UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-16946
LAB HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
Missouri 43-1039532
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 7568
5000 W. 95th Street, Suite 260
Shawnee Mission, KS 66207
-------------------------------- ----------------
(Address of principal (Zipcode)
executive offices)
Registrant's telephone number, including area code (913) 648-3600
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- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Number of shares outstanding of only class of Registrant's common stock as of
November 6, 1998: $1 par value common - 6,489,103
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LAB HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
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(unaudited)
September 30, December 31,
1998 1997
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(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 24,813 22,129
Short-term investments 1,330 2,648
Accounts and notes receivable 17,596 12,608
Current income tax receivable 1,902 1,400
Inventories 1,537 2,203
Real estate available for sale 3,515 3,515
Prepaid expenses and other current assets 2,694 2,459
Deferred income taxes 3,985 3,386
----------------------
Total current assets 57,372 50,348
Property, plant and equipment 24,016 10,441
Intangible assets 11,528 13,058
Deferred income taxes 433 858
Other assets 54 81
----------------------
$ 93,403 74,786
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,385 3,367
Bonds payable 1,850 --
Accrued payroll and benefits 4,144 4,530
Other accrued expenses 666 423
Other current liabilities 240 303
----------------------
Total current liabilities 11,285 8,623
Bonds payable 18,051 --
----------------------
Total liabilities 29,336 8,623
----------------------
Minority interests 9,511 9,476
----------------------
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 7,500 7,500
Paid-in capital 1,772 1,772
Retained earnings 76,148 78,103
Accumulated other comprehensive income (loss) (720) (544)
----------------------
84,700 86,831
Less cost of 1,010,897 shares of treasury stock 30,144 30,144
----------------------
Total stockholders' equity 54,556 56,687
----------------------
$ 93,403 74,786
======================
See accompanying notes to consolidated financial statements and
management's discussion and analysis of financial condition and results of
operations.
LAB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
- ----------------------------------------------------------------------------
(in thousands except share amounts)
Sales $ 25,834 19,728 74,930 57,776
Cost of sales 14,529 10,665 41,320 30,751
--------------------- ---------------------
Gross profit 11,305 9,063 33,610 27,025
Selling, general and
administrative 8,605 7,393 24,888 26,575
--------------------- ---------------------
Earnings from operations 2,700 1,670 8,722 450
Investment income - net (95) 364 561 4,564
Other income (expense) (87) 2 (113) 86
--------------------- ---------------------
Earnings before income taxes 2,518 2,036 9,170 5,100
Income taxes 1,129 403 4,040 9,976
--------------------- ---------------------
Earnings (loss) before
minority interests 1,389 1,633 5,130 (4,876)
Minority interests 412 301 1,245 899
--------------------- ---------------------
Earnings (loss) from continuing
operations 977 1,332 3,885 (5,775)
Loss from discontinued
healthcare business -- -- -- (2,342)
--------------------- ---------------------
Net earnings (loss) $ 977 1,332 3,885 (8,117)
===================== =====================
Basic earnings (loss) per share:
Earnings (loss) from
continuing operations $ .15 .21 .60 (.89)
Loss from discontinued
healthcare business -- -- -- (.36)
--------------------- ---------------------
Net earnings (loss) $ .15 .21 .60 (1.25)
===================== =====================
Diluted earnings (loss) per share:
Earnings (loss) from
continuing operations $ .15 .21 .59 (.89)
Loss from discontinued
healthcare business -- -- -- (.36)
--------------------- ---------------------
Net earnings (loss) $ .15 .21 .59 (1.25)
===================== =====================
Dividends $ .30 .30 .90 .90
Book value $ 8.41 9.36 8.41 9.36
Weighted average shares
outstanding 6,489,103 6,489,103 6,489,103 6,488,488
Shares outstanding
end of period 6,489,103 6,489,103 6,489,103 6,489,103
See accompanying notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations.
LAB HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity and Comprehensive Income
Nine Months Ended Sept.30, 1998 (unaudited)
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Comprehensive Stockholders'
Income Equity
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(in thousands)
Common stock:
Balance, beginning and end of period $ 7,500
--------
Paid-in capital:
Balance, beginning and end of period 1,772
--------
Retained earnings:
Balance, beginning of year 78,103
Net earnings 3,885 3,885
Cash dividends paid -------- (5,840)
--------
Balance, end of period 76,148
--------
Accumulated other comprehensive income (loss)
Balance, beginning of year (544)
Foreign currency translation (176)
Tax expense -
--------
(176) (176)
-------- --------
Balance, end of period (720)
--------
Less:
Treasury stock:
Balance, beginning and end of period 30,144
--------
Totals $ 3,709 54,556
======== ========
See accompanying notes to consolidated financial statements and
management's discussion and analysis of financial condition and results of
operations.
LAB HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
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(unaudited)
Nine Months Ended
Sept. 30,
1998 1997
- ------------------------------------------------------------------
(In thousands)
OPERATING ACTIVITIES
Earnings (loss) from continuing operations $ 3,885 (5,775)
Adjustments to reconcile earnings(loss)
from continuing operations to net cash
provided by continuing operations:
Depreciation and amortization 4,177 4,445
Earnings applicable to minority interests 1,245 899
Change in trading portfolio, net 614 34,426
Change in accounts receivable (4,988) (3,608)
Change in accounts payable 1,017 (353)
Income taxes and other, net (390) 6,332
-------------------
Net cash provided by continuing
operations 5,560 36,366
Net cash used by discontinued
healthcare business -- (1,006)
Net cash provided by discontinued
real estate operations -- 581
-------------------
Total cash provided by operations 5,560 35,941
-------------------
INVESTING ACTIVITIES
Sales of investments available for sale -- 1,350
Purchases of investments held to maturity (5,461) (15,894)
Maturities of investments held to maturity 6,202 13,485
Additions to property, plant
and equipment, net (16,100) (3,249)
Acquisition of assets (167) (4,128)
Other, net (1,212) (1,109)
-------------------
Net cash used by investing activities (16,738) (9,545)
-------------------
FINANCING ACTIVITIES
Proceeds from issuance of bonds 19,900 --
Regular quarterly dividends paid (5,840) (5,840)
Cash portion of SLH dividend -- (19,590)
Net issuance of treasury stock pursuant to
stock option plans -- (8)
-------------------
Net cash provided (used) by
financing activities 14,060 (25,438)
-------------------
Effect of foreign currency translation (198) (28)
-------------------
Net increase in cash and cash equivalents 2,684 930
Cash and cash equivalents at
beginning of period 22,129 4,957
-------------------
Cash and cash equivalents at end of period $ 24,813 5,887
===================
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest $ 106 --
===================
Income taxes, net $ 4,711 2,550
===================
Supplemental disclosures of non-cash information:
SLH dividend $ -- 28,373
===================
See accompanying notes to consolidated financial statements and
management's discussion and analysis of financial condition and
results of operations.
LAB HOLDINGS, INC.
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(1) The interim financial information furnished herein is unaudited while
the balance sheet at December 31, 1997 is derived from audited financial
statements. In the opinion of management, the financial information
reflects all adjustments which are necessary to fairly state Lab Holdings'
financial position at September 30, 1998 and December 31, 1997 and the
results of its operations and cash flows for the periods ended September
30, 1998 and 1997. All adjustments made in the interim period were of a
normal recurring nature. The financial statements have been prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances, and therefore included in the financial statements are
certain amounts based on management's informed estimates and judgments.
The financial information herein is not necessarily representative of a
full year's operations because levels of sales, interest rates and other
factors fluctuate throughout the fiscal year. These same considerations
apply to all year to year comparisons. Certain 1997 amounts have been
reclassified for comparative purposes with no effect on net earnings
(loss). See Lab Holdings' Annual Report pursuant to Section 13 to the
Securities Exchange Act of 1934 (Form 10-K as amended) for additional
information not required by this Quarterly Report on Form 10-Q.
This Quarterly report on Form 10-Q may contain "forward-looking
statements," including projections, statements of plans and objectives,
statements of future economic performance and statements of assumptions
underlying such statements. Forward-looking statements involve known and
unknown risks and uncertainties. They are usually identified by or are
associated with such words such as "intend," " believe," "estimate,"
"expect," "anticipate," "hopeful," "should," "may" and similar expressions.
Many factors could cause actual results to differ materially from those
that may be expressed or implied in such forward-looking statements,
including, but not limited to, the volume and pricing of laboratory tests
performed by LabOne, competition, the extent of market acceptance of
LabOne's testing services in the healthcare and substance abuse testing
industries, general economic conditions and other factors detailed from
time to time in the Company's reports and registration statements filed
with the Securities and Exchange Commission, including the Company's
Current Report on Form 8-K dated October 23, 1998.
(2) On March 3, 1997, Lab Holdings distributed to its shareholders all of
the outstanding shares of common stock of its wholly-owned subsidiary, SLH
Corporation (SLH, now known as Syntroleum Corporation). For each
shareholder of record on February 24, 1997, one share of SLH common stock
was distributed for each four shares of Lab Holdings common stock owned.
In connection with this distribution and pursuant to a Distribution
Agreement between Lab Holdings and SLH, Lab Holdings transferred its real
estate and energy businesses and miscellaneous assets and liabilities,
including two wholly-owned subsidiaries, Scout Development Corporation and
BMA Resources, Inc., to SLH. The net assets distributed to SLH totaled
approximately $48 million. The spinoff was accounted for as a dividend.
The Lab Holdings shareholders paid no consideration for any shares of SLH
stock received in the distribution.
(3) On July 25, 1997, Lab Holdings distributed to its shareholders all of
the shares of common stock of Response Oncology, Inc. (Response) owned by
Lab Holdings. For each shareholder of record on July 11, 1997, 1.2447625
shares of Response common stock were distributed for each share of Lab
Holdings common stock outstanding. The distribution of all shares of
Response stock to Lab Holdings' shareholders was effected as a dividend.
The Lab Holdings shareholders paid no consideration for any shares of
Response stock received in the distribution.
Lab Holdings' share of Response's earnings are shown as a discontinued
business in the accompanying financial statements.
As a result of the SLH and Response distributions, Lab Holdings' principal
asset consists of its approximate 81% ownership of LabOne, Inc. (LabOne).
(4) Cash and cash equivalents include demand deposits in banks, money
market investments and overnight investments that are stated at cost, which
approximates market value.
(5) Basic earnings per share is computed using the weighted average number
of common shares and diluted earnings per share is computed using the
weighted average number of common shares and dilutive stock options.
Earnings available to common shareholders was adjusted to reflect the
Company's share of LabOne's earnings based on a diluted ownership after
taking into account LabOne's common stock equivalents. The following table
reconciles net earnings and weighted average shares used to compute basic
and diluted earnings per share.
Sept. 30, 1998
-----------------------------------
Earnings from
Continuing Per Share
Operations Shares Amount
-----------------------------------
Basic earnings per share $ 3,885,000 6,489,103 $ .60
Effect of dilutive securities:
Lab Holdings stock options -- --
LabOne stock options (64,000) --
-----------------------------------
Dilutive earnings per share $ 3,821,000 6,489,103 $ .59
===================================
Sept. 30, 1997
-----------------------------------
Loss from
Continuing Per Share
Operations Shares Amount
-----------------------------------
Basic loss per share $(8,117,000) 6,488,488 $ (1.25)
Effect of dilutive securities:
Lab Holdings stock options -- --
LabOne stock options -- --
-----------------------------------
Dilutive loss per share $(8,117,000) 6,488,488 $ (1.25)
===================================
Computation of dilutive loss per share at September 30, 1997 did not
include the effect of stock options because to do so would have been
antidilutive.
(6) LabOne operates in three lines of business: insurance risk appraisal
testing, clinical diagnostic testing and substance abuse testing. The
following table presents the Company's selected financial information for
each segment.
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1998 1997 1998 1997
------------------ ------------------
(in thousands)
Sales
Insurance risk
appraisal testing $ 16,677 15,206 51,071 45,532
Clinical diagnostic testing 5,046 1,804 13,423 5,465
Substance abuse testing 4,111 2,718 10,436 6,779
------------------- -------------------
Total sales $ 25,834 19,728 74,930 57,776
=================== ===================
Operating Income (Loss)
Insurance risk
appraisal testing $ 4,841 4,637 15,626 13,683
Clinical diagnostic testing (1,431) (2,162) (4,876) (6,161)
Substance abuse testing 128 (117) (10) (625)
General corporate expense (838) (688) (2,018) (6,447)
------------------- -------------------
Earnings from operations 2,700 1,670 8,722 450
Investment income - net (95) 364 561 4,564
Other income (expense) (87) 2 (113) 86
------------------- -------------------
Earnings before income taxes $ 2,518 2,036 9,170 5,100
=================== ===================
The assets classified as corporate increased significantly due to bond
proceeds and construction of the new LabOne facility. There were no
material changes in assets in the other segments or in the basis of
segmentation or measurement of segment operating income or loss.
(7) The Company adopted the provisions of the Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" on January
1, 1998. Comprehensive income is defined as any change in equity from
transactions and other events originating from non-owner sources. For Lab
Holdings, those changes are composed of reported net income and changes in
unrealized foreign currency translation adjustments. The components of
comprehensive income are as follows.
Sept. 30,
1998 1997
------------------
(in thousands)
Net earnings (loss) $ 3,885 (8,117)
------------------
Other comprehensive income
Foreign currency translation (176) (50)
Tax expense -- --
------------------
Total other comprehensive income (176) (50)
------------------
Total Comprehensive Income $ 3,709 (8,167)
==================
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Selected Financial Data
Three months ended Nine months ended
September 30, September 30,
---------------------- --------------------
1998 1997 1998 1997
---------- ---------- --------- -------
Sales $25,834,000 19,728,000 74,930,000 57,776,000
Earnings from operations $ 2,700,000 1,670,000 8,722,000 450,000
Investment income - net $ (95,000) 364,000 561,000 4,564,000
Earnings (Loss) from
continuing operations $ 977,000 1,332,000 3,885,000 (5,775,000)
Loss from discontinued
healthcare business $ -- -- -- (2,342,000)
Net earnings (loss) $ 977,000 1,332,000 3,885,000 (8,117,000)
Basic earnings per share:
Earnings (loss) from
continuing operations $ .15 .21 .60 (.89)
Loss from discontinued
healthcare business -- -- (.36)
Net earnings (loss) $ .15 .21 .60 (1.25)
Dividends per share $ .30 .30 .90 .90
Book value per share $ 8.41 9.36 8.41 9.36
Introductory remarks about results of operations
Lab Holdings, Inc.'s (Lab Holdings or Registrant) principal asset consists
of a majority ownership of LabOne, Inc. (LabOne), together with $6.7
million of related goodwill. Additionally, Lab Holdings has approximately
$6.3 million of other net assets, consisting primarily of cash, short-term
investments and income tax receivables. Prior to October 20, 1997, Lab
Holdings was named Seafield Capital Corporation (Seafield). Seafield
changed its name to Lab Holdings for better identification with its primary
asset, the approximate 80.5% ownership of LabOne.
Lab Holdings had a majority ownership position in Response Oncology, Inc.
(Response). On July 25, 1997, Lab Holdings distributed to its shareholders
all the shares of common stock of Response owned by Lab Holdings. The
distribution of Response stock was effected as a taxable dividend by Lab
Holdings. Response's 1997 operations are presented as a discontinued
healthcare business in Lab Holdings' financial statements.
Additionally, Lab Holdings had investments in real estate, energy
businesses and miscellaneous assets. On March 3, 1997, Lab Holdings
distributed to its shareholders all of the outstanding shares of common
stock of its wholly-owned subsidiary, SLH Corporation (SLH). In connection
with this distribution and pursuant to a Distribution Agreement between Lab
Holdings and SLH, Lab Holdings transferred its real estate and energy
businesses and miscellaneous assets and liabilities to SLH. The SLH spin-
off was accounted for as a dividend. On August 7, 1998, Syntroleum
Corporation merged into SLH and SLH changed its name to Syntroleum
Corporation.
LabOne provides high-quality laboratory testing services to insurance
companies, physicians and employers.
LabOne provides risk-appraisal laboratory testing services to the insurance
industry. The tests performed are specifically designed to assist an
insurance company in objectively evaluating the mortality and morbidity
risks posed by policy applicants. The majority of the testing is performed
on specimens of individual life insurance policy applicants. LabOne also
provides testing services on specimens of individuals applying for
individual and group medical and disability policies.
LabOne's clinical testing services are provided to the healthcare industry
to aid in the diagnosis and treatment of patients. LabOne operates only
one highly automated and centralized laboratory, which LabOne believes has
significant economic advantages over other conventional laboratory
competitors. LabOne markets its clinical testing services to the payers of
healthcare--insurance companies and self-insured groups. LabOne does this
through Lab Card(trademark), a Laboratory Benefits Management (LBM)
program.
The Lab Card Program provides laboratory testing at reduced rates as
compared to traditional laboratories. It uses a unique benefit design that
shares the cost savings with the patient, creating an incentive for the
patient to help direct laboratory work to LabOne. Under the Program, the
patient incurs no out-of-pocket expense when the Lab Card is used, and the
insurance company or self-insured group receives substantial savings on its
laboratory charges.
Additionally, BlueCross BlueShield of Tennessee selected LabOne to provide
routine outpatient laboratory testing services for BlueCare members
throughout Tennessee effective February 1, 1998. BlueCare is BlueCross
BlueShield of Tennessee's plan for Tenncare participants and covers
approximately 350,000 members. LabOne's LBM programs, including BlueCare
and the Lab Card program, have approximately 2.1 million lives enrolled.
LabOne is certified by the Substance Abuse and Mental Health Services
Administration (SAMHSA) to perform substance abuse testing services for
federally regulated employers and is currently marketing these services
throughout the country to both regulated and nonregulated employers.
LabOne's rapid turnaround times and multiple testing options help clients
reduce downtime for affected employees and meet mandated drug screening
guidelines.
THIRD QUARTER ANALYSIS
Revenues increased 31% to $25.8 million in the third quarter 1998 from
$19.7 million in the third quarter 1997 due to increases in all of LabOne's
business segments. Insurance segment revenue increased to $16.7 million
during the third quarter 1998 as compared to $15.2 million in the same
quarter last year. The increase was due to an increase in market share and
an increase in oral fluid testing on applicants applying for smaller face-
amount policies. The total number of insurance applicants tested in the
third quarter 1998 increased by 10% as compared to the same quarter last
year. Average revenue per applicant decreased 3% during the same periods
due to competitive pricing pressures. Insurance kit and container revenue
increased, due primarily to an increase in the number of blood and oral
fluid kits sold.
Clinical (diagnostic) laboratory revenue increased 180% from $1.8 million
in the third quarter 1997 to $5 million in 1998 due to a 117% increase in
testing volumes and a 29% increase in the average revenue per patient.
Substance abuse testing (SAT) revenue increased 51% from $2.7 million in
the third quarter 1997 to $4.1 million in 1998 primarily due to increased
testing volumes.
Cost of sales increased $3.9 million in the third quarter 1998 as compared
to the prior year, due primarily to increases in supplies, inbound freight
and outside laboratory testing and collection services. Laboratory
supplies increased due to the increased specimen volumes tested in each
segment. Insurance kit supplies increased due to the higher volume of kits
sold. Inbound freight and outside laboratory testing and collection
services increased primarily due to the increased specimen volumes in the
clinical and SAT segments. Clinical cost of sales expenses were $3.7
million as compared to $2.2 million in the third quarter 1997. SAT cost of
sales expenses were $2.5 million as compared to $2 million in the third
quarter 1997.
As a result of the above factors, gross profit for the quarter increased
$2.2 million (25%) from $9.1 million in the third quarter 1997 to $11.3
million in the third quarter 1998. Clinical gross profit increased to $1.3
million in the third quarter 1998 from a loss of $400,000 in the third
quarter 1997. SAT gross profit increased to $1.3 million in the third
quarter 1998 from $800,000 in the third quarter 1997.
LabOne's selling, general and administrative expenses increased $1 million
(16%) in the third quarter 1998 as compared to the prior year, due
primarily to increases in payroll expenses and bad debt accruals. These
were partially offset by a decrease in depreciation expense. Clinical
expenses, including allocated overhead, were $2.8 million as compared to
$1.8 million in 1997. SAT expenditures, including allocations, were $1.2
million as compared to $900,000 last year. The overhead allocation to the
clinical and SAT testing segments for the third quarter 1998 was $1.5
million as compared to an allocation of $900,000 in 1997.
Lab Holding's selling, general and administrative expenses increased to
$431,000 in the third quarter 1998 from $283,000 in the third quarter of
1997. Prior to August 7, 1998, Lab Holdings received administrative
services which were provided by SLH. As a result of SLH's merger on August
7, 1998, the previous services agreement with SLH was terminated and Lab
Holdings' personnel are employed directly by Lab Holdings resulting in
increased administration expenses during 1998's third quarter.
Additionally, the spin-off distributions of SLH and Response during 1997
increased the tax return preparation costs during 1998's third quarter.
Goodwill amortization of $368,000 associated with Lab Holdings' investment
in LabOne was included in the third quarter operating results of both 1998
and 1997.
Consolidated earnings from operations increased to $2.7 million in 1998's
third quarter from $1.7 million in the third quarter of 1997 primarily
reflecting improvements in LabOne's operating results. LabOne's insurance
segment operating income increased $204,000 to $4.8 million. The clinical
segment improved $731,000 to an operating loss of $1.4 million. The SAT
segment improved $245,000 from an operating loss of $117,000 in the third
quarter 1997 to an operating gain of $128,000 in 1998.
Other investments include liquidity investments. The return on short-term
investments is included in the investment income line in the consolidated
statements of operations. Investment income decreased to a loss of $95,000
in 1998's third quarter from income of $364,000 in 1997's third quarter.
The decrease was primarily attributable to unrealized losses of $445,000 on
a short-term investment portfolio reflecting the decrease in the stock
market during the third quarter. Trading portfolios are carried at market
value for reporting purposes. Miscellaneous items produced a $87,000 loss
in 1998's third quarter as compared to a gain of $2,000 in 1997's third
quarter.
Tax expense increased to $1.1 million in 1998's third quarter from $403,000
in 1997's third quarter. The effective tax rate increased to 45% from 20%
due primarily to the reversal of valuation allowances on deferred tax
assets in the third quarter of 1997.
The combined effect of the above factors resulted in the third quarter 1998
earnings from continuing operations of $977,000, compared with $1.3 million
from continuing operations in the third quarter 1997.
YEAR-TO-DATE ANALYSIS
Revenues in the nine month period ended September 30, 1998 were $74.9
million as compared to $57.8 million in the same period last year. The
increase of approximately $17.2 million is due to increases in clinical
laboratory revenue of $8 million, insurance laboratory revenue of $3.6
million, SAT revenue of $3.7 million and kit revenue of $2 million.
The total number of insurance applicants tested in the nine month period
increased by 13% as compared to last year, while average revenue per
applicant declined 3%. Kit and container revenue increased $2 million due
primarily to an increase in the number of oral fluid and full blood kits
sold.
Clinical laboratory revenue increased from $5.5 million during the first
nine months of 1997 to $13.4 million for the same period in 1998 due to
increased testing volumes and higher revenue per patient. SAT revenue
increased from $6.8 million in 1997 to $10.4 million in 1998 due to a 51%
increase in testing volumes.
Cost of sales increased $10.6 million year to date as compared to the prior
year. This increase is due primarily to increases in laboratory and kit
supplies, payroll expenses, inbound freight and outside laboratory
services. Lab supplies increased 26% due to the larger volume of all
specimen types processed, and insurance kit expense increased due to the
higher volume of kits sold. Payroll increased 19%. Freight and outside
testing increased primarily due to the substantial growth in clinical and
SAT specimen volumes. Clinical cost of sales expenses were $10.7 million
as compared to $6.1 million during the first nine months of 1997. SAT cost
of sales expenses were $7.2 million as compared to $5.1 million during
1997.
As a result of the above factors, gross profit for the first nine months
increased from $27 million in 1997 to $33.6 million in 1998. Clinical
gross profit improved from a loss of $700,000 in 1997 to a gain of $2.8
million in 1998. SAT gross profit increased to $3.2 million in the first
nine months of 1998 from $1.7 million last year.
LabOne's selling, general and administrative expenses increased $2.8
million (14%) in the nine month period ended September 30, 1998 as compared
to the prior year due primarily to increases in payroll expenses and bad
debt accruals. Payroll expense increased primarily due to a 18% increase
in headcount and increased benefit expenses. These were partially offset
by a decrease in depreciation expense. Clinical expenditures were $7.6
million as compared to $5.5 million in 1997. SAT expenses increased from
$2.3 million in 1997 to $3.2 million in 1998. The overhead allocation to
the clinical and SAT segments for the period was $3.9 million as compared
to an allocation of $2.4 million in 1997.
Lab Holding's selling, general and administrative expenses decreased to
$803,000 in the first nine months of 1998 from $5.4 million in the first
nine months of 1997 as Lab Holding's significantly reduced its corporate
structure after the SLH and Response distributions. Goodwill amortization
of $1.1 million associated with Lab Holdings' investment in LabOne was
included in the first nine months operating results of both 1998 and 1997.
Consolidated earnings from operations increased to $8.7 million in 1998's
first nine months from $450,000 in the first nine months of 1997 reflecting
both Lab Holdings reduction in corporate structure expenses and
improvements in LabOne's operating results. LabOne's operating income
increased from $6.9 million in the first nine months of 1997 to $10.6
million in 1998, primarily due to an increase in the insurance segment
operating income of $1.9 million. The clinical segment had an operating
loss of $4.9 million for the nine month period ended September 30, 1998 as
compared to an operating loss of $6.2 million in 1997. The SAT segment
improved from an operating loss of $625,000 in 1997 to a loss of $10,000 in
1998.
Other investments contributing earnings include liquidity investments. The
return on short-term investments is included in the investment income line
in the consolidated statements of operations. Investment income decreased
to $561,000 in 1998's first nine months from $4.6 million in 1997's first
nine months, which primarily reflected a $3 million gain by Lab Holdings on
the sale of marketable common stock.
Tax expense decreased to $4 million in 1998's first nine months from
approximately $10 million in 1997's first nine months. During 1997's first
nine months, tax expense included the write off of approximately $5 million
of the deferred income tax assets related to assets spun off in the SLH
distribution and the write off of approximately $3.2 million of unused
deferred income tax assets not utilized in the Response distribution.
The combined effect of the above factors resulted in earnings from
continuing operations of $3.9 million for the first nine months of 1998 ,
compared with a loss from continuing operations of $5.8 million in the
first nine months of 1997.
Discontinued Healthcare Business:
On July 25, 1997, Lab Holdings distributed to its shareholders all the
shares of common stock of Response owned by Lab Holdings. Response's
operations are presented as a $2.3 million loss from discontinued
healthcare business in Lab Holdings' financial statements. The second
quarter of 1997 was the last period in which Response significantly
impacted Lab Holdings' financial results. During the first six months of
1997, Response's revenues were $50 million and net earnings totaled $2.1
million. The distribution of Response stock was effected as a taxable
dividend by Lab Holdings in which Lab Holdings utilized tax loss
carryforwards to offset a resulting tax liability in the financial
statements.
The combined effect of the above factors resulted in net earnings of $3.9
million or $0.60 basic earnings per share in the nine month period ended
September 30, 1998 as compared to a net loss of $8.1 million or $1.25 basic
loss per share in the same period last year.
Publicly-Traded Subsidiary
Lab Holdings' majority-owned subsidiary, LabOne, is publicly-traded. At
September 30, 1998, based on the market prices of publicly-traded shares of
this subsidiary, pretax unrealized gains of approximately $96.3 million on
this investment were not reflected in either Lab Holdings' book value or
stockholders' equity.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1998, at the holding company level, Lab Holdings had
available for operations approximately $4.5 million in cash and short-term
investments. Lab Holdings' working capital at September 30, 1998 decreased
slightly to $5.8 million from $6.3 million at December 31, 1997.
On a consolidated basis, Lab Holdings had $26.1 million in cash and short-
term investments at September 30, 1998. Current assets totaled
approximately $57.4 million while current liabilities totaled $11.3
million. Accounts receivable increased $5 million or 40% from December 31,
1997 due to LabOne's increase in revenues for the nine month period.
Net cash provided by continuing operations totaled $5.6 million in 1998's
first nine months compared with $36.4 million in 1997's first nine months,
primarily reflecting net earnings in 1998, a net loss in 1997 and a $34
million net change in the trading portfolio in 1997. Additionally in 1997,
the discontinued healthcare business used $1 million and discontinued real
estate operations provided $581,000.
Net cash used by investing activities in 1998's first nine months totaled
$16.7 million, as compared with $9.5 million in 1997's first nine months.
The net cash used in 1998 primarily reflects LabOne's net additions to
property plant and equipment related to construction of a new facility.
Net cash used by investing activities in 1997's first nine months included
a net increase in long-term investments of $2.4 million, $3.2 million of
net additions to property, plant and equipment supporting expanded
laboratory capacity and $4.1 million of intangible assets purchases by
LabOne associated with its purchase of the assets and customer list of GIB
Laboratories, Inc.
Net cash provided by financing activities of $14.1 million in 1998's first
nine months reflects LabOne's proceeds form issuance of bonds on its new
facility less Lab Holdings regular cash dividends to its shareholders
totaling $5.8 million Net cash used by financing activities in 1997's
first nine months totaled $25.4 million primarily due to the $19.6 million
cash transferred to SLH and regular cash dividends of $5.8 million.
Lab Holdings is currently a holding company. Sources of cash are
investment income and subsidiary dividends. The primary uses of cash for
Lab Holdings are investments, operating expenses and dividends to
shareholders.
LabOne paid regular quarterly dividends in 1998 and 1997. As an
approximate 80.5% owner, Lab Holdings received $5.8 million of cash
dividends from LabOne in 1998. LabOne's working capital position increased
$4.9 million to $40.3 million at September 30, 1998 from $35.4 million at
December 31, 1997. This increase is primarily due to bond proceeds and
LabOne's cash provided by operations before changes in working capital
exceeding capital additions and dividends paid.
LabOne's new facility project is expected to cost approximately $33 million
and is being financed with an industrial revenue bond (IRB) approved by the
City of Lenexa (Kansas), and signed during the third quarter of 1998. The
$33 million IRB is split into three series. Series A consists of $20
million which has been sold publicly. Series B and C consists of $13
million which has been purchased by LabOne. LabOne expects to repay Series
A over 11 years at approximately $1.85 million per year plus interest.
Interest expense is based on a taxable seven day variable rate and is
currently less than 6.5%, including all financing costs. Debt restrictions
include, but are not limited to, a net worth covenant and an operating cash
flow covenant. As of September 30, 1998, total capital expenditures for
this project were $17.1 million.
LabOne had no short-term borrowings in the first nine months of 1998.
LabOne expects to fund operations and future dividend payments from a
combination of cash flows from operations and cash reserves.
LabOne is actively addressing Year 2000 computer concerns. LabOne has
established an oversight committee which includes management from all parts
of LabOne and meets periodically to review progress. LabOne's laboratory
operating systems and its business processing systems were completely
rewritten in the past ten years and were brought into compliance with Year
2000 date standards at that time. Non-IT systems, which include security
systems, time clocks and heating and cooling systems, are being replaced
with certified compliant systems as part of construction of the new
facility. LabOne expects to complete all remaining internal Year 2000
objectives by the end of the first quarter, 1999.
Ongoing remediation efforts include regularly scheduled software upgrades
and replacement of personal computers and associated equipment, and are not
unique to the Year 2000 efforts. LabOne is assessing the Year 2000
preparation and contingency plans of its clients and vendors. LabOne has
material relationships and dependencies with its primary telecommunications
provider, Sprint Corp., its inbound shipping provider, Airborne Express,
and municipal services providers. In the event of a service interruption,
LabOne has the ability to switch telecommunications services to AT&T at any
time, and maintains backup electrical generators capable of meeting its
electrical needs. LabOne currently tracks and controls routing of its
inbound specimens and can use USPS, airlines and other common carriers or
express delivery services in the event of delivery problems with Airborne
Express. LabOne currently maintains approximately 8 weeks supply of most
laboratory supplies, and does not expect significant problems in obtaining
supplies. LabOne continues to review the Year 2000 plans of these
providers, and does not currently expect significant problems in these
areas, however, there can be no assurance that the systems of clients and
vendors will be converted to address Year 2000 problems in a timely and
effective manner or that such conversions will be compatible with LabOne's
computer systems.
Resources dedicated to the remaining effort are expected to cost less than
$300,000 over the next 18 months and are not considered a material expense
to LabOne. These efforts have not caused delay to LabOne's other ongoing
information systems projects. LabOne has not hired any outside consultants
or other independent validation providers at this time, and does not expect
to do so.
There can be no assurance that LabOne's adjustments to its computer systems
will completely eliminate all Year 2000 problems. In addition, a failure
to properly address the Year 2000 problem could have a material adverse
effect on LabOne's business, financial condition and results of operations.
Lab Holdings has completed its Year 2000 internal compliance program and
believes that its limited computer systems are now Year 2000 compliant.
The SLH Corporation/Syntroleum Corporation merger was completed on August
7, 1998. Per the Facilities Sharing and Interim Services Agreement between
Lab Holdings, SLH and Syntroleum, the former employees of SLH are now
employees of Lab Holdings. Concurrently, SLH/Syntroleum is providing
facilities to Lab Holdings in exchange for certain limited accounting,
bookkeeping, tax and administrative services by Lab Holdings personnel.
RECENTLY ISSUED ACCOUNTING STANDARDS
No recently issued accounting standards presently exist which will require
adoption in future periods.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
(a) Changes in Securities: None
(b) The City of Lenexa, Kansas, has issued its Taxable Industrial
Revenue Bonds in the amount of $20 million to provide financing for
LabOne's acquisition, construction and equipping of its new 270,000 square
foot office, lab and warehouse facility in Lenexa, Kansas pursuant to a
Lease Agreement between LabOne and the City of Lenexa. Commerce Bank, N.A.
has provided a direct pay letter of credit to insure payment of the Bonds
pursuant to the Lease Agreement and a Reimbursement Agreement between
Commerce Bank and LabOne. The Company has also entered into a letter
agreement with Commerce Bank pursuant to which the Company has agreed to
use its best efforts to cause LabOne to satisfy its obligations to Commerce
Bank under the Reimbursement Agreement. LabOne is required under the
Reimbursement Agreement to maintain a net worth of $40 million, a tangible
net worth of $20 million and a quarterly debt service coverage of not less
than 3 to 1. At September 30, 1998, LabOne's net worth was $51 million and
its book tangible net worth was $46 million. The above referenced
agreements are appended hereto as Exhibits 4.1 to 4.4.
Under the Missouri General Corporation Law, no dividends to
stockholders may be declared or paid at a time when the net assets of the
corporation are less than its stated capital or when the payment thereof
would reduce the net assets of the corporation below its stated capital.
At September 30, 1998, the net assets of Lab Holdings exceeded its stated
capital by $47,056,000.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
The Board of Directors is considering the adoption of a rights
agreement to replace the Rights Agreement dated April 5, 1988, as amended,
which is filed as Exhibits 4.1, 4.3, 4.4 and 4.5 to the Company's Form 10-K
for the year ended December 31, 1997, and which expired earlier this year.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1 Trust Indenture dated as of September 1, 1998, between the
City of Lenexa, Kansas and Intrust Bank, N.A. related to the issuance of
Taxable Industrial Revenue Bonds for the LabOne, Inc., Facility Project
(incorporated by reference to Exhibit 4.1 of the LabOne, Inc. Form 10-Q
for the quarter ended September 30, 1998).
4.2 Lease Agreement dated as of September 1, 1998 between the
City of Lenexa, Kansas and LabOne, Inc. related to the Trust Indenture
filed as Exhibit 4.1 to the Company's Report on Form 10-Q for the quarter
ended September 30, 1998 (incorporated by reference to Exhibit 4.2 of the
LabOne, Inc. Form 10-Q for the quarter ended September 30, 1998).
4.3 Reimbursement Agreement dated as of September 1, 1998 between
LabOne, Inc. and Commerce Bank, N.A. related to Exhibits 4.1 and 4.2 to the
Company's Report on Form 10-Q for the quarter ended September 30, 1998
(incorporated by reference to Exhibit 4.3 of the LabOne, Inc. Form 10-Q for
the quarter ended September 30, 1998).
4.4 Letter agreement dated September 4, 1998, between the Company
and Commerce Bank, N.A. relating to the Company's obligations with respect
to the Reimbursement Agreement and letters of credit to be issued
thereunder that is filed as Exhibit 4.3 to the Company's Report on Form 10-
Q for the quarter ending September 30, 1998.
10.1 Copy of employment agreement between the Company and P.
Anthony Jacobs, the President and Chief Executive Officer of the Company.
10.2 Copy of employment agreement between the Company and Steven
K. Fitzwater, the Executive Vice President and Chief Operating and
Financial Officer of the Company.
10.3 Copy of employment agreement between the Company and Linda K.
McCoy, the Vice President and Chief Accounting Officer of the Company.
10.4 1997 Directors' Stock Option Plan, as amended.
10.5 Form of Option Agreement for options granted under the 1997
Director's Stock Option Plan, as amended.
27 Financial Data Schedule - as filed electronically by the
Registrant in conjunction with this Form 10-Q.
(b) Reports on Form 8-K:
A Form 8-K current report dated October 16, 1998 was filed
with the Commission reporting under Other Events that the Registrant's 81%
owned subsidiary, LabOne, Inc., had entered into an agreement to acquire
Systematic Business Services, Inc.
A Form 8-K current report dated October 23, 1998 was filed
with the Commission providing under Other Events a cautionary statement in
order to obtain the benefits of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Lab Holdings, Inc.
Date November 11, 1998 By /s/ Steven K. Fitzwater
----------------------------
Steven K. Fitzwater
Executive Vice President, Chief
Operating and Financial Officer
Date November 11, 1998 By /s/ Linda K. McCoy
----------------------------
Linda K. McCoy
Vice President and
Chief Accounting Officer
EXHIBIT 4.4
September 4, 1998
Commerce Bank, N.A.
Commercial Loans
1000 Walnut Street
P.O. Box 419248
Kansas City, MO 64141-6249
Gentlemen and Ladies:
LabOne, Inc. ("Subsidiary") is a subsidiary of Lab Holdings,
Inc. ("Parent"). Parent understands that Commerce Bank, N.A.
("Commerce") is prepared to make available for Subsidiary a
credit facility consisting of the issuance and delivery of an
irrevocable direct pay letter of credit of Commerce, in the
approximate amount of $20,380,000.00, on the condition that
Parent makes the warranties, representations and agreements set
forth in this letter.
In consideration of Commerce extending the credit facility
to Subsidiary, Parent warrants, represents and agrees with
Commerce as follows:
1. Parent is a corporation incorporated, and in good
standing, under the laws of the State of Missouri, and is
in good standing and qualified to do business in the
state of Kansas.
2. Subsidiary is a corporation incorporated, and in good
standing, under the laws of the State of Delaware, and is
in good standing and qualified to do business in the
state of Kansas.
3. Parent is the owner of approximately 81.5% of the issued
and outstanding common stock of Subsidiary.
4. So long as the credit facility remains outstanding:
a) Parent shall use its best efforts to cause Subsidiary
to meet all of its obligations to Commerce under the
documents relating to the credit facility as they
become due and payable, it being understood that
Parent may (but shall not be required to) contribute
or advance funds to Subsidiary or Commerce in order to
enable Subsidiary to meet such obligations; and
b) Parent acknowledges that, except as otherwise provided
in any of the documents relating to the credit
facility, it shall constitute a default under the
documents relating to the credit facility in the event
(i) Parent shall sell, assign or otherwise transfer
the shares of common stock of Subsidiary to any
person, firm or corporation or (ii) Parent shall
encumber, pledge, hypothecate or grant a security
interest in its ownership interests in Subsidiary if
the result of the actions described in (i) or (ii) is
that Parent will own less than 51% of the voting stock
of Subsidiary; except, that these provisions shall not
apply and an event of default shall not occur under
this letter or under the documents and agreements
relating to the credit facility in the event Parent or
the acquiror provides Commerce with a clean, standby
letter of credit which effectively guaranties the
obligations of LabOne to Commerce under the documents
relating to the credit facility, provided that such
clean, standby letter of credit is issued by a United
States "National Association" depository institution
having a Thompson's Bank Watch rating of B or better
and a Moody's and Standard and Poor's rating of A2/A
or better; and
c) Parent will provide to Commerce copies of (i) its
quarterly financial statements (certified by the chief
financial officer (s) of the Parent) within fifty (50)
days after the end of each quarter, and (ii) its
annual audited financial statement within 125 days
after each fiscal year end.
Capitalized terms not otherwise defined herein shall have
the meaning assigned to them in that certain Commitment Letter
dated May 21, 1998, between Subsidiary and Commerce.
Sincerely,
LAB HOLDINGS, INC.
By: /s/ Steven K. Fitzwater
Title: Exec. VP and COO
Accepted and agreed to this 9th day of September, 1998.
COMMERCE BANK, N.A.
By: Pam Hill
Title: Vice President
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of August 7, 1998, by and between
LAB HOLDINGS, INC., a Missouri corporation (the "Company"), and P. Anthony
Jacobs (the "Executive").
WHEREAS, the Company desires to employ the Executive as President and Chief
Executive Officer of the Company; and
WHEREAS, the Executive desires to be employed on the terms and subject
to the conditions hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Employment Agreement, the parties hereby agree as follows:
SECTION 1
POSITION AND RESPONSIBILITIES
During the Term of this Employment Agreement, the Executive shall
perform such duties for such compensation and subject to such terms and
conditions as are hereinafter set forth.
SECTION 2
TERM AND DUTIES
2.1 Term; Extension. The term of this Employment Agreement (the "Term
of this Employment Agreement") will commence as of the date hereof and shall
continue until the third anniversary of such date; provided that the Term of
this Employment Agreement shall be automatically extended for successive one
year periods on each anniversary of this Agreement unless notice of
non-extension is given by either party to the other prior to such anniversary.
If such notice is given, the Term of this Employment Agreement shall not
thereafter be automatically extended on succeeding anniversaries of this
agreement. Termination of the Executive's employment pursuant to this Employment
Agreement, other than upon expiration of the Term of this Employment Agreement,
shall be governed by Sections 4 and 5.
2.2 Duties. The Executive shall devote appropriate time, attention and
efforts during normal business hours to the Company's affairs, but the Company
and Executive agree that Executive's position and responsibilities with the
Company will not require Executive's full time and attention and Executive is
entitled to pursue other employment opportunities simultaneously with his duties
hereunder. The Executive shall have such duties and responsibilities as are
assigned to him from time to time by the Board of Directors. As of the effective
date of this Employment Agreement, the Executive shall have senior management
authority and responsibility with respect to the long term management of the
Company, consistent with directions from the Board of Directors.
2.3 Location. The duties of the Executive shall be performed at such
locations and places
<PAGE>
as may be directed by the Board of Directors.
SECTION 3
COMPENSATION AND BENEFITS
3.1 Base Compensation. The Company shall pay the Executive a base
salary ("Base Salary") of $100,000 per annum, subject to applicable
withholdings. Base Salary shall be payable according to the customary payroll
practices of the Company but in no event less frequently than once each month.
The Base Salary shall be reviewed annually and shall be subject to increase or
decrease according to the policies and practices adopted by the Board of
Directors from time to time; provided, however, that in no event shall the Base
Salary for any year be decreased by more than five percent (5%) from the
immediately preceding year's Base Salary as a result of any such annual review.
3.2 Additional Benefits. The Executive will be entitled to participate
in all employee benefit plans or programs and receive all benefits and
perquisites to which any salaried employees are eligible under any existing or
future plans or programs established by the Company for salaried employees. The
Executive will participate to the extent permissible under the terms and
provisions of such plans or programs in accordance with program provisions.
Nothing in this Agreement will preclude the Company from amending or terminating
any of the plans or programs applicable to salaried employees or senior
executives. The Executive will be entitled to an annual paid vacation as
established by the Board of Directors.
3.3 Business Expenses. The Company will reimburse the Executive for all
reasonable travel and other expenses incurred by the Executive in connection
with the performance of his duties and obligations under this Employment
Agreement.
3.4 Withholding. The Company may directly or indirectly withhold from
any payments under this Employment Agreement all federal, state, city or other
taxes that shall be required pursuant to any law or governmental regulation.
SECTION 4
DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE
4.1 Payment in Event of Death. In the event of the death of the
Executive during the Term of this Employment Agreement, the Company's obligation
to make payments under this Employment Agreement shall cease as of the date of
death, except for earned but unpaid Base Salary.
4.2 Disability Compensation. Notwithstanding the disability of the
Executive, the Company will continue to pay the Executive during the Term of
this Employment Agreement, according to the compensation provisions of this
Employment Agreement. In the event the disability continues for a period of
three (3) months, the Company may thereafter terminate this Employment Agreement
and the Executive's employment as of the end of said period. Following such
2
<PAGE>
termination, the Company will pay the Executive amounts equal to his regular
installments of Base Salary, as of the time of termination, for a period of six
(6) months.
4.3 Responsibilities in the Event of Disability. During the period the
Executive is receiving payments following his disability and as long as he is
physically and mentally able to do so, the Executive will furnish information
and assistance to the Company and from time to time will make himself available
to the Company to undertake assignments consistent with his position or prior
position with the Company and his physical and mental health. If the Company
fails to make a payment or provide a benefit required as part of this Employment
Agreement, the Executive's obligation to provide information and assistance will
end.
4.4 Definition of Disability. The term "disability" will have such
meaning as is determined in the reasonable discretion of the Board of Directors.
4.5 Key-Man Life Insurance. Upon request by the Company, the Executive
agrees to cooperate with the Company in obtaining "key man" life insurance on
the life of the Executive, with death benefits payable to the Company. Such
cooperation shall include the submission by the Executive to a medical
examination and his response to inquiries regarding his medical history.
4.6 Advancement of Expenses In Connection With Any Proceedings. In
addition to any indemnification provided to Executive by law, the Articles of
Incorporation of the Company, its bylaws or any contract, the Company agrees
that expenses (including attorneys' fees and expenses) incurred by the Executive
in connection with any claim or proceeding with respect to which Executive may
be entitled to indemnity shall be paid by the Company in advance upon the
written request of the Executive, if Executive shall provide the Company with an
unsecured written undertaking to repay such amount if it shall ultimately be
determined by a final adjudication of a court of competent jurisdiction that the
Executive is not entitled to indemnification.
SECTION 5
TERMINATION OF EMPLOYMENT
Notwithstanding anything herein to the contrary, this Employment
Agreement and the Executive's employment with the Company may be terminated
under the circumstances and subject to the terms and provisions of this Section
5.
5.1 Termination Without Cause. If the Executive suffers a Termination
Without Cause (hereinafter defined), the Company will continue to pay the
Executive amounts equal to his Base Salary, as in effect at the time of the
Termination Without Cause, for the remaining Term of this Employment Agreement,
but in no event shall such payments continue for a period of more than two years
following such termination. For the remaining Term of this Employment Agreement,
the Company shall reimburse the Executive for the cost of the Executive's health
insurance as in effect at the date of termination. The exercisability of stock
options granted to the Executive shall be governed by any applicable stock
option agreements and the terms of the respective stock option
3
<PAGE>
plans.
5.2 Termination With Cause; Voluntary Termination. If the Executive
suffers a Termination with Cause or the Executive voluntarily terminates his
employment with the Company (a "Voluntary Termination"), then, the Company will
not be obligated to pay the Executive any amounts of compensation or benefits
following the date of termination. However, earned but unpaid Base Salary
through the date of termination will be paid in a lump sum at such time. A
Voluntary Termination shall not be deemed to include a resignation tendered at
the request of the Board or following or in connection with a Change In Control.
5.3 Definitions. For purposes of this Employment Agreement, the
following terms have the following meanings:
(a) A "Change in Control" shall be deemed to have occurred
upon the occurrence of any of the events specified in Sections 6.8, 6.9 or 6.10
of the Lab Holdings, Inc. 1997 Directors' Stock Option Plan or upon consummation
of a merger or consolidation involving the Company, if by the terms of the
agreement of merger or consolidation or other contemporaneous related document
the Executive's term as an officer of the Company is not to continue after the
consummation of the merger or consolidation or is limited in time to a period
following such merger or consolidation which does not extend at least until the
end of the Term of This Agreement.
(b) "Termination With Cause" means termination of the
Executive's employment by the Company, acting in good faith, by written notice
to the Executive specifying the event relied upon for such termination, either
(i) due to the Executive's serious, willful misconduct with respect to his
duties under this Employment Agreement or (ii) due to an act or omission for
which the Executive's is convicted of a felony, the Executive's perpetration of
a fraud, embezzlement or other act of dishonesty or the Executive's breach of a
trust or fiduciary duty, and if any such act or omission materially adversely
affects the Company or its shareholders or (iii) due to activities by the
Executive in Executive's other employment or business which materially conflict
with the Company's business.
(c) "Termination Without Cause" means termination of the
Executive's employment with the Company other than due to the Executive's death
or disability, Voluntary Termination or Termination With Cause.
SECTION 6
OTHER DUTIES OF THE EXECUTIVE DURING AND AFTER THE TERM OF
THIS EMPLOYMENT AGREEMENT
6.1 Additional Information. The Executive will, upon reasonable notice,
during or after the Term of this Employment Agreement, furnish information as
may be in his possession and cooperate with the Company as may reasonably be
requested in connection with any claims or legal
4
<PAGE>
actions in which the Company is or may become a party. The Executive shall
receive reasonable compensation for the time expended by him pursuant to this
Section 6.1.
6.2 Confidentiality. The Executive recognizes and acknowledges that all
information pertaining to the affairs, business, clients, customers or other
relationships of the Company, as hereinafter defined, is confidential and is a
unique and valuable asset of the Company. Access to and knowledge of this
information are essential to the performance of the Executive's duties under
this Employment Agreement. The Executive will not during the Term of this
Employment Agreement or thereafter, except to the extent reasonably necessary in
the performance of his duties under this Agreement, give to any person, firm,
association, corporation or governmental agency any information concerning the
affairs, business, clients, customers or other relationships of the Company
except as required by law. The Executive will not make use of this type of
information for his own purposes or for the benefit of any person or
organization other than the Company. The Executive will also use his best
efforts to prevent the disclosure of this information by others. All records,
memoranda, etc. relating to the business of the Company whether made by the
Executive or otherwise coming into his possession are confidential and will
remain the property of the Company.
6.3 Noncompetition.
(a) During the Term of Employment. The Executive will not
Compete with the Company at any time while he is employed by the Company or
receiving payments from the Company.
(b) Voluntary Termination; Termination With Cause. In the
event of a Voluntary Termination or a Termination With Cause, the Executive will
not Compete (hereinafter defined) with the Company for a period consisting of
the remaining Term of this Employment Agreement plus one (1) year.
(c) Termination Without Cause; Non-Extension of the Term. In
the event of a Termination Without Cause or in the event the Company gives
notice under Section 2.1 that the Term of this Employment Agreement will not be
automatically extended, the Executive will not Compete with the Company for the
then remaining Term of this Employment Agreement.
(d) Definition of "Compete" with the Company. For the purposes
of this Section 6, the term "Compete with the Company" means action by the
Executive, direct or indirect, for his own account or for the account of others,
either as an officer, director, stockholder, owner, partner, member, promoter,
employee, consultant, advisor, agent, manager, creditor or in any other
capacity, resulting in the Executive having any pecuniary interest, legal or
equitable ownership, or other financial or non-financial interest in, or
employment, association or affiliation with, any corporation, business trust,
partnership, limited liability company, proprietorship or other business or
professional enterprise that engages in a business substantially similar to or
in competition with any business engaged in by the Company or in which the
Company has an equity interest exceeding
5
<PAGE>
5%.
(e) Reasonableness of Scope and Duration; Remedies. The
Executive acknowledges that the covenants contained herein are reasonable as to
geographic and temporal scope. The Executive acknowledges that his breach or
threatened or attempted breach of any provision of Section 6 would cause
irreparable harm to the Company not compensable in monetary damages and that the
Company shall be entitled, in addition to all other applicable remedies, to a
temporary and permanent injunction and a decree for specific performance of the
terms of Section 6 without being required to prove damages or furnish any bond
or other security.
SECTION 7
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Employment Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially all
of its assets to, another corporation or organization which assumes this
Employment Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or sale of assets, the term "the
Company" as used herein will mean or include the other corporation or
organization and, unless terminated as herein provided, this Employment
Agreement shall continue in full force and effect. This Section 7 is not
intended to modify or limit the rights of the Executive hereunder.
SECTI0N 8
MISCELLANEOUS
8.1 Entire Agreement. This Employment Agreement contains the entire
understanding between the Company and the Executive with respect to the subject
matter and supersedes any prior employment or severance agreements between the
Company and its affiliates, and the Executive.
8.2 Amendment; Waiver. This Employment Agreement may not be modified or
amended except in writing signed by the parties. No term or condition of this
Employment Agreement will be deemed to have been waived except in writing by the
party charged with waiver. A waiver shall operate only as to the specific term
or condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
8.3 Severability; Modification of Covenant. Should any part of this
Employment 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 Employment Agreement
had been originally executed without including the invalid part. Should any
covenant of this Employment Agreement be unenforceable because of its geographic
scope or term, its geographic scope or term shall be modified to such extent as
may be necessary to render such covenant enforceable.
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8.4 Effect of Captions. Titles and captions in no way define, limit,
extend or describe the scope of this Employment Agreement nor the intent of any
provision thereof.
8.5 Counterpart Execution. This Employment 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.
8.6 Governing Law; Arbitration. This Employment Agreement has been
executed and delivered in the State of Missouri and its validity,
interpretation, performance and enforcement shall be governed by the laws of
that state. Any dispute among the parties hereto shall be settled by arbitration
in the Kansas City, Missouri area, in accordance with the rules then obtaining
of the American Arbitration Association and judgment upon the award rendered may
be entered in any court having jurisdiction thereof. All provisions hereof are
for the protection and are intended to be for the benefit of the parties hereto
and enforceable directly by and binding upon each party. Each party hereto
agrees that the remedy at law of the other for any actual or threatened breach
of this Employment Agreement would be inadequate and that the other party shall
be entitled to specific performance hereof or injunctive relief or both, by
temporary or permanent injunction or such other appropriate judicial remedy,
writ or orders as may be decided by a court of competent jurisdiction in
addition to any damages which the complaining party may be legally entitled to
recover together with reasonable expenses of litigation, including attorney's
fees incurred in connection therewith, as may be approved by such court.
8.7 Certain Expenses. The Company agrees to indemnify and hold harmless
the Executive from and against any cost or expense, including Executive's
reasonable attorney's fees and expenses, incurred in connection with any claim
made or proceeding brought by Executive to enforce the provisions of Sections 3,
4 or 5 of this agreement. The Executive agrees to indemnify and hold harmless
the Company from and against any cost or expense, including Executive's
reasonable attorney's fees and expenses, incurred in connection with any claim
made or proceeding brought by Executive to enforce any provision of Section 6 of
this agreement.
8.8 Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid by registered mail, return
receipt requested, or when delivered if by hand, overnight delivery service or
confirmed facsimile transmission, to the following:
(1) If to the Company, at 5000 West 95th Street,
Suite 260, Shawnee Mission, Kansas 66207,
Attention: Chairman of the Compensation
Committee, or at such other address as may
have been furnished to the Executive by the
Company in writing; or
(2) If to the Executive, at [address omitted for
EDGAR document], or such other address as
may have been furnished to the Company by
the Executive in writing.
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8.9 Binding Agreements. This Employment Agreement shall be binding on the
parties' successors, heirs and assigns.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the date first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES.
LAB HOLDINGS, INC.
By: s/John H. Robinson, Jr.
Chairman of the Compensation Committee
EXECUTIVE:
s/P. Anthony Jacobs
P. Anthony Jacobs
8
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Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of August 7, 1998, by and between
LAB HOLDINGS, INC., a Missouri corporation (the "Company"), and Steven K.
Fitzwater (the "Executive").
WHEREAS, the Company desires to employ the Executive as Executive Vice
President, Chief Operating and Financial Officer and Secretary of the Company;
and
WHEREAS, the Executive desires to be employed on the terms and subject
to the conditions hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Employment Agreement, the parties hereby agree as follows:
SECTION 1
POSITION AND RESPONSIBILITIES
During the Term of this Employment Agreement, the Executive shall
perform such duties for such compensation and subject to such terms and
conditions as are hereinafter set forth.
SECTION 2
TERM AND DUTIES
2.1 Term; Extension. The term of this Employment Agreement (the "Term
of this Employment Agreement") will commence as of the date hereof and shall
continue until the third anniversary of such date; provided that the Term of
this Employment Agreement shall be automatically extended for successive one
year periods on each anniversary of this Agreement unless notice of
non-extension is given by either party to the other prior to such anniversary.
If such notice is given, the Term of this Employment Agreement shall not
thereafter be automatically extended on succeeding anniversaries of this
agreement. Termination of the Executive's employment pursuant to this Employment
Agreement, other than upon expiration of the Term of this Employment Agreement,
shall be governed by Sections 4 and 5.
2.2 Duties. The Executive shall devote full time, attention and efforts
during normal business hours to the Company's affairs, but the Company and
Executive agree that if Executive's position and responsibilities with the
Company do not require Executive's full time and attention, then Executive is
entitled to pursue other employment opportunities simultaneously with his duties
hereunder. The Executive shall have such duties and responsibilities as are
assigned to him from time to time by the Board of Directors and or the
President. As of the effective date of this Employment Agreement, the Executive
shall have senior management authority and responsibility with respect to the
long term management of the Company, consistent with directions from the
President and or the Board of Directors.
2.3 Location. The duties of the Executive shall be performed at such
locations and places
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as may be directed by the Board of Directors.
SECTION 3
COMPENSATION AND BENEFITS
3.1 Base Compensation. The Company shall pay the Executive a base
salary ("Base Salary") of $100,000 per annum, subject to applicable
withholdings. Base Salary shall be payable according to the customary payroll
practices of the Company but in no event less frequently than once each month.
The Base Salary shall be reviewed annually and shall be subject to increase or
decrease according to the policies and practices adopted by the Board of
Directors from time to time; provided, however, that in no event shall the Base
Salary for any year be decreased by more than five percent (5%) from the
immediately preceding year's Base Salary as a result of any such annual review.
3.2 Additional Benefits. The Executive will be entitled to participate
in all employee benefit plans or programs and receive all benefits and
perquisites to which any salaried employees are eligible under any existing or
future plans or programs established by the Company for salaried employees. The
Executive will participate to the extent permissible under the terms and
provisions of such plans or programs in accordance with program provisions.
Nothing in this Agreement will preclude the Company from amending or terminating
any of the plans or programs applicable to salaried employees or senior
executives. The Executive will be entitled to an annual paid vacation as
established by the Board of Directors.
3.3 Business Expenses. The Company will reimburse the Executive for all
reasonable travel and other expenses incurred by the Executive in connection
with the performance of his duties and obligations under this Employment
Agreement.
3.4 Withholding. The Company may directly or indirectly withhold from
any payments under this Employment Agreement all federal, state, city or other
taxes that shall be required pursuant to any law or governmental regulation.
SECTION 4
DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE
4.1 Payment in Event of Death. In the event of the death of the
Executive during the Term of this Employment Agreement, the Company's obligation
to make payments under this Employment Agreement shall cease as of the date of
death, except for earned but unpaid Base Salary.
4.2 Disability Compensation. Notwithstanding the disability of the
Executive, the Company will continue to pay the Executive during the Term of
this Employment Agreement, according to the compensation provisions of this
Employment Agreement. In the event the disability continues for a period of
three (3) months, the Company may thereafter terminate this Employment Agreement
and the Executive's employment as of the end of said period. Following such
2
<PAGE>
termination, the Company will pay the Executive amounts equal to his regular
installments of Base Salary, as of the time of termination, for a period of six
(6) months.
4.3 Responsibilities in the Event of Disability. During the period the
Executive is receiving payments following his disability and as long as he is
physically and mentally able to do so, the Executive will furnish information
and assistance to the Company and from time to time will make himself available
to the Company to undertake assignments consistent with his position or prior
position with the Company and his physical and mental health. If the Company
fails to make a payment or provide a benefit required as part of this Employment
Agreement, the Executive's obligation to provide information and assistance will
end.
4.4 Definition of Disability. The term "disability" will have such
meaning as is determined in the reasonable discretion of the Board of Directors.
4.5 Key-Man Life Insurance. Upon request by the Company, the Executive
agrees to cooperate with the Company in obtaining "key man" life insurance on
the life of the Executive, with death benefits payable to the Company. Such
cooperation shall include the submission by the Executive to a medical
examination and his response to inquiries regarding his medical history.
4.6 Advancement of Expenses In Connection With Any Proceedings. In
addition to any indemnification provided to Executive by law, the Articles of
Incorporation of the Company, its bylaws or any contract, the Company agrees
that expenses (including attorneys' fees and expenses) incurred by the Executive
in connection with any claim or proceeding with respect to which Executive may
be entitled to indemnity shall be paid by the Company in advance upon the
written request of the Executive, if Executive shall provide the Company with an
unsecured written undertaking to repay such amount if it shall ultimately be
determined by a final adjudication of a court of competent jurisdiction that the
Executive is not entitled to indemnification.
SECTION 5
TERMINATION OF EMPLOYMENT
Notwithstanding anything herein to the contrary, this Employment
Agreement and the Executive's employment with the Company may be terminated
under the circumstances and subject to the terms and provisions of this Section
5.
5.1 Termination Without Cause. If the Executive suffers a Termination
Without Cause (hereinafter defined), the Company will continue to pay the
Executive amounts equal to his Base Salary, as in effect at the time of the
Termination Without Cause, for the remaining Term of this Employment Agreement,
but in no event shall such payments continue for a period of more than two years
following such termination. For the remaining Term of this Employment Agreement,
the Company shall reimburse the Executive for the cost of the Executive's health
insurance as in effect at the date of termination. The exercisability of stock
options granted to the Executive shall be governed by any applicable stock
option agreements and the terms of the respective stock option
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<PAGE>
plans.
5.2 Termination With Cause; Voluntary Termination. If the Executive
suffers a Termination with Cause or the Executive voluntarily terminates his
employment with the Company (a "Voluntary Termination"), then, the Company will
not be obligated to pay the Executive any amounts of compensation or benefits
following the date of termination. However, earned but unpaid Base Salary
through the date of termination will be paid in a lump sum at such time. A
Voluntary Termination shall not be deemed to include a resignation tendered at
the request of the Board or following or in connection with a Change In Control.
5.3 Definitions. For purposes of this Employment Agreement, the
following terms have the following meanings:
(a) A "Change in Control" shall be deemed to have occurred
upon the occurrence of any of the events specified in Sections 6.8, 6.9 or 6.10
of the Lab Holdings, Inc. 1997 Directors' Stock Option Plan or upon consummation
of a merger or consolidation involving the Company, if by the terms of the
agreement of merger or consolidation or other contemporaneous related document
the Executive's term as an officer of the Company is not to continue after the
consummation of the merger or consolidation or is limited in time to a period
following such merger or consolidation which does not extend at least until the
end of the Term of This Agreement.
(b) "Termination With Cause" means termination of the
Executive's employment by the Company, acting in good faith, by written notice
to the Executive specifying the event relied upon for such termination, either
(i) due to the Executive's serious, willful misconduct with respect to his
duties under this Employment Agreement or (ii) due to an act or omission for
which the Executive's is convicted of a felony, the Executive's perpetration of
a fraud, embezzlement or other act of dishonesty or the Executive's breach of a
trust or fiduciary duty, and if any such act or omission materially adversely
affects the Company or its shareholders or (iii) due to activities by the
Executive in Executive's other employment or business which materially conflict
with the Company's business.
(c) "Termination Without Cause" means termination of the
Executive's employment with the Company other than due to the Executive's death
or disability, Voluntary Termination or Termination With Cause.
SECTION 6
OTHER DUTIES OF THE EXECUTIVE DURING AND AFTER THE TERM OF
THIS EMPLOYMENT AGREEMENT
6.1 Additional Information. The Executive will, upon reasonable notice,
during or after the Term of this Employment Agreement, furnish information as
may be in his possession and cooperate with the Company as may reasonably be
requested in connection with any claims or legal
4
<PAGE>
actions in which the Company is or may become a party. The Executive shall
receive reasonable compensation for the time expended by him pursuant to this
Section 6.1.
6.2 Confidentiality. The Executive recognizes and acknowledges that all
information pertaining to the affairs, business, clients, customers or other
relationships of the Company, as hereinafter defined, is confidential and is a
unique and valuable asset of the Company. Access to and knowledge of this
information are essential to the performance of the Executive's duties under
this Employment Agreement. The Executive will not during the Term of this
Employment Agreement or thereafter, except to the extent reasonably necessary in
the performance of his duties under this Agreement, give to any person, firm,
association, corporation or governmental agency any information concerning the
affairs, business, clients, customers or other relationships of the Company
except as required by law. The Executive will not make use of this type of
information for his own purposes or for the benefit of any person or
organization other than the Company. The Executive will also use his best
efforts to prevent the disclosure of this information by others. All records,
memoranda, etc. relating to the business of the Company whether made by the
Executive or otherwise coming into his possession are confidential and will
remain the property of the Company.
6.3 Noncompetition.
(a) During the Term of Employment. The Executive will not
Compete with the Company at any time while he is employed by the Company or
receiving payments from the Company.
(b) Voluntary Termination; Termination With Cause. In the
event of a Voluntary Termination or a Termination With Cause, the Executive will
not Compete (hereinafter defined) with the Company for a period consisting of
the remaining Term of this Employment Agreement plus one (1) year.
(c) Termination Without Cause; Non-Extension of the Term. In
the event of a Termination Without Cause or in the event the Company gives
notice under Section 2.1 that the Term of this Employment Agreement will not be
automatically extended, the Executive will not Compete with the Company for the
then remaining Term of this Employment Agreement.
(d) Definition of "Compete" with the Company. For the purposes
of this Section 6, the term "Compete with the Company" means action by the
Executive, direct or indirect, for his own account or for the account of others,
either as an officer, director, stockholder, owner, partner, member, promoter,
employee, consultant, advisor, agent, manager, creditor or in any other
capacity, resulting in the Executive having any pecuniary interest, legal or
equitable ownership, or other financial or non-financial interest in, or
employment, association or affiliation with, any corporation, business trust,
partnership, limited liability company, proprietorship or other business or
professional enterprise that engages in a business substantially similar to or
in competition with any business engaged in by the Company or in which the
Company has an equity interest exceeding
5
<PAGE>
5%.
(e) Reasonableness of Scope and Duration; Remedies. The
Executive acknowledges that the covenants contained herein are reasonable as to
geographic and temporal scope. The Executive acknowledges that his breach or
threatened or attempted breach of any provision of Section 6 would cause
irreparable harm to the Company not compensable in monetary damages and that the
Company shall be entitled, in addition to all other applicable remedies, to a
temporary and permanent injunction and a decree for specific performance of the
terms of Section 6 without being required to prove damages or furnish any bond
or other security.
SECTION 7
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Employment Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially all
of its assets to, another corporation or organization which assumes this
Employment Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or sale of assets, the term "the
Company" as used herein will mean or include the other corporation or
organization and, unless terminated as herein provided, this Employment
Agreement shall continue in full force and effect. This Section 7 is not
intended to modify or limit the rights of the Executive hereunder.
SECTI0N 8
MISCELLANEOUS
8.1 Entire Agreement. This Employment Agreement contains the entire
understanding between the Company and the Executive with respect to the subject
matter and supersedes any prior employment or severance agreements between the
Company and its affiliates, and the Executive.
8.2 Amendment; Waiver. This Employment Agreement may not be modified or
amended except in writing signed by the parties. No term or condition of this
Employment Agreement will be deemed to have been waived except in writing by the
party charged with waiver. A waiver shall operate only as to the specific term
or condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
8.3 Severability; Modification of Covenant. Should any part of this
Employment 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 Employment Agreement
had been originally executed without including the invalid part. Should any
covenant of this Employment Agreement be unenforceable because of its geographic
scope or term, its geographic scope or term shall be modified to such extent as
may be necessary to render such covenant enforceable.
6
<PAGE>
8.4 Effect of Captions. Titles and captions in no way define, limit,
extend or describe the scope of this Employment Agreement nor the intent of any
provision thereof.
8.5 Counterpart Execution. This Employment 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.
8.6 Governing Law; Arbitration. This Employment Agreement has been
executed and delivered in the State of Missouri and its validity,
interpretation, performance and enforcement shall be governed by the laws of
that state. Any dispute among the parties hereto shall be settled by arbitration
in the Kansas City, Missouri area, in accordance with the rules then obtaining
of the American Arbitration Association and judgment upon the award rendered may
be entered in any court having jurisdiction thereof. All provisions hereof are
for the protection and are intended to be for the benefit of the parties hereto
and enforceable directly by and binding upon each party. Each party hereto
agrees that the remedy at law of the other for any actual or threatened breach
of this Employment Agreement would be inadequate and that the other party shall
be entitled to specific performance hereof or injunctive relief or both, by
temporary or permanent injunction or such other appropriate judicial remedy,
writ or orders as may be decided by a court of competent jurisdiction in
addition to any damages which the complaining party may be legally entitled to
recover together with reasonable expenses of litigation, including attorney's
fees incurred in connection therewith, as may be approved by such court.
8.7 Certain Expenses. The Company agrees to indemnify and hold harmless
the Executive from and against any cost or expense, including Executive's
reasonable attorney's fees and expenses, incurred in connection with any claim
made or proceeding brought by Executive to enforce the provisions of Sections 3,
4 or 5 of this agreement. The Executive agrees to indemnify and hold harmless
the Company from and against any cost or expense, including Executive's
reasonable attorney's fees and expenses, incurred in connection with any claim
made or proceeding brought by Executive to enforce any provision of Section 6 of
this agreement.
8.8 Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid by registered mail, return
receipt requested, or when delivered if by hand, overnight delivery service or
confirmed facsimile transmission, to the following:
(1) If to the Company, at 5000 West 95th Street,
Suite 260, Shawnee Mission, Kansas 66207,
Attention: Chairman of the Compensation
Committee, or at such other address as may
have been furnished to the Executive by the
Company in writing; or
(2) If to the Executive, at [address omitted for
EDGAR document], or such other address as
may have been furnished to the Company by
the Executive in writing.
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8.9 Binding Agreements. This Employment Agreement shall be binding on the
parties' successors, heirs and assigns.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the date first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES.
LAB HOLDINGS, INC.
By: s/John H. Robinson, Jr.
Chairman of the Compensation Committee
EXECUTIVE:
s/Steven K. Fitzwater
Steven K. Fitzwater
8
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Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of August 7, 1998, by and between
LAB HOLDINGS, INC., a Missouri corporation (the "Company"), and Linda K. McCoy
(the "Executive").
WHEREAS, the Company desires to employ the Executive as Vice President and
Chief Accounting Officer of the Company; and
WHEREAS, the Executive desires to be employed on the terms and subject
to the conditions hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Employment Agreement, the parties hereby agree as follows:
SECTION 1
POSITION AND RESPONSIBILITIES
During the Term of this Employment Agreement, the Executive shall
perform such duties for such compensation and subject to such terms and
conditions as are hereinafter set forth.
SECTION 2
TERM AND DUTIES
2.1 Term; Extension. The term of this Employment Agreement (the "Term
of this Employment Agreement") will commence as of the date hereof and shall
continue until the second anniversary of such date; provided that the Term of
this Employment Agreement shall be automatically extended for successive one
year periods on each anniversary of this Agreement unless notice of
non-extension is given by either party to the other prior to such anniversary.
If such notice is given, the Term of this Employment Agreement shall not
thereafter be automatically extended on succeeding anniversaries of this
agreement. Termination of the Executive's employment pursuant to this Employment
Agreement, other than upon expiration of the Term of this Employment Agreement,
shall be governed by Sections 4 and 5.
2.2 Duties. The Executive shall devote full time, attention and efforts
during normal business hours to the Company's affairs, but the Company and
Executive agree that if Executive's position and responsibilities with the
Company do not require Executive's full time and attention, then Executive is
entitled to pursue other employment opportunities simultaneously with her duties
hereunder. The Executive shall have such duties and responsibilities as are
assigned to her from time to time by the Board of Directors and or the
President. As of the effective date of this Employment Agreement, the Executive
shall have senior management authority and responsibility with respect to the
long term management of the Company, consistent with directions from the
President and or the Board of Directors.
2.3 Location. The duties of the Executive shall be performed at such
locations and places
<PAGE>
as may be directed by the Board of Directors.
SECTION 3
COMPENSATION AND BENEFITS
3.1 Base Compensation. The Company shall pay the Executive a base
salary ("Base Salary") of $70,000 per annum, subject to applicable withholdings.
Base Salary shall be payable according to the customary payroll practices of the
Company but in no event less frequently than once each month. The Base Salary
shall be reviewed annually and shall be subject to increase or decrease
according to the policies and practices adopted by the Board of Directors from
time to time; provided, however, that in no event shall the Base Salary for any
year be decreased by more than five percent (5%) from the immediately preceding
year's Base Salary as a result of any such annual review.
3.2 Additional Benefits. The Executive will be entitled to participate
in all employee benefit plans or programs and receive all benefits and
perquisites to which any salaried employees are eligible under any existing or
future plans or programs established by the Company for salaried employees. The
Executive will participate to the extent permissible under the terms and
provisions of such plans or programs in accordance with program provisions.
Nothing in this Agreement will preclude the Company from amending or terminating
any of the plans or programs applicable to salaried employees or senior
executives. The Executive will be entitled to an annual paid vacation as
established by the Board of Directors.
3.3 Business Expenses. The Company will reimburse the Executive for all
reasonable travel and other expenses incurred by the Executive in connection
with the performance of her duties and obligations under this Employment
Agreement.
3.4 Withholding. The Company may directly or indirectly withhold from
any payments under this Employment Agreement all federal, state, city or other
taxes that shall be required pursuant to any law or governmental regulation.
SECTION 4
DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE
4.1 Payment in Event of Death. In the event of the death of the
Executive during the Term of this Employment Agreement, the Company's obligation
to make payments under this Employment Agreement shall cease as of the date of
death, except for earned but unpaid Base Salary.
4.2 Disability Compensation. Notwithstanding the disability of the
Executive, the Company will continue to pay the Executive during the Term of
this Employment Agreement, according to the compensation provisions of this
Employment Agreement. In the event the disability continues for a period of
three (3) months, the Company may thereafter terminate this Employment Agreement
and the Executive's employment as of the end of said period. Following such
2
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termination, the Company will pay the Executive amounts equal to her regular
installments of Base Salary, as of the time of termination, for a period of six
(6) months.
4.3 Responsibilities in the Event of Disability. During the period the
Executive is receiving payments following her disability and as long as she is
physically and mentally able to do so, the Executive will furnish information
and assistance to the Company and from time to time will make herself available
to the Company to undertake assignments consistent with her position or prior
position with the Company and her physical and mental health. If the Company
fails to make a payment or provide a benefit required as part of this Employment
Agreement, the Executive's obligation to provide information and assistance will
end.
4.4 Definition of Disability. The term "disability" will have such
meaning as is determined in the reasonable discretion of the Board of Directors.
4.5 Key-Man Life Insurance. Upon request by the Company, the Executive
agrees to cooperate with the Company in obtaining "key man" life insurance on
the life of the Executive, with death benefits payable to the Company. Such
cooperation shall include the submission by the Executive to a medical
examination and her response to inquiries regarding her medical history.
4.6 Advancement of Expenses In Connection With Any Proceedings. In
addition to any indemnification provided to Executive by law, the Articles of
Incorporation of the Company, its bylaws or any contract, the Company agrees
that expenses (including attorneys' fees and expenses) incurred by the Executive
in connection with any claim or proceeding with respect to which Executive may
be entitled to indemnity shall be paid by the Company in advance upon the
written request of the Executive, if Executive shall provide the Company with an
unsecured written undertaking to repay such amount if it shall ultimately be
determined by a final adjudication of a court of competent jurisdiction that the
Executive is not entitled to indemnification.
SECTION 5
TERMINATION OF EMPLOYMENT
Notwithstanding anything herein to the contrary, this Employment
Agreement and the Executive's employment with the Company may be terminated
under the circumstances and subject to the terms and provisions of this Section
5.
5.1 Termination Without Cause. If the Executive suffers a Termination
Without Cause (hereinafter defined), the Company will continue to pay the
Executive amounts equal to her Base Salary, as in effect at the time of the
Termination Without Cause, for the remaining Term of this Employment Agreement,
but in no event shall such payments continue for a period of more than one year
following such termination. For the remaining Term of this Employment Agreement,
the Company shall reimburse the Executive for the cost of the Executive's health
insurance as in effect at the date of termination. The exercisability of stock
options granted to the Executive shall be governed by any applicable stock
option agreements and the terms of the respective stock option
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plans.
5.2 Termination With Cause; Voluntary Termination. If the Executive
suffers a Termination with Cause or the Executive voluntarily terminates her
employment with the Company (a "Voluntary Termination"), then, the Company will
not be obligated to pay the Executive any amounts of compensation or benefits
following the date of termination. However, earned but unpaid Base Salary
through the date of termination will be paid in a lump sum at such time. A
Voluntary Termination shall not be deemed to include a resignation tendered at
the request of the Board or following or in connection with a Change In Control.
5.3 Definitions. For purposes of this Employment Agreement, the
following terms have the following meanings:
(a) A "Change in Control" shall be deemed to have occurred
upon the occurrence of any of the events specified in Sections 6.8, 6.9 or 6.10
of the Lab Holdings, Inc. 1997 Directors' Stock Option Plan or upon consummation
of a merger or consolidation involving the Company, if by the terms of the
agreement of merger or consolidation or other contemporaneous related document
the Executive's term as an officer of the Company is not to continue after the
consummation of the merger or consolidation or is limited in time to a period
following such merger or consolidation which does not extend at least until the
end of the Term of This Agreement.
(b) "Termination With Cause" means termination of the
Executive's employment by the Company, acting in good faith, by written notice
to the Executive specifying the event relied upon for such termination, either
(i) due to the Executive's serious, willful misconduct with respect to her
duties under this Employment Agreement or (ii) due to an act or omission for
which the Executive's is convicted of a felony, the Executive's perpetration of
a fraud, embezzlement or other act of dishonesty or the Executive's breach of a
trust or fiduciary duty, and if any such act or omission materially adversely
affects the Company or its shareholders or (iii) due to activities by the
Executive in Executive's other employment or business which materially conflict
with the Company's business.
(c) "Termination Without Cause" means termination of the
Executive's employment with the Company other than due to the Executive's death
or disability, Voluntary Termination or Termination With Cause.
SECTION 6
OTHER DUTIES OF THE EXECUTIVE DURING AND AFTER THE TERM OF
THIS EMPLOYMENT AGREEMENT
6.1 Additional Information. The Executive will, upon reasonable notice,
during or after the Term of this Employment Agreement, furnish information as
may be in her possession and cooperate with the Company as may reasonably be
requested in connection with any claims or legal
4
<PAGE>
actions in which the Company is or may become a party. The Executive shall
receive reasonable compensation for the time expended by her pursuant to this
Section 6.1.
6.2 Confidentiality. The Executive recognizes and acknowledges that all
information pertaining to the affairs, business, clients, customers or other
relationships of the Company, as hereinafter defined, is confidential and is a
unique and valuable asset of the Company. Access to and knowledge of this
information are essential to the performance of the Executive's duties under
this Employment Agreement. The Executive will not during the Term of this
Employment Agreement or thereafter, except to the extent reasonably necessary in
the performance of her duties under this Agreement, give to any person, firm,
association, corporation or governmental agency any information concerning the
affairs, business, clients, customers or other relationships of the Company
except as required by law. The Executive will not make use of this type of
information for her own purposes or for the benefit of any person or
organization other than the Company. The Executive will also use her best
efforts to prevent the disclosure of this information by others. All records,
memoranda, etc. relating to the business of the Company whether made by the
Executive or otherwise coming into her possession are confidential and will
remain the property of the Company.
6.3 Noncompetition.
(a) During the Term of Employment. The Executive will not
Compete with the Company at any time while she is employed by the Company or
receiving payments from the Company.
(b) Voluntary Termination; Termination With Cause. In the
event of a Voluntary Termination or a Termination With Cause, the Executive will
not Compete (hereinafter defined) with the Company for a period consisting of
the remaining Term of this Employment Agreement plus one (1) year.
(c) Termination Without Cause; Non-Extension of the Term. In
the event of a Termination Without Cause or in the event the Company gives
notice under Section 2.1 that the Term of this Employment Agreement will not be
automatically extended, the Executive will not Compete with the Company for the
then remaining Term of this Employment Agreement.
(d) Definition of "Compete" with the Company. For the purposes
of this Section 6, the term "Compete with the Company" means action by the
Executive, direct or indirect, for her own account or for the account of others,
either as an officer, director, stockholder, owner, partner, member, promoter,
employee, consultant, advisor, agent, manager, creditor or in any other
capacity, resulting in the Executive having any pecuniary interest, legal or
equitable ownership, or other financial or non-financial interest in, or
employment, association or affiliation with, any corporation, business trust,
partnership, limited liability company, proprietorship or other business or
professional enterprise that engages in a business substantially similar to or
in competition with any business engaged in by the Company or in which the
Company has an equity interest exceeding 5%.
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<PAGE>
(e) Reasonableness of Scope and Duration; Remedies. The
Executive acknowledges that the covenants contained herein are reasonable as to
geographic and temporal scope. The Executive acknowledges that her breach or
threatened or attempted breach of any provision of Section 6 would cause
irreparable harm to the Company not compensable in monetary damages and that the
Company shall be entitled, in addition to all other applicable remedies, to a
temporary and permanent injunction and a decree for specific performance of the
terms of Section 6 without being required to prove damages or furnish any bond
or other security.
SECTION 7
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Employment Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially all
of its assets to, another corporation or organization which assumes this
Employment Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or sale of assets, the term "the
Company" as used herein will mean or include the other corporation or
organization and, unless terminated as herein provided, this Employment
Agreement shall continue in full force and effect. This Section 7 is not
intended to modify or limit the rights of the Executive hereunder.
SECTI0N 8
MISCELLANEOUS
8.1 Entire Agreement. This Employment Agreement contains the entire
understanding between the Company and the Executive with respect to the subject
matter and supersedes any prior employment or severance agreements between the
Company and its affiliates, and the Executive.
8.2 Amendment; Waiver. This Employment Agreement may not be modified or
amended except in writing signed by the parties. No term or condition of this
Employment Agreement will be deemed to have been waived except in writing by the
party charged with waiver. A waiver shall operate only as to the specific term
or condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
8.3 Severability; Modification of Covenant. Should any part of this
Employment 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 Employment Agreement
had been originally executed without including the invalid part. Should any
covenant of this Employment Agreement be unenforceable because of its geographic
scope or term, its geographic scope or term shall be modified to such extent as
may be necessary to render such covenant enforceable.
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8.4 Effect of Captions. Titles and captions in no way define, limit,
extend or describe the scope of this Employment Agreement nor the intent of any
provision thereof.
8.5 Counterpart Execution. This Employment 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.
8.6 Governing Law; Arbitration. This Employment Agreement has been
executed and delivered in the State of Missouri and its validity,
interpretation, performance and enforcement shall be governed by the laws of
that state. Any dispute among the parties hereto shall be settled by arbitration
in the Kansas City, Missouri area, in accordance with the rules then obtaining
of the American Arbitration Association and judgment upon the award rendered may
be entered in any court having jurisdiction thereof. All provisions hereof are
for the protection and are intended to be for the benefit of the parties hereto
and enforceable directly by and binding upon each party. Each party hereto
agrees that the remedy at law of the other for any actual or threatened breach
of this Employment Agreement would be inadequate and that the other party shall
be entitled to specific performance hereof or injunctive relief or both, by
temporary or permanent injunction or such other appropriate judicial remedy,
writ or orders as may be decided by a court of competent jurisdiction in
addition to any damages which the complaining party may be legally entitled to
recover together with reasonable expenses of litigation, including attorney's
fees incurred in connection therewith, as may be approved by such court.
8.7 Certain Expenses. The Company agrees to indemnify and hold harmless
the Executive from and against any cost or expense, including Executive's
reasonable attorney's fees and expenses, incurred in connection with any claim
made or proceeding brought by Executive to enforce the provisions of Sections 3,
4 or 5 of this agreement. The Executive agrees to indemnify and hold harmless
the Company from and against any cost or expense, including Executive's
reasonable attorney's fees and expenses, incurred in connection with any claim
made or proceeding brought by Executive to enforce any provision of Section 6 of
this agreement.
8.8 Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid by registered mail, return
receipt requested, or when delivered if by hand, overnight delivery service or
confirmed facsimile transmission, to the following:
(1) If to the Company, at 5000 West 95th Street,
Suite 260, Shawnee Mission, Kansas 66207,
Attention: Chairman of the Compensation
Committee, or at such other address as may
have been furnished to the Executive by the
Company in writing; or
(2) If to the Executive, at [address omitted for
EDGAR document] or such other address as
may have been furnished to the Company by
the Executive in writing.
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8.9 Binding Agreements. This Employment Agreement shall be binding on the
parties' successors, heirs and assigns.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the date first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES.
LAB HOLDINGS, INC.
By: s/John H. Robinson, Jr.
Chairman of the Compensation Committee
EXECUTIVE:
s/Linda K. McCoy
Linda K. McCoy
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Exhibit 10.4
LAB HOLDINGS, INC.
1997 DIRECTORS' STOCK OPTION PLAN
(as amended as of August 17, 1998)
1. PURPOSE
The Lab Holdings, Inc. 1997 Directors' Stock Option Plan is designed to
enable Directors of the Company to acquire or increase their ownership of the
$1.00 par value common stock of the Company on reasonable terms. The opportunity
so provided is intended to foster in participants a strong incentive to exert
maximum effort for the continued success and growth of the Company and its
Subsidiaries and the enhancement of shareholders' interests.
2. DEFINITIONS
When used herein, the following terms shall have the meaning set forth
below:
2.1 "BOARD" means the Board of Directors of Lab Holdings, Inc.
2.2 "BOOK VALUE" of property referred to in subsection 7.3 hereof means book
value as determined in accordance with generally accepted accounting
principles.
2.3 "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
2.4 "COMPANY" means Lab Holdings, Inc.
2.5 "DIRECTOR" means a member of the Board.
2.6 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2.7 "FAIR MARKET VALUE" means (i) with respect to the Company's Shares, the
closing sales price of the Shares, as reported on the National Market
System of the Nasdaq Stock Market, or, if not so reported, the closing
sales price as reported by any other appropriate reporting system of
general circulation, on the date for which the value is to be
determined, or if there is no closing sales price on such date, then on
the last date for which transactions in Shares were so reported prior to
the date on which the value is to be determined; and (ii) with respect
to property referred to in subsection 7.3 hereof, the value of such
property as determined by independent, third party appraisal.
2.8 "GRANTEE" means a person to whom an Option is granted.
2.9 "NON-QUALIFIED STOCK OPTION" or "NQSO" means an Option awarded under the
Plan which by its terms and conditions does not meet the terms and
conditions established by Code Section 422A.
2.10 "OPTION" means the right to purchase, at a price, for a term, under
conditions, and for cash or other considerations fixed by the Plan, a
number of Shares specified by the Plan. An Option can only be an NQSO.
2.11 "PLAN" means the Company's 1997 Directors' Stock Option Plan.
<PAGE>
2.12 "PRE-OWNED SHARES" means Shares owned by a Grantee at the time of the
exercise of an Option, and if they are Shares which the Grantee acquired
through the exercise of an Option under the Plan, such Shares have been
owned for more than six months prior to the Option exercise.
2.13 "RESIGNING DIRECTORS" means those directors whose resignations as such
are effective on the date upon which a definitive Proxy Statement is
filed with the Securities and Exchange Commission respecting a Special
Meeting of Company shareholders, called for the purpose of considering
and voting upon a proposal to amend the Company's Articles of
Incorporation to change the Company's name to Lab Holdings, Inc.
2.14 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.15 "SHARES" means shares of the Company's $1.00 par value common stock or,
if by reason of the adjustment provisions hereof any rights under an
Option granted under the Plan pertain to any other security, such other
security.
2.16 "SUBSIDIARY" means any business, whether or not incorporated, in which
the Company, at the time an Option is granted or in other cases at the
time of reference, owns directly or indirectly not less than 50% of the
equity interest.
2.17 "SUCCESSOR" means the legal representative of the estate of a deceased
Grantee or the person or persons who shall acquire the right to exercise
an Option, by assignment, bequest or inheritance or by reason of the
death of the Grantee, as provided in accordance with subsection 6.7
hereof.
2.18 "TAX DATE" means the date on which the amount of tax to be withheld with
respect to an Option is determined.
2.19 "TERM" means the period during which a particular Option may be
exercised.
2.20 "UNIT" means (i) the lowest number of Shares required to be purchased to
permit the issuance with such Shares of a whole security of another
type, if any, issuable pursuant to subsection 7.2 hereof upon exercise
of an Option and (ii) such other whole security.
3. ELIGIBILITY
Each person who is a Director on the Effective Date of the Plan under
Section 9 hereof, other than Resigning Directors, and each person who becomes a
Director thereafter during the term of the Plan shall be entitled (subject to
any limitations imposed by Section 4 hereof) to participate in the Plan. A
Director is entitled to participate whether or not he is also an officer of the
Company and whether elected by shareholders or appointed to fill a vacancy
created by the resignation of a Director or the expansion of the Board.
<PAGE>
4. SHARES SUBJECT TO PLAN
The Company hereby reserves 90,000 Shares for issuance in connection with
Options under the Plan, subject to adjustment under Section 7 hereof. The Shares
so issued may be unreserved Shares held in the treasury, however acquired, or
Shares which are authorized but unissued. Any Shares subject to issuance upon
exercise of Options but which are not issued because of a surrender, lapse,
expiration or termination of any such Option prior to issuance of the Shares
shall once again be available for issuance in satisfaction of other Options.
Shares withheld pursuant to a tax withholding election permitted under Section
13 hereof, and any Shares owned by a Grantee which are used in the exercise of
an Option under subsection 8.3 hereof shall be deemed issued under the Plan.
5. GRANT OF OPTIONS
Each person who is a Director as of the Effective Date of the Plan under
Section 9 hereof shall, as of the Effective Date, receive a grant of Options
respecting 15,000 Shares, and each Director who first becomes a Director after
the Effective Date shall, on the date he first becomes a Director, receive a
grant of Options respecting 15,000 Shares, in all cases without further action
by the Board or otherwise. Such Options shall be in the form set forth as
Exhibit A hereto. No person shall receive more than one grant respecting 15,000
Shares.
6. TERMS AND CONDITIONS OF OPTIONS
All Options under the Plan shall be granted subject to the following terms
and conditions:
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<PAGE>
6.1 The purchase price of each Share subject to an Option shall be 100% of
the Fair Market Value of the Shares on the effective grant date of such
Option.
6.2 Options shall expire on the tenth anniversary of the effective date of
grant.
6.3 Options shall be vested (i.e., exercisable) as follows: As to 5,000
shares, on and after the twelve month anniversary of the date of grant;
as to another 5,000 shares, on and after the twenty-four month
anniversary of the date of grant; and as to the final 5,000 shares, on
and after the thirty-six month anniversary of the date of grant.
6.4 Notwithstanding subsection 6.3 hereof, in the event of the death of an
Option holder during his term as a Director, all outstanding unvested
Options held by him shall become immediately exercisable.
6.5 After the termination of an Option holder's term as a Director for any
reason, the Option shall be exercisable only as to those Shares and
other securities, if any, which were subject to the exercise of such
Option on the date of termination (including those shares and other
securities, if any, subject to the exercise as a consequence of
subsection 6.4 hereof).
6.6 Options, whether vested or not, shall expire to the extent unexercised
on the date which is 90 days after the date a Director's term as a
Director shall terminate; provided however, that in the event of the
death of a Director during such person's term as a Director or during
the 90-day period following expiration of such term, such Options
shall expire to the extent unexercised by such person's Successor on
that date which is 12 months after the date of death; provided
however, if the term of a director does not continue due to the terms
of any plan or arrangement involving any merger, consolidation or
other event specified in Section 6.8, 6.9 or 6.10 or if the director
is not elected to continue in office for three years following such an
event or is removed without cause from such office within three years
following such an event, then all options that are exercisable at the
time of such event or that become exercisable due to such event shall
not expire until the earlier of (a) twelve months following the date
of death of the director or (b) the end of the original term of the
option regardless of the date of termination of an Option holder's
term as a Director.
6.7 Each Grantee may name, from time to time, any beneficiary or
beneficiaries (who may be named contingently or successively) to whom
any benefit or rights under the Plan is to be paid or transferred in
case of his death before he receives any or all of such benefit or
exercises such rights. Each designation will revoke all prior
designations by the same Grantee, and will be effective only when filed
by the Grantee in writing during his lifetime with the Company's
Secretary. In the absence of any such designation, benefits or rights
remaining unpaid or unexercised at the Grantee's death shall be paid to
or shall be exercisable by his estate, subject to the terms hereof.
<PAGE>
6.8 Notwithstanding subsection 6.3 hereof, all outstanding unvested Options
shall become exercisable immediately if any of the following events
occur:
6.8.1 Any "person" (as defined in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty-five percent (25%) or
more of the combined voting power of the Company's then outstanding
securities, provided that this provision shall not apply to the
direct, indirect or beneficial ownership of Shares by descendants
of W. T. Grant or their spouses, or
6.8.2 At any time there shall cease to be a majority of the Board
comprised as follows: individuals (other than Resigning Directors)
who on the Effective Date of this Plan under Section 9 hereof
constitute the Board, and any new Director(s) whose election by the
Board or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds ( 2/3) of the Directors
then still in office who either were Directors on the Effective
Date of this Plan or whose election or nomination for election was
previously so approved, or
6.8.3 The requisite percentage of the Company's shareholders shall
approve a plan of complete liquidation and dissolution of the
Company.
3
6.9 Notwithstanding anything in subsection 6.3 hereof, all outstanding
unvested Options held by a Grantee shall become exercisable immediately
upon the approval by the requisite percentage(s) of shareholders of all
constituent companies to a merger or consolidation involving the Company
if, but only if, by the terms of the agreement of merger or
consolidation or other contemporaneous related document said Grantee's
term as a Director of the Company is not to continue after consummation
of the merger or consolidation or is specifically limited in time to a
period which does not extend at least until the thirty-six month
anniversary of the date of grant.
6.10 In the event of the dissolution or liquidation of the Company, each
outstanding Option shall terminate to the extent that it shall not have
been exercised prior to the effective time of such event.
7. ADJUSTMENTS IN EVENT OF CHANGES IN CAPITALIZATION
7.1 In the event that a dividend shall be declared upon the Shares of the
Company payable in Shares, the number of Shares then subject to any
Option outstanding under the Plan and the number of Shares reserved for
Options pursuant to the Plan but not yet subject to Options shall be
adjusted by adding to each such Share the number of Shares which would
be distributable in respect thereof if such Shares had been outstanding
on the date fixed for determining the shareholders of the Company
entitled to receive such Share dividend.
<PAGE>
7.2 In the event that a dividend shall be declared upon the Shares of the
Company payable in an equity security of the Company other than the
Shares, each Option outstanding under the Plan and the number and type
of securities issuable under the Plan shall be changed so that
thereafter there shall be issuable upon the exercise of Options then
outstanding or thereafter granted, in addition to Shares, such number of
such other equity security that would have been distributable in respect
of Shares subject to outstanding Options or issuable under the Plan had
such Shares been outstanding on the date fixed for determining the
shareholders of the Company entitled to receive such equity security
dividend.
7.3 In the event that a dividend shall be declared upon Shares (or other
securities that, with the Shares, comprise a Unit) of the Company
payable in cash or other property (other than Shares or other equity
securities of the Company) and the aggregate amount of the cash or Book
Value of the property payable to shareholders pursuant to such dividend
exceeds 10% of the Company's total assets on a consolidated basis, the
Option exercise price for each Share (or Unit, if applicable) subject to
an Option shall be reduced on the date following the payment date of
such dividend by the aggregate amount of cash and the Fair Market Value
of any other property payable with respect to each outstanding Share
pursuant to such dividend.
7.4 In the event that the outstanding Shares shall be changed into or
exchanged for a different number or kind of shares or other securities
of the Company or of another entity, whether through reorganization,
recapitalization, split-up, combination of shares, merger, consolidation
or otherwise, then there shall be substituted for each Share subject to
any outstanding Option and for each Share reserved for Options pursuant
to the Plan but not yet subject to Options the number and kind of shares
or other securities into which each outstanding Share shall have been so
changed or for which each such share shall have been exchanged.
7.5 In the case of any substitution or adjustment as provided for in
subsections 7.1, 7.2 or 7.4 hereof, the Option price set forth in each
outstanding Option for each Share covered thereby prior to such
substitution or adjustment will be the Option price for all Shares or
other securities which shall have been substituted for such Share or to
which such Share shall have been adjusted pursuant to such subsections.
4
7.6 In the case of any adjustment provided for in subsection 7.2 hereof, the
Option may thereafter only be exercisable as to Units and the Option
exercise price for each Unit will be the aggregate of the Option
exercise price for the Shares included within the Unit.
7.7 No adjustment or substitution provided for in this Section 7 shall
<PAGE>
require the Company to sell or issue a fraction of a Share or other
equity security, and the total substitution or adjustment with respect
to each outstanding Option shall be limited accordingly. Upon any
adjustment made pursuant to this Section, the Company will, upon
request, deliver to the Option holder or to such person's Successor a
certificate of its Chief Financial Officer setting forth, with respect
to such Option, the Option price thereafter in effect and the number and
kind of Shares or other securities thereafter purchasable thereunder.
8. EXERCISE OF RIGHTS UNDER OPTIONS
8.1 A person entitled to exercise an Option may do so by delivery of a
written notice to that effect specifying the number of Shares with
respect to which the Option is being exercised and any other information
the Company may prescribe.
8.2 The notice of exercise shall be accompanied by payment in full of the
purchase price for any Shares to be purchased, with such payment being
made in cash or cash equivalents or in Pre-Owned Shares having a Fair
Market Value at that time equivalent to the purchase price of the Shares
or Units to be purchased, or a combination thereof.
8.3 In lieu of delivery of a stock certificate or certificates evidencing
Shares tendered by the Grantee in payment of the purchase price in
exercising an Option, the Grantee may furnish a notarized statement
executed by the Grantee, in such form as prescribed by the Company, as
payment for all or a portion of the purchase price for Shares or Units
to be purchased. The statement shall recite the number of Shares or
Units being purchased by the Grantee pursuant to the Option and the
number of Pre-Owned Shares owned by the Grantee which otherwise could be
freely delivered as payment of the purchase price by the Grantee based
on their Fair Market Value at that time. The Grantee will then be issued
a certificate(s) for (a) new Shares equal to the number of Shares
acquired by the Grantee hereunder upon exercise of the Option, less the
number of Pre-Owned Shares owned by the Grantee and described in the
notarized statement, and (b) if applicable, other securities comprising
the Units as to which the exercise relates.
8.4 No Shares or other securities shall be issued upon exercise of an Option
until full payment has been made therefor.
8.5 Upon exercise of an Option but before a distribution of Shares or other
securities in satisfaction thereof, the Grantee may request in writing
that the Shares or other securities to be issued in satisfaction of the
Option exercise be issued in the name of the Grantee and another person
as joint tenants with right of survivorship or as tenants in common.
8.6 All notices or requests to the Company provided for herein shall be
delivered to the Secretary of the Company.
9. EFFECTIVE DATE OF THE PLAN AND DURATION
9.1 The Plan shall become effective on the date upon which the Company files
a definitive Proxy Statement with the Securities and Exchange Commission
respecting a Special Meeting of Company shareholders, called for the
purpose of considering and voting upon a proposal to amend the Company's
Articles of Incorporation to change the Company's name to Lab Holdings,
Inc.
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<PAGE>
9.2 The Plan shall remain in effect until all Options have been exercised in
accordance herewith, but no Options may be granted under the Plan after
September 15, 2007. The provisions of any Option may be amended at any
time prior to the end of its Term in accordance with the Plan.
10. SHAREHOLDER STATUS
No person shall have any rights as a shareholder by virtue of the grant of
an Option under the Plan, except with respect to Shares or other securities
actually issued to that person.
11. POSTPONEMENT OR NON-EXERCISE
The Company shall not be required to issue any certificate or certificates
for Shares or other securities upon the exercise of an Option granted under the
Plan prior to (i) the obtaining of any approval from any governmental agency
which the Company shall, in its sole discretion, determine to be necessary or
advisable, (ii) the taking of any action in order to comply with restrictions or
regulations incident to the maintenance of a public market for its Shares or
other securities, if any; and (iii) the completion of any registration or other
qualification of such Shares or other securities, if any, under any state or
Federal law or rulings or regulations of any governmental body which the Company
shall, in its sole discretion, determine to be necessary or advisable. The
Company shall not be obligated by virtue of the terms and conditions of any
Option or any provisions of the Plan to recognize the exercise of an Option or
to sell or issue Shares or other securities in violation of the Securities Act
or the law of any government having jurisdiction thereof. Any postponement or
delay by the Company in recognizing the exercise of any Option or in issuing any
Shares or other securities hereunder shall not extend the Term of an Option and
neither the Company nor its directors or officers shall have any obligation or
liability to the Grantee of an Option, to a Successor or to any other person
with respect to any Shares or other securities, including those as to which an
Option shall lapse because of such postponement.
12. TERMINATION, SUSPENSION OR MODIFICATION OF PLAN
The Board may terminate, suspend or modify the Plan at any time and in any
manner, provided, however, that to the extent shareholder approval is required
by regulations issued under the Securities Act or the Exchange Act, in order to
create or preserve Company or Grantee benefits or rights under or with respect
to Options, the Board shall not, without authorization of the shareholders,
effect any change (other than through adjustment for changes in capitalization
or as otherwise herein provided) which:
(i) increases the aggregate number of Shares for which Options may be
granted under the Plan or increases the maximum number of Shares for which
Options may be granted to any one Grantee;
(ii) lowers the minimum Option exercise price;
(iii) lengthens the maximum period during which an Option may be
exercised;
(iv) materially modifies the requirements as to eligibility to
participate in the Plan;
(v) extends the period of time during which Options may be granted; or
(vi) materially increases the benefit accruing to Grantees.
<PAGE>
Notwithstanding the foregoing, (i) the Board may amend the Plan, without
shareholder authorization, to comply with Section 16(b) of the Exchange Act or
regulations issued thereunder, to effect registration of the Plan or securities
issuable thereunder under the Securities Act or the securities laws of any
state, or to obtain any required regulatory approval and (ii) if amendments to
the Code or to the Securities Act or Exchange Act, or regulations issued
thereunder, are adopted after the Effective Date of the Plan under Section 9
hereof, which amendments permit termination, suspension or modification of the
Plan, including but not limited to the changes referred to above, without
shareholder approval, no authorization by the Company's shareholders of any
Board action hereunder shall be required.
6
No termination, suspension or modification of the Plan shall adversely
affect any right acquired by any Grantee or any Successor under an Option
granted before the date of such termination, suspension or modification unless
such Grantee or Successor shall consent, but it shall be conclusively presumed
that any adjustment for changes in capitalization as provided for herein does
not adversely affect any such right.
13. TAXES
13.1 The Company may pay, withhold or require a Grantee to remit to it
amounts sufficient to satisfy the Company's federal, state, local or
other tax withholding obligations attributable to any Option exercise,
after giving notice to the Grantee, and the Company may defer issuance
of Shares or other securities in connection with an Option exercise if
any such tax, charge or assessment may be pending, until indemnified to
its satisfaction.
13.2 In connection with the exercise of an Option, a Grantee may make an
irrevocable election to have Shares or Units otherwise issuable
withheld, or tender back to the Company Shares received, or deliver to
the Company previously-acquired Shares, having a Fair Market Value at
the time sufficient to satisfy all or part of the Company's total
federal, state, local and other tax withholding obligations associated
with the transaction.
14. APPLICATION OF PROCEEDS
The proceeds received by the Company from the issuance of Shares or Units
under the Plan shall be used for general corporate purposes of the Company and
its Subsidiaries.
15. OTHER ACTIONS
Nothing in the Plan shall be construed to limit the authority of the Company
to exercise its corporate rights and powers, including, by way of illustration
and not by way of limitation, the right to grant options for proper corporate
purposes otherwise than under the Plan to any employee or any other person,
firm, corporation, association or other entity, or to grant options to, or
assume options of, any person in connection with the acquisition by purchase,
lease, merger, consolidation or otherwise, of all or any part of the business
and assets of any person, firm, corporation, association or other entity.
<PAGE>
16. GENDER AND NUMBER
Except when otherwise indicated by the context, words in the masculine
gender when used in the Plan shall include the feminine gender, the singular
shall include the plural, and the plural shall include the singular.
17. REQUIREMENTS OF LAW, GOVERNING LAW
The granting of Options and the issuance of Shares or Units shall be subject
to all applicable laws, rules and regulations, and to such approvals by any
governmental agencies or national securities exchanges and self-regulating
entities as may be required. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Missouri.
7
Exhibit 10.5
EXHIBIT A
DIRECTOR STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement"), made this ____ day
of _______, ____, by and between Lab Holdings, Inc. ("LHI") and
____________ ______________________ (the "Grantee") evidences the
grant, by LHI, of a Stock Option (the "Option") to the Grantee
effective on __________, ____, (the "Date of Grant") and the Grantee's
acceptance of the Option in accordance with the provisions of the Lab
Holdings, Inc. 1997 Directors' Stock Option Plan (the "Plan"). LHI
and the Grantee agree as follows:
1. Shares Optioned and Option Price. The Grantee shall have an
option to purchase ________ shares of LHI common stock, par value
$1.00 per share, for $_________ per share, subject to the terms and
conditions of this Agreement and of the Plan, the provisions of which
are hereby incorporated herein by reference. The shares subject to
the Option are not, nor are they intended to be, Incentive Stock
Option (ISO) shares as described in section 422 of the Internal
Revenue Code of 1986, as amended.
2. Vesting. Except as otherwise provided in section 3 below or
in the Plan, this Option shall be deemed vested with respect to the
number of shares described in section 1 as follows: (a) the right to
purchase one-third of the number of shares described in section 1
shall first be vested on the first anniversary of the Date of Grant,
(b) the right to purchase one-half of the remaining number of unvested
shares shall first be vested on the second anniversary of the Date of
Grant, and (c) the right to purchase the balance of the unvested
shares shall first be vested on the third anniversary of the Date of
Grant. Notwithstanding the foregoing provisions of this section 2, if
the Grantee's term as a Director of LHI terminates on account of his
death, the Option shall be deemed vested as to all shares described in
section 1 hereof as of the date of death.
3. Exercise Period. Except as otherwise provided in the Plan,
the Option may be exercised from time to time with respect to all or
any number of the then vested but unexercised shares on any regular
business day of LHI at its then executive offices, until the earliest
to occur of the following dates:
<PAGE>
(a) the tenth anniversary of the Date of Grant;
(b) subject to subsection (c) next below, the date which is ninety (90)
days after the date the Grantee's term as a Director of LHI terminates, except
that such date shall be the date which is twelve (12) months after the Grantee's
death, if death occurs while the Grantee is a Director of LHI or within ninety
(90) days thereafter; provided however, if the term of a director does not
continue due to the terms of any plan or arrangement involving any merger,
consolidation or other event specified in Section 6.8, 6.9 or 6.10 of the Plan
or if the director is not elected to continue in office for three years
following such an event or is removed without cause from such office within
three years following such an event, then all options that are exercisable at
the time of such event or that become exercisable due to such event shall not
expire until the earlier of (a) twelve months following the date of death of the
director or (b) the end of the original term of the option regardless of the
date of termination of an Option holder's term as a Director.
provided, however, that if the Option is exercised after the
Grantee's term as a Director has terminated for any reason,
it may be exercised only to the extent vested on the date
such term as a Director terminated.
4. Exercise.
(a) During the period that the Option is
exercisable, it may be exercised in full or in part by
the Grantee or his guardian, assignee or legal
representative, and, in the event of the Grantee's
death, by the person or persons to whom the Option was
transferred by assignment, will or the laws of descent
and distribution, by delivering or mailing written
notice of the exercise to the Secretary of LHI. The
written notice shall be signed by the person entitled
to exercise the Option and shall specify the address
and Social Security number of such person. If any
person other than the Grantee purports to be entitled
to exercise all or any portion of the Option, the
written notice shall be accompanied by proof,
satisfactory to the Secretary of LHI, of that
entitlement.
(b) Subject to the provisions of subsection (c)
hereof, the written notice shall be accompanied by full
payment of the exercise price for the shares as to
which the Option is exercised either (i) in cash or
cash equivalents, (ii) in shares of LHI common stock
evidenced by certificates either endorsed or with stock
powers attached transferring ownership to LHI, with an
aggregate Fair Market Value (as defined in the Plan)
equal to said exercise price on the date the written
notice is received by the Secretary, or (iii) in any
combination of cash or cash equivalents and such
shares; provided that any shares of LHI common stock
tendered in payment of all or any part of the exercise
price must, if they are shares acquired by the Grantee
through an exercise of the Option, have been owned for
more than six (6) months prior to the subject Option
<PAGE>
exercise.
(c) In lieu of payment of the exercise price by
way of delivery of certificate(s) evidencing shares of
LHI common stock, the Grantee may furnish a notarized
statement reciting the number of shares being purchased
under the Option and the number of LHI shares owned by
the Grantee which could be freely delivered as payment;
provided that if the certificate refers to any shares
acquired through an exercise of the Option, then such
shares must have been owned for more than six (6)
months prior to the subject Option exercise in order to
be considered eligible to be freely delivered as
payment. If the Grantee furnishes such a statement in
payment of the exercise price, he will be issued a
certificate for new shares representing the number of
shares as to which the Option is exercised, less the
number of shares described in the notarized statement
as constituting payment under the Option.
(d) In the event the Grantee pays the Option
exercise price by delivery of a notarized statement of
ownership, as described in subsection (c) next above,
the number of shares remaining subject to the Option
shall be reduced not only by the number of new shares
issued upon exercise of the Option but also by the
number of previously owned shares listed on the
notarized statement of ownership and deemed to be
surrendered as payment of the exercise price.
(e) The written notice of exercise will be
effective and the Option shall be deemed exercised to
the extent specified in the notice on the date that the
written notice (together with required accompaniments
respecting payment of the exercise price) is received
by the Secretary of LHI at its then executive offices
during regular business hours.
5. Transfer of Shares; Tax Withholding. As soon as
practicable after receipt of an effective written notice of
exercise and full payment of the exercise price as provided
in section 4 above, the Secretary of LHI shall cause
ownership of the appropriate number of shares of LHI common
stock to be transferred to the person or persons exercising
the Option by having a certificate or certificates for such
number of shares registered in the name of such person or
persons and shall have each certificate delivered to the
appropriate person. Each such certificate shall bear a
legend describing the restrictions imposed by securities
laws, as described in section 7 below, to the extent
applicable. Notwithstanding the foregoing, if LHI or a
Subsidiary requires reimbursement of any tax required by law
to be withheld with respect to shares of LHI common stock,
the Secretary shall not transfer ownership of shares until
the required payment is made; provided that in lieu of
payment in cash of the taxes required by law to be withheld,
the Grantee may pay such taxes by surrendering his right to
exercise a portion of the Option equal in value to the
<PAGE>
amount of said taxes; the Grantee would then receive a
certificate for the number of shares otherwise issuable
pursuant to the Grantee's exercise of the Option, reduced by
a number of shares with an aggregate Fair Market Value equal
to the amount of said taxes, which latter number of shares
would be deemed purchased pursuant to the exercise of the
Option and, thus, no longer available under the Plan.
6. Binding Effect. The terms of this Option shall be
binding upon the executors, administrators, heirs,
successors, and assigns of the Grantee.
7. Requirements of Law. This Option may not be
exercised if the issuance of shares of LHI common stock upon
such exercise would constitute a violation of any applicable
federal or state securities or other law or valid
regulation. The Grantee, as a condition to his exercise of
this Option, shall represent to LHI that the shares of LHI
common stock to be acquired by exercise of this Option are
being acquired for investment and not with a present view to
distribution or resale, unless counsel for LHI is then of
the opinion that such a representation is not required under
the Securities Act of 1933 or any other applicable law,
regulation, or rule of any governmental agency.
IN WITNESS WHEREOF, LHI, by its duly authorized
officer, and the Grantee have signed this Agreement as of
the date first above written.
LAB HOLDINGS, INC.
By:___________________________
______________________________
Grantee
The Grantee acknowledges receipt of copies of the Plan
and the Prospectus, dated ________________________,
respecting the Plan. The Grantee represents that (s)he is
familiar with the terms and provisions of the Plan and such
Prospectus. The Grantee hereby accepts this Option subject
to all the terms and provisions of the Plan, including but
not limited to Section 6 ("Terms and Conditions") and
Section 7 ("Adjustments in Event of Changes in
Capitalization") thereof. The Grantee hereby agrees to
accept as binding, conclusive, and final all decisions and
interpretations of the Board of Directors respecting any
questions arising under the Plan.
Date: ________________
Grantee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Form 10-Q for the period ending September 30, 1998 and is qualified
in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 24,813
<SECURITIES> 1,330
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 1,537
<CURRENT-ASSETS> 57,372
<PP&E> 0<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 93,403
<CURRENT-LIABILITIES> 11,285
<BONDS> 0
0
0
<COMMON> 7,500
<OTHER-SE> 47,056
<TOTAL-LIABILITY-AND-EQUITY> 93,403
<SALES> 74,930
<TOTAL-REVENUES> 0
<CGS> 41,320
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,170
<INCOME-TAX> 4,040
<INCOME-CONTINUING> 3,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,885
<EPS-PRIMARY> .60
<EPS-DILUTED> .59
<FN>
<F1>Disclosure not required on interim financial statements.
</FN>
</TABLE>
