral to realizing the benefits afforded by the consolidation of these
businesses into a single company. The Company is organized around strategic
business units focusing on common services to common customer bases enabling
synergies and cross-selling opportunities. Since it is important to maintain a
balance between professional leadership and creative entrepreneurial business,
during the past eighteen months, three experienced executives have been hired to
manage the business units.
ACQUISITION STRATEGY
Since the Company's inception, it has acquired 50 companies. The Company
believes that there are significant opportunities to continue to consolidate the
capabilities and resources of a number of additional existing document and
information outsourcing solutions businesses with the intent of providing
customers with a single source document and information outsourcing solution.
Accordingly, the Company is pursuing a
2
<PAGE> 5
"fill-in-the-grid" strategy aimed at providing comprehensive document and
information outsourcing solutions based on the demands of the given geographical
market. The Company has implemented an aggressive, three-tiered acquisition
program consisting of "beachhead acquisitions" to enter additional geographic
markets, "service expansion acquisitions" to acquire additional service
capabilities within such markets and "tuck-in" acquisitions to gain market
share.
In order to enter a new geographic market, the Company makes "beachhead"
acquisitions of leading document and information outsourcing solutions companies
with strong market positions. In analyzing beachhead acquisition candidates, the
Company focuses on acquiring businesses that have one or more of the following
characteristics: (i) experienced and high quality management; (ii) multiple
locations, preferably with operations in two to three contiguous markets; (iii)
a strong customer franchise; and (iv) a history of profitability.
The second tier of the Company's acquisition program involves the
acquisition of related document and information outsourcing solutions services
companies that will increase the Company's offered services in a particular
region. In making such "service expansion" acquisitions, the Company assesses
the services required by the specific market's customer base and then seeks to
acquire leading providers of such services within that geographic area.
Finally, in order to increase its market share and realize economies of
scale, the third tier of the Company's acquisition program is the acquisition of
smaller "tuck-in" businesses that can be easily assimilated into the operations
of the Company's existing businesses. Such "tuck-in" businesses are intended to
enable the Company to benefit from the operating leverage of its existing
businesses by acquiring additional market share and revenue while eliminating or
reducing certain general, administrative and operating costs previously
associated with such revenue. Accordingly, the Company targets "tuck-in"
businesses with strong customer relationships.
The Company believes that it will continue to be a successful acquiror of
other document and information outsourcing solutions companies due to its
strategy of retaining selected owners and management of acquired companies, its
access to growth capital and its ability to offer sellers cash for their
business as well as an ongoing equity stake in the Company. Nevertheless, there
are numerous risks associated with the Company's acquisition program. See
"-- Risk Factors."
SERVICES OFFERED
The Company provides a wide variety of document and information outsourcing
solutions and draws upon its available services to develop solutions for its
clients based on their specific needs. The current document and information
outsourcing solutions that are provided in certain geographic locations are
generally divided into the following three strategic business units: (i)
Healthcare Services; (ii) Legal Services; and (iii) Commercial Services. In
addition, Investor Services is an emerging business initiative, currently
presented as part of Legal Services.
(i) Healthcare Services. Healthcare services include medical records
release services or processing a request for a patient's medical records from a
physician, insurance company, attorney, healthcare institution or individual.
The medical records release service provider initially verifies that the release
is properly authorized, coordinates the retrieval of the record, determines the
relevant parts of the record to be copied and delivers the copied records (or
portions thereof) to the requesting party. Medical records release services are
provided on-site and off-site pursuant to contracts with hospitals, other large
healthcare institutions and insurance companies. The medical records release
service provider bills the recipient directly and sometimes pays a fee to the
hospital. Additional services include archival records storage and management,
document and data conversion, archiving and imaging services to hospital
radiology departments, and temporary staffing services for hospital information
management departments.
The Company also provides services for retrieval of attending physician
statements (APS) for life and health insurance underwriting, which includes the
capability of receiving internet requests.
3
<PAGE> 6
Additionally, services are offered to state governments to generate digital
images of medical record information and facilitate image processing of
disability and worker's compensation claims.
The Company's record management services consist primarily of active or
open shelf storage. Active or open shelf storage services involve the storage,
processing (i.e., indexing and formatting), retrieval, delivery and return to
storage of documents on a rapid time frame. Many of such services are provided
electronically. Representative uses for open shelf storage include active
medical and legal case files. In many instances, open shelf storage is offered
as an outsourced file room service, where documents are requested and retrieved
frequently and, often, transmitted via facsimile or electronically due to the
urgency of the request. Service fees generally include a monthly fee based on
activity levels and volumes stored, with extra billing for specialized requests.
To a smaller extent, the Company stores inactive documents.
(ii) Legal Services. The Company supplies a broad range of services to the
legal industry. Litigation often involves the production and management of
thousands of pages of documents, extracted in their current working form from
the offices and files of litigating parties and their experts, advisors and
legal counsel. Legal services include managing the logistics of high volume
document production, microfilming and/or electronic imaging, document coding,
computer indexing, automated document retrieval and high speed, multiple-set
reproduction of documents, as well as high level consulting services ranging
from labor discrimination, mortgage discrimination and forensic analysis to
trial support for law firms, corporations and utility companies.
Additional legal services include subpoena of business documents and
service of process, deposition reporting services, discovery assistance and
other trial support services to law firms, corporations and regulated entities.
These clients typically look to legal services companies to augment their
internal operations and capabilities on an as-needed, job-by-job basis. Clients
are generally billed on a per unit basis.
(iii) Commercial Services. The Commercial Services group offers electronic
imaging, micrographics, data capture, document and media to media conversion,
database management, direct marketing print and mail and full service commercial
printing services, as well as integrated solutions to customers in a wide range
of industries, including financial services, retail, insurance and government
entities.
Electronic Imaging Services involve the conversion of paper or
microfilm documents into digitized information through optical scanners.
Digitized information can be stored as an image or converted to code
through optical character recognition (OCR) or digital imaging storage and
retrieval technologies. Conversion to code provides additional processing
capabilities, such as manipulation of data. In both cases, the digitized
information can be stored on either a magnetic medium, such as a computer
diskette, or on optical laser disks, such as compact disks. Electronic
imaging is generally used because of the storage media's high speed of
retrieval, its multiple indexing and text search formatting capabilities
and its ability to be used to distribute output to multiple locations.
Electronic imaging services are typically billed on a job-by-job basis,
based on the number of images and complexity of the retrieval applications.
Micrographics Services involve: (i) the conversion of paper documents
into microfilm images; (ii) film processing; and (iii) computer-based
indexing and formatting. Typically, customers select micrographic services
as a cost-competitive technology to reduce the physical size of stored
records, for their long-term (over 100 years) archival capabilities and as
an intermediate step in certain imaging or reprographic applications.
Data Capture and Database Management Services involve data capture
(manually or through scanning or other electronic media), data
consolidation and elimination, storage, maintenance, formatting and report
creation. Data capture includes the conversion of text and handwritten
paper media into digital files. An advantage of digital files is the
ability to manipulate large amounts of data quickly and efficiently. In
some cases, database services include statistical analysis of data.
Direct Mail and Print Services include direct mail and fulfillment
services. Direct mail and fulfillment services provide customers with
rapid, reliable and cost-effective methods for making large-scale
distributions of items such as corporate advertising, political campaign
literature, consumer notices and annual reports for its customers. The
direct mail service also includes the ability to deliver efficient postal
routing to fulfill consumer requests for specific information.
4
<PAGE> 7
Full Service Commercial Printing Services involve a broad range of
printing and related services including complete electronic prepress
services, such as large format image setting, full-color annual report
production, flyers and catalogs.
Integrated Solutions Services deliver technical services with a
specific focus on document imaging, work flow, COLD and document and
information management systems.
(iv) Investor Services. Investor services include administration, record
keeping and information processing services. The Company maintains detailed
employee and/or investor records on behalf of (i) general partners to service
their investors in limited partnerships, REITs and master limited partnerships;
(ii) corporations to provide turn-key outsourced administration of employee
stock purchase plans and employee stock option plans; and (iii) banks and
broker/dealers to provide complete recordkeeping and administration services for
additional brokerage and IRA accounts.
Product Sales. The Company acts as a distributor of a wide range of
microfilm and business imaging supplies as well as filing and shelving supplies
and software, and earns commissions on the sales of imaging systems and
equipment.
Material Contract. In February 1998, the Company was awarded a five year,
$30 million contract by New York State to provide document imaging services to
the New York Workers' Compensation Board in support of processing workers'
compensation claims for the entire State.
SALES AND MARKETING
The Company has a broad customer base, and none of the Company's customers
accounted for more than 3.0% of revenue for the year ended December 31, 1998.
Historically, the Company's sales efforts have been implemented on a
location-by-location basis and typically have been coordinated either through
separate sales personnel or as part of the local management's responsibilities.
The Company's existing local sales efforts are supplemented through local sales
representatives which are in the process of regional and/or national sales
training. The Company strives to increase its client base by attracting
customers away from small, single business operators as a result of its ability
to offer a broader range of solutions for its clients' document management
needs. In addition, the Company intends to continue to focus on increasing
revenue from its existing clients by cross-selling its services and broadening
its product offerings. Once the Company gains critical mass in a number of
metropolitan areas, it will seek to augment local sales and marketing efforts
through the implementation of a national sales/account program. The Company
intends to focus on national sales and marketing efforts in 1999.
COMPETITION
The document and information outsourcing solutions businesses in which the
Company competes and expects to compete are highly competitive. A significant
source of competition is the in-house document handling capability of the
Company's target client base. There can be no assurance that these businesses
will outsource more of their document management needs or that such businesses
will not bring in-house services that they currently outsource. In addition,
certain of the Company's competitors are larger businesses and have greater
financial resources than the Company. Certain of these competitors operate in
broader geographic areas than the Company, and others may choose to enter the
Company's areas of operation in the future. In addition, the Company intends to
continue to enter new geographic areas through internal growth and by acquiring
existing companies and expects to encounter significant competition from
established competitors in each of such new areas. As a result of this highly
competitive environment, the Company may lose customers or have difficulty in
acquiring new customers and new companies and its results of operations may be
adversely affected.
The Company believes that the principal competitive factors in document and
information outsourcing solutions services include accuracy, reliability and
security of service, client segment specific knowledge and price. The Company
competes primarily on the basis of quality of service and client segment
specific knowledge, and believes that it competes favorably with respect to
these factors.
5
<PAGE> 8
EMPLOYEES
As of December 31, 1998, the Company had approximately 3,700 full-time and
1,250 part-time employees. As of such date, the Company had approximately 180
employees represented by labor unions. The Company considers its relations with
its employees to be good.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning each of the
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Thomas C. Walker...................... 66 Chairman of the Board and Chief
Development Officer
Ed H. Bowman, Jr...................... 52 President and Chief Executive Officer;
Director
David Lowenstein...................... 37 Executive Vice President -- Corporate
Development and Treasurer; Director
Timothy J. Barker..................... 36 Senior Vice President and Chief
Financial Officer
David M. Byerley...................... 37 Senior Vice President -- Corporate
Development
Phillip B. Guy........................ 45 Senior Vice President
Margot T. Lebenberg................... 31 Senior Vice President, General Counsel
and Secretary
Joe A. Rose........................... 48 Senior Vice President
Ronald Zazworsky...................... 54 Senior Vice President
</TABLE>
Thomas C. Walker has been Chairman of the Board of F.Y.I. since its
inception in September 1994 and has been Chief Development Officer of F.Y.I.
since November 1995. From September 1994 until November 1995, Mr. Walker held
the positions of President and Chief Executive Officer. From August 1991 to
December 1994, Mr. Walker was Vice President, Corporate Development, of Laidlaw
Waste Systems, Inc., a subsidiary of Laidlaw, Inc., a waste management company,
where he was responsible for its acquisition and divestiture program in the
United States and Mexico. From May 1989 until he joined Laidlaw Waste Systems,
Inc., Mr. Walker was President of Thomas C. Walker Associates, Inc., a company
providing merger, acquisition and financial consulting services focusing on the
waste management industry. During his career, Mr. Walker has been responsible
for the acquisition or divestiture of over 150 businesses over a 30-year period.
Mr. Walker holds a B.S. in Industrial Engineering from Lafayette College.
Ed H. Bowman, Jr. has been President and Chief Executive Officer and a
Director of F.Y.I. since November 1995. From May 1993 to June 1995, Mr. Bowman
was Executive Vice President and Chief Operating Officer of the Health Systems
Group of First Data Corporation, a financial services company. Mr. Bowman was
responsible for the day-to-day operations of research and development, marketing
and customer service. From 1983 to 1993, Mr. Bowman served in a number of
executive positions with HBOC, including VP -- International, VP -- Marketing,
Senior VP -- Customer Services, Group Senior VP -- Research and Development, and
last serving as Executive Vice President and Chief Operating Officer with
responsibility for domestic operations. Prior to joining HBOC, Mr. Bowman was
with Andersen Consulting for 10 years, where he was elected a Partner. Mr.
Bowman became a C.P.A. in 1973 and holds an M.S. from Georgia Institute of
Technology and a B.B.A. from Georgia State University. Mr. Bowman is a board
member of 711.Net, an Internet company, and he is an investor and former board
member of several early-stage, high-technology companies.
6
<PAGE> 9
David Lowenstein has been Executive Vice President -- Corporate Development
and Acquisitions and a Director of F.Y.I. since February 1995. In November 1997,
Mr. Lowenstein was named Treasurer. From July 1996 through November 1997, Mr.
Lowenstein held the additional position of Chief Financial Officer. Prior to
joining the Company, Mr. Lowenstein served, since February 1994, as Vice
President, Business Development of Laidlaw Waste Systems, Inc., with overall
responsibility for Laidlaw Waste System's acquisition and divestiture program in
North America. From April 1990 until February 1994, Mr. Lowenstein served in a
variety of capacities, including Director -- Corporate Development, for Laidlaw,
Inc. From November 1988 to March 1990, he served as a business analyst for
Tricil, Ltd., a solid and hazardous waste company that was acquired by Laidlaw,
Inc. in 1990. Mr. Lowenstein has been responsible for the acquisition or
divestiture of over 75 businesses in North America and Europe. Mr. Lowenstein
holds a B.A. in Economics from Sir Wilfred Laurier University and an M.S. in
Public and Business Administration from Carnegie Mellon University. Mr.
Lowenstein is a citizen of the Dominion of Canada.
Timothy J. Barker has been Senior Vice President and Chief Financial
Officer of F.Y.I. since November 1997. From November 1995 to November 1997, Mr.
Barker held the positions of Chief Accounting Officer and Controller of F.Y.I.
Prior to joining F.Y.I. as a full-time consultant in June 1995, Mr. Barker was a
manager with Arthur Andersen LLP, where he served in various capacities over a
nine-year period. Mr. Barker served as Vice President of Financial Planning and
Analysis for Sunbelt National Mortgage Corporation from June 1993 to October
1994. Mr. Barker holds a B.A. in Accounting from Texas Tech University and has
been a C.P.A. since 1985.
David M. Byerley has been Senior Vice President of F.Y.I. since November
1998. From August 1996 until October 1998, Mr. Byerley was Executive Vice
President of IKON's Business Information Services Division. From February 1995
until August 1996, Mr. Byerley was Senior Vice President of Product Development
and Marketing with Dataplex Corporation, a wholly-owned subsidiary of Affiliated
Computer Services. From August 1994 until February 1995, Mr. Byerley was
employed by Eastman Kodak. Mr. Byerley holds a B.S. degree from Dickinson
College, a M.S. degree from Temple University and a J.D. from Temple University
Law School.
Phillip B. Guy has been Senior Vice President of F.Y.I. since October 1998.
From April 1997 until September 1998, Mr. Guy was CEO of Antrim Corporation.
From February 1996 until March 1997, Mr. Guy was President and CEO of Healthcare
Communications, Inc. Prior to 1995, Mr. Guy was President and CEO of Scientific
Software/Bell South Systems Integration. Mr. Guy holds a B.S. in Business
Administration and Accounting from Lambuth College.
Margot T. Lebenberg has been Senior Vice President, General Counsel and
Secretary of F.Y.I. since October 1998. From May 1996 until October 1998, Ms.
Lebenberg held the positions of Vice President, General Counsel and Secretary of
F.Y.I. From 1992 until joining F.Y.I., Ms. Lebenberg was an attorney with
Morgan, Lewis & Bockius LLP in New York, where she practiced law in the business
and finance group primarily in the areas of securities and mergers and
acquisitions, specializing in consolidation transactions. Ms. Lebenberg holds a
B.A. in Economics and History from the State University of New York at
Binghamton and a J.D. from Fordham University School of Law.
Joe A. Rose has been Senior Vice President of the Company since July 1997.
From May 1995 through January 1997, Mr. Rose was President and CEO and a
Director of FormMaker Software, Inc., a document technology company. From May
1993 through May 1995, Mr. Rose was Corporate Vice President with John H.
Harland Company, a financial services company, and President and CEO of its
subsidiary, Formation Technology, Inc. In addition, Mr. Rose is a board member
of Identech Inc., a workflow technology company. From July 1988 through May
1993, Mr. Rose served as Executive Vice President with National Data
Corporation. Mr. Rose holds a B.A. from Texas Tech University.
Ronald Zazworsky has been Senior Vice President of F.Y.I. since October
1997. From February 1994 until July 1997, Mr. Zazworsky was Senior Vice
President at Medaphis Corporation. From April 1992 to February 1994, Mr.
Zazworsky was President and CEO at Habersham Banking Solutions, Inc. Prior to
1992, Mr. Zazworsky was employed at HBO as Regional Vice President for eight
years. Previously, Mr. Zazworsky
7
<PAGE> 10
held various sales, marketing and management positions at IBM. Mr. Zazworsky
holds a B.A. from Gettysburg College and an M.B.A. from Emory University.
RISK FACTORS
WE MAY NOT BE ABLE TO EFFECTIVELY INTEGRATE ALL OF OUR OPERATING COMPANIES
Our growth and future financial performance depend on our ability to
integrate all of our operating companies. We may not achieve integration unless
we effectively combine the operations of all our operating companies. A number
of our operating companies offer different services, use different capabilities
and technologies and target different geographic markets and client segments.
These differences increase the risk in successfully completing the integration
of our operating companies. We need to centralize certain functions to achieve
cost savings and develop programs and processes that will promote cooperation
and the sharing of opportunities and resources. Any difficulties we encounter in
the integration process could adversely affect us and we cannot assure you that
the operating results of the Company will match or exceed the combined
individual operating results achieved by our operating companies prior to their
acquisition.
WE MAY NOT BE ABLE TO MANAGE OUR RAPID GROWTH
We cannot be sure that our management group will effectively be able to
oversee F.Y.I. and implement our operating or growth strategies. Further, to the
extent that we are able to implement fully our acquisition strategy, the
resulting growth of F.Y.I. will place significant demands on management and on
our internal systems and controls. We cannot assure you that our management
group will effectively be able to direct F.Y.I. through a period of significant
growth. In addition, we cannot assure you that our current systems will be
adequate for our future needs or that we will be successful in implementing new
systems.
WE NEED TO BE ABLE TO ACQUIRE COMPANIES SUCCESSFULLY
Our primary growth strategy is the acquisition of additional companies that
will complement our existing businesses. We cannot assure you that we will be
able to identify or reach mutually agreeable terms with acquisition candidates
and their owners, or that we will be able to profitably manage additional
businesses or successfully integrate such additional businesses into us without
substantial costs, delays or other problems. Acquisitions may involve a number
of special risks including: (a) adverse short-term effects on our reported
operating results; (b) diversion of management's attention; (c) dependence on
retention, hiring and training of key personnel; (d) risks associated with
unanticipated problems or legal liabilities; and (e) amortization of acquired
intangible assets. Some or all of these risks could have a material adverse
effect on our operations and financial performance. In addition, to the extent
that consolidation becomes more prevalent in the industry, the prices for
attractive acquisition candidates may be bid up to higher levels. In any event,
we cannot assure you that businesses acquired in the future will achieve sales
and profitability that justify the investment therein.
WE WILL NEED TO FINANCE OUR POTENTIAL GROWTH THROUGH ACQUISITIONS
We currently intend to finance future acquisitions by using cash and our
common stock for all or a portion of the consideration to be paid. In the event
that our common stock does not maintain sufficient value, or potential
acquisition candidates are unwilling to accept our common stock as consideration
for the sale of their businesses, we may be required to use more cash, if
available, in order to continue our acquisition program. If we do not have
sufficient cash, our growth could be limited unless we are able to obtain
capital through additional debt or equity financings. Under our line of credit
with Banque Paribas (the "1998 Credit Agreement"), F.Y.I. and our subsidiaries
could borrow, on a revolving credit basis, loans in an aggregate outstanding
principal amount of $65.0 million for working capital, general corporate
purposes and acquisitions, subject to certain restrictions in our line of
credit. As of February 26, 1999, the availability under the line of credit was
$30.2 million. We cannot assure you, however, that funds available under our
line of credit will be sufficient for our needs.
8
<PAGE> 11
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE
The price of our common stock may be volatile. Our quarterly results of
operations may vary materially as a result of the timing and structure of our
acquisitions, the timing and magnitude of costs related to acquisitions, the
gain or loss of material client relationships and variations in the prices
charged by us for our services. In addition, since a significant portion of our
revenue is generated on a project-by-project basis, the timing or completion of
material projects could result in fluctuations in our results of operations for
particular quarterly periods. Fluctuations in operating results may adversely
affect the market price of our common stock. The market price for our common
stock may also fluctuate in response to material announcements by us or our
significant clients or competitors, changes in the economic or other conditions
impacting our targeted client segments or changes in general economic
conditions. Further, the securities markets have experienced significant price
and volume fluctuations from time to time that have often been unrelated or
disproportionate to the operating performance of particular companies. These
broad fluctuations may adversely affect the market price of our common stock.
WE DEPEND ON CERTAIN CLIENT INDUSTRIES AND TECHNOLOGY
We derive our revenue primarily from document and information intensive
industries. Fundamental changes in the business practices of any of these client
industries, whether due to regulatory, technological or other developments,
could cause a material reduction in demand by our clients for the services
offered by us. Any reduction in demand would have a material adverse effect on
our results of operations. The document and information management services
industry is characterized by technological change, evolving customer needs and
emerging technical standards. Although we believe that we will be able to
continue to offer services based on the newest technologies, we cannot assure
you that we will be able to obtain any of these technologies, that we will be
able to effectively implement these technologies on a cost-effective or timely
basis or that these such technologies will not render obsolete our role as a
third party provider of document management services.
WE FACE INTENSE COMPETITION
The document and information management services industry is highly
competitive. A significant source of competition is the in-house document
handling capability of our targeted client base. We cannot assure you that these
businesses will outsource more of their document and information management
needs or that such businesses will not bring in-house services that they
currently outsource. In addition, certain of our competitors are larger
businesses and have greater financial resources than us. Certain of these
competitors operate in broader geographic areas than we do, and others may
choose to enter our areas of operation in the future. In addition, we intend to
enter new geographic areas through internal growth and acquisitions and expect
to encounter significant competition from established competitors in each new
area. As a result of this highly competitive environment, we may lose customers
or have difficulty in acquiring new customers and new companies, and our results
of operations may be adversely affected.
WE DEPEND ON OUR KEY PERSONNEL
Our operations are dependent on the continued efforts of our executive
officers and on senior management of our operating companies. Also, we will
likely depend on the senior management of businesses acquired in the future. If
any of these people is unable or unwilling to continue in his or her present
role, or if we are unable to attract and retain other skilled employees, our
business could be adversely affected. We do not currently have key person life
insurance covering any of our executive officers or other members of senior
management.
WE MAY BE LIABLE FOR BREACH OF CONFIDENTIALITY
A substantial portion of our business involves the handling of documents
containing confidential and other sensitive information. Although we have
established procedures intended to prevent any unauthorized disclosure of
confidential information and, in some cases, have contractually limited our
potential liability for
9
<PAGE> 12
unauthorized disclosure of such information, we cannot assure you that
unauthorized disclosures will not result in material liability to us.
WE MAY HAVE BUSINESS INTERRUPTIONS
Certain of our operations are performed at a single location and are
dependent on continuous computer, electrical and telephone service. As a result,
any disruption of our day-to-day operations could have a material adverse effect
upon us. We cannot assure you that a fire, flood, earthquake, power loss,
telephone service loss, problems caused by the Year 2000 issues or other event
affecting one or more of our facilities would not disable these services. Any
significant damage to any facility or other failure that causes significant
interruptions in our operations may not be covered by insurance. Any uninsured
or underinsured loss could have a material adverse effect on our business,
financial condition or results of operations.
OUR PUBLIC SECTOR CONTRACTS ARE SUBJECT TO GOVERNMENT REGULATIONS.
A portion of our present business involves public sector contracts, and we
anticipate a growing portion of our business coming from local, state and
federal government agencies. Public sector contracts are subject to detailed
regulatory requirements and public policies, as well as to funding priorities.
Contracts with public sector customers may be conditioned upon the continuing
availability of public funds, which in turn depends upon lengthy and complex
budgetary procedures, and may be subject to certain pricing constraints.
Moreover, public sector contracts may generally be terminated for a variety of
factors, including when it is in the best interests of the respective
governmental entity. We cannot assure you that these factors or others unique to
contracts with governmental entities will not have a material adverse effect on
our business, financial condition and results of operations.
MANAGEMENT EXERCISES SUBSTANTIAL CONTROL OVER OUR AFFAIRS
As of December 31, 1998, our directors and executive officers owned
approximately 13.2% of the shares of our common stock. Our directors and
executive officers exercise substantial control over our affairs. If these
persons act together, they might be able to elect a sufficient number of
directors to control our Board of Directors and to approve or disapprove any
matter submitted to a vote of our stockholders.
FUTURE SALES OF OUR SHARES MAY ADVERSELY AFFECT OUR STOCK PRICE
The market price of our common stock could be adversely affected by the
sale of substantial amounts of our common stock in the public market. In
addition, many shares are subject to contractual restrictions on resale which
generally expire two years from the date of issuance.
We have an acquisition program under which we recently completed, and
expect to continue to pursue, acquisitions that are accounted for under the
pooling-of-interests method of accounting. Under the pooling-of-interests method
of accounting, the affiliates of the acquired companies, which are generally all
of the stockholders of the companies acquired by us, must be free to sell or
otherwise transfer shares of our common stock received in the acquisition,
subject to their compliance with federal securities laws, as soon we release
results of operations that reflect the combined operations of F.Y.I. and the
acquired company for a minimum of 30 days. If such shares are unregistered,
F.Y.I. typically agrees to register 49% within one year from the date of
acquisition. If a significant number of shares of our common stock are issued in
acquisitions that are consummated in close proximity to each other, such shares
will become freely tradable at the same time. If a large number of shares are
sold by stockholders in the market as soon as their shares became freely
transferable, the price of our common stock could be adversely affected.
OUR SYSTEMS AND THIRD-PARTY SYSTEMS WHICH AFFECT OUR BUSINESS MAY NOT ACHIEVE
YEAR 2000 READINESS
The "Year 2000 Issue" describes the use of two digits rather than four
digits to define the applicable year in certain computer programs. In the year
2000, any of our computer programs that have two digit date-sensitive software
may interpret a date of "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a
10
<PAGE> 13
temporary inability to process transactions, send invoices or engage in similar
normal business activities. We are progressing in our completion of the various
tasks and target dates identified in our Year 2000 work plan. We estimate that
the total cost of the Year 2000 project will be approximately $3.0 to $3.5
million. As of December 31, 1998, we had incurred approximately $1.1 million of
Year 2000 costs. Due to the general uncertainty inherent in the Year 2000
process, resulting in part from customers, we are unable to determine a
reasonable worst case scenario at this time. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Impact of the Year
2000 Issue."
WE MAY HAVE ENVIRONMENTAL LIABILITIES IN THE FUTURE
We are subject to regulations and ordinances that govern activities or
operations that may have adverse environmental effects, such as discharges to
air and water. We are not aware of any environmental conditions relating to
present or past waste generation at or from these facilities that would be
likely to have a material adverse effect on our business, financial condition or
results of operations. However, we cannot assure you that environmental
liabilities in the future will not have a material adverse effect on our
business, financial condition or results of operations.
THE BOARD OF DIRECTORS MAY BE ABLE TO DELAY OR PREVENT TAKEOVERS
Our Board of Directors is empowered to issue preferred stock without
stockholder action. The existence of this "blank-check" preferred could render
more difficult or discourage an attempt to obtain control of us by means of a
tender offer, merger, proxy contest or otherwise. See "Description of Capital
Stock."
ITEM 2. PROPERTIES
As of December 31, 1998, the Company operated in excess of 107 document
management service facilities in 39 states. Except for the six facilities owned
by the Company, all of these facilities are leased and are principally used for
operations and general administrative functions. See Note 9 of Notes to
Consolidated Financial Statements of F.Y.I. Incorporated and Subsidiaries for
further information relating to these leases.
As of December 31, 1998, the Company also operated on-site at over 450
client locations and from time to time at many other client locations for
specific projects.
In order to secure its obligations under the 1998 Credit Agreement, the
Company granted to Banque Paribas and Bank of America Texas, N.A., as co-agents
for the Company's lenders, a lien on substantially all of the Company's
properties and other assets. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company believes that its properties are generally well maintained, in
good condition and adequate for the Company's present needs. Furthermore, the
Company believes that suitable additional or replacement space will be available
when required.
ITEM 3. LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of these actions
will have a material adverse effect on the financial condition or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1998, no matters
were submitted to a vote of the security holders.
11
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol "FYII." The Company completed its IPO in January 1996 at a price of
$13.00 per share. The following table sets forth, for the Company's fiscal
periods indicated, the range of high and low last reported sale prices for the
Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1997
First Quarter......................................... $26.25 $20.63
Second Quarter........................................ $25.31 $16.75
Third Quarter......................................... $26.25 $23.00
Fourth Quarter........................................ $26.25 $21.75
FISCAL YEAR 1998
First Quarter......................................... $27.38 $24.00
Second Quarter........................................ $29.50 $25.00
Third Quarter......................................... $35.75 $23.50
Fourth Quarter........................................ $32.06 $24.13
FISCAL YEAR 1999
First Quarter (through February 19, 1999)............. $39.00 $30.00
</TABLE>
HOLDERS
On February 19, 1999, the last reported sale price of the Common Stock on
The Nasdaq Stock Market was $32.13 per share. At February 19, 1999, there were
157 holders of record of the Company's Common Stock and 14,086,053 shares
outstanding.
DIVIDENDS
The Company has never declared any cash dividends on its Common Stock. The
Company does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future and intends to retain its earnings, if any, to finance the
expansion of its business and for general corporate purposes. Any payment of
future dividends will be at the discretion of the Board of Directors and will
depend upon, among other things, the Company's earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions and other
factors that the Company's Board of Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
F.Y.I. was founded in September 1994 and effectively began its operations
on February 1, 1996 following the completion of the IPO. F.Y.I. acquired,
simultaneously with and as a condition to the closing of the IPO, the seven
Founding Companies (the "Acquisitions"). The Acquisitions have been accounted
for in accordance with generally accepted accounting principles ("GAAP") as a
combination of the Founding Companies at historical cost. For accounting
purposes and for the purposes of the presentation of the financial data herein,
January 31, 1996 has been used as the effective date of the Acquisitions.
Since the IPO and through December 31, 1998, the Company acquired nine
companies in transactions that were accounted for as poolings-of-interests: (i)
The Rust Consulting Group, Inc. ("Rust") in December 1996; (ii) MAVRICC
Management Systems, Inc. and a related company, MMS Escrow and Transfer Agency,
Inc. (collectively, "MAVRICC") in March 1997; (iii) Input of Texas, Inc.
("Input") in March 1997; (iv) Micro Publishing Systems ("MPS") in December 1997;
(v) Lifo Systems, Inc. ("Lifo") in
12
<PAGE> 15
February 1998; (vi) Creative Mailings, Inc. ("CMI") in September 1998; (vii)
Economic Research Services Inc. ("ERS") in October 1998; (viii) TCH Mailhouse,
Inc. and G&W Enterprise, Inc. (collectively, "TCH") in December 1998; and (ix)
Advanced Digital Graphics, Inc. ("ADG") in December 1998 (collectively, the
"Pooled Companies"). The consolidated financial statements for all periods
presented have been restated to include the accounts of MAVRICC, Input, CMI and
ERS. As a result, F.Y.I. is reporting financial results in periods prior to the
Company's inception. The consolidated financial statements of the Company were
not restated for the Rust, MPS, and Lifo acquisitions for the periods prior to
January 1, 1996, 1997 and 1998, respectively, due to their financial
immateriality. Periods presented were also not restated prior to October 1, 1998
for the acquisitions of TCH and ADG due to their financial immateriality. The
Pooled Companies and the Company were not under common control or management
during the periods prior to their respective mergers. The results of operations
for the periods presented may not be indicative of the results in the future
because of (i) the impact of acquisitions recorded as purchases, whose results
are only included subsequent to the purchase date; and (ii) the impact of
acquisitions recorded as poolings-of-interests, whose predecessor companies were
not under common control or management.
Subsequent to the IPO and through December 31, 1998, the Company acquired
33 additional companies in transactions accounted for as purchases. The
Company's results of operations include the results of these acquisitions from
the date of their respective acquisition.
The Selected Financial Data for the years ended December 31, 1996, 1997 and
1998 have been derived from the Consolidated Financial Statements of F.Y.I.
Incorporated and Subsidiaries that have been audited by Arthur Andersen LLP and
that appear elsewhere in this Report. The Selected Financial Data for the years
ended December 31, 1994 and 1995 have been derived from financial statements of
MAVRICC, Input, CMI and ERS not included elsewhere in this Report. The Selected
Financial Data are based on available information and certain assumptions
described in the footnotes set forth below, all of which the Company believes
are reasonable.
The Selected Financial Data provided below should be read in conjunction
with the historical financial statements of F.Y.I., including the related notes
thereto, and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" that appear elsewhere in this Report.
13
<PAGE> 16
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................... $19,476 $26,583 $106,625 $177,272 $248,412
Cost of services.......................... 11,393 14,841 65,109 112,161 153,662
Depreciation.............................. 479 494 2,176 3,730 5,889
------- ------- -------- -------- --------
Gross profit............................ 7,604 11,248 39,340 61,381 88,861
Selling, general and administrative
expenses(1)(2).......................... 5,815 6,127 26,459 37,956 57,402
Gain on sale of assets of subsidiary(3)... -- -- -- -- (4,394)
Amortization(4)........................... -- -- 599 1,835 4,845
------- ------- -------- -------- --------
Operating income(1)..................... 1,789 5,121 12,282 21,590 31,008
Interest and other expense (income),
net(5).................................. 75 (29) 672 1,176 990
------- ------- -------- -------- --------
Income before income taxes(1)(5).......... 1,714 5,150 11,610 20,414 30,018
Provision for income taxes(6)............. 701 1,960 4,714 8,266 12,007
------- ------- -------- -------- --------
Net income (1)(5)(6)...................... $ 1,013 $ 3,190 $ 6,896 $ 12,148 $ 18,011
======= ======= ======== ======== ========
Net income per common share
Basic(1)(5)(6).......................... $ 0.31 $ 0.97 $ 0.81 $ 1.01 $ 1.35
Diluted(1)(5)(6)........................ $ 0.31 $ 0.97 $ 0.80 $ 1.00 $ 1.31
Weighted average common shares outstanding
Basic................................... 3,267 3,297 8,504 12,018 13,370
Diluted................................. 3,267 3,297 8,632 12,196 13,731
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $1,538 $ 2,835 $ 26,743 $ 26,642 $ 37,793
Total assets............................... 7,940 15,411 113,148 139,106 206,970
Long-term obligations, net of current
maturities............................... 622 914 4,911 5,892 31,498
Stockholders' equity....................... 3,645 7,000 83,254 107,564 138,735
</TABLE>
- ---------------
(1) Gives effect to the Compensation Differential. See Note 2 of Notes to
Consolidated Financial Statements of F.Y.I. Incorporated and Subsidiaries.
(2) Selling, general and administrative expenses for the year ended December 31,
1998, include charges totaling $2.5 million relating to: (i) severance and
other costs, $1.7 million; (ii) facilities closing costs, $0.5 million; and
(iii) other write-downs and impairments, $0.3 million. See Note 6 of Notes
to Consolidated Financial Statements of F.Y.I. Incorporated and
Subsidiaries.
(3) Reports the gain on the sale of assets of Leonard Archives Acquisition Corp.
("Leonard"). The gain on sale, net of other charges included in (2) and (4),
is $145,000, before taxes. See Note 6 of Notes to Consolidated Financial
Statements of F.Y.I. Incorporated and Subsidiaries.
(4) Amortization for the year ended December 31, 1998, includes acceleration of
goodwill amortization of $1.8 million. See Note 6 of Notes to Consolidated
Financial Statements of F.Y.I. Incorporated and Subsidiaries.
(5) Interest expense for the year ended December 31, 1997, includes the
write-off of approximately $1.2 million ($0.7 million, net of taxes, and
$0.07 per share) of unamortized debt issuance costs related to the Company's
1996 Credit Agreement. See Note 7 of Notes to Consolidated Financial
Statements of F.Y.I. Incorporated and Subsidiaries.
(6) Gives effect to certain tax adjustments related to the taxation of certain
Founding Companies and Pooled Companies as S corporations or sole
proprietorships prior to the consummation of the Acquisitions and the tax
impact of the Compensation Differential in each period. See Note 2 of Notes
to Consolidated Financial Statements of F.Y.I. Incorporated and
Subsidiaries.
14
<PAGE> 17
ITEM 7. 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 and "Item 6. Selected
Financial Data" appearing elsewhere in this Report. Additional information
concerning factors that could cause results to differ materially from those in
the forward-looking statements is contained under "Item 1. Business -- Risk
Factors."
INTRODUCTION
F.Y.I. was founded in September 1994 to create a national, single source
provider of document and information outsourcing solutions. In January 1996,
F.Y.I. acquired, simultaneously with the closing of the IPO, the Founding
Companies. The Acquisitions have been accounted for in accordance with GAAP as a
combination of the Founding Companies at historical cost, and January 31, 1996
has been used as the effective date of the Acquisitions. Between September 1994
and the consummation of the IPO, F.Y.I. did not conduct any operations.
Accordingly, the actual operating results of the Company included in the
Statement of Operations for the year ended December 31, 1996 include the 11
months of operations subsequent to the consummation of the Acquisitions and the
IPO. During the period prior to the IPO, F.Y.I. incurred various legal,
accounting, marketing, travel and other costs in connection with the
Acquisitions and the IPO, which were funded by the issuance of equity
securities. Additional costs associated with the Acquisitions and the IPO were
paid with proceeds of the IPO.
Since the IPO and through December 31, 1998, the Company acquired nine
companies in transactions that were accounted for as poolings-of-interests: (i)
Rust in December 1996; (ii) MAVRICC in March 1997; (iii) Input in March 1997;
(iv) MPS in December 1997; (v) Lifo in February 1998; (vi) CMI in September
1998; (vii) ERS in October 1998; (viii) TCH in December 1998; and (iv) ADG in
December 1998. The consolidated financial statements for all periods presented
have been restated to include the accounts of MAVRICC, Input, CMI and ERS. As a
result, F.Y.I. is reporting financial results in periods prior to the Company's
inception. The consolidated financial statements of the Company were not
restated for the Rust, MPS and LIFO acquisitions for the periods prior to
January 1, 1996, 1997 and 1998, respectively, due to their financial
immateriality. Periods presented were also not restated prior to October 1, 1998
for the acquisitions of TCH and ADG due to their financial immateriality. The
Pooled Companies and the Company were not under common control or management
during the periods prior to their respective mergers. The results of operations
for the periods presented may not be indicative of the results in the future
because of (i) the impact of acquisitions recorded as purchases, whose results
are only included subsequent to the purchase date; and (ii) the impact of
acquisitions recorded as poolings-of-interests, whose predecessor companies were
not under common control or management.
Subsequent to the IPO and through December 31, 1998, the Company acquired
33 additional companies in transactions accounted for as purchases. The
Company's results of operations include the results of these acquisitions from
the date of their respective acquisition.
The Company's revenue relates to the following segments: (i) Healthcare
Services; (ii) Commercial Services; and (iii) Legal Services, which includes
Investor Services, an emerging business initiative. Revenue relates to the
following services, by segment:
Healthcare Services: includes (i) processing a request for a patient's
medical records from a physician, insurance company, attorney, healthcare
institution or individual; (ii) off-site active storage of a healthcare
institution's medical records; (iii) online delivery of images of selected
medical records for healthcare institutions; (iv) document and data
conversion services for healthcare institutions; (v) image processing for
state government disability and workers compensation claims; (vi) medical
staffing services; and (vii) providing attending physicians statements for
life and health insurance underwriting.
Commercial Services: includes (i) electronic imaging services
involving the conversion of paper or microfilm documents into digitized
information, database management and indexing; (ii) micrographics services
involving the conversion of paper documents into microfilm images, film
processing and computer based indexing and formatting; (iii) data capture,
document and media-to-media conversion
15
<PAGE> 18
and database management services involving data capture, data consolidation
and elimination, storage, maintenance, formatting and report creation; (iv)
direct mail, which includes direct mail and fulfillment services to
customers who need rapid, reliable and cost-effective methods for making
large scale distributions of advertising, literature and other information;
(v) full service commercial printing, including printing and related
services such as electronic prepress services, full-color report production
of annual reports, flyers and catalogs; and (vi) integrated solutions, that
deliver technical services with a focus on document imaging, work flow,
COLD and document information management systems.
Legal Services: includes (i) automated litigation support, including
document conversion, computer indexing and automated document retrieval;
(ii) consulting services such as discovery assistance, labor
discrimination, forensic analysis and other trial support services; (iii)
high-speed, multiple-set reproduction of documents; and (iv) records
acquisition in the form of subpoena of business documents and service of
process.
Investor Services: includes administration, record keeping and
information processing services to (i) general partners to service their
investors in limited partnerships, REITs, and master limited partnerships;
(ii) corporations to provide turn-key outsourced administration of employee
stock purchase plans and employee stock option plans; and (iii) banks and
broker/dealers to provide complete record keeping and administration
services for additional brokerage and IRA accounts.
Cost of services consists primarily of compensation and benefits to
employees providing goods and services to the Company's customers, occupancy
costs, equipment costs and supplies. The Company's cost of services also
includes the 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.
RESULTS OF OPERATIONS
The following table sets forth certain items as shown in "Item 6. Selected
Financial Data" expressed as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Revenue..................................................... 100.0% 100.0% 100.0%
Cost of services............................................ 61.1 63.3 61.8
Depreciation................................................ 2.0 2.1 2.4
----- ----- -----
Gross profit.............................................. 36.9 34.6 35.8
Selling, general and administrative expenses(1)(2).......... 24.8 21.4 23.1
Gain on sale of assets of subsidiary(3)..................... -- -- (1.8)
Amortization(4)............................................. 0.6 1.0 2.0
----- ----- -----
Operating income(1)......................................... 11.5 12.2 12.5
Interest and other expense (income), net(5)................. 0.6 0.7 0.4
----- ----- -----
Income before income taxes(1)(5)............................ 10.9 11.5 12.1
Provision for income taxes(6)............................... 4.4 4.6 4.8
----- ----- -----
Net income(1)(5)(6)......................................... 6.5% 6.9% 7.3%
===== ===== =====
</TABLE>
- ---------------
(1) Gives effect to the Compensation Differential. See Note 2 to Consolidated
Financial Statements of F.Y.I. Incorporated and Subsidiaries.
16
<PAGE> 19
(2) Selling, general and administrative expenses for the year ended December 31,
1998, include charges of 1.0% of revenue. See Note 6 of Notes to
Consolidated Financial Statements of F.Y.I. Incorporated and Subsidiaries.
(3) Reports the gain on the sale of Leonard. The gain on sale, net of other
charges included in (2) and (4), is 0.06% of revenue. See Note 6 of Notes to
Consolidated Financial Statements of F.Y.I. Incorporated and Subsidiaries.
(4) Amortization for the year ended December 31, 1998, includes goodwill
acceleration of 0.7% of revenue. See Note 6 of Notes to Consolidated
Financial Statements of F.Y.I. Incorporated and Subsidiaries.
(5) Interest expense for the year ended December 31, 1997, includes the write
off of unamortized debt issuance costs of 0.7% of revenue, or 0.4% net of
the associated income tax effect. See Note 7 of Notes to Consolidated
Financial Statements of F.Y.I. Incorporated and Subsidiaries.
(6) Gives effect to certain tax adjustments related to the taxation of certain
Founding Companies and Pooled Companies as S corporations or sole
proprietorships prior to the consummation of the Acquisitions and the tax
impact of the Compensation Differential in each period. See Note 2 of Notes
to Consolidated Financial Statements of F.Y.I. Incorporated and
Subsidiaries.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenue
Revenue increased 40.1% from $177.3 million for the year ended December 31,
1997 to $248.4 million for the year ended December 31, 1998. This increase was
largely due to: (i) revenue from the acquisitions completed subsequent to
December 31, 1997 accounted for under the purchase method of accounting; (ii)
internal growth of 9.3% in revenue at the companies owned greater than one year
based on the acquisition anniversary date; and (iii) growth at the companies
owned less than one year as reflected in proforma internal revenue growth of
14.7% assuming all companies were owned as of January 1, 1997. Internal growth
at the companies owned greater than one year was primarily attributable to: (i)
an increase in government services revenue relating to the State of New York
document imaging contract; (ii) an increase in legal consulting and imaging
revenue in California; and (iii) an increase in healthcare records release
services revenue due to expansion into additional healthcare institutions
throughout the markets the Company serves.
Gross profit
Gross profit increased 44.8% from $61.4 million for the year ended December
31, 1997 to $88.9 million for the year ended December 31, 1998, largely due to
the increases in revenue discussed above. Gross profit as a percentage of
revenue increased from 34.6% for the year ended December 31, 1997 to 35.8% for
the year ended December 31, 1998, primarily due to higher gross profit margins
experienced in the acquisitions accounted for under the purchase method of
accounting added in 1998.
Gain on sale of assets of subsidiary
In October 1998, the Company entered into an agreement to exchange certain
assets and related liabilities of Leonard for cash and certain assets and
related liabilities of Copyright, Inc., a Philadelphia-based provider of
healthcare release of information services. The divestiture of Leonard, which
primarily offered archival records storage, is consistent with F.Y.I.'s
strategic objective of focusing its activities on higher value-added document
and information management and outsourcing solutions. The book value of the net
assets disposed was approximately $4.1 million, and the Company recorded a gain,
before taxes, of $4.4 million on the transaction, net of costs associated with
the transaction.
Selling, general and administrative expenses
SG&A increased 47.2% from $39.0 million, or 22.0% of revenue, for the year
ended December 31, 1997 to $57.4 million, or 23.1% of revenue, for the year
ended December 31, 1998, primarily due to SG&A associated with the acquisitions
subsequent to December 31, 1997. SG&A for the year ended December 31,
17
<PAGE> 20
1998 includes the following charges and impairments totaling $2.5 million: (i)
severance payments due on acquisition related employment contracts terminated or
not renewed and other costs, $1.7 million; (ii) facilities closing costs, $0.5
million; and (iii) other writedowns and impairments, $0.3 million. Excluding
these charges, and after giving effect to the Compensation Differential in each
period, SG&A increased 44.8% from $38.0 million, or 21.4% of revenue, for the
year ended December 31, 1997 to $55.0 million, or 22.1% of revenue, for the year
ended December 31, 1998. This increase as a percentage of revenue was a result
of: (i) higher SG&A expenses associated with the acquisitions accounted for
under the purchase method of accounting added in 1998; (ii) increased corporate
overhead required to manage the consolidated group of companies; and (iii) deal
costs related to the acquisition of the Pooled Companies. These increases in
SG&A were partially offset by decreased SG&A as a percentage of revenue in the
companies owned greater than one year.
Operating income
Operating income adjusted for the Compensation Differential increased 43.6%
from $21.6 million, or 12.2% of revenue, for the year ended December 31, 1997 to
$31.0 million, or 12.5% of revenue, for the year ended December 31, 1998,
largely attributable to the factors discussed above.
Interest Expense
Interest expense decreased 23.5% from $1.9 million for the year ended
December 31, 1997 to $1.5 million for the year ended December 31, 1998,
primarily due to the 1997 write-off of unamortized debt issue costs related to
the Company's credit agreement entered into in April 1996, with Banque Paribas,
as agent, and the lenders named therein (the "1996 Credit Agreement"). Interest
on borrowings increased $0.9 million from $0.5 million in 1997 to $1.4 million
in 1998, as the Company's debt levels increased due to cash paid for
acquisitions in 1998. The average interest rate on borrowings decreased from
8.1% in 1997 to 6.5% in 1998 as the Company negotiated more favorable interest
terms in early 1998.
Income before income taxes and net income
Income before income taxes adjusted for the Compensation Differential
increased 47.0% from $20.4 million for the year ended December 31, 1997 to $30.0
million for the year ended December 31, 1998, and net income adjusted for both
the Compensation Differential and provision for taxes increased 48.3% from $12.1
million for the year ended December 31, 1997 to $18.0 million for the year ended
December 31, 1998, largely attributable to the factors discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenue
Revenue increased 66.3%, from $106.6 million for the year ended December
31, 1996 to $177.3 million for the year ended December 31, 1997. This increase
was largely due to: (i) revenue from the acquisitions completed subsequent to
December 31, 1996 accounted for under the purchase method of accounting; (ii)
internal growth of 7.2% in revenue at the companies owned greater than one year
based on the acquisition anniversary date; and (iii) internal growth of 17.7% at
the Pooled Companies. The internal growth of the Founding Companies and
purchased companies was primarily attributable to: (i) an increase in medical
records release revenue, primarily attributable to the expansion into 28
additional healthcare institutions in the eastern United States and Texas during
1997 and due to increased production volumes at facilities contracted during
1996; (ii) an increase in legal services revenue primarily due to increased
overnight document production and increased medical records subpoena and service
of process requests; and (iii) an increase in records management revenue due to
expansion into additional healthcare institutions in California and storage
facilities in Michigan. The internal revenue growth at the Pooled Companies was
primarily attributable to growth in the print mail and legal consulting
businesses acquired via poolings-of-interests.
18
<PAGE> 21
Gross profit
Gross profit increased 56.0% from $39.3 million for the year ended December
31, 1996 to $61.4 million for the year ended December 31, 1997, largely due to
the increases in revenue discussed above. Gross profit as a percentage of
revenue decreased from 36.9% for the year ended December 31, 1996 to 34.6% for
the year ended December 31, 1997, primarily due to a reduction in the percentage
of revenue from the Pooled Companies from 1996 to 1997.
Selling, general and administrative expenses
SG&A increased 31.1% from $29.7 million, or 27.9% of revenue, for the year
ended December 31, 1996 to $39.0 million, or 22.0% of revenue, for the year
ended December 31, 1997, primarily due to SG&A associated with the acquisitions
subsequent to December 31, 1996. After giving effect to the Compensation
Differential in each period, SG&A increased 43.5% from $26.5 million, or 24.8%
of revenue, for the year ended December 31, 1996 to $38.0 million, or 21.4% of
revenue, for the year ended December 31, 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 and Pooled Companies from 23.7% for the year ended December 31, 1996 to
19.0% for the year ended December 31, 1997, primarily due to spreading the
companies' fixed costs over a larger revenue base.
Operating income
Operating income adjusted for the Compensation Differential increased 75.8%
from $12.3 million, or 11.5% of revenue, for the year ended December 31, 1996 to
$21.6 million, or 12.2% of revenue, for the year ended December 31, 1997,
largely attributable to the factors discussed above.
Interest Expense
Interest expense increased 58.5% from $1.2 million for the year ended
December 31, 1996 to $1.9 million for the year ended December 31, 1997 primarily
due to the 1997 write-off of unamortized debt issue costs related to the
Company's 1996 Credit Agreement. Interest on borrowings decreased $0.4 million,
from $0.9 million in 1996 to $0.5 million in 1997, as the Company entered 1997
with minimal debt and $25.5 million in cash.
Income before income taxes and net income
Income before income taxes adjusted for the Compensation Differential
increased 75.8% from $11.6 million for the year ended December 31, 1996 to $20.4
million for the year ended December 31, 1997, and net income adjusted for both
the Compensation Differential and provision for taxes increased 76.2% from $6.9
million for the year ended December 31, 1996 to $12.1 million for the year ended
December 31, 1997, largely attributable to the factors discussed above.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
Revenue from the Company's services shows no significant seasonal
variations. However, service revenue can vary from period to period due to the
impact of specific projects, primarily in the legal services and commercial
services segments. Quarterly results may also vary as a result of the timing of
acquisitions and the timing and magnitude of costs related to such acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had $37.8 million of working capital and
$14.6 million of cash. Cash flows provided by operating activities for the year
ended December 31, 1998 were $19.1 million. Net cash provided by operating
activities for the year ended December 31, 1998 was primarily impacted by (i) an
increase in revenue and a corresponding increase in accounts receivable; and
(ii) an increase in prepaid expenses and other assets. Net cash used in
investing activities was $37.1 million for the year ended December 31, 1998, and
was primarily used for the purchase of property, plant and equipment and
payments
19
<PAGE> 22
of $29.8 million for acquisitions, net of cash acquired. These uses were
partially offset by the $6.6 million received from the sale of the assets of
Leonard. Net cash provided by financing activities was $21.6 million, as the
Company utilized its credit facility to fund the acquisition program. The
Company assumed $3.0 million and subsequently retired $2.7 million of debt
acquired. Net borrowings on the credit facility were $26.0 million for the year.
At December 31, 1997, the Company had $26.6 million of working capital and
$11.0 million of cash. Cash flows provided by operating activities for the year
ended December 31, 1997 were $10.0 million. Net cash provided by operating
activities for the year ended December 31, 1997 was primarily impacted by: (i)
an increase in revenue and an corresponding increase in accounts receivable; and
(ii) a decrease in accounts payable and accrued liabilities associated primarily
with the payment of 1996 income taxes and 1997 estimated taxes. Net cash used in
investing activities was $14.5 million for the year ended December 31, 1997, and
was primarily used for the purchase of property, plant and equipment and
payments of $8.0 million for acquisitions, net of cash acquired. Net cash used
in financing activities was $10.1 million as the Company assumed and
subsequently retired $8.0 million of debt in acquisitions and paid $2.3 million
towards other long-term obligations. These uses were offset in part by proceeds
from employee stock option exercises and an advance in the fourth quarter from
the Company's line of credit.
Cash flows provided by operating activities for the year ended December 31,
1996 were $9.2 million. Net cash used in investing activities was $41.8 million,
and net cash provided by financing activities was $55.1 million.
The Company anticipates that cash on hand, cash from operations, additional
bank financing available under the 1998 Credit Agreement 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, F.Y.I. entered
into the 1998 Credit Agreement. 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 $65.0 million, subject to certain customary
borrowing capacity requirements. The availability under the 1998 Credit
Agreement as of February 26, 1999 was $30.2 million for acquisitions, working
capital and general corporate purposes. 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 1,267,843 shares were
available at December 31, 1998.
IMPACT OF THE YEAR 2000 ISSUE
The "Year 2000 Issue" describes the use of two digits rather than four
digits to define the applicable year in certain computer programs. In the Year
2000, any of the Company's computer programs that have two digit date-sensitive
software may interpret a date of "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
The Company has approached the Year 2000 Issue in phases. A Year 2000
project director, together with a strong support organization revolving around
technology committees organized by business unit, has designed a Year 2000 work
plan that is currently being implemented. The Year 2000 work plan includes: (i)
awareness of the Year 2000 issue; (ii) inventory of all Year 2000 items; (iii)
assessment and prioritization of all Year 2000 issues; (iv) renovation,
including replacing, repairing, or retiring any Year 2000 related problems; (v)
verification, including testing and certifying Year 2000 compliance; (vi)
implementation; and (vii) contingency planning. The work plan includes assessing
the Year 2000 compliance of customers and vendors and related interfaces. The
Company is progressing favorably in its completion of the various tasks and
target dates identified in the Year 2000 work plan. The Company believes it has
identified and prioritized all major Year 2000 related items. The Company
expects to complete all of the currently identified and
20
<PAGE> 23
planned Year 2000 tasks before the end of 1999. The Company estimates that the
total costs of the Year 2000 project will be approximately $3.0 to $3.5 million
of which about $2.0 to $2.5 million represent purchases of hardware,
off-the-shelf software and customized software and approximately $600,000
represent internal salaries. As of December 31, 1998, the Company had incurred
approximately $1.1 million of Year 2000 costs. The costs are being funded
through operating cash flow. Due to the general uncertainty inherent in the Year
2000 process, resulting in part from the uncertainty surrounding the Year 2000
readiness of third party vendors and customers, the Company is unable to
determine a reasonable worst case scenario at this time. Although currently
considered unlikely, failure of public utility companies to provide telephone
and electrical services or the inability of the Company's customers to conduct
their operations are some of the areas of concern. The development of
contingency plans is scheduled for the first half of 1999 after the Company has
received and evaluated responses from all its major vendors, customers and the
other third parties with whom the Company has a material relationship. The costs
of the Year 2000 project and the date on which the Company plans to complete the
Year 2000 project tasks are based on management's best estimates, which were
determined utilizing numerous assumptions of future events, including the
continued availability of certain resources, third party modification factors
and other factors. Additionally, the costs of the Year 2000 project are based on
the companies owned as of December 31, 1998 and do not include the impact of any
future acquisitions. The Year 2000 costs for any future acquisitions will be
evaluated in the due diligence process. As a result, there can be no assurance
that these forward looking estimates will be achieved, and the actual costs and
compliance by vendors, customers and other third parties could differ materially
from the Company's current expectations, resulting in material financial risk.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the General Instructions to Item 305 of Regulation S-K, the
quantitative and qualitative disclosures called for by Item 7A of Form 10-K and
by Item 305 of Regulation S-K does not require additional disclosure of the
Company at this time.
21
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
F.Y.I. INCORPORATED AND SUBSIDIARIES
Report of Independent Public Accountants.................. 23
Consolidated Balance Sheets............................... 24
Consolidated Statements of Operations..................... 25
Consolidated Statements of Stockholders' Equity........... 26
Consolidated Statements of Cash Flows..................... 27
Notes to Consolidated Financial Statements................ 28
</TABLE>
22
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To F.Y.I. Incorporated:
We have audited the accompanying consolidated balance sheets of F.Y.I.
Incorporated (a Delaware corporation) and subsidiaries (the "Company") as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
F.Y.I. Incorporated and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 18, 1999
23
<PAGE> 26
F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 10,982 $ 14,592
Accounts receivable and notes receivable, less allowance
for doubtful accounts of $3,356 and $4,705,
respectively........................................... 35,477 51,683
Notes receivable, shareholders -- short term.............. 351 479
Prepaid expenses and other current assets................. 3,834 5,487
-------- --------
Total current assets.............................. 50,644 72,241
PROPERTY, PLANT AND EQUIPMENT, net.......................... 22,167 29,372
GOODWILL AND OTHER INTANGIBLES, net of amortization of
$2,530 and $5,793, respectively........................... 64,278 96,652
NOTES RECEIVABLE, SHAREHOLDERS -- LONG TERM................. 321 --
OTHER NONCURRENT ASSETS..................................... 1,696 8,705
-------- --------
Total assets...................................... $139,106 $206,970
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 20,092 $ 30,095
Current maturities of long-term obligations............... 904 1,258
Income taxes payable...................................... 1,913 2,881
Current portion of deferred income taxes.................. 1,093 214
-------- --------
Total current liabilities......................... 24,002 34,448
LONG-TERM OBLIGATIONS, net of current maturities............ 5,892 31,498
DEFERRED INCOME TAXES, net of current portion............... 941 1,479
OTHER LONG-TERM OBLIGATIONS................................. 707 810
-------- --------
Total liabilities................................. 31,542 68,235
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, 12,526,286 and 14,046,725 shares issued and
outstanding at December 31, 1997 and December 31, 1998,
respectively........................................... 125 140
Additional paid-in-capital................................ 89,979 107,912
Retained earnings......................................... 17,961 31,184
-------- --------
108,065 139,236
Less -- Treasury stock, $.01 par value, 36,670 shares at
December 31, 1997 and 1998............................. (501) (501)
-------- --------
Total stockholders' equity........................ 107,564 138,735
-------- --------
Total liabilities and stockholders' equity........ $139,106 $206,970
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 27
F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
REVENUE..................................................... $106,625 $177,272 $248,412
COST OF SERVICES............................................ 65,109 112,161 153,662
DEPRECIATION................................................ 2,176 3,730 5,889
-------- -------- --------
Gross profit.............................................. 39,340 61,381 88,861
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 6)....... 29,747 39,000 57,402
GAIN ON SALE OF ASSETS OF SUBSIDIARY (Note 6)............... -- -- (4,394)
AMORTIZATION (Note 6)....................................... 599 1,835 4,845
-------- -------- --------
Operating income.......................................... 8,994 20,546 31,008
OTHER (INCOME) EXPENSE:
Interest expense.......................................... 1,211 1,919 1,468
Interest income........................................... (399) (660) (316)
Other income, net......................................... (140) (83) (162)
-------- -------- --------
Income before income taxes................................ 8,322 19,370 30,018
PROVISION FOR INCOME TAXES.................................. 2,980 6,507 10,987
-------- -------- --------
NET INCOME.................................................. $ 5,342 $ 12,863 $ 19,031
======== ======== ========
PRO FORMA DATA (Unaudited -- See Note 2):
Historical net income..................................... $ 5,342 $ 12,863 $ 19,031
Pro forma compensation differential....................... 3,288 1,044 --
Pro forma provision for income taxes...................... 1,734 1,759 1,020
-------- -------- --------
PRO FORMA NET INCOME........................................ $ 6,896 $ 12,148 $ 18,011
======== ======== ========
NET INCOME PER COMMON SHARE
BASIC..................................................... $ 0.63 $ 1.07 $ 1.42
======== ======== ========
DILUTED................................................... $ 0.62 $ 1.05 $ 1.39
======== ======== ========
PRO FORMA NET INCOME PER COMMON SHARE
BASIC..................................................... $ 0.81 $ 1.01 $ 1.35
======== ======== ========
DILUTED................................................... $ 0.80 $ 1.00 $ 1.31
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC..................................................... 8,504 12,018 13,370
======== ======== ========
DILUTED................................................... 8,632 12,196 13,731
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 28
F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK TREASURY STOCK
------------------- --------------- --------------- TOTAL
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT APIC R/E S/E
---------- ------ ------ ------ ------ ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.............. 3,326,761 $ 34 9,000 $ -- -- $ -- $ 1,637 $ 5,329 $ 7,000
Pooling-of-interests adjustments at
January 1, 1996....................... 110,000 1 -- -- -- -- 242 83 326
Initial public offering, net of costs... 2,185,000 22 -- -- -- -- 21,830 -- 21,852
Conversion of preferred stock into
common stock.......................... 542,557 5 (9,000) -- -- -- (5) -- --
Issuance of common stock for Founding
Companies............................. 1,878,933 19 -- -- -- -- (4,586) -- (4,567)
S corporation to C corporation
conversion for Founding Companies..... -- -- -- -- -- -- (691) -- (691)
Common stock issued in connection with
subsequent acquisitions............... 856,735 9 -- -- -- -- 11,827 -- 11,836
Treasury stock acquired in connection
with subsequent acquisitions.......... -- -- -- -- 36,670 (501) -- -- (501)
Exercise of options, net................ 45,740 -- -- -- -- -- 711 -- 711
Secondary offering, net of costs........ 2,363,000 23 -- -- -- -- 43,605 -- 43,628
Dividends paid to shareholders of pooled
companies............................. -- -- -- -- -- -- -- (1,682) (1,682)
Net income.............................. -- -- -- -- -- -- -- 5,342 5,342
---------- ---- ------ ---- ------ ----- -------- ------- --------
Balance, December 31, 1996.............. 11,308,726 113 -- -- 36,670 (501) 74,570 9,072 83,254
Pooling-of-interests adjustments at
January 1, 1997....................... 326,506 3 -- -- -- -- 608 (294) 317
Common stock issued in connection with
subsequent acquisitions............... 804,128 8 -- -- -- -- 13,209 -- 13,217
Dividends declared to shareholders of
pooled companies...................... -- -- -- -- -- -- -- (3,680) (3,680)
Exercise of options, net................ 86,926 1 -- -- -- -- 1,533 -- 1,534
Capital contributions by shareholders of
pooled companies...................... -- -- -- -- -- -- 59 -- 59
Net income.............................. -- -- -- -- -- -- -- 12,863 12,863
---------- ---- ------ ---- ------ ----- -------- ------- --------
Balance, December 31, 1997.............. 12,526,286 125 -- -- 36,670 (501) 89,979 17,961 107,564
Pooling-of-interests adjustments at
January 1, 1998....................... 326,659 3 -- -- -- -- 1,548 (2,226) (675)
Common stock issued in connection with
subsequent acquisitions............... 634,486 7 -- -- -- -- 12,839 -- 12,846
Dividends paid to shareholders of pooled
companies............................. -- -- -- -- -- -- -- (3,499) (3,499)
Capital contributions by shareholders of
pooled companies...................... -- -- -- -- -- -- 12 12
Exercise of options, net................ 142,770 1 -- -- -- -- 3,035 -- 3,036
Pooling-of-interests adjustments at
October 1, 1998....................... 416,524 4 -- -- -- -- 499 (83) 420
Net income.............................. -- -- -- -- -- -- 19,031 19,031
---------- ---- ------ ---- ------ ----- -------- ------- --------
Balance, December 31, 1998............ 14,046,725 $140 -- $ -- 36,670 $(501) $107,912 $31,184 $138,735
========== ==== ====== ==== ====== ===== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 29
F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 5,342 $ 12,863 $ 19,031
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,775 5,565 10,734
Gain on sale of assets of subsidiary................... -- -- (4,394)
Deferred tax (provision) benefit....................... (532) (944) 1,454
Change in operating assets and liabilities:
Accounts receivable and notes receivable............... 1,256 (7,324) (9,964)
Prepaid expenses and other assets...................... (622) 477 (3,045)
Accounts payable and accrued liabilities............... 1,001 (596) 5,295
-------- -------- --------
Net cash provided by operating activities......... 9,220 10,041 19,111
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of operating company assets............ -- -- 6,626
Purchase of property, plant and equipment................. (3,714) (7,637) (13,896)
Purchase of marketable security........................... (984) -- --
Proceeds from maturity of marketable security............. -- 984 --
Distribution from partnership............................. 86 60 --
Cash paid for acquisitions, net of cash acquired.......... (37,200) (7,956) (29,834)
-------- -------- --------
Net cash used for investing activities............ (41,812) (14,549) (37,104)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance, net of underwriting
discounts and other costs.............................. 68,227 814 2,275
Proceeds from short-term obligations...................... 7,808 446 --
Proceeds from long-term obligations....................... 19,133 3,000 32,000
Cash paid for debt issuance costs......................... (1,627) -- (450)
Dividends paid to shareholders of pooled companies........ (1,154) (3,680) (3,499)
Principal payments on short-term obligations.............. (9,568) (262) --
Principal payments on long-term obligations............... (27,738) (10,382) (8,723)
-------- -------- --------
Net cash provided by (used in) financing
activities...................................... 55,081 (10,064) 21,603
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 22,489 (14,572) 3,610
CASH AND CASH EQUIVALENTS, beginning of period.............. 3,065 25,554 10,982
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 25,554 $ 10,982 $ 14,592
======== ======== ========
SUPPLEMENTAL DATA:
Cash paid for:
Income taxes........................................... $ 1,842 $ 7,565 $ 10,875
Interest............................................... $ 989 $ 468 $ 1,261
NON-CASH FINANCING TRANSACTIONS:
Debt assumed in acquisitions........................... $ 12,485 $ 8,030 $ 2,993
Equipment acquired via capital lease................... $ 863 $ 171 $ 9
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 30
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
F.Y.I. Incorporated (the "Company" or "F.Y.I.") was founded in September
1994 to create a national, single source provider of document and information
outsourcing solutions to document and information intensive industries,
including: healthcare, law, banking, insurance, retailing, manufacturing and
government. F.Y.I. acquired (the "Acquisitions") simultaneously with the closing
of its initial public offering (the "IPO") on January 26, 1996, seven document
management services businesses (the "Founding Companies"). The consideration for
the Founding Companies consisted of a combination of cash and common stock (the
"Common Stock") of F.Y.I.
Between September 1994 and the consummation of the IPO and the
Acquisitions, F.Y.I. did not conduct any operations. For accounting purposes and
for the purposes of the presentation of the financial statements herein, January
31, 1996 has been used as the effective date of the Acquisitions. Accordingly,
the actual operating results of the Company included in the Statement of
Operations for the twelve months ended December 31, 1996 include the eleven
months of operations subsequent to the consummation of the Acquisitions.
Since the IPO, the Company acquired nine companies in transactions that
were accounted for as poolings-of-interests: (i) The Rust Consulting Group, Inc.
("Rust") in December 1996; (ii) MAVRICC Management Systems, Inc. and a related
company, MMS Escrow and Transfer Agency, Inc. (collectively, "MAVRICC") in March
1997; (iii) Input of Texas, Inc. ("Input") in March 1997; (iv) Micro Publishing
Systems, Inc. ("MPS") in December 1997; (v) Lifo Systems, Inc. ("Lifo") in
February 1998; (vi) Creative Mailings, Inc. ("CMI") in September 1998; (vii)
Economic Research Services ("ERS") in October 1998; (viii) TCH Mailhouse, Inc.
and G&W Enterprise, Inc. (collectively, "TCH") in December 1998; and (ix)
Advanced Digital Graphics, Inc. ("ADG") in December 1998 (collectively, the
"Pooled Companies"). The consolidated financial statements for all periods
presented have been restated to include the accounts of MAVRICC, Input, CMI and
ERS. As a result, F.Y.I. is reporting financial results in periods prior to the
Company's inception. The consolidated financial statements of the Company were
not restated for the Rust, MPS, and Lifo acquisitions for the periods prior to
January 1, 1996, 1997 and 1998, respectively, due to their financial
immateriality. Periods presented were also not restated prior to October 1, 1998
for the acquisitions of TCH and ADG due to their financial immateriality. The
Pooled Companies and the Company were not under common control or management
during the periods prior to their respective mergers. The results of operations
for the periods presented may not be indicative of the results in the future
because of (i) the impact of acquisitions recorded as purchases, whose results
are only included subsequent to the purchase date; and (ii) the impact of
acquisitions recorded as poolings-of-interests, whose predecessor companies were
not under common control or management.
Subsequent to the IPO and through December 31, 1998, the Company acquired
33 additional companies in transactions accounted for as purchases. The
Company's results of operations include the results of these acquisitions from
the date of their respective acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates market value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
computed using straight-line and accelerated methods over the estimated useful
lives of the assets. Leasehold improvements are depreciated over the lesser of
the estimated useful life or the term of the lease.
28
<PAGE> 31
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets
Intangible assets consist primarily of excess purchase price over net
assets, which are amortized over periods not to exceed 30 years. In conformance
with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", the Company's management continually evaluates whether events and
circumstances indicate the remaining estimated useful life of intangible assets
may warrant revisions or that the remaining balance of intangibles or other
long-lived assets may not be recoverable. To make this evaluation, management
uses an estimate of undiscounted net income over the remaining life of the
intangibles or other long-lived assets.
Revenue Recognition
Revenue is recognized when the services are provided, or products are
shipped, to the Company's customers. Unearned revenue represents certain
services which are billed in advance.
Income Taxes
Income taxes are accounted for using the asset and liability method
pursuant to SFAS No. 109, "Accounting for Income Taxes." Deferred taxes are
recognized for the tax consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities.
Net Income Per Share
Net income per common share has been computed in accordance with SFAS No.
128, "Earnings Per Share," which requires the disclosure of basic and diluted
net income per share. Basic net income per share has been computed by dividing
income by the weighted average number of common shares outstanding for the
period. Diluted net income per share has been computed by dividing income by the
weighted average number of common shares and common stock equivalents
outstanding for the period.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of certain assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to make their
presentation consistent with the current year.
Consolidation
The accompanying financial statements and related notes to consolidated
financial statements include the accounts of F.Y.I. Incorporated and its
subsidiaries, which consist of: (i) F.Y.I. Incorporated; (ii) the Founding
Companies acquired simultaneously with the closing of F.Y.I.'s IPO in January
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 companies
acquired in business combinations accounted for under the pooling-of-interests
method of accounting for either all periods presented or from the date of
acquisition, based upon their financial materiality. All significant
intercompany balances and transactions have been eliminated.
29
<PAGE> 32
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Net Income (Unaudited)
The Company acquired the Pooled Companies in transactions that were
accounted for as poolings-of-interests. The Pooled 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 business during those periods. In
connection with the acquisitions, the owners may have entered into employment
agreements that provide for compensation and benefits at levels lower than the
historical amounts (the "Compensation Differential"). The unaudited pro forma
data present compensation at the level the owners have agreed to receive
subsequent to the acquisition. In addition, the pro forma data present the
incremental provision for income taxes as if all entities had been subject to
federal and state income taxes and the related income tax impact of the
Compensation Differential discussed above.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE
The activity in the allowance for doubtful accounts and notes receivable is
as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING BALANCE COSTS AND END OF
OF PERIOD ACQUIRED EXPENSES WRITE-OFFS PERIOD
---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Twelve months ended December 31,
1996............................ $ 266 $1,038 $1,000 $ 773 $1,531
====== ====== ====== ====== ======
Twelve months ended December 31,
1997............................ $1,531 $2,046 $1,647 $1,868 $3,356
====== ====== ====== ====== ======
Twelve months ended December 31,
1998............................ $3,356 $ 363 $3,262 $2,276 $4,705
====== ====== ====== ====== ======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -----------------
YEARS 1997 1998
------------- ------- -------
<S> <C> <C> <C>
Land................................................ N/A $ 846 $ 934
Buildings and improvements.......................... 7-18 3,693 3,172
Leasehold improvements.............................. Life of lease 1,309 2,830
Vehicles............................................ 5-7 2,068 2,022
Machinery and equipment............................. 5-15 20,265 26,435
Computer equipment and software..................... 3-7 10,654 18,671
Furniture and fixtures.............................. 5-15 2,686 3,054
------- -------
41,521 57,118
Less -- Accumulated depreciation and amortization... 19,354 27,746
------- -------
$22,167 $29,372
======= =======
</TABLE>
30
<PAGE> 33
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Accounts payable and accrued liabilities.................... $ 6,685 $12,254
Accrued compensation and benefits........................... 5,899 9,338
Customer deposits........................................... 3,997 4,234
Unearned revenue............................................ 1,991 1,968
Accrued liabilities from acquisitions....................... 1,344 1,858
Accrued professional fees................................... 176 443
------- -------
$20,092 $30,095
======= =======
</TABLE>
6. BUSINESS COMBINATIONS
1998 Acquisitions
During 1998, the Company acquired 13 document management businesses, eight
of which were accounted for as purchases (the "Purchased Companies") and five of
which were accounted for under the pooling-of-interests method. The eight
acquisitions accounted for as purchases were Medicopy, Inc. ("Medicopy"),
Associate Record Technician Services, Inc. ("ARTS"), DeBari Associates, Inc.
("DeBari"), ACT Medical Record Services, Inc. ("ACT"), Eagle Legal Services,
Inc. ("Eagle"), Doctex, Inc. ("Doctex"), Copyright, Inc. ("Copyright") and
F.Y.I. Radiology Archiving and Imaging Services, Inc. ("Radiology"). The
aggregate consideration paid for the Purchased Companies consisted of $20.2
million in cash, 633,385 shares of Common Stock and $3.5 million in non-cash
consideration. The preliminary allocation of the purchase price is set forth
below (in thousands):
<TABLE>
<S> <C>
Consideration Paid.......................................... $32,855
Estimated Fair Value of Tangible Assets..................... 8,044
Estimated Fair Value of Liabilities......................... 8,270
Goodwill.................................................... 33,081
</TABLE>
The weighted average fair market value of the shares of Common Stock used
in calculating the consideration paid was $20.28 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 not expected to be materially different than the
final allocations. Certain of the acquisitions are subject to additional
consideration based upon achievement of specified earning targets over one to
three year periods.
The acquisitions of CMI in September 1998 and ERS in October 1998 for
745,000 and 835,000 shares of Common Stock, respectively, were accounted for as
poolings-of-interests. The consolidated financial statements for all periods
presented have been restated to include the accounts of CMI and ERS. Pro forma
net income reflects adjustments for the Compensation Differential and the
related income tax effect and the incremental provision for income taxes as if
all entities had been subject to federal and state income taxes. The
31
<PAGE> 34
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
separate and combined results of F.Y.I., CMI and ERS for the periods preceding
the acquisitions were as follows (in thousands):
<TABLE>
<CAPTION>
CMI & ERS
F.Y.I. COMBINED CONSOLIDATED
-------- --------- ------------
<S> <C> <C> <C>
Year ended December 31, 1996:
Revenue......................................... $ 88,818 $17,807 $106,625
Net income...................................... 3,295 2,047 5,342
Pro forma net income............................ 5,599 1,297 6,896
Diluted weighted average common shares.......... 7,052 1,580 8,632
Year ended December 31, 1997:
Revenue......................................... 154,142 23,130 177,272
Net income...................................... 9,007 3,856 12,863
Pro forma net income............................ 9,580 2,568 12,148
Diluted weighted average common shares.......... 10,616 1,580 12,196
</TABLE>
The acquisition of 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.
The acquisitions of TCH and ADG in December 1998 for 416,524 shares of
Common Stock were accounted for as poolings-of-interests. The consolidated
financial statements of the Company were not restated for periods prior to
October 1, 1998 due to the financial immateriality of TCH and ADG.
1998 Disposition and Other Charges
In October 1998, the Company entered into an agreement to exchange certain
assets and related liabilities of Leonard Archives Acquisition Corp. ("Leonard")
for cash and certain assets and related liabilities of Copyright, Inc., a
Philadelphia-based provider of healthcare release of information services. The
divestiture of Leonard, which primarily offered archival records storage, is
consistent with F.Y.I.'s strategic objective of focusing its activities on
higher value-added document and information management and outsourcing
solutions. The book value of the net assets disposed was approximately $4.1
million, and the Company recorded a gain of $4.4 million on the transaction, net
of costs associated with the transaction.
Also in the fourth quarter, the Company recorded the write-down of certain
intangible and fixed assets and recorded severance and other costs. The goodwill
impairments related to the Computer Central Corporation, Microfilm Associates,
Ltd. and Octo, Inc. acquisitions and a customer list associated with a Founding
Company acquisition in which the customer base associated with the intangible
asset had deteriorated to the extent that the assets were considered impaired
under SFAS 121. The severance represents payments due on acquisition related
employment contracts terminated or not renewed. The charges totaling $4.3
million are presented in the consolidated statement of operations as follows:
(i) acceleration of goodwill amortization, $1.8 million; (ii) severance and
other costs, $1.7 million; (iii) facilities closing costs, $0.5 million; and
(iv) other write-downs and impairments, $0.3 million. The gain on sale of the
assets of Leonard, net of the above charges, was $145,000 before taxes.
1997 Acquisitions
During 1997, the Company acquired 11 document management businesses, eight
of which were accounted for as purchases and three of which were accounted for
under the pooling-of-interests method. The eight acquisitions accounted for as
purchases were Acadian Consultants, Inc. ("Acadian"), Computer Central
Corporation ("CCC"), Deliverex of San Francisco ("Deliverex San Francisco"),
Information Management
32
<PAGE> 35
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Corporation ("IMC"), Major Legal Services ("Major"), Quality Copy Service,
QCSInet, Inc. and affiliates (collectively, "QCS"), APS Services ("APS"), and
ZipShred, Inc. and ZipShred of America, LLC (collectively, "ZipShred"). The
aggregate consideration paid for these eight acquisitions consisted of $9.1
million in cash, 724,572 shares of Common Stock, and future contingent payment
estimates of $1.0 million to be paid in cash and stock. The preliminary
allocation of the purchase price is set forth below (in thousands):
<TABLE>
<S> <C>
Consideration Paid.......................................... $21,248
Estimated Fair Value of Tangible Assets..................... 8,153
Estimated Fair Value of Liabilities......................... 12,932
Goodwill.................................................... 26,027
</TABLE>
The weighted average fair market values of the shares of Common Stock used
in calculating the consideration paid was $16.79 which represents a 30-35%
discount from the average trading price of the Common Stock based on the length
and type of restrictions in the purchase agreements.
The acquisitions of MAVRICC and Input in March 1997 for 820,000 and 263,636
shares of Common Stock, respectively, were accounted for as
poolings-of-interests. The consolidated financial statements for all periods
presented have been restated to include the accounts of MAVRICC and Input.
The acquisition of MPS in December 1997 for 326,506 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, 1997
due to the financial immateriality of MPS.
1996 Acquisitions
Since the IPO and through December 31, 1996, the Company acquired 18
additional businesses (the "1996 Acquisitions") that provide document management
services, of which 17 were accounted for as purchases and one was accounted for
as a pooling-of-interests. The 1996 Acquisitions consist of Sacramento Valley
Records Management, Inc. ("Sacramento"); Microfilm Associates, Ltd.
("Microfilm"); B&B Information and Image Management, Inc. ("B&B"); Premier
Document Management, Inc. and PDM Services, Inc. ("Premier"); Robert A. Cook and
Staff, Inc. and RAC Services, Inc. ("Cook"); Octo, Inc. ("Octo"); Domor Data
Processing ("Domor"); Index Record Management ("Index"); Rushmore Legal Support
("Rushmore"); C.M.R.S. Incorporated ("CMRS"), Minnesota Medical Record Service,
Inc. ("Minnesota Medical Record"), and Texas Medical Record Service, Inc.
("Texas Medical Record") (collectively "Medical Record"); ZIA Information
Analysis Group ("ZIA"); Carton Hodgson, Inc. and CH Direct, Inc. (collectively
"Carton"); Data Input Services Corporation ("DISC"); Deliverex of Seattle
("Deliverex Seattle"); Researchers Litigation Support, L.L.C. ("Researchers
LLC"); and Rust. The aggregate consideration paid for the 17 acquisitions
accounted for as purchases consisted of $32.5 million in cash and 820,065 shares
of Common Stock, net of stock repurchased by the Company. The allocation of the
purchase price is set forth below (in thousands):
<TABLE>
<S> <C>
Consideration Paid.......................................... $46,523
Estimated Fair Value of Tangible Assets..................... 15,103
Estimated Fair Value of Liabilities......................... 13,095
Goodwill.................................................... 44,515
</TABLE>
The fair market value of the shares of Common Stock used in calculating the
consideration paid ranged from $13.65 to $16.35, which is based on approximately
a 20-35% discount from the average trading price of the Common Stock based on
the length and type of stock resale restrictions outlined in the purchase
agreements.
33
<PAGE> 36
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition of Rust in December 1996 for 110,000 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, 1996
due to the financial immateriality of Rust.
Acquisitions of the Founding Companies
Simultaneously with the closing of the IPO, the Company acquired the
Founding Companies. The aggregate consideration paid by F.Y.I. to acquire the
Founding Companies was approximately $35 million, consisting of: (i) $7,059,000
in cash; (ii) 1,878,933 shares of Common Stock; (iii) the assumption and
repayment of approximately $191,000 of indebtedness owed by a Founding Company
stockholder; and (iv) the distribution of cash and certain receivables to
certain Founding Company stockholders of S corporations in the amount of
$3,450,000, representing the undistributed retained earnings of S corporations,
upon which taxes have been paid by the stockholders.
The Acquisitions have been accounted for in accordance with GAAP as a
combination of F.Y.I. and the Founding Companies at historical cost, because:
(i) the Founding Companies' stockholders transferred assets to F.Y.I. in
exchange for Common Stock and cash simultaneously with the IPO; (ii) the nature
of future operations of the Company will be substantially identical to the
combined operations of the Founding Companies; and (iii) no former stockholder
group of any of the Founding Companies obtained a majority of the outstanding
voting shares of the Company.
Intangible Assets
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 periods not to exceed 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 acquisitions is not deductible for income tax purposes.
34
<PAGE> 37
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Financial Data
Set forth below are unaudited pro forma financial data for the years ended
December 31, 1997 and December 31, 1998. The unaudited pro forma data give
effect to: (i) the acquisitions of IMC, Major, QCS, APS, MPS, Lifo, ACT,
Medicopy, ARTS, DeBari, Eagle, Doctex, Copyright, Radiology, TCH and ADG; and
(ii) compensation and tax adjustments for all transactions as if these
transactions had occurred on January 1, 1997. The acquisitions of Deliverex San
Francisco and ZipShred have not been included in the pro forma financial
statements for periods prior to their acquisition date as the effect is
immaterial.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31,
--------------------------
1997 1998
---------- ----------
(UNAUDITED, IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenue..................................................... $237,611 $266,286
Income before income taxes.................................. 26,331 31,005
Net income.................................................. 15,798 18,603
Net income per common share
Basic..................................................... $ 1.16 $ 1.35
Diluted................................................... $ 1.14 $ 1.32
Weighted average common shares outstanding
Basic..................................................... 13,632 13,749
Diluted................................................... 13,810 14,110
</TABLE>
The pro forma information is provided for informational purposes only and
does not purport to present the results of operations of the Company had the
transactions assumed therein occurred on or as of the dates indicated, nor are
they necessarily indicative of the results of operations which may be achieved
in the future.
35
<PAGE> 38
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CREDIT FACILITIES:
Long-term Obligations
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ -------
<S> <C> <C>
Line of credit, expiring at February 2001, interest at prime
plus 1.5% or the Eurodollar rate plus 3% (8.94% to 10.0%)
at December 31, 1997 and interest at prime or the
Eurodollar rate plus 0.5% (5.56% to 7.75%) at December 31,
1998...................................................... $2,000 $28,000
Industrial Revenue Bonds: Variable Rate (3.3% at December
31, 1997 and 3.4% at December 31, 1998) Demand/Fixed Rate
Revenue Bonds, Prince George's County, Maryland; due
beginning in 1996 through 2014 secured by all real estate
equipment and other tangible property of a subsidiary of
the Company............................................... 2,296 2,244
Note payable -- Small Business Administration, monthly
payment of $3,000, including principal and interest at 4%,
maturing November 17, 2014, secured by deed of trust on
real estate and non-real estate assets of the Company,
guaranteed by a stockholder and the stockholder's wife.... 376 357
Capital lease obligations................................... 1,306 1,573
All other obligations....................................... 818 582
------ -------
Total............................................. 6,796 32,756
Less -- Current maturities of long-term obligations......... 904 1,258
------ -------
Total long-term obligations....................... $5,892 $31,498
====== =======
</TABLE>
In April 1996, the Company and its subsidiaries entered into a credit
agreement, as amended (the "Line of Credit"), with Banque Paribas, as agent, and
the lenders named therein. In February 1998, F.Y.I. entered into a new credit
agreement, as amended, (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
$65.0 million, subject to certain customary borrowing capacity requirements. The
1998 Credit Agreement is secured by the assets and/or stock of F.Y.I. and its
subsidiaries.
The commitment to fund revolving credit loans under the 1998 Credit
Agreement expires February 18, 2001. The annual interest rate applicable to
borrowings under this facility is, at the option of the Company, (i) the prime
rate or (ii) grid pricing ranging from 0.5% to 1.50% plus the Eurodollar rate
based on the ratio of debt to EBITDA (as defined in the 1998 Credit Agreement).
The 1998 Credit Agreement requires mandatory prepayments in certain
circumstances. The outstanding principal balance of revolving credit loans is
due and payable on March 31, 2003.
The Company also has outstanding an irrevocable letter of credit in the
amount of approximately $2.3 million to serve as guarantee for periodic
principal and interest payments related to the Industrial Revenue Bonds. In
January 1998, the Company entered into a letter of credit in the amount of $10.0
million to serve as a guarantee for performance under a contract with New York
State Workers Compensation Board.
The Company capitalized certain costs associated with the 1996 Credit
Agreement. The unamortized costs of approximately $1.2 million were expensed in
the fourth quarter of 1997 when the Company agreed to terms on the 1998 Credit
Agreement.
36
<PAGE> 39
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average interest rate on long-term obligations at December 31,
1997 and 1998 was 7.37% and 6.01%, respectively. The 1996 and 1998 Credit
Agreements contain certain reporting requirements and financial covenants,
including requirements that the Company maintain minimum levels of net worth and
other financial ratios. As of December 31, 1997 and 1998, the Company has
complied with all loan covenants.
Maturities of Long-Term Obligations
Maturities of long-term obligations are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1999................................................ $ 1,258
2000................................................ 790
2001................................................ 5,968
2002................................................ 4,367
2003................................................ 18,321
Thereafter.......................................... 2,052
-------
Total............................................... $32,756
=======
</TABLE>
8. LEASE COMMITMENTS:
The operating companies lease various office buildings, machinery,
equipment and vehicles. Future minimum lease payments under capital leases and
noncancelable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
----------------------
CAPITAL OPERATING
YEARS ENDING DECEMBER 31, LEASES LEASES
------------------------- ------- ---------
<S> <C> <C>
1999................................................ $ 936 $10,375
2000................................................ 563 8,397
2001................................................ 228 6,575
2002................................................ 70 4,598
2003................................................ -- 3,354
Thereafter.......................................... -- 6,584
------ -------
Total minimum lease payments........................ $1,797 $39,883
=======
Less -- Amounts representing interest............... 224
------
Net minimum lease payments.......................... 1,573
Less -- Current portion of obligations under capital
leases........................................... 784
------
Long-term portion of obligations under capital
leases........................................... $ 789
======
</TABLE>
Rent expense for all operating leases for the years ended December 31,
1996, 1997 and 1998 was approximately $4,996,000, $8,678,000 and $11,728,000
respectively.
37
<PAGE> 40
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain operating companies sublease a portion of their office facilities
under noncancellable lease agreements which expire at various dates. Future
minimum sublease rental income as of December 31, 1998 for the remainder of the
terms and in the aggregate are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1999................................................ $ 80
2000................................................ 56
2001................................................ 51
2002................................................ 52
2003................................................ 9
Thereafter.......................................... --
----
$248
====
</TABLE>
9. INCOME TAXES
The provision for federal and state income taxes consists of the following
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Federal --
Current................................................. $2,613 $5,314 $10,453
Deferred................................................ 572 902 (1,233)
State --
Current................................................. (165) 249 1,988
Deferred................................................ (40) 42 (221)
------ ------ -------
$2,980 $6,507 $10,987
====== ====== =======
</TABLE>
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Tax at statutory rate.................................... $2,829 $ 6,586 $10,506
Add (deduct) --
State income taxes.................................. 356 623 1,148
Nondeductible expenses.............................. 150 459 920
Income (loss) of S corporations..................... (355) (1,161) (1,130)
Other............................................... -- -- (457)
------ ------- -------
$2,980 $ 6,507 $10,987
====== ======= =======
</TABLE>
38
<PAGE> 41
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax liabilities and assets are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1998
------ ------
<S> <C> <C>
Deferred income tax liabilities --
Tax over book depreciation and amortization............... $ 941 $1,479
Cash to accrual differences, net.......................... 1,629 1,280
Accounts receivable....................................... 340 --
Other, net................................................ -- 947
------ ------
Total deferred income tax liabilities............. 2,910 3,706
Deferred income tax assets --
Allowance for doubtful accounts........................... 266 1,723
Accrued liabilities....................................... 543 277
Other reserves, net....................................... 67 13
------ ------
Total deferred income tax assets.................. 876 2,013
------ ------
Total net deferred income tax liabilities................... $2,034 $1,693
====== ======
Current portion of deferred income tax liabilities.......... $1,093 $ 214
Long-term deferred tax liabilities.......................... 941 1,479
------ ------
$2,034 $1,693
====== ======
</TABLE>
10. STOCKHOLDERS' EQUITY:
Initial Public Offering and Follow-on Stock Offering:
On January 26, 1996, the Company completed the IPO of 2,185,000 shares of
Common Stock (including the exercise of the underwriters' over-allotment option)
at $13.00 per share. Proceeds from the IPO, net of underwriting commissions and
offering costs, were approximately $22.9 million.
Upon the closing of the IPO, the Company converted the 9,000 shares of
Series A Preferred Stock then outstanding into 542,557 shares of Common Stock.
On December 17, 1996, the Company completed a follow-on public offering of
2,363,000 shares of Common Stock (including the exercise of the underwriters'
over-allotment option) at $20.00 per share. Proceeds from this offering, net of
underwriting commissions and offering costs, were approximately $43.6 million.
39
<PAGE> 42
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Options and Warrants:
At December 31, 1998, the Company had one stock-based compensation plan,
the 1995 Stock Option Plan ("the Plan"), which is described below. The Company
applies APB Opinion 25 and related Interpretations in accounting for the Plan.
Accordingly, no compensation cost has been recognized for the Plan. Had
compensation cost for the Plan been determined based upon the fair value at
grant dates for awards under the Plan consistent with the method of SFAS No.
123, "Accounting for Stock Based Compensation", the Company's net income and
earnings per share would have been as follows (in thousands, except for per
share data):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net income under SFAS 123.................... $ 4,582 $11,439 $16,626
Diluted net income per common share under
SFAS 123................................... $ 0.53 $ 0.94 $ 1.21
Actual net income............................ 5,342 12,863 19,031
Actual diluted net income per common share... $ 0.62 $ 1.05 $ 1.39
</TABLE>
The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions for
1996: risk free interest rate ranging from 5.4% to 6.9%, no dividend yield,
expected life of three years and volatility of 36%. The following assumptions
were used for 1997: risk free interest rate ranging from 5.7% to 6.6%, no
dividend yield, expected life of three years and volatility of 33%. The
following assumptions were used for 1998: risk free interest rate ranging from
4.0% to 5.7%, no dividend yield, expected life of five years and volatility of
40%.
In October 1995, the Board of Directors and F.Y.I.'s stockholders approved
the Plan, which became effective on the date of the IPO. The Plan provides
awards of options to purchase Common Stock and may include incentive stock
options ("ISOs") and/or non-qualified stock options.
The Plan also provides for automatic option grants to directors who are not
otherwise employed by the Company or its subsidiaries. Upon commencement of
service (or upon agreeing to serve in the case of the initial non-employee
directors), a non-employee director will receive a non-qualified option to
purchase 10,000 shares of Common Stock, and continuing non-employee directors
will receive annual options to purchase 5,000 shares of Common Stock. Options
granted to non-employee directors become exercisable one-third on the date of
grant and one-third on each of the next two anniversaries of the date of grant.
Non-employee directors' options have a term of five years from the date of
grant.
The maximum number of shares of Common Stock that may be subject to
outstanding options, determined immediately after the grant of any option, is
the greater of 650,000 shares or 16% of the aggregate number of shares of the
Company's Common Stock outstanding, provided, however, that options to purchase
no more than 650,000 shares of Common Stock may be granted as ISOs. At December
31, 1997 and 1998, approximately 189,000 and 144,000 shares, respectively, were
available for issuance.
40
<PAGE> 43
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company had options to purchase 1,561,981 and 2,103,351 shares
outstanding at December 31, 1997 and 1998, respectively. These options, other
than those granted to employee directors, have 10-year expirations and various
vesting schedules. Options are granted at the market price of the Common Stock
on the date of grant.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
-------------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance, December 31, 1995.................................. 473 $13.00
Granted..................................................... 316 $19.58
Exercised................................................... 46 $13.00
Forfeited................................................... 53 $13.28
----- ------
Balance, December 31, 1996.................................. 690 $15.99
Granted..................................................... 982 $21.93
Exercised................................................... 87 $14.28
Forfeited................................................... 23 $19.03
----- ------
Balance, December 31, 1997.................................. 1,562 $19.80
Granted..................................................... 740 $25.25
Exercised................................................... 143 $17.22
Forfeited................................................... 56 $21.02
----- ------
Balance, December 31, 1998.................................. 2,103 $21.86
===== ======
Exercisable, December 31, 1998.............................. 706 $19.23
===== ======
</TABLE>
The following table summarizes information about stock options granted
under the Plan that were outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- NUMBER WEIGHTED-
NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE AT EXERCISE
EXERCISE PRICES AT 12/31/98 LIFE PRICE 12/31/98 PRICE
- --------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 13.00................... 234,190 6.88 $13.00 174,710 $13.00
$16.00-$20.00................... 232,520 7.90 $18.71 179,000 $18.98
$20.38-$24.00................... 1,208,441 9.03 $22.43 314,493 $22.13
$24.25-$35.00................... 428,200 9.31 $26.81 38,100 $25.09
</TABLE>
Warrants to Purchase Common Stock
In November 1995, the Company granted to the Chief Executive Officer and
the current Chief Financial Officer warrants to purchase a total of 115,000
shares of Common Stock with an exercise price of $10.00 per share. In May 1996,
the Company granted to the Chief Executive Officer an additional warrant to
purchase 50,000 shares of Common Stock at an exercise price of $20.00 per share.
These warrants are now fully exercisable.
In March 1997, the Company granted to an employee of a subsidiary warrants
to purchase 100,000 shares of common stock at an exercise price of $21.00 per
share. These warrants vest on March 27, 2006 if still employed by the Company.
This vesting may be accelerated upon meeting certain performance requirements.
41
<PAGE> 44
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October 1998, the Company granted to employees of a subsidiary warrants
to purchase 457,600 shares of common stock at an exercise price of $28.625 per
share. These warrants will vest over the next five years.
Net Income Per Share
Basic and diluted net income per share were computed in accordance with
SFAS 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>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ------ ------
<S> <C> <C> <C>
Basic weighted average common shares........................ 8,504 12,018 13,370
Weighted average options.................................... 91 135 268
Weighted average warrants................................... 37 43 68
Other....................................................... -- -- 25
----- ------ ------
Diluted weighted average common shares...................... 8,632 12,196 13,731
===== ====== ======
</TABLE>
11. EMPLOYEE BENEFIT PLANS
The Company established a defined contribution plan (the "401(k) plan") in
January 1997. The 401(k) plan covers employees of the Company and some of its
subsidiaries. The employees must be at least 21 years of age and work at least
1,000 hours per year with one year of service to be eligible for the plan. In
addition, the Company established a non-qualified plan in December 1996. The
non-qualified compensation plan permits eligible officers to defer a portion of
their compensation. Contributions to both the 401(k) plan and the non-qualified
compensation plan consist of employee pre-tax contributions determined as a
percentage of each participating employee's compensation. The Company may make
contributions to either or both plans at the discretion of the Company's Board
of Directors. No contributions have been made to the 401(k) plan or the deferred
compensation plan by F.Y.I. The Company offers no post-employment or
post-retirement benefits.
Certain of the operating companies have qualified defined contribution
employee benefit plans (the "Plans"), the majority of which allow for voluntary
pre-tax contributions by employees. The subsidiaries pay all general and
administrative expenses of the Plans and, in some cases, the subsidiaries make
matching and discretionary contributions to the Plans. The subsidiaries offer no
post-employment or post-retirement benefits. The expense incurred related to the
Plans by the Company was approximately $389,000, $449,000, and $610,000 for the
years ended December 31, 1996, 1997, and 1998, respectively.
12. RELATED-PARTY TRANSACTIONS
Leasing Transactions
Certain of the Company's subsidiaries lease their operating facilities,
along with certain equipment, from stockholders of acquired companies who
remained employees or directors of the Company. These leases are for various
lengths and annual amounts. The rental expense for these operating leases for
the years ended December 31, 1996, 1997 and 1998 was approximately $487,000,
$834,000 and $647,000, respectively.
Notes Receivable
In the Acquisitions, the Company acquired $642,000 of notes receivable from
two Founding Company shareholders. At the time of the Merger, the shareholders
entered into new notes receivable with a stated interest rate (5%) and principal
payment schedules. Interest is payable on a semi-annual basis, and the remaining
principal of $479,000 is due in 1999.
42
<PAGE> 45
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of these actions
will have a material adverse effect on the financial position or results of
operations of the Company.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash and cash equivalents and trade
receivables. The Company maintains cash and cash equivalents and certain other
financial instruments at various major financial institutions across many
geographic areas. Credit risk on trade receivables is minimized as a result of
the large number of entities comprising the Company's customer base and their
dispersion across many industries and geographic areas.
14. SEGMENT REPORTING
The Company and its subsidiaries are principally engaged in document and
information outsourcing services. The Company identifies segments based on
management responsibility.
(i) Healthcare Services. Healthcare services include medical records
release services or processing a request for a patient's medical records from a
physician, insurance company, attorney, healthcare institution or individual.
Additional services include archival records storage and management, document
and data conversion, and archiving and imaging services to hospital radiology
departments. The Company also provides attending physician statements (APS) for
life and health insurance underwriting and image processing services for
handling state government disability and workers' compensation claims as well as
special services such as staffing.
(ii) Commercial Services. The Commercial Services group offers electronic
imaging, micrographics, data capture, document and media to media conversion,
database management, direct marketing print and mail and full service commercial
printing services, as well as integrated solutions to customers in a wide range
of industries, including financial services, retail, insurance and government
entities.
(iii) Legal Services. Legal services include managing the logistics of high
volume document production, microfilming and/or electronic imaging, document
coding, computer indexing, automated document retrieval and high speed,
multiple-set reproduction of documents, as well as high level consulting
services ranging from labor discrimination, mortgage discrimination and forensic
analysis to trial support for law firms, corporations and utility companies.
Additional legal services include subpoena of business documents and service of
process, deposition reporting services, discovery assistance and other trial
support services to law firms, corporations and regulated entities.
Investor services is an emerging business initiative, presented as part of
Legal services, which offers administration, record keeping and information
processing services. The Company maintains detailed employee and/or investor
records on behalf of (i) general partners to service their investors in limited
partnerships, REITs and master limited partnerships; (ii) corporations to
provide turn-key outsourced administration of employee stock purchase plans and
employee stock option plans; and (iii) banks and broker/dealers to provide
complete recordkeeping and administration services for additional brokerage and
IRA accounts.
The Company has a broad customer base, and none of the Company's customers
accounted for more than 3.0% of revenue for the year ended December 31, 1998.
43
<PAGE> 46
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company measures segment profit as earnings before taxes. Information
on segments follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------
HEALTHCARE COMMERCIAL LEGAL
SERVICES SERVICES SERVICES(1) CONSOLIDATED
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue................................. $87,749 $79,677 $80,986 $248,412
Depreciation and amortization........... 3,613 4,256 2,865 10,734
Operating income........................ 8,718 11,038 11,252 31,008
Interest expense........................ 379 598 491 1,468
Earnings before taxes................... 8,124 10,987 10,907 30,018
Total assets............................ 78,126 55,697 73,147 206,970
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------
HEALTHCARE COMMERCIAL LEGAL
SERVICES SERVICES SERVICES(1) CONSOLIDATED
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue................................. $52,821 $63,479 $60,972 $177,272
Depreciation and amortization........... 2,121 1,759 1,685 5,565
Operating income........................ 5,451 4,761 10,334 20,546
Interest expense........................ 482 562 875 1,919
Earnings before taxes................... 5,166 4,397 9,807 19,370
Total assets............................ 53,135 41,851 44,120 139,106
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
HEALTHCARE COMMERCIAL LEGAL
SERVICES SERVICES SERVICES(1) CONSOLIDATED
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue................................. $26,557 $40,109 $39,959 $106,625
Depreciation and amortization........... 873 944 958 2,775
Operating income........................ 2,692 2,648 3,654 8,994
Interest expense........................ 305 454 452 1,211
Earnings before taxes................... 2,437 2,465 3,420 8,322
Total assets............................ 30,333 39,208 43,607 113,148
</TABLE>
- ---------------
(1) Includes Investor Services.
44
<PAGE> 47
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
F.Y.I. INCORPORATED
-----------------------------------------------------------------------------
1997 QUARTER ENDED 1998 QUARTER ENDED
------------------------------------- -------------------------------------
MAR 31 JUN 30 SEP 30 DEC 31 MAR 31 JUN 30 SEP 30 DEC 31
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. $39,417 $41,067 $46,602 $50,186 $56,766 $61,307 $63,498 $66,841
Gross profit......... 13,750 14,379 15,786 17,466 19,787 22,035 23,435 23,604
Earnings before
taxes.............. 4,900 5,116 4,549 4,805 6,487 7,465 8,030 8,036
Net income........... 3,331 3,330 3,035 3,167 4,095 4,868 5,247 4,821
Pro forma earnings
before taxes....... 5,143 5,143 5,295 4,833 6,487 7,465 8,030 8,036
Pro forma net
income............. 3,050 3,006 3,177 2,915 3,894 4,478 4,818 4,821
Net income per common
share --
Basic.............. $ 0.28 $ 0.28 $ 0.25 $ 0.26 $ 0.31 $ 0.36 $ 0.39 $ 0.36
Diluted............ $ 0.28 $ 0.28 $ 0.25 $ 0.25 $ 0.30 $ 0.35 $ 0.38 $ 0.35
Pro forma net income
per common share --
Basic.............. $ 0.26 $ 0.25 $ 0.26 $ 0.24 $ 0.30 $ 0.33 $ 0.36 $ 0.36
Diluted............ $ 0.26 $ 0.25 $ 0.26 $ 0.23 $ 0.29 $ 0.33 $ 0.35 $ 0.35
Weighted average
common shares
outstanding
Basic.............. 11,709 11,861 12,113 12,390 13,189 13,385 13,505 13,401
Diluted............ 11,875 12,004 12,319 12,587 13,477 13,717 13,881 13,850
</TABLE>
Amounts reported differ from amounts previously reported due to the
poolings-of-interests with CMI and ERS discussed in Note 6.
45
<PAGE> 48
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 10 will be set forth under the caption
"Election of Directors" in the Company's 1999 Proxy Statement, which will be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1998 and which is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Item 11 will be set forth under the caption
"Executive Compensation" in the Company's 1999 Proxy Statement, which will be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1998 and which is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Item 12 will be set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's 1999 Proxy Statement, which will be filed not later than 120 days
after the end of the Company's fiscal year ended December 31, 1998 and which is
incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by Item 13 will be set forth under the caption
"Certain Relationships and Related Transactions" in the Company's 1999 Proxy
Statement, which will be filed not later than 120 days after the end of the
Company's fiscal year ended December 31, 1998 and which is incorporated herein
by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are being filed as part of this Report:
(a)(1) Consolidated Financial Statements
See Index to Consolidated Financial Statements on page 22.
46
<PAGE> 49
All other schedules are omitted because they are not applicable, not
required or the required information is in the Financial Statements or the Notes
thereto.
(a)(3) The following Exhibits are filed as part of this Report as required
by Item 601 of Regulation S-K. The Exhibits designated by an asterisk are
management contracts and compensatory plans and arrangements required to be
filed as Exhibits to this Report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Reorganization, dated as of October
25, 1995, by and among F.Y.I., Incorporated, Deliverex,
Incorporated, ASK Record Management, Inc., Deliverex
Acquisition Corp., and the Stockholders named therein
(Incorporated by reference to Exhibit 2.1 to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
2.2 -- Agreement and Plan of Reorganization, dated as of October
25, 1995, by and among F.Y.I. Incorporated, C. & T.
Management Services, Inc., Qualidata, Inc., DPAS
Acquisition Corp., and the Stockholders named therein
(Incorporated by reference to Exhibit 2.2 to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
2.3 -- Agreement and Plan of Reorganization, dated as of October
25, 1995, by and among F.Y.I. Incorporated, Melanson &
Associates, Inc., Bay Area Micrographics, Researchers
Acquisition Corp., and the Stockholders named therein
(Incorporated by reference to Exhibit 2.3 to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
2.4 -- Agreement and Plan of Reorganization, dated as of October
25, 1995, by and among F.Y.I. Incorporated, Paragon
Management Group, Inc., Recordex Acquisition Corp.,
Recordex Services, Inc., and the Stockholders named
therein (Incorporated by reference to Exhibit 2.4 to
Amendment No. 1 to the Company's Registration Statement
on Form S-1 (Registration No. 33-98608) effective January
12, 1996)
2.5 -- Agreement and Plan of Reorganization, dated as of October
25, 1995, by and among F.Y.I. Incorporated, Permanent
Records Inc., Permanent Records Acquisition Corp., and
the Stockholders named therein (Incorporated by reference
to Exhibit 2.5 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996)
2.7 -- Agreement and Plan of Reorganization, dated as of October
25, 1995, by and among Imagent Corporation, Imagent
Acquisition Corp. and the Stockholders named therein
(Incorporated by reference to Exhibit 2.7 to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
2.8 -- Agreement and Plan of Reorganization dated as of October
25, 1995, by and among Mobile Information Services
Corporation, Inc., Imagent Acquisition Corp. and the
Stockholders named therein (Incorporated by reference to
Exhibit 2.8 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996)
2.9 -- First Amendment to Agreement and Plan of Reorganization,
dated as of October 25, 1995, by and among F.Y.I.
Incorporated, Leonard Archives Inc., Leonard Acquisition
Corp. and the Stockholders named therein (Incorporated by
reference to Exhibit 2.9 to Amendment No. 1 to the
Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.10 -- First Amendment to Agreement and Plan of Reorganization,
dated as of November 14, 1995, by and among F.Y.I.
Incorporated, C. & T. Management Services, Inc.,
Qualidata, Inc., DPAS Acquisition Corp., and the
Stockholders named therein (Incorporated by reference to
Exhibit 2.10 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996)
2.11 -- Agreement and Plan of Reorganization, dated as of May 31,
1996, by and among F.Y.I. Incorporated, B&B
(Baltimore-Washington) Acquisition Corp., B&B Information
and Image Management, Inc. and Charles J. Bauer, Jr.
(Incorporated by reference to Exhibit 10.17 to
Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Registration No.
333-1084) effective July 11, 1996)
2.12 -- Agreement and Plan of Reorganization, dated as of May 31,
1996, by and among F.Y.I. Incorporated, Premier
Acquisition Corp., Premier Document Management, Inc., PDM
Services, Inc., Brian E. Whiteside, Christopher S. Moore,
Lynnette C. Pomerville and Gary T. Sievert (Incorporated
by reference to Exhibit 10.18 to Post-Effective Amendment
No. 2 to the Company's Registration Statement on Form S-1
(Registration No. 333-1084) effective July 11, 1996)
2.13 -- Asset Purchase Agreement, dated as of June 28, 1996, by
and among F.Y.I. Incorporated, Robert A. Cook Acquisition
Corp., Robert A. Cook and Staff, Inc. and RAC Services,
Inc., Robert A. Cook and Robert A. Cook and Anna M. Cook,
as Co-Trustees of the Cook 1993 Living Trust
(Incorporated by reference to Exhibit 10.19 to
Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Registration No.
333-1084) effective July 11, 1996)
2.14 -- Agreement and Plan of Reorganization, dated as of August
30, 1996, by and among F.Y.I. Incorporated, California
Medical Record Service Acquisition Corp., C.M.R.S.
Incorporated and Alan Simon (Incorporated by reference to
Exhibit 2.14 to Post-Effective Amendment No. 3 to the
Company's Registration Statement on Form S-1
(Registration No. 333-1084) effective September 11, 1996)
2.15 -- Agreement and Plan of Reorganization, dated as of August
30, 1996, by and among F.Y.I. Incorporated, Texas Medical
Record Service Acquisition Corp., Texas Medical Record
Service, Inc., California Medical Record Service
Acquisition Corp. and Karen Jill Simon (Incorporated by
reference to Exhibit 2.15 to Post-Effective Amendment No.
3 to the Company's Registration Statement on Form S-1
(Registration No. 333-1084) effective September 11, 1996)
2.16 -- Agreement and Plan of Reorganization, dated as of August
30, 1996, by and among F.Y.I. Incorporated, Minnesota
Medical Record Service Acquisition Corp., Minnesota
Medical Record Service, Inc. and Alan Simon (Incorporated
by reference to Exhibit 2.16 to Post-Effective Amendment
No. 3 to the Company's Registration Statement on Form S-1
(Registration No. 333-1084) effective September 11, 1996)
2.17 -- Agreement and Plan of Reorganization, dated as of August
30, 1996, by and among F.Y.I. Incorporated, ZIA
Acquisition Corp., ZIA Information Analysis Group and the
shareholders named therein (Incorporated by reference to
Exhibit 2.17 to Post-Effective Amendment No. 3 to the
Company's Registration Statement on Form S-1
(Registration No. 333-1084) effective September 11, 1996)
</TABLE>
48
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.18 -- Agreement and Plan of Reorganization, dated as of March
27, 1997, by and among F.Y.I. Incorporated, MAVRICC
Acquisition Corp., MAVRICC Management Systems, Inc.,
F.Y.I. Incorporated, Craig F. Moncher and Kyle C. Kerbawy
(Incorporated by reference to Exhibit 2.18 to the
Company's Current Report on Form 8-K filed on April 9,
1997)
2.19 -- Agreement and Plan of Reorganization, dated as of March
27, 1997, by and among F.Y.I. Incorporated, MMS Escrow
Acquisition Corp., MMS Escrow and Transfer Agency, Inc.,
Craig F. Moncher and Kyle C. Kerbawy (Incorporated by
reference to Exhibit 2.19 to the Company's Current Report
Form 8-K filed on April 9, 1997)
3.1 -- Amended and Restated Certificate of Incorporation of
F.Y.I. Incorporated (Incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
3.2 -- First Amendment to Amended and Restated By-Laws of F.Y.I.
Incorporated (Incorporated by reference to Exhibit 3.2 to
the Company's Form 10-Q filed on August 8, 1997)
4 -- Form of certificate evidencing ownership of Common Stock
of F.Y.I. Incorporated (Incorporated by reference to
Exhibit 4.2 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996)
10.1* -- F.Y.I. Incorporated 1995 Stock Option Plan (Incorporated
by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996) 33-98608) effective
January 12, 1996)
10.8 -- Form of Indemnification Agreement between F.Y.I. and each
director (Incorporated by reference to Exhibit 10.8 to
Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
10.10 -- Form of Registration Rights Agreement, dated as of
November 14, 1995, by and among Thomas C. Walker, David
Lowenstein and the persons named therein (Incorporated by
reference to Exhibit 10.10 to Amendment No. 1 to the
Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
10.12 -- Five Year Media Purchase Agreement, dated as of August 9,
1994, between Eastman Kodak Company and Jonathan B. Shaw
(Incorporated by reference to Exhibit 10.12 to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
10.15 -- Lease Agreement between F.Y.I. Incorporated and One
McKinney Plaza, Inc. (Incorporated by reference to
Exhibit 10.15 to Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-1
(Registration No. 333-1084) effective April 30, 1996)
10.16* -- Employment Agreement between F.Y.I. Incorporated and
Margot T. Lebenberg (Incorporated by reference to Exhibit
10.16 to Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Registration No.
333-1084) effective July 11, 1996)
10.20* -- Employment Agreement between F.Y.I. Incorporated and
Timothy J. Barker (Incorporated by reference to Exhibit 2
to Post-Effective Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No.
333-1084) effective July 11, 1996)
</TABLE>
49
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.21* -- Separation Agreement, dated July 17, 1996, by and between
F.Y.I. Incorporated and Robert C. Irvine (Incorporated by
reference to Exhibit 10.21 to the Company's Registration
Statement on Form S-1 (Registration No. 333-16057)
effective December 11, 1996)
10.26* -- Amended and Restated Warrant issued by F.Y.I.
Incorporated to Ed H. Bowman, Jr. (Incorporated by
reference to Exhibit 10.26 to the Company's Current
Report on Form 8-K filed on April 9, 1997)
10.27* -- Amended and Restated Warrant issued by F.Y.I.
Incorporated to Ed H. Bowman, Jr. (Incorporated by
reference to Exhibit 10.27 to the Company's Current
Report on Form 8-K filed on April 9, 1997)
10.28* -- Amended and Restated Warrant issued by F.Y.I.
Incorporated to Timothy J. Barker (Incorporated by
reference to Exhibit 10.28 to the Company's Current
Report on Form 8-K filed on April 9, 1997)
10.30* -- Amended and Restated Employment Agreement between F.Y.I.
Incorporated and Joe A. Rose (Incorporated by reference
to Exhibit 10.30 to the Company's Form 10-Q filed on
November 10, 1997)
10.37 -- Amended and Restated Credit Agreement, dated as of
February 17, 1998, by and among F.Y.I. Incorporated,
Banque Paribas, Bank of America Texas, N.A. and the
Lenders named therein (Incorporated by referenced to
Exhibit 10.37 to the Company's Form 10-K filed on March
11, 1998)
10.38 -- Agreement between New York State Workers' Compensation
Board and QCSinet Acquisition Corp., dated January 21,
1998 (Incorporated by reference to Exhibit 10.38 to the
Company's Form 8-K filed on March 20, 1998)
10.40* -- Employment Agreement between F.Y.I. Incorporated and
Phillip B. Guy
10.41* -- Employment Agreement between F.Y.I. Incorporated and
David M. Byerley
10.42* -- Amended and Restated Employment Agreement between F.Y.I.
Incorporated and Ed H. Bowman, Jr.
10.43* -- Amended and Restated Employment Agreement between F.Y.I.
Incorporated and Thomas C. Walker
10.44* -- Amended and Restated Employment Agreement between F.Y.I.
Incorporated and David Lowenstein
10.45* -- Amended and Restated Employment Agreement between F.Y.I.
Incorporated and Ronald Zazworsky
10.46* -- Consulting Agreement with Gregory R. Melanson
10.47* -- Amended and Restated Employment Agreement between F.Y.I.
Incorporated and Jonathan B. Shaw
10.48 -- First Amendment to Amended and Restated Credit Agreement,
dated August 3, 1998, by and among F.Y.I. Incorporated,
Banque Paribas, Bank of America Texas, N.A. and the
Lenders named therein
21 -- List of subsidiaries of F.Y.I. Incorporated
23.1 -- Consent of Arthur Andersen LLP
24 -- Power of Attorney (included with the signature page
hereof)
27.1 -- Financial Data Schedule
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.2 -- Restated 1998 Financial Data Schedule
27.3 -- Restated 1997 Financial Data Schedule
27.4 -- Restated 1996 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
The Company did not file any Form 8-K Current Reports during the last
quarter of the fiscal year ended December 31, 1998. The Company did file a Form
8-K Current Report on March 2, 1999 reporting Post-Merger Financial Results
under Item 5. Other Events.
51
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
F.Y.I. INCORPORATED
By: /s/ ED H. BOWMAN, JR.
----------------------------------
Ed H. Bowman, Jr.,
President and Chief Executive
Officer
Date: March 17, 1999
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and constitutes
Ed H. Bowman, Jr. and Margot T. Lebenberg, and each of them singly, his true and
lawful attorneys-in-fact with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities to sign and file
any and all amendments to this report with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and he hereby ratifies and confirms all that said attorneys-in-fact or any of
them, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
<C> <S> <C>
/s/ THOMAS C. WALKER Chairman of the Board and March 17, 1999
- ----------------------------------------------------- Chief Development Officer
Thomas C. Walker
/s/ ED H. BOWMAN, JR. Director, President and Chief March 17, 1999
- ----------------------------------------------------- Executive Officer (Principal
Ed H. Bowman, Jr. Executive Officer)
/s/ DAVID LOWENSTEIN Director, Executive Vice March 17, 1999
- ----------------------------------------------------- President Corporate
David Lowenstein Development and Treasurer
/s/ TIMOTHY J. BARKER Senior Vice President and March 17, 1999
- ----------------------------------------------------- Chief Financial Officer
Timothy J. Barker (Principal Accounting
Officer)
/s/ G. MICHAEL BELLENGHI Director March 17, 1999
- -----------------------------------------------------
G. Michael Bellenghi
/s/ MICHAEL J. BRADLEY Director March 17, 1999
- -----------------------------------------------------
Michael J. Bradley
/s/ KYLE C. KERBAWY Director March 17, 1999
- -----------------------------------------------------
Kyle C. Kerbawy
</TABLE>
52
<PAGE> 55
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
<C> <S> <C>
/s/ GREGORY R. MELANSON Director March 17, 1999
- -----------------------------------------------------
Gregory R. Melanson
/s/ DONALD F. MOOREHEAD, JR. Director March 17, 1999
- -----------------------------------------------------
Donald F. Moorehead, Jr.
/s/ HON. EDWARD M. ROWELL Director March 17, 1999
- -----------------------------------------------------
Hon. Edward M. Rowell
/s/ JONATHAN B. SHAW Director March 17, 1999
- -----------------------------------------------------
Jonathan B. Shaw
</TABLE>
53
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Reorganization, dated as of October
25, 1995, by and among F.Y.I., Incorporated, Deliverex,
Incorporated, ASK Record Management, Inc., Deliverex
Acquisition Corp., and the Stockholders named therein
(Incorporated by reference to Exhibit 2.1 to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
2.2 -- Agreement and Plan of Reorganization, dated as of October
25, 1995, by and among F.Y.I. Incorporated, C. & T.
Management Services, Inc., Qualidata, Inc., DPAS
Acquisition Corp., and the Stockholders named therein
(Incorporated by reference to Exhibit 2.2 to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
2.3 -- Agreement and Plan of Reorganization, dated as of October
25, 1995, by and among F.Y.I. Incorporated, Melanson &
Associates, Inc., Bay Area Micrographics, Researchers
Acquisition Corp., and the Stockholders named therein
(Incorporated by reference to Exhibit 2.3 to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
2.4 -- Agreement and Plan of Reorganization, dated as of October
25, 1995, by and among F.Y.I. Incorporated, Paragon
Management Group, Inc., Recordex Acquisition Corp.,
Recordex Services, Inc., and the Stockholders named
therein (Incorporated by reference to Exhibit 2.4 to
Amendment No. 1 to the Company's Registration Statement
on Form S-1 (Registration No. 33-98608) effective January
12, 1996)
2.5 -- Agreement and Plan of Reorganization, dated as of October
25, 1995, by and among F.Y.I. Incorporated, Permanent
Records Inc., Permanent Records Acquisition Corp., and
the Stockholders named therein (Incorporated by reference
to Exhibit 2.5 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996)
2.7 -- Agreement and Plan of Reorganization, dated as of October
25, 1995, by and among Imagent Corporation, Imagent
Acquisition Corp. and the Stockholders named therein
(Incorporated by reference to Exhibit 2.7 to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
2.8 -- Agreement and Plan of Reorganization dated as of October
25, 1995, by and among Mobile Information Services
Corporation, Inc., Imagent Acquisition Corp. and the
Stockholders named therein (Incorporated by reference to
Exhibit 2.8 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996)
2.9 -- First Amendment to Agreement and Plan of Reorganization,
dated as of October 25, 1995, by and among F.Y.I.
Incorporated, Leonard Archives Inc., Leonard Acquisition
Corp. and the Stockholders named therein (Incorporated by
reference to Exhibit 2.9 to Amendment No. 1 to the
Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
2.10 -- First Amendment to Agreement and Plan of Reorganization,
dated as of November 14, 1995, by and among F.Y.I.
Incorporated, C. & T. Management Services, Inc.,
Qualidata, Inc., DPAS Acquisition Corp., and the
Stockholders named therein (Incorporated by reference to
Exhibit 2.10 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996)
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.11 -- Agreement and Plan of Reorganization, dated as of May 31,
1996, by and among F.Y.I. Incorporated, B&B
(Baltimore-Washington) Acquisition Corp., B&B Information
and Image Management, Inc. and Charles J. Bauer, Jr.
(Incorporated by reference to Exhibit 10.17 to
Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Registration No.
333-1084) effective July 11, 1996)
2.12 -- Agreement and Plan of Reorganization, dated as of May 31,
1996, by and among F.Y.I. Incorporated, Premier
Acquisition Corp., Premier Document Management, Inc., PDM
Services, Inc., Brian E. Whiteside, Christopher S. Moore,
Lynnette C. Pomerville and Gary T. Sievert (Incorporated
by reference to Exhibit 10.18 to Post-Effective Amendment
No. 2 to the Company's Registration Statement on Form S-1
(Registration No. 333-1084) effective July 11, 1996)
2.13 -- Asset Purchase Agreement, dated as of June 28, 1996, by
and among F.Y.I. Incorporated, Robert A. Cook Acquisition
Corp., Robert A. Cook and Staff, Inc. and RAC Services,
Inc., Robert A. Cook and Robert A. Cook and Anna M. Cook,
as Co-Trustees of the Cook 1993 Living Trust
(Incorporated by reference to Exhibit 10.19 to
Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Registration No.
333-1084) effective July 11, 1996)
2.14 -- Agreement and Plan of Reorganization, dated as of August
30, 1996, by and among F.Y.I. Incorporated, California
Medical Record Service Acquisition Corp., C.M.R.S.
Incorporated and Alan Simon (Incorporated by reference to
Exhibit 2.14 to Post-Effective Amendment No. 3 to the
Company's Registration Statement on Form S-1
(Registration No. 333-1084) effective September 11, 1996)
2.15 -- Agreement and Plan of Reorganization, dated as of August
30, 1996, by and among F.Y.I. Incorporated, Texas Medical
Record Service Acquisition Corp., Texas Medical Record
Service, Inc., California Medical Record Service
Acquisition Corp. and Karen Jill Simon (Incorporated by
reference to Exhibit 2.15 to Post-Effective Amendment No.
3 to the Company's Registration Statement on Form S-1
(Registration No. 333-1084) effective September 11, 1996)
2.16 -- Agreement and Plan of Reorganization, dated as of August
30, 1996, by and among F.Y.I. Incorporated, Minnesota
Medical Record Service Acquisition Corp., Minnesota
Medical Record Service, Inc. and Alan Simon (Incorporated
by reference to Exhibit 2.16 to Post-Effective Amendment
No. 3 to the Company's Registration Statement on Form S-1
(Registration No. 333-1084) effective September 11, 1996)
2.17 -- Agreement and Plan of Reorganization, dated as of August
30, 1996, by and among F.Y.I. Incorporated, ZIA
Acquisition Corp., ZIA Information Analysis Group and the
shareholders named therein (Incorporated by reference to
Exhibit 2.17 to Post-Effective Amendment No. 3 to the
Company's Registration Statement on Form S-1
(Registration No. 333-1084) effective September 11, 1996)
2.18 -- Agreement and Plan of Reorganization, dated as of March
27, 1997, by and among F.Y.I. Incorporated, MAVRICC
Acquisition Corp., MAVRICC Management Systems, Inc.,
F.Y.I. Incorporated, Craig F. Moncher and Kyle C. Kerbawy
(Incorporated by reference to Exhibit 2.18 to the
Company's Current Report on Form 8-K filed on April 9,
1997)
2.19 -- Agreement and Plan of Reorganization, dated as of March
27, 1997, by and among F.Y.I. Incorporated, MMS Escrow
Acquisition Corp., MMS Escrow and Transfer Agency, Inc.,
Craig F. Moncher and Kyle C. Kerbawy (Incorporated by
reference to Exhibit 2.19 to the Company's Current Report
Form 8-K filed on April 9, 1997)
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of
F.Y.I. Incorporated (Incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
3.2 -- First Amendment to Amended and Restated By-Laws of F.Y.I.
Incorporated (Incorporated by reference to Exhibit 3.2 to
the Company's Form 10-Q filed on August 8, 1997)
4 -- Form of certificate evidencing ownership of Common Stock
of F.Y.I. Incorporated (Incorporated by reference to
Exhibit 4.2 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996)
10.1* -- F.Y.I. Incorporated 1995 Stock Option Plan (Incorporated
by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-98608) effective January 12, 1996) 33-98608) effective
January 12, 1996)
10.8 -- Form of Indemnification Agreement between F.Y.I. and each
director (Incorporated by reference to Exhibit 10.8 to
Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
10.10 -- Form of Registration Rights Agreement, dated as of
November 14, 1995, by and among Thomas C. Walker, David
Lowenstein and the persons named therein (Incorporated by
reference to Exhibit 10.10 to Amendment No. 1 to the
Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
10.12 -- Five Year Media Purchase Agreement, dated as of August 9,
1994, between Eastman Kodak Company and Jonathan B. Shaw
(Incorporated by reference to Exhibit 10.12 to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-98608) effective January 12, 1996)
10.15 -- Lease Agreement between F.Y.I. Incorporated and One
McKinney Plaza, Inc. (Incorporated by reference to
Exhibit 10.15 to Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-1
(Registration No. 333-1084) effective April 30, 1996)
10.16* -- Employment Agreement between F.Y.I. Incorporated and
Margot T. Lebenberg (Incorporated by reference to Exhibit
10.16 to Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Registration No.
333-1084) effective July 11, 1996)
10.20* -- Employment Agreement between F.Y.I. Incorporated and
Timothy J. Barker (Incorporated by reference to Exhibit 2
to Post-Effective Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No.
333-1084) effective July 11, 1996)
10.21* -- Separation Agreement, dated July 17, 1996, by and between
F.Y.I. Incorporated and Robert C. Irvine (Incorporated by
reference to Exhibit 10.21 to the Company's Registration
Statement on Form S-1 (Registration No. 333-16057)
effective December 11, 1996)
10.26* -- Amended and Restated Warrant issued by F.Y.I.
Incorporated to Ed H. Bowman, Jr. (Incorporated by
reference to Exhibit 10.26 to the Company's Current
Report on Form 8-K filed on April 9, 1997)
10.27* -- Amended and Restated Warrant issued by F.Y.I.
Incorporated to Ed H. Bowman, Jr. (Incorporated by
reference to Exhibit 10.27 to the Company's Current
Report on Form 8-K filed on April 9, 1997)
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.28* -- Amended and Restated Warrant issued by F.Y.I.
Incorporated to Timothy J. Barker (Incorporated by
reference to Exhibit 10.28 to the Company's Current
Report on Form 8-K filed on April 9, 1997)
10.30* -- Amended and Restated Employment Agreement between F.Y.I.
Incorporated and Joe A. Rose (Incorporated by reference
to Exhibit 10.30 to the Company's Form 10-Q filed on
November 10, 1997)
10.37 -- Amended and Restated Credit Agreement, dated as of
February 17, 1998, by and among F.Y.I. Incorporated,
Banque Paribas, Bank of America Texas, N.A. and the
Lenders named therein (Incorporated by referenced to
Exhibit 10.37 to the Company's Form 10-K filed on March
11, 1998
10.38 -- Agreement between New York State Workers' Compensation
Board and QCSinet Acquisition Corp., dated January 21,
1998 (Incorporated by reference to Exhibit 10.38 to the
Company's Form 8-K filed on March 20, 1998)
10.40* -- Employment Agreement between F.Y.I. Incorporated and
Phillip B. Guy
10.41* -- Employment Agreement between F.Y.I. Incorporated and
David M. Byerley
10.42* -- Amended and Restated Employment Agreement between F.Y.I.
Incorporated and Ed H. Bowman, Jr.
10.43* -- Amended and Restated Employment Agreement between F.Y.I.
Incorporated and Thomas C. Walker
10.44* -- Amended and Restated Employment Agreement between F.Y.I.
Incorporated and David Lowenstein
10.45* -- Amended and Restated Employment Agreement between F.Y.I.
Incorporated and Ronald Zazworsky
10.46* -- Consulting Agreement with Gregory R. Melanson
10.47* -- Amended and Restated Employment Agreement between F.Y.I.
Incorporated and Jonathan B. Shaw
10.48 -- First Amendment to Amended and Restated Credit Agreement,
dated August 3, 1998, by and among F.Y.I. Incorporated,
Banque Paribas, Bank of America Texas, N.A. and the
Lenders named therein
21 -- List of subsidiaries of F.Y.I. Incorporated
23.1 -- Consent of Arthur Andersen LLP
24 -- Power of Attorney (included with the signature page
hereof)
27.1 -- Financial Data Schedule
27.2 -- Restated 1998 Financial Data Schedule
27.3 -- Restated 1997 Financial Data Schedule
27.4 -- Restated 1996 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.40
EMPLOYMENT AGREEMENT
(PHIL GUY)
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
the 14th day of October 1998 by and between Phil Guy ("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-Business Unit Executive. As such, Employee shall have
responsibilities, duties and authority reasonably accorded to and expected of a
Senior Vice President-Business Unit Executive. 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.
1
<PAGE> 2
(b) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage except to the extent that such activity 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 $185,000 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) beginning
November 4, 1998. On at least an annual basis the Board (as defined below) will
review Employee's performance and make increases to such base salary if, in its
discretionary, any such increase is warranted. For 1999 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 payable in cash
and or equity at the Company's discretion beginning January 1, 1999 in
accordance with this Incentive Bonus Plan. Such recommended increase would, in
all likelihood, require approval by the Board of Directors (the "Board") or a
duly constituted committee thereof. The award of any bonus shall be based on
F.Y.I.'s overall performance and the total performance of the business unit
managed and shall be payable in various increments based on the performance. The
incremental payments and the Company's targeted performance shall be determined
by 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.
2
<PAGE> 3
(iii) Four (4) weeks paid vacation for each year during the
period of employment or such greater amount as may be afforded officers
and key employees generally under the Company's policies in effect from
time to time (pro-rated for any year in which Employee is employed for
less than the full year).
(iv) 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.
(v) Employee shall be granted options (the "Options") to
acquire 50,000 shares of Common Stock at $25.00. 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 two through four
anniversaries of the date hereof. The Options shall expire on the tenth
anniversary of the date of grant.
3. [Intentionally Left Blank]
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the date hereof and continue until December 31, 2000 (the
"Term"). This Agreement and Employee's employment may be terminated in any one
of the following ways:
(a) Death. The death of Employee shall immediately terminate the
Agreement with no severance compensation due to Employee's estate.
(b) Disability. The Company will make efforts to reasonably accommodate
Employee as required by applicable state or federal disability laws. However,
the parties irrebuttably 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
3
<PAGE> 4
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.
(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.
4
<PAGE> 5
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
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
5
<PAGE> 6
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.
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
6
<PAGE> 7
(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 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.
7
<PAGE> 8
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.
To Employee: Phil Guy
107 Box Oak
San Antonio, TX 78230
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.
8
<PAGE> 9
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.
20. Change in Control.
(a) Employee understands and acknowledges that the Company may be
merged or consolidated with or into another entity.
(b) In the event of a 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 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 cause a lump-sum payment due to Employee equivalent of
Employee's salary for one year.
(c) In any Change in Control situation in which Employee has received
written notice prior to the closing date from the successor that such successor
is not willing to assume the
9
<PAGE> 10
Company's obligations hereunder Employee shall receive a lump-sum severance
payment equivalent to one and one-half years salary.
(d) For purposes of applying paragraph 20 under the circumstances
described in (b) and (c) above, the effective date 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.
(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%
10
<PAGE> 11
of the holders of outstanding voting securities of the Company
immediately prior to the transaction, with the voting power of each
such continuing holder relative to other such continuing holders not
substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the
Company).
(f) Employee must be notified in writing by the Company at any time
that the Company or any member of its Board anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by the Company or its successor for
any excise taxes and/or interest or penalties with respect to such excise taxes
that Employee incurs under Section 4999 of the Internal Revenue Code of 1986, as
amended (or any similar tax that may hereafter be imposed), as a result of any
Change in Control. Such amount will be due and payable by the Company or its
successor within ten (10) days after Employee delivers a written request for
reimbursement accompanied by a copy of his tax return(s) showing the excise tax
actually incurred by Employee.
[balance of sheet intentionally left blank]
11
<PAGE> 12
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/ Phil Guy
-----------------------------------------
PHIL GUY
12
<PAGE> 1
EXHIBIT 10.41
EMPLOYMENT AGREEMENT
(DAVID BYERLEY)
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
the 1st day of November, 1998 by and between David Byerley ("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 and information 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 Vice President-Corporate
Development and Senior Vice President-Corporate Development upon relocation to
Dallas, Texas. As such, Employee shall have responsibilities, duties and
authority reasonably accorded to and expected of a Vice President-Corporate
Development or Senior Vice President-Corporate Development, as the case may be
and will report directly to the Executive Vice President-Corporate Development
and the CEO, respectively of the Company. The Employee's title will be Vice
President-Corporate Development until such time as the Employee relocates to
Dallas, at which time the Employee's title will become Senior Vice
President-Corporate Development. Employee hereby accepts this
<PAGE> 2
employment upon the terms and conditions herein contained and, subject to
paragraph 1(b), agrees to devote his working time, attention and efforts to
promote and further the business of the Company.
(b) Employee shall not, during the term of his employment hereunder,
be engaged in any other business activity pursued for gain, profit or other
pecuniary advantage except to the extent that such activity 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 $165,000 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 1999
and subsequent years, a written Bonus Plan attached hereto as Exhibit A sets
forth the criteria under which Employee will be eligible to receive year-end
bonus awards at the discretion of the Executive Committee of the Board of
Directors.
(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) Coverage for Employee 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) Employee shall be granted options to acquire 40,000
shares of Common Stock at $25.00 per share. The Options shall become
exercisable on the earlier of: (a) 25% increments on each anniversary
of the date of grant; or (b) as to the following chart:
<TABLE>
<CAPTION>
Run Rate Acquired E.B.T.* Amount Vested
------------------------- -------------
<S> <C>
$ 4M 10,000
$ 8M 10,000
$12M 10,000
$16M 10,000
</TABLE>
*In accordance with Exhibit A solely relates to the Employee's
performance.
The Options shall expire on the tenth anniversary of the date of grant.
(v) In addition, Employee shall be granted options to acquire
5,000 shares of Common Stock at $25.00 per share in accordance with the
Stock Option Grant Certificate and the 1995 Stock Option Plan. The
options shall become exercisable as described in Exhibit B or on the
eighth anniversary of the date of grant if Employee is still employed
by the Company.
(vi) If the Agreement is renewed after the Term, Employee
shall be granted options to acquire 10,000 shares of Common Stock at
the fair market value on the renewal date. Such options shall be
exercisable in 20% increments on each anniversary of the date of grant
as long as Employee is employed by the Company, and in accordance with
the Stock Option Grant Certificate and 1995 Stock Option Plan.
3. Place of Performance. Employee and the Company understand that
Employee will work out of Malvern, Pennsylvania until Employee's home is sold.
Employee will be requested by the Company to relocate from his then current
residence to another Dallas, Texas in order to more efficiently carry out his
duties and responsibilities under this Agreement and as part of a promotion to
Senior Vice President. It is, however, agreed that the Employee will relocate as
soon as his home is sold. In such event, the Company will pay relocation costs
up to $75,000 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.
3
<PAGE> 4
In addition, up to $30,000 (the "Loan") will be loaned to Employee.
Such Loan shall be repaid $10,000 per year and at the Company's discretion may
come from Employee's Bonus. If Employee leaves prior to such Loan being paid in
full, Employee must repay such Loan prior to leaving. While the Loan is
outstanding Employee shall not exercise any vested options, unless such exercise
first repays the Loan in full.
4. Term; Termination; Rights on Termination. The term of this
Agreement shall begin on the date hereof and continue for two (2) years (the
"Term"). This Agreement and Employee's employment may be terminated in any one
of the following ways:
(a) Death. The death of Employee shall immediately terminate the
Agreement with no severance compensation due to Employee's estate. However, any
bonuses or incentive payments from companies being acquired or acquired through
the direct and material efforts of Employee prior to death will remain due and
payable to the Employee's estate in accordance with the schedule listed on
Exhibit A.
(b) Disability. The Company will make efforts to reasonably
accommodate Employee as required by applicable state or federal disability laws.
However, the parties irrebuttably 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 six (6) months. In addition, any
bonuses or incentive payments from companies being acquired or acquired through
the direct and material efforts of Employee prior to termination for disability
will remain due and payable in accordance with the schedule listed on Exhibit A.
(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
4
<PAGE> 5
receipt of the written notice) of any of Employee's material duties and
responsibilities hereunder; (iii) Employee's dishonesty, breach of
confidentiality, including but not limited to any discussions of the Company's
strategy, acquisitions or acquisition candidates, a breach of any
non-competition agreement, 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 six (6) months.
However, if the Company terminates Employee prior to the first anniversary of
this Agreement, 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 six (6) months, plus the number of months remaining until the first
year anniversary of this Agreement. In addition, any bonuses or incentive
payments from companies being acquired or acquired through the direct and
material efforts of Employee prior to termination without cause will remain due
and payable in accordance with the schedule listed on Exhibit A.
(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
5
<PAGE> 6
then in effect for six (6) months. In addition, any bonuses or incentive
payments from companies being acquired or acquired through the direct and
material efforts of Employee prior to termination will remain due and payable in
accordance with the schedule listed on Exhibit A.
(f) Termination by Employee Without Cause. If Employee resigns or
otherwise terminates his employment without Good Reason pursuant to paragraph
4(e) or if this Agreement is not renewed at the end of the Term, Employee shall
receive no severance compensation. However, any bonuses or incentive payments
from companies being acquired or acquired through the direct and material
efforts of Employee prior to termination by employee without cause will remain
due and payable to Employee in accordance with the schedule listed on Exhibit A.
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, 8, 9, 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, acquisition candidate lists and all
related documentation 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 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
6
<PAGE> 7
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,
customers or acquisition candidates 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.
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 (i) two (2) years thereafter in the case of termination pursuant to
sections 4(b), 4(c) and 4(f) of this Agreement and (ii) one (1) year in the case
of termination pursuant to sections 4(d) and 4(e) of this Agreement or if this
Agreement is not renewed, 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, accounts or acquisition candidates who have been contacted by the
Company or who are on acquisition target lists of the Company 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;
7
<PAGE> 8
(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 existing customers, suppliers or employees or acquisition candidates who
have been contacted by the Company or who are on acquisition target lists of the
Company 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 Stock 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 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 gross 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 the 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
8
<PAGE> 9
Company based upon or arising out of any non-competition agreement, employment
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.
To Employee: David Byerley
885 Shenton Road
West Chester, PA 19380
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.
9
<PAGE> 10
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, each party shall be
responsible for their own attorneys' fees. 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.
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
10
<PAGE> 11
shall be deemed to be a termination of this Agreement by the Company without
cause and paragraph 4(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, paragraph
4(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 9 shall all apply for a
period of one (1) year from the effective date of termination.
(d) For purposes of applying paragraph 4 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, bonus incentive 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.
(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
11
<PAGE> 12
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 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.
[BALANCE OF SHEET INTENTIONALLY LEFT BLANK]
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/ David Lowenstein
-------------------------------
Title: Executive Vice President
Corporate Development and
Treasurer
EMPLOYEE:
/s/ David Byerley
-----------------------------------
David Byerley
13
<PAGE> 14
EXHIBIT A
BONUS PLAN
Bonus is to be determined as follows:
Half of Employee's bonus shall be based on the Company hitting certain
earnings targets ("Earnings Bonus"). The other half of Employee's bonus shall be
based on the corporate development team and Employee hitting certain acquisition
targets. For 1999, the acquisition team shall have acquired at least $12.0 EBIT
and Employee must contribute at least $4.0 EBIT (the "Acquisition Bonus") to
receive the Acquisition Bonus. The Acquisition Bonus will be uncapped and will
be increased based on actual performance at the discretion of the Executive
Committee of the Board of Directors of the Company.
14
<PAGE> 15
EXHIBIT B
OPTIONS
Number = 5,000
Strike Price = $25.00
Vesting = Sole discretion of F.Y.I. based on mutually agreeable
objectives, provided always that 50% will be based on
developing a strategic plan for providing document
information outsourcing solutions for state and local
government.
15
<PAGE> 1
EXHIBIT 10.42
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between F.Y.I. Incorporated,
a Delaware corporation (the "Company"), and Ed H. Bowman, Jr. ("Employee") is
hereby entered into and effective as of January 1, 1999. This Agreement hereby
supersedes any other employment agreements or understandings; written or oral,
between the Company and Employee.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing document and information management outsourcing solutions.
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 President and Chief
Executive Officer. As such, Employee shall have responsibilities, duties and
authority reasonably accorded to and expected of a President and Chief Executive
Officer and will report directly to the Board of Directors of the Company (the
"Board"). 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.
1
<PAGE> 2
(b) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage except to the extent that such activity (i) does not
interfere with Employee's duties and responsibilities hereunder and (ii) does
not violate paragraph 3 hereof. The foregoing limitations shall not be construed
as prohibiting Employee from serving on the boards of directors of other
companies or making personal investments in such form or manner as will require
his services, other than to a minimal extent, in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 3 hereof.
2. Compensation. For all services rendered by Employee, the Company
shall compensate Employee as follows:
(a) Base Salary. The base salary payable to Employee shall be $375,000
per year, payable on a regular basis in accordance with the Company's standard
payroll procedures but not less than bi-monthly. On at least an annual basis,
the Board will review Employee's performance and may make increases to such base
salary if, in its discretion, any such increase is warranted. Such recommended
increase would, in all likelihood, require approval by the Board or a duly
constituted committee thereof.
(b) Incentive Bonus Plan. Employee shall be eligible for a bonus
opportunity of up to 100% of his base salary in accordance with the Company's
Incentive Bonus Plan as modified from time to time. The bonus payment and the
Company's targeted performance shall be determined by the Board or the
compensation committee thereof.
(c) Executive Perquisites, Benefits and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in
effect from time to time, and not less favorable than the benefits
provided to other Company executives.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of his services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(iii) Four (4) weeks paid vacation for each year during the
period of employment or such greater amount as may be afforded officers
and key employees generally under the Company's policies in effect from
time to time (pro rated for any year in which Employee is employed for
less than the full year).
(iv) An automobile allowance in the amount of $500 per month.
2
<PAGE> 3
(v) The Company shall reimburse Employee up to $300 per month
for club dues actually incurred by Employee, provided that such club is
used at least 50 percent of the time for business purposes.
(vi) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board and participation in all other Company-wide employee
benefits as available from time to time, which will include
participation in the Company's Incentive Compensation Plan.
(vii) The Company shall provide Employee with reasonable
assistance in personal tax planning from Arthur Andersen.
(viii) Participation in the Company's 401(k) Plan and
Non-qualified Plan.
(ix) The Company shall, under Employee's direction, establish
a Supplemental Retirement Plan/Survivor Protection Plan to be placed
inside the Company's Non-Qualified Plan and provide Employee with such
benefit.
3. Non-Competition Agreement.
(a) Subject to Section 3(a), Employee will not, during the period of
his employment by or with the Company, and for a period of two (2) years
immediately following the termination of his employment under this Agreement,
for any reason whatsoever, directly or indirectly, for himself or on behalf of
or in conjunction with any other person, persons, company, partnership,
corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with the Company, within 100 miles of (i) the
principal executive offices of the Company or (ii) any place to which
the Company provides products or services or in which the Company is in
the process of initiating business operations during the term of this
covenant (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company (including the subsidiaries
thereof) in a managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company
(including the subsidiaries thereof), provided that Employee shall be
permitted to call upon and hire any member of his or her immediate
family;
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of the Company (including the subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services
in direct competition with the Company within the Territory;
3
<PAGE> 4
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was either called upon by the Company (including the subsidiaries
thereof) or for which the Company made an acquisition analysis, for the
purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the Company (or the Subsidiaries thereof) to any person, firm,
partnership, corporation or business for any reason or purpose
whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Company for which
it would have no other adequate remedy, Employee agrees that the foregoing
covenant may be enforced by the Company in the event of breach by him by
injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities, business and locations of the Company (including the
Company's subsidiaries) throughout the term of this covenant, whether before or
after the date of termination of the employment of Employee, subject to the
following paragraph. For example, if, during the term of this Agreement, the
Company (including the Company's subsidiaries) engages in new and different
activities, enters a new business or established new locations for its current
activities or business in addition to or other than the activities or business
enumerated under the Recitals above or the locations currently established
therefore, then Employee will be precluded from soliciting the customers or
employees of such new activities or business or from such new location and from
directly competing with such new business within 100 miles of its
then-established operating location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event
that Employee shall cease to be employed hereunder, and shall enter into a
business or pursue other activities not in competition with the Company
(including the Company's subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Employee's
obligations under this paragraph 3, if any, Employee shall not be chargeable
with a violation of this paragraph 3 if the Company (including the Company's
4
<PAGE> 5
subsidiaries) shall thereafter enter the same, similar or a competitive (i)
business, (ii) course of activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is specifically
agreed that the period of two (2) years stated at the beginning of this
paragraph 3, during which the agreements and covenants of Employee made in this
paragraph 3 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 3.
4. Place of Performance.
(a) Employee's place of employment is the Company's headquarters in
Dallas, Texas. Employee understands that he may be requested by the Board to
relocate from his present residence to another geographic location in order to
more efficiently carry out his duties and responsibilities under this Agreement
or as part of a promotion or other increase in duties and responsibilities. In
the event that Employee is requested to relocate and agrees to do so, the
Company will pay all relocation costs to move Employee, his immediate family and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur, as a result of any payment hereunder, to the extent any
relocation costs are not deductible for tax purposes. The general intent of the
foregoing is that Employee shall not personally bear any out-of-pocket cost as a
result of the relocation, with an understanding that Employee will use his best
efforts to incur only those costs which are reasonable and necessary to effect a
smooth, efficient and orderly relocation with minimal disruption to the business
affairs of the Company and the personal life of Employee and his family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "good cause"
for termination of this Agreement under the terms of paragraph 5(c).
5. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the date hereof and continue through December 31, 2003 (the
"Initial Term"), and,
5
<PAGE> 6
unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein. This
Agreement and Employee's employment may be terminated in any one of the
followings ways:
(a) Death. The death of Employee shall immediately terminate
the Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical
or mental illness or injury, Employee shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before
or after the end of such four (4) month period, but which shall not be
effective earlier than the last day of such four (4) month period), the
Company may terminate Employee's employment hereunder provided Employee
is unable to resume his full-time duties at the conclusion of such
notice period. Also, Employee may terminate his employment hereunder if
his health should become impaired to an extent that makes the continued
performance of his duties hereunder hazardous to his physical or mental
health or his life, provided that Employee shall have furnished the
Company with a written statement from a qualified doctor to such effect
and provided, further, that, at the Company's request made within
thirty (30) days of the date of such written statement, Employee shall
submit to an examination by a doctor selected by the Company who is
reasonably acceptable to Employee or Employee's doctor and such doctor
shall have concurred in the conclusion of Employee's doctor. In the
event this Agreement is terminated as a result of Employee's
disability, Employee shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination,
the base salary at the rate then in effect for whatever time period is
remaining under the Initial Term of this Agreement or for one (1) year,
whichever amount is greater.
(c) Good Cause. The Company may terminate the Agreement ten
(10) days after written notice to Employee for good cause, which shall
be: (1) Employee's material and irreparable breach of this Agreement;
(2) Employee's gross negligence in the performance or intentional
nonperformance (continuing for ten (10) days after receipt of the
written notice) of any of Employee's material duties and
responsibilities hereunder; (3) Employee's dishonesty, fraud or
misconduct with respect to the business or affairs of the Company which
materially and adversely affects the operations or reputation of the
Company; (4) Employee's conviction of a felony crime; or (5) chronic
alcohol abuse or illegal drug abuse by Employee. In the event of a
termination for good cause, as enumerated above, Employee shall have no
right to any severance compensation.
(d) Without Cause. At any time after the commencement of
employment, the Company may, without cause, terminate this Agreement
and Employee's employment, effective thirty (30) days after written
notice is provided to the Employee. Should Employee be terminated by
the Company without cause, Employee shall receive from the Company, in
a lump-sum payment due on the effective date of termination, the base
salary at the rate then in effect for whatever time period is remaining
under the Initial Term of this Agreement or for two (2) years,
whichever amount is greater ("Severance Pay").
6
<PAGE> 7
Further, any termination without cause by the Company shall operate to
shorten the period set forth in paragraph 3(a) and during which the
terms of paragraph 3 apply to one (1) year from the date of termination
of employment.
(e) Change in Control. Refer to paragraph 12 below.
(f) Termination by Employee for Good Reason. The Employee may
terminate his employment hereunder for "Good Reason." As used herein,
"Good Reason" shall mean the continuance of any of the following after
10 days' prior written notice by Employee to the Company, specifying
the basis for such Employee's having Good Reason to terminate this
Agreement:
(i) the assignment to Employee of any duties
materially and adversely inconsistent with the Employee's
position as specified in paragraph 1 hereof (or such other
position to which he may be promoted), including status,
offices, responsibilities or persons to whom the Employee
reports as contemplated under paragraph 1 of this Agreement,
or any other action by the Company which results in a material
and adverse change in such position, status, offices, titles
or responsibilities;
(ii) Employee's removal from, or failure to be
reappointed or reelected to, Employee's position under this
Agreement, except as contemplated by paragraphs 5(a), (b), (c)
and (e); or
(iii) any other material breach of this Agreement by
the Company, including the failure to pay Employee on a timely
basis the amounts to which he is entitled under this
Agreement.
In the event of any termination by the Employee for Good Reason, as determined
by a court of competent jurisdiction or pursuant to the provisions of paragraph
16 below, the Company shall pay all amounts and damages to which Employee may be
entitled as a result of such breach, including interest thereon and all
reasonable legal fees and expenses and other costs incurred by Employee to
enforce his rights hereunder. In addition, Employee shall be entitled to receive
Severance Pay for whatever time period is remaining under the Initial Term of
this Agreement or for two (2) years, whichever amount is greater. Further, none
of the provisions of paragraph 3 shall apply in the event this Agreement is
terminated by Employee for Good Reason.
(g) Termination by Employee Without Cause. If Employee resigns
or otherwise terminates his employment without Good Reason pursuant to
paragraph 5(f), Employee shall receive no severance compensation.
Upon termination of this Agreement for any reason provided in clauses (a)
through (g) above, Employee shall be entitled to receive all compensation earned
and all benefits vested and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Employee only to the extent and in
7
<PAGE> 8
the manner expressly provided above or in paragraph 16. All other rights and
obligations of the Company and Employee under this Agreement shall cease as of
the effective date of termination, except that the Company's obligations under
paragraph 9 herein and Employee's obligations under paragraphs 3, 6, 7, 8 and 10
herein shall survive such termination in accordance with their terms.
6. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. Inventions. Employee shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment by the Company. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
8. Trade Secrets. Employee agrees that he will not, during or after the
term of this Agreement with the Company, disclose the specific terms of the
Company's relationships or agreements with its significant vendors or customers
or any other significant and material trade secret of the Company, whether in
existence or proposed, to any person, firm, partnership, corporation or business
for any reason or purpose whatsoever, except as is disclosed in the ordinary
course of business.
9. Indemnification. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement, 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 to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to the Company for errors or omissions
8
<PAGE> 9
made in good faith where Employee has not exhibited gross, willful and wanton
negligence and misconduct or performed criminal and fraudulent acts which
materially damage the business of the Company.
10. No Prior Agreements. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
11. Assignment; Binding Effect. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. Change in Control.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder.
(b) In the event of a pending Change in Control wherein the Employee
has 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 and
then such Change in Control shall be deemed to be a termination of this
Agreement by the Company and the amount of the lump-sum severance payment due to
Employee shall be ten times Employee's annual salary and the non-competition
provisions of paragraph 3 shall not apply whatsoever. Payment shall be made
either at closing if notice is served at least five days before closing or
within 10 days of Employee's written notice.
(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 or Employee receives notice after
the Change in Control that Employee is being terminated, Employee may
nonetheless, at his sole discretion, elect to terminate this Agreement by
providing written notice to the Company at any time prior to closing and up to
two
9
<PAGE> 10
years after the closing of the transaction giving rise to the Change in Control.
In such case, the amount of the lump-sum severance payment due to Employee shall
be ten times Employee's annual salary and the non-competition provisions of
paragraph 3 shall all apply. Payment shall be made either at closing if notice
is served at least five days before closing or within 10 days of written notice
by Employee.
(d) For purposes of applying paragraph 5 under the circumstances
described in (b) and (c) above, the effective date of termination will be the
later of closing date of the transaction giving rise to the Change in Control or
Employee's notice as described above and all compensation, reimbursements and
lump-sum payments due Employee must be paid in full by the Company at such time.
Further, Employee will be given six months 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
Long-Term Incentive Compensation Plan or any warrants, such that he may convert
the options or warrants to shares of Common Stock of the Company at or prior to
the closing of the transaction giving rise to the Change in Control, if he so
desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit
plan of the Company, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of the Company and
immediately after such acquisition such Person is, directly or
indirectly, the Beneficial Owner of voting securities representing 50%
or more of the total voting power of all of the then-outstanding voting
securities of the Company;
(ii) the individuals (A) who, as of the effective date of the
Company's registration statement with respect to its initial public
offering, constitute the Board of Directors of the Company (the
"Original Directors") or (B) who thereafter are elected to the Board of
Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a
vote of at least two thirds (2/3) of the Original Directors then still
in office (such directors becoming "Additional Original Directors"
immediately following their election) or (C) who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a
vote of at least two thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election), cease for any reason 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
10
<PAGE> 11
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; and
(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 that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
13. Complete Agreement. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Employee and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of the Company
and Employee, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term.
14. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
<TABLE>
<S> <C>
To the Company: F.Y.I. Incorporated
3232 McKinney Avenue
Suite 900
Dallas, Texas 75204
with a copy to: Margot T. Lebenberg, Esq.
F.Y.I. Incorporated
3232 McKinney Avenue
Suite 900
Dallas, Texas 75204
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
with a copy to: Charles C. Reeder, Esq.
Locke Purnell Rain Harrell
2200 Ross Avenue
Suite 2200
Dallas, Texas 75201
To Employee: Ed H. Bowman, Jr.
3102 Drexel Drive
Dallas, Texas 75205
</TABLE>
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
15. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
16. Arbitration. Any unresolved dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three (3) arbitrators in Dallas, Texas, in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall not have the authority to add to, detract from, or
modify any provision hereof nor to award punitive damages to any injured party.
The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs, including those incurred to enforce this
Agreement, and interest thereon in the event the arbitrators determine that
Employee was terminated without disability or good cause, as defined in
paragraphs 5(b) and 5(c), respectively, or that the Company has otherwise
materially breached this Agreement. A decision by a majority of the arbitration
panel shall be final and binding. Judgment may be entered on the arbitrators'
award in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by the Company.
[BALANCE OF SHEET INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
17. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
EMPLOYEE:
/s/ Ed H. Bowman, Jr.
---------------------
Ed H. Bowman, Jr.
F.Y.I. INCORPORATED
By: /s/ Thomas C. Walker
---------------------
Title: Chairman of the Board
and Chief Development Officer
13
<PAGE> 1
EXHIBIT 10.43
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between F.Y.I. Incorporated,
a Delaware corporation (the "Company"), and Thomas C. Walker ("Employee") is
hereby entered into and effective as of January 1, 1999. This Agreement hereby
supersedes any other employment agreements or understandings; written or oral,
between the Company and Employee.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing document and information management outsourcing solutions.
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 Chairman of the Board and
Chief Development Officer. As such, Employee shall have responsibilities, duties
and authority reasonably accorded to and expected of a Chairman of the Board and
Chief Development Officer and will report directly to the Board of Directors of
the Company (the "Board"). 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.
1
<PAGE> 2
(b) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage except to the extent that such activity (i) does not
interfere with Employee's duties and responsibilities hereunder and (ii) does
not violate paragraph 3 hereof. The foregoing limitations shall not be construed
as prohibiting Employee from serving on the boards of directors of other
companies or making personal investments in such form or manner as will require
his services, other than to a minimal extent, in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 3 hereof.
2. Compensation. For all services rendered by Employee, the Company
shall compensate Employee as follows:
(a) Base Salary. The base salary payable to Employee shall be $265,000
per year, payable on a regular basis in accordance with the Company's standard
payroll procedures but not less than bi-monthly. On at least an annual basis,
the Board will review Employee's performance and may make increases to such base
salary if, in its discretion, any such increase is warranted. Such recommended
increase would, in all likelihood, require approval by the Board or a duly
constituted committee thereof.
(b) Incentive Bonus Plan. Employee shall be eligible for a bonus
opportunity of up to 50% of his base salary in accordance with the Company's
Incentive Bonus Plan as modified from time to time. The bonus payment and the
Company's targeted performance shall be determined by the Board or the
compensation committee thereof.
(c) Executive Perquisites, Benefits and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in
effect from time to time, and not less favorable than the benefits
provided to other Company executives.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of his services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(iii) Four (4) weeks paid vacation for each year during the
period of employment or such greater amount as may be afforded officers
and key employees generally under the Company's policies in effect from
time to time (pro rated for any year in which Employee is employed for
less than the full year).
(iv) An automobile allowance in the amount of $500 per month.
2
<PAGE> 3
(v) The Company shall reimburse Employee up to $300 per month
for club dues actually incurred by Employee, provided that such club is
used at least 50 percent of the time for business purposes.
(vi) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board and participation in all other Company-wide employee
benefits as available from time to time, which will include
participation in the Company's Incentive Compensation Plan.
(vii) The Company shall provide Employee with reasonable
assistance in personal tax planning from Arthur Andersen.
(viii) Participation in the Company's 401(k) Plan and
Non-qualified Plan.
(ix) The Company shall, under Employee's direction, establish
a Supplemental Retirement Plan/Survivor Protection Plan to be placed
inside the Company's Non-Qualified Plan and provide Employee with such
benefit.
3. Non-Competition Agreement.
(a) Subject to Section 3(a), Employee will not, during the period of
his employment by or with the Company, and for a period of two (2) years
immediately following the termination of his employment under this Agreement,
for any reason whatsoever, directly or indirectly, for himself or on behalf of
or in conjunction with any other person, persons, company, partnership,
corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with the Company, within 100 miles of (i) the
principal executive offices of the Company or (ii) any place to which
the Company provides products or services or in which the Company is in
the process of initiating business operations during the term of this
covenant (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company (including the subsidiaries
thereof) in a managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company
(including the subsidiaries thereof), provided that Employee shall be
permitted to call upon and hire any member of his or her immediate
family;
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of the Company (including the subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services
in direct competition with the Company within the Territory;
3
<PAGE> 4
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was either called upon by the Company (including the subsidiaries
thereof) or for which the Company made an acquisition analysis, for the
purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the Company (or the Subsidiaries thereof) to any person, firm,
partnership, corporation or business for any reason or purpose
whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Company for which
it would have no other adequate remedy, Employee agrees that the foregoing
covenant may be enforced by the Company in the event of breach by him by
injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities, business and locations of the Company (including the
Company's subsidiaries) throughout the term of this covenant, whether before or
after the date of termination of the employment of Employee, subject to the
following paragraph. For example, if, during the term of this Agreement, the
Company (including the Company's subsidiaries) engages in new and different
activities, enters a new business or established new locations for its current
activities or business in addition to or other than the activities or business
enumerated under the Recitals above or the locations currently established
therefore, then Employee will be precluded from soliciting the customers or
employees of such new activities or business or from such new location and from
directly competing with such new business within 100 miles of its
then-established operating location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event
that Employee shall cease to be employed hereunder, and shall enter into a
business or pursue other activities not in competition with the Company
(including the Company's subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Employee's
obligations under this paragraph 3, if any, Employee shall not be chargeable
with a violation of this paragraph 3 if the Company (including the Company's
4
<PAGE> 5
subsidiaries) shall thereafter enter the same, similar or a competitive (i)
business, (ii) course of activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is specifically
agreed that the period of two (2) years stated at the beginning of this
paragraph 3, during which the agreements and covenants of Employee made in this
paragraph 3 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 3.
4. Place of Performance.
(a) Employee's place of employment is the Company's headquarters in
Dallas, Texas. Employee understands that he may be requested by the Board to
relocate from his present residence to another geographic location in order to
more efficiently carry out his duties and responsibilities under this Agreement
or as part of a promotion or other increase in duties and responsibilities. In
the event that Employee is requested to relocate and agrees to do so, the
Company will pay all relocation costs to move Employee, his immediate family and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur, as a result of any payment hereunder, to the extent any
relocation costs are not deductible for tax purposes. The general intent of the
foregoing is that Employee shall not personally bear any out-of-pocket cost as a
result of the relocation, with an understanding that Employee will use his best
efforts to incur only those costs which are reasonable and necessary to effect a
smooth, efficient and orderly relocation with minimal disruption to the business
affairs of the Company and the personal life of Employee and his family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "good cause"
for termination of this Agreement under the terms of paragraph 5(c).
5. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the date hereof and continue through December 31, 2000 (the
"Initial Term"), and,
5
<PAGE> 6
unless terminated sooner as herein provided, shall continue thereafter on a
year-to-year basis on the same terms and conditions contained herein. This
Agreement and Employee's employment may be terminated in any one of the
following ways:
(a) Death. The death of Employee shall immediately terminate
the Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical
or mental illness or injury, Employee shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before
or after the end of such four (4) month period, but which shall not be
effective earlier than the last day of such four (4) month period), the
Company may terminate Employee's employment hereunder provided Employee
is unable to resume his full-time duties at the conclusion of such
notice period. Also, Employee may terminate his employment hereunder if
his health should become impaired to an extent that makes the continued
performance of his duties hereunder hazardous to his physical or mental
health or his life, provided that Employee shall have furnished the
Company with a written statement from a qualified doctor to such effect
and provided, further, that, at the Company's request made within
thirty (30) days of the date of such written statement, Employee shall
submit to an examination by a doctor selected by the Company who is
reasonably acceptable to Employee or Employee's doctor and such doctor
shall have concurred in the conclusion of Employee's doctor. In the
event this Agreement is terminated as a result of Employee's
disability, Employee shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination,
the base salary at the rate then in effect for whatever time period is
remaining under the Initial Term of this Agreement or for one (1) year,
whichever amount is greater.
(c) Good Cause. The Company may terminate the Agreement ten
(10) days after written notice to Employee for good cause, which shall
be: (1) Employee's material and irreparable breach of this Agreement;
(2) Employee's gross negligence in the performance or intentional
nonperformance (continuing for ten (10) days after receipt of the
written notice) of any of Employee's material duties and
responsibilities hereunder; (3) Employee's dishonesty, fraud or
misconduct with respect to the business or affairs of the Company which
materially and adversely affects the operations or reputation of the
Company; (4) Employee's conviction of a felony crime; or (5) chronic
alcohol abuse or illegal drug abuse by Employee. In the event of a
termination for good cause, as enumerated above, Employee shall have no
right to any severance compensation.
(d) Without Cause. At any time after the commencement of
employment, the Company may, without cause, terminate this Agreement
and Employee's employment, effective thirty (30) days after written
notice is provided to the Employee. Should Employee be terminated by
the Company without cause, Employee shall receive from the Company, in
a lump-sum payment due on the effective date of termination, the base
salary at the rate then in effect for two (2) years ("Severance Pay").
Further, any termination without cause by the Company shall operate to
shorten the period set forth in paragraph
6
<PAGE> 7
3(a) and during which the terms of paragraph 3 apply to one (1) year
from the date of termination of employment.
(e) Change in Control. Refer to paragraph 12 below.
(f) Termination by Employee for Good Reason. The Employee may
terminate his employment hereunder for "Good Reason." As used herein,
"Good Reason" shall mean the continuance of any of the following after
10 days' prior written notice by Employee to the Company, specifying
the basis for such Employee's having Good Reason to terminate this
Agreement:
(i) the assignment to Employee of any duties
materially and adversely inconsistent with the Employee's
position as specified in paragraph 1 hereof (or such other
position to which he may be promoted), including status,
offices, responsibilities or persons to whom the Employee
reports as contemplated under paragraph 1 of this Agreement,
or any other action by the Company which results in a material
and adverse change in such position, status, offices, titles
or responsibilities;
(ii) Employee's removal from, or failure to be
reappointed or reelected to, Employee's position under this
Agreement, except as contemplated by paragraphs 5(a), (b), (c)
and (e); or
(iii) any other material breach of this Agreement by
the Company, including the failure to pay Employee on a timely
basis the amounts to which he is entitled under this
Agreement.
In the event of any termination by the Employee for Good Reason, as determined
by a court of competent jurisdiction or pursuant to the provisions of paragraph
16 below, the Company shall pay all amounts and damages to which Employee may be
entitled as a result of such breach, including interest thereon and all
reasonable legal fees and expenses and other costs incurred by Employee to
enforce his rights hereunder. In addition, Employee shall be entitled to receive
Severance Pay for two (2) years. Further, none of the provisions of paragraph 3
shall apply in the event this Agreement is terminated by Employee for Good
Reason.
(g) Termination by Employee Without Cause. If Employee resigns
or otherwise terminates his employment without Good Reason pursuant to
paragraph 5(f), Employee shall receive no severance compensation.
Upon termination of this Agreement for any reason provided in clauses (a)
through (g) above, Employee shall be entitled to receive all compensation earned
and all benefits vested and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Employee only to the extent and in the manner expressly
provided above or in paragraph 16. All other rights and obligations of the
Company and Employee under this Agreement shall cease as of the effective date
of termination,
7
<PAGE> 8
except that the Company's obligations under paragraph 9 herein and Employee's
obligations under paragraphs 3, 6, 7, 8 and 10 herein shall survive such
termination in accordance with their terms.
6. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. Inventions. Employee shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment by the Company. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
8. Trade Secrets. Employee agrees that he will not, during or after the
term of this Agreement with the Company, disclose the specific terms of the
Company's relationships or agreements with its significant vendors or customers
or any other significant and material trade secret of the Company, whether in
existence or proposed, to any person, firm, partnership, corporation or business
for any reason or purpose whatsoever, except as is disclosed in the ordinary
course of business.
9. Indemnification. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement, 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 to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to the Company for errors or omissions made in
good faith where Employee has not exhibited gross, willful and wanton negligence
and misconduct or performed criminal and fraudulent acts which materially damage
the business of the Company.
8
<PAGE> 9
10. No Prior Agreements. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
11. Assignment; Binding Effect. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. Change in Control.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder.
(b) In the event of a pending Change in Control wherein the Employee
has 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 and
then such Change in Control shall be deemed to be a termination of this
Agreement by the Company and the amount of the lump-sum severance payment due to
Employee shall be six times Employee's annual salary and the non-competition
provisions of paragraph 3 shall not apply whatsoever. Payment shall be made
either at closing if notice is served at least five days before closing or
within 10 days of Employee's written notice.
(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 or Employee receives notice after
the Change in Control that Employee is being terminated, Employee may
nonetheless, at his sole discretion, elect to terminate this Agreement by
providing written notice to the Company at any time prior to closing and up to
one year after the closing of the transaction giving rise to the Change in
Control. In such case, the amount of the lump-sum severance payment due to
Employee shall be six times Employee's annual
9
<PAGE> 10
salary and the non-competition provisions of paragraph 3 shall all apply.
Payment shall be made either at closing if notice is served at least five days
before closing or within 10 days of written notice by Employee.
(d) For purposes of applying paragraph 5 under the circumstances
described in (b) and (c) above, the effective date of termination will be the
later of closing date of the transaction giving rise to the Change in Control or
Employee's notice as described above and all compensation, reimbursements and
lump-sum payments due Employee must be paid in full by the Company at such time.
Further, Employee will be given six months 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
Long-Term Incentive Compensation Plan or any warrants, such that he may convert
the options or warrants to shares of Common Stock of the Company at or prior to
the closing of the transaction giving rise to the Change in Control, if he so
desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit
plan of the Company, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of the Company and
immediately after such acquisition such Person is, directly or
indirectly, the Beneficial Owner of voting securities representing 50%
or more of the total voting power of all of the then-outstanding voting
securities of the Company;
(ii) the individuals (A) who, as of the effective date of the
Company's registration statement with respect to its initial public
offering, constitute the Board of Directors of the Company (the
"Original Directors") or (B) who thereafter are elected to the Board of
Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a
vote of at least two thirds (2/3) of the Original Directors then still
in office (such directors becoming "Additional Original Directors"
immediately following their election) or (C) who are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a
vote of at least two thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election), cease for any reason 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
10
<PAGE> 11
transaction, with the voting power of each such continuing holder
relative to other such continuing holders not substantially altered in
the transaction; and
(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 that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
13. Complete Agreement. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Employee and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of the Company
and Employee, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term.
14. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: F.Y.I. Incorporated
3232 McKinney Avenue
Suite 900
Dallas, Texas 75204
with a copy to: Margot T. Lebenberg, Esq.
F.Y.I. Incorporated
3232 McKinney Avenue
Suite 900
Dallas, Texas 75204
11
<PAGE> 12
with a copy to: Charles C. Reeder, Esq.
Locke Purnell Rain Harrell
2200 Ross Avenue
Suite 2200
Dallas, Texas 75201
To Employee: Thomas C. Walker
3510 Turtle Creek Blvd., #10-A
Dallas, Texas 75219
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
15. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
16. Arbitration. Any unresolved dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three (3) arbitrators in Dallas, Texas, in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall not have the authority to add to, detract from, or
modify any provision hereof nor to award punitive damages to any injured party.
The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs, including those incurred to enforce this
Agreement, and interest thereon in the event the arbitrators determine that
Employee was terminated without disability or good cause, as defined in
paragraphs 5(b) and 5(c), respectively, or that the Company has otherwise
materially breached this Agreement. A decision by a majority of the arbitration
panel shall be final and binding. Judgment may be entered on the arbitrators'
award in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by the Company.
[BALANCE OF SHEET INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
17. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
EMPLOYEE:
/s/ Thomas C. Walker
-------------------------------
Thomas C. Walker
F.Y.I. INCORPORATED
By: /s/ Ed H. Bowman, Jr.
-------------------------------
Title: President and CEO
13
<PAGE> 1
EXHIBIT 10.44
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between F.Y.I. Incorporated,
a Delaware corporation (the "Company"), and David Lowenstein ("Employee") is
hereby entered into and effective as of January 1, 1999. This Agreement hereby
supersedes any other employment agreements or understandings; written or oral,
between the Company and Employee.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing document and information management outsourcing solutions.
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 Executive Vice
President-Corporate Development and Treasurer. As such, Employee shall have
responsibilities, duties and authority reasonably accorded to and expected of an
Executive Vice President-Corporate Development and Treasurer and will report
directly to the Chief Development Officer. 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.
1
<PAGE> 2
(b) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage except to the extent that such activity (i) does not
interfere with Employee's duties and responsibilities hereunder and (ii) does
not violate paragraph 3 hereof. The foregoing limitations shall not be construed
as prohibiting Employee from serving on the boards of directors of other
companies or making personal investments in such form or manner as will require
his services, other than to a minimal extent, in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 3 hereof.
2. Compensation. For all services rendered by Employee, the Company
shall compensate Employee as follows:
(a) Base Salary. The base salary payable to Employee shall be $240,000
per year, payable on a regular basis in accordance with the Company's standard
payroll procedures but not less than bi-monthly. On at least an annual basis,
the Board will review Employee's performance and may make increases to such base
salary if, in its discretion, any such increase is warranted. Such recommended
increase would, in all likelihood, require approval by the Board or a duly
constituted committee thereof.
(b) Incentive Bonus Plan. Employee shall be eligible for a bonus
opportunity of up to 50% of his base salary in accordance with the Company=s
Incentive Bonus Plan as modified from time to time. The bonus payment and the
Company's targeted performance shall be determined by the Board or the
compensation committee thereof.
(c) Executive Perquisites, Benefits and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in
effect from time to time, and not less favorable than the benefits
provided to other Company executives.
(ii) Reimbursement for all business travel (including travel
to and from Dallas) and other out-of-pocket expenses reasonably
incurred by Employee in the performance of his services pursuant to
this Agreement including, normal business office expenses such as a
telephone line, internet access, facsimile line, long distance service.
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) Employee must have use of a car and he will receive an
automobile allowance in the amount of $500 per month.
(v) The Company shall reimburse Employee up to $300 per month
for club dues actually incurred by Employee, provided that such club is
used at least 50 percent of the time for business purposes.
(vi) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board and participation in all other Company-wide employee
benefits as available from time to time, which will include
participation in the Company's Incentive Compensation Plan.
(vii) The Company shall provide Employee with reasonable
assistance in personal tax planning from Arthur Andersen.
(viii) Participation in the Company's 401(k) Plan and
Non-qualified Plan.
(ix) The Company shall, under Employee's direction, establish
a Supplemental Retirement Plan/Survivor Protection Plan to be placed
inside the Company's Non-Qualified Plan and provide Employee with such
benefit.
3. Non-Competition Agreement.
(a) Subject to Section 3(a), Employee will not, during the period of
his employment by or with the Company, and for a period of two (2) years
immediately following the termination of his employment under this Agreement,
for any reason whatsoever, directly or indirectly, for himself or on behalf of
or in conjunction with any other person, persons, company, partnership,
corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with the Company, within 100 miles of (i) the
principal executive offices of the Company or (ii) any place to which
the Company provides products or services or in which the Company is in
the process of initiating business operations during the term of this
covenant (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company (including the subsidiaries
thereof) in a managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company
(including the subsidiaries thereof), provided that Employee shall be
permitted to call upon and hire any member of his or her immediate
family;
3
<PAGE> 4
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of the Company (including the subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services
in direct competition with the Company within the Territory;
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was either called upon by the Company (including the subsidiaries
thereof) or for which the Company made an acquisition analysis, for the
purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the Company (or the Subsidiaries thereof) to any person, firm,
partnership, corporation or business for any reason or purpose
whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Company for which
it would have no other adequate remedy, Employee agrees that the foregoing
covenant may be enforced by the Company in the event of breach by him by
injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities, business and locations of the Company (including the
Company's subsidiaries) throughout the term of this covenant, whether before or
after the date of termination of the employment of Employee, subject to the
following paragraph. For example, if, during the term of this Agreement, the
Company (including the Company's subsidiaries) engages in new and different
activities, enters a new business or established new locations for its current
activities or business in addition to or other than the activities or business
enumerated under the Recitals above or the locations currently established
therefore, then Employee will be precluded from soliciting the customers or
employees of such new activities or business or from such new location and from
directly competing with such new business within 100 miles of its
then-established operating location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event
that Employee shall cease to be employed hereunder, and shall enter into a
business or pursue other activities not in competition with the Company
(including the Company's subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i)
4
<PAGE> 5
of this paragraph 3, and in any event such new business, activities or location
are not in violation of this paragraph 3 or of Employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is specifically
agreed that the period of two (2) years stated at the beginning of this
paragraph 3, during which the agreements and covenants of Employee made in this
paragraph 3 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 3.
4. Place of Performance. The Company acknowledges that Employee will be
relocating to Canada and must have a home office.
5. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the date hereof and continue through December 31, 2000 (the
"Initial Term"), and, unless terminated sooner as herein provided, shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein. This Agreement and Employee's employment may be terminated in
any one of the followings ways:
(a) Death. The death of Employee shall immediately terminate
the Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical
or mental illness or injury, Employee shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before
or after the end of such four (4) month period, but which shall not be
effective earlier than the last day of such four (4) month period), the
Company may terminate Employee's employment hereunder provided Employee
is unable to resume his full-time duties at the conclusion of such
notice period. Also, Employee may terminate his employment hereunder if
his health should become impaired to an extent that makes the continued
performance of his duties hereunder hazardous to his physical or mental
health or his life, provided that Employee shall have furnished the
Company with a written statement from a qualified doctor to such effect
and provided, further, that, at the
5
<PAGE> 6
Company's request made within thirty (30) days of the date of such
written statement, Employee shall submit to an examination by a doctor
selected by the Company who is reasonably acceptable to Employee or
Employee's doctor and such doctor shall have concurred in the
conclusion of Employee's doctor. In the event this Agreement is
terminated as a result of Employee's disability, Employee shall receive
from the Company, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in
effect for whatever time period is remaining under the Initial Term of
this Agreement or for one (1) year, whichever amount is greater.
(c) Good Cause. The Company may terminate the Agreement ten
(10) days after written notice to Employee for good cause, which shall
be: (1) Employee's material and irreparable breach of this Agreement;
(2) Employee's gross negligence in the performance or intentional
nonperformance (continuing for ten (10) days after receipt of the
written notice) of any of Employee's material duties and
responsibilities hereunder; (3) Employee's dishonesty, fraud or
misconduct with respect to the business or affairs of the Company which
materially and adversely affects the operations or reputation of the
Company; (4) Employee's conviction of a felony crime; or (5) chronic
alcohol abuse or illegal drug abuse by Employee. In the event of a
termination for good cause, as enumerated above, Employee shall have no
right to any severance compensation.
(d) Without Cause. At any time after the commencement of
employment, the Company may, without cause, terminate this Agreement
and Employee's employment, effective thirty (30) days after written
notice is provided to the Employee. Should Employee be terminated by
the Company without cause, Employee shall receive from the Company, in
a lump-sum payment due on the effective date of termination, the base
salary at the rate then in effect for two (2) years ("Severance Pay").
Further, any termination without cause by the Company shall operate to
shorten the period set forth in paragraph 3(a) and during which the
terms of paragraph 3 apply to one (1) year from the date of termination
of employment.
(e) Change in Control. Refer to paragraph 12 below.
(f) Termination by Employee for Good Reason. The Employee may
terminate his employment hereunder for "Good Reason." As used herein,
"Good Reason" shall mean the continuance of any of the following after
10 days' prior written notice by Employee to the Company, specifying
the basis for such Employee's having Good Reason to terminate this
Agreement:
(i) the assignment to Employee of any duties
materially and adversely inconsistent with the Employee's
position as specified in paragraph 1 hereof (or such other
position to which he may be promoted), including status,
offices, responsibilities or persons to whom the Employee
reports as contemplated under paragraph 1 of this Agreement,
or any other action by the Company which results in a material
and adverse change in such position, status, offices, titles
or responsibilities;
6
<PAGE> 7
(ii) Employee's removal from, or failure to be
reappointed or reelected to, Employee's position under this
Agreement, except as contemplated by paragraphs 5(a), (b), (c)
and (e); or
(iii) any other material breach of this Agreement by
the Company, including the failure to pay Employee on a timely
basis the amounts to which he is entitled under this
Agreement.
In the event of any termination by the Employee for Good Reason, as determined
by a court of competent jurisdiction or pursuant to the provisions of paragraph
16 below, the Company shall pay all amounts and damages to which Employee may be
entitled as a result of such breach, including interest thereon and all
reasonable legal fees and expenses and other costs incurred by Employee to
enforce his rights hereunder. In addition, Employee shall be entitled to receive
Severance Pay for two (2) years. Further, none of the provisions of paragraph 3
shall apply in the event this Agreement is terminated by Employee for Good
Reason.
(g) Termination by Employee Without Cause. If Employee resigns
or otherwise terminates his employment without Good Reason pursuant to
paragraph 5(f), Employee shall receive no severance compensation.
Upon termination of this Agreement for any reason provided in clauses (a)
through (g) above, Employee shall be entitled to receive all compensation earned
and all benefits vested and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Employee only to the extent and in the manner expressly
provided above or in paragraph 16. All other rights and obligations of the
Company and Employee under this Agreement shall cease as of the effective date
of termination, except that the Company's obligations under paragraph 9 herein
and Employee's obligations under paragraphs 3, 6, 7, 8 and 10 herein shall
survive such termination in accordance with their terms.
6. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. Inventions. Employee shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment by the Company. Employee hereby assigns and agrees to assign all his
interests
7
<PAGE> 8
therein to the Company or its nominee. Whenever requested to do so by the
Company, Employee shall execute any and all applications, assignments or other
instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
8. Trade Secrets. Employee agrees that he will not, during or after the
term of this Agreement with the Company, disclose the specific terms of the
Company's relationships or agreements with its significant vendors or customers
or any other significant and material trade secret of the Company, whether in
existence or proposed, to any person, firm, partnership, corporation or business
for any reason or purpose whatsoever, except as is disclosed in the ordinary
course of business.
9. Indemnification. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement, 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 to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to the Company for errors or omissions made in
good faith where Employee has not exhibited gross, willful and wanton negligence
and misconduct or performed criminal and fraudulent acts which materially damage
the business of the Company.
10. No Prior Agreements. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
11. Assignment; Binding Effect. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
8
<PAGE> 9
12. Change in Control.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder.
(b) In the event of a pending Change in Control wherein the Employee
has 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 and
then such Change in Control shall be deemed to be a termination of this
Agreement by the Company and the amount of the lump-sum severance payment due to
Employee shall be six times Employee's annual salary and the non-competition
provisions of paragraph 3 shall not apply whatsoever. Payment shall be made
either at closing if notice is served at least five days before closing or
within 10 days of Employee's written notice.
(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 or Employee receives notice after
the Change in Control that Employee is being terminated, Employee may
nonetheless, at his sole discretion, elect to terminate this Agreement by
providing written notice to the Company at any time prior to closing and up to
one year after the closing of the transaction giving rise to the Change in
Control. In such case, the amount of the lump-sum severance payment due to
Employee shall be six times Employee's annual salary and the non-competition
provisions of paragraph 3 shall all apply. Payment shall be made either at
closing if notice is served at least five days before closing or within 10 days
of written notice by Employee.
(d) For purposes of applying paragraph 5 under the circumstances
described in (b) and (c) above, the effective date of termination will be the
later of closing date of the transaction giving rise to the Change in Control or
Employee's notice as described above and all compensation, reimbursements and
lump-sum payments due Employee must be paid in full by the Company at such time.
Further, Employee will be given six months 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
Long-Term Incentive Compensation Plan or any warrants, such that he may convert
the options or warrants 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.
9
<PAGE> 10
(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; and
(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.
10
<PAGE> 11
(g) Employee shall be reimbursed by the Company or its successor for
any excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
13. Complete Agreement. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Employee and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of the Company
and Employee, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term.
14. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: F.Y.I. Incorporated
3232 McKinney Avenue
Suite 900
Dallas, Texas 75204
with a copy to: Margot T. Lebenberg, Esq.
F.Y.I. Incorporated
3232 McKinney Avenue
Suite 900
Dallas, Texas 75204
with a copy to: Charles C. Reeder, Esq.
Locke Purnell Rain Harrell
2200 Ross Avenue
Suite 2200
Dallas, Texas 75201
To Employee: David Lowenstein
2808 McKinney Avenue #452
Dallas, Texas 75204
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
11
<PAGE> 12
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 5(b) and 5(c), respectively, or that the Company has otherwise
materially breached this Agreement. A decision by a majority of the arbitration
panel shall be final and binding. Judgment may be entered on the arbitrators'
award in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by the Company.
[BALANCE OF SHEET INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
17. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
EMPLOYEE:
/s/ David Lowenstein
-----------------------------------------
David Lowenstein
F.Y.I. INCORPORATED
By: /s/ Ed H. Bowman, Jr.
-------------------------------------
Title: President and Chief Executive
Officer
13
<PAGE> 1
EXHIBIT 10.45
EMPLOYMENT AGREEMENT
(RONALD ZAZWORSKY)
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
the 28th day of October 1998 by and between Ronald Zazworsky ("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-Business Unit Executive. As such, Employee shall have
responsibilities, duties and authority reasonably accorded to and expected of a
Senior Vice President-Business Unit Executive. 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.
1
<PAGE> 2
(b) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage except to the extent that such activity 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 $190,000 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) beginning
November 4, 1998. On at least an annual basis the Board (as defined below) will
review Employee's performance and make increases to such base salary if, in its
discretionary, any such increase is warranted. For 1999 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 payable in cash
and or equity at the Company's discretion beginning January 1, 1999 in
accordance with this Incentive Bonus Plan. Such recommended increase would, in
all likelihood, require approval by the Board of Directors (the "Board") or a
duly constituted committee thereof. The award of any bonus shall be based on the
Company's overall performance and the total performance of the business unit
managed and shall be payable in various increments based on the performance. The
incremental payments and the Company's targeted performance shall be determined
by 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.
2
<PAGE> 3
(iii) Four (4) weeks paid vacation for each year during the
period of employment or such greater amount as may be afforded officers
and key employees generally under the Company's policies in effect from
time to time (pro-rated for any year in which Employee is employed for
less than the full year).
(iv) 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.
3. [INTENTIONALLY LEFT BLANK]
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the date hereof and continue until December 31, 2000 (the
"Term"). This Agreement and Employee's employment may be terminated in any one
of the following ways:
(a) Death. The death of Employee shall immediately terminate the
Agreement with no severance compensation due to Employee's estate.
(b) Disability. The Company will make efforts to reasonably accommodate
Employee as required by applicable state or federal disability laws. However,
the parties irrebuttably 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
3
<PAGE> 4
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.
(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.
4
<PAGE> 5
(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
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,
5
<PAGE> 6
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.
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.
6
<PAGE> 7
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 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.
7
<PAGE> 8
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.
To Employee: Ronald Zazworsky
456 Ivy Park Lane
Atlanta, Georgia 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.
8
<PAGE> 9
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.
20. Change in Control.
(a) Employee understands and acknowledges that the Company may be
merged or consolidated with or into another entity.
(b) In the event of a 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 cause a lump-sum payment due to Employee
equivalent of Employee's salary for one year.
(c) In any Change in Control situation in which Employee has received
written notice prior to the closing date from the successor that such successor
is not willing to assume the
9
<PAGE> 10
Company's obligations hereunder Employee shall receive a lump-sum severance
payment equivalent to one and a half years salary.
(d) For purposes of applying paragraph 20 under the circumstances
described in (b) and (c) above, the effective date 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.
(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%
10
<PAGE> 11
of the holders of outstanding voting securities of the Company
immediately prior to the transaction, with the voting power of each
such continuing holder relative to other such continuing holders not
substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the
Company).
(f) Employee must be notified in writing by the Company at any time
that the Company or any member of its Board anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by the Company or its successor for
any excise taxes and/or interest or penalties with respect to such excise taxes
that Employee incurs under Section 4999 of the Internal Revenue Code of 1986, as
amended (or any similar tax that may hereafter be imposed), as a result of any
Change in Control. Such amount will be due and payable by the Company or its
successor within ten (10) days after Employee delivers a written request for
reimbursement accompanied by a copy of his tax return(s) showing the excise tax
actually incurred by Employee.
11
<PAGE> 12
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/ Ronald Zazworsky
--------------------
RONALD ZAZWORSKY
12
<PAGE> 1
EXHIBIT 10.46
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") between F.Y.I.
Incorporated, a Delaware corporation ("Company") and Gregory R. Melanson
("Consultant") is hereby entered into and effective as of January 27, 1999. The
Agreement hereby supercedes any other employment or consulting agreement or
understanding, written or oral between the Company or its subsidiaries and the
Consultant.
NOW, 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:
1. Duties.
(a) The Company hereby engages Consultant as a national litigation
support project consultant, as well as a merger and acquisition
consultant, to assist the Company in implementing its 1999 strategy and
plan. Specific projects will be identified as required. Exhibit "A"
represents current consulting activities anticipated.
(b) The consulting activities will be provided solely by
Consultant. Consultant hereby accepts this engagement upon the terms
and conditions herein contained and agrees to devote approximately
(forty (40) hours a week) to promote and further the business and
services of the Company.
2. Fees.
(a) Consultant shall charge a fee of $13,000 per month. Such fees
shall be payable in arrears by the fifth business day of the following
month.
(b) The Company shall reimburse Consultant for all ordinary and
necessary business expenses lawfully and reasonably incurred by
Consultant in the performance of its services. All reimbursable
expenses shall be appropriately documented in reasonable detail by
Consultant upon submission of any request for reimbursement.
1
<PAGE> 2
3. Term; Termination; Rights of Termination. The term of this Agreement
shall begin on the date of this Agreement and continue until either
party terminates. Either party may terminate at any time with ninety
(90) days notice. Consultant shall accept $39,000 in lieu of ninety
(90) days notice from the Company. If the Consultant terminates without
giving ninety (90) days notice, the Company shall pay Consultant an
amount equal to or less than $39,000 at the Company's sole discretion.
4. Taxes. It is mutually understood and agreed that in the performance
of its services under this Agreement, Consultant is at all times
performing its services as an independent contractor, and acknowledges
that it is responsible for payment of its federal income tax,
employment taxes and social security taxes for its employees. Further,
Consultant will comply with all taxing authorities, regulations and
laws, whether federal or state. Consultant shall not take any actions
or make any representations to any person that would suggest that any
other relationship exists between the Company and Consultant other than
that Consultant is an independent contractor. Consultant shall have no
right or authority to assume or create any obligations on behalf of the
Company, express or imply, nor shall Consultant represent to any person
that has such authority or that serves the Company in any capacity
other than as an outside Consultant. In addition, the Company shall not
be liable for any injuries suffered by Consultant while Consultant is
consulting for the Company.
5. Nondisclosure and Nonuse of Confidential Information. Except as
required by the nature of Consultant's duties or with the prior written
approval of an authorized officer of the Company, Consultant will not
during the term of this Agreement or thereafter for three (3) years,
use or disclose any confidential information of the Company or its
subsidiaries, any of its customers or any potential acquisition
candidate, including without limitation customer lists, market
research, strategic plans or other information or discoveries,
inventions, improvements, know-how, methods or other trade secrets,
whether developed by Consultant or others. Consultant will comply with
the Company's policies and procedures for the protection of
confidential information.
6. Use and Return of Documents. Consultant will not disclose any
documents, record, tapes and other media that contain confidential
information and will not copy any such material or remove it from the
Company's offices except as approved by an authorized officer of the
Company. Upon termination of this Agreement, Consultant will return to
the Company all copies of documents, records, tapes, and other media
that contain confidential information.
7. [INTENTIONALLY LEFT BLANK].
2
<PAGE> 3
8. Remedies. Consultant acknowledges that in the event of a violation
by it of this Agreement the harm to the Company could be irreparable.
Consultant agrees that, in addition to any other remedies provided by
law, the Company will be entitled to obtain injunctive relief against
any such violation without having to post a bond.
9. Complete Agreement. There are 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
Consultant and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This written Agreement may
not be later modified except by a further writing signed by the Company
and Consultant, and no term of this Agreement may be waived except by
writing signed by the party waiving the benefit of such terms.
10. No Waiver. No waiver by the parties hereto of any default or breach
of any term, condition or covenant of this Agreement shall be deemed to
be a waiver of any subsequent default or breach of the same or any
other term, condition or covenant contained herein.
11. Notices. 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, TX 75204
Attention: Margot Lebenberg
Senior Vice President and
General Counsel
To Consultant: Gregory R. Melanson
32 Cove Road
Belvedere, CA 94920
Notice shall be deemed given and effective five (5) days after the
deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying
the other party of such change in accordance with this paragraph 11.
3
<PAGE> 4
12. 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 the way to describe, interpret,
defined or limit the extent or intent of this Agreement or of any part
hereof.
13. Governing Law; Place of Performance. This Agreement shall in all
respects be construed according to the laws of the State of Texas.
[Balance of sheet intentionally left blank]
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to
be executed as of the date first above written.
F.Y.I. INCORPORATED
By: /s/ Ed H. Bowman, Jr.
----------------------
Ed H. Bowman, Jr.
CONSULTANT
/s/ Gregory R. Melanson
- -----------------------
Gregory R. Melanson
5
<PAGE> 1
EXHIBIT 10.47
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
JONATHAN B. SHAW
This Amended and Restated Employment Agreement (the "Agreement") by and between
F.Y.I. Incorporated, a Delaware corporation ("FYI" or the "Company") and
Jonathan B. Shaw ("Employee") is hereby entered into and effective as of the
date of January 26, 1999. This Agreement hereby supersedes any other employment
agreements or understandings; written or oral, between the Imagent Acquisition
Corp., FYI and Employee.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
business of providing document management and information management services.
Employee is employed hereunder by the Company in a confidential relationship
wherein Employee, in the course of his employment with the Company, has and will
continue to become familiar with and aware of information as to the Company's
customers, specific manner of doing business, including the processes,
techniques and trade secrets utilized by the Company, and future plans with
respect thereto, all of which has been and will be established and maintained at
great expense to the Company; this information is a trade secret and constitutes
the valuable goodwill of the Company.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. Employment and Duties.
(a) The Company hereby employs Employee as Business Segment Manager
and officer of several subsidiaries. As such, Employee shall have
responsibilities, duties and authority reasonably accorded to and expected of a
Business Segment Manager and officer of several subsidiaries. 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.
<PAGE> 2
(b) Employee shall not, during the term of his employment hereunder,
be engaged in any other business activity pursued for gain, profit or other
pecuniary advantage except to the extent that such activity (i) does not
interfere with Employee's duties and responsibilities hereunder and (ii) does
not violate paragraph 3 hereof. The foregoing limitations shall not be construed
as prohibiting Employee from 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 nor violate the
terms of paragraph 3 hereof.
2. Compensation. For all services rendered by Employee, the Company
shall compensate Employee as follows:
(a) Base Salary. The base salary payable to Employee shall be $165,000
per year, payable on a regular basis in accordance with the Company's standard
payroll procedures but not less than monthly. On at least an annual basis, the
Board will review Employee's performance and may make increases to such base
salary if, in its discretion, any such increase is warranted. Such recommended
increase would, in all likelihood, require approval by the Board or a duly
constituted committee thereof.
(b) Incentive Bonus Plan. For 1999 and subsequent years, it is the
Company's intent to develop a written Incentive Bonus Plan setting forth the
criteria under which Employee will be eligible to receive year-end bonus awards.
Employee is eligible to participate in the Bonus Plan up to 50% of base pay.
(c) Executive Perquisites, Benefits and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and his
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in
effect from time to time, with benefits provided to Employee under this
clause (1) to be at least equal to such benefits provided to FYI
executives.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of his services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(iii) Four (4) weeks paid vacation for each year during the
period of employment or such greater amount as may be afforded officers
and key employees generally under the Company's policies in effect from
time to time (pro rated for any year in which Employee is employed for
less than the full year).
-2-
<PAGE> 3
(iv) The Company shall provide Employee a $500 per month car
allowance (determined on a pre-tax basis).
(v) The Company shall reimburse Employee up to $200 per month
for club dues actually incurred by Employee, provided that such club is
used at least 50 percent of the time for business purposes.
(vi) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board and participation in all other Company-wide employee
benefits as available from time to time, which may include
participation in FYI's 1995 Long-Term Incentive Compensation Plan.
3. Non-Competition Agreement.
(a) Subject to Section 3(c), Employee will not, during the period of
his employment by or with the Company, and for a period of two (2) years
immediately following the termination of his employment under this Agreement,
for any reason whatsoever, directly or indirectly, for himself or on behalf of
or in conjunction with any other person, persons, company, partnership,
corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with the Company, within 100 miles of (i) the
principal executive offices of the Company or (ii) any place to which
the Company provides products or services or in which the Company is in
the process of initiating business operations during the term of this
covenant (collectively, the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
the Company (including the respective subsidiaries thereof), provided
that Employee shall be permitted to call upon and hire any member of
his or her immediate family;
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of the Company (including the respective subsidiaries thereof) within
the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company within the Territory;
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was either called upon by the
-3-
<PAGE> 4
Company (including the respective subsidiaries thereof) or for which
the Company made an acquisition analysis, for the purpose of acquiring
such entity, provided that the Employee shall not be charged with
violating this section unless and until the Employee shall have
knowledge or notice that such prospective acquisition candidate was
called upon, or that an acquisition analysis was made for the purpose
of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the Company (or the respective Subsidiaries thereof) to any person,
firm, partnership, corporation or business for any reason or purpose
whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than three percent
(3%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Company for which
they would have no other adequate remedy, Employee agrees that the foregoing
covenant may be enforced by the Company in the event of breach by him by
injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company on the date of the execution of this Agreement and
the current plans of FYI; but it is also the intent of the Company and Employee
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of the Company throughout the term of this
covenant, whether before or after the date of termination of the employment of
Employee, subject to the following paragraph. For example, if, during the term
of this Agreement, the Company engages in new and different activities, enters a
new business or established new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefore, then Employee
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 100 miles of its then-established operating
location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event
that Employee shall cease to be employed hereunder, and shall enter into a
business or pursue other activities not in competition with the Company, or
similar activities or business in locations the operation of which, under such
circumstances, does not violate clause (i) of this paragraph 3, and in any event
such new business, activities or location are not in violation of this paragraph
3 or of Employee's obligations under this paragraph 3, if any, Employee shall
not be chargeable with
-4-
<PAGE> 5
a violation of this paragraph 3 if the Company shall thereafter enter the same,
similar or a competitive (i) business, (ii) course of activities or (iii)
location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is specifically
agreed that the period of two (2) years stated at the beginning of this
paragraph 3, during which the agreements and covenants of Employee made in this
paragraph 3 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 3.
4. [Intentionally left blank.]
5. Term; Termination; Rights on Termination. The term of this
Agreement shall begin on the date hereof and continue for one (1) year (the
"Initial Term"). This Agreement and Employee's employment may be terminated in
any one of the followings ways:
(a) Death. The death of Employee shall immediately terminate
the Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical
or mental illness or injury, Employee shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before
or after the end of such four (4) month period, but which shall not be
effective earlier than the last day of such four (4) month period), the
Company may terminate Employee's employment hereunder provided Employee
is unable to resume his full-time duties at the conclusion of such
notice period. Also, Employee may terminate his employment hereunder if
his health should become impaired to an extent that makes the continued
performance of his duties hereunder hazardous to his physical or mental
health or his life, provided that Employee shall have furnished the
Company with a written statement from a qualified doctor to such effect
and provided, further, that, at the Company's request made within
thirty (30) days of the date of such written statement, Employee shall
submit to an examination by a doctor selected by the Company who is
reasonably acceptable to Employee or Employee's doctor and such doctor
shall have concurred in the conclusion of Employee's doctor. In the
event this
-5-
<PAGE> 6
Agreement is terminated as a result of Employee's disability, Employee
shall receive from the Company, in a lump-sum payment due within ten
(10) days of the effective date of termination, the base salary at the
rate then in effect for whatever time period is remaining under the
Initial Term of this Agreement or for one (1) year, whichever amount is
greater.
(c) Good Cause. The Company may terminate the Agreement ten
(10) days after written notice to Employee for good cause, which shall
be: (1) Employee's material and irreparable breach of this Agreement;
(2) Employee's gross negligence in the performance or intentional
nonperformance (continuing for ten (10) days after receipt of the
written notice) of any of Employee's material duties and
responsibilities hereunder; (3) Employee's dishonesty, fraud or
misconduct with respect to the business or affairs of the Company which
materially and adversely affects the operations or reputation of the
Company; (4) Employee's conviction of a felony crime; or (5) chronic
alcohol abuse or illegal drug abuse by Employee. In the event of a
termination for good cause, as enumerated above, Employee shall have no
right to any severance compensation.
(d) Without Cause. At any time after the commencement of
employment, the Company may, without cause, terminate this Agreement
and Employee's employment, effective thirty (30) days after written
notice is provided to the Employee. Employee may only be terminated
without cause by the Company during the Initial Term hereof if such
termination is approved by at least sixty-six percent (66%) of the
members of the Board of Directors of FYI. 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 Initial Term of this Agreement or for one (1) year, whichever
amount is greater. Further, in the event any termination by the
Employee for Good Reason, the period set forth in paragraph 3(a) during
which the terms of paragraph 3 apply shall be reduced to one (1) year
from the date of termination of employment.
(e) Change in Control of FYI. Refer to paragraph 12 below.
(f) Termination by Employee for Good Reason. The Employee may
terminate his employment hereunder for "Good Reason." As used herein,
"Good Reason" shall mean the continuance of any of the following after
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) the assignment to Employee of any duties
materially and adversely inconsistent with the Employee's
position as specified in paragraph 1 hereof (or such other
position to which he may be promoted), including status,
-6-
<PAGE> 7
offices, responsibilities or persons to whom the Employee
reports as contemplated under paragraph 1 of this Agreement,
or any other action by the Company which results in a material
and adverse change in such position, status, offices, titles
or responsibilities;
(ii) Employee's removal from, or failure to be reappointed
or reelected to, Employee's position under this Agreement, except
as contemplated by paragraphs 5(a), (b), (c) and (e); or
(iii) any other material breach of this Agreement by
the Company, including the failure to pay Employee on a timely
basis the amounts to which 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 Initial Term of this Agreement
or for one (1) year, whichever amount is greater. Further, in the event any
termination by the Employee for Good Reason, the period set forth in paragraph
3(a) during which the terms of paragraph 3 apply shall be reduced to one (1)
year from the date of termination of employment.
(g) Termination by Employee Without Cause. If Employee resigns
or otherwise terminates his employment without Good Reason pursuant to
paragraph 5(f), Employee shall receive no severance compensation.
Upon termination of this Agreement for any reason provided in clauses (a)
through (g) above, Employee shall be entitled to receive all compensation earned
and all benefits 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, the Company
and Employee under this Agreement shall cease as of the effective date of
termination, except that the Company's obligations under paragraph 9 herein and
Employee's obligations under paragraphs 3, 6, 7, 8 and 10 herein shall survive
such termination in accordance with their terms.
6. Return of Company Property. All records, designs, patents,
business plans, financial statements, manuals, memoranda, lists and other
property delivered to or compiled by Employee by or on behalf of the Company,
their representatives, vendors or customers which
-7-
<PAGE> 8
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 correspondence, reports, records, charts, advertising
materials and other similar data pertaining to the business, activities or
future plans of the Company which is collected by Employee shall be delivered
promptly to the Company without request by it upon termination of Employee's
employment.
7. Inventions. Employee shall disclose promptly to the Company any
and all significant conceptions and ideas for inventions, improvements and
valuable discoveries, whether patentable or not, which are conceived or made by
Employee, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Employee conceives as a result of his
employment by the Company. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
8. Trade Secrets. Employee agrees that he will not, during or after
the term of this Agreement with the Company, disclose the specific terms of the
Company's relationships or agreements with 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.
9. Indemnification. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement, 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 to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to the Company for errors or omissions made in
good faith where Employee has not exhibited gross, willful and wanton negligence
and misconduct or performed criminal and fraudulent acts which materially damage
the business of the Company.
10. No Prior Agreements. Employee hereby represents and warrants to
the Company that the execution of this Agreement by Employee and his employment
by the
-8-
<PAGE> 9
Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
11. Assignment; Binding Effect. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. Change in Control.
(a) Unless he elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder.
(b) In the event of a pending Change in Control wherein the Company
and Employee have not received written notice at least five (5) 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 triple the
amount calculated under the terms of paragraph 5(d) and the non-competition
provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation in which Employee has received
written notice from the successor to the Company that such successor is willing
to assume the Company's obligations hereunder, Employee may nonetheless, at his
sole discretion, elect to terminate this Agreement by providing written notice
to the Company at least five (5) business days prior to the anticipated closing
of the transaction giving rise to the Change in Control. In such case, the
applicable provisions of paragraph 5(d) will apply as though the Company had
terminated the Agreement without cause; however, under such circumstances, the
amount of the lump-sum severance payment due to Employee shall be 150% the
amount calculated under
-9-
<PAGE> 10
the terms of paragraph 5(d) and the non-competition provisions of paragraph 3
shall all apply for a period of one (1) year from the effective date of
termination.
(d) For purposes of applying paragraph 5 under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Employee must be paid in
full by the Company at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of his
vested options to purchase FYI Common Stock, including any options with
accelerated vesting under the provisions of FYI's 1995 Long-Term Incentive
Compensation Plan, such that he may convert the options to shares of FYI Common
Stock at or prior to the closing of the transaction giving rise to the Change in
Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the FYI or an employee benefit plan
of FYI, 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
FYI's registration statement with respect to its initial public
offering, constitute the Board of Directors of FYI (the "Original
Directors") or (B) who thereafter are elected to the Board of Directors
of FYI and whose election, or nomination for election, to the Board of
Directors of FYI 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 FYI and whose
election, or nomination for election, to the Board of Directors of FYI
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 FYI;
(iii) the stockholders of FYI shall approve a merger,
consolidation, recapitalization, or reorganization of FYI, 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 FYI immediately prior to the
-10-
<PAGE> 11
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 FYI shall approve a plan of complete
liquidation of FYI or an agreement for the sale or disposition by FYI
of all or a substantial portion of FYI's assets (i.e., 50% or more of
the total assets of FYI).
(f) Employee shall be reimbursed by the Company or its successor for
any excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, 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 and detailed
supporting calculations of an accounting firm selected by Employee used to
determine such excise tax. If the Company's accounting firm shall disagree with
such determination, the parties shall select an independent accounting firm to
make a final determination. The costs of such independent accounting firm shall
be shared equally by the parties.
13. Complete Agreement. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Employee and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of the Company
and Employee, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term.
14. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To FYI: Locke Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attention: Charles C. Reeder, Esq.
With a copy to: F.Y.I. Incorporated
3232 McKinney Avenue, Suite 900
Dallas, Texas 75204-7418
-11-
<PAGE> 12
Attention: Margot T. Lebenberg
Senior Vice President and
General Counsel
To Employee: Jonathan B. Shaw
25 Evan Way
Pikesville, MD 21208
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
15. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
16. Arbitration. Any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three (3) arbitrators in Dallas, Texas,
in accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall not have the authority to add to, detract from, or
modify any provision hereof nor to award punitive damages to any injured party.
The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs, including those incurred to enforce this
Agreement, and interest thereon in the event the arbitrators determine that
Employee was terminated without disability or good cause, as defined in
paragraphs 5(b) and 5(c), respectively, or that the Company has otherwise
materially breached this Agreement. A decision by a majority of the arbitration
panel shall be final and binding. Judgment may be entered on the arbitrators'
award in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by the Company.
17. [Intentionally left blank.]
18. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
19. Counterparts. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EMPLOYEE:
/s/ Jonathan B. Shaw
-----------------------------------
Jonathan B. Shaw
F.Y.I. INCORPORATED
By: /s/ Ed H. Bowman, Jr.
-------------------------------
Title: President and CEO
<PAGE> 1
EXHIBIT 10.48
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the
"Amendment") is entered into to be effective as of August 3, 1998, by and among
F.Y.I. Incorporated, a Delaware corporation ("F.Y.I."), the Lenders (as such
term is defined in the Credit Agreement, as hereinafter defined) which are
parties hereto, Banque Paribas, a bank organized under the laws of France acting
through its Chicago Branch, as agent for itself and the other Lenders (the
"Agent"), and Bank of America Texas, N.A., as co-agent for itself and the other
Lenders ("Co-Agent").
RECITALS
A. F.Y.I., the Agent, Co-Agent and the Lenders entered into that
certain Amended and Restated Credit Agreement dated as of February 17, 1998 (the
"Credit Agreement"), pursuant to which, among other things, the Lenders agreed
to make certain loans available to F.Y.I. upon the terms and conditions set
forth therein;
B. F.Y.I., the Agent, Co-Agent and the Lenders desire to amend the
Credit Agreement in certain respects as more fully set out herein.
AGREEMENT
NOW, THEREFORE, for and in consideration of the premises and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, F.Y.I., the Lenders, and the Agent hereby agree as follows:
1. Terms. All terms used herein which begin with an initial capital
letter shall, unless otherwise expressly defined herein, have the same
definitions assigned to such terms in the Credit Agreement, as modified by this
Amendment.
2. Amendment to Commitment. Effective as of the date hereof, the
aggregate principal amount of the Commitments is increased from $50,000,000.00
to $65,000,000.00. The amount set forth opposite the name of each Lender on the
signature pages hereto under the heading "Commitment" shall represent the
obligation of such Lender as increased hereby.
3. Amendment to Definitions. Effective as of the date hereof, the
following definition of "EBITA" shall be added to Section 1.1 of the Credit
Agreement:
"EBITA" means, for any period, without duplication, the sum of the
following for F.Y.I. and its Subsidiaries (or other applicable Person)
for such period determined on a consolidated basis in accordance with
GAAP: (a) Consolidated Net Income, plus (b) Consolidated Interest
Expense, plus (c) income and franchise taxes to the extent deducted in
determining Consolidated Net Income plus (d) amortization expense and
other non-cash, non-tax items (other than depreciation) to the extent
deducted in determining Consolidated Net Income. For purposes of
calculating the
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT Page 1
29911:53160:DALLAS:167186.1
03/08/99
<PAGE> 2
EBITA of F.Y.I. and its consolidated Subsidiaries for any period of
four consecutive fiscal quarters, the EBITA associated with any Person
or assets acquired in a Permitted Acquisition during such period of
four consecutive fiscal quarters shall be added, without duplication,
if the Permitted Acquisition and the EBITA of the Person or assets
acquired were approved in writing by the Required Lenders.
4. Amendment to Consolidated Fixed Charge Coverage Ratio. Effective as
of the date hereof, the definition of "Consolidated Fixed Charge Coverage Ratio"
in Section 1.1 of the Credit Agreement is hereby amended and restated to read in
its entirety as follows:
"Consolidated Fixed Charge Coverage Ratio" means, for any
period, the ratio of (a)(i) EBITA of F.Y.I. and its Subsidiaries for
such period minus (ii) taxes of F.Y.I. and its Subsidiaries paid or
payable in cash during such period, to (b) the Fixed Charges of F.Y.I.
and its Subsidiaries for such period.
5. Amendment to Permitted Acquisitions. Effective as of the date
hereof, the definition of "Permitted Acquisitions" in Section 1.1 of the Credit
Agreement is hereby amended and restated to read in its entirety as follows:
"Permitted Acquisition" means any Acquisition which has been
approved in writing by the Agent and the Required Lenders or any other
Acquisition which satisfies each of the following requirements: (a) the acquiror
(or surviving corporation if the acquisition is by means of a merger) is F.Y.I.
or any Subsidiary of F.Y.I., (b) the assets to be acquired in connection with
such Acquisition are assets that are to be used in the existing businesses of
the acquiror as such business is presently conducted, (c) such Acquisition has
been approved by the Board of Directors of the acquired entity, (d) the acquired
entity shall have generated positive EBITDA during the twelve-month period
preceding the Acquisition, which positive EBITDA shall be audited or reviewed by
an accounting firm acceptable to the Agent if (but only if) the Acquisition
involves total consideration paid or payable of $10,000,000 or more, after
adjusting for excess owners' compensation and other pro forma charges as
validated by the Agent, (e) after giving effect to such Acquisition and any Debt
incurred in connection therewith, Total Debt does not exceed 2.5 times EBITDA
for the four fiscal quarters most recently completed of F.Y.I. and its
Subsidiaries (and including the acquired entity's trailing twelve-month EBITDA
as adjusted for any interest not acquired, if audited or reviewed by an
accounting firm acceptable to the Agent) (EBITDA may include proforma
adjustments to an acquired entity's earnings, as adjusted for any interest not
acquired, acceptable to the Agent), (f) such Acquisition shall not exceed
$20,000,000 in total consideration (including any Debt assumed or guaranteed in
connection therewith), without Required Lenders' approval, (g) the aggregate
amount of all such Acquisitions made on or after the Closing Date shall not
exceed $25,000,000, in total consideration (including any Debt assumed or
guaranteed in connection therewith) in any twelve-month period without Required
Lenders' approval; provided, however, for purposes hereof, the amount of such
consideration relating to the acquisition of DeBari Associates Acquisition Corp.
and the acquisition of Associate Record Technician Services Acquisition Corp.
shall not be included in such aggregate amount of $25,000,000, (h) prior to and
after giving effect to the Acquisition, no Default shall exist, (i) after giving
effect to such Acquisition, F.Y.I. will not violate any financial covenant, and
(j) no material part of the Property or business operations to be
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT Page 2
29911:53160:DALLAS:167186.1
03/08/99
<PAGE> 3
acquired are located outside the U.S. or Canada; provided, however, that up to
$7,000,000 (valued at total purchase consideration including any Debt assumed or
guaranteed in connection therewith) in Acquisitions made on or after the Closing
Date and during the term of this Agreement will be deemed to be Permitted
Acquisitions despite their failure to meet the requirements of items (d) and (j)
preceding so long as no such acquired entity or entities shall have annual sales
(individually for any one such acquired entity or in the aggregate for all such
acquired entities) in excess of $10,000,000 or cumulative EBITDA losses
(individually for any one such acquired entity or in the aggregate for all such
acquired entities) in excess of $1,500,000 incurred, in each case during the
twelve-month period preceding the respective dates of acquisition.
6. Amendment to Section 10.3. Effective as of the date hereof, Section
10.3 of the Credit Agreement is hereby amended and restated to read in its
entirety as follows:
Section 10.3 Consolidated Fixed Charge Coverage Ratio. F.Y.I. will not
permit the Consolidated Fixed Charge Coverage Ratio, calculated as of
the end of each fiscal quarter of F.Y.I. for the four fiscal quarters
of F.Y.I. then ended, (i) commencing with the fiscal quarter ended
December 31, 1997 and ending with the fiscal quarter ending March 31,
1998 to be less than 1.50 to 1.00 and (ii) commencing with the fiscal
quarter ended June 30, 1998, and as of the last day of each fiscal
quarter thereafter, to be less than 1.20 to 1.00.
7. Representations and Warranties. The representations and warranties
made by F.Y.I. in the Loan Documents, as the same are amended hereby, are true
and correct at the time this Amendment is executed and delivered, except to the
extent that such representations and warranties are expressly by their terms
made only as of the Closing Date or another specified date. F.Y.I. further
represents and warrants to Agent and Lenders that (i) the execution, delivery
and performance of this Amendment and any and all other Loan Documents executed
and/or delivered in connection herewith have been authorized by all requisite
corporate action on the part of F.Y.I. and will not violate the articles of
incorporation or bylaws of F.Y.I., (ii) no Event of Default has occurred and is
continuing and no event or condition has occurred that with the giving of notice
or lapse of time or both would be an Event of Default, and (iii) F.Y.I. is in
full compliance with all covenants and agreements contained in the Credit
Agreement as amended hereby.
8. Costs. F.Y.I. agrees to pay all costs incurred in connection with
the negotiation, preparation, execution and consummation of this Amendment and
the transactions preceding and contemplated by this Amendment including, without
limitation, the fees and expenses of counsel to the Agent and the Lenders.
9. Miscellaneous.
(a) Headings. Section headings are for reference only, and
shall not affect the interpretation or meaning of any provision of this
Amendment.
(b) No Waiver. No failure on the part of the Agent or the
Lenders to exercise, and no delay in exercising, and no course of
dealing with respect to, any right, power, or
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT Page 3
29911:53160:DALLAS:167186.1
03/08/99
<PAGE> 4
privilege under the Loan Documents shall operate as a waiver thereof,
and no single or partial exercise of any right, power, or privilege
under the Loan Documents shall preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege.
(c) Effect of this Amendment. The Credit Agreement, as amended
by this Amendment, shall remain in full force and effect except that
any reference therein, or in any other Loan Document, referring to the
Credit Agreement, shall be deemed to refer to the Credit Agreement, as
amended by this Amendment.
(d) Governing Law. EXCEPT TO THE EXTENT THAT THE CREDIT
AGREEMENT EXPRESSLY PROVIDES OTHERWISE, THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
TEXAS.
(e) Counterparts. This Amendment may be executed by the
different parties hereto on separate counterparts, each of which, when
so executed, shall be deemed an original, but all such counterparts
shall constitute but one and the same Amendment.
(f) NO ORAL AGREEMENTS. THE CREDIT AGREEMENT, AS AMENDED BY
THIS AMENDMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE
ENTIRE AGREEMENT AMONG THE PARTIES, AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective duly authorized officers as of the date first above
written.
F.Y.I.:
F.Y.I. INCORPORATED
By: /s/ David Lowenstein
---------------------------------------
David Lowenstein
Executive Vice President
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT Page 4
29911:53160:DALLAS:167186.1
03/08/99
<PAGE> 5
LENDERS:
BANQUE PARIBAS, as Agent and a Lender
Commitment:
$25,000,000.00
By: /s/ CLARK C. KING, III
-----------------------------------------
Name: Clark C. King, III
---------------------------------------
Title: Director
--------------------------------------
By: /s/ FRANCOIS DELANGLE
-----------------------------------------
Name: Francois Delangle
---------------------------------------
Title: Vice President
--------------------------------------
BANK OF AMERICA TEXAS, N.A., as Co-Agent
and a Lender
Commitment:
$25,000,000.00
By: /s/ CONNOR DUFFEY
-----------------------------------------
Name: Connor Duffey
---------------------------------------
Title: Vice President
--------------------------------------
BANK ONE, TEXAS, N.A.
Commitment:
$15,000,000.00
By: /s/ SCOTT RHEA
-----------------------------------------
Name: Scott Rhea
---------------------------------------
Title: Vice President
--------------------------------------
Each Loan Party (other than F.Y.I.) hereby consents and agrees to this
Amendment and agrees that the Guaranty and the Security Agreements (if any)
executed by such Loan Party shall remain in full force and effect and shall
continue to be the legal, valid and binding obligations of such Loan Party
enforceable against such Loan Party in accordance with its respective terms.
LOAN PARTIES:
IMAGENT ACQUISITION CORP.
RESEARCHERS ACQUISITION CORP.
RECORDEX ACQUISITION CORP.
DPAS ACQUISITION CORP.
LEONARD ARCHIVES ACQUISITION CORP.
DELIVEREX ACQUISITION CORP.
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT Page 5
29911:53160:DALLAS:167186.1
03/08/99
<PAGE> 6
PERMANENT RECORDS ACQUISITION CORP.
DELIVEREX SACRAMENTO ACQUISITION CORP.
B&B (BALTIMORE-WASHINGTON) ACQUISITION CORP.
PREMIER ACQUISITION CORP.
ROBERT A. COOK ACQUISITION CORP.
PENINSULA RECORD MANAGEMENT, INC.
RAC (CALIFORNIA) ACQUISITION CORP.
CALIFORNIA MEDICAL RECORD SERVICE
ACQUISITION CORP.
MINNESOTA MEDICAL RECORD SERVICE
ACQUISITION CORP.
TEXAS MEDICAL RECORD SERVICE
ACQUISITION CORP.
ZIA INFORMATION ANALYSIS GROUP, INC.
CH ACQUISITION CORP.
DISC ACQUISITION CORP.
ACADIAN CONSULTANTS CORP.
ACT MEDICAL RECORD SERVICES, INC.
APS SERVICES ACQUISITION CORP.
COMPUTER CENTRAL CORPORATION
DELAWARE MAJOR ACQUISITION CORP.
INFORMATION MANAGEMENT ACQUISITION CORP.
INPUT OF TEXAS, INC.
MAVRICC MANAGEMENT SYSTEMS, INC.
MMS ESCROW AND TRANSFER AGENCY, INC.
QCS INET ACQUISITION CORP.
QUALITY COPY ACQUISITION CORP.
THE RUST CONSULTING GROUP, INC.
ZIP SHRED CANADA ACQUISITION CORP.
ASSOCIATE RECORD TECHNICIAN SERVICES
ACQUISITION CORP.
DEBARI ASSOCIATES ACQUISITION CORP.
LIFO SYSTEMS, INC.
MEDICOPY ACQUISITION CORP.
MSS SECURITIES, INC.
ZIPSHRED, INC.
MICRO PUBLICATION SYSTEMS, INC.
By: /s/ DAVID LOWENSTEIN
-----------------------------------------
David Lowenstein, authorized officer acting on
behalf of each of the Loan Parties listed above
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT Page 6
29911:53160:DALLAS:167186.1
03/08/99
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
<TABLE>
<S> <C>
Acadian Consultants Corp. Information Management Acquisition Corp.
Advanced Digital Graphics, Inc. Input Management, Inc.
ACT Medical Record Services, Inc. Input of Texas, L.P.
APS Services Acquisition Corp. Leonard Archives Acquisition Corp.
Associate Record Technician Services Acquisition Corp. Lifo Systems, L.P.
B&B (Baltimore-Washington) Acquisition Corp. Lifo Systems Management, Inc.
California Medical Record Service Acquisition Corp. MAVRICC Management Systems, Inc.
CH Acquisition Corp. Medicopy Acquisition Corp.
Copyright Acquisition Corp. Microfilm Distribution Services, Inc.
Creative Mailings, Inc. Microfilm Systems Acquisition Corp.
DeBari Associates Acquisition Corp. Micro Publication Systems, Inc.
Delaware Major Acquisition Corp. Minnesota Medical Record Service Acquisition Corp.
Deliverex Acquisition Corp. MMS Escrow and Transfer Agency, Inc.
Deliverex Sacramento Acquisition Corp. Northern Minnesota Medical Record Service Acquisition Corp.
DISC Acquisition Corp. Permanent Records L.P.
Doctex Acquisition Corp. Permanent Records Management, Inc.
DPAS Acquisition Corp. Premier Acquisition Corp.
Eagle Legal Services Acquisition Corp. QCS Inet Acquisition Corp.
Economic Research Services, Inc. Quality Copy Acquisition Corp.
F.Y.I. Corporate Acquisition Corp. RAC (California) Acquisition Corp.
F.Y.I. Direct Inc. Recordex Acquisition Corp.
F.Y.I. Image Inc. Researchers Acquisition Corp.
F.Y.I. Input Inc. Robert A. Cook Acquisition Corp.
F.Y.I. Integration Solutions Inc. The Rust Consulting Group, Inc.
F.Y.I. Investments, Inc. T.C.H. Group, Inc.
F.Y.I. Print Inc. TCH Mailhouse, Inc.
F.Y.I. Records Inc. ZIA Information Analysis Group, Inc.
F.Y.I. Storage Inc. Zip Shred Canada Acquisition Corp.
Imagent Acquisition Corp.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 333-05493, 333-24015, 333-26785, 333-69811 and
333-69813.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 14,592
<SECURITIES> 0
<RECEIVABLES> 51,683
<ALLOWANCES> (4,705)
<INVENTORY> 2,408
<CURRENT-ASSETS> 72,241
<PP&E> 57,118
<DEPRECIATION> (27,746)
<TOTAL-ASSETS> 206,970
<CURRENT-LIABILITIES> 34,448
<BONDS> 32,756
0
0
<COMMON> 140
<OTHER-SE> 138,595
<TOTAL-LIABILITY-AND-EQUITY> 206,970
<SALES> 9,200
<TOTAL-REVENUES> 248,412
<CGS> 6,720
<TOTAL-COSTS> 211,064
<OTHER-EXPENSES> (478)
<LOSS-PROVISION> 1,294
<INTEREST-EXPENSE> 1,468
<INCOME-PRETAX> 30,018
<INCOME-TAX> 10,987
<INCOME-CONTINUING> 19,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,031
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.39
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998 JAN-01-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998 SEP-30-1998
<CASH> 10,686 7,510 11,135
<SECURITIES> 0 0 0
<RECEIVABLES> 42,110 44,862 51,189
<ALLOWANCES> (3,525) (4,046) (4,128)
<INVENTORY> 1,399 1,363 1,370
<CURRENT-ASSETS> 57,279 56,504 66,956
<PP&E> 47,121 51,280 53,959
<DEPRECIATION> (21,994) (22,956) (24,444)
<TOTAL-ASSETS> 173,149 178,502 192,279
<CURRENT-LIABILITIES> 31,669 27,155 32,506
<BONDS> 19,440 23,319 25,375
0 0 0
0 0 0
<COMMON> 133 134 135
<OTHER-SE> 120,274 126,916 133,226
<TOTAL-LIABILITY-AND-EQUITY> 173,149 178,502 192,279
<SALES> 1,766 3,550 5,471
<TOTAL-REVENUES> 56,766 118,073 181,571
<CGS> 1,341 2,657 4,128
<TOTAL-COSTS> 48,179 99,611 152,482
<OTHER-EXPENSES> (65) (174) (306)
<LOSS-PROVISION> 186 653 1,093
<INTEREST-EXPENSE> 197 563 986
<INCOME-PRETAX> 6,487 13,952 21,982
<INCOME-TAX> 2,392 4,989 7,772
<INCOME-CONTINUING> 4,095 8,963 14,210
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 4,095 8,963 14,210
<EPS-PRIMARY> 0.31 0.67 1.06
<EPS-DILUTED> 0.30 0.66 1.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997
<CASH> 18,586 12,787 11,943 10,982
<SECURITIES> 984 0 0 0
<RECEIVABLES> 27,286 30,683 35,057 35,477
<ALLOWANCES> (1,871) (1,740) (2,516) (3,356)
<INVENTORY> 1,190 1,473 1,493 1,675
<CURRENT-ASSETS> 49,486 46,509 50,628 50,644
<PP&E> 31,625 33,927 39,440 41,521
<DEPRECIATION> (15,119) (16,554) (19,532) (19,354)
<TOTAL-ASSETS> 117,390 118,646 128,239 139,106
<CURRENT-LIABILITIES> 23,369 20,008 22,824 24,002
<BONDS> 6,468 5,617 5,712 6,796
0 0 0 0
0 0 0 0
<COMMON> 115 117 119 125
<OTHER-SE> 88,326 93,073 99,800 107,439
<TOTAL-LIABILITY-AND-EQUITY> 117,390 118,646 128,239 139,106
<SALES> 1,765 3,590 5,878 7,845
<TOTAL-REVENUES> 39,417 80,484 127,086 177,272
<CGS> 1,351 2,773 4,527 5,949
<TOTAL-COSTS> 33,373 68,013 108,654 151,161
<OTHER-EXPENSES> (276) (460) (593) (743)
<LOSS-PROVISION> 24 142 438 601
<INTEREST-EXPENSE> 211 417 590 1,919
<INCOME-PRETAX> 4,900 10,016 14,565 19,370
<INCOME-TAX> 1,569 3,355 4,869 6,507
<INCOME-CONTINUING> 3,331 6,661 9,696 12,863
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 3,331 6,661 9,696 12,863
<EPS-PRIMARY> 0.28 0.57 0.82 1.07
<EPS-DILUTED> 0.28 0.56 0.80 1.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,554
<SECURITIES> 984
<RECEIVABLES> 23,288
<ALLOWANCES> (1,531)
<INVENTORY> 551
<CURRENT-ASSETS> 51,337
<PP&E> 28,923
<DEPRECIATION> (13,852)
<TOTAL-ASSETS> 113,148
<CURRENT-LIABILITIES> 24,594
<BONDS> 5,794
0
0
<COMMON> 113
<OTHER-SE> 83,141
<TOTAL-LIABILITY-AND-EQUITY> 113,148
<SALES> 6,345
<TOTAL-REVENUES> 106,625
<CGS> 4,898
<TOTAL-COSTS> 94,856
<OTHER-EXPENSES> (539)
<LOSS-PROVISION> 253
<INTEREST-EXPENSE> 1,211
<INCOME-PRETAX> 8,322
<INCOME-TAX> 2,980
<INCOME-CONTINUING> 5,342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,342
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.62
</TABLE>
