-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BGmKDmxRmitCHSZBCaMnzEJ0+OdcaOngqKeCR1jy1Dwz21V+HXTDWm3WrzkbDGVF cXQMpLgCMrO30JZxotjp6Q== 0000950134-96-004087.txt : 19960813 0000950134-96-004087.hdr.sgml : 19960813 ACCESSION NUMBER: 0000950134-96-004087 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FYI INC CENTRAL INDEX KEY: 0000936931 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 752560895 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27444 FILM NUMBER: 96608493 BUSINESS ADDRESS: STREET 1: 3232 MCKINNEY AVE STREET 2: STE 900 CITY: DALLAS STATE: TX ZIP: 75204 BUSINESS PHONE: 2149537555 MAIL ADDRESS: STREET 1: 3232 MCKINNEY AVE STREET 2: STE 900 CITY: DALLAS STATE: TX ZIP: 75204 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1996 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 for the quarterly period ended June 30, 1996 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 for the transition period from ____________ to ____________ Commission file number 0-27444 F.Y.I. INCORPORATED ------------------- (Exact name of registrant as specified in its charter) Delaware 75-2560895 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3232 McKinney Avenue, Suite 900, Dallas, Texas 75204 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (214) 953-7555 2911 Turtle Creek Boulevard, Suite 300, Dallas Texas 75219 (Former address) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- As of July 31, 1996, 5,523,147 shares of the registrant's Common Stock, $.01 par value per share, were outstanding. 1 2 F.Y.I. INCORPORATED AND SUBSIDIARIES FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996 INDEX
PART I. FINANCIAL INFORMATION --------------------- Item 1 Financial Statements 3 Consolidated Balance Sheets - December 31, 1995 and June 30, 1996 4 (unaudited) Consolidated Statements of Operations - Three months and six months ended June 30, 1995 and 1996 (unaudited) 5 Consolidated Statements of Cash Flows - Six months ended June 30, 1995 and 1996 (unaudited) 6 Notes to Consolidated Financial Statements - June 30, 1996 (unaudited) 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II. OTHER INFORMATION ----------------- Item 5 Other Information 18 Item 6 Exhibits and Reports on Form 8-K 18 SIGNATURES 20
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 3 4 F.Y.I. Incorporated and Subsidiaries Consolidated Balance Sheets (In thousands, except share data)
December 31, June 30, 1995 1996 ------------ ----------- ASSETS (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 52 $ 2,521 Accounts receivable and notes receivable, less allowance - 12,107 Accounts receivable, officers and employees - 12 Inventory - 536 Prepaid expenses and other current assets 52 678 --------- -------- Total current assets 104 15,854 PROPERTY, PLANT AND EQUIPMENT, net 15 8,995 GOODWILL, DEFERRED OFFERING COSTS AND OTHER INTANGIBLES 2,190 18,516 ACCOUNTS RECEIVABLE, OFFICER - LONG TERM - 570 OTHER NONCURRENT ASSETS 6 1,760 --------- -------- Total assets $ 2,315 $ 45,695 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 1,101 $ 10,263 Short-term obligations - 1,049 Current maturities of long-term obligations - 282 --------- ------- Total current liabilities 1,101 11,594 LONG-TERM OBLIGATIONS, net of current maturities - 11,071 DEFERRED INCOME TAXES, net of current portion - 114 --------- -------- Total liabilities 1,101 22,779 --------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, Series A, $.01 par value, 1,000,000 and 0 shares authorized, 9,000 and 0 shares issued and outstanding at December 31, 1995 and June 30, 1996, respectively - - Preferred stock, $.01 par value, 1,000,000 shares authorized, 0 shares issued and outstanding - - Common stock, $.01 par value, 26,000,000 shares authorized, 663,125 and 5,522,867 shares issued and outstanding at December 31, 1995 and June 30, 1996, respectively 7 55 Additional paid-in-capital 1,207 21,488 Retained earnings - 1,373 --------- -------- Total stockholders' equity 1,214 22,916 --------- -------- Total liabilities and stockholders' equity $ 2,315 $ 45,695 ========= ========
The accompanying notes are an integral part of these financial statements. 4 5 F.Y.I. Incorporated and Subsidiaries Consolidated Statements of Operations (In thousands, except per share data) (unaudited) (see Note 1)
Three Months Six Months Ended Ended June 30, June 30, ---------------------------- --------------------------- 1995 1996 1995 1996 ------------ ----------- ----------- ----------- REVENUE: Service revenue $ - $ 14,307 $ - $ 21,714 Product revenue - 1,727 - 2,640 Other revenue - 204 - 297 ------------ ----------- ----------- ----------- Total revenue - 16,238 - 24,651 COST OF SERVICES - 8,929 - 13,630 COST OF PRODUCTS SOLD - 1,255 - 1,974 DEPRECIATION - 421 - 633 ------------ ----------- ----------- ----------- Gross profit - 5,633 - 8,414 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - 3,925 - 6,169 AMORTIZATION - 63 - 72 ------------ ----------- ----------- ----------- Operating income - 1,645 - 2,173 OTHER (INCOME) EXPENSE: Interest expense - 104 - 117 Interest income - (74) - (180) Other income, net - (21) - (60) ------------ ----------- ----------- ----------- Income before income taxes - 1,636 - 2,296 PROVISION FOR INCOME TAXES - 661 - 923 ------------ ----------- ----------- ----------- NET INCOME $ - $ 975 $ - $ 1,373 ============ =========== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - 5,454 - 5,335 ============ =========== =========== =========== NET INCOME PER COMMON SHARE $ - $ 0.18 $ - $ 0.26 ============ =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 5 6 F.Y.I. Incorporated and Subsidiaries Consolidated Statements of Cash Flows (In thousands) (unaudited) (see Note 1)
Six Months Ended -------------------------------- June 30, June 30, 1995 1996 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ - $ 1,373 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization - 705 Change in operating assets and liabilities: Accounts receivable - 104 Inventory - (20) Prepaid expenses and other assets - 100 Accounts payable and accrued liabilities - (578) --------- -------- Net cash provided by operating activities - 1,684 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (1) (1,078) Cash paid for acquisitions, net of cash received - (20,749) --------- -------- Net cash used for investing activities (1) (21,827) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from common stock issuance, net of underwriting discounts and other costs (280) 23,088 Proceeds from preferred stock issuance 135 - Proceeds from short-term obligations - 1,000 Proceeds from long-term obligations - 8,150 Cash paid for debt issuance costs - (1,487) Principal payments on short-term obligations - (1,857) Principal payments on long-term obligations - (6,282) --------- -------- Net cash (used in) provided by financing activities (145) 22,612 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (146) 2,469 CASH AND CASH EQUIVALENTS, beginning of period 669 52 --------- -------- CASH AND CASH EQUIVALENTS, end of period $ 523 $ 2,521 ========= ========
The accompanying notes are an integral part of these financial statements. 6 7 F.Y.I. Incorporated and Subsidiaries Notes to Consolidated Financial Statements (unaudited) 1. ORGANIZATION AND BASIS OF PRESENTATION: F.Y.I. Incorporated (the "Company" or "F.Y.I.") was founded in September 1994 to create a national, single-source provider of document management services to three primary client segments: healthcare institutions, professional services firms and financial institutions. In January 1996, F.Y.I. acquired (the "Acquisitions"), simultaneously with the closing of its initial public offering (the "Offering") on January 23, 1996, seven document management services businesses (the "Founding Companies"). The Founding Companies are headquartered in San Francisco (2), San Jose, Fort Worth, Detroit, Malvern (Philadelphia) and Baltimore, and operate in over 23 states. The consideration for the Founding Companies consisted of a combination of cash and common stock (the "Common Stock") of F.Y.I. Between September 1994 and the consummation of the Offering and the Acquisitions, F.Y.I. did not conduct any significant operations. For accounting purposes and for the purposes of the presentation of the financial statements herein, January 31, 1996 has been used as the effective date of the Acquisitions. Accordingly, the actual operating results of the Company included in the Statement of Operations for the six months ended June 30, 1996, represent the five months of operations subsequent to the consummation of the Acquisitions. Supplemental Statement of Operations Data for the six months ended June 30, 1996 is presented in Note 2 herein. In the opinion of F.Y.I.'s management, the accompanying consolidated financial statements include the accounts of the Company and all adjustments necessary to present fairly the Company's financial position at June 30, 1996, its results of operations for the three and six months ended June 30, 1995 and 1996, and its cash flows for the six months ended June 30, 1995 and 1996. All significant intercompany accounts have been eliminated. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). These consolidated financial statements should be read in conjunction with the combined financial statements of the Founding Companies and the related notes thereto in F.Y.I.'s Annual Report on Form 10-K filed with the Commission on April 10, 1996, as amended by F.Y.I.'s Annual Report on Form 10-K/A filed with the Commission on April 29, 1996, and the Company's Current Report on Form 8-K filed June 14, 1996, as amended by the Current Report on Form 8-K/A filed July 5, 1996. The results of operations for the interim periods ended June 30, 1996 and 1995, may not be indicative of the results for the full year. 7 8 2. INITIAL PUBLIC OFFERING OF COMMON STOCK AND THE ACQUISITIONS Initial Public Offering On January 26, 1996, the Company completed the Offering of 2,185,000 shares of Common Stock (including the exercise of the underwriters' over-allotment option) at $13.00 per share. Proceeds from the Offering, net of underwriter commissions and offering costs, were approximately $23.1 million. Of these net proceeds, approximately $7.1 million was used to pay a portion of the consideration for the Acquisitions, approximately $7.7 million was used to retire certain indebtedness of the Founding Companies, approximately $8.0 million was used for acquisitions subsequent to the Offering, and $0.3 million was used as working capital. Upon the closing of the Offering, the Company converted the 9,000 shares of Series A Preferred Stock then outstanding into 542,557 shares of Common Stock. Acquisitions of the Founding Companies Simultaneously with the closing of the Offering, the Company acquired the Founding Companies. The aggregate consideration paid by F.Y.I. to acquire the Founding Companies was approximately $35 million, consisting of: (i) $7,059,000 in cash; (ii) 1,878,933 shares of Common Stock; (iii) the assumption and repayment of approximately $191,000 of indebtedness owed by a Founding Company stockholder; and (iv) the distribution of cash and certain receivables to certain Founding Company stockholders of S corporations in the amount of $3,450,000, representing the undistributed retained earnings of S corporations, upon which taxes have been paid by the stockholders. The Acquisitions have been accounted for in accordance with generally accepted accounting principles ("GAAP") as a combination of F.Y.I. and the Founding Companies at historical cost, because: (i) the Founding Companies' stockholders transferred assets to F.Y.I. in exchange for Common Stock and cash simultaneously, with the Offering; (ii) the nature of future operations of the Company will be substantially identical to the combined operations of the Founding Companies; and (iii) no former stockholder group of any of the Founding Companies obtained a majority of the outstanding voting shares of the Company. Supplemental Data Statement of Operations - Supplemental Data The Statement of Operations Data for the six months ended June 30, 1995 represent the audited combined statement of operations of the Founding Companies for the period adjusted to give effect to: (i) compensation levels the officers and owners have agreed to receive subsequent to the Offering; and (ii) provision for income taxes as if all entities had been subject to federal and state income taxes for the period. The Supplemental Statement of Operations Data for the six months ended June 30, 1996 represent a combination of: (i) the unaudited results of the combined Founding Companies for the one month of operations prior to the consummation of the Acquisitions; and (ii) the unaudited results of F.Y.I. Incorporated and Subsidiaries for the five 8 9 months subsequent to the consummation of the Acquisitions (which includes acquisitions subsequent to the Offering from the date of their respective acquisition). The Supplemental Data are provided for information purposes only and do not purport to present the results of operations of the Company had the transactions assumed therein occurred on or as of the dates indicated, nor are they necessarily indicative of the results of operations which may be achieved in the future.
Supplemental Data Six Months Six Months Ended Ended June 30, June 30, 1995 1996 ----------------- ----------------- (In thousands, except per share data) STATEMENT OF OPERATIONS DATA: Service revenue $20,207 $ 25,201 Product revenue 3,187 3,035 Other revenue 435 331 ------- --------- Total revenue 23,829 28,567 Cost of services 12,729 15,826 Cost of products sold 2,604 2,281 Depreciation 584 723 ------- --------- Gross profit 7,912 9,737 Selling, general and administrative expenses (a) 5,053 6,983 Amortization 32 78 ------- --------- Operating income 2,827 2,676 Interest and other expenses (income),net 99 (168) ------- --------- Income before income taxes 2,728 2,844 Provision for income taxes (b) 1,024 1,144 ------- --------- Net income $ 1,704 $ 1,700 ======= ========= Net income per share $ 0.32 ========= Weighted average shares outstanding 5,335
(a) Adjusted for Founding Company pro forma Compensation Differential of $897 for 1995 and $683 for 1996. (b) Adjusted for pro forma provision for taxes of $887 for 1995 and $351 for 1996. 9 10 Weighted Average Shares Outstanding The number of shares (in thousands) used in calculating net income per share was determined as follows:
Three Six Months Months Ended Ended June 30, June 30, 1996 1996 ---- ---- Outstanding F.Y.I. shares after the Offering and the acquisitions of the Operating Companies 5,438 5,319 Warrants to purchase stock under the treasury stock method 16 16 ------ ------ Number of shares used in net income per share calculation 5,454 5,335 ===== ======
3. BUSINESS COMBINATIONS Since the Offering, the Company has acquired six additional businesses (together with the Founding Companies, the "Operating Companies") which provide document management services and are headquartered in Washington, D.C., Baltimore (2), San Jose, Sacramento, and Seattle. All of the acquisitions are accounted for under the purchase method of accounting. In May 1996, the Company acquired the stock of B&B Information and Image Management, Inc. ("B&B") and Premier Document Management, Inc. and PDM Services, Inc. ("Premier"). In June 1996, the Company acquired all of the non-cash assets of Robert A. Cook and Staff, Inc. and RAC Services, Inc. ("Cook"). B&B, Premier and Cook are considered significant subsidiaries of the Company. The aggregate consideration paid for B&B, Premier and Cook consisted of $15,522,000 in cash and 253,252 shares of Common Stock. The preliminary allocation of the purchase price is set forth below: Consideration Paid $18,979,000 Estimated Fair Value of Tangible Assets 8,133,000 Estimated Fair Value of Liabilities 5,739,000 Goodwill 16,585,000
The fair market value of the shares of Common Stock used in calculating the consideration paid was $13.65, which represents a 35% discount from the average trading price of the Common Stock based on the length and type of restrictions in the purchase agreements. The Company acquired substantially all of the assets of Sacramento Valley Records Management Co. ("Sacramento") in February 1996; Microfilm Associated, Ltd. ("Microfilm") in February 1996 and Octo, Incorporated ("Octo") in June 1996. The aggregate consideration paid for Sacramento, Microfilm and Octo consisted of $1,567,000 in cash. The preliminary allocation of the purchase price is set forth below: 10 11 Consideration Paid $1,567,000 Estimated Fair Value of Tangible Assets 637,000 Estimated Fair Value of Liabilities 318,000 Goodwill 1,248,000
The estimated fair market values reflected above are based on preliminary estimates and assumptions and are subject to revision. In management's opinion, the preliminary allocation is not expected to be materially different than the final allocation. All intangibles are considered enterprise goodwill. Based on the historical profitability of the purchased companies and trends in the legal, healthcare and other industries to outsource document management functions in the foreseeable future, the enterprise goodwill will be amortized over a period of 30 years. Management continually evaluates whether events and circumstances indicate that the remaining estimated useful life of intangible assets may warrant revisions or that the remaining balance of intangibles or other long-lived assets may not be recoverable. To make this evaluation, management uses an estimate of undiscounted net income over the remaining life of the intangibles or other long-lived assets. The goodwill associated with the B&B and Premier acquisitions is not deductible for income tax purposes. Set forth below is a pro forma income statement for the six months ended June 30, 1996 and for the year ended December 31, 1995. The unaudited pro forma data gives effect to: (i) the acquisitions of B&B, Premier and Cook; (ii) the acquisitions of the Founding Companies; and (iii) compensation and tax adjustments for all transactions as if the transactions had occurred on January 1, 1995. The acquisitions of Sacramento, Microfilm and Octo have not been included in the pro forma financial statements for periods prior to their acquisition date as the effect is immaterial.
Pro Forma Pro Forma Year Ended Six Months Ended December 31, 1995 June 30, 1996 ----------------- ------------- Revenue $ 70,681 $ 38,330 Income before income taxes 7,667 4,514 Net income 4,737 2,702 Net income per common share $ 0.86 $ 0.49 Average shares outstanding 5,539 5,539 ========= =========
4. CREDIT FACILITY In April 1996, the Company and its subsidiaries entered into a credit agreement, as amended (the "Line of Credit"), with Banque Paribas, as agent, and the lenders named therein. Under the Line of Credit, the Company and its subsidiaries may borrow on a revolving credit basis, loans in an aggregate outstanding principal amount up to $35.0 million from time to time under the secured revolving credit and acquisition facility, subject to certain customary borrowing capacity requirements. The Company and its subsidiaries may borrow up to an aggregate $30.0 million of term loans under the Credit Agreement for acquisitions under prescribed conditions. 11 12 The Company and its subsidiaries may borrow revolving credit loans up to an aggregate $5.0 million under the Credit Agreement for working capital and general corporate purposes. The commitment to fund revolving credit loans expires April 14, 2001. The commitment to fund term loans expires October 15, 1997. The annual interest rate applicable to borrowings under this facility is, at the option of the Company, (i) 1.50% plus the prime rate or (ii) 3.00% plus the Eurodollar rate. The Credit Agreement requires mandatory prepayments in certain circumstances. The outstanding principal balance of term loans as of October 15, 1997, shall thereafter be due and payable in 14 equal quarterly payments beginning January 15, 1998, and ending April 15, 2001. The outstanding principal balance of revolving credit loans shall be due and payable on April 15, 2001. The Company has $1.0 million in borrowings outstanding under this facility for working capital and corporate purposes, and $8.2 million in borrowings outstanding under the term loans for acquisitions. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview As discussed more fully in Item 1, the Company effected the Acquisitions of the Founding Companies simultaneously with the Offering on January 23, 1996. Prior to the consummation of the Offering, the Company had not conducted any operations and all activities related to completing the Offering and the Acquisitions. The Company incurred various legal, accounting, marketing and travel costs in connection with the Offering and the Acquisitions, which were funded by issuance of shares of Common Stock and Preferred Stock. Additional costs associated with the Offering and the Acquisitions were paid with proceeds of the Offering. The Acquisitions have been accounted for in accordance with generally accepted accounting principles as a combination of the Founding Companies at historical cost. For accounting purposes, January 31, 1996 has been used as the effective date of the Acquisitions. Accordingly, the actual operating results of the Company included in the Statement of Operations for the six months ended June 30, 1996 represents the five months of operations subsequent to the consummation of the Acquisitions. Since the Offering and the Acquisitions, the Company has acquired six additional document management businesses. All of these acquisitions have been accounted for using the purchase method of accounting. The results of operations for these acquisitions are reflected in the Company's financial statements based upon their individual acquisition dates. Supplemental statement of operations data are presented in the footnotes to the financial statements and discussed herein in order to present the results of the Company since the consummation of the Acquisitions compared to the results of the combined Founding Companies for periods prior to the Acquisitions. The Supplemental Data are provided for information purposes only and do not purport to present the results of operations of the Company had the transactions assumed therein occurred on or as of the dates indicated. The Founding Companies were not under common control or management. Accordingly, such historical combined results may not be comparable to, or indicative of, future performance. The Company's revenue is classified as service revenue, product revenue and other revenue. Service revenue relates to: (i) micrographics; (ii) electronic imaging; (iii) active document storage; (iv) archival storage of inactive documents; (v) information and data base management; (vi) litigation support services; (vii) medical records release services; and (viii) remittance processing. Product revenue represents sales of micrographic and business imaging supplies and equipment, primarily in conjunction with film processing and other micrographic services. Other revenue consists of commissions on the sales of imaging systems and equipment and franchising fees. Cost of services consists primarily of salaries and benefits, equipment costs, supplies and occupancy costs and also includes the costs associated with other revenue discussed above. Cost of products sold relates to micrographics and business imaging supplies and equipment. 13 14 Selling, general and administrative expenses ("SG&A") includes the SG&A cost at all of the individual Operating Companies and the corporate overhead cost required to: (i) execute the acquisition program; (ii) manage the operations; and (iii) comply with all regulatory, legal and accounting issues of a public company. The Company expects to realize benefits from consolidating certain general and administrative functions, including reductions in accounting, audit, insurance and benefit plan expenses. The Company is in the process of evaluating the consolidation of certain of these functions. No significant savings have been realized in the results of operations as of June 30, 1996. Statements throughout this quarterly report that state the Company's or management's intentions, hopes, beliefs, anticipations, expectations or predictions of the future are forward looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause results to differ materially from those in the forward-looking statements is contained under the "Risk Factors" section of the Company's Registration Statements on Form S-1 (Registration Nos. 33-98608 and 333-1084). Results of Operations - The Company The Company had conducted no significant operations from its inception through the Offering and the Acquisitions. For accounting purposes and the presentation of the actual financial results herein, January 31, 1996, has been used as the effective date of the Acquisitions. THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995 - -- F.Y.I. INCORPORATED For the three months ended June 30, 1996, revenue was $16.2 million, gross profit was $5.6 million, operating income was $1.6 million, and net income was $1.0 million. As previously mentioned, F.Y.I. had no operations until February 1996. SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995 -- F.Y.I. INCORPORATED For the six months ended June 30, 1996, revenue was $24.7 million, gross profit was $8.4 million, operating income was $2.2 million, and net income was $1.4 million. As previously mentioned, F.Y.I. had no operations until February 1996. For further discussion of supplemental operations for the six months ended June 30, 1996 and 1995, see "Results of Operations - Supplemental Data." 14 15 Liquidity and Capital Resources - The Company As of June 30, 1996, the Company had $4.3 million of working capital and $2.5 million of cash. Cash flows provided by operating activities for the six months ended June 30, 1996 were $1.7 million. Cash used for investing activities was $21.8 million, as the Company paid $20.7 million for acquisitions, net of cash acquired. Cash provided by financing activities was $22.6 million. The Company raised $23.1 million in the Offering, net of underwriting discounts and other costs associated with the Offering. The Company assumed $8.5 million of debt in the Acquisitions and subsequently retired all of this debt with the proceeds of the Offering, with the exception of approximately $0.4 million of debt with favorable interest rates and capital lease obligations of approximately $0.4 million. In April 1996, the Company negotiated a $35.0 million line of credit ("Line of Credit") (see Note 4 in the Notes to Financial Statements). The Company paid $1.5 million in costs to secure this financing. In June, the Company borrowed $9.2 million through the Line of Credit to help fund the acquisition program. The Company assumed $2.8 million of debt in the acquisitions subsequent to the Offering and retired $0.4 million. The assumed debt remaining has interest rates more favorable than the Company's credit facility. The Company anticipates that cash from operations, and additional bank financing available under the Line of Credit will be sufficient to meet the Company's liquidity requirements for its operations for the next twelve months. The availability under the Line of Credit is $3.0 million for working capital and general corporate purposes, and approximately $21.8 million for acquisitions. The Company expects that additional funds may be required in the future to successfully continue the acquisition program. Additionally, the Company has filed a Registration Statement on Form S-1 (Registration No. 333-1084) to register 2,000,000 shares of Common Stock for issuance in its acquisition program. Results of Operations - Supplemental Data The Statement of Operations Data for the six months ended June 30, 1995 represent the audited combined statement of operations of the Founding Companies for the period adjusted to give effect to: (i) compensation levels the officers and owners of the Operating Companies have agreed to receive subsequent to the Offering; and (ii) provision for income taxes as if all entities had been subject to federal and state income taxes for the period. The Supplemental Statement of Operations Data for the six months ended June 30, 1996 represent a combination of: (i) the unaudited results of the combined Founding Companies for the one month of operations prior to the consummation of the Acquisitions; and (ii) the unaudited results of F.Y.I. Incorporated and Subsidiaries for the five months subsequent to the consummation of the Acquisitions (which includes acquisitions subsequent to the Offering from the date of their respective acquisition). The Supplemental Data are provided for information purposes only and do not purport to present the results of operations of the Company had the transactions assumed therein occurred on or as of the dates indicated, nor are they necessarily indicative of the results of operations which may be achieved in the future. 15 16
Supplemental Data Six Months Six Months Ended Ended June 30, June 30, 1995 1996 ----------------- ----------------- (In thousands, except per share data) STATEMENT OF OPERATIONS DATA: Service revenue $20,207 $25,201 Product revenue 3,187 3,035 Other revenue 435 331 ------- ------- Total revenue 23,829 28,567 Cost of services 12,729 15,826 Cost of products sold 2,604 2,281 Depreciation 584 723 ------- ------- Gross profit 7,912 9,737 Selling, general and administrative expenses (a) 5,053 6,983 Amortization 32 78 ------- ------- Operating income 2,827 2,676 Interest and other expenses (income),net 99 (168) ------- ------- Income before income taxes 2,728 2,844 Provision for income taxes (b) 1,024 1,144 ------- ------- Net income $ 1,704 $ 1,700 ======= ======= Net income per share $ 0.32 ======= Weighted average shares outstanding 5,335
(a) Adjusted for Founding Company pro forma Compensation Differential of $897 for 1995 and $683 for 1996. (b) Adjusted for pro forma provision for taxes of $887 for 1995 and $351 for 1996. SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995 -- F.Y.I. INCORPORATED COMBINED WITH FOUNDING COMPANIES The $4,738,000 or 20% increase in revenue was attributable to a 25% increase in service revenue of $4,994,000. The increase in service revenue is offset by a $256,000 or 7% decrease in product and other revenue. The increase in service revenue was largely due to: (i) an increase in scanning and microfilming revenue of approximately $1,751,000, primarily due to the purchase of B&B in May 1996, the purchase of Microfilm in February 1996 and an overall increase in microfilming projects; (ii) an increase in medical records release revenue of $1,758,000, primarily attributable to the expansion into additional healthcare institutions in the U.S. during 1995 and 1996 and the purchase of Premier in May 1996; (iii) an increase in litigation support revenue of $1,133,000, primarily due to the purchase of Cook in June 1996; and (iv) an increase in records storage and retrieval revenue of $537,000 attributable to the purchase of Sacramento in February 1996 and increases in volume in 1996. These increases were offset by a slight decline in data input and fulfillment revenue. The decrease in product revenue primarily resulted from a decline in one major customer's film purchases in the first quarter of 1996, caused by a business interruption at 16 17 that customer. This decline is not expected to be permanent as the interruption was attributable to the federal government shutdown in late 1995. Film sales to this customer have resumed at levels greater than the prior year during the second quarter of 1996. This decline in product revenue was offset by increased product revenue associated with the purchase of B&B in May 1996. Gross profit increased $1,825,000 or 23% largely due to the increases in revenues discussed above. The gross profit margin increased from 33% for the six months ended June 30, 1995 to 34% for the six months ended June 30, 1996, primarily due to the change in the mix of revenues associated with acquisitions subsequent to the Offering in 1996. Selling, general and administrative expenses increased $1,930,000 or 38%, primarily due to the establishment of corporate overhead required to execute the acquisition program and to manage the consolidated group of companies and due to the SG&A expenses associated with acquisitions subsequent to the Offering. Earnings before taxes increased $116,000 to $2,844,000 and net income remained flat at $1,700,000 largely attributable to the factors discussed above. Net income was impacted by a higher effective tax rate attributable to the elimination of graduated tax rates as the Operating Companies are now taxed on a consolidated basis and due to the impact of nondeductible goodwill associated with the B&B and Premier acquisitions. 17 18 PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION In June 1996, the Company hired Margot T. Lebenberg as Vice President, Secretary and General Counsel to oversee its legal matters. Effective July 22, 1996, the Company's then Executive Vice President and Chief Financial Officer resigned. Under the terms of the separation agreement, the Company will pay the former Executive Vice President and Chief Financial Officer an aggregate of $195,000 payable as follows: $120,000 on August 19, 1996, $50,000 on January 30, 1997 and $25,000 on August 19, 1997. Furthermore, in addition to the options for 8,000 shares that vested, additional options for 22,000 shares were accelerated and vested and such options shall terminate on October 22, 1996, if they are not exercised. David Lowenstein, co-founder of the Company, Executive Vice President and a Director of the Company, is reassuming the responsibility of Chief Financial Officer, the position he held prior to the Offering in January 1996. Additionally, Timothy J. Barker was promoted to the position of Vice President and Chief Accounting Officer. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.23 Separation Agreement, dated July 17, 1996, by and between F.Y.I. Incorporated and Robert C. Irvine 10.24 Warrant issued to Timothy J. Barker 27.1 Financial data schedule (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K filed with the Commission on June 14, 1996, as amended by a Current Report on Form 8-K/A filed with the Commission on July 5, 1996, reporting under Items 2 and 7 thereto the consummation of the acquisitions by the Company of B&B, Premier and Cook and which included the following historical restated and pro forma financial information of the Company reflecting recently completed significant acquisitions: 18 19 FINANCIAL STATEMENTS Cook and Staff, Inc. and Related Company Report of Independent Public Accountants Balance Sheets Statements of Operations Statements of Stockholder's Equity Statements of Cash Flows Notes to Financial Statements B&B Information and Image Management, Inc. Report of Independent Public Accountants Balance Sheets Statements of Operations Statements of Stockholder's Equity Statements of Cash Flows Notes to Financial Statements Premier Document Management, Inc. Report of Independent Public Accountants Balance Sheets Statements of Operations Statements of Stockholder's Equity Statements of Cash Flows Notes to Financial Statements PRO FORMA FINANCIAL STATEMENTS F.Y.I. Incorporated and Subsidiaries Pro Forma Balance Sheet - March 31, 1996 (unaudited) Pro Forma Statement of Operations for the Year Ended December 31, 1995 (unaudited) Pro Forma Statement of Operations for the Three Months Ended March 31, 1996 (unaudited) Notes to Pro Forma Financial Statements (unaudited) 19 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized. F.Y.I. Incorporated Date: August 12, 1996 By: /s/ Ed H. Bowman, Jr. ---------------------------------- Ed H. Bowman, Jr. Chief Executive Officer Date: August 12, 1996 By: /s/ David Lowenstein ---------------------------------- David Lowenstein Chief Financial Officer (Principal Financial Officer) Date: August 12, 1996 By: /s/ Timothy J. Barker ---------------------------------- Timothy J. Barker Chief Accounting Officer (Principal Accounting Officer) 20 21 INDEX TO EXHIBITS Exhibit Number Description ------- ----------- 10.23 Separation Agreement, dated July 17, 1996, by and between F.Y.I. Incorporated and Robert C. Irvine 10.24 Warrant issued to Timothy J. Barker 27.1 Financial data schedule 21 EX-10.23 2 SEPARATION AGREEMENT 1 EXHIBIT 10.23 July 17, 1996 Robert C. Irvine 5105 Mustang Trail Plano, TX 75093 Re: Separation Agreement Dear Bob: The purpose of this letter (this "Agreement") is to document our agreement regarding your separation from employment with F.Y.I. Incorporated (the "Company"). Both the Company and you desire that your separation be on a friendly basis and want to avoid any disputes and controversies concerning your employment with the Company and separation therefrom. Consequently, we have agreed as follows: 1. Your employment with the Company ends effective July 22, 1996 (the "Separation Date"). You hereby confirm your resignation as Executive Vice President and Chief Financial Officer effective July 22, 1996. The Employment Agreement effective January 26, 1996 between you and the Company is incorporated in and is a part of this Agreement. Your post-termination obligations continue under the Employment Agreement, including but not limited to paragraphs 3, 6, 7, 8, 9, 10 and 16, unless we expressly provide to the contrary in this Agreement. 2. The Company will pay you the gross amount of $195,000 in cash, less appropriate payroll withholding, as separation pay. This payment will be made in three payments . The first payment of $120,000 will be paid on August 19, 1996, the second payment of $50,000 will be paid on January 30, 1997 and the third payment of $25,000 will be made on August 19, 1997 (the "Final Payment Date"). In addition, on July 22, 1996 you will receive: (i) $5,769, less appropriate payroll withholding for your accrued vacation; and (ii) an option grant certificate to purchase 30,000 shares of the Company's Common Stock (the "Option") at $13.00 per share which expire three months from the Separation Date and may not be exercised until August 19, 1996. 3. The Company agrees that, except as provided above, Employee shall be permitted to exercise the Options following August 19, 1996 and prior to the expiration of the Options, subject to the following: (a) The Company (i) is unaware of any legal requirement that would prohibit the exercise of the Options, (ii) will use its best efforts to ensure that, at all 2 Robert C. Irvine July 17, 1996 Page 2 times that the Options are exercisable, they lawfully can be exercised by you, and (iii) will take no action to interfere with or prevent the exercise of the Options or the issuance and delivery of shares ("Option Shares"), upon such exercise or any lawful disposition of the Option Shares by you, provided that you have complied with applicable obligations as described in (b) below. (b) You shall file all forms or other documents required to be filed under federal securities laws in connection with or to report the exercise of the Options and any disposition of the shares acquired upon such exercise, including Forms 4 or 5 required to be filed under Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). (c) The Company represents to you that (i), upon the effectiveness of your resignation as Executive Vice President and Chief Financial Officer, you will no longer be an "officer" of the Company for purposes of Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), although your transactions after termination will potentially remain subject to reporting under Section 16(a) and Rule 16a-2 thereunder for up to six months after your last reportable transaction prior to your resignation; and (ii) the exercise of the Options at a time that the exercise price is less than the market price of the Company's Common Stock will be exempt under Rule 16b-6(b) and therefore will not give rise to Section 16(b) liability and the sale of the Option Shares though not exempt, will not give rise to Section 16(b) liability if you have had no open-market or other non-exempt purchase of the Company's Common Stock at a time less than six months before such sale and prior to such resignation. The Company is not, however, legally permitted to waive any liability you may have under Section 16(b) of the 1934 Act. 4. You will have the option to elect up to eighteen (18) months of your current Company health insurance coverage at your expense, as provided by law. 5. You agree to surrender immediately to the Company all information, papers, documents, writings, computer diskettes, and all other Company property (including credit cards, telephone card, access card, office key, laptop computer, portable printer, etc.) in your possession or control, and all copies thereof. All such information, papers, documents, writings, and property and all copies shall at all times remain the property of the Company. 3 Robert C. Irvine July 17, 1996 Page 3 6. Except as specifically provided in this Agreement, you understand and agree that you are not entitled to any further salary, vacation pay, sick pay, bonus, severance pay, compensation of any kind, retirement, health insurance, long-term disability, AD&D, life insurance, or any other perquisites or benefits of any kind. All warrants previously issued to you are cancelled. All such compensation and benefits shall cease as of the Separation Date except as expressly agreed in this letter. 7. You acknowledge and agree that the above-referenced separation pay under Section 2 is not otherwise due you and is consideration sufficient for your promises and agreements in this Agreement. 8. You voluntarily and knowingly waive, release, and discharge the Company, its parents, subsidiaries, licensors, licensees and sublicensees, predecessors, successors, affiliates, employees, officers, directors, contractors, subcontractors, vendors, franchisees, franchise operations, stockholders, partners, assigns, employee retirement, health and welfare benefit plans and the fiduciaries thereof, and agents from all claims, liabilities, demands, and causes of action, known or unknown, fixed or contingent, which you may have or claim to have against any of them as a result of your employment and/or separation from employment, excluding breach of this Agreement by the Company. You agree not to file a lawsuit to assert such claims. This includes, but is not limited to: (a) claims concerning your employment and/or separation therefrom; (b) claims arising under federal, state, or local laws prohibiting employment discrimination such as, without limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967 (for all claims arising through the date you sign this Agreement), the Americans with Disabilities Act, the Equal Pay Act, the Texas Commission on Human Rights Act, and the Family and Medical Leave Act, and their amendments and all comparable Federal, state and local laws; (c) claims for breach of contract, excluding breach of this Agreement by the Company; (d) claims for personal injury, harm, or damages (whether intentional or unintentional); 4 Robert C. Irvine July 17, 1996 Page 4 (e) claims arising out of any legal restrictions on the Company's right to terminate its employees; (f) claims arising under the Employee Retirement Income Security Act of 1974, as amended; and (g) claims for salary, vacation pay, sick pay, bonus, severance pay, future pay, compensation of any kind, retirement, health insurance, long-term disability, AD&D, life insurance, or any other employee benefit. 9. You agree that until the Final Payment Date you will provide a reasonable amount of your time to the Company, at no charge, to discuss issues with and answer questions from officers and directors of the Company with respect to anything related to the document management services business, with reasonable notice and at such reasonable times as the Company may request. 10. You agree to keep the terms of this Agreement wholly confidential and not to disclose the terms to anyone except your spouse, attorney, or accountant and except as required by law unless you obtain the prior written consent of the Company. Should you violate the terms of this provision or any other provisions in this Agreement, you understand and agree that in addition to any other remedies available to the Company, the Company's duty to pay any payments under Section 2 shall immediately cease, but all other provisions in this Agreement shall continue in full force and effect. The Company agrees to keep the terms of this Agreement wholly confidential and not discuss the terms with anyone except as may be provided by law or because of reasonable business requirements. 11. (a) You agree that, except as required by law, from the Separation Date, and continuing thereafter, you shall not make use of or disclose, directly, or indirectly, any confidential information obtained by you while in the employ of the Company with respect to the Company's business, products, services, systems, organization, business plans, financial data, marketing plans, suppliers, customers, pricing, rates, employment practices, trade secrets, or proprietary information. You recognize and agree that the protection of this confidential business information against unauthorized disclosure and use is of critical importance to the Company in maintaining its competitive position. (b) You further agree not to solicit the Company's employees to leave the Company's employ. 5 Robert C. Irvine July 17, 1996 Page 5 (c) In addition, you agree not to induce, encourage, assist, solicit, or entice, directly or indirectly, any person(s) or entity(ies) in any meeting or discussion, whether oral or written, to take any adverse action against, or to institute or participate in, any proceeding against the Company and also agree not to participate yourself in any such proceeding unless required by law to do so. (d) In consideration for the separation pay provided in Section 2 above, as a means to aid in the performance and enforcement of the terms of this Section 10, and to protect the good will of the Company, you agree that for a period of two years following the Separation Date, you will not, directly or indirectly, as an owner, director, principal, agent, officer, employee, partner, consultant, servant, or otherwise, carry on, operate, manage, control, or become involved in any manner with any business, operation, corporation, partnership, association, agency, or other person or entity that is primarily engaged in the business of providing document management services. Any alleged breach of other provisions of this Agreement asserted by you will not be a defense to claims arising from the Company's enforcement of the provisions of this paragraph. Should you violate the provisions of this paragraph, then the period of time for this covenant shall automatically be extended for the period of time from which you began such violation until you permanently cease such violation. You agree that you continue to be bound by the Non-Competition Agreement in your Employment Agreement, Section 3 and its subparts, dated as of January 26, 1996. Passive investments in a document management service company through a mutual fund or stock investment will not be deemed a violation of the non-compete, provided that you do not or will not for a period of two years from the Separation Date beneficially own more than 3% of the capital stock of a competing business whose stock is traded on a national securities exchange or over the counter. (e) The Company shall announce the separation of your employment relationship with the Company by issuing a press release which shall state that you will be leaving to pursue other business interests. (f) You agree that you will not engage in any conduct that is injurious to the Company or any of its successors, affiliates, employees, officers, directors, franchisees, franchise operations, stockholders, partners, assigns or agents, including but not limited to disparaging (or encouraging others to disparage). For purposes of this Separation Agreement, the term "disparage" includes, without limitation, comments or statements to the press, to past, present and/or future employees of the Company or to any individual or entity with whom the Company has a business relationship that would adversely affect in any manner (i) the conduct of the business of the Company or (ii) the reputation of the Company or any of its employees, owners, officers or directors. 6 Robert C. Irvine July 17, 1996 Page 6 12. You agree not to seek re-employment or future employment with the Company. 13. You acknowledge and agree that you have the right to discuss all aspects of this Agreement with a private attorney, have been encouraged to do so by the Company, and have done so to the extent you desire. Further, you understand that you have twenty-one (21) days to sign this Agreement after receipt of it in order to consider all of its terms fully and if you elect to execute this Agreement prior thereto, you hereby waive the remainder of such period. This Agreement may be revoked by you in writing to the Company within seven (7) days after you sign it, and it shall not become effective or enforceable until the revocation period has expired. If you do not agree with and sign this Agreement within twenty-one (21) days after receipt of this Agreement, this Agreement is automatically withdrawn and is null and void. 14. This Agreement is binding on you and your representatives, heirs, and assigns and on the Company and its successors and assigns. 15. This Agreement contains all of the terms, provisions, and understandings between the Company and you. No modification of this Agreement can be made except in writing and signed by both parties. 16. This Agreement shall be governed by and interpreted under the laws of the State of Texas, without regard to conflict of laws. 17. The Company is not aware of any claim that it has against you at this time. 18. Any dispute or controversy arising under or related to this Separation Agreement is subject to arbitration as provided in Section 16 of your Employment Agreement. 19. This Separation Agreement is a legal document. You represent and agree that you have thoroughly and carefully read this Agreement in its entirety, that you have had a reasonable time to consider its terms, that you fully understand all of its terms, and that you have not relied upon any representations or statements, whether written or oral, not set forth in this Agreement. 7 Robert C. Irvine July 17, 1996 Page 7 If the foregoing accurately reflects all of the terms of our agreement, please sign and date in the space provided. Sincerely, F.Y.I. INCORPORATED By: /s/ ED H. BOWMAN, JR. ----------------------------------- Title: Chief Executive Officer and President AGREED TO AND ACCEPTED this 22nd day of July, 1996. /s/ ROBERT C. IRVINE -------------------------------------- Robert C. Irvine EX-10.24 3 WARRANT 1 EXHIBIT 10.24 NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED AND THE TERMS AND CONDITIONS HEREOF. THE HOLDER OF THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH. VOID AFTER 5:00 P.M. NEW YORK CITY TIME, [5 YEARS FROM THE INITIAL EXERCISE DATE] **************************************** No. 2 WARRANT to PURCHASE COMMON STOCK of F.Y.I. INCORPORATED **************************************** This certifies that, for good and valuable consideration, F.Y.I. Incorporated, a Delaware corporation (the "Company"), grants to Tim Barker or permitted registered assigns (the "Warrantholder" or "Warrantholders"), the right to subscribe for and purchase from the Company, at $10.00 per share (the "Exercise Price"), Fifteen Thousand (15,000) shares, of the Company's Common Stock, par value $0.01 per share (the "Common Stock"), subject to the provisions and upon the terms and conditions herein set forth. The Exercise Price and the number of Warrant Shares are subject to adjustment from time to time as provided in Section 5. 2 1. Duration and Exercise of Warrant; Limitation Exercise Payment of Taxes. Taxes. 1.1 Duration and Exercise of Warrant. (a) This Warrant may be exercised to purchase 50% of the underlying shares from and after 9:00 A.M. New York City time on [2 years from closing of the initial public offering of shares offered to the public pursuant to Registration Statement 33-98608 (the "Initial Public Offering")] (the "Initial Exercise Date") and the remaining 50% of the underlying shares on [3 years from closing of the Initial Public Offering (the "Second Exercise Date"), the Initial Exercise Date or the Second Exercise Date, as applicable (the "Exercise Date") and to and including 5:00 P.M. New York City time on [5 years from closing of the Initial Exercise Date] (the "Expiration Date"). In addition, in the event of a Change in Control of the Company, the right to exercise 100% of the underlying shares shall immediately vest. A "Change in Control" shall be deemed to have occurred if: (i) any person, other than the Company or an employee benefit plan of the Company, acquires directly or indirectly the Beneficial Ownership (as defined in Section 13(d) of the Securities and Exchange Act of 1934, as amended (the" Exchange Act")) of any voting security of the Company and immediately after such acquisition such Person is, directly or indirectly, the Beneficial Owner of voting securities representing 50% or more of the total voting power of all of the then-outstanding voting securities of the Company; (ii) the individuals (A) who, as of the closing date of the Initial Public Offering, constitute the Board (the "Original Directors") or (B) who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the Original Directors then still in office (such directors becoming "Additional Original Directors" immediately following their election) or (C) who are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the Original Directors and Additional Original Directors then still in office (such directors also becoming "Additional Original Directors" immediately following their election) (such individuals being the "Continuing Directors"), cease for any reason to constitute a majority of the members of the Board; (iii) the stockholders of the Company shall approve a merger, consolidation, recapitalization, or reorganization of the Company, a reverse stock split of outstanding voting securities, or consummation of any such transaction if stockholder approval is not sought or obtained, other than any such transaction which would result in at least 75% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction being Beneficially Owned by at least 75% of the holders of outstanding voting securities of the Company immediately -2- 3 prior to the transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction; or (iv) the stockholders of the Company shall approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or a substantial portion of the Company's assets (i.e., 50% or more of the total assets of the Company). (b) The rights represented by this Warrant may be exercised by the Warrantholder of record, in whole, or from time to time in part, by (a) surrender of this Warrant, accompanied by the Exercise Form annexed hereto (the "Exercise Form") duly executed by the Warrantholder of record and specifying the number of Warrant Shares to be purchased, to the Company at the office of the Company located at 2911 Turtle Creek Boulevard, Suite 300, Dallas, Texas 75219 (or such other office or agency of the Company as it may designate by notice to the Warrantholder at the address of such Warrantholder appearing on the books of the Company) during normal business hours on any day (a "Business Day") other than a Saturday, Sunday or a day on which the New York Stock Exchange is authorized to close or on which the Company is otherwise closed for business (a "Nonbusiness Day") on or after 9:00 A.M. New York City time on the Exercise Date but not later than 5:00 P.M. on the Expiration Date (or 5:00 P.M. on the next succeeding Business Day, if the Expiration Date is a Nonbusiness Day), (b) delivery of payment to the Company in cash or by certified or official bank check in New York Clearing House Funds, of the Exercise Price for the number of Warrant Shares specified in the Exercise Form and (c) such documentation as to the identity and authority of the Warrantholder as the Company may reasonably request. Such Warrant Shares shall be deemed by the Company to be issued to the Warrantholder as the record holder of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for the Warrant Shares as aforesaid. Certificates for the Warrant Shares specified in the Exercise Form shall be delivered to the Warrantholder as promptly as practicable, and in any event within 10 business days, thereafter. The stock certificates so delivered shall be in denominations of at least 1,000 shares each or such other denomination as may be specified by the Warrantholder and agreed upon by the Company, and shall be issued in the name of the Warrantholder or, if permitted by subsection 1.5 and in accordance with the provisions thereof, such other name as shall be designated in the Exercise Form. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the certificates for the Warrant Shares, deliver to the Warrantholder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. No adjustments or payments shall be made on or in respect of Warrant Shares issuable on the exercise of this Warrant for any cash dividends paid or payable to holders of record of Common Stock prior to the date as of which the Warrantholder shall be deemed to be the record holder of such Warrant Shares. -3- 4 1.2 Limitation on Exercise. This Warrant may only be vested if, at the time of such vesting, Mr. Barker is an Employee of the Company, except as provided in Section 1.3. If this Warrant is not exercised prior to 5:00 P.M. on the Expiration Date (or the next succeeding Business Day, if the Expiration Date is a Nonbusiness Day), this Warrant, or any new Warrant issued pursuant to Section 1.1, shall cease to be exercisable and shall become void and all rights of the Warrantholder hereunder shall cease. This Warrant shall not be exercisable and no Warrant Shares shall be issued hereunder, prior to 9:00 A.M. New York City time on the Exercise Date. 1.3 Exercise Upon Termination. Upon termination of Mr. Barker's employment with the Company, this Warrant may be exercised during the three month period following such termination of employment, but only to the extent that this Warrant was exercisable immediately prior to such termination of employment. Notwithstanding the foregoing, if such termination is for cause, the right to exercise this Warrant shall terminate upon such termination. In no event shall this Warrant be exercisable for more than the maximum number of shares that the Warrantholder was entitled to purchase at the date of termination of the relationship with the Company. Subject to the foregoing, in the event of Mr. Barker's death, this Warrant may be exercised by Mr. Barker's legal representative through the Expiration Date. 1.4 Payment of Taxes. The issuance of certificates for Warrant Shares shall be made without charge to the Warrantholder for any stock transfer or other issuance tax in respect thereto; provided, however, that the Warrantholder shall be required to pay any and all taxes which may be payable in respect to any transfer involved in the issuance and delivery of any certificates for Warrant Shares in a name other than that of the then Warrantholder as reflected upon the books of the Company. 1.5 Transfer Restriction and Legend. (a) Neither this Warrant nor any interest or participation therein may be in any manner transferred or disposed of, in whole or in part, at any time, without the consent of the Company, except by will or pursuant to the laws of descent and distribution or otherwise by operation of law. (b) Without limiting the generality of the foregoing, neither this Warrant nor any of the Warrant Shares, nor any interest or participation in either, may be in any manner transferred or disposed of, in whole or in part, except in compliance with applicable United States federal and state securities laws. This limitation shall be in addition to the limitation set forth in Section 1.5(a) above. Each certificate for Warrant Shares and any Warrant issued at any time in exchange or substitution for any Warrant bearing such a legend shall bear a legend similar in effect to the foregoing paragraph unless, in the opinion of counsel for the Company, the Warrant need no longer be subject to the restriction contained herein. The provisions of this subsection 1.5 shall be binding upon all subsequent holders of this Warrant, if any. Warrant -4- 5 Shares transferred to the public as expressly permitted by, and in accordance with, the provisions of this Warrant shall thereafter cease to be deemed to be "Warrant Shares" for purposes hereof. 1.6 Divisibility of Warrant. This Warrant may be divided into warrants representing one Warrant Share or multiples thereof, upon surrender at the principal office of the Company on any Business Day, without charge to any Warrantholder, except as provided below. The Warrantholder will be charged for reasonable out-of-pocket costs incurred by the Company in connection with the division of this Warrant into Warrants representing fewer than one thousand (1,000) Warrant Shares. Upon any such division, and, if permitted by subsection 1.5 and in accordance with the provisions thereof, the Warrants may be transferred of record to a name other than that of the Warrantholder of record; provided, however, that the Warrantholder shall be required to pay any and all transfer taxes with respect thereto. 2. Reservation and Listing of Shares, Etc. All Warrant Shares which are issued upon the exercise of the rights represented by this Warrant shall, upon issuance and payment of the Exercise Price, be validly issued, fully paid and nonassessable and free from all taxes, liens, security interests, charges and other encumbrances with respect to the issue thereof other than taxes in respect of any transfer occurring contemporaneously with such issue. During the period within which this Warrant may be exercised, the Company shall at all times have authorized and reserved, and keep available free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant, and shall at its expense use its best efforts to procure such listing thereof (subject to official notice of issuance) as then may be required on all stock exchanges on which the Common Stock is then listed. The Company shall, from time to time, take all such action as may be required to assure that the par value per share of the Warrant Shares is at all times equal to or less than the then effective Exercise Price. 3. Exchange, Loss or Destruction of Warrant. If permitted by subsection 1.5 or 1.6 and in accordance with the provisions thereof, upon surrender of this Warrant to the Company with a duly executed instrument of assignment and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant of like tenor in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of such bond or indemnification as the Company may reasonably require, and, in the case of such mutilation, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor. The term "Warrant" as used herein includes any Warrants issued in substitution or exchange of this Warrant. -5- 6 4. Ownership of Warrant. The Company may deem and treat the person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in subsections 1.1 and 1.5 or in Section 3. 5. Certain Adjustments. The Exercise Price at which Warrant Shares may be purchased hereunder, and the number of Warrant Shares to be purchased upon exercise hereof, are subject to change or adjustment as follows: 5.1 The number of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment as follows: (a) In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock (ii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue by reclassification of its shares of Common Stock other securities of the Company (including any such reclassification in connection with a consolidation or merger in which the Company is the surviving corporation), the number of Warrant Shares purchasable upon exercise of this Warrant shall be adjusted so that the Warrantholder shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which he would have owned or have been entitled to receive after the happening of any of the events described above, had this Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this paragraph (a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) In case the Company shall: (i) issue rights, options or warrants to all holders of its outstanding Common Stock, without any charge to such holders, entitling them to subscribe for or purchase shares of Common Stock at a price per share which is lower at the record date for the determination of stockholders entitled to receive such rights, options or warrants than the then current market price per share of Common Stock, or -6- 7 (ii) distribute to all holders of its shares of Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions payable out of consolidated earnings or earned surplus and dividends or distributions referred to in paragraph (a) of this subsection 5.1) or rights, options or warrants, or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock, appropriate adjustments shall be made to the number of Warrant Shares purchasable upon the exercise of the Warrant and/or the Exercise Price in order to preserve the relative rights and interests of the Warrantholders, such adjustments to be made by the good faith determination of the Board of Directors of the Company. 5.2 Voluntary Adjustment by the Company. The Company may, at its option, at any time during the term of the Warrants, reduce the then current Exercise Price to any amount, consistent with applicable law, deemed appropriate by the Board of Directors of the Company. 5.3 Notice of Adjustment. Whenever the number of Warrant Shares or the Exercise Price of such Warrant Shares is adjusted, as herein provided, the Company shall promptly mail first class, postage prepaid, to all Warrantholders, notice of such adjustment. 5.4 No Adjustment for Cash Dividends. No adjustment in respect of any cash dividends shall be made during the term of this Warrant or upon the exercise of this Warrant. 5.5 Preservation of Purchase Rights Upon Merger, Consolidation, etc. In case of any consolidation of the Company with or merger of the Company into another corporation or in case of any sale, transfer or lease to another corporation of all or substantially all of the property of the Company, the Company or such successor or purchasing corporation, as the case may be, shall execute with the Warrantholders an agreement that the Warrantholders shall have the right thereafter upon payment of the Exercise Price in effect immediately prior to such action to purchase upon exercise of this Warrant the kind and amount of shares and other securities and property which such holder would have owned or have been entitled to receive after the happening of such consolidation, merger, sale, transfer or lease had this Warrant been exercised immediately prior to such action; provided, however, that no adjustment in respect of cash dividends, interest or other income on or from such shares or other securities and property shall be made during the term of this Warrant or upon the exercise of this Warrant. Such agreement shall provide for adjustments, which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 5. The provisions of this subsection 5.5 shall apply similarly to successive consolidations, mergers, sales, transfers or leases. -7- 8 6. Registration Rights 6.1 Piggy-Back Registration Rights. At any time following the closing of the Initial Public Offering, whenever the Company proposes to register any Company Stock for its own or others account under the Securities Act of 1933, as amended (the "Securities Act"), for a public offering for cash, but other than a registration relating to employee benefit plans, the Company will give each Warrantholder prompt written notice of its intent to do so. Upon the written request of any Warrantholder given within 30 days after receipt of such notice, the Company will use its best efforts to cause to be included in such registration all of the Company Stock which such Warrantholder requests, provided that the Company shall have the right to reduce the number of shares included in such registration if the Company is advised in writing in good faith by any managing underwriter of the securities being offered pursuant to any registration statement under this Section 6.1 that the number of shares to be sold by persons other than the Company is greater than the number of such shares which can be offered without adversely affecting the offering, the Company may reduce pro rata the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. 6.2 Other Arrangements. In connection with the registration of Warrant Shares in accordance with subsections 6.1, the holders who elect to have their Warrant Shares included therein shall so notify the Company and furnish the Company with such appropriate information (including, but not limited to, the manner in which such shares are to be sold) in connection therewith as the Company shall reasonably request. Such notification shall be made, and such information furnished, in writing within ten (10) calendar days of receipt of the notices specified in subsections 6.1. In connection with any such registration, the Company agrees to: (a) Use its best efforts to register or qualify the Warrant Shares for offer or sale under state securities or "blue sky" laws of such jurisdictions in which the holders thereof shall reasonably designate, and use its best efforts to do any and all other acts and things which may be necessary or advisable to enable the holders to consummate the sale, transfer or other disposition of such Warrant Shares in any jurisdiction; provided, however, that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now qualified or to take any other action which would subject it to general service of process in any jurisdiction where it is not then so subject or subject itself to taxation in any such jurisdiction; (b) Furnish to the holders requesting registration of the Warrant Shares (i) at least three (3) calendar days before the filing thereof with the Securities and Exchange Commission (the "Commission") a proof of the latest draft of the registration statement and, if requested, to extend invitations to the holders of the Piggy-Back Shares to -8- 9 attend all meetings at which the Company and the underwriter of such offering are present at which such registration statement is discussed, and (ii) promptly after the filing thereof, a copy of the registration statement as filed and any amendment to such registration statement and all exhibits thereto and consents of experts filed or to be filed therewith; (c) Furnish to the holders requesting registration of the Warrant Shares at the Company's expense such number of copies of such registration statement and all amendments thereto and of such prospectuses (including each preliminary, amended, or supplemental prospectus) as such persons may reasonably request in order to facilitate the sale or transfer of his or its Warrant Shares; (d) Make available to the Company's security holders, not later than forty-five (45) calendar days after the end of the Company's first fiscal quarter in which the first anniversary of the effective date of the registration statement occurs (or ninety (90) calendar days if the end of the first fiscal quarter in which the first anniversary of the effective date occurs coincides with the end of the Company's fiscal year), an earnings statement covering a period of at least twelve (12) consecutive months, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act or Rule 158 promulgated under the Securities Act; (e) Use its best efforts to list the Warrant Shares on any securities exchange on which other shares of Common Stock are listed; (f) Afford to the persons requesting registration an opportunity to make such examination and inquiry into the financial position, business and affairs of the Company and its subsidiaries as such persons or their counsel may reasonably deem necessary so as to satisfy themselves as to the accuracy and completeness of the registration statement; and (g) Pay all costs incident to such registration other than the cost of any counsel or other advisers to the holder requesting registration and any brokerage or underwriting commissions in connection with the sale of the Warrant Shares so registered. The Company shall have sole control in connection with the preparation, filing, amending and supplementing of any registration statement, including the right to withdraw the same or delay the effectiveness thereof when, in the sole judgment of the Board of Directors of the Company, the pendency of such registration statement or the effectiveness thereof would impose an undue burden upon the ability of the Company to proceed with any other material financing for its own account or any material corporate transaction, including, but not limited to, a reorganization, recapitalization, merger, consolidation or material acquisition of the securities or assets of another firm or corporation; and the Company shall be required to file a -9- 10 new registration statement or to proceed with such actions as reasonably may be required to cause the registration statement to become effective within a reasonable time after the consummation of the event or transaction which required such withdrawal or delay. 7. Miscellaneous. 7.1 Entire Agreement. This Warrant constitutes the entire agreement between the Company and the Warrantholder with respect to this Warrant and Warrant Shares. 7.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of and shall be binding upon the Company, the Warrantholder and holders of Warrant Shares and their respective heirs, legal representatives, successors and assigns. Nothing in this Warrant, expressed or implied, is intended to or shall confer on any person other than the Company, the Warrantholders and holders of Warrant Shares, or their respective heirs, legal representatives, successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Warrant or the Warrant Shares. 7.3 Amendments and Waivers. This Warrant may not be modified or amended except by an instrument in writing signed by the Company and Warrantholders that hold Warrants entitling them to purchase at least 50% of the Warrant Shares. The Company, any Warrantholder or holders of Warrant Shares may, by an instrument in writing, waive compliance by the other party with any term or provision of this Warrant on the part of such other party hereto to be performed or complied with. The waiver by any such party of a breach of any term or provision of this Warrant shall not be construed as a waiver of any subsequent breach. 7.4 Section and Other Headings. The section and other headings contained in this Warrant are for reference purposes only and shall not be deemed to be a part of this Warrant or to affect the meaning or interpretation of this Warrant. 7.5 Further Assurances. Each of the Company, the Warrantholders and holders of Warrant Shares shall do and perform all such further acts and things and execute and deliver all such other certificates, instruments and/or documents (including without limitation, such proxies and/or powers of attorney as may be necessary or appropriate) as any party hereto may, at any time and from time to time, reasonably request in connection with the performance of any of the provisions of this Warrant. 7.6 Notices. All demands, requests, notices and other communications required or permitted to be given under this Warrant shall be in writing and shall be deemed to have been duly given if delivered personally or sent by United States certified or registered first class mail, postage prepaid, to the parties hereto at the following addresses or at such other address as any party hereto shall hereafter specify by notice to the other party hereto: -10- 11 (a) if to the Company, addressed to: F.Y.I. Incorporated 2911 Turtle Creek Boulevard Suite 300 Dallas, Texas 75219 Attention: Chairman and Chief Development Officer (b) if to any Warrantholder or holder of Warrant Shares, addressed to the address of such person appearing on the books of the Company. Except as otherwise provided herein, all such demands, requests, notices and other communications shall be deemed to have been received on the date of personal delivery thereof or on the third Business Day after the mailing thereof. 7.7 Separability. Any term or provision of this Warrant which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable any other term or provision of this Warrant or affecting the validity or enforceability of any of the terms or provisions of this Warrant in any other jurisdiction. 7.8 Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Warrantholder an amount in cash equal to such fraction multiplied by the current market price (as determined as of the date of exercise, and with reference to the applicable trading market, in accordance with paragraph (d) of subsection 5.1) of a share of such stock as of the date of such exercise. 7.9 Rights of the Holder. The Warrantholder shall not, solely by virtue of this Warrant, be entitled to any rights of a stockholder of the Company, either at law or in equity. 7.10 Governing Law. This Warrant shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and performed in Delaware. 7.11 Effect of Stock Splits, etc. Whenever any rights under this Agreement are available only when at least a specified minimum number of Warrant Shares is involved, such number shall be appropriately adjusted to reflect any stock split, stock dividend, combination of securities into a smaller number of securities or reclassification of stock. -11- 12 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. F.Y.I. INCORPORATED By: /s/ THOMAS C. WALKER ----------------------------------- Name: Thomas C. Walker Title: Chairman and Chief Development Officer Dated: November 16, 1995 -12- 13 EXERCISE FORM (To be executed upon exercise of this Warrant) The undersigned, the record holder of this Warrant, hereby irrevocably elects to exercise the right, represented by this Warrant, to purchase __________ of the Warrant Shares and herewith tenders payment for such Warrant Shares to the order of F.Y.I. INCORPORATED, in the amount of $_______ in accordance with the terms of this Warrant. The undersigned requests that a certificate for such Warrant Shares be registered in the name of _________________________________ and that such certificate be delivered to _________________________ whose address is ______________________________________________. Date _________________ Signature _________________________ -13- EX-27.1 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from consolidated financial statements of F.Y.I. Incorporated and subsidiaries, as of June 30, 1996, and is qualified in its entirety by reference to such Report on Form 10-Q for the quarterly period ended June 30, 1996 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 2,521 0 13,321 1,214 536 15,854 19,456 10,461 45,695 11,594 12,402 55 0 0 22,861 45,695 2,640 24,651 1,974 16,237 6,241 298 117 2,296 923 1,373 0 0 0 1,373 0.26 0.26
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