UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---------- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---------- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-16946
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SEAFIELD CAPITAL CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Missouri 43-1039532
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(State or other jurisdiction IRS Employer Incorporation
of organization) or Identification Number)
P. O. Box 410949
2600 Grand Ave., Suite 500
Kansas City, Missouri 64141
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (816) 842-7000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None Not Applicable
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1 per share and common stock rights coupled therewith.
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
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Approximate aggregate market value of voting stock held by non-affiliates of
Registrant: $236,826,486 (based on closing price as of February 1, 1994)
Number of shares outstanding of only class of Registrant's common stock as of
February 1, 1994: $1 par value common - 6,357,758
Documents incorporated by reference:
Portions of Registrant's Proxy Statement for use in connection with the Annual
Meeting of Shareholders to be held on May 11, 1994 is incorporated by reference
into Part III of this report, to the extent set forth therein, if such Proxy
Statement is filed with the Securities and Exchange Commission on or before
April 30, 1994. If such Proxy Statement is not filed by such date, the
information required to be presented in Part III will be filed as an amendment
to this report. The exhibits for this Form 10-K are listed in Item 14.
PART I.
ITEM 1. BUSINESS.
Seafield Capital Corporation (Seafield or the Registrant), a Missouri
corporation, is a holding company whose subsidiaries operate primarily in the
healthcare and insurance services areas. This is the third full year of
operations under a new strategic business focus since insurance operations were
discontinued during 1990. Various operating subsidiaries of Seafield provide
insurance laboratory testing, insurance policy administration and underwriting
services, insurance premium finance services, advanced cancer care,
distribution of radiopharmaceuticals and related services for nuclear medicine.
In addition, Seafield has investments in early-stage healthcare services
companies. Seafield, either directly or through subsidiaries, also holds
interests in real estate, energy investments, and marketable securities. See
Item 7 and Note 6 of Notes to Consolidated Financial Statements for additional
segment information. Seafield had 18 employees as of December 31, 1993. None of
the employees is represented by a labor union and Seafield believes its
relations with employees are good.
INSURANCE SERVICES
The following operating businesses are considered to be in the insurance
services segment: LabOne, Inc., Agency Premium Resource, Inc. and International
Underwriting Services, Inc.
LABONE, INC.
The Registrant's laboratory testing activities are conducted through LabOne,
Inc. (LabOne), a subsidiary which was 82% owned by the Registrant and 18%
publicly held at December 31, 1993. LabOne is a publicly-traded stock
(NASDAQ-LABS). LabOne, together with its wholly-owned subsidiary Head Office
Reference Laboratory Limited (hereinafter collectively referred to as LabOne),
is the largest provider of laboratory testing services to the insurance
industry in the United States and Canada.
LabOne is currently engaged primarily in a single line of business, laboratory
testing of insurance policy applicants. The tests performed by LabOne are
specifically designed to assist an insurance company in objectively evaluating
the mortality and morbidity risks posed by policy applicants. LabOne presently
provides its testing services to insurance companies in the United States and
Canada, primarily on individual life insurance policy applicants. LabOne also
provides testing services on individual and group medical and disability
policies. LabOne's testing services consist of certain specimen profiles that
provide insurance companies with specific information that may indicate liver
or kidney disorders, diabetes, the risk of cardiovascular disease, bacterial or
viral infections and other health risks. LabOne also offers tests to detect the
presence of antibodies to human immunodeficiency virus (HIV), nicotine, cocaine
and certain medications associated with life-threatening medical conditions
that may not be revealed by a routine physical examination.
In 1993, the company announced its intentions to expand into the clinical
laboratory testing market. The name of this subsidiary was changed to LabOne,
Inc., and two separate marketing divisions were formed to focus on the specific
laboratory testing needs of the insurance and clinical markets.
The Home Office Reference Laboratory division continues to operate as a
provider of risk-appraisal laboratory testing services to the insurance
industry. A new division, Center for Laboratory Services (CLS), will market
diagnostic laboratory testing services to the healthcare industry. The
purpose of this reorganization is intended to further the corporation's
diversification objectives to enter the clinical laboratory testing market and
to remain the leader in the insurance laboratory testing market. LabOne
anticipates that it will begin testing for the clinical market during second
quarter 1994.
LabOne - Industry Overview (Insurance Testing Market)
In order to establish the appropriate level of premium payments or to determine
whether to issue a policy, an insurance company requires objective means of
evaluating the insurance risk posed by policy applicants. Because decisions of
this type are based on statistical probabilities of mortality and morbidity, an
insurance company generally requires quantitative data reflecting the
applicant's general health. Standardized laboratory testing, tailored to the
needs of the insurance industry and reported in a uniform format, provides an
insurance company with an efficient means of evaluating the mortality and
morbidity risks posed by policy applicants. The use of standardized urinalysis
and blood testing has proven a cost-effective alternative to individualized
physician examinations, which utilize varying testing procedures and reports.
Standardized laboratory testing can also be used to verify responses in a
policy application to such questions as whether the applicant is a user of
tobacco products, certain controlled substances or certain prescription drugs.
Insurance companies generally offer a premium discount for nonsmokers and often
rely on testing to determine whether an applicant is a user of tobacco
products. Use of cocaine has been associated with increased risk of accidental
death and cardiovascular disorders, and as a result of the increasing abuse in
the United States and Canada, insurance companies are testing a greater number
of policy applicants to detect its presence. Therapeutic drug testing also
detects the presence of certain prescription drugs that are being used by an
applicant to treat a life-threatening medical condition that may not be
revealed by a physical examination.
LabOne - Services Provided
Since LabOne's inception, its urinalyses and blood profile tests have proven to
be a reliable and objective means of determining mortality and morbidity risks.
While medical and traditional clinical laboratory procedures and reports may
vary, LabOne performs standardized testing tailored to the needs of the
insurance industry. Results are communicated to clients, generally within 24
hours of receipt of the specimen. Communication options are selected by each
client company depending upon its specific needs.
Specimens are normally collected from individual insurance applicants by
independent paramedical personnel using LabOne's custom-designed collection
kits and containers. These kits and containers are then delivered to LabOne's
laboratories via overnight delivery services or mail, coded for identification
and processed according to each client's specifications. Results are then
generally transmitted to the insurance company's underwriting department that
same evening. LabOne offers a core group of urine tests, controlled substance
tests, insurance-oriented blood chemistry profiles, and a series of
AIDS-related tests. The following table summarizes LabOne's sales from such
tests, and from other operations (primarily the sale of specimen collection
kits):
Year ended December 31, 1993 1992 1991 1990 1989
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(In thousands)
Blood chemistry profiles $ 19,853 21,470 22,411 26,804 29,400
AIDS-related tests 14,766 16,280 17,840 18,690 18,571
Urinalyses 10,200 10,666 10,698 11,298 11,434
Controlled substance tests 12,702 14,359 13,649 13,685 12,413
Other 11,857 11,662 11,141 10,292 9,516
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$ 69,378 74,437 75,739 80,769 81,334
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Of the wide availability of tests performed by LabOne, the following is a
description of the tests most commonly performed by LabOne:
I. Blood Chemistry Profiles
LabOne's insurance-oriented blood chemistry profiles provide data for an
insurance company to determine an applicant's risk for developing
cardiovascular disease and to detect the presence of kidney disorders,
alcoholic liver disease, glucose intolerance or other disorders. The Full Blood
Profile consists of the following sub profiles:
- Lipid profile - designed to assess the risk of cardiovascular disease.
- Blood glucose profile - designed to assess risk for diabetes.
- Hepatic profile - designed to measure certain liver enzymes.
- Renal profile - designed to measure blood urea nitrogen and creatinine.
LabOne also offers lower-priced blood profiles: the Flex Profile, Miniprofile
and the Microprofile. These options enhance LabOne's marketing efforts in the
medical, disability and group insurance testing markets as well as provide a
more economical series of tests for lower face amount life insurance policies.
Although the Miniprofile and Flex Profile do not include all of the tests
included in the Full Blood Profile, they still provide certain key risk
assessment factors. The Microprofile, a finger-stick blood collection method,
is an option for applicants who, for personal or medical reasons, are averse to
traditional venipuncture blood collection. In addition to the laboratory cost
savings of the Microprofile test compared to the Full Blood Profile, clients
generally are offered a reduced drawing fee for this collection procedure by
the paramedical company. During 1993, LabOne also added the Dried Blood
Profile. This profile offers a limited selection of tests and is an
alternative to the Microprofile.
II. AIDS - Related Tests
LabOne offers an HIV antibody test, as a supplement to the basic blood
chemistry profile. Specimens are tested using Food and Drug Administration
(FDA)-approved screening and confirmation tests. A series of confirmatory tests
are performed on all repeatedly reactive ELISA samples. All HIV antibody and
Western Blot results are reported to insurance company clients according to
Centers for Disease Control (CDC) protocol. For those jurisdictions where HIV
antibody testing is prohibited for insurance purposes, most clients have
requested that LabOne perform a beta-2 microglobulin profile as an alternative
test (see LabOne's Legislation and Regulation section for more information
regarding AIDS-related testing).
III. Urinalyses
Urinalyses have historically been an important component of LabOne's business.
Urine specimens are routinely tested for levels of glucose, albumin, proteins,
red blood cells, white blood cells and granular and hyaline casts. A level
above or below the normal range may suggest disease, infection or organ
dysfunction. Specific gravity tests are performed on specimens with excessive
urinary proteins to assess kidney function.
Through urinalysis, LabOne can also determine the presence of certain
prescription drugs, including antihypertensive medications, oral diabetic
medications and cardiovascular disease medications (beta blockers). These tests
are important to insurers, because the presence of certain prescription drugs
may indicate medical disorders that may not be revealed by a routine physical
examination. The nicotine screen, performed with more than 95% of all
urinalyses, measures the amount of cotinine (the metabolized form of nicotine)
present in a urine specimen. This test is particularly important to the
insurance industry since most companies offer substantial premium discounts for
nonsmokers.
IV. Controlled Substance Tests
LabOne offers tests for controlled substances, primarily cocaine, in response
to the serious mortality, health and accident risks posed by the use of
controlled substances. These tests are designed to detect the presence of
cocaine and other drugs of abuse in urine. As a confirmatory test, all
initially positive drug screens are verified by the gas chromatography/mass
spectrometry method. Controlled substance tests have become a vital
underwriting tool, and during 1993, a cocaine screen or full drug screen was
performed on more than 85% of all urine specimens.
LabOne - Operations
LabOne's operations are designed to facilitate the testing of a large number of
specimens and to report the results to insurance company clients, generally
within 24 hours of receipt of specimens. LabOne has an internally developed,
custom-designed, laboratory processing system (the MEGA System). The MEGA
System enables each client company to customize its own testing and reflex
requirements by state, age, type and amount of insurance, or virtually any
other parameter that may satisfy its particular needs. It is a centralized
network system that provides an automated link between LabOne's testing
equipment, data processing equipment and the client's computer systems. This
system offers LabOne's clients the ability to customize their testing
activities under circumstances where uniform testing of all policy applicants
may not be desired. In 1993, LabOne's information systems staff completed a
major revision of its business processing system, the core of LabOne's computer
systems. This revision affects every area of LabOne's operation, allowing
LabOne to respond more quickly and efficiently to client requests.
LabOne, as the result of the number of tests it has performed over the past
several years, has compiled and maintains a large statistical database of test
results. These summary statistics are useful to the actuarial and underwriting
departments of a client in comparing that client's test results to the results
obtained by LabOne's entire client base. Company-specific and industry-wide
reports are frequently distributed to clients on subjects such as coronary risk
analysis, cholesterol and drugs of abuse. LabOne considers the confidentiality
of its test results to be of primary importance and has established procedures
to ensure that results of tests are communicated only to the insurance company
that requested the tests. All positive results for the HIV antibody, beta-2
microglobulin and controlled substance tests are forwarded separately to a
client-authorized individual, such as its medical director.
LabOne - Quality Assurance
The quality assurance department ensures that accurate and reliable test
results are released to clients. This is accomplished by incorporating both
internal and external quality assurance programs in each area of the
laboratory. In addition, quality assurance specialists share the responsibility
with all LabOne employees of an ongoing commitment to quality. Internal quality
programs are designed to identify opportunities for improvement in laboratory
services. These programs ensure reliable and confidential test results and are
outlined below.
- Procedure manuals in all areas of the laboratory help maintain uniformity
and accuracy, and meet regulatory guidelines.
- Tests on control samples with known results are performed frequently to
maintain and verify accuracy in the testing process.
- Complete documentation provides record keeping for employee reference
and meets regulatory requirements.
- All employees are thoroughly trained to meet standards mandated by
OSHA in order to maintain a safe work environment.
- Superblind(trademark) controls are used to challenge every aspect of
service at LabOne.
- Specimens requiring special handling are evaluated and verified by
control analysis personnel.
- A computer edit program is used to review and verify clinically abnormal
results, and all positive HIV antibody and drugs-of-abuse records.
As an external quality assurance program, LabOne participates in a number of
proficiency programs established by the College of American Pathologists, the
American Association of Bioanalysts and the Centers for Disease Control.
LabOne is also involved in monthly peer-group review programs for hematology,
flow cytometry and chemistry. These programs compare LabOne with laboratories
across the nation that use similar reagents and instrumentation. LabOne is
accredited by the College of American Pathologists. In addition, LabOne is
licensed under the Clinical Laboratory Improvement Amendments (CLIA) of 1988,
and has additional licenses for HIV and substance abuse testing from the state
of Kansas. Furthermore, LabOne's Drug Enforcement Agency license allows its
laboratory to legally perform analytical research pertaining to drugs of abuse.
These internal and external quality assurance procedures illustrate LabOne's
commitment to both clients and to employees. Through these programs, LabOne's
clients can be assured of reliable test results, and LabOne's employees can be
assured of a quality work environment.
LabOne - Technology Development
Among its many responsibilities, the technology development department
evaluates many new commercially available tests and technologies and compares
them to competing products in order to select the most accurate laboratory
procedures for the insurance industry's needs. LabOne continues to offer new
tests to the insurance industry. New products introduced in 1993 included
carbonhydrate-deficient transferrin (CDT), microalbumin, beta-human chorionic
gonadotropin (HCG), thiocyanate, dried blood profile, dried blood HIV and serum
cotinine. The impact of these new products on LabOne's future results of
operations is not expected to be material. In 1993, LabOne completed the
development of automated screening for certain therapeutic drugs in urine.
Totaltechnology development expenditures are not considered significant to
LabOne as a whole.
LabOne - Sales and Marketing
LabOne's client base currently consists of insurance companies in the United
States and Canada. LabOne believes that its ability to provide prompt and
accurate results on a cost-effective basis and its responsiveness to customer
needs have been important factors in maintaining existing business. All of
LabOne's sales representatives have prior business experience in the insurance
industry or clinical laboratory-related fields. These representatives call on
major clients several times each year, usually meeting with a medical director
or vice president of underwriting. An important part of LabOne's marketing
effort is directed toward providing its existing clients and prospects with
information pertaining to the actuarial benefits of, and trends in, laboratory
testing. LabOne's sales representatives and its senior management also attend
underwriters' and medical directors' meetings sponsored by the insurance
industry.
The marketing efforts of LabOne's representatives are augmented by reinsurance
sales representatives employed by Business Men's Assurance Company of America
(BMA). These representatives market LabOne's testing services in connection
with their reinsurance sales activities on behalf of BMA. The BMA reinsurance
sales representatives generally direct their sales efforts to an insurance
company's chief executive officer and its actuarial officers, thereby
complementing the activities of LabOne's sales representatives by directing
their sales efforts to another constituency within an insurance company's
organization. LabOne intends to continue its practice of coordinating its sales
efforts with those of BMA.
LabOne - Legislation and Regulation
In the past, legislation has been introduced in several states that, if
enacted, may restrict or ban all AIDS-related testing for insurance purposes in
those states. The introduction of legislation to restrict or ban all
AIDS-related testing does not ensure its passage into law. There can be no
assurance, however, that such legislation will not be enacted in the future.
The FDA is attempting to exert broader regulatory control over LabOne's
business and all testing laboratories. See Item 7- Management's Discussion And
Analysis Of Financial Condition And Results Of Operations - Insurance Services
Trends for a discussion of this subject.
A few states have enacted legislation or regulations which have had the effect
of reducing or eliminating the volume of laboratory tests requested by medical
insurers in those states. It is likely that the trend will continue as more
states enact legislation relating to health care and medical insurance.
LabOne - Competition
The insurance laboratory testing industry has become increasingly competitive.
Most of the competition has come from privately or insurance company-owned or
controlled laboratories that are primarily focused on the insurance industry.
The number of laboratories actively marketing to insurance companies has
declined from at least a dozen three years ago to approximately six today.
Although the number of competitors has decreased, the degree of competition has
not diminished. The primary focus of the competition has been on pricing and
service. This continued competition has resulted in a decrease in LabOne's
average price per test. It is anticipated that prices will continue to decline
in 1994. Additionally, competition has come from national or multi-regional
clinical laboratories that have historically focused their efforts on servicing
hospitals, physicians and other healthcare providers.
Although competition has dramatically increased in the past few years, LabOne
has maintained its position as the market leader. LabOne believes its leading
position in the insurance laboratory testing market is due in part to its
focused commitment of resources to the life and health insurance industry.
LabOne has continued to maintain its market leadership through the client
relationships that it has developed over its 20-year history, its reputation
for providing quality products and services at competitive prices, and its
battery of tests which are tailored specifically to insurance companies' needs.
LabOne - New and Foreign Markets
Clinical Testing Market
In August 1993, LabOne announced a plan to diversify into the clinical testing
market. As a result of this diversification, LabOne is in the process of
implementing substantially all of the tests offered to the clinical market.
Clinical testing is expected to commence during the second quarter of 1994.
Thefinancial impact of LabOne's expansion into this market cannot be determined
at this time.
Foreign Markets
In 1977, LabOne opened a subsidiary in Toronto, Canada. Head Office Reference
Laboratory Limited is the leader in providing laboratory testing services to
the Canadian insurance industry. In 1993, LabOne opened a small office near
London to provide laboratory testing services to insurance companies in the
United Kingdom. LabOne is currently evaluating its alternatives in this foreign
market.
LabOne - Employees
As of March 2, 1994, LabOne had 508 full-time employees, representing a
decrease of 21 employees from the same time in 1993. None of LabOne's employees
is represented by a labor union. LabOne believes its relations with employees
are good.
AGENCY PREMIUM RESOURCE, INC.
Agency Premium Resource, Inc. (APR) is an insurance premium finance company
serving independent insurance agents in 18 states. APR provides premium
financing for the commercial customers of these independent insurance agents.
The Registrant has a 95% ownership position in APR. The insurance premium
finance services operations experienced growth and profitability during 1993.
Approximately $61.5 million in new premium finance business was booked during
1993 compared to $40 million in 1992. The number of contracts written in 1993
increased to 10,277 from 6,465 in 1992. The Independent Insurance Agents of
Kansas, Missouri, Indiana, and Minnesota endorse APR to their membership. APR's
wholly-owned subsidiary, Agency Services, Inc., is an information resource
company which provides motor vehicle reports and other employment background
screening reports to multiple industries.
In July 1993, APR entered into an extendable two-year agreement whereby it can
sell undivided interests in a designated pool of accounts receivable on an
ongoing basis. As collections reduce accounts receivable in the pool,
additional sales may be made up to the maximum. The maximum allowable amount
of receivables to be sold is $22 million. During 1993, $19 million of
receivables were sold. See Note 5 of Notes to Consolidated Financial
Statements for additional information regarding securitization of receivables.
INTERNATIONAL UNDERWRITING SERVICES, INC.
International Underwriting Services, Inc. (IUS), a development-stage company,
offers turnkey life insurance underwriting and policy administration services.
The Registrant has an 80% ownership position in IUS. This subsidiary offers
client companies fixed price alternatives to traditional insurance policy
processing through which policy issue and underwriting expenses are reduced. In
addition, IUS has developed a new underwriting service called Tele-Direct
Underwriting. This service is a computer assisted, intelligent underwriting
system where the customer deals directly by phone with the underwriter. These
expense reductions allow insurers to be more competitive and cost-effective in
the marketing of low-cost term life insurance, which the client company may not
achieve internally on a profitable basis.
HEALTHCARE SERVICES
The following operating businesses are considered to be in the healthcare
services segment: Response Technologies, Inc. and Pyramid Diagnostic Services,
Inc.
RESPONSE TECHNOLOGIES, INC.
The Registrant owns approximately 59% of Response Technologies, Inc.
(Response).Response's common stock trades on the American Stock Exchange under
the symbol RTK. In October 1990, the Registrant entered into an equity
financing agreement with Response which included a series of purchases of
Response's common stock and warrants for the purchase of additional shares of
common stock. The Registrant exercised its final warrants in 1992. The
Registrant participated in Response's rights offering to shareholders in June
1993 and purchased an additional 1,873,500 shares for a total of 20,608,500
shares owned at December 31, 1993. Assuming maximum dilution from Response's
present stock options, warrants and convertible securities, the Registrant's
ownership position in Response would decrease to approximately 56% from the
approximate 59% position of current shares outstanding.
Response is a provider of advanced cancer treatments and related services,
principally on an outpatient basis, through treatment centers owned and
operated by Response. The centers, known as IMPACT (IMPlementing Advanced
Cancer Treatments) Centers, are staffed by experienced oncology nurses,
pharmacists, laboratory technologists, and other support personnel to deliver
outpatient services under the direction of practicing oncologists. The primary
treatments provided by the Centers involve intensive levels of chemotherapy
supported by a combination of autologous peripheral blood stem cell products
and bone marrow growth factors to support the patient's immune system. The
Centers also provide home pharmacy services, such as pain medications,
antibiotics and nutritional support; outpatient infusional services; blood
banking services; and specialized nursing and laboratory services for its
patients.
Response evaluates, adapts and develops treatment programs for various types of
cancer. The treatment programs, or protocols, are developed by physicians
associated with Response and independent physician advisors, frequently based
upon the results of clinical trials performed by various university and
government programs. Response does not engage in basic research.
The protocols which Response provides involve very high doses of chemotherapy.
Intensification of chemotherapy doses can result in improved survival rates for
patients suffering from certain types of cancer. One of the major side affects
of this treatment is damage to the patient's bone marrow which then impairs the
immune system. Currently, many providers of high-dose chemotherapy treatments
support the immune system through autologous bone marrow transplantation.
Ratherthan utilize standard bone marrow transplant procedures, the IMPACT
Center protocols involve support with stem cells collected from the peripheral
blood of the patient prior to the administration of high-dose chemotherapy. The
process of stem cell support begins by administering certain chemotherapy drugs
and growth factors to promote the growth of bone marrow stem cells and their
release into the peripheral bloodstream. The stem cells are then harvested by
leukapheresis, a process involving the use of a blood cell separating machine,
and cryo-preserved. After the administration of high-dose chemotherapy, the
stem cells are reinfused into the patient, whereby the cells reengraft into
bone marrow and restore the production of infection-fighting white blood cells.
Response believes that its use of non-surgical stem cell support of the bone
marrow in place of a standard marrow transplant provides several major
advantages. Response's experience indicates that patients participating in an
IMPACT Center protocol will require a hospital stay of approximately 10-15
days. Conventional bone marrow transplants may require a hospital stay of 25-35
days. Because a significant amount of patient preparation and treatment is
accomplished in an outpatient setting, Response estimates the cost of its
procedure, including hospitalization, to be approximately $75,000. Virtually
all references to the cost of this widely publicized procedure by other
providers places the cost in excess of $100,000. Response also believes, based
upon statistical analysis of its clinical data, that the mortality rate
associated with stem cell support is lower than with standard bone marrow
support. Furthermore, Response believes patients generally favor stem cell
support since the majority of the treatment is outpatient, and the procedures
are less invasive than a traditional marrow transplant.
An important aspect to Response's treatments is the maintenance of a clinical
trials program. Cancer care represents an evolving area of medicine in which
there are few "cures", or a consensus as to the current best treatment
approach. At the same time, improvements in advanced cancer management are
continuously being realized. The mechanism to achieve such improvements is the
use of a clinical trials program, involving carefully planned, uniform
treatment regimens administered to a statistically significant group of
patients. The monitoring of side effects and outcomes of these treatments
provides a rational means of improving future treatment regimens and predicting
which patients are most likely to benefit from the treatments. This is the
approach to cancer care advocated by the National Cancer Institute,
universities, and many cancer practitioners.
Response's target population is patients with diseases proven to be
chemo-sensitive. Intensification of chemotherapy doses in many instances
results in dramatic improved disease response and improved health outcomes for
patients. Accordingly, while Response's treatment procedures are developmental
by design, they are not regarded as experimental.
Response - Customers and Markets
The science involved in the treatment of cancer is undergoing significant
advances, particularly as a result of continuing pharmaceutical developments.
Because of significant existing demands on the private oncologist's time, it
can be difficult for a practicing oncologist to stay abreast of advanced
technology and develop the necessary support services to utilize the technology
in an efficient, organized treatment program. Response hopes to fulfill the
needs of leading oncology groups by identifying the most promising technologies
and organizing delivery systems to treat patients with these technologies
through its IMPACT Centers.
Each oncologist who agrees to become associated with an IMPACT Center enters
into an agreement with Response whereby the oncologist provides medical
direction to Response's employees in the IMPACT Center, participates in a
quality assurance program, assists in credentials review of potential
participating oncologists, makes rounds on patients being treated in the
Center, and is available "on call" during treatment episodes. The medical
directors of each Center are compensated on a fixed fee basis for their
services. Response does not employ practicing oncologists.
Response regards itself as an extension of an oncologist's practice since the
IMPACT Centers provide support facilities to physicians. Response believes that
a competitive advantage in attracting leading physicians is achieved in its
ability to provide advanced cancer treatment technologies that might not
otherwise be efficiently available to the physicians. Response does not market
its services to patients or the general public, but relies on the medical
directors and payors to refer suitable patients for treatment.
Response - Current Operations - The IMPACT Centers
A typical IMPACT Center maintains a licensed pharmacy, laboratory, blood bank,
and patient treatment facilities to provide the high-dose protocols and other
support services to the private practicing oncologists. The Centers are
equipped to prepare and administer chemotherapy; mobilize, harvest, process and
cryo-preserve stem cells; reinfuse stem cells; transfuse blood products and
administer IV fluids; and provide home pharmacy care. The staffing of the
Centers consists of registered nurses and pharmacists, pharmaceutical
technicians and medical laboratory technologists. Each Center occupies
approximately 3,000 square feet. Response also operates a central reference
laboratory in Memphis which evaluates stem cell harvests by flow cytometry and
other assays.
Response developed and opened its first IMPACT Center in November 1989 in
Memphis. As of February 15, 1994, Response has twenty-eight IMPACT Centers
located in sixteen states. Response intends to develop a nationwide network of
Centers over the next several years with anticipated openings of six Centers
per year. Negotiations are currently in process with a number of oncology
groups in other cities, and Response intends to aggressively pursue growth
opportunities. Such further expansion as anticipated by management is dependent
upon Response's ability to attract oncologists to serve as medical directors,
find suitable employees, arrange adequate financing, and obtain proper
licensure.
Response - Government Regulation
Response's services are subject to federal and state licensing requirements in
each of the states in which it operates. In order to maintain such licensure,
Response must comply with applicable regulations and is subject to periodic
compliance inspections by healthcare regulators. Response is, to the best of
its knowledge, in compliance with all material applicable state and federal
licensing requirements.
The law regulating healthcare providers varies among states. Accordingly,
Response approaches its planning for additional IMPACT Centers on a state by
state basis in order to determine whether the institution and operation of an
IMPACT Center is feasible under the laws of the target state. Healthcare
regulation is a rapidly evolving area of law. There can be no assurance that
Response's ability to open or operate IMPACT Centers will not be adversely
affected by changes in applicable federal or state law (such as certificate of
need laws) or by administrative interpretation of existing law.
At December 31, 1993, Response's IMPACT Centers in Dayton, Ohio and Grand
Rapids, Michigan were being reviewed for possible noncompliance with
certificate of need regulations in those states. In both cases Response is
disputing the review due to a "grandfathering" clause in the law. If Response
is unsuccessful in the dispute, the Centers will be required to cease services.
The financial impact, however, would not be material to the operations or
financial position of Response.
Some protocols which Response may desire to implement at the IMPACT Centers may
be subject to regulatory approval by the FDA due to the drugs or combination of
drugs used in the protocols. In most instances, such approval will be sought by
manufacturers of the drugs; however, Response may occasionally participate in
such an approval process.
The majority of patients referred to the Centers are covered by a third party
insurer. Response receives very little of its revenue from Medicare since
patients eligible for Medicare generally are not medically eligible for
high-dose treatment protocols.
Response believes that its method of compensating its medical directors
complies with state and federal anti-kickback and similar regulations.
Specifically, medical directors are compensated on a fixed-fee basis which is
renegotiated no more frequently than annually. While Response believes that it
has taken appropriate precautions with respect to establishing such fees, there
is no assurance that Response will not be determined to be in violation of
existing or future government regulations. In the event Response is determined
to be in violation of any such regulation, it would attempt to restructure its
medical director payments in a manner which complies with the regulation.
Response - Competition
Response is not aware of any other organization operating IMPACT Centers or
comparable facilities. However, there are many other firms that separately
provide components of the services offered in the IMPACT Centers. Additionally,
university-based hospitals provide many of the services which Response offers.
Competition among hospitals in the United States is particularly strong at the
present time, and many hospitals are seeking new sources of revenue. It is
possible that hospitals in areas where IMPACT Centers are located will decide
to institute new services in order to compete with the IMPACT Centers.
Response - Business History and Past Operations
Response was incorporated in Tennessee in 1984 under the name of
Biotherapeutics Incorporated and began operations in 1985 performing
patient-funded biotherapy research for advanced cancers. From inception through
February 1989, Response developed a nationwide system of 15 laboratories which
provided these biotherapy research services. During fiscal 1989, after Response
had suffered losses since incorporation of over $30 million, management
concluded that Response's operations would not become profitable because, among
other reasons, its strategy of selling research services directly to patients
was not widely accepted by physicians and other healthcare providers. As a
result, management adopted a plan of restructuring and reorganization of
Response's business operations. The plan of restructuring and reorganization
involved a redirection of Response's efforts away from laboratory operations
and patient funded research services to clinical support services for
oncologists through the operation of the IMPACT Centers.
Response - Liability Exposure
Like all companies operating in the healthcare industry, Response faces an
inherent risk of exposure to liability claims. While Response has taken what it
believes to be appropriate precautions, there can be no assurance that it will
avoid significant liability exposure. Response has obtained liability
insurance, but there can be no assurance that it will be able to continue to
obtain coverage at affordable rates or that such coverage will be adequate in
the event of a successful liability claim. Since inception, Response has not
incurred any professional or general liability claims or losses, and as of
December 31, 1993, Response was not aware of any pending claims.
Response - Employees
As of February 15, 1994, Response employed 201 full-time employees. The
employees are not covered by any collective bargaining agreements. Response
believes that employee relations are good.
PYRAMID DIAGNOSTIC SERVICES, INC.
The Registrant acquired in December 1992 its second investment in a healthcare
operating subsidiary with the purchase of a 51% interest in Pyramid Diagnostic
Services, Inc. (Pyramid). The original $4 million purchase price included
newly-issued shares, thereby providing expansion financing to Pyramid. During
1993, the Registrant acquired an additional 18% ownership position in Pyramid.
Pyramid's four pharmacies distribute radiopharmaceuticals and related services
to nuclear medicine departments, clinics and hospitals. Pyramid anticipates
opening approximately four new pharmacies annually. The financial results of
Pyramid were consolidated in 1993. See Note 1 of Notes to Consolidated
Financial Statements for additional information.
OTHER BUSINESSES
BMA RESOURCES, INC.
BMA Resources, Inc. (Resources) holds the Registrant's energy investments. No
new energy investments are being made, and it is the Registrant's intent to
maximize cash flow from Resources to be deployed in healthcare and insurance
services. The investments include oil and gas working interests, oil and gas
partnerships and a stock investment in an unconsolidated affiliate. The oil and
gas working interests primarily consist of interests in East Texas gas wells.
East Texas activity will concentrate on production and development only, with
no exploration activity. The partnership activity is focused on Gulf Coast
offshore oil and gas exploration and development activity. Resources, through
partnerships, has leasehold positions in the Gulf of Mexico, in addition to
proven reserves.
Resources has an approximate 30% equity interest in GTG, Inc. which owns a
patented process to convert natural gas into heavier hydrocarbons, including
fuels and industrial waxes. With a completed proof of concept, GTG is pursuing
commercialization of the process.
TENENBAUM & ASSOCIATES, INC.
Tenenbaum & Associates, Inc. (TAI) is a full service real estate, personal
property and sales and use tax consulting firm providing tax consulting
services on a contingency basis. TAI's core business is commercial real
estate. During the latter part of 1991, in an effort to offset the cyclical
nature of its core business, TAI entered into joint marketing agreements to
provide personal property and sales and use tax consulting services. TAI
benefits from these arrangements through revenue-sharing in exchange for its
national marketing services. TAI also targeted the industrial real estate
market to augment sales from an ailing commercial real estate industry.
CAMELLIA CITY TELECASTERS, INC.
Camellia City Telecasters, Inc. (Camellia) is a wholly-owned subsidiary. Having
sold the majority of its television assets during 1989, Camellia is currently
inactive.
DISCONTINUED OPERATIONS
REAL ESTATE
The Registrant holds real estate through a wholly-owned subsidiary, Scout
Development Corporation. Real estate holdings as of December 31, 1993 consisted
of approximately 1,500 acres of partially developed and undeveloped land in 9
locations, three residential development projects, a multi-story parking
garage, a community shopping center and commercial buildings. Real estate
assets are located in the following states: California, Colorado, Florida,
Kansas, Missouri, Nevada, New Mexico, Oklahoma, Texas, and Wyoming, all of
which are listed for sale.
In June 1992, the Registrant's board of directors approved a plan for the
discontinuance of real estate operations. During 1990, Seafield indicated that
it planned to substantially decrease its commitments in real estate development
activities. Since then, management had observed that the overall real estate
environment indicated continuing signs of weakness. After reviewing sales
activity and appraisals in 1992, the Registrant believed it was an appropriate
time to discontinue real estate operations and sell the remaining real estate
assets as soon as practicable. See Item 7 and Note 13 of the Notes to
Consolidated Financial Statements for additional information on discontinued
real estate operations.
INSURANCE
Individual insurance, group insurance and reinsurance operations were
discontinued in 1990, when the Registrant sold 95% of the issued and
outstanding shares of common stock of the Registrant's wholly-owned life
insurance subsidiary. A $32.2 million after-tax gain was recorded during 1990
on the sale of insurance operations.
The Registrant finalized the sale of the remaining 5% interest in its former
insurance subsidiary to an affiliate of the purchaser on June 30, 1992. The
Registrant received $12.8 million cash resulting in a 1992 after-tax gain of
$4.3 million which is included in the consolidated financial statements as gain
on disposal of discontinued insurance operations. The sale of the remaining
interest consisted of shares which had been pledged to serve as collateral
under a mortgage guaranty provision contained in the 1990 Sales Agreement.
Concurrent with the sale of the final 5% interest, the Registrant was released
from mortgage guarantees which originally totaled approximately $16 million.
See Item 7 and Note 13 of Notes to Consolidated Financial Statements for
additional information on discontinued insurance operations.
TELEVISION
Television broadcasting operations, which were discontinued during 1989,
consisted of Camellia and Centennial Broadcasting Corporation (Centennial).
Camellia sold its broadcasting assets during 1989 which resulted in an
after-tax gain of $19.6 million. The sale of Centennial stock resulted in a
$6.3 million gain on sale of television operations in 1990.
* * *
The following listing shows the Registrant and each subsidiary corporation of
which the Registrant owns a majority interest, together with the ownership
percentage and state or country of incorporation.
SEAFIELD CAPITAL CORPORATION (Missouri)
LabOne, Inc. (Delaware) 82%
Head Office Reference Laboratory, Ltd. (Canada) 100%
Response Technologies, Inc. (Tennessee) 59%
Agency Premium Resource, Inc. (Kansas) 95%
Agency Services, Inc. (Kansas) 100%
International Underwriting Services, Inc. (Illinois) 80%
Pyramid Diagnostic Services, Inc. (Delaware) 69%
BMA Resources, Inc. (Missouri) 100%
Tenenbaum & Associates, Inc. (Missouri) 79%
Camellia City Telecasters, Inc. (California) 100%
Scout Development Corporation (Missouri) 100%
Scout Development Corporation of New Mexico (Missouri) 100%
Carousel Apartment Homes, Inc. (Georgia) 100%
ITEM 2. PROPERTIES.
Properties of Registrant
Registrant has a long-term lease for approximately 13,674 square feet of office
space at 2600 Grand at the Crown Center complex in Kansas City, Missouri. This
lease is for a ten year term which began April 1, 1992. Registrant's real estate
subsidiary holds diversified types of properties for sale or investment purposes
in various geographical locations. In certain cases projects are developed on a
joint venture basis with one or more joint venture partners. Title to property
in such cases may be held jointly with such partners or in the name of the
venture. Rights and obligations with respect to such properties are governed by
the terms of the joint venture agreement. Registrant's real estate is described
in greater detail in Item 1 and Schedule XI. The Registrant and subsidiaries
lease office space, equipment, land and buildings under various noncancelable
leases expiring through 1999. See Note 8 of the Notes to Consolidated Financial
Statements for additional information.
ITEM 3. LEGAL PROCEEDINGS.
A lawsuit was initiated in 1986 by the Registrant's former insurance subsidiary
against an architectural and engineering firm and a construction firm to
recover costs incurred to remove and replace the facade on the former home
office building. Because the costs had been incurred prior to any discussions
regarding a sale of the insurance company, Registrant negotiated with the buyer
for an assignment of the cause of action from the insurance company. Thus, any
recovery will be for the benefit of the Registrant and all costs incurred in
connection with the litigation will be paid by the Registrant. Any ultimate
recovery will be recognized as income when received and would be subject to
income taxes. In September 1993, the Missouri Court of Appeals reversed a $5.7
million judgement granted in 1992 in favor of the Registrant. Trial counsel
was authorized to seek a rehearing by the Court of Appeals, and failing that, a
review by the Missouri Supreme Court. The Court of Appeals notified counsel in
November 1993 that it would rehear the case without oral arguments or further
briefs.
In 1990, the Registrant's former insurance subsidiary was joined in an existing
lawsuit by the Federal Deposit Insurance Corporation (FDIC) as successor to
Sunbelt Service Corporation. The FDIC alleged that the insurance subsidiary was
obligated under a repurchase agreement in the approximate amount of $6 million.
At a mediation proceeding in January 1994, the FDIC agreed to dismiss its
claims against Seafield with prejudice.
In 1988, a lawsuit was initiated against the Registrant's former insurance
subsidiary by its former partners in the Quail Run real estate project in Santa
Fe, New Mexico. The plaintiffs seek approximately $11 million in actual damages
and unspecified punitive damages based upon alleged breaches of contract and
fiduciary duty and economic compulsion, all arising out of the purchase of the
plaintiffs' interest in the project. In November 1993, the Appeals Court
overturned a partial summary judgment granted in favor of the Registrant in
1992. Thus, all issues in the case will be presented at trial which has been
set for July 1994.
Because the Quail Run project was retained by Registrant in connection with the
sale of its former insurance subsidiary, Registrant is defending the lawsuit
under an indemnification arrangement with the purchaser of the former insurance
subsidiary; all costs incurred and any judgements rendered in favor of the
plaintiff in connection with this litigation will be for the account of the
Registrant.
In the opinion of management, after consultation with legal counsel and based
upon current available information, none of these lawsuits is expected to have
a significant impact on the consolidated financial statements of the Registrant.
See Note 3 of Notes to Consolidated Financial Statements for additional
information concerning contingencies.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
NONE.
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT.
Following is a list of all executive officers of Registrant as of March 1, 1994,
together with certain related information. There are no arrangements or
understandings among any such persons and any other persons pursuant to which
any was selected as an officer. All such persons serve at the discretion of the
board of directors.
Served as Executive
Officer with
Name Age Position with Registrant Registrant Since
S.K. Fitzwater 47 Vice President, Chief Accounting 1990
Officer and Secretary (see note 1 below)
W.T. Grant II 43 Chairman and Chief Executive Officer 1980
(see note 2 below)
P.A. Jacobs 52 President and Chief Operating Officer 1980
(see note 3 below)
J.R. Seward 41 Executive Vice President and 1989
Chief Financial Officer (see note 4 below)
B. H. Hood 48 Chairman, President and 1993
Chief Executive Officer of
LabOne, Inc. (see note 5 below)
W.H. West, M.D. 46 Chairman and Chief Executive Officer 1993
of Response Technologies, Inc.
(see note 6 below)
Except as noted below, each executive officer of Registrant has held the
executive position noted with Registrant or similar positions with its former
insurance subsidiary as his or her principal occupation for the last five
years.
1. Steven K. Fitzwater has been Vice President and Chief Accounting
Officer since August 1990. Effective April 1, 1993, he assumed the
additional duties of Secretary of the Registrant. Formerly he was
Director of Financial Accounting.
2. William T. Grant II became Chairman of the Board and Chief Executive
Officer in May 1993. He had been President and Chief Executive
Officer since 1986.
3. P. Anthony Jacobs became President and Chief Operating Officer in May
1993. He had been Executive Vice President and Chief Operating Officer
since 1990 and was Executive Vice President-Investments from 1988-90.
4. James R. Seward became Executive Vice President and Chief Financial
Officer in May 1993. He had been Senior Vice President and Chief
Financial Officer since August 1990. He was Vice President - Special
Equities from October 1988 until July 1990 and Manager of Special
Equities from July 1984 to October 1988.
5. LabOne, Inc. is 82% owned by the Registrant. The Registrant's board
of directors has designated Mr. Hood as an Executive Officer of the
Registrant because LabOne was determined to constitute a principal
business unit of the Registrant. Mr. Hood is not a corporate officer
of the Registrant. Mr. Hood has held his LabOne position for the past
four months. Mr. Hood was an independent consultant to major clinical
testing laboratories from June 1992 to August 1993. From May 1990 to
May 1992, Mr. Hood was President and Chief Executive Officer of Unilab
Corporation d/b/a/ MetWest, Inc. From 1974 to 1988, Mr. Hood served
in various management positions for International Clinical Laboratories
(ICL), becoming a regional officer in 1980, a corporate officer in
1984, and a member of its board of directors in 1986.
6. Response Technologies, Inc. (Response) is 59% owned by the Registrant.
Effective February 1993, the Registrant's board of directors designated
Dr. West as an Executive Officer of the Registrant because Response
was determined to constitute a principal business unit of the
Registrant. Dr. West is not a corporate officer of the Registrant.
Prior to January 1993, Dr. West was President and Chief Executive
Officer of Response.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Registrant's common stock is traded in the national over-the-counter market and
is listed in the NASDAQ National Market System maintained by the National
Association of Securities Dealers. As of February 1, 1994, the outstanding
shares were held by 2,117 stockholders of record. High and low sales prices for
each quarter of 1993 and 1992 are included in the table of quarterly financial
data in Note 14 of the Notes to Consolidated Financial Statements. Also set
forth in the table are quarterly dividends paid per share. Registrant's payment
of future dividends will be at the discretion of its board of directors and can
be expected to be dependent upon a number of factors, including future
earnings, financial condition, cash needs and general business conditions. The
dividend-paying capabilities of subsidiaries may be restricted as to their
transfer to the parent company.
ITEM 6. SELECTED FINANCIAL DATA
December 31, 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------
(In thousands except share amounts)
REVENUES $ 129,867 111,332 85,240 85,009 82,356
=============================================
OPERATING EARNINGS
Earnings from continuing
operations $ 5,618 4,168 7,909 6,657 10,295
Discontinued operations
(net of taxes):
Earnings (loss) from
discontinued operations:
Real estate -- (7,214) (2,464) (27,946) (3,321)
Television -- -- -- -- (1,373)
Insurance -- -- -- 11,872 18,195
Gain on disposal of
discontinued operations:
Television -- -- -- 6,262 19,584
Insurance -- 4,265 -- 32,220 --
Cumulative effect to January 1,
1992 of change in method of
accounting for income taxes -- 3,352 -- -- --
---------------------------------------------
Net earnings $ 5,618 4,571 5,445 29,065 43,380
=============================================
PER SHARE OF COMMON STOCK
Earnings from continuing
operations $ .82 .55 .94 .71 1.06
Discontinued operations
(net of taxes):
Earnings (loss) from
discontinued operations:
Real estate -- (.95) (.29) (2.96) (.34)
Television -- -- -- -- (.14)
Insurance -- -- -- 1.26 1.88
Gain on disposal of
discontinued operations:
Television -- -- -- .66 2.02
Insurance -- .56 -- 3.41 --
Cumulative effect of
accounting change -- .44 -- -- --
---------------------------------------------
Net earnings $ .82 .60 .65 3.08 4.48
=============================================
Cash dividends $ 1.20 1.20 1.20 4.90 1.20
Book value $ 33.52 34.00 34.61 33.72 35.93
Average shares outstanding 6,847,559 8,429,565 9,686,695
during the year 7,589,043 9,443,438
Shares outstanding 6,733,245 7,727,850 9,706,228
end of year 6,706,165 8,909,546
Total assets $ 274,293 280,514 317,089 340,864 370,144
Long-term debt $ 18 1,013 2,902 1,054 --
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Introductory remarks about results of operations
When the process of transforming Seafield Capital Corporation (Seafield or the
Registrant) from an insurance company to a holding company with a new focus
began in late 1990, Seafield's principal assets consisted of a significant
amount of cash, a holdover portfolio of real estate investments which could not
be sold with the insurance company, interests in several venture capital
investments, and a majority ownership of LabOne, Inc. The strategy of Seafield
is deployment of resources into developing businesses that provide services to
the healthcare and insurance industries. The sources of cash for these
investments are the proceeds from the sale of the insurance company, gains on
securities transactions, the discontinuance of the real estate operations and
the sale of other assets that do not support the new strategic focus.
Insurance - discontinued operations
Individual insurance, group insurance and reinsurance operations were
discontinued on July 31, 1990, when Seafield sold 95% of the issued and
outstanding shares of common stock of Seafield's wholly-owned life insurance
subsidiary. A $32.2 million after-tax gain was recorded during 1990 on the
sale of insurance operations.
Seafield finalized the sale of the remaining 5% interest in the former
insurance subsidiary to an affiliate of the purchaser on June 30, 1992.
Seafieldreceived $12.8 million cash resulting in a 1992 after-tax gain of $4.3
million which is included in the consolidated financial statements as gain on
disposal of discontinued insurance operations. The sale of the remaining
interest consisted of shares which had been pledged to serve as collateral
under a mortgage guaranty provision contained in the 1990 Sales Agreement.
Concurrent with the sale of the final 5% interest, Seafield was released from
mortgage guarantees which originally totaled approximately $16 million.
Real Estate - discontinued operations
In June 1992, Seafield's board of directors approved a plan for the
discontinuance of real estate operations. During 1990, Seafield indicated that
it planned to substantially decrease its commitments in real estate development
activities. Since then, management had observed that the overall real estate
environment indicated continuing signs of weakness. After reviewing sales
activity and appraisals in 1992, Seafield believed it was an appropriate time
to discontinue real estate operations and sell the remaining real estate assets
as soon as practicable.
As a result of the decision to discontinue real estate, a $6 million after-tax
provision for estimated write-downs and costs through final disposition was
included in the 1992 financial statements as a loss from discontinued real
estate operations. Real estate's net assets have decreased from approximately
$80 million at discontinuance to $52.6 million at December 31, 1993. Net cash
proceeds of approximately $27 million have been generated from real estate
since its discontinuance at June 30, 1992. See Note 13 of Notes to
Consolidated Financial Statements for additional information concerning
discontinued real estate operations.
In 1993, real estate sales included the sale of: 84 residential units or lots
in Florida, New Mexico, and Texas ($15.9 million), land in Tennessee ($360,000)
and a partnership interest in an apartment complex in Georgia ($850,000). In
1992, real estate sales included the sale of: 30 acres of Texas land
($484,000), 1 commercial lot in Wyoming ($589,000), an interest in 3 acres of
Hawaii land ($10.1 million), 122 residential units or lots in Florida, New
Mexico, and Texas ($16.6 million) and 3 lots, one model home and one partially
completed home at the ocean front property in Florida ($5.9 million). In 1991,
real estate sales consisted of 66 residential units or lots ($15.6 million) and
127 acres of land in Texas ($2.1 million).
Remaining real estate holdings include residential land, undeveloped land,
single-family housing, and commercial structures located in the following
states: California, Colorado, Florida, Kansas, Missouri, Nevada, New Mexico,
Oklahoma, Texas and Wyoming, all of which are listed for sale.
Insurance Services Segment
The following businesses are considered to be in the insurance services
segment: laboratory testing for the life and health insurance industries,
underwriting and policy administration services and insurance premium finance
services. Seafield's interest in an employee benefit consulting services entity
was sold during 1992.
LabOne, Inc. (LabOne) an 82% owned subsidiary of Seafield, is a publicly-traded
company (NASDAQ-LABS). In 1993, LabOne announced its intentions to expand into
the clinical laboratory testing market. With a name change from Home Office
Reference Laboratory, Inc. to LabOne, Inc. on February 21, 1994, separate
marketing divisions were formed to focus on the specific laboratory testing
needs of the insurance and clinical markets.
A Home Office Reference Laboratory (HORL) division will continue to operate as
a provider of risk-appraisal laboratory testing services to the insurance
industry. A new division, Center for Laboratory Services (CLS), will market
diagnostic laboratory testing services to the healthcare industry. This
reorganization is intended to further the corporation's diversification
objectives to enter the clinical laboratory testing market and remain the
leader in the insurance laboratory testing market. LabOne anticipates that
testing for the clinical market will begin during the second quarter 1994,
depending primarily upon the length of the sales cycle and initial customer
acceptance of CLS services.
LabOne offers a core group of urine tests, controlled substance tests,
insurance-oriented blood chemistry profiles, and a series of AIDS-related
tests. LabOne's revenues decreased approximately 7% in 1993 to $69.4 million
from $74.4 million in 1992 due primarily to an 8% decrease in laboratory
revenue. Laboratory testing revenues were lower as the result of fewer
applicants tested and a 5% decrease in the average revenue per applicant.
Average revenue per applicant was lower primarily due to a decrease in prices
as a result of continued competitive pressures. The total volume of applicants
tested decreased primarily due to a decline in the number of medical insurance
applicants tested. The number of medical insurance applicants tested as a
percentage of total applicants tested declined from 9% in 1992 to 6% in 1993.
LabOne's revenues were 2% lower in 1992. Although the total unit volume of
tests performed in 1992 increased by approximately 5%, revenues decreased as a
result of an 8% decline in the average revenue per applicant tested. Average
revenue per applicant was lower primarily due to a decrease in unit prices as
a result of continued competitive pressures and a shift in product mix toward
less expensive testing options.
LabOne's cost of sales decreased 5% in 1993. This is primarily due to lower
depreciation, materials and supplies and product licensing expenses. Materials
and supplies expense decreased as a result of fewer tests performed, lower
costs of certain test supplies and fewer specimen collection kits sold.
Selling, general and administrative expenses were slightly lower than 1992.
The insurance premium finance services operation experienced continued growth
in both profitability and book of business. New premiums financed totaled
$61.5 million in 1993, $40 million in 1992 and $24.4 million in 1991. The
number of contracts written in 1993 was 10,277 compared to 6,465 and 3,248 in
1992 and 1991, respectively. In July 1993, Seafield's 95% owned subsidiary
entered into an extendable two-year agreement whereby it can sell undivided
interests in a designated pool of accounts receivable on an ongoing basis.
As collections reduce accounts receivable in the pool, additional sales may
be made up to the maximum. The maximum allowable amount of receivables to be
sold is $22 million. During 1993, $19 million of receivables were sold with
$10.5 million used for retirement of debt which was partially guaranteed by
Seafield. See Note 5 of Notes to Consolidated Financial Statements for
additional information regarding securitization of receivables.
The underwriting and policy administration services business was negatively
impacted by a merger and liquidation of two major customers late in 1992.
Whilethis subsidiary did not achieve profitability in 1993, new business
development is positive with the signing of ten new client companies. This
signifies acceptance of the company's new product for the underwriting and
service of life insurance policies. It takes several months before customer
policies obtain state approvals and before production becomes significant.
Healthcare Services Segment
Two businesses are included in the healthcare services segment. One provides
advanced cancer treatment services, and the other distributes
radiopharmaceuticals and performs related nuclear medicine services.
Response Technologies, Inc. (Response), a 59%-owned subsidiary of Seafield, is
a publicly-traded company (AMEX-RTK). Response is a provider of advanced cancer
treatments and related services, principally on an outpatient basis, through
treatment centers operated by Response. The centers, known as IMPACT
(IMPlementing Advanced Cancer Treatments) Centers, are staffed by experienced
oncology nurses, pharmacists, laboratory technologists and other support
personnel to deliver outpatient services under the direction of private
practicing oncologists. The primary treatments provided by the Centers involve
high-dose chemotherapy coupled with support of the patient's immune system
through the use of autologous peripheral blood stem cell reinfusion. The
Centers also provide home pharmacy and outpatient infusional services for its
patients. As of December 31, 1993, Response had twenty-eight IMPACT Centers
located in sixteen states.
An initial investment in Response was made in October 1990. On November 1,
1991, Seafield exercised warrants which increased its ownership position in
Response to approximately 52% from 44%. Seafield exercised its remaining
warrants in May 1992, resulting in Seafield owning a total of 18,735,000 shares
at an average cost of $0.57 per share. Seafield participated in Response's
rights offering to shareholders on June 12, 1993 and purchased an additional
1,873,500 shares at a cost of $2.75 per share. At December 31, 1993, Seafield
owned 20,608,500 shares of Response at an average cost of $0.77 per share.
Assuming maximum dilution from Response's present stock options, warrants and
convertible securities, Seafield's ownership position in Response would
decrease to approximately 56% from the approximate 59% position of current
shares outstanding.
With a majority ownership position, the financial results of Response in 1993
and 1992 have been consolidated in Seafield's financial statements while only
November and December were consolidated during 1991. Response recorded net
earnings (loss) of $700,000, $591,000, and ($828,000) for the years ended
December 31, 1993, 1992 and 1991, respectively. Net revenues increased $9.8
million, or 35%, in 1993 and $16.7 million, or 149%, in 1992. The increases
are attributable to the establishment of new IMPACT Centers (six during 1993
and ten during 1992) and the maturation of operations of existing Centers.
Response's operating expenses increased $9.5 million, or 47%, during 1993 and
$11.1 million, or 122%, during 1992. Operating expenses consist primarily of
payroll costs, pharmaceutical and laboratory expenses, medical director fees,
rent expense and other operational costs. These expenses are expected to
display a high degree of variability in proportion to IMPACT Center revenue.
Response's operating expenses, as a percentage of net revenue, increased to 79%
in 1993 from 73% in 1992, but decreased from 82% in 1991. The increase in 1993
is primarily attributable to an increase in lower margin revenue from
pharmaceutical sales to physicians and infusional services. In addition, a
large number of newer Centers were not yet profitable. The decrease in 1992
resulted from efficiency of operations as revenue increased and improved
economies of scale.
Response's laboratory and pharmacy expense, which are largely variable costs
tied to revenue growth, increased 48% during 1993 and 111% during 1992.
Increases in Response's salaries and benefits, medical director fees and rent
expense during 1993 and 1992 are due to the increase in the number of operating
Centers: to 28 in 1993, 22 in 1992, and 12 in 1991. The medical directors of
each Center are compensated on a fixed fee basis for their services.
Response's general and administrative costs increased 9% in 1993 and 73% in
1992. Salaries and benefits represent the largest component of general and
administrative expenses. General and administrative costs as a percentage of
net revenues decreased to 8% in 1993 from 9% in 1992 and 14% in 1991. The
decreases are the result of fixed expenses being spread over a larger revenue
base, as well as management's ability to control such expenses during a period
of rapid revenue growth.
Response's provision for doubtful accounts decreased $1.1 million during 1993
but increased $2.4 million from 1991 to 1992. The provision as a percentage of
net revenue was 7%, 13% and 11% for the 12 months ended December 31, 1993, 1992
and 1991, respectively. The 1993 decrease is attributable to insurance
pre-approval procedures implemented during the fourth quarter of 1992. This
change provides important clarification of reimbursement expectations for most
patients prior to commencing their treatment. Significant bad debt recoveries
were also experienced during 1993. The increase from 1991 to 1992 was
primarily attributable to the increase in revenue from the IMPACT Centers.
Although Response is obtaining increased insurance pre-approval, the insurance
industry is becoming more restrictive in its rates of reimbursement.
Accordingly, Response's collection experience in 1993 may not be maintainable
in future periods.
In 1992, Seafield acquired its second investment in a healthcare operating
subsidiary with the December purchase of a 51% interest in Pyramid Diagnostic
Services, Inc. (Pyramid). The original $4 million purchase price included
newly-issued shares, thereby providing expansion financing to Pyramid. During
1993, Seafield acquired an additional 18% ownership position in Pyramid.
Pyramid's four pharmacies distribute radiopharmaceuticals and related services
to nuclear medicine departments, clinics and hospitals. Pyramid anticipates
opening approximately four new pharmacies annually. The financial results of
Pyramid were consolidated with Seafield's in 1993. See Note 1 of Notes to
Consolidated Financial Statements for additional information.
Other Segments
Seafield's oil and gas subsidiary contributed revenues of $4.7 million in 1993,
as compared to $3.4 million in 1992 and $2.5 million in 1991. The operating
losses for this subsidiary resulted from increased oil and gas expense
amortization exceeding the revenue increases. After retiring consolidated debt
of approximately $2.4 million in 1993, Seafield's cash flow from oil and gas
investments was in excess of $800,000. On January 1, 1993, Seafield increased
its ownership position from 50% to 79% in a real estate, personal property,
sales and use taxes consulting firm. Other revenues in 1993 included $9.5
million from the tax consulting firm. Prior to 1993, this subsidiary was
accounted for by the equity method. See Note 1 of Notes to Consolidated
Financial Statements for additional information.
Other investments contributing earnings include venture capital and liquidity
investments. The return on short-term investments is included in the investment
income line in the consolidated statements of earnings. Investment income
totaled $10.2 million in 1993, $3.4 million in 1992 and $12.8 million in 1991.
The decrease during 1992 in investment income resulted from fewer realized
capital gains on investments, decreased amounts of invested funds and a pretax
write off of $4.3 million on a venture capital portfolio investment. During
1992, Seafield also wrote down its investment in another publicly-traded,
venture capital portfolio investment by $750,000 reflecting decreased market
price. Seafield sold this investment at carrying value during 1993. The 1992
decrease in other income reflects a 1991 gain on sale of the Company's
airplane, while the 1993 amount reflects expected litigation costs. See Item 3
and Note 3 of Notes to Consolidated Financial Statements for additional
litigation information. In 1992, the consolidated effective tax rate dropped
to 44% due primarily to an increase in non-taxable interest income,
non-recurring deductible items and reductions in non-deductible subsidiary
losses.
Seafield has investments in two majority-owned entities that are publicly
traded. At December 31, 1993, based on the market prices of publicly-traded
shares of these two subsidiaries, pretax unrealized gains of approximately $140
million on these investments were not reflected in either Seafield's book value
or stockholders' equity.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 1993 at the holding company level, Seafield had available for
operations approximately $47.1 million in cash and short-term investments with
an additional $6.8 million in long-term securities. Seafield utilized $13
million of its cash in January 1994 with the acquisition of 382,350 shares of
Seafield common stock as treasury stock. On a consolidated basis, Seafield and
its subsidiaries (primarily LabOne with $42.4 million) had $95.6 million in
cash and short-term investments at December 31, 1993. Current assets totaled
approximately $140 million while current liabilities totaled $20.9 million.
Net cash provided by continuing operations decreased to $18.9 million from
$22.9 million in 1992 reflecting the decrease in LabOne's insurance testing
revenues, as previously discussed.
During 1992, Seafield conducted a "Dutch Auction" tender offer to purchase up
to 2 million shares of Seafield stock. A total of 1,068,062 shares, about 14%
of Seafield's stock outstanding prior to the tender offer, were purchased and
retired. Cash totaling $35.1 million was utilized to acquire the shares at a
cost of $32.90 per share including expenses of the transaction.
In August 1990, Seafield's board of directors rescinded a previous
authorization and passed a new authorization of up to $70 million for the
acquisition of Seafield and LabOne common stock. Up to $20 million of this
authorization could be utilized to purchase LabOne stock.
At December 31, 1993, Seafield had $4.6 million remaining of the $50 million
authorization for Seafield common stock. In January 1994, Seafield's board of
directors approved an additional $8.4 million authorization necessary to
complete the acquisition of 382,350 shares for $13 million. During 1993,
treasury stock totaling 107,617 shares were issued for exercised options and
1,304,420 shares being held as treasury shares were retired.
Additionally, Seafield expended $2 million to acquire 115,800 shares of LabOne
in 1993. This resulted in a total of 1,418,000 shares of LabOne's stock
acquired under the board authorization at a cost of $16.6 million. In 1993,
Seafield's board of directors approved an additional $5 million for the
purchase of LabOne's stock resulting in a remaining aggregate authorization of
$8.4 million at December 31, 1993.
Seafield is primarily a holding company. Sources of cash are investment income
and sales, borrowings and dividends from subsidiaries. The dividend paying
capabilities of subsidiaries may be restricted as to their transfer to the
parent company. The primary uses of cash for Seafield are investments,
subsidiary stock purchases and dividends to shareholders.
Seafield received a notice during 1992 of proposed adjustments from the
Internal Revenue Service (IRS) with respect to 1986-87 federal income taxes.
Theamount of additional taxes proposed by the IRS was approximately $17
million. Seafield filed a protest of the adjustments in 1992. The IRS has not
yet responded to this protest. Seafield has also informally received proposed
adjustments for 1988-1989 from the IRS. The amount of additional taxes
proposed for these years is approximately $6 million. Seafield filed a
carryback claim for 1990 taxable losses with the IRS. These losses were
carried back to 1987, and the tax refund generated by this carryback is
approximately $7.6 million. The refund, however, will not be acted on by the
IRS until the IRS completes its review of the 1990 federal income taxes. This
review began in late 1993, and will likely not be completed until 1995.
Seafield believes it has meritorious defenses to many of the issues raised by
the IRS and adequate accruals for income tax liabilities.
In 1988, LabOne's board of directors authorized up to $25 million to enter the
market from time to time for the purpose of acquiring shares of LabOne's common
stock. As of December 31, 1993, LabOne had acquired 2,099,235 shares at a total
cost of $22.7 million. There were no shares purchased during 1993.
LabOne's first quarterly dividend was paid on December 30, 1991 with subsequent
quarterly dividends paid during 1992 and 1993. As an 82% owner, Seafield
received $7.6 million of cash as dividends from LabOne in 1993. LabOne's
working capital position increased by $5.9 million to $48.6 million at December
31, 1993 from $42.7 million at December 31, 1992. This increase is the result
of cash provided by operations exceeding the amount LabOne invested in capital
asset additions and dividends paid. LabOne's cash and investments totaled
$43.9 million at December 31, 1993 and LabOne expects to fund working capital
needs, capital additions, dividend payments and further treasury stock
purchases, if any, from a combination of cash reserves, cash flow and
short-term borrowings. LabOne had no short-term borrowings during 1993 and an
unsecured $1 million line of credit available for general corporate purposes
with no debt restrictions.
During 1993, LabOne invested $3.7 million in additional property, plant, and
equipment while 1992's investment totaled $3.1 million. Of the $3.7 million
spent in 1993, approximately $2 million was for the diversification into the
clinical testing market. Additional investments in property, plant and
equipment in 1994 for general operating purposes and diversification into the
clinical testing market are not expected to exceed the amount spent in 1993.
Response's working capital at December 31, 1993 was $13 million with current
assets of $19.9 million and current liabilities of $6.9 million. Cash and cash
equivalents and short-term investments represent $3.2 million of Response's
current assets. As of December 31, 1993, Response has a $5 million revolving
bank line of credit secured by accounts receivable with $2.4 million borrowed
under this line of credit at December 31, 1993.
On June 12, 1993, Response issued 2,117,887 shares of common stock pursuant to
a rights offering to its shareholders of record on March 12, 1993. Each
shareholder as of that date was issued a nontransferable right to purchase one
share of common stock for every ten shares owned. The purchase price was $2.75
per right, which was equal to 90% of the average closing price of the common
stock for the ten trading days immediately prior to the record date. Seafield
exercised 1,873,500 rights, its proportionate share. In addition, officers and
directors of Response exercised approximately 108,000 rights. Net proceeds to
Response amounted to $5.8 million.
Response plans to develop approximately six new IMPACT centers per year.
Management estimates that the opening of each new Center will require an
initial capital investment ranging from $200,000 to $300,000 and working
capital of $400,000. The development of such new Centers is dependent upon
several variables such as financing, identifying medical directors, and
obtaining licenses.
No material commitment for capital expenditures existed as of December 31,
1993. Capital expenditures of $1.5 million for the year ended December 31, 1993
were primarily associated with Response's opening of six new Centers and
additional expenditures for existing Centers. Response is committed to future
minimum lease payments under operating leases totaling $4.5 million for
administrative and operational facilities.
Insurance Services Trends
The following is LabOne's analysis of certain existing trends and changes in
both the insurance industry and the insurance laboratory testing industry that
have been identified as potentially affecting the future financial results of
LabOne. Due to the potential for a rapid rate of change in any number of
factors associated with the insurance laboratory testing industry, it is
difficult to quantify with any degree of certainty LabOne's future volumes,
sales or net earnings.
In the last several years, there has been a decline in the number of life
insurance policies issued. Additionally, a few states have enacted legislation
or regulations which have had the effect of reducing or eliminating the volume
of laboratory tests requested by medical insurers in those states. It is
likely that the trend will continue as more states enact legislation relating
to healthcare and medical insurance. If these trends continue, management
anticipates a decline in the total number of insurance applicants tested by
LabOne in 1994 as compared to 1993.
The insurance laboratory testing industry continues to be increasingly
competitive. Although the number of competitors has decreased, the degree of
competition has not diminished. The primary focus of the competition has been
on pricing and service. LabOne continues to maintain its market leadership by
providing quality products and services at competitive prices. Management
expects that prices will continue to decrease in 1994 due to competitive
pressures.
Based upon the combined effect of declining volumes and decreasing prices,
LabOne currently anticipates that revenues and net earnings related to
insurance testing in 1994 may not exceed the level achieved in 1993.
In the 1992 10-K Annual Report, LabOne's management reported that the FDA was
attempting to exert broader regulatory control over LabOne's business and all
testing laboratories. The areas of increased control that could impact LabOne's
business include: (1) whether FDA premarket approval may be required for
LabOne's continued commercial distribution and use of a blood and urine
specimen collection kit, (2) the FDA decision to require a premarket approval
application by Epitope, Inc. with respect to its OraSure(registered trademark)
specimen collection kit for saliva-based HIV antibody testing, as to which
device LabOne has a supply and distribution agreement with Epitope, and (3) a
draft FDA compliance policy guide stating that certain products routinely used
by laboratories may require FDA approval or clearance. LabOne's management is
not aware of any material developments in these areas affecting LabOne during
1993.
Healthcare Services Trends
It is generally anticipated that the healthcare industry will undergo
significant reform in the coming years and it is difficult for Response to
predict how it may be affected. There are several key factors which management
believes may position Response to benefit from healthcare reform. First is
Response's emphasis on cost reduction of advanced cancer treatments, primarily
through a combination of the use of out-patient facilities and incorporation
of the most recent technological advancements. Secondly, Response is emerging
as a national healthcare provider focused on a uniform delivery of complex
cancer technologies in the management of potentially curable cancers.
Response'scommitment to its clinical trials program provides an important
mechanism to monitor treatment outcomes to improve future treatment regimens
and to provide a means of objectively selecting patients most likely to benefit
from such treatments. Finally, Response's growing national network of Centers
will allow it to work in partnership with the insurance industry to manage
these intensive and complex therapies in a cost-efficient manner.
Response intends to devote significant marketing efforts in 1994 to develop a
new type of Center based within client hospitals. Response will provide
turnkey assistance to the hospital, including protocols, data collection and
analysis, employee training, reimbursement support and a nurse coordinator to
manage the program. The hospital will bill insurers directly for patient
services, with a per-patient management fee paid to Response. This arrangement
will allow a hospital to gain greater utilization of its existing staff and
facilities by offering high-dose chemotherapy treatments without incurring
additional overhead. This type of Center requires nominal capital investment
by Response.
New Accounting Standards
Seafield adopted Financial Accounting Standards Board Statement No. 106 -
"Employer's Accounting for Postretirement Benefits Other Than Pensions" in
1993. The adoption of Statement No. 106 had no significant impact on
Seafield's financial position or results of operations.
Seafield adopted Financial Accounting Standards Board Statement No. 115 -
"Accounting for Certain Investments in Debt and Equity Securities" in 1993.
Theadoption of Statement No. 115 had no significant impact on Seafield's
financial position or results of operations.
Seafield plans to adopt Financial Accounting Standards Board Statement No. 112
- - "Employer's Accounting for Postemployment Benefits" in the first quarter of
1994. The adoption of Statement No. 112 is not expected to have any
significant impact on Seafield's financial position or results of operations.
No other recently issued accounting standards presently exist which will
require adoption in future periods.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
Part III
ITEM 10. DIRECTORS OF THE REGISTRANT.
See Cross Reference Sheet, "Documents Incorporated by Reference."
ITEM 11. EXECUTIVE COMPENSATION.
See Cross Reference Sheet, "Documents Incorporated by Reference."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See Cross Reference Sheet, "Documents Incorporated by Reference."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See Cross Reference Sheet, "Documents Incorporated by Reference."
Cross Reference Sheet To Documents Incorporated By Reference PART III
Item 10. Directors and Executive Proxy Statement relating to Annual Meeting of
Officers of the Company Shareholders to be held May 11, 1994, under
the caption "Election of Directors - Nominees
and Directors whose terms expire in 1995 and
1996."
Item 11. Executive Compensation Proxy Statement relating to Annual Meeting of
Shareholders to be held May 11, 1994, under
the captions "Election of Directors."
Item 12. Security Ownership of Proxy Statement relating to Annual Meeting of
Certain Beneficial Shareholders to be held May 11, 1994, under
Owners and Management the captions "Election of Directors -
Security Ownership of Management and Security
Ownership of Certain Beneficial Owners."
Item 13. Certain Relationships Proxy Statement relating to Annual Meeting of
and Related Shareholders to be held May 11, 1994, under
Transactions the caption "Election of Directors - Certain
Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1993 and 1992
Consolidated Statements of Earnings -
Years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows -
Years ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules*
I. Marketable Securities - Years ended December 31, 1993 and 1992
VIII. Valuation and Qualifying Accounts and Reserves -
Years ended December 31, 1993, 1992 and 1991
IX. Short-term Borrowings -
Years ended December 31, 1993, 1992 and 1991
XI. Real Estate and Accumulated Depreciation - December 31, 1993
All other schedules are omitted because they are not applicable or the
information is given in the financial statements or notes thereto.
* Portions of Registrant's Proxy Statement for use in connection with the
Annual Meeting of Shareholders to be held on May 11, 1994 are incorporated by
reference into Part III of this report, if such Proxy Statement is filed with
the Securities and Exchange Commission on or before April 30, 1994. If such
Proxy Statement is not filed by such date, the information required to be
presented in Part III will be filed as an amendment to this report.
(3) Exhibits required by Item 601 of Regulation S-K (see Index to Exhibits in
paragraph (c) infra.)
(b) Reports on Form 8-K.
None.
(c) Index to Exhibits (Exhibits follow the Schedules);
3.1 Registrant's Articles of Incorporation, as amended (filed as Exhibit
3.1 to Amendment No. 1 to Registrant's Registration Statement on
Form S-4, filed April 8, 1988 (File No. 33-20298) and incorporated
herein by reference).
3.2 Amendment to Registrant's Articles of Incorporation, effective
May 15, 1991, (filed as Exhibit 3(b) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991 (File No. 0-16946)
and incorporated herein by reference).
3.3 Registrant's Bylaws, as amended (filed as Exhibit 3(c) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 0-16946) and incorporated herein by
reference).
4.1 Form of Rights Agreement dated April 5, 1988, between Registrant and
Morgan Shareholder Services Trust Company, as Rights Agent (filed as
Exhibit 4.1 to Amendment No. 1 to Registrant's Registration
Statement on Form S-4, filed April 8, 1988 (File No. 33-20298) and
incorporated herein by reference).
4.2 Form of Certificate of Serial Designation of Series A Preferred
Stock (filed as Exhibit 4.2 to Amendment No. 1 to Registrant's
Registration Statement on Form S-4, filed April 8, 1988, (File No.
33-20298) and incorporated herein by reference).
4.3 Amendment No. 1 to the Rights Agreement, dated November 14, 1988,
between Registrant and Morgan Shareholder Services Trust Company, as
Rights Agent (filed as Exhibit 1 to the Registrant's current report
on Form 8-K filed November 18, 1988 (File No. 0-16946) and
incorporated herein by reference).
4.4 Amendment No. 2 to the Rights Agreement, dated May 15, 1991, between
Registrant and First Chicago Trust Company of New York, as Rights
Agent (filed as Exhibit 4(d) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1991 (File No. 0-16946) and
incorporated herein by reference).
4.5 Notice and Agreement Respecting Removal of Rights Agent and
Appointment of Successor Rights Agent (filed as Exhibit 4(e) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 (File No. 0-16946) and incorporated herein by
reference).
10.1 Registrant's 1984 Stock Option Incentive Plan, as amended (filed as
Exhibit 10(b) to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990 (File No. 0-16946) and incorporated
herein by reference). **
10.2 Amendment to Registrant's 1984 Stock Option Incentive Plan,
effective August 17, 1992 (filed as Exhibit 10(b) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992
(File No. 0-16946) and incorporated herein by reference). **
10.3 Registrant's 1989 Stock Option and Incentive Plan (filed as Exhibit
28 to Registrant's Registration Statement on Form S-8 filed
April 17, 1989 (File No. 33-28150) and incorporated herein by
reference). **
10.4 Amendment to Registrant's 1989 Stock Option and Incentive Plan,
effective February 20, 1991 (filed as Exhibit 10(d) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990
(File No. 0-16946) and incorporated herein by reference). **
10.5 Registrant's 1991 Non-Employee Directors' Stock Option Plan and form
of Stock Option Agreement, effective May 15, 1991 (filed as Exhibit
10(e) to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 (File No. 0-16946) and incorporated herein by
reference). ***
10.6 * Amendment No. 1 to Registrant's 1991 Non-Employee Directors' Stock
Option Plan, dated November 10, 1993. ***
10.7 Registrant's Stock Purchase Plan, as amended (filed as Exhibit 10(e)
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990 (File No. 0-16946) and incorporated herein by
reference). ***
10.8 Amendment to Registrant's Stock Purchase Plan, effective May 15,
1991 (filed as Exhibit 10(g) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1991 (File No. 0-16946) and
incorporated herein by reference). ***
10.9 Amendment to Registrant's Stock Purchase Plan effective August 17,
1992 (filed as Exhibit 10(h) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1992 (File No. 0-16946) and
incorporated herein by reference). ***
10.10 Supplemental Retirement Agreement between the Registrant and P.
Anthony Jacobs, President of Registrant (filed as Exhibit 10(i) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 0-16946) and incorporated herein by
reference). **
10.11 Consulting Agreement, dated as of August 1, 1990, First Amendment to
Consulting Agreement, dated as of January 1, 1992, and Second
Amendment to Consulting Agreement, dated as of January 1, 1993, each
between the Registrant and W.D. Grant, director of the Registrant
(filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992 (File No. 0-16946) and
incorporated herein by reference). ***
10.12 Form of Supplemental Retirement Agreement between the Registrant and
senior executive officers (filed as Exhibit 10(k) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992
(File No. 0-16946) and incorporated herein by reference). **
10.13 Nonrecourse Promissory Note from William H. West, M.D., an executive
officer of Registrant, to Registrant and related Stock Pledge
Agreement, both dated July 21, 1992 (filed as Exhibit 10(l) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 0-16946) and incorporated herein by
reference).
10.14 Form of Termination Compensation Agreement between the Registrant
and senior executive officers (filed as Exhibit 10(g) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990 (File No. 0-16946) and incorporated herein by
reference). **
10.15 Form of Indemnification Agreement between Registrant and its
directors and executive officers (filed as Exhibit 10(i) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989 (File No. 0-16946) and incorporated herein by
reference).
10.16 Offer to Purchase shares of common stock of Registrant by
Registrant, dated August 19, 1992 (filed as Exhibit (a)(1) to
Registrant's Issuer Tender Offer Statement on Schedule 13E-4, filed
August 19, 1992 (File No. 5-42600) and incorporated herein by
reference).
10.17 * Services Agreement, dated January 1, 1993, among Registrant and
LabOne, Inc., relating to services and other matters among the
parties.
10.18 1985 Stock Option Plan of Response Technologies, Inc., as amended
(filed as Exhibit 10(q) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992 (File No. 0-16946) and
incorporated herein by reference). **
10.19 1990 Non-Qualified Stock Option Plan of Response Technologies, Inc.
(filed as Exhibit 10(r) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992 (File No. 0-16946) and
incorporated herein by reference). **
10.20 Employment Agreement between Response Technologies, Inc. and William
H. West, M.D., dated January 1, 1992 (filed as Exhibit 10(s) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 0-16946) and incorporated herein by
reference). **
10.21 * Long-Term Incentive Plan of LabOne, Inc., approved May 16, 1991 with
amendments adopted May 21, 1993 and November 9, 1993. **
10.22 * Employment Agreement between LabOne, Inc. and Bert H. Hood, dated
August 5, 1993 and amended November 9, 1993. **
10.23 * Employment Agreement between LabOne, Inc. and Kenneth A. Stelzer
dated August 19, 1993 and amended November 12, 1993. **
10.24 Agreement, dated June 29, 1992, among Registrant,
Generali-Assicurazioni Generali, S.p.A., Business Men's Assurance
Company of America (BMA) and other parties relating to an assumption
of pension liabilities, the sale by Registrant of BMA stock and the
cancellation of a guarantee respecting certain of BMA's mortgage
loans (filed as Exhibit 10(w) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1992 (File No. 0-16946) and
incorporated herein by reference).
13 Annual Report to Shareholders for the year ended December 31, 1993 -
To be filed.
16.1 * Response Technologies, Inc. approval of KPMG Peat Marwick as
Independent Auditors.
16.2 * Response Technologies, Inc. Form 8-K concerning a change of
independent auditors, including comment letter from previous
auditors, dated April 19, 1993.
16.3 * Independent Auditors' Report of Response Technologies, Inc. for the
years ended 1992 and 1991.
21 Subsidiaries of Registrant (reference is made to Item 1 hereof).
23 * Consents of KPMG Peat Marwick with respect to Forms S-8.
99 Proxy Statement for Annual Shareholders meeting to be held May 11,
1994 - To be filed.
* These documents may be obtained by stockholders of Registrant upon written
request to: Seafield Capital Corporation, P.0. Box 410949, Kansas City,
Missouri 64141.
** Management Compensatory Plan
*** Non-Management Director Compensatory Plan
(d) Not Applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SEAFIELD CAPITAL CORPORATION
By: /s/ W. Thomas Grant II
-----------------------------
W. Thomas Grant II
Title: Chairman and Chief Executive
Officer and Director
Date: March 18, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons who serve Registrant in
the capacities and on the dates indicated.
By: /s/ P. Anthony Jacobs By: /s James R. Seward
----------------------------- -----------------------------
P. Anthony Jacobs James R. Seward
Title: President and Chief Title: Executive Vice President,
Operating Officer Chief Financial Officer
and Director and Director
Date: March 18, 1994 Date: March 18, 1994
By: /s/ Steven K. Fitzwater /s/ W. D. Grant
----------------------------- -----------------------------
Steven K. Fitzwater W. D. Grant
Title: Vice President, Chief Title: Director
Accounting Officer and
Secretary
Date: March 18, 1994 Date: March 18, 1994
By: /s/ John H. Robinson, Jr. By: /s/ David Kemper
----------------------------- -----------------------------
John H. Robinson, Jr. David Kemper
Title: Director Title: Director
Date: March 18, 1994 Date: March 18, 1994
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Seafield Capital Corporation:
We have audited the consolidated financial statements of Seafield Capital
Corporation and subsidiaries as listed in Item 14(a)(1). In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedules as listed in Item 14(a)(2). These consolidated
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedules based
on our audits. We did not audit the financial statements of Response
Technologies, Inc., a 59% owned subsidiary, which statements reflect total
assets constituting 6% of consolidated assets in 1992 and total revenues
constituting 25% and 3% of consolidated revenues in 1992 and 1991, respectively.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Seafield Capital Corporation and
subsidiaries at December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the years in the three year period ended
December 31, 1993, in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in Note 9 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes" in
1992.
KPMG Peat Marwick
Kansas City, Missouri
February 4, 1994
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
December 31, 1993 1992
- ------------------------------------------------------------------------------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 15,491 2,246
Short-term investments 80,069 64,054
Accounts and notes receivable 32,296 36,177
Current income tax receivable 1,325 2,773
Deferred income tax assets 1,621 680
Other current assets 8,924 5,482
Current assets of discontinued real estate
operations - net 336 2,243
--------------------
Total current assets 140,062 113,655
Securities and indebtedness of affiliates 310 2,320
Property, plant and equipment 27,767 30,825
Investments:
Securities 8,274 22,513
Notes receivable 1,394 1,291
Oil and gas 8,381 14,913
Intangible assets 33,178 32,020
Other assets 2,667 92
Non-current assets of discontinued real estate
operations - net 52,260 62,885
--------------------
$ 274,293 280,514
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,746 5,469
Notes payable 4,571 11,927
Other current liabilities 9,552 6,860
--------------------
Total current liabilities 20,869 24,256
Notes payable 18 1,013
Deferred income tax liabilities 723 6,414
Other liabilities 4,197 3,082
--------------------
Total liabilities 25,807 34,765
--------------------
Minority interests 22,816 17,743
--------------------
Stockholders' equity:
Preferred stock of $1 par value.
Authorized 3,000,000 shares; none issued -- --
Common stock of $1 par value.
Authorized 24,000,000 shares; issued
7,500,000 shares (1992-8,804,420) 7,500 8,804
Paid-in capital 1,007 644
Equity adjustment from foreign currency translation (350) (438)
Retained earnings 235,583 275,944
--------------------
243,740 284,954
Less cost of 766,755 shares of treasury stock
(1992-2,098,255) 18,070 56,948
--------------------
Total stockholders' equity 225,670 228,006
--------------------
Commitments and contingencies
--------------------
$ 274,293 280,514
====================
See accompanying notes to consolidated financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
- ------------------------------------------------------------------------------
Year ended December 31, 1993 1992 1991
- ------------------------------------------------------------------------------
(in thousands except
per share amounts)
REVENUES
Insurance services $ 74,803 80,034 80,110
Healthcare services 40,882 27,870 2,655
Other 14,182 3,428 2,475
-----------------------------------
Total revenues 129,867 111,332 85,240
COSTS AND EXPENSES
Insurance services 33,728 38,422 40,359
Healthcare services 37,203 23,902 2,497
Other 14,882 3,766 3,976
Selling, general and administrative 36,923 36,252 31,247
-----------------------------------
Earnings from operations 7,131 8,990 7,161
Investment income - net 10,197 3,358 12,765
Other income (expense) (2,242) 360 1,753
Equity in losses of affiliates (146) (168) (1,572)
-----------------------------------
Earnings before income taxes 14,940 12,540 20,107
-----------------------------------
Taxes on income (benefits):
Current 9,373 6,708 8,472
Deferred (2,382) (1,217) 946
-----------------------------------
Total 6,991 5,491 9,418
-----------------------------------
Earnings before minority interests 7,949 7,049 10,689
Minority interests 2,331 2,881 2,780
-----------------------------------
Earnings from continuing operations 5,618 4,168 7,909
Loss from discontinued real
estate operations -- (7,214) (2,464)
Gain on disposal of discontinued
insurance operations -- 4,265 --
Cumulative effect to January 1, 1992
of change in method of accounting
for income taxes -- 3,352 --
-----------------------------------
NET EARNINGS $ 5,618 4,571 5,445
===================================
Per share of common stock:
Earnings from continuing operations $ .82 .55 .94
Loss from discontinued real
estate operations -- (.95) (.29)
Gain on disposal of discontinued
insurance operations -- .56 --
Cumulative effect of accounting change -- .44 --
-----------------------------------
NET EARNINGS $ .82 .60 .65
===================================
See accompanying notes to consolidated financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
- ------------------------------------------------------------------------------
Year ended December 31, 1993 1992 1991
- ------------------------------------------------------------------------------
(in thousands)
Common stock:
Balance, beginning of year $ 8,804 9,872 9,872
Retirement of stock (1,304) (1,068) --
-----------------------------------
Balance, end of year 7,500 8,804 9,872
-----------------------------------
Paid-in capital:
Balance, beginning of year 644 438 438
Exercise of stock options 363 206 --
-----------------------------------
Balance, end of year 1,007 644 438
-----------------------------------
Foreign currency translation:
Balance, beginning of year (438) 172 213
Net change during year 88 (610) (41)
-----------------------------------
Balance, end of year (350) (438) 172
-----------------------------------
Retained earnings:
Balance, beginning of year 275,944 314,407 319,080
Net earnings 5,618 4,571 5,445
Dividends declared* (8,059) (8,965) (10,118)
Retirement of stock (37,920) (34,069) --
-----------------------------------
Balance, end of year 235,583 275,944 314,407
-----------------------------------
Less treasury stock:
Balance, beginning of year 56,948 57,406 29,186
Shares purchased (1993-80,537;
1992-1,235,925; 1991-1,181,696) 2,998 40,460 28,220
Shares issued (1993-107,617;
1992-214,240) (2,652) (5,781) --
Shares retired (1993-1,304,420;
1992-1,068,062) (39,224) (35,137) --
-----------------------------------
Balance, end of year 18,070 56,948 57,406
-----------------------------------
STOCKHOLDERS' EQUITY $ 225,670 228,006 267,483
===================================
*Dividends per share amounted to $1.20 in 1993, 1992 and 1991.
See accompanying notes to consolidated financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
Year Ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
(in thousands)
OPERATING ACTIVITIES
Earnings from continuing operations $ 5,618 4,168 7,909
Adjustments to reconcile earnings from
continuing operations to net cash provided
by continuing operations:
Depreciation and amortization 19,621 18,325 15,644
Equity in losses of affiliates 146 168 1,572
Earnings applicable to minority interests 2,331 2,881 2,780
Change in accounts receivable (7,912) (2,699) (1,296)
Change in accounts payable 1,250 1,066 (409)
Income taxes (1,681) (2,901) 1,912
Other, net (424) 1,894 (5,592)
-------- -------- --------
Net cash provided by continuing operations 18,949 22,902 22,520
-------- -------- --------
INVESTING ACTIVITIES
Purchases of investments (17,604) (13,799) (24,606)
Sales or maturities of investments 20,599 13,216 2,072
Proceeds of securitization 19,000 -- --
Additions to property, plant and equipment, net (5,689) (6,959) (2,915)
Oil and gas investments (55) (2,007) (3,470)
Short-term investments (11,025) (3,737) 39,251
Purchase of stock in consolidated subsidiaries (2,365) (3,350) (9,192)
Investments in affiliates 89 (400) (2,750)
Net cash provided from discontinued
real estate operations 10,520 22,029 6,793
Net proceeds from discontinued insurance
operations -- 12,800 --
Other, net (731) (1,751) (107)
-------- -------- --------
Net cash provided by investing activities 12,739 16,042 5,076
-------- -------- --------
FINANCING ACTIVITIES
Borrowings (payments) under line of
credit agreements, net (6,891) 5,615 743
Proceeds from long-term debt 168 -- 2,877
Payment of principal on long-term debt (3,843) (2,262) (68)
Dividends paid (8,059) (8,965) (10,118)
Purchase of treasury stock/tender offer -- (35,137) (28,220)
Issuance of common stock 17 664 --
-------- -------- --------
Net cash used by financing activities (18,608) (40,085) (34,786)
-------- -------- --------
Effect of foreign currency translation 165 (570) (18)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 13,245 (1,711) (7,208)
Cash and cash equivalents at beginning of year 2,246 3,957 11,165
-------- -------- --------
Cash and cash equivalents at end of year $ 15,491 2,246 3,957
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 539 685 652
======== ======== ========
Income taxes, net $ 5,726 6,274 8,238
======== ======== ========
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992 and 1991
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Seafield Capital Corporation (Seafield or the Company) and all majority-owned
subsidiaries and joint ventures. Investments with ownerships of 20% to 50% are
accounted for by the equity method. These equity investments are included in
the Consolidated Balance Sheets under the asset caption "Securities and
indebtedness of affiliates," and the equity in losses is included in the
Consolidated Statements of Earnings under the caption "Equity in losses of
affiliates."
Two publicly traded subsidiaries are included in the consolidated financial
statements of Seafield. LabOne, Inc. (LabOne) was formerly Home Office
Reference Laboratory, Inc. and is 82% owned. Response Technologies, Inc.
(Response) is 59% owned. The financial results of Response have
been consolidated in Seafield's financial statements since November 1, 1991.
All significant intercompany transactions have been eliminated in consolidation.
Certain 1992 and 1991 amounts have been reclassified for comparative purposes
with no effect on net earnings.
In 1992, Seafield's board of directors approved a plan for the discontinuance of
real estate operations. See note 13 for additional information on discontinued
real estate operations.
In 1992, Seafield finalized the sale of the remaining 5% interest in its former
insurance subsidiary and received $12.8 million in cash. This resulted in an
additional after-tax gain of $4.3 million. Insurance operations have been
presented separately as discontinued operations in the consolidated financial
statements. See Note 13 for additional information on discontinued insurance
operations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits in banks and overnight
investments that are stated at cost which approximates market value.
INVESTMENT SECURITIES
Investment securities are carried at approximate market value in 1993 and the
lower of cost or market value in 1992. Investment securities consist of
certificates of deposit, equity securities, debt securities and debt obligations
of the U. S. government and state and political subdivisions. Short-term
investments are securities with maturities of less than one year.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost with depreciation provided
over its useful life. Upon sale or retirement, the costs and related
accumulated depreciation are eliminated from the accounts. Any resulting gains
or losses are included in the determination of net earnings. See Note 4 for
additional information on depreciation.
OIL AND GAS INVESTMENTS
The Company's oil and gas investments are accounted for using the full cost
method. All costs incurred in acquisition and development are capitalized.
Depletion is computed on the units of production method based on all proved
reserves. All general operating costs are expensed as incurred.
INTANGIBLE ASSETS
Goodwill, patents, antibodies, antigens and nicotine screening processes are
recorded as intangible assets at their acquisition cost. These assets are
amortized on a straight-line basis over their estimated remaining lives, except
for patents which are amortized over 184 months at date of acquisition.
ACQUISITIONS
In December 1992, the Company acquired 51% of a radiopharmaceutical company.
The balance sheet of this subsidiary was included in the Company's Consolidated
Balance Sheets at December 31, 1992. On January 1, 1993, the Company increased
its ownership of a property tax consulting subsidiary from 50% to 79%. Prior
to 1993, this subsidiary was accounted for by the equity method. The proforma
consolidated revenues, including these two subsidiaries, would have been
$122 million for 1992 and $97 million for 1991. The results of operations for
these subsidiaries are not material in relation to the Company's consolidated
financial statements and additional proforma financial information has
therefore not been presented.
FEDERAL INCOME TAXES
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" required a change from the deferred method of accounting for income
taxes of APB Opinion 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method of Statement 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates was recognized in
income in the period that includes the enactment date.
Effective January 1, 1992, the Company adopted Statement 109 and recognized the
cumulative effect of the change in accounting method of $3.4 million as income
in the Consolidated Statements of Earnings.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 106 "Accounting for
Postretirement Benefits Other Than Pensions" was implemented in 1993. The
adoption of this standard had no significant impact on the Company's financial
position or results of operations.
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" is required to be implemented for the
year ending December 31, 1994. Earlier implementation is permitted as of the
end of a fiscal year for which annual financial statements had not previously
been issued. Therefore, the Company implemented this accounting standard as of
December 31, 1993 with no significant impact on the Company's financial position
or results of operations.
Statement of Financial Accounting Standards No. 112 "Employer's Accounting for
Postemployment Benefits" is required to be implemented in the first quarter of
1994. This standard is not expected to have any significant impact on the
Company's financial position or results of operations.
EARNINGS PER SHARE
Earnings per share of common stock are based on the weighted average number of
shares of common stock outstanding and the common share equivalents of dilutive
stock options: 1993 - 6,847,559, 1992 - 7,589,043 and 1991 - 8,429,565.
NOTE 2 - BENEFIT PLANS
Effective January 1, 1991, Seafield and certain subsidiaries established a
savings plan qualifying under Section 401(k) of the Internal Revenue Code and a
money purchase pension plan. All full-time employees who have worked 500 hours
within the first six months of employment are eligible to participate in the
plans. After the first 12-month period, eligibility is measured on a plan-year
basis.
Participants in the 401(k) plan may contribute 2% to 10% of annual compensation.
Seafield and the participating subsidiaries contribute for each participant an
amount equal to 50% of the participant's contribution. A participant is
immediately fully vested with respect to the participant's contributions. A
participant is 100% vested with respect to the companies' contributions after
five years of service. Both the participants' and the companies' contributions
are invested by the trustees of the plan at the direction of the participants in
any one or more of six investment funds, one of which is a Seafield Stock Fund.
The matching contributions made by Seafield and the participating subsidiaries
amounted to $87,000 for 1993, $71,000 for 1992 and $65,000 for 1991.
The money purchase pension plan is a defined contribution plan under which
Seafield and the participating subsidiaries contribute a percentage of a
participant's annual compensation. The companies contribute an amount equal to
7% of base compensation up to the maximum social security wage base ($57,600 in
1993, $55,500 in 1992 and $53,400 in 1991) and 12.7% of earnings in excess of
this amount up to an annual limit ($235,840 in 1993, $228,860 in 1992 and
$222,220 in 1991). Participants become 100% vested after five years of service,
normal retirement at age 65, or in the event of disability or death while
employed by the companies. Contributions to this plan by Seafield and the
participating subsidiaries were $190,000 for 1993, $139,000 for 1992 and
$105,000 for 1991.
Seafield has a stock purchase plan which is open to all non-employee directors
of the Company and employees of the Company and participating subsidiaries who
are designated by the chairman of the board. The directors may contribute an
amount equal to all or part of their directors compensation. The designated
employees may contribute the lesser of 10% of their salary or $30,000. The
Company matches each participant's contribution at a rate of 50%. Seafield
common stock is purchased on the open market each month and each participant
receives as many shares as the participant's contribution, plus the Company's
matching contribution, will purchase. No employees are presently designated to
participate. The matching contributions made by Seafield amounted to $44,000,
$51,000 and $55,000 for the years ended December 31, 1993, 1992 and 1991,
respectively.
LabOne, Response and certain other subsidiaries maintain profit sharing plans
qualifying under Section 401(k) of the Internal Revenue Code. LabOne also has a
defined contribution plan. These subsidiaries contributed $1,702,000,
$1,444,000 and $1,030,000 to the plans for the years ended December 31, 1993,
1992 and 1991, respectively.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Seafield received a notice during 1992 of proposed adjustments from the
Internal Revenue Service (IRS) with respect to 1986-87 federal income taxes.
The amount of additional taxes proposed by the IRS was approximately $17
million. Seafield filed a protest of the adjustments in 1992. The IRS has not
yet responded to this protest. Seafield has also informally received proposed
adjustments for 1988-1989 from the IRS. The amount of additional taxes
proposed for these years is approximately $6 million. Seafield filed a
carryback claim for 1990 taxable losses with the IRS. These losses were
carried back to 1987, and the tax refund generated by this carryback is
approximately $7.6 million. The refund, however, will not be acted on by the
IRS until the IRS completes its review of the 1990 federal income taxes. This
review began in late 1993, and will likely not be completed until 1995.
Seafield believes it has meritorious defenses to many of the issues raised by
the IRS and adequate accruals for income tax liabilities.
A lawsuit was initiated in 1986 by Seafield's former insurance subsidiary
against an architectural and engineering firm and a construction firm to recover
costs incurred to remove and replace the facade on the former home office
building. Because the costs had been incurred prior to any discussions
regarding a sale of the insurance company, Seafield negotiated with the buyer
for an assignment of the cause of action from the insurance company. Thus, any
recovery will be for the benefit of Seafield and all costs incurred in
connection with the litigation will be paid by Seafield. Any ultimate recovery
will be recognized as income when received and would be subject to income taxes.
In September 1993, the Missouri Court of Appeals reversed a $5.7 million
judgement granted in 1992 in favor of Seafield. Trial counsel was authorized to
seek a rehearing by the Court of Appeals, and failing that, a review by the
Missouri Supreme Court. The Court of Appeals notified counsel in November 1993
that it would rehear the case without oral arguments or further briefs.
In 1990, the former insurance subsidiary was joined in an existing lawsuit by
the Federal Deposit Insurance Corporation (FDIC) as successor to Sunbelt
Service Corporation. The FDIC alleged that the insurance subsidiary was
obligated under a repurchase agreement in the approximate amount of $6 million.
At a mediation proceeding in January 1994, the FDIC agreed to dismiss its claims
against Seafield with prejudice.
In 1988, a lawsuit was initiated against the former insurance subsidiary by its
former partners in the Quail Run real estate project in Santa Fe, New Mexico.
The plaintiffs seek approximately $11 million in actual damages and
unspecified punitive damages based upon alleged breaches of contract and
fiduciary duty and economic compulsion, all arising out of the purchase of the
plaintiffs' interest in the project. In November 1993, the Appeals Court
overturned a partial summary judgement granted in favor of Seafield in 1992.
Thus, all issues in the case will be presented at trial which has been set for
July 1994.
Because the Quail Run project was retained by Seafield in connection with the
sale of its former insurance subsidiary, Seafield is defending the lawsuit
under an indemnification arrangement with the purchaser of the former
subsidiary; all costs incurred and any judgements rendered in favor of the
plaintiff in connection with this litigation will be for the account of
Seafield.
In the opinion of management, after consultation with legal counsel and based
upon current available information, none of these lawsuits is expected to have a
significant impact on the consolidated financial statements of Seafield.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT AND ACCOUNTS AND NOTES RECEIVABLE
A summary of property, plant and equipment is as follows:
Rate of December 31,
Depreciation 1993 1992
------------------------------------
(In thousands)
Property, plant and equipment 5% - 33% $ 65,083 61,168
Less accumulated depreciation 37,316 30,343
-----------------------------------
$ 27,767 30,825
===================================
A summary of accounts and notes receivable is as follows:
December 31,
1993 1992
-------------------
(In thousands)
Accounts receivable $ 36,694 37,163
Notes receivable 1,585 2,690
Allowance for doubtful accounts (4,589) (2,385)
-------------------
33,690 37,468
Less current portion 32,296 36,177
-------------------
$ 1,394 1,291
===================
Interest rates on notes receivable were 5% to 9% in 1993 and 1992. Seafield
has made a loan in the amount of $500,000 to an officer of Response. The
note, with an interest rate of 6.74%, is due in 1996.
NOTE 5 - SECURITIZATION OF RECEIVABLES
In July 1993, a 95% owned subsidiary of Seafield entered into an extendable
two-year agreement whereby it can sell undivided interests in a designated
pool of accounts receivable on an ongoing basis. The maximum allowable amount
of receivables to be sold is $22 million, subject to voluntary reduction by the
purchaser to a minimum of $12 million. As collections reduce accounts
receivable in the pool, the purchaser permits the subsidiary to apply such
collections to additional purchases up to the maximum. As of December 31,
1993, the subsidiary had securitized receivables of $19 million. The net cash
proceeds are reported as an investing activity in the accompanying Consolidated
Statements of Cash Flows. The securitized receivables are reflected as a
reduction of accounts receivable in the accompanying Consolidated Balance
Sheets. The proceeds from the initial sale of receivable interests were used to
retire bank debt and subordinated debts to Seafield and the subsidiary's chief
executive officer.
The subsidiary did not record a gain or loss on the sales as the costs of
receivables sold approximated the proceeds. At December 31, 1993, receivables
of $2.3 million are subordinated to undivided interests sold in the event of
defaults or delinquencies with respect to the underlying receivables. A
default reserve is required for the greater of 12% of the accounts receivable
sold or an amount set forth by a formula based on preceding months' default
ratios. The subsidiary continues to service the securitized receivables for
which it receives a servicing fee.
NOTE 6 - SEGMENT DATA
The following table shows segment information from continuing operations:
Year ended December 31, 1993 1992 1991
- ------------------------------------------------------------------------------
(In thousands)
REVENUES:
Insurance services $ 74,803 80,034 80,110
Healthcare services 40,882 27,870 2,655
Other 14,182 3,428 2,475
-----------------------------------
Total revenues $ 129,867 111,332 85,240
===================================
OPERATING EARNINGS:
Insurance services $ 15,441 17,844 15,909
Healthcare services 158 255 (131)
Other (3,145) (1,505) (1,988)
Investment and miscellaneous income 8,616 1,971 13,690
Equity in losses of affiliates (146) (168) (1,572)
Corporate expense (5,738) (5,643) (5,463)
Interest expense (246) (214) (338)
-----------------------------------
Earnings before income taxes
and minority interests 14,940 12,540 20,107
Income taxes (6,991) (5,491) (9,418)
Minority interests (2,331) (2,881) (2,780)
-----------------------------------
Earnings from continuing operations $ 5,618 4,168 7,909
===================================
IDENTIFIABLE ASSETS:
Insurance services $ 101,945 114,591 106,673
Healthcare services 41,067 28,418 21,567
Net assets of discontinued operations 52,596 65,128 102,657
Other 78,685 72,377 86,192
-----------------------------------
Total identifiable assets $ 274,293 280,514 317,089
===================================
Operating earnings are revenues less expenses other than corporate and interest
expense, net of intersegment transactions. Depreciation and amortization
amounts for 1993, 1992 and 1991 were $16,474,000, $15,484,000 and $13,863,000
respectively. Goodwill amortization for 1993, 1992 and 1991 was $3,147,000,
$2,841,000 and $1,781,000, respectively. In January 1994, approximately $13
million of the $78.7 million other identifiable assets was used to purchase
382,350 shares of Seafield common stock from an institutional shareholder in a
single transaction.
Capital expenditures, depreciation and amortization expense for the significant
segments are as follows:
1993 1992 1991
-----------------------------------
Insurance services:
Capital expenditures $ 1,877 3,243 2,749
===================================
Depreciation and amortization $ 9,255 9,899 9,378
===================================
Healthcare services:
Capital expenditures $ 3,606 2,477 636
===================================
Depreciation and amortization $ 2,014 1,118 85
===================================
NOTE 7 - INCENTIVE STOCK OPTION PLAN
Seafield has three Stock Option Plans which provide for Qualified and
Nonqualified Stock Options, Stock Appreciation Rights (SAR's) and restricted
stock awards to key employees and directors. The plans entitle the grantee to
purchase shares at prices ranging from 75% to 110% of the fair market value at
date of grant during terms up to ten years. SAR's may be issued in tandem with
stock options and entitle the holder to elect to receive the appreciated value
in cash. Restricted stock awards are rights to receive or retain shares in
payment of compensation earned or to be earned. During 1993, restricted stock
awards of 5,701 shares became vested and were issued. Restricted stock awards
totaled 102,602 shares at December 31, 1993. The following presents a summary
of stock options activity for the three years ended December 31, 1993:
Number of Option
Shares Price
- ------------------------------------------------------------------------------
Outstanding December 31, 1990 834,050 $ 23.250 - 43.250
Granted 278,500 21.500 - 23.500
Terminated or forfeited 27,597 21.500 - 31.000
-----------------------------------
Outstanding December 31, 1991 1,084,953 21.500 - 43.250
Granted 4,500 29.000 - 29.000
Exercised 324,240 21.500 - 31.000
Terminated or forfeited 11,500 21.500 - 31.000
-----------------------------------
Outstanding December 31, 1992 753,713 21.500 - 43.250
Granted 33,500 32.000 - 34.875
Exercised 107,617 21.500 - 31.000
Terminated or forfeited 46,335 21.500 - 43.250
-----------------------------------
Outstanding December 31, 1993 633,261 21.500 - 34.875
===================================
Options for 477,155 shares were exercisable at December 31, 1993 and 143,335
shares were available to be awarded. The difference between the per share
exercise price and the average cost per share of the treasury stock issued for
stock options exercised increased paid-in capital by $363,000 in 1993 and
$206,000 in 1992. Additionally, Seafield maintains a Stock Purchase Plan under
which each participant's contribution is matched at a rate of 50%. Seafield
common stock is purchased on the open market each month. Of the 100,000 shares
registered under this plan, 72,794 shares were eligible for issuance at
December 31, 1993.
NOTE 8 - LEASE COMMITMENTS
Seafield and subsidiaries lease office space, equipment, land and buildings
under various, noncancelable leases expiring through 1999. Rental expense for
these leases during 1993, 1992 and 1991 amounted to $3,063,000, $1,948,000
and $1,634,000, respectively.
Future minimum lease payments under these agreements as of December 31, 1993:
Year Amount
-----------------------
1994 $ 3,160,000
1995 2,632,000
1996 2,119,000
1997 1,513,000
1998 902,000
Thereafter 876,000
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Short-term Investments, Accounts Receivable and
Accounts Payable:
The carrying amount approximates fair value because of the short maturity of
these instruments.
Investment Securities:
The fair values of some investments are estimated based on quoted market prices
for these or similar investments. It was not practicable to estimate the fair
value of an investment representing 8% of the issued preferred stock of an
untraded company.
Notes Receivable and Notes Payable:
The fair values of notes receivable and notes payable were calculated by
discounting scheduled cash flows using estimated market discount rates.
The estimated fair values of the Company's financial instruments are summarized
as follows:
December 31, 1993 1992
- --------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------------------- --------------------
(In thousands)
Cash and cash equivalents 15,491 15,491 2,246 2,246
Short-term investments 80,069 80,069 64,054 64,054
Accounts receivable 32,155 32,155 34,800 34,800
Notes receivable 1,535 1,690 2,668 2,717
Investment securities
Practicable to estimate
fair value 7,259 10,634 21,498 31,043
Not practicable to estimate
fair value 1,015 -- 1,015 --
Accounts payable
and other liabilities 20,495 20,060 15,411 14,893
Notes payable 4,589 4,589 12,940 13,051
Seafield has investments in two majority-owned entities that are publicly
traded. At December 31, 1993, based on the market prices of publicly traded
shares of these two subsidiaries, pretax unrealized gains of approximately
$140 million ($20.78 per share) on these investments were not reflected in
either Seafield's book value or stockholders' equity.
NOTE 10 - INCOME TAXES
Seafield and those subsidiaries which are eligible, file a consolidated U.S.
federal income tax return. Prior to consolidation in Seafield's federal income
tax return, various subsidiaries generated taxable losses of approximately $6.5
million. These net operating loss carryforwards could only be utilized against
future taxable income of the corporation which generated the loss. However, in
1992, $4.1 million of these losses were reattributed to Seafield upon the
disposition of the stock of the former employee benefits consulting services
subsidiary. In 1993, Seafield utilized approximately $1.6 million of these
reattributed losses, thereby reducing income tax expense by $534,000. The
remainder of these net operating loss carryforwards will begin to expire in the
year 2004.
During 1993 and 1992, Response utilized approximately $1,374,000 and $1,156,000
of available federal net operating loss carryforwards resulting in a tax benefit
of $522,000 and $439,000, respectively. Response is not included in Seafield's
consolidated federal income tax return. Response has remaining federal net
operating loss carryforwards of approximately $5.7 million which are limited by
the Internal Revenue Code and are available to offset only $475,000 of taxable
income per year. These limited federal net operating losses are available
annually until 2005. Response also has approximately $885,000 of federal net
operating loss carryforwards which are not limited as to their utilization.
These begin to expire in 2005.
The components of the provision (benefit) for income taxes on income from
continuing operations are as follows:
Liability Deferred
Method Method
------------------- --------
Year ended December 31, 1993 1992 1991
- ------------------------------------------------------------------------------
(In thousands)
Current:
Federal $ 6,638 4,388 6,469
State 1,424 1,350 1,164
Foreign 1,311 970 839
-----------------------------------
9,373 6,708 8,472
-----------------------------------
Deferred:
Federal (1,867) (944) 1,022
State (426) (180) 41
Foreign (89) (93) (117)
-----------------------------------
(2,382) (1,217) 946
-----------------------------------
$ 6,991 5,491 9,418
===================================
Earnings before income taxes:
Domestic $ 12,281 10,410 18,575
Foreign 2,659 2,130 1,532
-----------------------------------
$ 14,940 12,540 20,107
===================================
Deferred income taxes (benefits) under the liability method result from
temporary differences between the bases of financial statement assets and
liablilities and tax assets and liabilities. Under the deferred method,
deferred income taxes (benefits) result from differences in the timing of
recognition of income and expense for tax and financial statement purposes.
The components of the provision for deferred income taxes as provided under the
deferred method for the year ended December 31, 1991 are as follows:
Deferred
Method
Year ended December 31, 1991
- ------------------------------------------------------------------------------
Undistributed earnings of investments not consolidated for tax $ 1,407
Excess book depreciation (435)
Excess book oil and gas expenses (203)
Expenses deducted for tax 233
Other, net (56)
---------
$ 946
=========
The reconciliation of income tax attributable to continuing operations
computed at federal statutory tax rates to income tax expense is:
Liability Deferred
Method Method
------------------ --------
Year ended December 31, 1993 1992 1991
- ------------------------------------------------------------------------------
(In thousands)
Computed expected tax expense $ 5,079 4,264 6,836
State income taxes, net of
federal benefit 806 772 758
Goodwill amortization 1,070 987 658
Tax exempt interest and dividends (201) (503) (362)
Tax benefits not available for
subsidiary losses 156 282 1,156
Other, net 530 (262) 171
Utilization of federal net
operating loss (768) (201) --
Foreign tax in excess of U.S. rate 319 152 201
---------------------------------
Actual income tax expense $ 6,991 5,491 9,418
=================================
Effective rate 47% 44% 47%
Effective January 1, 1992, Seafield adopted FASB Statement No. 109,"Accounting
For Income Taxes" (see also, Note 1 - "Federal Income Taxes"). This Statement
requires the use of the liability method of accounting for income taxes. The
cumulative effect of adopting FASB Statement No. 109 as of January 1, 1992
was to increase net earnings by $3.4 million. Prior years' consolidated
financial statements were not restated.
The significant components of deferred income tax assets and liabilities as of
December 31, 1993 and 1992 are as follows:
Liability Method
-----------------------------------------------
Current Non-current Current Non-current
Year ended December 31, 1993 1993 1992 1992
- --------------------------------------------------------------------------------
(In thousands)
Deferred income tax assets:
Valuation allowance on stock
investments $ 255 19 -- 531
Allowance on accounts
receivable 994 -- 715 --
Excess book expense accruals 629 326 402 185
Excess book accrued legal fees 572 27 -- --
Excess book amortization and
depreciation -- 682 -- 125
Excess book partnership expenses 57 259 109 366
Excess book oil and gas expenses -- 561 -- 236
Alternative minimum tax credit -- 127 -- --
Other 19 350 -- 100
Federal net operating loss
carryforwards -- 3,868 -- 5,284
State net operating loss
carryforwards 80 1,062 70 463
---------------------------------------------
Gross deferred income tax assets 2,606 7,281 1,296 7,290
Valuation allowance for deferred
income tax assets (802) (5,058) (616) (5,714)
---------------------------------------------
Net deferred income tax assets 1,804 2,223 680 1,576
---------------------------------------------
Deferred income tax liabilities:
Excess tax depreciation -- (733) -- (922)
Excess tax oil and gas expenses -- (351) -- (1,509)
Excess tax partnership expenses -- (296) -- (622)
Other, net (183) (1,566) -- (4,937)
---------------------------------------------
Total deferred income tax
liabilities (183) (2,946) -- (7,990)
---------------------------------------------
Net deferred income tax
assets (liabilities) $ 1,621 (723) 680 (6,414)
=============================================
The valuation allowance as of January 1, 1992 was approximately $7,255,000.
The valuation allowance decreased by approximately $470,000 and $925,000 in 1993
and 1992, respectively.
NOTE 11 - INTANGIBLE ASSETS
The cost and accumulated amortization of intangible assets are as follows:
December 31, 1993 1992
- -------------------------------------------------------------------------------
(In thousands)
Goodwill - excess of cost over fair value
of net assets acquired $ 43,191 37,698
Less accumulated amortization 13,034 9,886
---------------------
30,157 27,812
---------------------
Laboratory patent, antibodies, antigens,
and nicotine screens 11,845 11,845
Less accumulated amortization 9,541 8,416
---------------------
2,304 3,429
---------------------
Other intangible assets 2,328 1,738
Less accumulated amortization 1,611 959
----------------------
717 779
---------------------
Intangible assets, net of accumulated amortization $ 33,178 32,020
=====================
Any excess of the cost over the fair value of the net assets purchased is being
amortized on a straight line basis over 5 to 20 years. The laboratory patent
process is being amortized over 184 months from date of acquisition while
antibodies, antigens, and nicotine screens are being amortized over their
estimated remaining useful lives.
NOTE 12 - NOTES PAYABLE
Notes payable are as follows:
December 31, 1993 1992
- --------------------------------------------------------------------------------
Maturities Maturities Maturities Maturities
Due Within Due After Due Within Due After
One Year One Year One Year One Year
----------------------------------------------
(In thousands)
Prime + 1% line of credit,
secured by accounts receivable
of $14,680,000 $ 2,420 -- 970 --
Prime line of credit, secured
by accounts receivable
of $2,061,000 2,030 -- -- --
Prime + 1% term loans -- -- 1,486 550
Prime revolving credit note -- -- 8,340 --
Prime + 3/4% term loans -- -- 1,018 454
Other 121 18 113 9
---------------------------------------------
$ 4,571 18 11,927 1,013
=============================================
Maturities of notes and mortgages payable at December 31, 1993, aggregate
$4,571,000 in 1994 and $18,000 thereafter. Line of credit agreements totaled
$11 million at December 31, 1993. Available borrowings under these agreements
amounted to $4,450,000. Affiliates' debt at December 31, 1993 totaled
$1,042,000, of which $475,000 was nonrecourse and $567,000 arose under lines of
credit. Seafield's prorata share of affiliates' debt was $17,000 of nonrecourse
debt and $19,000 under lines of credit. The Consolidated Statements of Earnings
include interest expense totaling $527,000, $587,000, and $625,000 in 1993, 1992
and 1991, respectively.
NOTE 13 - DISCONTINUED OPERATIONS
Operations of Discontinued Real Estate Segment
In 1992, Seafield's board of directors approved a plan to discontinue real
estate operations. The remaining real estate assets will be sold as soon as
practicable. As a result of the decision to discontinue real estate, a
$6 million after-tax loss provision for estimated write-downs and costs through
final disposition was included in the discontinued real estate's 1992 loss.
The consolidated financial statements and notes thereto have been restated to
reflect real estate as discontinued operations.
A summary of discontinued real estate operations follows:
Year ended December 31, 1993 1992 1991
- ------------------------------------------------------------------------------
(In thousands)
Revenues $ 18,320 34,768 19,093
===================================
Loss $ -- (10,808) (3,765)
Income tax benefits -- (3,594) (1,301)
-----------------------------------
Net loss $ -- (7,214) (2,464)
===================================
Net Assets of Discontinued Real Estate Segment
A summary of the net assets of the discontinued real estate operations follows:
December 31, 1993 1992
- ------------------------------------------------------------------------------
(In thousands)
Assets
Current assets $ 953 3,399
Real estate 38,053 45,691
Other non-current assets 15,360 18,357
--------------------
Total assets 54,366 67,447
--------------------
Liabilities
Current liabilities 617 1,156
Non-current liabilities 1,153 1,163
--------------------
Total liabilities 1,770 2,319
--------------------
Net Assets $ 52,596 65,128
====================
At December 31, 1993, real estate debt, which is all associated with projects
which are less than 50% owned, totaled $8.8 million, of which $6.5 million was
recourse debt.
Operations of Discontinued Insurance Segment
Seafield finalized the sale of its remaining 5% interest in a former insurance
subsidiary in June 1992 and received $12.8 million resulting in an after-tax
gain of $4.3 million. The shares representing the 5% interest had been pledged
to serve as collateral under the mortgage guaranty provision contained in a
1990 sales agreement for 95% of the subsidiary. Concurrent with the sale of the
final 5% interest, Seafield was released from mortgage guarantees which
originally totaled approximately $16 million.
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized 1993 quarterly financial data is as follows:
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
Quarter Ended 1993 1993 1993 1993
- -------------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues $ 31,106 32,342 33,651 32,768
========================================
Net earnings $ 872 909 1,285 2,552
========================================
Net earnings per share $ .13 .13 .19 .37
========================================
Dividends paid per share $ .30 .30 .30 .30
========================================
Stock prices:
High $ 35 3/4 31 1/2 35 1/4 39 1/2
Low $ 29 29 3/4 30 1/2 33
Summarized 1992 quarterly financial data is as follows:
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
Quarter Ended 1992 1992 1992 1992
- -------------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues $ 27,312 27,913 28,538 27,569
========================================
Earnings (loss) from
continuing operations 1,467 2,835 (202) 68
Discontinued operations (net of taxes):
Loss from discontinued real estate
operations (744) (6,470) -- --
Gain on disposal of discontinued
insurance operations -- 4,265 -- --
Cumulative effect to January 1, 1992
of change in method of accounting
for income taxes 3,352 -- -- --
----------------------------------------
Net earnings (loss) $ 4,075 630 (202) 68
========================================
Per share:
Earnings (loss) from
continuing operations $ .18 .36 (.03) .01
Discontinued operations (net of taxes):
Loss from discontinued real estate
operations (.09) (.82) -- --
Gain on disposal of discontinued
insurance operations -- .54 -- --
Cumulative effect of accounting change .43 -- -- --
----------------------------------------
Net earnings (loss) $ .52 .08 (.03) .01
========================================
Dividends paid per share $ .30 .30 .30 .30
========================================
Stock prices:
High $ 32 1/4 29 1/2 32 35 1/4
Low $ 25 1/4 25 1/4 26 1/4 28
See Note 13 of Notes to Consolidated Financial Statements for a description of
discontinued operations which affected the results of operations for the
quarters shown above. Quarterly earnings per share amounts may not add to the
annual earnings per share amounts due to the effect of common stock equivalents
and the timing of treasury stock purchases and net earnings.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Schedule I
Marketable Securities - Other Investments
- -------------------------------------------------------------------------------
Amount at
Market Which Shown in
December 31, 1993 Cost Value Balance Sheet
- -------------------------------------------------------------------------------
(In thousands)
U.S. government securities $ 29,883 29,878 29,880
States, municipalities and
political subdivisions 13,215 12,980 12,885
Canadian government notes 2,230 2,230 2,230
Common stock (A) 8,991 12,794 11,423
Oclassen Pharmaceuticals, Inc. 2,500 2,500 2,500
Norian Corporation 1,015 1,015 1,015
Student Loan Marketing Assoc. 1,001 1,001 1,001
Money market instruments 26,939 26,939 26,939
Real estate investment trust 453 470 470
-----------------------------------------
$ 86,227 89,807 88,343
=========================================
December 31, 1992
- -------------------------------------------------------------------------------
U.S. government securities $ 16,787 16,812 16,787
States, municipalities and
political subdivisions 16,271 16,123 16,158
Canadian government notes 4,484 4,484 4,484
British investment trust 138 147 138
Common stock (A) 10,888 22,986 18,446
Oclassen Pharmaceuticals, Inc. 2,500 2,500 2,500
Physicians Computer Network, Inc. 2,000 501 1,250
Norian Corporation 1,015 1,015 1,015
Money market instruments 25,562 25,562 25,562
Real estate investment trust 227 224 227
-----------------------------------------
$ 79,872 90,354 86,567
=========================================
(A) Common stocks held in various portfolios with investment decisions made by
the fund managers. No single issue exceeds 2% of total assets.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Schedule VIII
Valuation and Qualifying Accounts and Reserves
- -------------------------------------------------------------------------------
Additions
-----------------
Charged Charged
Balance at to Costs to Other Balance at
Beginning and Accounts- End of
Description of Year Expenses Describe Deductions* Year
- -------------------------------------------------------------------------------
(In thousands)
Year ended December 31, 1993
Accounts and notes receivable -
allowance for
doubtful accounts 2,385 3,068 -- 864 4,589
Year ended December 31, 1992
Accounts and notes receivable -
allowance for
doubtful accounts 1,493 3,695 -- 2,803 2,385
Year ended December 31, 1991
Accounts and notes receivable -
allowance for
doubtful accounts 1,264 1,280 -- 1,051 1,493
* Uncollectible accounts written-off
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Schedule IX
Short-term Borrowings
- -------------------------------------------------------------------------------
Notes Payable to Banks for Borrowings
December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
(Dollars in thousands)
Balance at end of year $ 4,479 $ 12,911 $ 7,162
Weighted average interest rate
on balance at end of year 6.57% 6.35% 7.36%
Maximum amount outstanding
during the year $ 18,669 $ 15,499 $ 8,828
Average amount outstanding
during the year $ 11,963 $ 10,934 $ 5,955
Weighted average interest rate
during the year 6.07% 6.66% 9.05%
Notes payable to banks represent obligations payable under several credit
agreements to various banks. Borrowings are arranged on an as needed basis at
various terms.
Average amount outstanding during the period is computed by dividing the total
of daily outstanding principal balances by 365.
Average interest rate for the year is computed by dividing the actual
short-term interest expense by the average short-term debt outstanding.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Schedule XI
Real Estate and Accumulated Depreciation
December 31, 1993
(Page 1 of 2)
Costs Capitalized Gross Amount
Initial Cost Subsequent At Which Carried
to Company to Acquisition at Close of Period
----------------- ----------------- -----------------------
Buildings & Buildings &
Improve- Improve- Carrying Improve-
Description Land ments ments Costs Land ments Total
- ----------------------------------- ----------------- -----------------------
(In thousands)
Land Investments/
Developments:
San Diego, CA $ 438 -- -- -- 438 -- 438
Houston, TX 6,158 49 983 1,548 4,613 -- 4,613
Tulsa, OK 754 -- -- 754 754
Ft Worth, TX 11,501 -- 91 -- 11,587 -- 11,587
Ft Worth, TX 3,886 -- -- -- 3,886 -- 3,886
Ft Worth, TX 2,770 -- -- 42 2,812 -- 2,812
Ft Worth, TX 4,633 -- -- -- 4,633 -- 4,633
Ft Worth, TX 1,000 -- -- -- 1,000 -- 1,000
Parking:
Reno, NV -- 5,277 19 -- -- 5,296 5,296
Residential:
Juno Beach, FL 8,400 -- 23,806 2,228 1,940 4,070 6,010
Juno Beach, FL 5,340 -- 5,577 390 582 -- 582
Santa Fe, NM 4,576 -- 46,268 14,325 2,074 20,721 22,795
---------------------------------------------------------------
$ 49,456 5,326 76,744 18,533 34,319 30,087 64,406
=======================================================
Reserves (25,485)
-------
Net real estate before depreciation 38,921
Accumulated depreciation (868)
-------
Net real estate $ 38,053
=======
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Schedule XI
Real Estate and Accumulated Depreciation
December 31, 1993
(Page 2 of 2)
Date
Accum. Tax of Date Depr.
Description Reserves Depr. Basis Constr. Acquired Life
- ------------------------------------------------------------------------------
(In thousands)
Land Investments/
Developments
San Diego, CA -- -- 438 -- 1976 --
Houston, TX 890 -- 4,168 -- 1974 --
Tulsa, OK 272 -- 754 -- 1980 --
Ft Worth, TX 3,367 -- 11,249 -- 1986 --
Ft Worth, TX 2,476 -- 3,886 -- 1986 --
Ft Worth, TX 2,212 -- 1,932 -- 1984 --
Ft Worth, TX 3,553 -- 3,531 -- 1989 --
Ft Worth, TX 750 -- 1,000 -- 1986 --
Parking:
Reno, NV 1,500 868 4,931 -- 1989 20 years
Residential:
Juno Beach, FL 4,100 -- 3,368 1985 1983 --
Juno Beach, FL -- -- 1,251 1989 1983 --
Santa Fe, NM 6,365 -- 16,615 1987 1985 --
-----------------------
25,485 868 53,123
=======================
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Schedule XI
Real Estate and Accumulated Depreciation
Reconciliation Between Years
A) Reconciliations of total real estate carrying value for the three years ended
December 31, 1993 are as follows:
1993 1992 1991
- ------------------------------------------------------------------------------
(in thousands)
Balance at beginning of year $ 46,346 79,151 86,941
Additions during year:
Improvements 7,014 4,444 10,520
-----------------------------------
53,360 83,595 97,461
Deductions during year:
Value of real estate sold 14,439 28,249 14,511
Real estate exchanged for joint
venture interests -- -- 3,643
Provision for loss on sale of
real estate -- 9,000 --
Other -- -- 156
-----------------------------------
14,439 37,249 18,310
-----------------------------------
Balance at close of year $ 38,921 46,346 79,151
===================================
B) Reconciliations of accumulated depreciation for the three years ended
December 31, 1993 are as follows:
1993 1992 1991
- ------------------------------------------------------------------------------
Balance at beginning of year $ 655 1,115 857
Additions during period - depreciation 213 257 258
-----------------------------------
868 1,372 1,115
Deductions during period - accumulated
depreciation of real estate sold -- 717 --
-----------------------------------
$ 868 655 1,115
===================================
Exhibit 10.6
AMENDMENT No. 1
TO
1991 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
This Amendment No. 1 to the Seafield Capital Corporation 1991 Non-Employee
Directors' Stock Option Plan is made this 10th day of November, 1993.
WHEREAS, Seafield Capital Corporation (the "Company") adopted its 1991
Non-Employee Directors' Stock Option Plan (the "Plan"), effective with the
approval thereof by the Company's shareholders at the annual meeting of
shareholders held May 15, 1991, and
WHEREAS, the Plan contains no provision concerning the payment of income
taxes in respect of an Option exercise or the holder thereof, because the
Company has no income tax withholding obligation with respect to Non-Employee
Directors, and
WHEREAS, the Company's Board of Directors, including each of the
Non-Employee Directors of the Company, now believes that it would be advisable
to include a provision in the Plan pursuant to which certain shares of stock
otherwise issuable upon the exercise of an Option would be withheld and not
issued and the Company would make a federal income tax payment in respect of
the Non-Employee Director exercising an Option,
NOW, THEREFORE, the Plan is hereby amended as follows:
1. The following provision shall be added to the Plan, immediately
following Section 11 thereof:
"12. (a) Notwithstanding any other provision of this Plan, upon the
exercise of an Option, a number of Shares with a Fair Market Value on the date
of exercise equal to twenty-eight percent (28%) of the Fair Market Value on the
date of exercise of all Shares with respect to which the Option is exercised
shall be withheld by the Company and not issued to the holder of the Option;
the number of Shares to be issued in respect of the option exercised shall be
the number otherwise issuable pursuant to this Plan, less the number withheld
pursuant to this Section 12(a).
"(b) In consideration of withholding Shares pursuant to subsection
(a) above, the Company shall remit to the Internal Revenue Service, in respect
of the Non-Employee Director who exercises an Option and said director's
federal income tax liability for the year in which the Option is exercised, an
amount equal to the Fair Market Value on the the Option is exercised of the
number of Shares withheld pursuant to subsection (a) above."
2. Sections of the Plan subsequent to Section 11 shall be renumbered
accordingly.
3. This Amendment No. 1 shall be effective May 1O, 1994. It shall apply to
all Option exercises after such date, whether or not the Options were granted
before or are granted after the date of this Amendment No. 1. This Amendment
No. 1 was approved by and consented to by all Non-Employee Directors holding
Options as of the date hereof.
Exhibit 10.17
SERVICES AGREEMENT
BETWEEN
SEAFIELD CAPITAL CORPORATION
AND
HOME OFFICE REFERENCE LABORATORY, INC.
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (the "Agreement") is made as of January 1, 1993,
between Seafield Capital Corporation, a Missouri corporation ("Seafield"), and
Home Office Reference Laboratory, Inc., a Delaware corporation ("HORL").
INTRODUCTION
A. Previously, Seafield (then named BMA Corporation), HORL and others were
parties to a Services Agreement, dated as of July 31, 1990 (the "Previous
Services Agreement"), pursuant to which Seafield was to provide to HORL and
HORL was to purchase from Seafield certain services.
B. Contemporaneously, Seafield and HORL have entered into an agreement to
terminate the Previous Services Agreement, except Section 7 relating to the
Transition Agreement, and this Agreement in order to provide for the furnishing
of services to HORL in the future by Seafield, the payment of fees and certain
other matters.
ACCORDINGLY, the parties hereto agree as follows:
SECTION 1. EFFECTIVE DATE AND TERMINATION
1.1 Term. This Agreement shall become effective, without further action, on
January 1, 1993 (the "Effective Date"). This Agreement shall remain in effect
until December 31, 1993, and shall be renewed automatically for successive
one-year terms (January 1-December 31) until terminated in accordance with
Section 1.2.
1.2 Termination. The obligation of Seafield to provide services pursuant to
Section 2 and the provisions of all other Sections of this Agreement other than
Section 6 shall terminate on the earlier of (a) December 31 of the then current
term of this Agreement, if 120 days or more prior thereto written notice is
given by Seafield or HORL to the other of Seafield's or HORL's intention to
terminate this Agreement, or (b) such date as the parties mutually agree to in
writing.
SECTION 2. SERVICES
2.1 Administrative Services. Commencing on the Effective Date, and continuing
for the period provided in Section 1, Seafield agrees to make available to
HORL, to the extent HORL may require, the following services:
(a) Seafield's corporate secretarial staff for assistance in
organizational matters associated with shareholders' meetings and meetings of
the board of directors.
(b) Seafield's treasury staff for financial and investment advice,
including, without limitation, advice with respect to raising additional
capital, cash management, risk management and investment opportunities.
(c) Seafield's management staff for assistance in assuring the compliance
of qualified benefit plans with relevant government regulations.
2.2 Executive and Marketing Services. Commencing on the Effective Date, and
continuing for the period provided in Section 1, Seafield agrees to make
available to HORL, to the extent HORL may require, the services of Seafield's
senior management to provide policy advice and to attend marketing and client
development functions sponsored by HORL and others to promote HORL's laboratory
testing services (the Administrative Services described in Section 2.1 hereof
and the Executive and Marketing Services described in Section 2.2 hereof are
collectively the "Services").
2.3 Limitation on Services. Notwithstanding anything else contained in this
Section 2:
(a) The provisions of Sections 2.1 and 2.2 shall apply only to Services
that are reasonably required by HORL.
(b) Seafield need not make available any Services to the extent that doing
so would unreasonably interfere with the performance of services for Seafield
by any employee of Seafield or would otherwise cause an unreasonable burden to
Seafield.
SECTION 3. COST OF SERVICES
3.1 Prices and Billing for Services. HORL shall pay Seafield according to the
following formula:
0.20% of sales less than $50 million, plus
0.125% of sales of $50 million or more, but less than $100 million plus
0.0625% of sales of $100 million or more.
The percentage fee shall be paid on or before the 45th day following the end of
each calendar quarter. In addition, HORL shall reimburse Seafield on a timely
basis for the amount of all direct travel expenses reasonably incurred by any
Seafield employee in providing Services.
3.2 Outside Professional Services. In addition to amounts to be paid by HORL
pursuant to Section 3.1, HORL shall reimburse Seafield for the amount of all
reasonable expenses for outside professional services incurred by Seafield for
the benefit of HORL, including, without limitation, public accounting, outside
legal and outside marketing services.
SECTION 4. LIMITATION OF LIABILITY
The liability of Seafield to HORL for any loss or damage, whether direct or
indirect, arising in connection with Seafield's providing Services to HORL
pursuant to Section 2 shall not exceed the highest amount paid or payable by
HORL to Seafield for Services during any quarter in the year in which the act
or omission that caused such loss or damage occurred. IN NO EVENT WILL SEAFIELD
BE LIABLE TO HORL FOR INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING,
WITHOUT LIMITATION, LOSS OF PROFITS OR DAMAGE TO OR LOSS OF USE OF ANY
PROPERTY.
SECTION 5. FORCE MAJEURE
Seafield shall be excused for failure to provide the Services pursuant to
Section 2 to the extent that such failure is directly or indirectly caused by
an occurrence commonly known as force majeure, including, without limitation,
delays arising from fire, earthquake, flood or other acts of God, acts or
orders of a government, agency or instrumentality thereof, acts of a public
enemy, riots, embargoes, strikes or other concerted acts of workers (whether of
Seafield or other persons), casualties or accidents, failure or delay in
deliveries of materials or transportation, shortage of cars, trucks, fuel,
power, labor or materials, telecommunications failure or any other causes,
circumstances or contingencies, within or without the United States of America,
that are beyond the reasonable control of Seafield. Notwithstanding any events
operating to excuse the performance by Seafield, this Agreement shall continue
in full force for the remainder of its term.
SECTION 6. CONFIDENTIALITY
Except as otherwise required under applicable law, Seafield and HORL agree to
maintain as confidential and not to disclose to any third party any and all
information provided by one party to another or otherwise obtained by one party
from another party in the performance of this Agreement. The provisions of this
Section 6 shall survive the termination of this Agreement.
SECTION 7. ENFORCEMENT
HORL and Seafield acknowledge and agree that a remedy at law for any breach of
Section 6 hereof would be inadequate, and each agrees and consents that
temporary and permanent injunctive relief may be granted in any proceeding
which may be brought to enforce any provisions of such Section 6 hereof without
the necessity of proof of actual damage. If the scope of any restriction
contained in Section 6 hereof is too broad to permit enforcement of such
restriction to its full extent, then such restriction shall be enforced to the
maximum extent permitted by law, and HORL and Seafield each agrees and consents
that such scope may be judicially modified accordingly in any proceeding
brought to enforce such restrictions.
SECTION 8. MISCELLANEOUS
8.1 Notice. Any notice or other communication required or permitted hereunder
shall be made in writing and shall be delivered personally, sent by certified
or registered mail (postage prepaid), telegraphed or sent by facsimile
transmission or telex, and shall be deemed given when so delivered personally,
telegraphed, sent by facsimile transmission or telexed, or, if mailed, five
days after the date of deposit in the United States mails, addressed as follows
or as specified hereafter in writing delivered as provided herein:
To Seafield: Seafield Capital Corporation
2600 Grand - Suite 500
Kansas City, Missouri 64108
Attention: Chairman
To HORL: Home Office Reference Laboratory, Inc.
10310 W. 84th Terrace
Lenexa, Kansas 66214
Attention: President
8.2 Governing Law. The validity, interpretation, enforceability and
performance of this Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of Missouri.
8.3 Entire Agreement. The parties intend that the terms of this Agreement
shall be the final expression of their agreement with respect to the subject
matter hereof and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative
or other legal proceeding involving this Agreement. Along with Section 7 of the
Previous Services Agreement relating to the Transition Agreement (which is
hereby incorporated herein by reference), this Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior negotiations, undertakings, representations and
agreements, if any, of the parties hereto.
8.4 Amendment and Waivers. This Agreement may not be amended except upon the
written consent of the parties hereto. By an instrument in writing, either
party may waive compliance by the other party with any term or provision of
this Agreement that such other party was or is obligated to comply with or
perform; provided, however, that such waiver shall not operate as a waiver of,
or estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy or power hereunder shall
operate as a waiver thereof. No partial exercise of any right, remedy or power
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, remedy or power provided herein or by law or in equity.
8.5 Severability. If any provision of this Agreement, or the application
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be invalid, unenforceable or void, the remainder of
this Agreement and such provisions as applied to other persons, places and
circumstances shall remain in full force and effect.
8.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall constitute one and the same instrument.
8.7 Interpretation of Agreement. The section and other headings used in this
Agreement are for reference purposes only and shall not constitute a part
hereof or affect the meaning or interpretation of this Agreement. The term
"person" shall include any individual, partnership, joint venture, corporation,
trust, unincorporated organization, any other business entity and any
government or any department or agency thereof, whether acting in an
individual, fiduciary or other capacity. Whenever the context so requires, the
use of the singular shall be deemed to include the plural and vice versa.
8.8 Further Assurances. Subject to the terms and conditions hereof, each
party agrees to use its best efforts to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement as expeditiously as
practicable, including, without limitations, the performance of such further
acts or the execution and delivery of any additional instruments or documents
as any party may reasonably request in order to carry out the purposes of this
Agreement and the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
SEAFIELD CAPITAL CORPORATION
By: /s/ Tom Grant
-----------------------------------
Chairman
HOME OFFICE REFERENCE LABORATORY, INC.
By: /s/ Kenneth A. Stelzer
-----------------------------------
President
Exhibit 10.21
LabOne, Inc.
LONG-TERM INCENTIVE PLAN
1. Purpose.
The purpose of the LabOne, Inc. Long-Term Incentive Plan (the Plan) is to
further the earnings of LabOne, Inc. (LabOne) and its subsidiaries (collectively
the Company) by assisting the Company in attracting, retaining and motivating
management employees and directors of high caliber and potential. The Plan
provides for the award of long-term incentives to those officers, other key
executives and directors who make substantial contributions to the Company
by their loyalty, industry and invention.
2. Administration.
(a)Committee. The Plan shall be administered by a committee (the
Committee) consisting of three or more members of the Board of Directors of
LabOne (the Board of Directors), each of whom (i) shall be an Outside Director
of LabOne, (ii) shall be a "disinterested person" within the meaning of Rule
16b-3(c)(2)(i) under the Securities and Exchange Act of 1934, as amended from
time to time (the 1934 Act), or any successor rule of similar import, and (c)
shall be selected from time to time by the Board of Directors. For purposes of
the Plan, an "Outside Director" means a member of the Board of Directors who is
not an employee of LabOne or any parent corporation or subsidiary corporation of
LabOne (which terms, as used hereinafter, shall have the meanings ascribed
thereto in Sections 424(e) and (f) of the Internal Revenue Code of 1986, as
amended from time to time (the Code), or any amendment or substitute or
successor thereto or regulation thereunder).
(b)Authority. The Committee shall have full and final authority in its
discretion to interpret the provisions of the Plan and to decide all questions
of fact arising in its application. Subject to the provisions hereof, the
Committee shall have full and final authority in its discretion to determine
the employees and directors to whom awards shall be made under the Plan; to
determine the type of awards to be made and the amount, size and terms and
conditions of each such award; to determine the time when awards shall be
granted; to determine the provisions of each agreement evidencing an award; and
to make all other determinations necessary or advisable for the administration
of the Plan; provided, however, that the Committee shall have no authority or
discretion with respect to awards to Outside Directors subsequent to June 1,
1991, which awards shall be made only as provided in paragraph 24 hereof.
3. Stock Subject to the Plan.
LabOne may grant awards under the Plan with respect to not more than a
total of 1,800,000 shares of common stock of LabOne (Shares), subject, however,
to adjustment as provided in paragraph 18 below. Such Shares may be authorized
and unissued Shares or treasury Shares. Except as otherwise provided herein,
any Shares subject to an option or right which for any reason is surrendered
before exercise or expires or is terminated unexercised as to such Shares shall
again be available for the granting of awards under the Plan. Similarly, if
any Shares granted pursuant to restricted stock awards are forfeited, such
forfeited Shares shall again be available for the granting of awards under the
Plan.
4. Eligibility to Receive Awards.
Persons eligible to receive awards under the Plan shall be limited to
those officers, other key executive employees and directors of the Company who
are in positions in which their decisions, actions and counsel have a
significant impact upon the profitability and success of the Company. Each
Outside Director as of June 1, 1991 received prior grants of Nonqualified Stock
Options to purchase 22,000 Shares. Subsequent to June 1, 1991, no Outside
Director shall be eligible to receive any additional award under the Plan,
except as provided in paragraph 24 hereof.
5. Form of Awards.
Awards may be made from time to time by the Committee in the form of stock
options to purchase Shares, stock appreciation rights, performance units,
restricted stock, or any combination of the above. Stock options may be
options which are intended to qualify as incentive stock options within the
meaning of Section 422A(b) of the Code (Incentive Stock Options) or options
which are not intended to so qualify (Nonqualified Stock Options).
6. Stock Options.
Stock options for the purchase of Shares shall be evidenced by written
agreements in such form not inconsistent with the Plan as the Committee shall
approve from time to time; provided, however, that the form of such agreements
with respect to Nonqualified Stock Options granted to Outside Directors
subsequent to June 1, 1991 shall be as specified in paragraph 24 hereof. Such
agreements shall contain the terms and conditions applicable to the options,
including in substance the following terms and conditions:
(a) Type of Option. Each option agreement shall identify the options
represented thereby as Incentive Stock Options or Nonqualified Stock Options,
as the case may be, and shall set forth the number of Shares subject to the
options.
(b) Option Price. The option exercise price to be paid by the optionee
to the Company for each Share purchased upon the exercise of an option shall be
determined by the Committee, but shall in no event be less than the par value
of a Share.
(c) Exercise Term. Each option agreement shall state the period or
periods of time within which the option may be exercised, in whole or in part,
as determined by the Committee and subject to such terms and conditions as are
prescribed for such purpose by the Committee, provided that no Incentive Stock
Option shall be exercisable after ten years, and no Nonqualified Stock Option
shall be exercisable after ten years and one day, from the date of grant
thereof. The Committee, in its discretion, may provide in the option agreement
circumstances under which the option shall become immediately exercisable, in
whole or in part, and, notwithstanding the foregoing, may accelerate the
exercisability of any option, in whole or in part, at any time.
(d) Payment for Shares. The purchase price of the Shares with respect to
which an option is exercised shall be payable in full at the time of exercise
in cash, Shares at fair market value, or a combination thereof, as the
Committee may determine and subject to such terms and conditions as may be
prescribed by the Committee for such purpose. All optionees granted options at
any time under the Plan, except Outside Directors granted options pursuant to
paragraph 24, shall have the right, with the consent of, and subject to such
terms and conditions as may be established by, the Committee, to elect to pay
all or a part of such purchase price by requesting the Company to reduce the
number of Shares otherwise issuable to the optionee upon the exercise of the
option by a number of Shares having a fair market value equal to such purchase
price.
(e) Rights Upon Termination of Employment. In the event that an optionee
ceases to be an employee or director of the Company for any cause other than
Retirement (as defined below), death or Disability (as defined below), the
optionee shall have the right to exercise the option during its term within a
period of three months after such termination to the extent that the option was
exercisable at the time of termination, or within such other period, and
subject to such terms and conditions, as may be specified by the Committee.
(Asused herein, the term Retirement means retirement pursuant to the pension
plan maintained by LabOne, as amended from time to time, and the term Retires
has the corresponding meaning. As used herein, the term Disability means a
condition that, in the judgment of the Committee, has rendered a grantee
completely and presumably permanently unable to perform any and every duty of
his regular occupation, and the term Disabled has the corresponding meaning.)
In the event that an optionee Retires, dies or becomes Disabled prior to the
expiration of his option and without having fully exercised his option, the
optionee or his Beneficiary (as defined below) shall have the right to exercise
the option during its term within a period of (i) one year after termination of
employment due to Retirement, death or Disability, or (ii) one year after death
if death occurs either within one year after termination of employment due to
Retirement or Disability or within three months after termination of employment
for other reasons, to the extent that the option was exercisable at the time of
death or termination, or within such other period, and subject to such terms
and conditions, as may be specified by the Committee. As used herein, the term
Beneficiary means the person or persons designated in writing by the grantee as
his Beneficiary with respect to an award under the Plan; or, in the absence of
an effective designation or if the designated person or persons predecease the
grantee, the grantee's Beneficiary shall be the person or persons who acquire
by bequest or inheritance the grantee's rights in respect of an award. In
order to be effective, a grantee's designation of a Beneficiary must be on file
with the Committee before the grantee's death, but any such designation may be
revoked and a new designation substituted therefor at any time before the
grantee's death.
(f) Nontransferability. Each option agreement shall provide that the
option is not transferable other than by will or by the laws of descent and
distribution, and that during the lifetime of the optionee the option is
exercisable only by him.
(g) Incentive Stock Options. In the case of an Incentive Stock Option,
each option agreement shall contain such other terms, conditions and provisions
as the Committee determines necessary or desirable in order to qualify such
option as an incentive stock option (within the meaning of Section 422A(b) of
the Code) including in substance, without limitation, the following:
(i) The purchase price of stock subject to an Incentive Stock Option shall
be not less than 100 percent of the fair market value of such stock on the date
the option is granted, as determined by the Committee.
(ii) The aggregate fair market value (determined as of the time the option
is granted) of the stock with respect to which Incentive Stock Options are
exercisable for the first time by any optionee in any calendar year (under all
plans of LabOne and its parent and subsidiary corporations) shall not exceed
$100,000.
(iii) No Incentive Stock Option shall be granted to any employee if at the
time the option is granted the individual owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company or of a parent corporation or subsidiary corporation of the Company,
unless at the time such option is granted the option price is at least 110
percent of the fair market value (as determined by the Committee) of the stock
subject to the option and such option by its terms is not exercisable after the
expiration of five years from the date of grant.
(iv) Directors who are not employees of the Company shall not be eligible
to receive Incentive Stock Options.
7. Stock Appreciation Rights.
Stock appreciation rights (SARs) shall be evidenced by written SAR
agreements in such form not inconsistent with the Plan as the Committee shall
approve from time to time. Such SAR agreements shall contain the terms and
conditions applicable to the SARs, including in substance the following terms
and conditions:
(a)Award. SARs may be granted in connection with a previously or
contemporaneously granted stock option, or independently of a stock option.
SARs shall entitle the grantee, subject to such terms and conditions as may be
determined by the Committee, to receive upon exercise thereof all or a portion
of the excess of (i) the fair market value at the time of exercise, as
determined by the Committee, of a specified number of Shares with respect to
which the SAR is exercised, over (ii) a specified price which shall not be less
than 100 percent of the fair market value of the Shares at the time the SAR is
granted, or, if the SAR is granted in connection with a previously issued stock
option, not less than 100 percent of the fair market value of the Shares at the
time such option was granted. Upon exercise of an SAR, the number of Shares
reserved for issuance hereunder shall be reduced by the number of Shares
covered by the SAR. Shares covered by an SAR shall not be used more than once
to calculate the amount to be received pursuant to the exercise of the SAR.
(b)SARs Related to Stock Options. If an SAR is granted in relation to a
stock option, (i) the SAR shall be exercisable only at such times, and by such
persons, as the related option is exercisable; (ii) the grantee's right to
exercise the related option shall be canceled if and to the extent that the
Shares subject to the option are used to calculate the amount to be received
upon the exercise of the related SAR; (iii) the grantee's right to exercise the
related SAR shall be canceled if and to the extent that the Shares subject to
the SAR are purchased upon the exercise of the related option; and (iv) the SAR
shall not be transferable other than by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the grantee only
by him.
(c)Term. Each SAR agreement shall state the period or periods of time
within which the SAR may be exercised, in whole or in part, as determined by
the Committee and subject to such terms and conditions as are prescribed for
such purpose by the Committee, provided that no SAR shall be exercisable
earlier than six months after the date of grant or later than ten years after
the date of grant. The Committee may, in its discretion, provide in the SAR
agreement circumstances under which the SARs shall become immediately
exercisable, in whole or in part, and may, notwithstanding the foregoing,
accelerate the exercisability of any SAR, in whole or in part, at any time.
(d)Termination of Employment. SARs shall be exercisable only during the
grantee's employment by the Company, except that, in the discretion of the
Committee, an SAR may be made exercisable for up to three months after the
grantee's employment (or tenure as a director) is terminated for any reason
other than Retirement, death or Disability, and for up to one year after the
grantee's employment (or tenure as a director) is terminated because of
Retirement, death or Disability.
(e)Payment. Upon exercise of an SAR, payment shall be made in cash, in
Shares at fair market value on the date of exercise, or. in a combination
thereof, as the Committee may determine.
(f)Other Terms. SARs shall be granted in such manner and such form, and
subject to such additional terms and conditions, as the Committee in its sole
discretion deems necessary or desirable, including without limitation: (i) if
granted in connection with an Incentive Stock Option, in order to satisfy any
requirements set forth under Section 422A of the Code; or, (ii) in order to
avoid any insider-trading liability in connection with an SAR under Section
16(b) of the 1934 Act.
8. Restricted Stock Awards.
Restricted stock awards under the Plan shall consist of Shares free of any
purchase price or for such purchase price as may be established by the
Committee, restricted against transfer, subject to forfeiture, and subject to
such other terms and conditions (including attainment of performance
objectives) as may be determined by the Committee. Restricted stock shall be
evidenced by written restricted stock agreements in such form not inconsistent
with the Plan as the Committee shall approve from time to time, which
agreements shall contain the terms and conditions applicable to such awards,
including in substance the following terms and conditions:
(a)Restriction Period. Restrictions shall be imposed for such period or
periods as may be determined by the Committee. The Committee, in its
discretion, may provide in the agreement circumstances under which the
restricted stock shall become immediately transferable and nonforfeitable, or
under which the restricted stock shall be forfeited, and, notwithstanding the
foregoing, may accelerate the expiration of the restriction period imposed on
any Shares at any time.
(b)Restrictions Upon Transfer. Restricted stock and the right to vote
such Shares and to receive dividends thereon, may not be sold, assigned,
transferred, exchanged, pledged, hypothecated, or otherwise encumbered, except
as herein provided, during the restriction period applicable to such Shares.
Notwithstanding the foregoing, and except as otherwise provided in the Plan,
the grantee shall have all of the other rights of a stockholder, including, but
not limited to, the right to receive dividends and the right to vote such
Shares.
(c)Certificates. A certificate or certificates representing the number of
restricted Shares granted shall be registered in the name of the grantee. The
Committee, in its sole discretion, shall determine when the certificate or
certificates shall be delivered to the grantee (or, in the event of the
grantee's death, to his Beneficiary), may provide for the holding of such
certificate or certificates in escrow or in custody by the Company or its
designee pending their delivery to the grantee or Beneficiary, and may provide
for any appropriate legend to be borne by the certificate or certificates.
(d)Lapse of Restrictions. The Agreement shall specify the terms and
conditions upon which any restrictions upon restricted stock awarded under the
Plan shall expire, lapse, or be removed, as determined by the Committee. Upon
the expiration, lapse, or removal of such restrictions, Shares free of the
restrictive legend shall be issued to the grantee or his legal representative.
9. Performance Units.
Performance unit awards under the Plan shall entitle grantees to future
payments based upon the achievement of pre-established long-term performance
objectives and shall be evidenced by written performance unit agreements in
such form not inconsistent with this Plan as the Committee shall approve from
time to time. Such agreements shall contain the terms and conditions
applicable to the performance unit awards, including in substance the following
terms and conditions:
(a)Performance Period. The Committee shall establish with respect to each
unit award a performance period of not fewer than two years.
(b)Unit Value. The Committee shall establish with respect to each unit
award value for each unit which shall not thereafter change, or which may vary
thereafter pursuant to criteria specified by the Committee.
(c)Performance Targets. The Committee shall establish with respect to
each unit award maximum and minimum performance targets to be achieved during
the applicable performance period. Achievement of maximum targets shall
entitle grantees to payment with respect to the full value of a unit award.
Grantees shall be entitled to payment with respect to a portion of a unit award
according to the level of achievement of targets as specified by the Committee
for performance which achieves or exceeds the minimum target but fails to
achieve the maximum target.
(d)Performance Measures. Performance targets established by the Committee
shall relate to corporate, division, or unit performance and may be established
in terms of growth in gross revenue, earnings per share, ratios of earnings to
equity or assets, or such other measures or standards as may be determined by
the Committee in its discretion. Multiple targets may be used and may have the
same or different weighting, and they may relate to absolute performance or
relative performance measured against other companies or businesses.
(e)Adjustments. At any time prior to payment of a unit award, the
Committee may adjust previously established performance targets or other terms
and conditions, including the Company's or other corporations' financial
performance for Plan purposes, to reflect major unforeseen events such as
changes in laws, regulations or accounting practices, mergers, acquisitions or
divestitures or other extraordinary, unusual or non-recurring items or events.
(f)Payment of Unit Awards. Following the conclusion of each performance
period, the Committee shall determine the extent to which performance targets
have been attained and any other terms and conditions satisfied for such
period. The Committee shall determine what, if any, payment is due on the unit
award and whether such payment shall be made in cash, Shares, or a combination
thereof. Payment shall be made in a lump sum or installments, as determined by
the Committee, commencing as promptly as practicable following the end of the
performance period unless deferred subject to such terms and conditions and in
such form as may be prescribed by the Committee.
(g)Termination of Employment. In the event that a grantee ceases to be
employed by the Company prior to the end of the performance period by reason of
death, Disability, or Retirement with the consent of the Company, any unit
award, to the extent earned under the applicable performance targets, shall be
payable at the end of the performance period according to the portion of the
performance period during which the grantee was employed by the Company,
provided that the Committee shall have the power to provide for an appropriate
settlement of a unit award before the end of the performance period. Upon any
other termination of employment, participation shall terminate forthwith and
all outstanding unit awards shall be canceled.
10. Loans and Supplemental Cash.
The Committee, in its sole discretion to further the purpose of the Plan,
may provide for supplemental cash payments or loans to individuals in
connection with all or any part of an award under the Plan. Supplemental cash
payments shall be subject to such terms and conditions as shall be prescribed
by the Committee at the time of grant, provided that in no event shall the
amount of payment exceed:
(a)In the case of an option, the excess of the fair market value of a
Share on the date of exercise over the option price multiplied by the number of
Shares for which such option is exercised, or
(b)In the case of an SAR, performance unit, or restricted stock award, the
value of the Shares and other consideration issued in payment of such award.
Any loan shall be evidenced by a written loan agreement or other instrument in
such form and containing such terms and conditions (including, without
limitation, provisions for interest, payment schedules, collateral, forgiveness
or acceleration) as the Committee may prescribe from time to time.
11. General Restrictions.
Each award under the Plan shall be subject to the requirement that if any
time the Company shall determine that (i) the listing, registration or
qualification of the Shares subject or related thereto upon any securities
exchange or under any state or federal law, or (ii) the consent or approval of
any regulatory body, or (iii) an agreement by the recipient of an award with
respect to the disposition of Shares, or (iv) the satisfaction of withholding
tax or other withholding liabilities is necessary or desirable as a condition
of or in connection with the granting of such award or the issuance or purchase
of Shares thereunder, such award shall not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval, agreement,
or withholding shall have been effected or obtained free of any conditions not
acceptable to the Company. Any such restriction affecting an award shall not
extend the time within which the award may be exercised; and neither the
Company nor its directors or officers nor the Committee shall have any
obligation or liability to the grantee or to a Beneficiary with respect to any
Shares with respect to which an award shall lapse or with respect to which the
grant, issuance or purchase of Shares shall not be effected, because of any
such restriction.
12. Single or Multiple Agreements.
Multiple awards, multiple forms of awards, or combinations thereof may be
evidenced by a single agreement or multiple agreements, as determined by the
Committee.
13. Rights of a Shareholder.
The recipient of any award under the Plan, unless otherwise provided by
the Plan, shall have no rights as a shareholder with respect thereto unless and
until certificates for Shares are issued to him, and the issuance of Shares
shall confer no retroactive right to dividends.
14. Rights to Terminate Employment.
Nothing in the Plan or in any agreement entered into pursuant to the Plan
shall confer upon any person the right to continue in the employment of the
Company or affect any right which the Company may have to terminate the
employment of such person.
15. Withholding.
(a)Prior to the issuance or transfer of Shares under the Plan, the
recipient shall remit to the Company an amount sufficient to satisfy any
Federal, state or local withholding tax requirements. The recipient may
satisfy the withholding requirement in whole or in part by electing to have the
Company withhold Shares having a value equal to the amount required to be
withheld. The value of the Shares to be withheld shall be the fair market
value, as determined by the Committee, of the stock on the date that the amount
of tax to be withheld is determined (the Tax Date). Such Election must be made
prior to the Tax Date, must comply with all applicable securities law and other
legal requirements, as interpreted by the Committee, and may not be made unless
approved by the Committee, in its discretion.
(b)Whenever payments to a grantee in respect of an award under the Plan
are to be made in cash, such payments shall be net of the amount necessary to
satisfy any Federal, state or local withholding tax requirements.
16. Non-Assignability.
No award under the Plan shall be assignable or transferable by the
recipient thereof except by will or by the laws of descent and distribution or
by such other means as the Committee may approve. During the life of the
recipient, such award shall be exercisable only by such person or by such
person's guardian or legal representative.
17. Non-Uniform Determinations.
The Committee's determinations under the Plan (including without
limitation determinations of the persons to receive awards, the form, amount
and timing of such awards, the terms and provisions of such awards and the
agreements evidencing same, and the establishment of values and performance
targets) need not be uniform and may be made selectively among persons who
receive, or are eligible to receive, awards under the Plan, whether or not such
persons are similarly situated (except Options granted to Outside Directors
pursuant to paragraph 24 hereof).
18. Adjustments.
In the event of any change in the outstanding common stock of the Company,
by reason of a stock dividend or distribution, recapitalization, merger,
consolidation, reorganization, splitup, combination, exchange of Shares or the
like, the Board of Directors, in its discretion, may adjust proportionately the
number of Shares which may be issued under the Plan, the number of Shares
subject to outstanding awards, and the option exercise price of each
outstanding option, and may make such other changes in outstanding options,
SARs, performance units and restricted stock awards, as it deems equitable in
its absolute discretion to prevent dilution or enlargement of the rights of
grantees; provided, however, that the number and option exercise price with
respect to the Shares subject to outstanding options granted to Outside
Directors prior to June 1, 1991, and the number and option exercise price with
respect to the Shares subject to future Options to be granted to Outside
Directors pursuant to paragraph 24, shall be subject to adjustment only as set
forth in paragraph 24. Fractional Shares resulting from any such adjustments
shall be eliminated.
19. Amendment.
The Board of Directors may terminate, amend, modify or suspend the Plan at
any time, except that the Board shall not, without the authorization of the
holders of a majority of Company's outstanding Shares, increase the maximum
number of Shares which may be issued under the Plan (other than increases
pursuant to paragraph 18 hereof), extend the last date on which awards may be
granted under the Plan, extend the date on which the Plan expires, change the
class of persons eligible to receive awards, or change the minimum option
price. No termination, modification, amendment or suspension of the Plan shall
adversely affect the rights of any grantee or Beneficiary under an award
previously granted, unless the grantee or Beneficiary shall consent; but it
shall be conclusively presumed that any adjustment pursuant to paragraph 18
hereof does not adversely affect any such right. In no event shall the
provisions relating to the timing, amount and exercise price of Options
provided for in paragraph 24 of the Plan be amended more than once every six
months, other than to comport with changes in the Code, Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder.
20. Effect on Other Plans.
Participation in this Plan shall not affect a grantee's eligibility to
participate in any other benefit or incentive plan of the Company. Any awards
made pursuant to this Plan shall not be used in determining the benefits
provided under any other plan of the Company unless specifically provided
therein.
21. Effective Date and Duration of Plan.
The Plan shall become effective when adopted by the Board of Directors,
provided that the Plan is approved by the holders of a majority of the
outstanding Shares on the date of its adoption by the Board or before the first
anniversary of that date. Unless it is sooner terminated in accordance with
paragraph 19 hereof, the Plan shall remain in effect until all awards under the
Plan have been satisfied by the issuance of Shares or the payment of cash or
have expired or otherwise terminated, but no award shall be granted more than
ten years after the earlier of the date the Plan is adopted by the Board of
Directors or is approved by the Company's shareholders.
22. Unfunded Plan.
The Plan shall be unfunded, except to the extent otherwise provided in
accordance with Section 8 hereof. Neither the Company nor any affiliate shall
be required to segregate any assets that may be represented by stock options,
SARs, or performance units, and neither the Company nor any affiliate shall be
deemed to be a trustee of any amounts to be paid under any stock option, SAR or
performance unit. Any liability of the Company or any affiliate to pay any
grantee or Beneficiary with respect to an option, SAR or performance unit shall
be based solely upon any contractual obligations created pursuant to the
provisions of the Plan; no such obligations will be deemed to be secured by a
pledge or encumbrance on any property of the Company or an affiliate.
23. Governing Law.
The Plan shall be construed and its provisions enforced and administered
in accordance with the laws of the State of Delaware except to the extent that
such laws may be superseded by any Federal law.
24. Outside Directors' Options.
(a) Grant of Nonqualified Stock Options. At each annual meeting of
stockholders of LabOne commencing with the year 1993, each person who is for the
first time elected to serve as an Outside Director at such annual meeting of
stockholders, excluding any Outside Director elected at any prior annual
meeting of stockholders of LabOne, shall automatically receive a one-time grant
of Nonqualified Stock Option to purchase 22,000 Shares (the Option), such grant
to be effective as of the date of such annual meeting of stockholders;
provided, however, that any Outside Director shall not be entitled to receive
and shall not be granted an Option if he does not continue to serve as an
Outside Director immediately following such annual meeting of stockholders.
(b) Option Price. The Option exercise price to be paid by each such
Outside Director for each Share purchased upon the exercise of the Option shall
be one hundred percent (100%) of the fair market value of the Shares on the
date the Option is granted. Fair market value for purposes of this paragraph
24 shall be deemed to be the average of the high and low sales prices for the
Shares on the National Association of Securities Dealers Automated Quotations
System as of the date the Option is granted, or if no sales of Shares shall
have been reported on that date, as of the next preceding date on which a sale
of Shares was reported.
(c) Vesting Schedule. Each Option granted to an Outside Director may be
exercised with respect to twenty percent (20%) of the Shares subject to the
Option after one year from the date of grant, an additional twenty percent
(20%) of the Shares subject to the Option after two years from the date of
grant, an additional twenty percent (20%) of the Shares subject to the Option
after three years from the date of grant, an additional twenty percent (20%) of
the Shares subject to the Option after four years from the date of grant and an
additional twenty percent (20%) of the Shares subject to the Option after five
years from the date of grant.
(d) Other Terms and Conditions. Each Option granted to an Outside
Director shall be subject to all of the other terms and conditions set forth in
the form of Stock Option Agreement adopted by the Committee and approved by the
Board of Directors on March 22, 1991; provided, however, that in the event of
any change in the Shares of the Company, by reason of a stock dividend or
distribution, recapitalization, merger, consolidation, reorganization,
split-up, combination, exchange of Shares or the like, thereafter the number of
Shares subject to outstanding options granted to Outside Directors prior to
June 1, 1991 and the number of Shares subject to future Options to be granted
to Outside Directors pursuant to the provisions of this paragraph 24 shall be
increased or decreased, as the case may be, in direct proportion to the
increase or decrease in the number of Shares by reason of such change (provided
that fractional Shares resulting from any such adjustment shall be eliminated),
and the exercise price per Share of any such outstanding option or Option
shall, in the case of an increase in the number of Shares, be proportionately
reduced, and in the case of a decrease in the number of Shares, shall be
proportionately increased; and provided further, however, that each Outside
Director granted an Option at any time under the Plan shall have the right to
elect to pay all or a part of the purchase price of the Shares with respect to
which the Option is exercised by requesting the Company to reduce the number of
Shares otherwise issuable to the Outside Director upon the exercise of the
Option by a number of Shares having a fair market value equal to such purchase
price.
Exhibit 10.22
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of August 5, 1993, and as amended as
of November 9, 1993, by and between Home Office Reference Laboratory, Inc.,
with offices in Lenexa, Kansas (hereinafter referred to as "HORL") and Bert H.
Hood, a resident of the State of Texas (hereinafter referred to as "Officer");
WITNESSETH:
WHEREAS, HORL desires Officer to manage the operations, financial affairs and
strategic direction of HORL, serving as Chairman of the Board and as a member
of the Executive Committee of the Board of Directors; and
WHEREAS, it is the intention and desire of the parties to enter into a formal
agreement whereby two principal purposes will be served, to wit:
A. HORL will have the benefit of the substantial expertise of Officer for
at least the period covered by this Agreement; and
B. Officer will manage and be responsible for the operations, financial
affairs and strategic direction of HORL during the term hereinafter defined and
will be motivated by the compensation as set forth herein;
NOW, THEREFORE, in consideration of the employment of Officer by HORL and of
the mutual promises, covenants, representations and warranties contained
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:
SECTION I
EMPLOYMENT AND TERM
1.1 Employment. HORL hereby employs Officer and Officer hereby accepts such
employment and agrees to perform the duties described in Section 2 of this
Agreement.
1.2 Term.
(a) Base Term. The term of employment shall commence on the date hereof
and shall continue for a period of three (3) years therefrom (the "Base Term"),
or until terminated as otherwise provided herein.
(b) Termination Subsequent to Change in Control. Notwithstanding any other
provision of this Agreement to the contrary, in the event that (i) a change of
control of HORL shall occur at any time during which Officer is in the
full-time employment of HORL or its successor and (ii) within one (1) year
after such a change in control, Officer's employment with HORL or its successor
is terminated by HORL or its successor for any reason other than permanent
disability, death or normal retirement, or is voluntarily terminated by Officer
for any reason at his sole discretion, HORL will promptly pay to Officer as
termination compensation the lump sum amount described below.
The lump sum compensation payable shall be equal to three (3) times the average
annual compensation includable in Officer's gross income for the most recent
five (5) taxable years ending before the date of the change in control. If
Officer has been an employee of HORL for less than 5 years, Officer's lump sum
payment shall be equal to 3 times the average annual compensation includable in
Officer's gross income based on the portion of the 5 year period during which
Officer performed services for HORL. To the extent that any amount required to
be paid hereunder would constitute an "excess parachute payment" within the
meaning of Section 280G(b) of the Internal Revenue Code of 1986, that excess
amount need not be paid.
For purposes of this Section 1.2(b), a "change of control" shall be deemed to
have taken place if there shall have occurred (i) the sale or other disposition
resulting in the transfer of legal or beneficial ownership of, or the right to
vote, more than fifty percent (50%) of the outstanding capital stock of HORL to
one or more third-party purchasers unaffiliated with Seafield Capital
Corporation, its shareholders or affiliates (as the term "affiliate" is defined
in Rule 12b-2 promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934), except in connection with an underwritten
public offering of the common stock of HORL, (ii) a merger or consolidation of
HORL with or into any entity other than Seafield Capital Corporation or its
affiliates, (iii) a sale or other transfer of substantially all of the assets
of HORL to any person or entity other than Seafield Capital Corporation or its
affiliates, (iv) the sale or other disposition resulting in the transfer of
legal or beneficial ownership of, or the right to vote, more than fifty percent
(50%) of the outstanding capital stock of Seafield Capital Corporation to one
or more third-party purchasers (other than the affiliates of Seafield Capital
Corporation), except in connection with an underwritten public offering of the
common stock of Seafield Capital Corporation, (v) a merger or consolidation of
Seafield Capital Corporation with or into any entity other than the affiliates
of Seafield Capital Corporation, or (vi) a sale or other transfer of
substantially all of the assets of Seafield Capital Corporation to any person
or entity other than the affiliates of Seafield Capital Corporation.
In the event of termination of employment under the circumstances described
above, HORL shall pay to Officer the installments of his base salary through
the date of termination of employment, any annual incentive bonus for the
previous year if such has been approved but not paid and the lump sum amount as
termination compensation described above, and any remaining term of this
Agreement shall be cancelled. Such payments to Officer and the arrangements
provided for by any stock option or other agreement between HORL and Officer in
effect at the time and by any other applicable plan of HORL will constitute the
entire obligation of HORL to Officer with respect to such termination, and will
also constitute full settlement of any claim under law or in equity that
Officer might otherwise assert against HORL or any of its employees on account
of such termination.
(c) Annual Extension. Commencing on the third anniversary of this
Agreement and on each succeeding anniversary thereafter, unless HORL notifies
Officer in accordance with the immediately following sentence that Officer's
employment under this Agreement will not be extended, this Agreement and
Officer's employment under this Agreement shall automatically and without
further action be extended for one (1) year from such anniversary on the same
terms and conditions as are set forth herein. If HORL elects not to extend
Officer's employment under this Agreement as provided in the preceding
sentence, it shall do so by notifying Officer in writing at least sixty (60)
days prior to the applicable anniversary date of this Agreement. If HORL
elects not to extend Officer's employment under this Agreement as provided
above, such election shall be treated as a termination of Officer without cause
within the meaning of Section 9.1(e) of this Agreement and HORL shall pay to
Officer, in addition to any other sums which may be due to Officer, the lump
sum severance payment provided for in Section 9.1(e).
SECTION 2
DUTIES
2.1 General Duties. Officer shall serve HORL in the capacities of Chairman of
the Board of Directors and as a member of the Board of Directors and of the
Executive Committee of the Board of Directors of HORL and shall perform such
duties and responsibilities as are customarily performed by persons acting in
such capacities. Officer shall be responsible for (i) maintaining and
expanding the insurance laboratory testing business currently conducted by
HORL, (ii) establishing, directing, administering and coordinating the
acquisition and growth objectives of HORL, including, without limitation,
diversification into the clinical laboratory testing business, as assistance to
and in accordance with the policies and objectives established by the Board of
Directors, and (iii) the performance of such other duties in relation to HORL
consistent with Officer's position as Chairman of the Board of Directors of
HORL as shall from time to time be assigned to Officer by the Board of
Directors.
2.2 Full Time. During the term hereof, Officer agrees to devote his full
time, attention and skill to the performance of his duties as Chairman of the
Board of Directors of HORL.
2.3 Best Efforts. Officer agrees that he will at all times faithfully,
industriously and to the best of his ability, experience and talents, perform
all of the duties that may be required of and from him by the Board of
Directors as described above.
2.4 Indemnification and D & O Insurance. HORL shall provide to Officer
coverage under HORL's director and officer liability insurance and
indemnification rights, whether provided by HORL or Seafield Capital
Corporation or otherwise, as fully and to the same extent as the same are
provided to other directors and top level executive officers of HORL.
SECTION 3
BASE SALARY
3.1 Annual Base Salary. HORL shall pay Officer, and Officer shall accept from
HORL in full payment for Officer's full time services hereunder, compensation
at the rate of Two Hundred Thousand Dollars ($200,000) per annum, payable
monthly in periodic equal installments during the year. Such salary shall be
reviewed from time to time, but not less often than annually, by the Board of
Directors of HORL and will be subject to such increases, but not decreases, as
the Board of Directors of HORL may determine, having due regard for the efforts
of Officer and the results, both financial and otherwise, of HORL's operations
during Officer's tenure as Chairman of the Board of Directors.
3.2 Reimbursement of Expenses. HORL shall reimburse Officer for such
reasonable out-of-pocket expenses as are incurred by Officer in order to render
the services contemplated hereunder.
3.3 Tax Withholdings. HORL shall deduct from the compensation payable to
Officer all federal, state, and local income tax, social security, FICA, FUTA
and other withholdings as required by law.
SECTION 4
BONUSES AND FRINGE BENEFITS
4.1 Signing Bonus. As an incentive to induce Officer to enter into this
Agreement, HORL shall pay Officer upon his execution of this Agreement a
signing bonus of Sixty Thousand Dollars ($60,000).
4.2 Annual Incentive Bonus. During the term hereof, Officer shall be eligible
to receive an annual incentive bonus based upon the performance of HORL in
relation to pre-determined financial goals established by the Compensation
Committee of the Board of Directors of HORL after consultation with Officer.
Bonuses for less than a full year of service may be granted at the discretion
of the Compensation Committee.
4.3 Annual Vacation. Officer shall be entitled to an annual vacation period
of four weeks, non-cumulative.
4.4 Stock Option. Simultaneously with the execution and delivery of this
Agreement, the Long-Term Incentive Plan Committee of the Board of Directors of
HORL has granted to Officer under the HORL Long-Term Incentive Plan a
Non-Qualified Stock Option Agreement of even date herewith, in the form which
is attached as Exhibit A hereto, for Two Hundred Thousand (200,000) shares of
the common stock of HORL.
4.5 Purchase of Texas Residence. To assist Officer in relocating his personal
residence from Irving, Texas to the Greater Kansas City area, HORL shall cause
Officer's personal residence in Irving, Texas to be purchased for a purchase
price net to Officer equal to the average of the fair market values of
Officer's personal residence established by two (2) independent appraisers
satisfactory to HORL and to Officer.
4.6 Other Fringe Benefits. Officer shall be entitled to participate in such
fringe benefit programs as HORL may make available from time to time to
executive employees, which shall include reasonable hospital and major medical
insurance coverage, long term disability and life insurance in amounts and on
terms no less favorable than those provided to other executive officers of
HORL. Further, HORL will provide Officer, at HORL's option, with an automobile
of a type in keeping with his executive position, or with an automobile
allowance sufficient as a substitute therefor.
SECTION 5
NON-COMPETITION
5.1 Restrictive Covenants. In consideration for Officer's employment with
HORL and in further consideration for the compensation provided to Officer in
Sections 3 and 4 hereof, Officer agrees that during the term of his employment
pursuant to this Agreement, and for a period of two (2) years after the
termination for any reason of his employment pursuant to this Agreement, he
will not, without the prior written consent of HORL, directly or indirectly,
individually or in concert with others, or through the medium of any other
corporation, partnership, syndicate, association, joint venture, or other
entity or as an employee, officer, director, agent, consultant or affiliate,
compete with HORL, within the hereinafter described region, in (i) the urine or
blood chemistry testing or analysis business for the insurance industry, or
(ii) the urine or blood chemistry container or other supply business for the
insurance industry, or (iii) any other business engaged in by HORL as of the
date of the termination of Officer's employment with HORL, and Officer will not
solicit or accept any such business described in any of subparts (i) through
(iii) above and which competes with HORL from any customer who is served by
HORL as of the date of the termination of Officer's employment pursuant hereto,
or cause or induce any present or future employee of HORL to leave the employ
of HORL to accept employment with Officer or with any such entity or person.
The region referred to above shall consist of any territory in which HORL or
any of its representatives or agents, as of the date of the termination of
Officer's employment pursuant hereto, provides, sells, offers for sale or
solicits the sale of urine or blood chemistry testing or analysis, or urine or
blood chemistry containers or other supplies related thereto, or other services
or products. HORL and Officer agree that in the event that any provision of
this Section 5.1 is void or constitutes an unreasonable restriction against
Officer, such provision shall not be rendered void, but shall apply with
respect to such time or territory or to such other extent as may constitute a
reasonable restriction under the circumstances. The foregoing provisions shall
not prohibit Officer from owning not more than 3% of the total shares of all
classes of stock outstanding of any publicly held company.
5.2 Injunctive Relief. HORL shall be entitled to appropriate injunctive
relief in any court of competent jurisdiction to enforce its rights under
Sections 5, 6, 7 and 8 of this Agreement, in addition to any other rights and
remedies available to HORL at law or in equity, it being agreed that any
violation of Sections 5, 6, 7 or 8 of this Agreement by Officer is reasonably
likely to cause irreparable damage to HORL which will be difficult or
impossible to value in monetary damages.
5.3 Charitable Activities. Nothing in this Section 5 shall be construed as
preventing Officer from engaging in charitable, professional, religious or
civic activities such as serving on a school board, or as a member of or
officer of a professional organization, provided such activity or organization
does not compete directly with HORL.
SECTION 6
CONFIDENTIAL INFORMATION
6.1 Confidentiality. During the term of and at any time after the termination
of this Agreement, Officer will hold in trust and confidence and will not
divulge, disclose or convey to any person, firm, corporation or other entity
and will keep secret and confidential all trade secrets, proprietary
information and confidential information heretofore or hereafter acquired by
him concerning HORL, Head Office Reference Laboratory Ltd., or Seafield Capital
Corporation, and will not use for himself or others the same in any manner,
except to the extent that such information should become no longer a trade
secret, proprietary or confidential. Such trade secrets, proprietary
information and confidential information shall be deemed to include, but shall
not be limited to, information, whether written or not:
(a) of a technical nature, such as but not limited to, technology,
inventions, discoveries, improvements, processes, formulae, ideas, know-how,
methods, compositions, computer software programs or research projects,
including the identity of research organizations and researchers,
(b) of a business nature, such as but not limited to information
concerning costs, profits, supplies, suppliers, marketing, sales or lists of
customers, and
(c) pertaining to future developments, such as but not limited to
information concerning research and development or future marketing methods.
The restrictions contained above shall not apply to:
(i) information which at the time of disclosure by HORL to Officer is in
the public domain; or
(ii) information which at the time of disclosure by HORL to Officer
constituted confidential information hereunder, but which thereafter becomes
part of the public domain by publication or otherwise through no fault of
Officer.
SECTION 7
DEVELOPMENTS
7.1 Developments. Officer will promptly disclose to HORL (in form
satisfactory to HORL) all information, technology, inventions, discoveries,
improvements, processes, formulae, ideas, know-how, methods, compositions,
research projects, computer software programs and developments, whether or not
patentable or copyrightable (collectively "Information"), that Officer by
himself or in conjunction with any other person or entity conceives, makes,
develops or acquires during the term of this Agreement, and that:
(a) are or relate or pertain to the assets, properties, or existing or
contemplated business or research activities or HORL, or
(b) are suggested by, arise out of or result from, directly or indirectly,
Officer's association with HORL, or
(c) arise out of or result, directly or indirectly, in part or fully, from
the use of HORL's time, labor, materials facilities or other resources
(collectively "Developments").
Any Information fitting within any of the descriptions contained in subsections
(a), (b) or (c) of this Section 7.1 that is disclosed to any other person, firm
or other entity by Officer or used in any manner by Officer within one (1) year
following the termination of this Agreement shall be presumed to have been
conceived, made, developed or acquired during the term of this Agreement and,
thus, to constitute a Development.
7.2 Assignment to HORL. Officer hereby assigns, transfers and conveys to HORL
all of his right, title and interest in and to any and all such Developments,
which Developments shall become and remain the sole and exclusive property of
HORL. At any time and from time to time, upon the request of HORL, Officer
will execute and deliver any and all instruments, documents and papers, give
evidence and do any and all other acts which, in the reasonable opinion of
counsel for HORL, are or may be necessary or desirable to document such
transfer, or to enable HORL to file and process applications for and to
acquire, maintain and enforce any and all patents, trademarks, registrations or
copyrights with respect to any such Developments, or to obtain any extension,
validation, re-issue, continuance or renewal of any such patent, trademark or
copyright. HORL will be responsible for the preparation of any such
instruments, documents and papers and for the implementation of any such
proceedings and will reimburse Officer for all reasonable expenses incurred by
him in compliance with the provisions of this paragraph.
SECTION 8
PROPERTY OF HORL
8.1 All correspondence, notes, recordings, documents and other materials and
reproductions thereof pertaining to any aspect of the business of HORL shall be
the property of and shall be delivered to and retained by HORL upon termination
of this Agreement.
SECTION 9
TERMINATION
9.1 Termination. Officer's employment pursuant to this Agreement shall
terminate upon the occurrence of any of the following events:
(a) Death. In the event that Officer dies during the term of this
Agreement, HORL shall pay to his executors or administrators an amount equal to
the installments of his base salary payable for the month in which he dies and
any annual incentive bonus for the previous year if such has been approved but
not paid, and such payments, together with the arrangements provided for by any
stock option or other agreement between HORL and Officer in effect at the time
and by any other applicable plan of HORL will constitute the entire obligation
of HORL to Officer and will also constitute full settlement of any claim under
law or in equity that Officer's executors, heirs or assigns or any other person
claiming under or through him might otherwise assert against HORL or any of its
employees on account of his death.
(b) Disability. In the event that Officer continues unable to fully
perform his duties and responsibilities hereunder by reason of illness, injury
or mental or physical disability or incapacity for ninety (90) consecutive
days, during which time he shall continue to be compensated for monthly
installments of base salary and any annual incentive bonus for the previous
year if such has been approved but not paid, Officer's employment pursuant to
this Agreement may be terminated by HORL, and such payments, together with the
arrangements provided for by any stock option or other agreement between HORL
and Officer in effect at the time and by any other applicable plan of HORL will
constitute the entire obligation of HORL to Officer and will also constitute
full settlement of any claim under law or in equity that Officer might
otherwise assert against HORL or any of its employees on account of such
termination. Officer agrees, in the event of any dispute under this Section
9.1, to submit to a physical examination by a reputable licensed physician
selected by HORL and to accept HORL's decision based on the results thereof.
(c) Voluntary Termination. Officer's employment may be voluntarily
terminated upon Officer giving sixty (60) days' prior written notice to HORL.
In the event Officer voluntarily terminates his employment, HORL shall pay to
Officer an amount equal to his base salary payable through the date of
termination of employment and any annual incentive bonus for the previous year
if such has been approved but not paid, and such payments, together with the
arrangements provided for by any stock option or other agreement between HORL
and Officer in effect at the time and by any other applicable plan of HORL will
constitute the entire obligation of HORL to Officer and will also constitute
full settlement of any claim under law or in equity that Officer might
otherwise assert against HORL or any of its employees on account of his
termination.
(d) Termination for Cause. Officer's employment may be terminated by HORL
at any time for cause. In the event that Officer is terminated by HORL for
cause, HORL shall pay to Officer his base salary which may have accrued to the
date of termination and any annual incentive bonus for the previous year if
such has been approved but not paid, and such payments, together with the
arrangements provided for by any stock option or other agreement between HORL
and Officer in effect at the time and by any other applicable plan of HORL will
constitute the entire obligation of HORL to Officer and will also constitute
full settlement of any claim under law or in equity that Officer might
otherwise assert against HORL or any of its employees on account of his
termination. Only the following actions, failures or events by or affecting
Officer shall constitute "cause" for termination of Officer by HORL (i) willful
and continued failure by Officer to substantially perform his duties provided
herein after a written demand for substantial performance is delivered to
Officer by the Board of Directors of HORL, which demand identifies with
reasonable specificity the manner in which Officer has not substantially
performed his duties, and Officer fails to comply with such demand within a
reasonable time; (ii) the engaging by Officer of gross misconduct or gross
negligence materially injurious to HORL; (iii) Officer's conviction of having
committed a felony; or (iv) HORL's fiscal year earnings from operations
(excluding investment income and provision for income taxes) determined in
accordance with generally accepted accounting principles (excluding
extraordinary, unusual or nonrecurring gains or losses), shall be less than
$14,000,000. Notwithstanding the foregoing, Officer shall not be deemed to have
been terminated by HORL for cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors of
HORL finding that, in the good faith opinion of the Board of Directors, HORL
has cause for the termination of employment of Officer as set forth in any of
clauses (i) through (iv) above and specifying the particulars thereof in
reasonable detail. The findings of the Board of Directors shall not be binding
on the arbitrators or other finders of fact in connection with any litigation
or dispute arising out of this Agreement.
(e) Termination Without Cause. In the event that HORL terminates
Officer's employment for reasons other than death, disability, or cause as
listed in subsection (d) above, then in addition to any other sums to which
Officer may be entitled under this Agreement, HORL shall pay to Officer, on or
before the last day of employment, a lump sum severance payment equal to (i)
the installments of base salary due for the balance of the then current term of
this Agreement, plus (ii) the annual base salary payable to Officer by HORL
immediately prior to termination of employment, which payments, together with
the arrangements provided for by any stock option or other agreement between
HORL and Officer in effect at the time and by any other applicable plan of HORL
will constitute the entire obligation of HORL to Officer and will also
constitute full settlement of any claim under law or in equity that Officer
might otherwise assert against HORL or any of its employees on account of his
termination.
SECTION 10
SURVIVAL
10.1 Notwithstanding the termination of Officer's employment pursuant to the
provisions of Section 9 hereof, or the expiration of the term of this
Agreement, Officer's obligations under Sections 5, 6, 7 and 8 hereof, the
provisions for injunctive relief against Officer in Sections 5.2 and 12.2
hereof and the provisions for arbitration in Section 12.1 hereof shall continue
in full force and effect. Any right, power or obligation imposed or conferred
upon HORL or the Board of Directors of HORL by the terms of this Agreement
shall inure to the benefit of and be binding upon any person or entity into
which HORL is consolidated or merged and the Board of Directors or other
governing body of any such corporation or other entity.
SECTION 11
ASSISTANCE IN LITIGATION
11.1 Officer shall, upon reasonable notice, furnish such information and
assistance to HORL as may reasonably be required by HORL in connection with any
litigation in which HORL or any of its subsidiaries or affiliates is or may
become a party.
SECTION 12
ARBITRATION
12.1 Methods. Except as provided in Section 12.2 below, any difference,
controversy, claim or dispute between the parties arising out of this
Agreement, or the breach thereof, shall be settled by binding arbitration
before a panel of three arbitrators selected as follows: each party shall
select one neutral arbitrator from the American Arbitration Association's
approved list of arbitrators. The two arbitrators so selected by the parties
shall select a third neutral arbitrator and the three so selected shall settle
the dispute under the duly promulgated Commercial Arbitration Rules of the
American Arbitration Association or its successor. The arbitration shall be
conducted in Lenexa, Kansas. The award of the arbitrators may be entered as a
judgment in any Court in the State of Kansas or in any court having
jurisdiction thereof.
12.2 Injunctive Relief. Notwithstanding Section 12.1 above, HORL shall be
entitled to seek judicial injunctive relief to enforce its rights under
Sections 5, 6, 7 and 8 of this Agreement as provided in Section 5.2 hereof.
SECTION 13
MISCELLANEOUS
13.1 Assignment by Officer. This is a personal Agreement on the part of
Officer and may not be sold, assigned, transferred or conveyed by Officer.
This Agreement may not be sold, assigned, transferred or conveyed by HORL except
in connection with a merger, consolidation or sale of all or substantially all
of the assets of HORL and then only to the successor to HORL's operations.
13.2 Entire Agreement. This Agreement contains the entire agreement among the
parties hereto and there are no representations, inducements, promises,
agreements, arrangements, or undertakings, oral or written, among the parties
as to the subject matter covered.
13.3 Severability. Should any part of this Agreement be declared invalid for
any reason, such invalidity shall not affect the validity of any remaining
portion hereof and such remaining portion shall continue in full force and
effect as if this Agreement had been originally executed without including the
invalid part.
13.4 Governing Law. This Agreement and its performance shall be interpreted
and construed in accordance with the laws of the State of Kansas.
13.5 Titles. Titles and captions in no way define, limit, extend or describe
the scope of this Agreement or the intent of any provision hereof.
13.6 Amendments. No changes, alterations, modifications, additions, or
qualifications to the terms of this Agreement shall be made or be binding
unless made in writing and executed by the parties in the same manner as the
Agreement.
13.7 No Waiver. Failure by either party to enforce any right granted by this
Agreement shall not constitute a waiver of such right and waiver of any
provision of this Agreement shall not constitute a waiver of any other
provision.
13.8 Notices. Any notice, instrument or communication required or permitted
under this Agreement shall be deemed to have been effectively given and made if
in writing and when served by personal delivery to the party for whom it is
intended, or three business days after being deposited, postage prepaid,
registered or certified mail, return receipt requested, in the United States
mail, addressed to the party for whom it is intended at the following
addresses, or at such other addresses as the party to be notified may have
designated in writing to the other:
Officer: Bert H. Hood
1621 Cottonwood Valley Circle
Irving, Texas 75038
HORL: Home Office Reference Laboratory
10310 W. 84th Terrace
Lenexa, Kansas 66214
Attn: Board of Directors
13.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year first above written.
HOME OFFICE REFERENCE LABORATORY, INC.
By:
W. Thomas Grant II
Bert H. Hood
Exhibit 10.23
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of August 19, 1993, and as amended as
of November 12, 1993, by and between Home Office Reference Laboratory, Inc.,
with offices in Lenexa, Kansas (hereinafter referred to as "HORL") and Kenneth
A. Stelzer, a resident of the State of Kansas (hereinafter referred to as
"Officer");
WITNESSETH:
WHEREAS, Officer and HORL are presently parties to an Employment Agreement,
dated August 3, 1983, and a Termination Compensation Agreement, dated
February 28, 1990;
WHEREAS, HORL wishes to offer additional consideration to Officer to induce
Officer to continue in the employment of HORL; and
WHEREAS, it is the intention and desire of the parties to enter into a formal
agreement whereby three principal purposes will be served, to wit:
A. The present Employment Agreement and Termination Compensation
Agreement between the parties will be cancelled in their entirety and this
Employment Agreement will be substituted in their place and stead; and
B. HORL will have the benefit of the substantial expertise of Officer for
at least the period covered by this Agreement; and
C. Officer will serve HORL during the term hereinafter defined and will
be motivated by the additional consideration set forth herein;
NOW, THEREFORE, in consideration of the employment of Officer by HORL and of
the mutual promises, covenants, representations and warranties contained
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree that the present
Employment Agreement and Termination Compensation Agreement between the parties
are hereby cancelled in their entirety and the following Employment Agreement
(the "Agreement") is hereby substituted in their place and stead:
SECTION I
EMPLOYMENT AND TERM
1.1 Employment. HORL hereby employs Officer and Officer hereby accepts such
employment and agrees to perform the duties described in Section 2 of this
Agreement.
1.2 Term.
(a) Base Term. The term of employment shall commence on the date of this
Amendment to Employment Agreement and shall continue for a period of two (2)
years therefrom (the "Base Term"), or until terminated as otherwise provided
herein.
(b) Termination Subsequent to Change in Control. Notwithstanding any other
provision of this Agreement to the contrary, in the event that (i) a change of
control of HORL shall occur at any time during which Officer is in the
full-time employment of HORL or its successor and (ii) within one (1) year
after such a change in control, Officer's employment with HORL or its successor
is terminated by HORL or its successor for any reason other than permanent
disability, death or normal retirement, or is voluntarily terminated by Officer
for any reason at his sole discretion, HORL will promptly pay to Officer as
termination compensation the lump sum amount described below.
The lump sum compensation payable shall be equal to three (3) times the average
annual compensation includable in Officer's gross income for the most recent
five (5) taxable years ending before the date of the change in control. If
Officer has been an employee of HORL for less than 5 years, Officer's lump sum
payment shall be equal to 3 times the average annual compensation includable in
Officer's gross income based on the portion of the 5 year period during which
Officer performed services for HORL. To the extent that any amount required to
be paid hereunder would constitute an "excess parachute payment" within the
meaning of Section 280G(b) of the Internal Revenue Code of 1986, that excess
amount need not be paid.
For purposes of this Section 1.2(b), a "change of control" shall be deemed to
have taken place if there shall have occurred (i) the sale or other disposition
resulting in the transfer of legal or beneficial ownership of, or the right to
vote, more than fifty percent (50%) of the outstanding capital stock of HORL to
one or more third-party purchasers unaffiliated with Seafield Capital
Corporation, its shareholders or affiliates (as the term "affiliate" is defined
in Rule 12b-2 promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934), except in connection with an underwritten
public offering of the common stock of HORL, (ii) a merger or consolidation of
HORL with or into any entity other than Seafield Capital Corporation or its
affiliates, or (iii) a sale or other transfer of substantially all of the
assets of HORL to any person or entity other than Seafield Capital Corporation
or its affiliates.
In the event of termination of employment under the circumstances described
above, HORL shall pay to Officer the installments of his base salary through
the date of termination of employment, any annual incentive bonus for the
previous year if such has been approved but not paid and the lump sum amount as
termination compensation described above, and any remaining term of this
Agreement shall be cancelled. Such payments to Officer and the arrangements
provided for by any stock option or other agreement between HORL and Officer in
effect at the time and by any other applicable plan of HORL will constitute the
entire obligation of HORL to Officer with respect to such termination, and will
also constitute full settlement of any claim under law or in equity that
Officer might otherwise assert against HORL or any of its employees on account
of such termination.
(c) Annual Extension. Commencing on the second anniversary of this
Agreement and on each succeeding anniversary thereafter, unless HORL notifies
Officer in accordance with the immediately following sentence that Officer's
employment under this Agreement will not be extended, this Agreement and
Officer's employment under this Agreement shall automatically and without
further action be extended for one (1) year from such anniversary on the same
terms and conditions as are set forth herein. If HORL elects not to extend
Officer's employment under this Agreement as provided in the preceding
sentence, it shall do so by notifying Officer in writing at least sixty (60)
days prior to the applicable anniversary date of this Agreement. If HORL
elects not to extend Officer's employment under this Agreement as provided
above, such election shall be treated as a termination of Officer without cause
within the meaning of Section 9.1(e) of this Agreement and HORL shall pay to
Officer, in addition to any other sums which may be due to Officer, the lump
sum severance payment provided for in Section 9.1(e).
SECTION 2
DUTIES
2.1 General Duties. Stelzer herewith resigns as President and Chief Executive
Officer of HORL. Subject to the approval of the Board of Directors, Stelzer
shall serve as Vice-Chairman of the Board of Directors. Stelzer shall also
serve as President of a new division of HORL. Such division shall, among other
things, market HORL's insurance testing services and products outside of the
United States.
Stelzer shall serve HORL by performing the duties generally required to market
HORL's products and services outside of the United States. In addition, Stelzer
shall continue to maintain contacts with insurance company customers and perform
marketing duties for HORL to help maintain present customers and obtain new
customers with respect to HORL's insurance testing products and services in the
United States. Without limitation, these duties will require attendance at
industry meetings and customer functions. These duties may change from time to
time at the direction of the Board of Directors or the Chairman of the Board of
Directors.
2.2 Full Time. During the term hereof, Officer agrees to devote his full
time, attention and skill to the performance of the foregoing duties.
2.3 Best Efforts. Officer agrees that he will at all times faithfully,
industriously and to the best of his ability, experience and talents, perform
all of the duties that may be required of him as described above.
2.4 Indemnification and D & O Insurance. HORL shall provide to Officer
coverage under HORL's director and officer liability insurance and
indemnification By-laws, as fully and to the same extent as the same are
provided to similar executive officers of HORL.
SECTION 3
BASE SALARY
3.1 Annual Base Salary. HORL shall pay Officer, and Officer shall accept from
HORL in full payment for Officer's full time services hereunder, compensation
at the rate of One Hundred Eighty-One Thousand One Hundred Dollars ($181,100)
per annum, payable monthly in periodic equal installments during the year. Such
salary shall be reviewed from time to time, but not less often than annually,
by the Board of Directors of HORL and will be subject to such increases, but
not decreases, as the Board of Directors of HORL may determine, having due
regard for the efforts of Officer and the results, both financial and
otherwise, of HORL's operations during Officer's tenure.
3.2 Reimbursement of Expenses. HORL shall reimburse Officer for such
reasonable out-of-pocket expenses as are incurred by Officer in order to render
the services contemplated hereunder.
3.3 Tax Withholdings. HORL shall deduct from the compensation payable to
Officer all federal, state, and local income tax, social security, FICA, FUTA
and other withholdings as required by law.
SECTION 4
BONUSES AND FRINGE BENEFITS
4.1 Annual Incentive Bonus. During the term hereof, Officer shall be eligible
to receive an annual incentive bonus based upon the performance of HORL in
relation to pre-determined financial goals established by the Compensation
Committee of the Board of Directors of HORL. Bonuses for less than a full year
of service may be granted at the discretion of the Compensation Committee.
4.2 Existing Stock Options. Officer and HORL are parties to existing Stock
Option Agreements entered into prior to the date hereof ("Existing Stock Option
Agreements") which provide in Section 3(b) thereof that the stock options
granted thereby are immediately exercisable upon the occurrence of a Change of
Control of Seafield Capital Corporation, BMA Corporation or an affiliate
thereof. By executing this Agreement, Officer and HORL agree that the
provisions of Section 3(b) of said Existing Stock Option Agreements are hereby
cancelled and shall be of no further force or effect and that the following
Sections 3(b), (c) and (d) shall be substituted in lieu thereof in said
Existing Stock Option Agreements:
"(b) Notwithstanding the provisions of Section 3(a) above, the Option may be
immediately exercised with respect to all of the Shares specified in Section 1,
above, (i) upon the occurrence of a Change of Control, or (ii) upon the
termination of Optionee's employment by HORL without cause.
(c) A "Change of Control" means the occurrence of
any of the following events:
(i) the sale or other disposition resulting in the transfer of legal or
beneficial ownership of, or the right to vote, more than fifty percent (50%) of
the outstanding capital stock of HORL to one or more third-party purchasers
unaffiliated with Seafield Capital Corporation, its shareholders or affiliates
(as the term "affiliate" is defined in Rule 12b-2 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934), except in
connection with an underwritten public offering of the common stock of HORL;
(ii) a merger or consolidation of HORL with or into any entity other than
Seafield Capital Corporation or its affiliates; or
(iii) a sale or other transfer of substantially all of the assets of HORL
to any person or entity other than Seafield Capital Corporation or its
affiliates.
(d) A "termination of Optionee's employment by HORL without cause" shall
occur in the event that Optionee's employment is terminated by HORL for any
reason other than the following actions, failures or events by or affecting
Optionee which shall constitute "cause" for termination of Optionee by HORL:
(i) willful and continued failure by Optionee to substantially perform his
duties provided in the Employment Agreement between Optionee and HORL, dated
, 1993, after a written demand for substantial performance is
delivered to Optionee by the Board of Directors of HORL, which demand
identifies with reasonable specificity the manner in which Optionee has not
substantially performed his duties, and Optionee fails to comply with such
demand within a reasonable time;
(ii) the engaging by Optionee of gross misconduct or gross negligence
materially injurious to HORL;
(iii) Optionee's conviction of having committed a felony; or
(iv) HORL's fiscal year earnings from operations (excluding investment
income and provision for income taxes) determined in accordance with generally
accepted accounting principles (excluding extraordinary, unusual or
nonrecurring gains or losses), shall be less than $14,000,000.
Notwithstanding the foregoing, Optionee shall not be deemed to have been
terminated by HORL for cause unless and until there shall have been delivered
to him a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the entire membership of the Board of Directors of HORL
finding that, in the good faith opinion of the Board of Directors, HORL has
cause for the termination of employment of Optionee as set forth in any of
clauses (i) through (iv) above and specifying the particulars thereof in
reasonable detail. The findings of the Board of Directors shall not be binding
on the arbitrators or other finders of fact in connection with any litigation
or dispute arising out of this Agreement."
4.3 Other Fringe Benefits. Officer shall be entitled to an annual vacation
consistent with HORL's vacation policies for similar executive officers and to
participate in such fringe benefit programs as HORL may make available from
time to time to similar executive officers, which shall include reasonable
hospital and major medical insurance coverage, long term disability and life
insurance in amounts and on terms no less favorable than those provided to
similar executive officers of HORL.
SECTION 5
NON-COMPETITION
5.1 Restrictive Covenants. In consideration for Officer's employment with
HORL and in further consideration for the compensation provided to Officer in
Sections 3 and 4 hereof, Officer agrees that during the term of his employment
pursuant to this Agreement, and for a period of two (2) years after the
termination for any reason of his employment pursuant to this Agreement, he
will not, without the prior written consent of HORL, directly or indirectly,
individually or in concert with others, or through the medium of any other
corporation, partnership, syndicate, association, joint venture, or other
entity or as an employee, officer, director, agent, consultant or affiliate,
compete with HORL, within the hereinafter described region, in (i) the urine or
blood chemistry testing or analysis business for the insurance industry, or
(ii) the urine or blood chemistry container or other supply business for the
insurance industry, or (iii) any other business engaged in by HORL as of the
date of the termination of Officer's employment with HORL, and Officer will not
solicit or accept any such business described in any of subparts (i) through
(iii) above and which competes with HORL from any customer who is served by
HORL as of the date of the termination of Officer's employment pursuant hereto,
or cause or induce any present or future employee of HORL to leave the employ
of HORL to accept employment with Officer or with any such entity or person.
The region referred to above shall consist of any territory in which HORL or
any of its representatives or agents, as of the date of the termination of
Officer's employment pursuant hereto, provides, sells, offers for sale or
solicits the sale of urine or blood chemistry testing or analysis, or urine or
blood chemistry containers or other supplies related thereto, or other services
or products. HORL and Officer agree that in the event that any provision of
this Section 5.1 is void or constitutes an unreasonable restriction against
Officer, such provision shall not be rendered void, but shall apply with
respect to such time or territory or to such other extent as may constitute a
reasonable restriction under the circumstances. The foregoing provisions shall
not prohibit Officer from owning not more than 3% of the total shares of all
classes of stock outstanding of any publicly held company.
5.2 Injunctive Relief. HORL shall be entitled to appropriate injunctive
relief in any court of competent jurisdiction to enforce its rights under
Sections 5, 6, 7 and 8 of this Agreement, in addition to any other rights and
remedies available to HORL at law or in equity, it being agreed that any
violation of Sections 5, 6, 7 or 8 of this Agreement by Officer is reasonably
likely to cause irreparable damage to HORL which will be difficult or
impossible to value in monetary damages.
5.3 Charitable Activities. Nothing in this Section 5 shall be construed as
preventing Officer from engaging in charitable, professional, religious or
civic activities such as serving on a school board, or as a member of or
officer of a professional organization, provided such activity or organization
does not compete directly with HORL.
SECTION 6
CONFIDENTIAL INFORMATION
6.1 Confidentiality. During the term of and at any time after the termination
of this Agreement, Officer will hold in trust and confidence and will not
divulge, disclose or convey to any person, firm, corporation or other entity
and will keep secret and confidential all trade secrets, proprietary
information and confidential information heretofore or hereafter acquired by
him concerning HORL, Head Office Reference Laboratory Ltd., or Seafield Capital
Corporation, and will not use for himself or others the same in any manner,
except to the extent that such information should become no longer a trade
secret, proprietary or confidential. Such trade secrets, proprietary
information and confidential information shall be deemed to include, but shall
not be limited to, information, whether written or not:
(a) of a technical nature, such as but not limited to, technology,
inventions, discoveries, improvements, processes, formulae, ideas, know-how,
methods, compositions, computer software programs or research projects,
including the identity of research organizations and researchers,
(b) of a business nature, such as but not limited to information
concerning costs, profits, supplies, suppliers, marketing, sales or lists of
customers, and
(c) pertaining to future developments, such as but not limited to
information concerning research and development or future marketing methods.
The restrictions contained above shall not apply to:
(i) information which at the time of disclosure by HORL to Officer is in
the public domain; or
(ii) information which at the time of disclosure by HORL to Officer
constituted confidential information hereunder, but which thereafter becomes
part of the public domain by publication or otherwise through no fault of
Officer.
SECTION 7
DEVELOPMENTS
7.1 Developments. Officer will promptly disclose to HORL (in form
satisfactory to HORL) all information, technology, inventions, discoveries,
improvements, processes, formulae, ideas, know-how, methods, compositions,
research projects, computer software programs and developments, whether or not
patentable or copyrightable (collectively "Information"), that Officer by
himself or in conjunction with any other person or entity conceives, makes,
develops or acquires during the term of this Agreement, and that:
(a) are or relate or pertain to the assets, properties, or existing or
contemplated business or research activities or HORL, or
(b) are suggested by, arise out of or result from, directly or indirectly,
Officer's association with HORL, or
(c) arise out of or result, directly or indirectly, in part or fully, from
the use of HORL's time, labor, materials facilities or other resources
(collectively "Developments").
Any Information fitting within any of the descriptions contained in subsections
(a), (b) or (c) of this Section 7.1 that is disclosed to any other person, firm
or other entity by Officer or used in any manner by Officer within one (1) year
following the termination of this Agreement shall be presumed to have been
conceived, made, developed or acquired during the term of this Agreement and,
thus, to constitute a Development.
7.2 Assignment to HORL. Officer hereby assigns, transfers and conveys to HORL
all of his right, title and interest in and to any and all such Developments,
which Developments shall become and remain the sole and exclusive property of
HORL. At any time and from time to time, upon the request of HORL, Officer
will execute and deliver any and all instruments, documents and papers, give
evidence and do any and all other acts which, in the reasonable opinion of
counsel for HORL, are or may be necessary or desirable to document such
transfer, or to enable HORL to file and process applications for and to
acquire, maintain and enforce any and all patents, trademarks, registrations or
copyrights with respect to any such Developments, or to obtain any extension,
validation, re-issue, continuance or renewal of any such patent, trademark or
copyright. HORL will be responsible for the preparation of any such
instruments, documents and papers and for the implementation of any such
proceedings and will reimburse Officer for all reasonable expenses incurred by
him in compliance with the provisions of this paragraph.
SECTION 8
PROPERTY OF HORL
8.1 All correspondence, notes, recordings, documents and other materials and
reproductions thereof pertaining to any aspect of the business of HORL shall be
the property of and shall be delivered to and retained by HORL upon termination
of this Agreement.
SECTION 9
TERMINATION
9.1 Termination. Officer's employment pursuant to this Agreement shall
terminate upon the occurrence of any of the following events:
(a) Death. In the event that Officer dies during the term of this
Agreement, HORL shall pay to his executors or administrators an amount equal to
the installments of his base salary payable for the month in which he dies and
any annual incentive bonus for the previous year if such has been approved but
not paid, and such payments, together with the arrangements provided for by any
stock option or other agreement between HORL and Officer in effect at the time
and by any other applicable plan of HORL will constitute the entire obligation
of HORL to Officer and will also constitute full settlement of any claim under
law or in equity that Officer's executors, heirs or assigns or any other person
claiming under or through him might otherwise assert against HORL or any of its
employees on account of his death.
(b) Disability. In the event that Officer continues unable to fully
perform his duties and responsibilities hereunder by reason of illness, injury
or mental or physical disability or incapacity for ninety (90) consecutive
days, during which time he shall continue to be compensated for monthly
installments of base salary and any annual incentive bonus for the previous
year if such has been approved but not paid, Officer's employment pursuant to
this Agreement may be terminated by HORL, and such payments, together with the
arrangements provided for by any stock option or other agreement between HORL
and Officer in effect at the time and by any other applicable plan of HORL will
constitute the entire obligation of HORL to Officer and will also constitute
full settlement of any claim under law or in equity that Officer might
otherwise assert against HORL or any of its employees on account of such
termination. Officer agrees, in the event of any dispute under this Section
9.1, to submit to a physical examination by a reputable licensed physician
selected by HORL and to accept HORL's decision based on the results thereof.
(c) Voluntary Termination. Officer's employment may be voluntarily
terminated upon Officer giving sixty (60) days' prior written notice to HORL.
In the event Officer voluntarily terminates his employment, HORL shall pay to
Officer an amount equal to his base salary payable through the date of
termination of employment and any annual incentive bonus for the previous year
if such has been approved but not paid, and such payments, together with the
arrangements provided for by any stock option or other agreement between HORL
and Officer in effect at the time and by any other applicable plan of HORL will
constitute the entire obligation of HORL to Officer and will also constitute
full settlement of any claim under law or in equity that Officer might
otherwise assert against HORL or any of its employees on account of his
termination.
(d) Termination for Cause. Officer's employment may be terminated by HORL
at any time for cause. In the event that Officer is terminated by HORL for
cause, HORL shall pay to Officer his base salary which may have accrued to the
date of termination and any annual incentive bonus for the previous year if
such has been approved but not paid, and such payments, together with the
arrangements provided for by any stock option or other agreement between HORL
and Officer in effect at the time and by any other applicable plan of HORL will
constitute the entire obligation of HORL to Officer and will also constitute
full settlement of any claim under law or in equity that Officer might
otherwise assert against HORL or any of its employees on account of his
termination. Only the following actions, failures or events by or affecting
Officer shall constitute "cause" for termination of Officer by HORL (i) willful
and continued failure by Officer to substantially perform his duties provided
herein after a written demand for substantial performance is delivered to
Officer by the Board of Directors of HORL, which demand identifies with
reasonable specificity the manner in which Officer has not substantially
performed his duties, and Officer fails to comply with such demand within a
reasonable time; (ii) the engaging by Officer of gross misconduct or gross
negligence materially injurious to HORL; (iii) Officer's conviction of having
committed a felony; or (iv) HORL's fiscal year earnings from operations
(excluding investment income and provision for income taxes) determined in
accordance with generally accepted accounting principles (excluding
extraordinary, unusual or nonrecurring gains or losses), shall be less than
$14,000,000. Notwithstanding the foregoing, Officer shall not be deemed to have
been terminated by HORL for cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors of
HORL finding that, in the good faith opinion of the Board of Directors, HORL
has cause for the termination of employment of Officer as set forth in any of
clauses (i) through (iv) above and specifying the particulars thereof in
reasonable detail. The findings of the Board of Directors shall not be binding
on the arbitrators or other finders of fact in connection with any litigation
or dispute arising out of this Agreement.
(e) Termination Without Cause. In the event that HORL terminates
Officer's employment for reasons other than death, disability, or cause as
listed in subsection (d) above, then in addition to any other sums to which
Officer may be entitled under this Agreement, HORL shall pay to Officer, on or
before the last day of employment, a lump sum severance payment equal to (i)
the installments of base salary due for the balance of the then current term of
this Agreement, plus (ii) fifty percent (50%) of the annual base salary payable
to Officer by HORL immediately prior to termination of employment, which
payments, together with the arrangements provided for by any stock option or
other agreement between HORL and Officer in effect at the time and by any other
applicable plan of HORL will constitute the entire obligation of HORL to
Officer and will also constitute full settlement of any claim under law or in
equity that Officer might otherwise assert against HORL or any of its employees
on account of his termination.
SECTION 10
SURVIVAL
10.1 Notwithstanding the termination of Officer's employment pursuant to the
provisions of Section 9 hereof, or the expiration of the term of this
Agreement, Officer's obligations under Sections 5, 6, 7 and 8 hereof, the
provisions for injunctive relief against Officer in Sections 5.2 and 12.2
hereof and the provisions for arbitration in Section 12.1 hereof shall continue
in full force and effect. Any right, power or obligation imposed or conferred
upon HORL or the Board of Directors of HORL by the terms of this Agreement
shall inure to the benefit of and be binding upon any person or entity into
which HORL is consolidated or merged and the Board of Directors or other
governing body of any such corporation or other entity.
SECTION 11
ASSISTANCE IN LITIGATION
11.1 Officer shall, upon reasonable notice, furnish such information and
assistance to HORL as may reasonably be required by HORL in connection with any
litigation in which HORL or any of its subsidiaries or affiliates is or may
become a party.
SECTION 12
ARBITRATION
12.1 Methods. Except as provided in Section 12.2 below, any difference,
controversy, claim or dispute between the parties arising out of this
Agreement, or the breach thereof, shall be settled by binding arbitration
before a panel of three arbitrators selected as follows: each party shall
select one neutral arbitrator from the American Arbitration Association's
approved list of arbitrators. The two arbitrators so selected by the parties
shall select a third neutral arbitrator and the three so selected shall settle
the dispute under the duly promulgated Commercial Arbitration Rules of the
American Arbitration Association or its successor. The arbitration shall be
conducted in Lenexa, Kansas. The award of the arbitrators may be entered as a
judgment in any Court in the State of Kansas or in any court having
jurisdiction thereof.
12.2 Injunctive Relief. Notwithstanding Section 12.1 above, HORL shall be
entitled to seek judicial injunctive relief to enforce its rights under
Sections 5, 6, 7 and 8 of this Agreement as provided in Section 5.2 hereof.
SECTION 13
MISCELLANEOUS
13.1 Assignment by Officer. This is a personal Agreement on the part of
Officer and may not be sold, assigned, transferred or conveyed by Officer.
This Agreement may not be sold, assigned, transferred or conveyed by HORL except
in connection with a merger, consolidation or sale of all or substantially all
of the assets of HORL and then only to the successor to HORL's operations.
13.2 Entire Agreement. This Agreement contains the entire agreement among the
parties hereto and there are no representations, inducements, promises,
agreements, arrangements, or undertakings, oral or written, among the parties
as to the subject matter covered.
13.3 Severability. Should any part of this Agreement be declared invalid for
any reason, such invalidity shall not affect the validity of any remaining
portion hereof and such remaining portion shall continue in full force and
effect as if this Agreement had been originally executed without including the
invalid part.
13.4 Governing Law. This Agreement and its performance shall be interpreted
and construed in accordance with the laws of the State of Kansas.
13.5 Titles. Titles and captions in no way define, limit, extend or describe
the scope of this Agreement or the intent of any provision hereof.
13.6 Amendments. No changes, alterations, modifications, additions, or
qualifications to the terms of this Agreement shall be made or be binding
unless made in writing and executed by the parties in the same manner as the
Agreement.
13.7 No Waiver. Failure by either party to enforce any right granted by this
Agreement shall not constitute a waiver of such right and waiver of any
provision of this Agreement shall not constitute a waiver of any other
provision.
13.8 Notices. Any notice, instrument or communication required or permitted
under this Agreement shall be deemed to have been effectively given and made if
in writing and when served by personal delivery to the party for whom it is
intended, or three business days after being deposited, postage prepaid,
registered or certified mail, return receipt requested, in the United States
mail, addressed to the party for whom it is intended at the following
addresses, or at such other addresses as the party to be notified may have
designated in writing to the other:
Officer: Kenneth A. Stelzer
HORL: Home Office Reference Laboratory
10310 W. 84th Terrace
Lenexa, Kansas 66214
Attn: Chairman of the Board of Directors
13.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year first above written.
HOME OFFICE REFERENCE LABORATORY, INC.
By:
Chairman of the Board of Directors
Kenneth A. Stelzer
Exhibit 16.1
RESPONSE TECHNOLOGIES, INC. APPROVAL OF
KPMG PEAT MARWICK AS INDEPENDENT AUDITORS
The following was contained in the Response Technologies, Inc. proxy statement
dated May 10, 1993 pursuant to Item 304 of Regulation S-K.
"The Board of Directors has appointed KPMG Peat Marwick ("Peat") as independent
auditors of the Company for the fiscal year ended December 31, 1993, subject to
approval by the shareholders. Effective April 16, 1993, the Company decided not
to rehire its prior certifying accountants, Ernst & Young ("E&Y") and retained
as its new certifying accountants, Peat. The decision to change accountants was
approved by the Company's Audit Committee and the Board of Directors.
E&Y has served as the Company's independent auditors since 1984. While the
Company feels that it has always maintained an excellent relationship with E&Y,
the Company decided to change to Peat because Peat is Seafield's independent
auditors.
E&Y's report on the Company's statements during the year ended and eight month
period ended December 31, 1992 and 1991, respectively, and the year ended
April 30, 1991 contained no adverse opinion or a disclaimer of opinions, and
was not qualified as to uncertainty, audit scope or accounting principles. No
opinion was obtained on any subsequent interim periods preceding the effective
date. During the year ended and eight month period ended December 31, 1992 and
1991, respectively, and the year ended April 30, 1991 and the subsequent
interim period, there were no disagreements between the Company and E&Y on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of E&Y, would have caused it to make a reference to the subject
matter of the disagreements in connection with its reports.
None of the "reportable events" described in Item 304(a)(1)(v) occurred with
respect to the Company within the year ended December 31, 1992, the eight month
period ended December 31, 1991, and the year ended April 30, 1991, and the
subsequent interim period.
During the year ended and eight month period ended December 31, 1992 and 1991,
respectively and the year ended April 30, 1991 and the subsequent interim
period, the Company did not consult Peat regarding any of the matters or events
set forth in Item 304 (a)(2)(i) or (ii) of Regulation S-K."
Exhibit 16.2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
April 19, 1993
- -------------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
Response Technologies, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Tennessee 33-5016 62-1212264
- -------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1775 Moriah Woods Blvd. Memphis, Tennessee 38117
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(901) 683-0212
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
===============================================================================
Item 4. Changes in Registrant's Certifying Accountant:
a. Effective April 16, 1993, Response Technologies, Inc ("RTI") dismissed its
prior certifying accountants, Ernst & Young ("E&Y") and retained as its new
certifying accountants, KPMG Peat Marwick. E&Y's report on RTI's financial
statements during the year ended December 31, 1992, the eight month period
ended December 31, 1991, and the year ended April 30, 1991, and all subsequent
interim periods preceding the date hereof, contained no adverse opinion or a
disclaimer of opinions, and was not qualified as to uncertainty, audit scope or
accounting principles. The decision to change accountants was approved by
RTI's Board of Directors.
During the year ended December 31, 1992, the eight month period ended December
31, 1991, and the year ended April 30, 1991, and the subsequent interim period
to the date hereof, there were no disagreements between RTI and E&Y on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of E&Y, would have caused it to make a reference to the subject
matter of the disagreements in connection with its reports.
None of the "reportable events" described in Item 304(a)(1)(v) occurred with
respect to RTI within the year ended December 31, 1992, the eight month period
ended December 31, 1991, and the year ended April 30, 1991, and the subsequent
interim period to the date hereof.
b. Effective April 16, 1993, RTI engaged KPMG Peat Marwick as its principal
accountants. During the year ended December 31, 1992, the eight month period
ended December 31, 1991, and the year ended April 30, 1991, and the subsequent
interim period to the date hereof, RTI did not consult KPMG Peat Marwick
regarding any of the matters of events set forth in Item 304(a)(2)(i) or (ii)
of Regulation S-K.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Response Technologies, Inc.
By:
Joseph T. Clark
President
April 19, 1993
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13, OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Response Technologies, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its
Current Report dated as of April 19, 1993 on Form 8-K as set forth in the
pages attached hereto;
(List all such items, financial statements, exhibits or other portions
amended)
Item 4 is amended to add the response letter of Ernst & Young attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Response Technologies, Inc.
----------------------------
(Registrant)
By:
Bonnie M. Wehby
Controller and
Principal Accounting
Officer
April 27, 1993
===============================================================================
ERNST & YOUNG
NationsBank Plaza
414 Union Street, Suite 2100
Nashville, Tennessee 37219-1779
Phone: 615 252-2000
EXHIBIT I TO FORM 8-K
April 23,1993
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read Item 4 of Form 8-K dated April 19, 1993, of Response
Technologies, Inc. and are in agreement with the statements contained in the
first through third paragraphs on page two therein. We have no basis to agree
or disagree with other statements of the registrant contained therein.
Exhibit 16.3
Report of Independent Auditors
Board of Directors
Response Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Response
Technologies, Inc. and subsidiaries as of December 31, 1992, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year ended and the eight-month period ended December 31, 1992 and 1991,
respectively, and the year ended April 30, 1991. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Response Technologies, Inc. and subsidiaries at December 31, 1992, and the
consolidated results of their operations and their cash flows for the year
ended and the eight-month period ended December 31, 1992 and 1991,
respectively, and the year ended April 30, 1991, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note F to the financial statements, in 1992 the Company changed
its method of accounting for income taxes.
Ernst & Young
Nashville, Tennessee
January 19,1993
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Seafield Capital Corporation
We consent to incorporation by reference in the Registration Statements (Nos.
33-20298 and 33-28150) on Form S-8 of Seafield Capital Corporation of our
report dated February 4, 1994 relating to the consolidated balance sheets of
Seafield Capital Corporation and subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of earnings, stockholders' equity and
cash flows and related schedules for each of the years in the three-year period
ended December 31, 1993, which report appears in the December 31, 1993 annual
report on Form 10-K of Seafield Capital Corporation.
KPMG Peat Marwick
Kansas City, Missouri
March 18, 1994
