UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1998
--------------
Commission file number 0-15975
-------
LabOne, Inc.
------------
10310 West 84th Terrace
Lenexa, Kansas 66214
(913) 888-1770
Incorporated in Delaware
I.R.S. Employer Identification Number: 48-0952323
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 / /
Number of shares outstanding of the only class of Registrant's common
stock, $.01 par value, as of May 1, 1998 - 13,135,570 shares net of
1,864,430 shares held as treasury stock.
Page 1 of 19
<TABLE> PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
LabOne, Inc. and Subsidiary
Consolidated Balance Sheets
<S> <C> <C>
March 31, December 31,
1998 1997
ASSETS --------- ---------
Current assets:
Cash and cash equivalents $11,809,422 18,284,672
Short-term investments 4,971,572 1,204,638
Accounts receivable-trade, net of allowance for doubtful
accounts of $1,198,537 in 1998 and $968,295 in 1997 15,398,265 12,604,687
Income taxes receivable - 508,704
Inventories 1,893,690 2,203,471
Real estate available for sale 3,515,000 3,515,000
Prepaid expenses and other current assets 2,287,838 2,279,619
Deferred income taxes 3,299,387 3,299,387
---------- ----------
Total current assets 43,175,174 43,900,178
Property, plant and equipment 45,033,004 43,956,571
Less accumulated depreciation 33,698,225 33,515,280
---------- ----------
Net property, plant and equipment 11,334,779 10,441,291
Other assets:
Intangible assets, net of accumulated amortization 4,974,586 5,229,708
Deferred income taxes - noncurrent 297,380 321,799
Deposits and other assets 79,960 80,497
---------- ----------
Total assets $59,861,879 59,973,473
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,328,638 3,326,451
Income taxes payable 604,493 -
Accrued payroll and benefits 2,979,171 4,530,235
Other accrued expenses 550,102 423,396
Other current liabilities 185,784 194,148
---------- ----------
Total liabilities 8,648,188 8,474,230
Stockholders' equity:
Preferred stock, $.01 par value per share;
1,000,000 shares authorized, none issued - -
Common stock, $.01 par value per share; 40,000,000 shares
authorized, 15,000,000 shares issued 150,000 150,000
Additional paid-in capital 13,775,599 13,723,250
Equity adjustment from foreign currency translation (657,232) (666,927)
Retained earnings 59,894,935 60,259,272
---------- ----------
73,163,302 73,465,595
Less treasury stock of 1,864,448 shares in
1998 and 1,874,706 shares in 1997 21,949,611 21,966,352
---------- ----------
Total stockholders' equity 51,213,691 51,499,243
---------- ----------
Total liabilities and stockholders' equity $59,861,879 59,973,473
========== ==========
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 2
</TABLE>
LabOne, Inc. and Subsidiary
Consolidated Statements of Earnings
Three months ended March 31,
1998 1997
---------- ----------
Sales $ 23,333,434 17,739,985
Cost of sales 12,958,948 9,450,105
---------- ----------
Gross profit 10,374,486 8,289,880
Selling, general and administrative expenses 7,310,802 6,327,859
---------- ----------
Earnings from operations 3,063,684 1,962,021
Other income 232,899 325,254
---------- ----------
Earnings before income taxes 3,296,583 2,287,275
Income tax expense 1,296,520 927,793
---------- ----------
Net earnings $ 2,000,063 1,359,482
========== ==========
Basic and diluted earnings per common share $ 0.15 0.10
====== ======
Dividends per common share $ 0.18 0.18
====== ======
Basic weighted average common shares outstanding 13,134,883 13,084,746
========== ==========
Diluted weighted average common shares outstanding 13,318,945 13,344,967
========== ==========
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 3
LabOne, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in comprehensive Retained Treasury Comprehensive stockholders'
stock capital income earnings stock income equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1997 $150,000 13,723,250 (666,927) 60,259,272 (21,966,352) 51,499,243
Comprehensive income:
Net earnings 2,000,063 2,000,063 2,000,063
Equity adjustment
from foreign
currency translation 9,695 9,695 9,695
---------
Comprehensive income 2,009,758
=========
Cash dividends
($0.18 per share) (2,364,400) (2,364,400)
Stock options
exercised, net
(10,258 shares) 52,349 16,741 69,090
-------- ---------- -------- ---------- ----------- ----------
Balance at
March 31, 1998 $150,000 13,775,599 (657,232) 59,894,935 (21,949,611) 51,213,691
======== ========== ======== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 4
LabOne, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Three months ended March 31,
1998 1997
--------- ---------
Cash provided by (used for) operations:
Net earnings $ 2,000,063 1,359,482
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 1,084,285 1,095,726
(Gain) loss on disposal of property
and equipment 127 (103,047)
Provision for deferred taxes 25,187 (81,412)
Changes in:
Accounts receivable (2,793,578) (2,320,513)
Income taxes 1,113,197 800,302
Inventories 309,781 (598,343)
Prepaid expenses and other current assets (8,219) 457,862
Accounts payable 1,002,187 150,669
Accrued payroll & benefits (1,551,064) (215,525)
Accrued expenses 126,706 119,860
Other current liabilities (8,364) 9,922
---------- ----------
Net cash provided by operations 1,300,308 674,983
---------- ----------
Cash provided by (used for) investment transactions:
Purchases of investments held to maturity (4,467,421) (7,713,555)
Proceeds from maturities of investments held
to maturity 701,894 732,335
Property, plant and equipment, net (1,724,596) (1,167,229)
Acquisition of intangible assets, net - (4,120,605)
Other 537 -
---------- ----------
Net used for investment transactions (5,489,586) (12,269,054)
---------- ----------
Cash provided by (used for) financing transactions:
Issuance of treasury stock, net of proceeds
from the exercise of stock options 69,090 (248)
Cash dividends (2,364,400) (2,355,288)
---------- ----------
Net cash used for financing transactions (2,295,310) (2,355,536)
---------- ----------
Effect of foreign currency translation 9,338 (12,678)
---------- ----------
Net decrease in cash and cash equivalents (6,475,250) (13,962,285)
Cash and cash equivalents - beginning of period 18,284,672 28,647,378
---------- ----------
Cash and cash equivalents - end of period $11,809,422 14,685,093
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income Taxes $ 109,155 221,022
========== ==========
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
Page 5
LabOne, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
The accompanying consolidated financial statements include the accounts of
LabOne, Inc. and its wholly-owned subsidiary Lab One Canada Inc. (a Canadian
corporation). All significant intercompany transactions have been eliminated
in consolidation.
The financial information furnished herein is unaudited; however, in the
opinion of management, it reflects all adjustments which are necessary to
fairly state the Company's financial position at March 31, 1998, and December
31, 1997, and the results of its operations and cash flows for the periods
ended March 31, 1998 and 1997. The financial statements have been prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances, and included in the financial statements are certain amounts
based on management's estimates and judgments.
The financial information herein is not necessarily representative of a full
year's operations because levels of sales, capital additions and other factors
fluctuate throughout the year. These same considerations apply to all year-
to-year comparisons. See the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, for additional information not required by this
report Form 10-Q.
Business Segment Information
- ----------------------------
The company operates in three lines of business: insurance risk appraisal
testing, clinical diagnostic testing and substance abuse testing. The
following table presents selected financial information for each segment:
Three Months Ended
March 31,
1998 1997
---- ----
Sales:
Insurance $ 16,822,452 14,429,139
Clinical 3,654,043 1,540,985
Substance abuse testing 2,856,939 1,769,861
---------- ----------
Total sales $ 23,333,434 17,739,985
========== ==========
Operating income (loss):
Insurance $ 5,212,264 4,311,343
Clinical (1,935,046) (2,104,300)
Substance abuse testing (178,786) (309,602)
General corporate income (expense) (34,748) 64,580
--------- ---------
Total earnings from operations 3,063,684 1,962,021
Other income (expense) 232,899 325,254
--------- ---------
Earnings before income taxes $ 3,296,583 2,287,275
========= =========
There were no material changes in asset levels by segment or in the basis of
segmentation or measurement of segment operating income or loss.
Page 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
- ---------------------
<TABLE>
<S> <C> <C> <C>
Three Months Ended % Increase
March 31,
1998 1997
----------- ----------- ----------
Sales $ 23,333,434 17,739,985 32%
Net earnings 2,000,063 1,359,482 47%
Earnings per common share $0.15 0.10
Cash dividends per common share $0.18 0.18
</TABLE>
The Company provides high-quality laboratory testing services to insurance
companies, physicians and employers.
LabOne provides risk-appraisal laboratory services to the insurance industry.
The tests performed by the Company are specifically designed to assist an
insurance company in objectively evaluating the mortality and morbidity risks
posed by policy applicants. The majority of the testing is performed on
specimens of individual life insurance policy applicants. The Company also
provides testing services on specimens of individuals applying for individual
and group medical and disability policies.
LabOne's clinical testing services are provided to the healthcare industry to
aid in the diagnosis and treatment of patients. LabOne operates only one
highly automated and centralized laboratory, which the Company believes has
significant economic advantages over other conventional laboratory
competitors. LabOne markets its clinical testing services to the payers of
healthcare--insurance companies and self-insured groups. The Company does
this through Lab Card(Registered), a Laboratory Benefits Management (LBM)
program.
The Lab Card Program provides laboratory testing at reduced rates as compared
to traditional laboratories. It uses a unique benefit design that shares the
cost savings with the patient, creating an incentive for the patient to help
direct laboratory work to LabOne. Under the Program, the patient incurs no
out-of-pocket expense when the Lab Card is used, and the insurance company or
self-insured group receives substantial savings on its laboratory charges.
Additionally, BlueCross BlueShield of Tennessee selected LabOne to provide
routine outpatient laboratory testing services for BlueCare members throughout
Tennessee effective February 1, 1998. BlueCare is BlueCross BlueShield of
Tennessee's plan for Tenncare participants and covers approximately 350,000
members. The Company's LBM programs, including BlueCare and the Lab Card
program, have more than 1.9 million lives enrolled.
LabOne is certified by the Substance Abuse and Mental Health Services
Administration (SAMHSA) to perform substance abuse testing services for
federally regulated employers and is currently marketing these services
throughout the country to both regulated and nonregulated employers. The
Company's rapid turnaround times and multiple testing options help clients
reduce downtime for affected employees and meet mandated drug screening
guidelines.
Page 7
FIRST QUARTER ANALYSIS
Net sales increased 32% in the first quarter 1998 to $23.3 million from $17.7
million in the first quarter 1997. The increase of $5.6 million is due to
increases in insurance segment revenue of $2.4 million, clinical revenue of
$2.1 million and substance abuse testing (SAT) revenue of $1.1 million. The
total number of insurance applicants tested in the first quarter 1998
increased by 17% as compared to the same quarter last year due to growth in
market share and oral fluid testing volumes. Average revenue per applicant
decreased 2%. Kit and container revenue increased due primarily to an
increase in the number of oral fluid and full blood kits sold. Clinical
diagnostic testing revenue increased from $1.5 million in 1997 to $3.7 million
in 1998 due to increases in testing volumes and in average revenue per
patient. SAT revenue increased from $1.8 million to $2.9 million for the
quarter due to increased testing volumes as compared to last year.
Cost of sales increased $3.5 million or 37% in the first quarter 1998 as
compared to the prior year, due primarily to increases in supplies, inbound
freight and outside laboratory and collection services. Lab supplies
increased due to the increased specimen volumes tested in each segment.
Insurance kit supplies increased due to the higher volume of kits sold and the
increase in cost of oral fluid kits for HIV testing. Inbound freight and
outside laboratory and collection services increased due to the increased
specimen volumes and expense related to the February start-up of BlueCare.
Clinical cost of sales expenses were $3.4 million as compared to $1.9 million
in the first quarter 1997. SAT cost of sales expenses were $2.1 million as
compared to $1.4 million in the first quarter 1997.
As a result of the above factors, gross profit for the quarter increased $2.1
million (25%) from $8.3 million in 1997 to $10.4 million in 1998. Insurance
gross profit increased $1.1 million or 13%. Clinical gross profit increased
$0.6 million to $0.3 million for the quarter. SAT gross profit increased $0.4
million to $0.8 million for the quarter.
Selling, general and administrative expenses increased $1.0 million (16%) in
the first quarter 1998 as compared to the prior year due primarily to
increases in payroll expenses. These were partially offset by a decrease in
depreciation and printing expenses. Clinical expenditures, including
allocations, were $2.2 million as compared to $1.7 million in 1997. SAT
expenditures were $1.0 million as compared to $0.7 million last year. The
corporate overhead allocation to the clinical and SAT testing segments for
the first quarter 1998 was $1.1 million as compared to an allocation of $0.7
million in 1997. These increases are due to increased testing revenue in
those segments.
Earnings from operations increased from $2.0 million in the first quarter 1997
to $3.1 million in 1998. The insurance segment operating income increased
$0.9 million. The clinical segment improved $0.2 million to an operating loss
of $1.9 million. The SAT segment improved $0.1 million from an operating loss
of $0.3 million in the first quarter 1997 to a loss of $0.2 million in 1998.
Nonoperating income decreased $0.1 million due to lower investment earnings
related to less funds available to invest. The effective income tax rate
declined from 41% in 1997 to 39% in 1998.
The combined effect of the above factors resulted in net earnings of $2.0
million or $0.15 per share in the first quarter 1998 as compared to $1.4
million or $0.10 per share in the same period last year.
Page 8
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
- ---------------------------------------------------
LabOne's working capital position decreased by $0.9 million to $34.5 million
at March 31, 1998, from $35.4 million at December 31, 1997. This decrease is
primarily due to dividends paid and capital additions exceeding cash provided
by operations before changes in working capital. Cash flow from operations
before changes in working capital increased by $0.8 million in the first
quarter 1998 as compared to 1997. The increase is primarily attributable to
the increase in net earnings.
Trade accounts receivable increased $2.8 million or 22% from December 31,
1997, due to the 32% increase in revenue for the quarter. Net additions to
property, plant and equipment in the first quarter 1998 were $1.7 million,
primarily related to construction of the new facility and the purchase of
computer equipment. Net additions in the first quarter 1997 were $5.3
million, of which approximately $4.8 million was related to the GIB purchase.
The new facility project is expected to cost approximately $30 million and
will be financed with an industrial revenue bond (IRB) approved by the City of
Lenexa (Kansas). The IRB is expected to be in place during the third quarter
1998. Interest on the bond will be based on a taxable seven day variable rate.
The Company expects to repay the bond over 12 years at $2.5 million per year
plus interest. As of March 31, 1998, total capital expenditures for this
project were $5.7 million.
In February 1998, LabOne's Board of Directors declared the regular quarterly
dividend of $0.18 per common share. This dividend was paid on March 4, 1998,
to stockholders of record as of February 25, 1998, and totaled approximately
$2.4 million. The board will review the dividend payment policy on a periodic
basis. There are currently no restrictions that would limit the Company's
ability to make future dividend payments.
The total number of shares held in treasury at March 31, 1998 was
approximately 1.9 million at a total cost of $21.9 million or $11.77 per
share. The Company had no short-term borrowings in the first quarter 1998.
The Company expects to fund operations and future dividend payments from a
combination of cash flows from operations and cash reserves. At March 31,
1998, LabOne had total cash and investments of $16.8 million as compared
to $19.5 million at December 31, 1997.
PART II. OTHER INFORMATION
Item 2. - Changes in Securities and Use of Proceeds.
(c) On February 23, 1998, LabOne issued a Warrant to National Support
Services, Inc., a Texas corporation ("NSS"), to purchase up to 500,000 shares
of Common Stock of LabOne, par value $0.01 per share, at a purchase price of
$17 per share. The Warrant was issued in conjunction with a Marketing
Agreement entered into between LabOne and NSS, under which NSS agreed to
market LabOne's LabCard program for providing clinical laboratory testing
services for benefit plans of school districts and their employees in
certain geographic locations.
Page 9
No cash consideration was received by LabOne for the issuance of the
Warrant. The Warrant is exercisable by NSS in respect of the number of shares
of common stock of LabOne indicated below for each calendar quarter prior to
March 1, 2003, in which the revenues received by LabOne during the quarter
pursuant to the Marketing Agreement with NSS are within the ranges specified
below:
LabOne Quarterly Revenues Number of LabOne
Received under NSS Shares Exercisable
Marketing Agreement under the Warrant
-------------------- -----------------
$500,000 to $999,999 5,000 shares
$1,000,000 to $1,499,999 10,000 shares
$1,500,000 to $1,999,999 15,000 shares
$2,000,000 to $2,499,999 20,000 shares
$2,500,000 and above 25,000 shares
The Warrant and shares of common stock issuable upon the exercise of the
Warrant were not registered under the Securities Act of 1933 in reliance upon
the exemptions from the registration requirements provided by Section 4(2) of
the Act and Rule 506 under Regulation D. NSS is believed to be an "accredited
investor" within the meaning of Regulation D.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
4. Warrant to Purchase Shares of Common Stock of LabOne, Inc., Page 12
issued to National Support Services, Inc., dated
February 23, 1998.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule - as filed electronically by the
Registrant in conjunction with this first quarter 1998 Form 10-Q.
(b) Reports on Form 8-K
A Form 8-K current report dated January 26, 1998, was filed with the
commission reporting under Other Events the 1997 results of operations for the
year, including a one-time write-down of $6.6 million on the value of the
Company's buildings in anticipation of their sale. Additionally, it was
reported that BlueCross BlueShield of Tennessee selected LabOne to provide
routine outpatient laboratory testing services for BlueCare members throughout
Tennessee.
Page 10
SIGNATURES
Pursuant to the requirements 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.
LabOne, Inc.
Date: May 13, 1998 By /s/ Kurt E. Gruenbacher
-----------------------
Kurt E. Gruenbacher, V.P. Finance, CAO
and Treasurer
Date: May 13, 1998 By /s/ Robert D. Thompson
----------------------
Robert D. Thompson, Executive V.P., Chief
Operating Officer and Chief Financial
Officer
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
first quarter 1998 Form 10-Q for LabOne, Inc. and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000816151
<NAME> LABONE, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,809,422
<SECURITIES> 4,971,572
<RECEIVABLES> 16,596,802
<ALLOWANCES> 1,198,537
<INVENTORY> 1,893,690
<CURRENT-ASSETS> 43,175,174
<PP&E> 45,033,004
<DEPRECIATION> 33,698,225
<TOTAL-ASSETS> 59,861,879
<CURRENT-LIABILITIES> 8,648,118
<BONDS> 0
0
0
<COMMON> 150,000
<OTHER-SE> 51,063,691
<TOTAL-LIABILITY-AND-EQUITY> 59,861,879
<SALES> 0
<TOTAL-REVENUES> 23,333,434
<CGS> 0
<TOTAL-COSTS> 12,958,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,296,583
<INCOME-TAX> 1,296,520
<INCOME-CONTINUING> 2,000,063
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,000,063
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
Exhibit 4
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS AND CANNOT BE OFFERED, SOLD, HYPOTHECATED,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR
THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SUCH LAWS AS
PROVIDED IN THIS WARRANT
No. of Shares: 500,000 Warrant No. A-1
Original Issue Date: February 23, 1998
WARRANT
To Purchase Shares of Common Stock of
LABONE, INC.
This certifies that, for value received, NATIONAL
SUPPORT SERVICES, INC. ("National Support"), is entitled to purchase
from LABONE, INC., a Delaware corporation, from time to time prior to
the Expiration Date in accordance with the terms and conditions hereof,
up to 500,000 shares of Common Stock of the Company at a Purchase Price
per share set forth below. The number of shares of Common Stock
purchasable hereunder and the Purchase Price therefor are subject to
adjustment as hereinafter set forth in Section 6.
1. Certain Definitions. For all purposes of this Warrant
the following terms shall have the meanings indicated:
(a) "Common Stock" shall mean the Company's presently
authorized shares of Common Stock, par value $0.01 per share, and any
other securities into which or for which the Common Stock may be
converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(b) "Company" shall mean LABONE, INC., a Delaware
corporation, and any company which shall succeed to, or assume, the
obligations of said corporation hereunder.
(c) "Expiration Date" shall mean 12:01 o'clock a.m.
Central Daylight Time on March 1, 2003, which is twenty (20) calendar
quarters plus sixty (60) days after the date hereof.
(d) "Lab Revenues" shall mean all revenues received by
the Company during the applicable calendar quarter, pursuant to the
Marketing Agreement between the Company and National Support from and
after the date hereof.
(e) "Purchase Price" or "Purchase Price per share" shall
mean the purchase price per Warrant Share (as defined below), which
shall equal $17.00, being the closing sale price or, if no sales were
reported, then average of the closing bid and asked prices of the Common
Stock, as reported by the NASDAQ Stock Market, on the last business day
prior to the date of the Marketing Agreement, as such purchase price may
thereafter be adjusted from time to time pursuant to the provisions of
Section 6 hereof (rounded to the nearest whole cent).
Page 12
(f) "Warrantholder" or "Registered Holder" shall mean
National Support, or its registered transferee.
(g) "Warrant" shall mean this Warrant and all Warrants
issued in exchange therefor or replacement thereof.
(h) "Warrant Shares" shall mean the shares of Common
Stock purchasable by the Registered Holder upon the exercise of this
Warrant pursuant to Section 2 hereof, as adjusted from time to time
pursuant to Section 6 hereof.
All terms used in this Warrant which are not defined in Section
1 have the meanings respectively set forth therefor elsewhere in this
Warrant.
2. Exercise of Warrant.
--------------------
(a) Subject to the terms and conditions hereof, this
Warrant may be exercised only within sixty (60) days after the end of
each applicable calendar quarter and prior to the Expiration Date as
follows:
(i) for each calendar quarter in which the Lab Revenues
reach $500,000 and are less than $1,000,000, this Warrant may be
exercised in respect of 5,000 shares of Common Stock subject to this
Warrant;
(ii) for each calendar quarter in which the Lab Revenues
reach $1,000,000 and are less than $1,500,000, this Warrant may be
exercised in respect of 10,000 shares of Common Stock subject to this
Warrant;
(iii)for each calendar quarter in which the Lab Revenues
reach $1,500,000 and are less than $2,000,000, this Warrant may be
exercised in respect of 15,000 shares of Common Stock subject to this
Warrant;
(iv) for each calendar quarter in which the Lab Revenues
reach $2,000,000 and are less than $2,500,000, this Warrant may be
exercised in respect of 20,000 shares of Common Stock subject to this
Warrant; and
(v) for each calendar quarter in which the Lab Revenues
reach $2,500,000, this Warrant may be exercised in respect of 25,000
shares of Common Stock subject to this Warrant.
The foregoing rights to exercise shall be limited to one of the
categories set forth in 2(a)(i) - (v), above, as applicable each
calendar quarter. Anything in this Warrant to the contrary
notwithstanding, this Warrant may not be exercised at any time after a
breach by National Support of the Marketing Agreement between the
Company and National Support, unless and until such breach is cured
under the applicable provisions, if any, of such Marketing Agreement.
Page 13
(b) In order to exercise this Warrant in whole or in
part, the Registered Holder shall complete the "Notice of Intention to
Exercise Warrant" attached hereto (the "Notice Form"), and deliver this
Warrant, the completed Notice Form and either cash, a cashier's check
payable to the order of the Company or a wire transfer of funds in an
amount equal to the then aggregate Purchase Price of the Warrant Shares
being purchased, to the Corporate Secretary of the Company at the
Company's office located at 10310 West 84th Terrace, Lenexa, Kansas
66214 (or such other office or agency of the Company as the Company may
designate by notice in writing to the Registered Holder). In no event
may the Warrantholder exercise the Warrant with respect to more than
500,000 shares of Common Stock in the aggregate, subject to adjustment
as provided in this Warrant.
3. Delivery of Stock Certificate, Etc. Upon Exercise.
--------------------------------------------------
As soon as practicable after exercise of this Warrant, the Company shall
cause to be issued and delivered to the Registered Holder (a) a
certificate or certificates representing the aggregate number of shares
of Common Stock specified in said Notice Form, all of which shares shall
be duly authorized and validly issued, fully paid and nonassessable, (b)
cash in lieu of any fractional share based upon the fair market value of
a share of Common Stock, as determined by the Company and (c) any other
securities or property (including cash) to which such Registered Holder
is entitled upon such exercise pursuant to the terms of this Warrant.
Each stock certificate representing shares of Common Stock so issued and
delivered shall be registered in the name of the Registered Holder or,
subject to the provisions of Sections 4 and 5 hereof, such other name as
shall be designated by the Registered Holder. Such certificate or
certificates shall be deemed to have been issued and the Warrantholder
or any other person so designated to be named therein shall be deemed to
have become a holder of record of such shares of Common Stock only as of
the date the certificate representing such shares is issued by the
Company.
4. Ownership and Transfer of Warrant and Warrant Shares.
-----------------------------------------------------
(a) Registered Holder. The Company may deem and treat
the Registered Holder of this Warrant as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by
anyone other than the Company) for all purposes, notwithstanding any
notice to the contrary, until presentation of this Warrant for
registration of transfer as provided in this Section 4.
(b) No Transfer. This Warrant may not be sold,
transferred, or assigned by the Registered Holder in whole or in part at
any time.
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5. Compliance with Securities Laws.
--------------------------------
(a) Investment Intent. By acceptance of this Warrant,
the Registered Holder represents and warrants that it is acquiring this
Warrant and any Warrant Shares for its own account and for the purpose
of investment and not with a view to the sale or distribution thereof.
The Registered Holder understands that this Warrant and the Warrant
Shares that may be issued upon exercise of this Warrant will not have
been registered under the Securities Act of 1933, as amended (the
"Securities Act") or any state securities laws (the Company being under
no obligation to effect such registration) and that this Warrant and the
Warrant Shares must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act and applicable state
securities laws or is exempt from registration as provided herein.
(b) Limitation on Transfer. By acceptance of this
Warrant, the Registered Holder represents, covenants, and agrees that it
will not sell or otherwise dispose of this Warrant or of the Warrant
Shares in the absence of (i) registration under the Securities Act and
applicable state securities laws or (ii) an opinion acceptable in form
and substance to the Company from counsel reasonably satisfactory to the
Company, or an opinion of counsel to the Company, to the effect that no
registration is required for such disposition.
(c) Restrictive Legend. Each Warrant shall bear on the
face thereof a legend substantially in the form of the notice set forth
on the first page of this Warrant. Upon exercise of any part of the
Warrant and the issuance of any Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer orders with respect
to such Warrant Shares, and the certificates representing such Warrant
Shares shall have stamped or imprinted thereon or affixed thereto a
legend to the following effect:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 or any state
securities laws and may not be sold, transferred or otherwise
disposed of in the absence of registration under such laws or
an opinion in form and substance acceptable to the Company
from counsel reasonably satisfactory to the Company to the
effect that no such registration is required.
6. Adjustments to the Purchase Price and Number of Warrant Shares.
---------------------------------------------------------------
(a) Subdivision of Stock, etc. In the event of a stock
dividend or other distribution payable in Common Stock, or any stock
split or subdivision of Common Stock into a greater number of shares,
the number of Warrant Shares subject to the Warrant immediately prior to
such event shall be proportionately increased and the Purchase Price in
effect immediately prior to such event shall be proportionately reduced,
and in the event that the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the number of
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Warrant Shares subject to the Warrant immediately prior to such
combination shall be proportionately reduced and the Purchase Price in
effect immediately prior to such combination shall be proportionately
increased.
(b) Reorganization, Consolidation, Merger, etc. In the
event that the Company shall (a) effect a reorganization or
recapitalization pursuant to which all of the outstanding shares of
Common Stock are converted into or exchanged for other securities or
property (including cash), (b) consolidate with or merge into any other
person, or (c) transfer all or substantially all of its properties or
assets to any other person in such a way that holders of Common Stock
shall be entitled to receive securities or property (including cash)
with respect to or in exchange for Common Stock; then, in each such
case, the Warrantholder, upon the exercise hereof as provided in Section
2 at any time after the consummation of such reorganization or
recapitalization, consolidation, merger or sale of assets, as the case
may be, shall be entitled to receive (and the Company shall be required
to deliver) in lieu of the Warrant Shares issuable upon such exercise
prior to such and other securities and property (including cash) to
which such holder would have been entitled upon such consummation, if
such Warrantholder had so exercised this Warrant immediately prior
thereto. The above provision shall apply to successive reorganizations,
recapitalizations, consolidations, mergers or transfers described
therein.
7. Notice of Record Date, Etc. In the event of
---------------------------
(a) any taking by the Company of a record of the holders
of Common Stock for the purpose of determining the holders thereof who
are entitled to receive any dividend (excluding any cash dividend
payable out of earnings or earned surplus of the Company), or any right
to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other
right, or
(b) any transfer of all or substantially all of the
assets of the Company to or consolidation or merger of the Company with
or into any other person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
then and in each event the Company shall cause to be mailed to the
Warrantholder a notice containing a brief description of the proposed
action and stating the date on which either a record is to be taken for
the purpose of such dividend, distribution or rights, or the date upon
which such transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place and the time, if any is to be fixed, as of
which the holders of Common Stock or other securities shall receive cash
or other property deliverable upon such transfer, consolidation, merger,
Page 16
dissolution, liquidation or winding-up. Such notice shall also state
that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act or a
favorable vote of stockholders, if either is required. Such notice
shall be mailed to the Warrantholder at least ten (10) days prior to the
date specified in such notice on which any such action is to be taken or
the record date, whichever is earlier.
8. Reservation of Warrant Shares.
------------------------------
During the term of this Warrant, the Company shall at all times reserve
and keep available from its authorized but unissued or treasury shares
such number of shares of its Common Stock as shall be issuable upon
exercise of the Warrant.
9. Notices.
--------
Any notice or other document required or permitted to be given or
delivered to the Registered Holder shall be delivered at, or sent by
certified or registered mail to the Registered Holder at the last
address shown on the books of the Company maintained for the registry
and transfer of the Warrants.
10. No Rights as Stockholder.
-------------------------
This Warrant shall not entitle the Registered Holder to any voting or
other rights as a stockholder of the Company.
11. Replacement of Warrant.
-----------------------
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant and, in the case
of such loss, theft or destruction, upon delivery of an indemnity bond
reasonably satisfactory in form and amount to the Company or, in the case
of any such mutilation, upon surrender and cancellation of such Warrant,
the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor.
12. Law Governing.
--------------
This Warrant shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware (excluding the choice
of law provisions thereof).
Page 17
13. Miscellaneous.
--------------
This Warrant and any provision hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party (or
any predecessor in interest thereof) against which enforcement of the same
is sought. The headings in this Warrant are for purposes of reference only
and shall not affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, this Warrant is executed effective
as of the day and year first above written.
LABONE, INC.
By:/s/ W. Thomas Grant II
-------------------
Its Chairman of the Board,
President and Chief Executive
Officer
Page 18
NOTICE OF INTENTION TO EXERCISE WARRANT
-------
The undersigned hereby notifies LabOne, Inc. that he has elected
to exercise its right under the within Warrant to purchase
shares of Common Stock, and has effected a wire transfer to LabOne, Inc.
or enclosed herewith cash or a cashier's check payable to LabOne, Inc.
in the total amount of $ in payment of the Purchase Price for
such shares. The certificate(s) representing the shares of Common Stock
being purchased should be delivered in the denominations and to the
persons described below:
No. of
Name Address Shares
NATIONAL SUPPORT SERVICES, INC.
Date: By:
----------------------------
(Signature)
----------------------------
(Print Name)
-----------------------------
(Title)
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