UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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Commission file number 0-16946
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LabOne, Inc.
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10101 Renner Blvd.
Lenexa, Kansas 66219
(913) 888-1770
Incorporated in Missouri
I.R.S. Employer Identification Number: 43-1039532
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.01 par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
Approximate aggregate market value of voting stock held by non-affiliates
of Registrant: $65,912,000 (based on closing price as of March 1, 2000, of
$6.875). The non-inclusion of shares held by directors, officers and
beneficial owners of more than 5% of the outstanding stock shall not be deemed
to constitute an admission that such persons are affiliates of the Registrant
within the meaning of the Securities and Exchange Act of 1934.
Number of shares outstanding of the only class of Registrant's common
stock as of March 1, 2000: $0.01 par value common - 11,533,493 shares net of
1,516,527 shares held as treasury stock.
The exhibit list for this Form 10-K begins on page 20
PAGE 1 of 79
PART I
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ITEM 1. BUSINESS
General
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LabOne, Inc., a Missouri corporation, provides laboratory testing,
investigative services and paramedical examinations for the insurance
industry, clinical laboratory testing services for the healthcare industry and
substance abuse testing services for employers. LabOne, Inc., together with
its wholly-owned subsidiaries Lab One Canada Inc., Systematic Business
Services, Inc. (SBSI) and ExamOne World Wide, Inc., hereinafter collectively
referred to as either LabOne or the Company, is the largest provider of life
insurance laboratory testing services in the United States and Canada.
LabOne provides risk-appraisal laboratory services to the insurance industry.
The laboratory tests performed by the Company are specifically designed to
assist an insurance company in objectively evaluating the mortality and
morbidity risks posed by policy applicants. The majority of the testing is
performed on specimens of individual life insurance policy applicants. The
Company also provides testing services on specimens of individuals applying
for individual and group medical and disability policies. Through its
subsidiary, SBSI acquired in 1998, the Company provides telephone
inspections, motor vehicle reports, attending physician statements, and claims
investigation services.
Effective November 5, 1999, LabOne acquired World Wide Health Services, Inc.
and World Wide Health Services of New Jersey, a provider of specimen
collection and paramedical examination services to life and health insurers.
These subsidiaries are operated under the name ExamOne World Wide and are
included in the insurance services division of LabOne. This addition allows
LabOne to expand the services it offers to its insurance industry clients.
LabOne's clinical testing services are provided to the healthcare industry as
an aid in the diagnosis and treatment of patients. LabOne operates only one
highly automated and centralized laboratory, which the Company believes has
significant economic advantages over other conventional laboratory
competitors. LabOne markets its clinical testing services to the payers of
healthcare (insurance companies and self-insured groups). The Company does
this through exclusive arrangements with managed care organizations and
through Lab Card(R) a Laboratory Benefits Management program.
LabOne is certified by the Substance Abuse and Mental Health Services
Administration to perform substance abuse testing services for federally
regulated employers and is currently marketing these services throughout the
country to both regulated and nonregulated employers. The Company's rapid
turnaround times and multiple testing options help clients reduce downtime for
affected employees and meet mandated drug screening guidelines.
On August 10, 1999, the former LabOne, Inc. was merged into its parent
corporation, Lab Holdings, Inc. upon the approval of the shareholders of both
companies at their respective annual meetings. The combined company's name
was then changed to LabOne, Inc.
PAGE 2
Forward Looking Statements
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This Annual report on Form 10-K may contain "forward-looking statements,"
including, but not limited to: projections of revenues, income or loss,
capital expenditures, the payment or non-payment of dividends and other
financial items, 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.
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 the
Company, competition, the extent of market acceptance of the Company's testing
services in the healthcare and substance abuse testing industries, intense
competition, the loss of one or more significant customers, 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 Cautionary Statement filed herewith as Exhibit 99.
Services Provided by the Company
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Insurance Services:
Insurance companies require an objective means of evaluating the insurance
risk posed by policy applicants in order to establish the appropriate level of
premium payments, or to determine whether to issue a policy. Because
decisions of this type are based on statistical probabilities of mortality and
morbidity, insurance companies generally require quantitative data reflecting
the applicant's general health. Standardized laboratory testing, tailored to
the needs of the insurance industry and reported in a uniform format, provides
insurance companies with an efficient means of evaluating the mortality and
morbidity risks posed by policy applicants. The use of standardized blood,
urine and oral fluid testing has proven a cost-effective alternative to
individualized physician examinations, which utilize varying testing
procedures and reports.
LabOne's insurance testing services consist of certain specimen profiles that
provide insurance companies with specific information that may indicate liver
or kidney disorders, diabetes, the risk of cardiovascular disease, bacterial
or viral infections and other health risks. The Company also offers tests to
detect the presence of antibodies to human immunodeficiency virus (HIV).
Insurance companies generally offer a premium discount for nonsmokers and
often rely on testing to determine whether an applicant is a user of tobacco
products. Standardized laboratory testing can be used to verify responses on
a policy application to such questions as whether the applicant is a user of
tobacco products, certain controlled substances or certain prescription drugs.
Cocaine use has been associated with increased risk of accidental death and
cardiovascular disorders, and as a result of increasing cocaine abuse in the
United States and Canada, insurance companies are testing a greater number of
policy applicants to detect its presence. Therapeutic drug testing also
detects the presence of certain prescription drugs that are being used by an
applicant to treat a life-threatening medical condition that may not be
revealed by a physical examination.
Insurance specimens are normally collected from individual insurance
applicants by contracted paramedical personnel using LabOne's custom-designed
collection kits and containers. These kits and containers are delivered to
PAGE 3
LabOne's laboratory via overnight delivery services or mail, coded
for identification and processed according to each client's specifications.
Results are generally transmitted to the insurance company's underwriting
department that same evening. LabOne provides a one-day service guarantee on
oral fluid and urine HIV specimen results.
In association with Lincoln National Risk Management, the Company provides
electronic data collection services and software to enable insurance companies
to receive data directly into their underwriting systems. LabOne offers
LabOne NET, a combination network/software product that provides a connection
for insurance underwriters for ordering and delivery of risk assessment
information such as laboratory results, telephone inspections, motor vehicle
reports and other applicant information. LabOne handles paramedical
examination paperwork and assists with administration of data for insurance
underwriting. Additionally, the Company can obtain attending physician
statements, telephone inspections, motor vehicle reports, and perform claims
investigation through its subsidiary, SBSI.
In November 1999, LabOne's acquisition of ExamOne World Wide provided its
entry into paramedical examinations for the life insurance industry. This
enables LabOne to offer a wide range of services in the insurance services
industry, complementing the laboratory testing and investigative services with
paramedical examinations. LabOne believes it will be successful in extending
its relationship with life insurance companies by providing these additional
services, which should strengthen its position in laboratory testing and
improve its market share in the paramedical industry.
Healthcare Services:
Healthcare laboratory tests are generally requested by physicians and other
healthcare providers to diagnose and monitor diseases and other medical
conditions through the detection of substances in blood and other specimens.
Laboratory testing is generally categorized as either clinical testing, which
is performed on bodily fluids including blood and urine, or anatomical
pathology testing, which is performed on tissue. Clinical and anatomical
pathology tests are frequently performed as part of regular physical
examinations and hospital admissions in connection with the diagnosis and
treatment of illnesses. The most frequently requested tests include blood
chemistry analyses, blood cholesterol level tests, urinalyses, blood cell
counts, PAP smears and AIDS-related tests.
Healthcare specimens are collected at the physician's office or other
specified sites. The Company's couriers pick up the specimens and deliver
them to local airports for express transport to the Kansas laboratory.
Specimens are coded for identification and processed. The Company's testing
menu includes the majority of tests requested by its clients. Tests not
performed in-house are sent to reference laboratories for testing, and results
are transmitted into the Company's computer system along with all other
completed results.
The Company has established the Lab Card (R) Program as a vehicle for
delivering outpatient laboratory services. The Lab Card Program is marketed
to healthcare payers (self-insured groups and insurance companies), allowing
them to avoid price mark-ups and cost shifting. 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
PAGE 4
the Lab Card is used, and the insurance company or self-insured group receives
substantial savings on its laboratory charges.
LabOne has several exclusive arrangements with managed care organizations,
including Principal Healthcare of Kansas City, BlueCross BlueShield of
Tennessee, BlueCross BlueShield of Kansas City and Kaiser Permanente of Kansas
City. With these arrangements the Company contracts with the managed care
organizations, and they direct all testing for their members through LabOne.
Substance Abuse Testing Services:
LabOne markets substance abuse testing to large employers, third party
administrators and occupational health providers. Certification by the
Substance Abuse and Mental Health Services Administration enables the Company
to offer substance abuse testing services to federally regulated industries.
Specimens for substance abuse testing are typically collected by independent
agencies who use LabOne's forms and collection supplies. Specimens are sealed
with bar-coded, tamper-evident seals and shipped overnight to the Company.
Automated systems monitor the specimens throughout the screening and
confirmation process. Negative results are available immediately after
testing is completed. Initial positive specimens are verified by the gas
chromatography/mass spectrometry method, and results are generally available
within 24 hours. Results can be transmitted electronically to the client's
secured computer, printer or fax machine, or the client can use LabOne's
LabLink Dial-In software to retrieve, store, search and print its drug testing
results.
During February 2000, LabOne announced the introduction of the Intercept (TM)
drug testing service, a laboratory-based service that identifies commonly-used
illicit drugs in oral fluid samples. The Intercept (TM) test menu is used to
detect the NIDA-5 drug panel (THC, cocaine, opiates, PCP and amphetamines). It
is the first laboratory-based oral fluid drug testing system to be made
commercially available in North America.
Under terms of the collaborative agreement between LabOne, STC Technologies,
Inc. and Epitope, Inc., all three companies will play pivotal roles in the
marketing of the new lab service. STC, the leader in oral fluid immunoassay
technology, will provide reagents as well as marketing support. Epitope
produces the Intercept (TM) collection device and provides sales support for
the criminal justice market. Laboratory testing, result reporting, worksite
sales and account management support will be provided by LabOne. (See TRENDS
Section for further discussion.)
PAGE 5
Segment Information
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The following table summarizes the Company's revenues from services provided
to the insurance, healthcare and substance abuse testing markets (dollars in
thousands):
Year ended December 31,
1999 1998 1997
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Insurance $ 77,687 65% $ 69,149 68% $ 61,998 79%
Clinical 24,793 21% 18,600 18% 7,512 9%
Substance Abuse 17,187 14% 14,478 14% 9,416 12%
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$ 119,667 $ 102,227 $ 78,926
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(See Note 7 of Notes to Consolidated Financial Statements for operating
income and identifiable assets by segment.)
Operations
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The Company's operations are designed to facilitate the testing of a large
number of specimens and to report the results to clients, generally within 24
hours of receipt of the specimens. The Company has internally developed,
custom-designed laboratory and business processing systems. It is a
centralized network system that provides an automated link between LabOne's
testing equipment, data processing equipment and clients' computer systems.
This system offers LabOne's clients the ability to customize their testing and
reflex requirements by several parameters to best meet their needs.
As a result of the number of tests it has performed over the past several
years, LabOne has compiled and maintains a large statistical data base of test
results. These summary statistics are useful to the actuarial and
underwriting departments of an insurance client in comparing that client's
test results to the results obtained by the Company's entire client base.
Company-specific and industry-wide reports are frequently distributed to
clients on subjects such as coronary risk analysis, cholesterol and drugs of
abuse. Additionally, the Company's statistical engineering department is
capable of creating customized reports to aid managed care entities or
employers in disease management and utilization tracking to help manage
healthcare costs.
The Company considers the confidentiality of its test results to be of primary
importance and has established procedures to ensure that results of tests
remain confidential as they are communicated to the client that requested the
tests.
Substantially all of the reagents and materials used by the Company in
conducting its testing are commercially purchased and are readily available
from multiple sources.
Regulatory Affairs
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The objective of the regulatory affairs department is to oversee quality
programs to ensure that accurate and reliable test results are released to
clients. This is accomplished by incorporating both internal and external
PAGE 6
quality improvement programs in each area of the laboratory. In addition,
quality improvement specialists share the responsibility with all LabOne
employees of an ongoing commitment to quality and safety in all laboratory
operations. Internal quality and education programs are designed to identify
opportunities for improvement in laboratory services and to meet all required
safety training and education issues. These programs help ensure the
reliability and confidentiality of test results.
Procedure manuals in all areas of the laboratory help maintain uniformity and
accuracy and meet regulatory guidelines. Tests on control samples with known
results are performed frequently to maintain and verify accuracy in the
testing process. Complete documentation provides record keeping for employee
reference and meets regulatory requirements. All employees are thoroughly
trained to meet standards mandated by OSHA in order to maintain a safe work
environment. Superblind Testing Service (TM) controls are used to challenge
every aspect of service at LabOne from account setup to specimen arrival and
through final billing. Approximately 500 sample kits are prepared and
submitted anonymously each month. These samples have at least 15 different
indicators each representing over 7,500 challenges to the testing, handling
and reporting procedures. Specimens requiring special handling are evaluated
and verified by control analysis personnel. A computer edit program is used
to review and verify clinically abnormal results and all positive HIV antibody
and drugs-of- abuse records. As an external quality assurance program, LabOne
participates in a number of proficiency programs established by the College of
American Pathologists, the American Association of Bioanalysts and the Centers
for Disease Control.
Even though only a small portion of LabOne's business encompasses fee-for-
service Medicare/Medicaid, LabOne has appointed a Chief Compliance Officer and
12 Co-Compliance Officers. Additionally, the Company has developed the LabOne
Compliance Plan, based on the Model Compliance Plan recommended by the Office
of Inspector General of the Department of Health and Human Services to ensure
compliance with anti-fraud and abuse laws and rules governing federally-
financed reimbursement for lab testing services.
LabOne is accredited by the College of American Pathologists and licensed
under the Clinical Laboratory Improvement Amendments of 1988. LabOne has
additional licenses for substance abuse testing from the state of Kansas and
all other states where such licenses are required. LabOne is certified by the
Substance Abuse and Mental Health Services Administration to perform testing
to detect drugs of abuse in federal employees and in workers governed by
federal regulations.
Congress recently enacted the Health Insurance Portability and Accountability
Act of 1996. As a transmitter of health information in electronic form, the
Company will be required to maintain administrative, technical, and physical
safeguards to protect the integrity and confidentiality of healthcare
information against unauthorized uses or disclosures. The act will also
require the Company to convert healthcare information to electronic form that
had previously been required under state law to be maintained in paper form.
Compliance with these regulations may be required as early as 2002.
Sales and Marketing
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LabOne's client base consists of insurance companies in the United States and
Canada and employers primarily in the United States. The Company believes
that its ability to provide prompt and accurate results on a cost-effective
PAGE 7
basis, and its responsiveness to customer needs have been important factors in
servicing existing business.
All of the Company's sales representatives for the insurance market have
significant business experience in the insurance industry or clinical
laboratory-related fields. These representatives call on major clients
several times each year, usually meeting with a medical director or vice
president of underwriting. An important part of the Company's marketing
effort is directed toward providing its existing clients and prospects with
information pertaining to the actuarial benefits of, and trends in, laboratory
testing. The Company's sales representatives and its senior management also
attend and sponsor insurance industry underwriters' and medical directors'
meetings.
The sales representatives for the healthcare industry are experienced in the
healthcare benefit market or clinical laboratory-related fields, and currently
work in the geographic areas which they represent. Marketing efforts are
directed at insurance carriers, self-insured employers and trusts, third party
administrators and other organizations nationwide.
Substance abuse marketing efforts are primarily directed at Fortune 1000
companies, occupational health clinics and third party administrators. The
Company's strategy is to offer quality service at competitive prices. The
sales force focuses on LabOne's ability to offer multiple reporting methods,
next-flight-out options, dedicated client service representatives and rapid
reporting of results.
Competition
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The Company believes that the insurance laboratory testing market in the
United States and Canada is approximately a $110 million industry. LabOne
currently services more than half the market. LabOne has maintained its
market leadership through the development of long term client relationships,
its reputation for providing quality products and services at competitive
prices, and its battery of tests which are tailored specifically to an
insurance company's needs. LabOne has two other main insurance laboratory
competitors, Osborn Laboratories, Inc. and Clinical Reference Laboratory.
The insurance testing industry continues to be highly competitive. The
primary focus of the competition has been on pricing. This continued
competition has resulted in a decrease in LabOne's average price per test. It
is anticipated that prices may continue to decline in 2000. The Company
continues to develop innovative data management services that differentiate
its products from competitors. These services enable LabOne's clients to
expedite the underwriting process, saving time and reducing underwriting
costs.
The Company has entered the market for paramedical examinations and specimen
collections for insurance companies through its acquired subsidiary, ExamOne
World Wide. This market is estimated to be in excess of a $400 million
industry annually. Approximately 80% of this market is controlled by three
companies, Hooper Holmes, Inc., Examination Management Services, Inc. and
American Para Professional Systems. ExamOne World Wide currently serves
approximately 7% of this market.
The outpatient clinical laboratory testing market is a $20 billion industry
which is highly fragmented and very competitive. The Company faces
PAGE 8
competition from numerous independent clinical laboratories and hospital- or
physician-owned laboratories. Many of the Company's competitors are
significantly larger and have substantially greater financial resources than
LabOne. The Company is working to establish a solid client base through the
use of Lab Card and the establishment of exclusive arrangements with large
groups and managed care entities to provide laboratory services.
LabOne's business plan is to be the premier low-cost provider of high-quality
laboratory services to self-insured employers and insurance companies in the
healthcare market. The Company feels that its superior quality and
centralized, low-cost operating structure enable it to compete effectively in
this market.
LabOne competes in the substance abuse testing market nationwide. There are
presently 66 laboratories that are certified by the Substance Abuse and Mental
Health Services Administration. The Company's major competitors are the three
major clinical chains, Laboratory Corporation of America, Quest Diagnostics
and SmithKline Beecham Clinical Laboratories, which collectively constitute
approximately two-thirds of the substance abuse testing market. The Company's
focus is fast turnaround with high-quality, low-cost service, with a strategic
position of offering the new oral fluid product with exclusivity in the pre-
employment market.
Foreign Markets
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Lab One Canada Inc. markets insurance testing services to Canadian clients,
with laboratory testing performed in the United States. The following table
summarizes the revenue, profit and assets applicable to the Company's domestic
operations and its subsidiary, Lab One Canada Inc.
Year ended December 31, (in millions)
1999 1998 1997
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Sales:
United States $112.5 $95.7 $72.4
Canada 7.2 6.5 6.6
Operating Profit:
United States 7.9 11.1 (5.5)
Canada 0.1 0.3 0.6
Identifiable Assets:
United States 116.3 95.2 71.3
Canada 2.1 2.8 3.2
Technology Development
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The technology development department evaluates new commercially available
tests and technologies, or develops new assays, and compares them to competing
products in order to select the most accurate laboratory procedures.
Additionally, LabOne's scientists present findings to clients to aid them in
choosing the best tests available to meet their requirements. Total
technology development expenditures are not considered significant to the
Company as a whole.
PAGE 9
Employees
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As of March 1, 2000, the Company had 1,162 employees, including 63 part-time
employees, representing an increase of 267 employees from the same time in
1999. None of the Company's employees are represented by a labor union. The
Company believes its relations with employees are good.
ITEM 2. PROPERTIES
The Company is located in Lenexa, Kansas, approximately 15 miles from Kansas
City, Missouri. Its new 268,000 square foot, custom-designed facility
consolidates the Company's laboratory, administrative and warehouse functions
into one building. The facility is owned by the Company and financed through
$20 million in industrial revenue bonds issued by the City of Lenexa, Kansas
in September, 1998. The testing laboratory has certain enhancements that
improve the efficiency of operations. Conveyor systems transport inbound test
kits from the receiving area to the laboratory and remove waste after the
opening process. All automated testing equipment requiring purified water is
linked directly to a centralized water-purification system. Over 50,000
square feet of raised flooring allows laboratory instruments and PCs to be
arranged or moved quickly and easily. The security system includes proximity
card readers to control access and a ceiling detector system to prevent
foreign substances from being thrown into the laboratory. In addition, three
diesel generators and a UPS battery system are on-line in the event of
electrical power shortage. These back-up power sources allow specimen testing
and data processing to continue until full power is restored, thus assuring
LabOne's clients of continuous laboratory operation.
SBSI utilizes three facilities in Independence, Missouri under leases expiring
in 2001 and 2003. ExamOne World Wide has a five year lease expiring in 2004
for a facility used as office space in Voorhees, New Jersey and leases a
regional office location in Tampa, Florida. LabOne leases 10 locations in
Northern California and 9 in the Midwest which serve as LabOne Service
Centers. These facilities provide specimen collection services for patients
and are typically located in medical office buildings. Lab One Canada Inc.
leases office space in Ontario Canada, which is used for sales and client
services. This lease expires in 2000. Additionally, Lab One Canada Inc.
leases space in Quebec Canada for assembly and distribution of specimen
collection kits for Canadian insurance testing. This lease expires in 2000.
ITEM 3. LITIGATION
In the normal course of business, LabOne had certain lawsuits pending at
December 31, 1999.
The Comptroller of the State of Texas has conducted an audit of LabOne for
sales tax compliance and contends that LabOne's insurance laboratory testing
services are taxable under the Texas tax code and has issued an audit
assessment, including interest and penalties, of approximately $0.6 million.
The Company has appealed this assessment arguing that its services do not fit
within the definition of insurance services under the Texas code. The
assessment is under review by the Texas Comptroller's administrative law
judge's office. The Company believes its reserves are adequate to cover any
potential resolution in this matter.
In the opinion of management, after consultation with legal counsel and based
upon currently available information, none of these lawsuits are expected to
PAGE 10
have a material impact on the financial condition or results of operations of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant's common stock trades on The Nasdaq Stock Market(R) under the
symbol LABS. As of March 1, 1999, the outstanding shares were held by
approximately 3,750 shareholders of record.
The Company paid quarterly dividends of $0.20 per common share in 1998 and the
first two quarters of 1999. The Company paid quarterly dividends of $0.18 per
common share in the third and fourth quarter of 1999. The Board of Directors
reviews the dividend policy on a periodic basis and has eliminated the
quarterly dividend to retain cash flow to finance the Company's growth plans.
Additionally, the Company's expanded line of credit with Commerce Bank, N.A.
prohibits the payment of dividends under the terms of the line of credit.
The following are the high and low prices of the stock for each quarter of
1999 and 1998 (split adjusted):
1999 1998
---- ----
High Low High Low
---- --- ---- ---
1st Quarter $12.75 10.08 $16.33 14.42
2nd Quarter 11.33 7.88 16.17 13.58
3rd Quarter 11.00 8.25 15.67 10.17
4th Quarter 10.00 5.88 12.42 9.33
On April 1, 1999, LabOne issued a Warrant to Health Plan Services, Inc.
("HPS") to purchase up to 500,000 shares of Common Stock of LabOne, at a
purchase price of $12.375 per share. The Warrant was issued in connection
with an Agreement entered into between LabOne and HPS, which is a third party
administrator.
No cash consideration was received by LabOne for the issuance of the Warrant.
The Warrant was issued for a term of five years and is exercisable by HPS in
respect of the number of shares of Common Stock of LabOne indicated below for
each calendar quarter during the term in which the quarterly revenues received
by LabOne pursuant to the Agreement with HPS are within the ranges specified
below:
LabOne Quarterly Revenues Number of LabOne Shares
Received under HPS Exercisable under the
Agreement Warrant
---------------------------- ------------------------
$0.5 million - $1.5 million 5,000
$1.0 million - $1.5 million 10,000
$1.5 million - $2.5 million 15,000
$2.5 million - $2.5 million 20,000
Over $2.5 million 25,000
PAGE 11
On May 14, 1999, LabOne issued a Warrant to STC Technologies, Inc. ("STC") to
purchase 50,000 shares of Common Stock of LabOne, at a purchase price of $0.01
per share. The Warrant was issued in connection with a Distribution Agreement
entered into between LabOne and STC. Under the Distribution Agreement, STC
Technologies appointed LabOne as its exclusive distributor in the North
American workplace testing market for its new product line that is designed to
identify illicit drug abuse through oral fluids rather than urine or blood
samples.
No cash consideration was received by LabOne for the issuance of the Warrant.
The Warrant was issued for a term of two years and two months and is
exercisable beginning one year after the date of issuance of the Warrant.
On November 5, 1999, LabOne issued a Warrant to Mr. Larry Glenn to purchase up
to 250,000 shares of Common Stock of LabOne, at a purchase price of $9.97 per
share. The Warrant was issued in connection with a Stock Purchase Agreement
entered into between LabOne and Mr. Glenn pursuant to which LabOne acquired
from Mr. Glenn the outstanding stock of World Wide Health Services, Inc.
("WWHS") in consideration of (1) a purchase price of $2 million in cash, as
adjusted by a post-closing audit, (2) the issuance of the Warrant, and (3)
WWHS's purchase from Mr. Glenn of the outstanding stock of World Wide Health
Services of New Jersey, Inc. ("WWNJ") for a purchase price of (a) $250,000 in
cash (provided by a loan from LabOne to WWHS), as adjusted pursuant to a post-
closing audit, (b) $200,000 to be paid to Mr. Glenn in five annual
installments of $40,000 each and (c) 10% of the annual gross revenues of WWNJ
to be paid to Mr. Glenn for each of the next six years. (See Note 2 of Notes
to Consolidated Financial Statements.)
The Warrant was issued for a term of five years and is exercisable by Mr.
Glenn in respect of the number of shares of Common Stock of LabOne indicated
below in the event that LabOne earns "qualified revenues" from WWHS, (as
defined in the Warrant) as indicated below in any calendar quarter within
three years after November 5, 1999:
LabOne Quarterly Qualified Number of LabOne Shares
Revenues Received under WWHS Exercisable Under
Stock Purchase Agreement the Warrant
---------------------------- -----------------------
$3,750,000 or more 83,333
$5,000,000 or more 83,333
$6,250,000 or more 83,334
Alternatively, LabOne agreed to make cash payments to Mr. Glenn on November 5,
2004 of up to $1,000,000, depending upon the trading price of LabOne's Common
Stock.
The above three Warrants and shares of Common Stock of LabOne issuable upon
such exercise of the Warrants were not registered under the Securities Act of
1933 in reliance upon the exemptions from the registration requirements
provided by Section 4(2) of the Act and Rule 506 under Regulation D. HPS, STC
and Mr. Glenn are believed to be "accredited investors" within the meaning of
Regulation D.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial information and
operating data regarding the Company. This information should be read in
PAGE 12
conjunction with Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS and Item 14. (a) (1) and (2),
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE. The balance sheet data as of
December 31, 1999, 1998, 1997, 1996 and 1995, and the statement of earnings
data for each of the years in the five-year period ended December 31, 1999,
have been derived from the Company's Consolidated Financial Statements, which
have been audited by KPMG LLP, the Company's independent certified public
accountants.
Years Ended December 31,
(in thousands, except per share amounts)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Sales $119,667 102,227 78,923 59,432 57,029
Earning (loss) from
continuing operations 2,589 4,877 (8,103) (4,226) (1,826)
Loss from
discontinued operations -- -- (2,343) (770) (5,522)
------- ------- ------- ------- -------
Net earnings (loss) $ 2,859 4,877 (10,446) (4,996) (7,348)
======= ======= ======= ======= =======
Diluted earnings (loss)
from continuing
operations per
common share $ 0.27 0.50 (0.83) (0.43) (0.19)
Diluted loss from
discontinued operations
per common share -- -- (0.24) (0.08) (0.57)
-------- ------ ------ ------ -------
Diluted earning (loss)
per common share $ 0.27 0.50 (1.07) (0.51) (0.76)
======== ====== ====== ====== ======
Dividends per common share $ 0.76 0.80 0.80 0.80 0.80
======== ====== ====== ====== ======
Total assets $118,443 98,007 74,482 196,783 198,018
Long term debt 29,615 18 097 -- -- --
Stockholders' equity 71,029 54,539 56,439 174,024 187,084
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
On July 1, 1999, the Company announced a restatement of earnings for the years
ended December 31, 1997 and 1998. As requested by the staff of the Securities
and Exchange Commission, the Company has changed the amortization schedule
from fifteen years to five years on a customer list acquired during the first
quarter 1997. The Company's original amortization period was based on
historical performance; however, the SEC requested the amortization period be
reduced to five years. The amortization expense of this asset was originally
reported at $252,000 and $275,000 in 1997 and 1998, respectively, and has been
restated to $757,000 and $826,000, respectively. This restatement is not the
PAGE 13
result of any changes in customer relationships and has no effect on any
present or future cash flows.
1999 Compared to 1998
Revenue for the year ended December 31, 1999 was $119.7 million as compared to
$102.2 million in 1998. The increase of $17.4 million, or 17%, was due to
increases in insurance services revenue of $8.5 million, healthcare revenue of
$6.2 million and SAT revenue of $2.7 million. The insurance services segment
revenue increased from $69.1 million in 1998 to $77.7 million due to an
increase in non laboratory services, including revenue of $7.4 million from
the October 1998 acquisition of SBSI and revenue of $3.3 million from the
November 1999 acquisition of ExamOne World Wide, partially offset by a 4%
decrease in insurance laboratory revenue. This decrease is due to a 3%
decrease in total applicants tested and a 1% decrease in the average revenue
per applicant. Healthcare laboratory revenue increased from $18.6 million
during 1998 to $24.8 million in 1999 primarily due to a 36% increase in
testing volumes. SAT revenue increased from $14.5 million in 1998 to $17.2
million in 1999 primarily due to a 26% increase in testing volumes, partially
offset by lower revenue per specimen.
Cost of sales increased $14.8 million, or 26%, for the year as compared to the
prior year. This increase is primarily due to increases in payroll,
paramedical collections and the cost of motor vehicle and physician statements
due to the addition of SBSI and ExamOne World Wide. Insurance segment cost of
sales expenses were $41.9 million as compared to $32.3 million during 1998.
Healthcare cost of sales expenses were $17.1 million as compared to $14.5
million during 1998. SAT cost of sales expenses were $12.6 million as
compared to $9.9 million during 1998. These increases in the healthcare and
SAT segments are due primarily to increased testing volumes.
As a result of the above factors, gross profit increased $2.6 million, or 6%,
from $45.5 million in 1998 to $48.1 million in 1999. Healthcare gross profit
improved $3.7 million, from $4.1 million in 1998 to $7.7 million in 1999. SAT
gross profit stayed at $4.6 million. Insurance gross profit decreased $1.1
million, or 3%, to $35.8 million in 1999.
Selling, general and administrative expenses increased $6.8 million, or 20%,
in 1999 as compared to 1998 primarily due to increases in depreciation and
amortization expenses, payroll expenses and bad debt accruals. Depreciation
expense increased primarily due to placing the Company's new facility in
service during 1999, and amortization expense increased primarily due to
merger goodwill. Payroll expenses increased 9% for the year due to a 29%
increase in selling, general and administrative employees at year end as
compared to last year. Bad debt expense increased primarily due to the
revenue growth in the healthcare and SAT segments which also have higher bad
debt experience than the insurance segment. Healthcare overhead was $12.2
million as compared to $10.3 million in 1998. SAT overhead increased from
$4.3 million in 1998 to $5.4 million in 1999. These increases are due to the
growth in each segment. The allocation of corporate overhead to the
healthcare and SAT segments increased to $6.4 million for the year, as
compared to $5.3 million in 1998, due to the increased share of total revenue
for those segments. Insurance overhead expenditures increased to $20.3
million as compared to $16.8 million in 1998 primarily due to the addition of
SBSI.
Operating income including overhead allocations decreased from $11.4 million
in 1998 to $8.0 million in 1999. The insurance services segment had operating
PAGE 14
income of $15.5 million as compared to $18.6 million in 1998. The healthcare
segment experienced an operating loss of $4.5 million for 1999 as compared to
an operating loss of $6.2 million in 1998. The SAT segment had an operating
loss of $0.8 million in 1999 as compared to a gain of $0.2 million in 1998.
Unallocated operating expenses for the year were $2.2 million related to
corporate and merger expenses, partially offset by gains on the sale of the
former laboratory and administrative facilities. Unallocated operating
expenses in 1998 were $2.7 million.
Non operating expense increased $1.8 million in 1999 as compared to 1998,
primarily due to interest expense on the industrial revenue bonds and lower
investment income due to less funds available for investment. Average income
tax expense was 48.1% of pretax income in 1999 as compared to 46.2% in 1998.
The increase is due to an increase in amortization expenses incurred from the
Lab Holdings merger which are not deductible for tax purposes.
The combined effect of the above factors resulted in net earnings of $2.9
million, or $0.27 per share, in 1999 as compared to $4.9 million, or $0.50 per
share, in 1998.
1998 Compared to 1997
Revenue for the year ended December 31, 1998 was $102.2 million as compared to
$78.9 million in 1997. The increase of $23.3 million, or 30%, was due to
increases in healthcare laboratory revenue of $11.1 million, insurance
services revenue of $7.2 million and SAT revenue of $5.1 million. Healthcare
laboratory revenue increased from $7.5 million during 1997 to $18.6 million in
1998 primarily due to increased testing volumes. The insurance services
segment revenue increased from $62.0 million in 1997 to $69.1 million due to
an increase in the total number of insurance applicants tested and an increase
in non laboratory services, including SBSI revenue of $1.3 million, partially
offset by a 3% decrease in the average revenue per applicant. SAT revenue
increased from $9.4 million in 1997 to $14.5 million in 1998 primarily due to
a 48% increase in testing volumes.
Cost of sales increased $14.7 million, or 35%, for the year as compared to the
prior year. This growth is primarily due to increases in inbound freight,
laboratory and kit supplies and payroll expenses due to the larger specimen
volume for all three business segments. Insurance segment cost of sales
expenses were $32.3 million as compared to $26.7 million during 1997.
Healthcare cost of sales expenses were $14.5 million as compared to $8.3
million during 1997. SAT cost of sales expenses were $9.9 million as compared
to $7.0 million during 1997. These increases are due to increased testing
volumes.
As a result of the above factors, gross profit increased $8.6 million, or 23%,
from $36.9 million in 1997 to $45.5 million in 1998. Insurance gross profit
increased $1.5 million, or 4%, to $36.9 million in 1998. Healthcare gross
profit improved $4.9 million from a loss of $0.8 million in 1997 to a gain of
$4.1 million in 1998. SAT gross profit increased by $2.2 million to $4.5
million in 1998.
Selling, general and administrative expenses decreased $1.2 million, or 3%, in
1998 as compared to 1997 primarily due to $4.6 million lower corporate expense
at the Lab Holdings level due to the distribution of SLH Corporation and
Response Oncology ownership to shareholders (see Note 10 to Notes to
Consolidated Financial Statements), partially offset by $3.4 million increase
in LabOne SGA due to increases in payroll expenses and bad debt accruals. Bad
PAGE 15
debt expense increased primarily due to the revenue growth in the healthcare
and SAT segments which also have higher bad debt experience.
Healthcare overhead was $10.3 million as compared to $7.5 million in 1997.
SAT overhead increased from $3.3 million in 1997 to $4.3 million in 1998.
These increases were due to the growth in each segment and increased overhead
allocations due to the increased share of total revenue for those segments.
The allocation of corporate overhead to the healthcare and SAT segments
increased to $5.3 million for the year, as compared to $3.3 million in 1997.
Insurance overhead expenditures decreased to $16.8 million as compared to
$17.3 million in 1997 (see Note 7 to Notes to Consolidated Financial
Statements).
In 1997, the Company recorded a one-time write-down of $6.6 million on the
value of the laboratory and administrative buildings in anticipation of their
sale. (See Note 1 of Notes to Consolidated Financial Statements.)
Operating income increased from a loss of $4.9 million in 1997 to a gain of
$11.4 million in 1998. The insurance services segment operating income
increased $2.1 million to $18.6 million in 1998. The healthcare segment had
an operating loss of $6.2 million for 1998 as compared to an operating loss of
$8.3 million in 1997. The SAT segment improved from an operating loss of $0.9
million in 1997 to a gain of $0.2 million in 1998.
Other income decreased $4.0 million in 1998 as compared to 1997, primarily due
to a Lab Holdings gain in 1997 of $3 million on the sale of marketable common
stock and lower investment income in 1998 due to less funds available to
invest. Average income tax expense was 46% of pretax income in 1998,
primarily reflecting nondeductibility of goodwill amortization. Tax expense
in 1997 was based on the write-off of approximately $5 million of deferred
income tax assets related to assets spun-off in the SLH distribution and the
write-off 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 $4.9 million in 1998 as compared to a $8.1 million loss from
continuing operations in 1997.
TRENDS
- ------
The following is management's analysis of certain existing trends that have
been identified as potentially affecting the future financial results of the
Company. Due to the potential for a rapid rate of change in any number of
factors associated with the insurance, SAT and healthcare laboratory testing
industries, it is difficult to quantify with any degree of certainty LabOne's
future volumes, sales or net earnings.
Amortization of goodwill during 1999, including amortization from the Lab
Holdings merger starting in August and amortization from the acquisition of
ExamOne World Wide starting in November, was $3.2 million. Amortization of
goodwill in the future, excluding any adjustments or future goodwill from
additional acquisitions, is scheduled to be $4.1 million in 2000 and 2001,
$3.4 million in 2002, $2.1 million in 2003 and $1.6 million in 2004. The
majority of the amortization expense is not deductible for tax purposes and
has the effect of increasing the average income tax rate.
The insurance laboratory testing industry continues to be highly competitive.
PAGE 16
The primary focus of the competition has been on pricing. LabOne continues to
maintain its market leadership by providing quality products and services at
competitive prices. Management expects that prices may continue to decline
during 2000 due to competitive pressures. This trend may have a material
impact on earnings from operations.
Effective November 5, 1999, LabOne acquired World Wide Health Services, Inc.
and World Wide Health Services of New Jersey, a provider of specimen
collection and paramedical examination services to life and health insurers.
These subsidiaries are operated under the name ExamOne World Wide and included
in the insurance services division of LabOne. This addition allows LabOne to
expand the services it offers to its insurance industry clients. Prior to its
acquisition by LabOne, ExamOne World Wide had annual revenues of approximately
$9 million. In the first two months of 2000, ExamOne World Wide has billed
revenue of approximately $4 million. The paramedical industry is a low gross
margin industry. A substantial percentage of the revenue from a specimen
collection is paid back to the contracted phlebotomist or physician. As the
revenue from ExamOne World Wide grows as a percentage of total LabOne revenue,
its lower gross margins will add to the total profitability of LabOne but will
reduce the average gross profit margin percentage.
In the healthcare division, the Company continued its trend of growth led by
its Lab Card Program. The Lab Card Program now has more than 1.7 million
members. In 1999, the program continued to expand through new members as well
as increased participation from existing members.
The healthcare division also signed exclusive outpatient laboratory service
contracts with Blue Cross and Blue Shield of Kansas City and Kaiser Permanente
of Kansas City in early 2000. With the addition of these managed care
organizations, LabOne has over 750,000 lives in its managed care programs.
Managed care organizations and the physicians who are under their contracts
continue to choose LabOne for its high-quality testing, disease management
data capabilities, and responsive customer service and support.
In addition to its urine drug testing, the SAT division of LabOne has
introduced the Intercept (TM) drug testing service, a laboratory-based service
that identifies commonly used illicit drugs in oral fluid samples. The oral
fluid collection avoids the process of collecting and handling of urine
samples which has been criticized for being invasive, demeaning and expensive.
The collection with the Intercept device is directly observable and efficient.
LabOne will market this new service to employers nationwide starting in 2000.
The Company's new facility was financed through the City of Lenexa, Kansas,
with industrial revenue bonds. In conjunction with the bonds, LabOne expects
to receive income tax credits through the State of Kansas High Performance
Incentive Plan to be applied against state income taxes for up to 10 years, or
until the credit is completely used. The amount of the credit is expected to
be approximately $4 million, and is expected to lower LabOne's average income
tax rate for the duration of the credit.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
LabOne's working capital position declined from $31.3 million at December 31,
1998, to $19.4 million at December 31, 1999. This decrease is primarily due
to cash used in the merger with Lab Holdings, dividends paid, capital
additions and debt payments exceeding cash provided by operations and line of
credit borrowings. Net cash provided by operations increased from $10.3
PAGE 17
million in 1998 to $12.0 million in 1999. Accounts receivable grew from $18.7
million as of December 31, 1998 to $26.3 million as of December 31, 1999, due
primarily to an increase in revenue growth from all three segments. Total
cash and investments at December 31, 1999, were $3.0 million, as compared to
$15.2 million at December 31, 1998. Management expects to be able to fund
operations from a combination of cash flow from operations, cash reserves and
short-term borrowings.
During 1999, LabOne paid dividends of $0.20 per common share (split adjusted)
in the first and second quarter. The Company paid dividends of $0.18 per
common share in the third and fourth quarter. The total amount of dividends
paid during 1999 was $0.76 per share, or $9.0 million. During the first
quarter 2000, the Board of Directors decided to eliminate the quarterly
dividend to retain cash flow to finance the Company's growth plans and for
other corporate purposes.
During 1999, the Company spent $12.8 million for capital investments, as
compared to $28.5 million in 1998 and $11.5 million in 1997. Of the amount
spent in 1999, $5.2 million was spent on completion of the Company's new
facility and $2.1 million was spent on the purchase of ExamOne World Wide. Of
the amount spent in 1998, approximately $21.6 million was for construction the
Company's new facility, and $3.0 million net cash was used in the purchase of
SBSI. The 1997 amount included land purchased related to the new facility and
the GIB Laboratories acquisition. As of April 1999, the new facility was
completely operational. Future capital asset expenditures, excluding strategic
expansions, are expected to be approximately $5 million annually.
On August 10, 1999, the former LabOne, Inc. was merged into its parent
corporation, Lab Holdings, Inc. upon the approval of the shareholders of both
companies at their respective annual meetings. The combined company's name
was then changed to LabOne, Inc. The merger provisions included a 3 for 2
stock split for all Lab Holdings common shares, the par value of the common
shares was changed from $1.00 per share to $0.01 per share, and the authorized
number of common shares was increased to 40 million. The Company paid $12.6
million, including transaction costs, to complete the merger and purchase 0.8
million shares of LabOne stock. The minority 2.6 million shares of former
LabOne stock were exchanged on a one for one basis for the combined company
stock. The transaction was recorded under purchase accounting and resulted in
$24.1 million in goodwill which is being amortized over 20 years.
Interest on the industrial revenue bonds issued to finance the construction of
the Company's new facility is based on a taxable seven day variable rate
which, including letter of credit and remarketing fees, is approximately 6.6%
as of March 1, 2000. The bonds mature over 11 years in increments of $1.85
million per year plus interest. The first principal payment of $1.85 million
was paid in September 1999. The Company spent $10.3 million in the third
quarter 1999 to fund cash elections from the merger. Interest on the line of
credit is currently based on the 30 day LIBOR rate plus 75 basis points and is
currently approximately 6.6%.
During the first quarter 2000, the Board of Directors approved a stock
repurchase program pursuant to which LabOne is authorized to repurchase up to
$10 million of its common stock. The Company has arranged for an increase in
its available line of credit from $15 million to $25 million to accommodate
stock repurchases. The timing of purchases and the actual number of shares
purchased will depend upon market conditions.
PAGE 18
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A foreign currency risk exposure exists due to billing Canadian subsidiary
revenue in Canadian dollars and the direct laboratory expenses associated with
this revenue being incurred in US dollars. This exposure is not considered to
be material. Any future material Canadian currency fluctuations against the
US$ could result in a decision to hedge future foreign currency cash flows, or
to increase Canadian prices.
An interest rate risk exposure exists due to LabOne's liability of $18 million
in industrial revenue bonds and $12 million borrowing on its line of credit.
The interest expense incurred on the bonds is based on a taxable seven day
variable rate, which including letter of credit and remarketing fees, is
approximately 6.6% as of March 1, 2000. The interest expense on the line of
credit is based on the 30 day LIBOR rate plus three quarters of one percent
and is currently approximately 6.6%. This exposure is not considered
material. Any future increase in interest rates would result in additional
interest expense and could result in a decision to enter into a long-term
interest rate swap transaction.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See ITEM 14.(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the captions entitled "Information Concerning
Nominees for Election as Directors," "Security Ownership of Management,"
"Security Ownership of Certain Beneficial Owners," and "Executive
Compensation" in the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A with respect to its annual meeting of
stockholders to be held May 11, 2000, is incorporated into Items 10, 11, 12
and 13 above by reference.
PAGE 19
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) (1) and (2) -- The following consolidated financial statements and
schedule are attached as a separate section of this report entitled
"Consolidated Financial Statements and Schedule":
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 31, 1999 and 1998
Consolidated Statements of Operations, Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows, Years Ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
SCHEDULE:
Schedule II - Valuation and qualifying accounts
All other schedules are omitted because they are not applicable, not
required, or the information is included in the Consolidated Financial
Statements or the notes thereto.
(b) Reports on Form 8-K
A Form 8-K current report dated January 6, 2000 was filed with the
Commission reporting under Other Events that Robert D. Thompson, executive
vice president, chief operating officer and chief financial officer had
resigned from the company.
A Form 8-K current report dated February 11, 2000 was filed with the
Commission reporting under Other Events the Company's adoption of a
shareholder rights plan and a dividend distribution of one Right for each
outstanding share of Common Stock of the Company. The rights plan replaces
and modernizes a shareholder rights plan which was adopted by the Company in
1988 and expired in 1998.
A Form 8-K current report dated March 2, 2000 was filed with the
Commission reporting under Other Events that John McCarty had been hired as
executive vice president and chief financial officer effective April 1, 2000.
(c) Exhibits required by Item 601 of Regulation S-K
(Exhibits follow the Schedule):
Page
2.1* Distribution Agreement, dated December 20, 1996, between
the Registrant and SLH Corporation - attached as Exhibit
2(a) to SLH Corporation's Form 10/A (Amendment No. 1) dated
February 4, 1997 (File No. 0-21911).
2.2* Blanket Assignment, Bill of Sale, Deed and Assumption
Agreement, dated as of February 28, 1997, between the
Registrant and SLH Corporation - attached as Exhibit 2(b)
to SLH Corporation's Form 10/A (Amendment No. 1) dated
February 4, 1997 (File No. 0-21911).
PAGE 20
Page
2.3* Agreement and Plan of Merger by and between Lab Holdings,
Inc. and LabOne, Inc., dated March 7, 1999 - attached as
Appendix A to the Joint Proxy Statement/Prospectus filed as
a part of the Registrant's Registration Statement on Form
S-4, filed July 2, 1999 (File No. 333-76131).
3.1* Amended Articles of Incorporation - attached as Exhibit B
to Appendix A to the Joint Proxy Statement/Prospectus filed
as a part of the Registrant's Registration Statement on
Form S-4, filed July 2, 1999 (File No. 333-76131).
3.2 Certificate of Designations, Preferences, Qualifications 50
and Rights of Series A Preferred Stock, dated
February 11, 2000
3.3* Amended and Restated Bylaws - attached as Exhibit C to
Appendix A to the Joint Proxy Statement/Prospectus filed as
a part of the Registrant's Registration Statement on Form
S-4, filed July 2, 1999 (File No. 333-76131)
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 - attached as Exhibit 4.1 to
the Quarterly Report on Form 10-Q of LabOne, Inc., a
Delaware corporation, for the quarter ended September 30,
1998 (File No. 0-15975).
4.2* Lease Agreement dated as of September 1, 1998, between the
City of Lenexa, Kansas and LabOne, Inc. related to the
Trust Indenture - attached as Exhibit 4.2 to the Quarterly
Report on Form 10-Q of LabOne, Inc., a Delaware
corporation, for the quarter ended September 30, 1998
(File No. 0-15975).
4.3* Reimbursement Agreement dated as of September 1, 1998,
between LabOne, Inc. and Commerce Bank, N.A. - attached as
Exhibit 4.3 to the Quarterly Report on Form 10-Q of LabOne,
Inc., a Delaware corporation, for the quarter ended
September 30, 1998 (File No. 0-15975).
4.4* Letter agreement dated September 4, 1998, between the
Registrant and Commerce Bank, N.A. relating to the
Registrant's obligations with respect to the Reimbursement
Agreement and letters of credit to be issued thereunder -
attached as Exhibit 4.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998.
4.5* Warrant to Purchase Shares of Common Stock of LabOne, Inc.,
issued to USA Managed Care Organization - attached as
Exhibit 4.5 to the Annual Report on Form 10-K of LabOne,
Inc., a Delaware corporation, for the year ended December
31, 1998 (File No. 0-15975).
PAGE 21
Page
4.6* Warrant to Purchase Shares of Common Stock of LabOne, Inc.,
issued to Health Plan Services, Inc., dated April 1, 1999 -
attached as Exhibit 10.19 to the Registrant's Registration
Statement on Form S-4, filed July 2, 1999 (File No. 333-
76131).
4.7* Warrant to Purchase Shares of Common Stock of LabOne, Inc.,
issued to STC Technologies, Inc., dated April 27, 1999 -
attached as Exhibit 10.18 to the Pre-Effective Amendment
No. 1 to the Registrant's Registration Statement on Form S-
4, filed July 2, 1999 (File No. 333-76131).
4.8 Warrant to Purchase Shares of Common Stock of LabOne, Inc., 55
issued to Larry Glenn, dated November 5, 1999.55
4.9* Rights Agreement and attached exhibits A, B and C, dated as
of February 11, 2000, between the Registrant and American
Stock Transfer & Trust Company, - attached as Exhibit 4.1
to the Registrant's Form 8-K Current Report, filed
February 14, 2000.
10.1* Registrant's 1997 Directors' Stock Option Plan, as amended
- attached as Exhibit 10.4 to the Registrant's Form 10-Q
for the quarter ended September 30, 1998. **
10.2* Form of Option Agreement with Directors under the
Directors' Stock Option Plan, as amended - attached as
Exhibit 10.5 to the Registrant's Form 10-Q for the quarter
ended September 30, 1998. **
10.3* 1987 Long-Term Incentive Plan of LabOne, Inc., approved May
16, 1991, with amendments adopted May 21, 1993 and November
9, 1993 - attached as Exhibit 10.21 to Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1993.**
10.4* Amendment to 1987 Long-Term Incentive Plan of LabOne, Inc.,
effective February 10, 1995 - attached as Exhibit 10.31 to
the Registrant's Annual Report on Form 10-K for year ended
December 31, 1995. **
10.5* Amendment to 1987 Long-Term Incentive Plan of LabOne, Inc.,
effective May 9, 1997 - attached as Exhibit 10.5 to the
Annual Report on Form 10-K of LabOne, Inc., a Delaware
corporation, for the year ended December 31, 1997 (File No.
0-15975). **
10.6* 1997 Long Term Incentive Plan of LabOne, Inc. - attached as
Exhibit 10.1 to the Quarterly Report on Form 10-Q of
LabOne, Inc., a Delaware corporation, for the quarter ended
June 30, 1998 (File No. 0-15975). **
10.7* Form of Stock Option Agreement pursuant to the LabOne 1997
Long-Term Incentive Plan - attached as Exhibit 10.2 to the
Quarterly Report on Form 10-Q of LabOne, Inc., a Delaware
corporation, for the quarter ended June 30, 1998 (File No.
0-15975). **
PAGE 22
Page
10.8* Stock Plan for nonemployee directors of LabOne, Inc.-
attached as Exhibit 10.23 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994. ***
10.9 Registrant's Annual Incentive Plan. ** 63
10.10 Form of Amended and Restated Indemnification Agreement
between the Registrant and its directors. 64
10.11* Form of Employment Agreement between LabOne, Inc. and its
executive officers and certain key employees - attached as
Exhibit 10 to the Annual Report on Form 10-K of LabOne,
Inc., a Delaware corporation, for the year ended December
31, 1987 (File No. 0-15975). **
10.12* Amended Employment Agreement between LabOne, Inc. and
Robert D. Thompson- attached as Exhibit 10.11 to the Annual
Report on Form 10-K of LabOne, Inc., a Delaware
corporation, for the year ended December 31, 1995 (File No.
0-15975). **
10.13* Employment Agreement between LabOne, Inc. and Gregg R.
Sadler - attached as Exhibit 10.14 to the Annual Report on
Form 10-K of LabOne, Inc., a Delaware corporation, for the
year ended December 31, 1993 (File No. 0-15975). **
10.14* Amendment to Employment Agreement between LabOne, Inc. and
Gregg R. Sadler- attached as Exhibit 10.13 to the Annual
Report on Form 10-K of LabOne, Inc., a Delaware
corporation, for the year ended December 31, 1995 (File No.
0-15975). **
10.15* Employment Agreement between LabOne, Inc. and Thomas J.
Hespe- attached as Exhibit 10.14 to the Annual Report on
Form 10-K of LabOne, Inc., a Delaware corporation, for the
year ended December 31, 1995 (File No. 0-15975). **
10.16* Tax Sharing Agreement, dated as of February 28, 1997,
between the Registrant and SLH Corporation - attached as
Exhibit 10(b) to SLH Corporation's Registration Statement
on Form 10/A (Amendment No. 1) filed February 4, 1997 (File
No. 0-21911).
11. Statement regarding computation of per share earnings - see
Note 1 of Notes to Consolidated Financial Statements,
"Earnings Per Share."
21. Subsidiaries of Registrant - see Note 1 of Notes to
Consolidated Financial Statements, "Principles of
Consolidation and Basis of Presentation."
24. Powers of Attorney. 75
27. Financial Data Schedule - as submitted electronically by
the Registrant in conjunction with this 1999 Form 10-K.
PAGE 23
Page
99. Cautionary Statement under the Safe Harbor Provisions of
the Private Securities Litigation Reform Act of 1995. 76
* Incorporated by reference pursuant to Rule 12b-23
** Management Compensatory Plan
*** Non-Management Director Compensatory Plan
These exhibits may be obtained by stockholders of Registrant upon written
request to LabOne, Inc., 10101 Renner Blvd., Lenexa, KS 66219.
(d) Not applicable
PAGE 24
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, Registrant has duly caused this report, as amended to be signed on its
behalf by the undersigned, thereunto duly authorized.
LabOne, Inc.
By: /s/ W. Thomas Grant II By: /s/ Kurt E. Gruenbacher
---------------------- -----------------------
W. Thomas Grant II Kurt E. Gruenbacher
Title: Chairman, President Title: V.P. Finance,
Chief Executive Officer CAO and Treasurer
Date: March 23, 2000 Date: March 23, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report, as amended has been signed below by the following persons on behalf of
the Registrant on March 23, 2000 in the capacities indicated.
By: /s/ W. Thomas Grant II By: /s/ Kurt E. Gruenbacher
---------------------- -----------------------
W. Thomas Grant II Kurt E. Gruenbacher
Title: Chairman of the Board, President Title: V.P. Finance, CAO
And Chief Executive Officer and Treasurer
By: */s/ Joseph H. Brewer By */s/ Peter C. Brown
--------------------- -------------------
Joseph H. Brewer Peter C. Brown
Title: Director Title: Director
By: */s/ William D. Grant By:. */s/ Richard A. Rifkind
--------------------- ----------------------
William D. Grant Richard A. Rifkind
Title: Director Title: Director
By: */s/ Richard S. Schweiker By: */s/ James R. Seward
------------------------- --------------------
Richard S. Schweiker James R. Seward
Title: Director Title: Director
By: */s/ Janet M. Stallmeyer By: */s/ Chester B. Vanatta
------------------------ -----------------------
Janet M. Stallmeyer Chester B. Vanatta
Title: Director Title: Director
By: */s/ John E. Walker By: */s/ R. Dennis Wright
------------------- ---------------------
John E. Walker R. Dennis Wright
Title: Director Title: Director
By: /s/ Gregg R. Sadler
---------------------
Gregg R. Sadler
Title: Attorney-in-fact
PAGE 25
LABONE, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedule
December 31, 1999, 1998 and 1997
(With Independent Auditors' Report Thereon)
LABONE, INC. AND SUBSIDIARIES
PAGE 26
Table of Contents
Independent Auditors' Report 28
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1999
and 1998 29
Consolidated Statements of Operations, Years ended
December 31, 1999, 1998 and 1997 31
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1999, 1998 and 1997 32
Consolidated Statements of Cash Flows, Years
ended December 31, 1999, 1998 and 1997 33
Notes to Consolidated Financial Statements 35
Schedule:
Schedule II - Valuation and Qualifying Accounts 49
PAGE 27
Independent Auditors' Report
The Board of Directors
LabOne, Inc.:
We have audited the accompanying consolidated balance sheets of LabOne, Inc.
and subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1999. In connection with our audits of the consolidated financial statements,
we have also audited the financial statement schedule. These consolidated
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LabOne,
Inc. and subsidiaries as of December 31, 1999 and 1998 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Kansas City, Missouri
February 4, 2000 except as to
Note 3, which is as of
March 9, 2000
PAGE 28
LABONE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
Assets 1999 1998
------------ ------------
Current assets:
Cash and cash equivalents $ 2,983,644 15,223,336
Accounts receivable, net of allowance
for doubtful accounts of $1,981,285 in
1999 and $2,326,716 in 1998 26,331,960 18,729,939
Income taxes receivable 1,643,520 399,776
Inventories 3,186,853 1,798,481
Real estate available-for-sale (note 1) -- 3,515,000
Prepaid expenses and other current assets 1,772,884 2,752,732
Deferred income taxes (note 4) 1,328,027 3,972,575
----------- -----------
Total current assets 37,246,888 46,391,839
----------- -----------
Property, plant, and equipment:
Land 2,380,654 2,379,334
Building 28,441,638 --
Laboratory equipment 20,387,176 18,101,286
Data processing equipment and software 19,932,302 18,882,559
Office and transportation equipment 8,224,223 5,787,762
Leasehold improvements 240,244 700,842
Construction in progress 1,304,649 27,067,631
----------- -----------
80,910,886 72,919,414
Less accumulated depreciation 38,106,948 35,983,169
----------- -----------
Net property, plant, and equipment 42,803,938 36,936,245
----------- -----------
Other assets:
Intangible assets, net of
accumulated amortization (note 2) 37,868,921 13,770,280
Bond issue costs, net 168,856 186,324
Deferred income taxes - noncurrent (note 4) 93,326 484,621
Deposits and miscellaneous 260,795 237,864
----------- -----------
Total assets $ 118,442,724 98,007,173
=========== ===========
(Continued)
See accompanying notes to consolidated financial statements.
PAGE 29
LABONE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 31, 1999 and 1998
Liabilities and Stockholders' Equity 1999 1998
------------ ------------
Current liabilities:
Accounts payable $11,852,403 4,392,689
Retainage and construction accounts payable -- 3,809,193
Accrued payroll and benefits 2,793,721 4,148,593
Other accrued expenses 727,241 610,315
Other current liabilities 551,146 274,198
Current portion of long-term debt (note 3) 1,873,577 1,860,168
----------- -----------
Total current liabilities 17,798,088 15,095,156
Long-term payable (note 2) 1,360,000 --
Long-term debt (note 3) 28,255,139 18,097,308
----------- -----------
Total liabilities 47,413,227 33,192,464
----------- -----------
Minority interest (note 2) -- 10,275,611
----------- -----------
Stockholders' equity (note 2):
Preferred stock, $0.01 par value per
share; 3,000,000 shares authorized,
none issued -- --
Common stock, $0.67 par value per
share; 36,000,000 shares authorized,
11,250,000 shares issued -- 7,500,000
Common stock, $0.01 par value per
share; 40,000,000 shares authorized,
13,050,020 shares issued 130,500 --
Additional paid-in capital 32,035,445 2,920,357
Accumulated other comprehensive income (750,115) (683,270)
Retained earnings 69,758,872 74,945,615
----------- -----------
101,174,702 84,682,702
Less treasury stock of 1,516,527 shares
in 1999 and 1,516,345 shares in 1998,
at cost 30,145,205 30,143,604
----------- -----------
Total stockholders' equity 71,029,497 54,539,098
----------- -----------
Total liabilities and
stockholders' equity $ 118,442,724 98,007,173
=========== ===========
See accompanying notes to consolidated financial statements.
PAGE 30
LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ---------- ----------
Sales $ 119,666,534 102,227,216 78,926,119
Cost of sales 71,543,532 56,719,603 42,017,179
----------- ---------- ----------
Gross profit 48,123,002 45,507,613 36,908,940
Selling, general, and
administrative expenses 40,942,628 34,100,884 35,269,668
Provision for loss on disposal
(gain on sale) of assets (864,340) -- 6,553,279
----------- ---------- ----------
Earnings (loss) from
operations 8,044,714 11,406,729 (4,914,007)
----------- ---------- ----------
Other income (expenses):
Investment income 370,262 861,359 4,670,529
Interest expense (1,410,009) (70,335) --
Other, net (24,118) (42,118) 66,769
----------- ---------- ----------
Total other income
(expenses), net (1,063,865) 748,906 4,737,298
----------- ---------- ----------
Earnings (loss)
before income taxes 6,980,849 12,155,635 (176,709)
----------- ---------- ----------
Income taxes (benefit) (note 4):
Current 849,758 5,823,543 (428,828)
Deferred 2,505,940 (203,496) 8,006,107
----------- ---------- ----------
Total income taxes 3,355,698 5,620,047 7,577,279
----------- ---------- ----------
Earning(loss) before
minority interest 3,625,151 6,535,588 (7,753,988)
Minority interest 766,375 1,658,308 349,466
----------- ---------- ----------
Earnings (loss) before
discontinued operations 2,858,776 4,877,280 (8,103,454)
Loss from discontinued
health care operations -- -- (2,342,286)
----------- ---------- ----------
Net earning (loss) $ 2,858,776 4,877,280 (10,445,740)
=========== ========== ==========
Basic and diluted earning (loss)
per share:
Earning (loss) from
continuing operations 0.27 0.50 (0.83)
Loss from discontinued health
care operations -- -- (0.24)
=========== ========== ==========
Net earnings (loss) per share $ 0.27 0.50 (1.07)
=========== ========== ==========
See accompanying notes to consolidated financial statements.
PAGE 31
LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
<TABLE>
Accumulated
other
comprehensive
income -
Additional foreign Compre- Total
Common paid-in currency Retained Treasury hensive stockholders'
stock capital translation earnings stock income equity
--------- ----------- ----------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $7,500,000 1,748,501 (439,240) 195,328,610 (30,113,649) 174,024,222
Comprehensive income:
Net loss -- -- -- (10,445,740) -- (10,445,740) (10,445,740)
Adjustment from foreign
currency translation -- -- (104,972) -- -- (104,972) (104,972)
----------
Comprehensive loss (10,550,712)
==========
Cash dividends ($.80 per share) -- -- -- (7,786,923) -- (7,786,923)
SLH Corporation spin-off -- -- -- (47,963,199) -- (47,963,199)
Response Oncology, Inc.
distribution -- -- -- (51,277,489) -- (51,277,489)
Exercise of stock options -- 23,123 -- (29,955) (6,832)
--------- ---------- --------- ---------- ----------- ------------
Balance at December 31, 1997 7,500,000 1,771,624 (544,212) 77,855,259 (30,143,604) 56,439,067
Comprehensive income:
Net earnings -- -- -- 4,877,280 -- 4,877,280 4,877,280
Adjustment from foreign
currency translation -- -- (139,058) -- -- (139,058) (139,058)
-----------
Comprehensive income 4,738,222
===========
Cash dividends ($.80 per share) -- -- -- (7,786,924) -- (7,786,924)
Issuance of 168,885 shares of
treasury stock related
to acquisition -- 1,148,733 -- -- -- 1,148,733
--------- --------- --------- ---------- ----------- -----------
Balance at December 31, 1998 7,500,000 2,920,357 (683,270) 74,945,615 (30,143,604) 54,539,098
Comprehensive income:
Net earnings -- -- -- 2,858,776 -- 2,858,776 2,858,776
Adjustment from foreign
currency translation -- -- (66,845) -- -- (66,845) (66,845)
-----------
Comprehensive income 2,791,931
===========
Cash dividends ($.76 per share) -- -- -- (8,045,519) -- (8,045,519)
Stock split and change
in par value (7,369,500) 7,369,500 -- -- -- --
Merger transaction -- 21,745,588 -- -- -- 21,745,588
Purchase of 182 shares of
Common stock for treasury -- -- -- -- (1,601) (1,601)
--------- ---------- --------- ---------- ----------- ------------
Balance at December 31, 1999 $ 130,500 32,035,445 (750,115) 69,758,872 (30,145,205) 71,029,497
========= ========== ========= ========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE 32
LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---------- --------- ---------
Cash provided by (used for) operations:
Net earnings (loss) $ 2,858,776 4,877,280 (8,103,454)
Adjustments to reconcile net earnings(loss)to
net cash provided by (used in) operations, net
of acquisitions and divestitures:
Depreciation and intangibles amortization 8,518,958 6,191,577 6,781,800
Amortization of investment premiums -- (36,767) (251,233)
Deferred income taxes 3,040,662 (315,215) 4,173,744
Gain on disposal of property,
plant, and equipment (874,305) (18,606) (120,087)
Provision for loss on disposal of assets -- -- 6,553,279
Provision for loss on accounts receivable 2,877,949 1,502,571 571,192
Earnings applicable to minority interest 766,375 1,658,308 349,466
Directors' stock compensation (20,317) 62,620 66,834
Changes in:
Short-term investments -- 1,443,254 2,645,080
Accounts receivable (8,160,453) (6,774,958) (3,551,006)
Income tax receivable (1,243,744) 1,111,284 617,904
Inventories (1,363,041) 404,990 (755,422)
Prepaid expenses and other current assets 979,848 (269,709) (421,839)
Accounts payable 5,499,704 892,401 (18,024)
Income taxes payable (45,249) -- --
Accrued payroll and benefits (1,354,872) (619,281) 1,727,669
Other accrued expenses 69,998 186,919 (214,624)
Other current liabilities 196,948 (28,793) (1,533,334)
---------- --------- ---------
Net cash provided by continuing
operations 11,747,237 10,267,875 8,517,945
Net cash used by discontinued operations -- -- (424,835)
---------- --------- ---------
Net cash provided by operations 11,747,237 10,267,875 8,093,110
---------- --------- ---------
Cash provided by (used for) investment activities:
Sales of investments available-for-sale -- -- 1,350,000
Purchase of investments held-to-maturity -- (5,461,090) (15,893,902)
Proceeds from maturities of investments
held-to-maturity -- 6,701,893 18,155,062
Property, plant, and equipment additions, net (10,521,118) (25,489,014) (6,683,292)
Acquisition of businesses (note 2) (2,058,460) (2,967,883) (4,815,889)
Acquisition of minority interest (note 2) (12,640,443) -- --
Deposits and miscellaneous 6,280 (1,710,496) (3,948,558)
---------- --------- ---------
Net cash used for
investment activities (25,213,741) (28,926,590) (11,836,579)
---------- ---------- ----------
Cash provided by (used for) financing activities:
Issuance of treasury stock, net of
proceeds from exercise of stock options -- -- (6,832)
Purchase of treasury stock (1,601) -- --
Proceeds from bond issue/line of credit 12,000,000 19,900,000 --
Bond issue costs -- (192,147) --
Cash dividends to minority interest (935,730) -- --
Payments on long-term debt (1,864,006) (1,937) --
Cash portion of SLH Corporation dividend -- -- (19,590,476)
Cash dividends (8,045,519) (7,786,924) (7,786,923)
---------- --------- ---------
Net cash provided by (used for)
financing activities 1,153,144 11,918,992 (27,384,231)
---------- --------- ---------
(Continued)
PAGE 33
LABONE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---------- --------- ---------
Effect of foreign currency translation on cash 73,668 (165,965) (71,544)
---------- --------- ---------
Net decrease in cash and
cash equivalents (12,239,692) (6,905,688) (31,199,244)
Cash and cash equivalents at beginning of year 15,223,336 22,129,024 53,328,268
---------- --------- ---------
Cash and cash equivalents at end of year $ 2,983,644 15,223,336 22,129,024
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 2,279,366 5,450,841 2,675,182
========== ========== ==========
Interest $ 1,377,621 240,586 934,000
========== ========== ==========
Supplemental schedule of noncash investing and
financing activities for the years ended
December 31, 1999 and 1998:
Fair value of assets acquired-acquisition $ 5,796,621 6,223,162
Fair value of assets acquired-merger 34,259,789 --
Liabilities assumed-acquisition (2,078,342) (645,198)
Note payable issued-acquisition (1,440,000) --
Common stock issued-merger (19,278,214) --
Common stock issued-acquisition -- (2,000,000)
Fair value of stock options
and warrants-merger (2,341,132) --
---------- ---------
Cash paid 14,918,722 3,577,964
Less cash acquired 219,819 610,081
---------- ---------
Net cash paid for acquisition
of businesses $ 14,698,903 2,967,883
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE 34
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) Summary of Significant Accounting Policies
- -----------------------------------------------
Principles of Consolidation and Basis of Presentation
On August 10, 1999, LabOne, Inc. was merged into Lab Holdings, Inc. (Lab
Holdings), its parent. The combined company's name was then changed to
LabOne, Inc. (see note 2). The accompanying consolidated financial statements
include the accounts of LabOne, Inc. (LabOne or the Company) and its wholly
owned subsidiaries: LabOne Canada Inc.; Systematic Business Services, Inc.;
and ExamOne World Wide (and its wholly owned subsidiary, ExamOne World Wide
of New Jersey, Inc.). All significant intercompany transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits in banks, marketable
securities with original maturities of three months or less, money market
investments and overnight investments that are stated at cost, which
approximates market value.
Investment Securities
LabOne determines the appropriate classification of debt and equity securities
at the time of purchase. Debt securities are classified as held-to-maturity
when LabOne has the intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost and investment income
is included in earnings.
Inventories
Inventories consist of completed specimen collection kits, laboratory
supplies, and various materials used in the assembly of specimen collection
kits for sale to clients. Inventory is valued at the lower of cost (first-in,
first-out) or market.
Property, Plant, and Equipment
Property, plant, and equipment additions are recorded at cost, which includes
interest capitalized during construction when material. Facilities leased
pursuant to revenue bond financing transactions are accounted for as purchases
with the cost of the leased property included in property, plant, and
equipment and the related obligation included in long-term debt.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets as follows:
Buildings 30 years
Laboratory equipment 3 - 5 years
Data processing equipment 3 - 5 years
Office equipment 5 years
Cost of Borrowings
PAGE 35
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Expenses directly related to the issuance of debt are deferred and amortized
over the period the debt is expected to be outstanding using the interest
method.
Intangible Assets
Intangible assets are recorded at their acquisition cost, net of amortization.
The excess of cost over fair value of net assets acquired is being amortized
on a straight-line basis over periods of fifteen to twenty years.
In July of 1999, the Company changed its amortization of acquired customer
lists from fifteen years to five years based upon an SEC request. The effect
of this change was an increase in amortization expense from $252,000 and
$275,000 to $757,000 and $826,000 in 1997 and 1998, respectively.
Impairment of Long-lived Assets
When facts and circumstances indicate potential impairment, LabOne evaluates
the recoverability of carrying values of long-lived assets, including
intangibles, using estimates of undiscounted future cash flows over remaining
asset lives. When impairment is indicated, any impairment loss is measured by
the excess of carrying values over fair values. During the fourth quarter of
1997, LabOne decided to dispose of its office and headquarters building and
lab facility, which, net of accumulated depreciation, was classified as
real estate available-for-sale at December 31, 1998. An impairment loss of
$6,553,279 related to the anticipated sale was recorded in 1997 which reduced
the carrying value to $3,515,000. In 1999, the Company sold all real estate
available-for-sale for $4,379,340 and recognized a gain of $864,340.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
Estimates of fair values are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could affect the estimates. The fair
market value of LabOne's financial instruments at December 31, 1999 and 1998
approximates their carrying values.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
PAGE 36
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Earnings Per Share
Basic earnings per share are computed using the weighted average number of
common shares and diluted earnings per share are computed using the weighted
average number of common shares and dilutive stock options.
The following table reconciles the weighted average common shares used in the
basic earnings per share calculation and the weighted average common shares
and common share equivalents used in the diluted per share calculation:
1999 1998 1997
---------- ---------- ----------
Weighted average common
shares (basic) 10,443,728 9,733,655 9,732,965
Employee stock options 7,704 -- --
---------- ---------- ----------
Weighted average common shares and
common shares equivalents (diluted) 10,451,432 9,733,655 9,732,965
========== ========== ==========
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for LabOne's quarter ending
September 30, 1999. Retroactive application will not be required. This
statement will not have a significant impact on the Company's financial
position or results of operations.
(2) Merger, Acquisitions, and Intangible Assets
- ------------------------------------------------
The cost and accumulated amortization of intangible assets at December 31,
1999 and 1998 are as follows:
1999 1998
---------- ----------
Excess of cost over fair
value of net assets acquired 58,383,300 31,059,008
Accumulated amortization 20,514,409 17,288,729
---------- ----------
Intangible assets, net of
accumulated amortization $ 37,868,921 13,770,280
========== ==========
On August 10, 1999, LabOne, Inc. was merged into Lab Holdings, its parent,
upon the approval of the required number of shareholders of both companies at
their respective annual meetings. The combined company's name was then
PAGE 37
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
changed to LabOne, Inc. The merger provisions included a 3-for-2 stock split
for all Lab Holdings shares. LabOne shares which did not elect the cash
option were exchanged for combined company shares on a 1-for-1 basis. The
Company paid $10,264,000 in cash for 805,000 shares of LabOne common stock
which were exchanged for cash of $12.75 per share. Also, the Company paid
$2,318,000 in related transaction costs. The transaction was accounted for as
the acquisition of minority interest under the purchase method. The result of
the merger was approximately $24,124,000 of goodwill which is being amortized
over a twenty-year period and the elimination of minority interest.
On November 5, 1999, LabOne acquired a paramed services company and a paramed
billing service provider. The paramed services company was acquired for
$279,000 and cash installments of $40,000 each year beginning in 2000 for five
years and 10% of gross revenue for the next six years. The minimum payments
under the gross revenue agreement provision are estimated to be $240,000. The
current portion of the cash installments and the gross revenue percentage
payments is recorded in other current liabilities with the remainder of the
minimum purchase price recorded as a long-term payable. The excess of the
aggregate minimum purchase price over the fair market value of net assets
acquired of approximately $469,000 is being amortized over fifteen years.
The paramed billing service provider was acquired for $1,912,000 in cash and a
stock warrant purchase agreement. In the agreement, the former owner of the
paramed billing service provider may receive up to 250,000 common shares if
specified revenue targets are achieved. Alternatively, the Company may be
obligated to make cash payments of up to $1,000,000 depending on the Company's
stock price. The Company believes it is likely the cash payment will be
required and has, therefore, reported the $1,000,000 cash payment as a
component of the purchase price. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $2,731,000
is being amortized over fifteen years.
Effective October 30, 1998, LabOne acquired a provider of information support
services to insurance underwriters for approximately $5.7 million. The
purchase was comprised of $3.7 million of cash and the issuance of 168,885
shares of LabOne common stock having a fair market value of $2 million. The
acquisition was accounted for using the purchase method of accounting. The
purchase price could increase if the acquired company achieves certain levels
of earnings in 2000. The excess of the aggregate purchase price over the
fair market value of net assets acquired of approximately $3,989,000 is being
amortized over twenty years.
The above acquisitions have been accounted for under the purchase method and,
accordingly, the operating results of the acquired companies have been
included in the consolidated statements of operations from the dates of
acquisition. Contingent consideration will be recorded when earned and will
increase goodwill. The following unaudited pro forma consolidated results of
operations of the Company for the years ended December 31, 1999 and 1998
assumes the acquisitions occurred as of January 1, 1998:
PAGE 38
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
1999 1998
----------- -----------
Sales $ 128,581,000 118,278,000
Net earning 2,598,000 4,198,000
Earnings per share-
basic and diluted 0.25 0.43
=========== ===========
Pro forma data does not purport to be indicative of the results that would
have been obtained had these events actually occurred at the beginning of the
periods presented, and is not intended to be a projection of future results.
Effective January 30, 1997, LabOne acquired certain assets, including customer
lists, of GIB Laboratories, Inc., a subsidiary of Prudential Insurance Company
of America (Prudential), for $4,815,889. Concurrently, Prudential's
Individual Insurance Group agreed to use LabOne as its exclusive provider of
risk assessment testing services. The excess costs over fair value of GIB
Laboratories, Inc. assets acquired was $4,128,000 and is being amortized over
five years.
(3) Long-term Debt
- -------------------
Long-term debt consists of the following as of December 31, 1999 and 1998:
1999 1998
---------- ----------
Taxable industrial revenue bonds, Series
1998A, principal payable annually through
September 1, 2009, interest payable
monthly at a rate adjusted weekly based
on short-term United States treasury
obligations (6.40% at December 31, 1999),
secured by the Company's facility and an
irrevocable bank letter of credit $ 18,150,000 20,000,000
Line of credit, variable interest
rate (6.40% at December 31, 1999),
principal due October 31, 2000 12,000,000 --
Various capital leases, principal and
interest payable monthly through
May 2003, interest ranging from 7% to
12%, collateralized by office equipment 66,595 54,446
---------- ----------
Total long-term debt 30,216,595 20,054,446
Less:
Current portion 1,873,577 1,860,168
Unamortized discount 87,879 96,970
---------- ----------
Long-term debt, net $ 28,255,139 18,097,308
========== ==========
PAGE 39
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Aggregate maturities of long-term debt as of December 31, 1999 are as follows:
Bonds Line of Capital
payable credit leases Total
---------- ---------- ---------- ----------
2000 1,850,000 12,000,000 23,577 13,873,577
2001 1,850,000 -- 26,077 1,876,077
2002 1,850,000 -- 14,468 1,864,468
2003 1,800,000 -- 2,473 1,852,473
2004 1,800,000 -- -- 1,800,000
Thereafter 8,950,000 -- -- 8,950,000
---------- ---------- ---------- ----------
$ 18,150,000 12,000,000 66,595 30,216,595
========== ========== ========== ==========
On March 9, 2000, the Company increased its line from $15 million to $25
million. The proceeds of the additional $10 million are to be used to finance
the repurchase of the Company's common stock and to finance daily operations.
The line of credit bears variable interest, which at March 9 was approximately
6.6%. The principal of the line of credit is due on February 10, 2002. Under
the terms of the agreement, the Company agrees not to merge or consolidate
with another entity, not to pay dividends or make any other payments to
shareholders, and to maintain a certain tangible net worth and certain other
financial ratios.
(4) Income Taxes
- -----------------
The components of income taxes and deferred taxes (benefit) are as follows for
the years ended December 31:
1999 1998 1997
---------- --------- ---------
Current:
Federal $ 652,087 4,602,389 (1,371,830)
State 82,612 1,104,033 637,078
Foreign 115,059 117,121 305,924
---------- ---------- ----------
Total current 849,758 5,823,543 (428,828)
---------- ---------- ----------
Deferred:
Federal 2,490,548 (164,999) 7,554,482)
State (12,669) 25,177 448,753
Foreign 28,061 (63,674) 2,872
---------- ---------- ----------
Total deferred 2,505,940 (203,496) 8,006,107
---------- ---------- ----------
$ 3,355,698 5,620,047 7,577,279
========= ========= ==========
The tax benefit associated with 1997 discontinued operations was $6,263,231.
Total income taxes differ from the amounts computed by applying the federal
statutory income tax rate of 34% to earnings before income taxes for the
following reasons (for the years ended December 31):
PAGE 40
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
1999 1998 1997
--------- --------- ---------
Application of statutory
income tax rate $ 2,373,488 4,132,916 (60,081)
Goodwill amortization 803,920 576,618 663,575
Increase in valuation
allowance and write-
offs of deferred tax
assets -- -- 6,532,673
Foreign taxes, net 61,379 7,598 72,062
State income taxes, net 46,162 631,076 716,649
Tax-exempt interest -- (5,788) (18,730)
Other, net 70,749 277,627 (328,869)
--------- --------- ---------
$ 3,355,698 5,620,047 7,577,279
========= ========= =========
The tax effects of temporary differences that create significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 1999 and
1998 are presented below:
1999 1998
---------- ----------
Deferred current income tax assets (liabilities):
Unrealized loss on real estate
available-for-sale $ -- 2,606,731
Accrued vacation 361,914 302,483
Accrued medical claims 109,648 63,644
Bad debts 763,403 925,620
Inventory adjustment 33,391 40,830
Other items 59,671 33,267
---------- ----------
Total deferred current
income tax assets, net $ 1,328,027 3,972,575
========== ==========
Deferred noncurrent tax assets (liabilities):
Capital loss and net operating loss carryforward $ 934,658 2,291,148
Depreciation and amortization (168,796) 391,645
Acquired subsidiary cash to accrual adjustment (92,767) (192,027)
Other items 16,143 371,746
Kansas High Performance Incentive Program
credit carryforward, net 3,363,000 --
---------- ----------
4,052,238 2,862,512
Valuation allowance (3,958,912) (2,377,891)
---------- ---------
Total deferred noncurrent tax
assets (liabilities), net $ 93,326 484,621
========== ==========
PAGE 41
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
In conjunction with building its new facility, LabOne has received the Kansas
High Performance Incentive Program (HPIP) tax credit. LabOne was certified by
the State of Kansas and received a credit to offset all of its 1999 and 2000
Kansas income tax liability related to operations of the new facility. Any
unused portion of the credit can be carried forward for a period of ten years,
provided LabOne continues to meet requirements of the program. HPIP credits
qualified in 1999 were for potential use in 1999 and subsequent years
approximately $4,060,000. In 1999, LabOne used HPIP credits of approximately
$170,000. A valuation allowance has been provided because the Company must
prove it has the requisite employee wage scale and other specified items
before it may use the credits already qualified.
LabOne has certain capital loss carryovers that were attributes of the former
Lab Holdings. These loss deductions give rise to deferred tax assets, however,
a valuation allowance has been provided because full realization of the
deferred tax assets is not expected.
(5) Benefit Plans
- ------------------
LabOne maintains a money purchase pension plan for all employees who have
completed one-half year of service and have attained age twenty and one-half
years. The plan is a defined contribution plan under which LabOne contributes
a percentage of a participant's annual compensation. LabOne's contributions to
the plan were $2,056,000, $1,803,000, and $1,422,000 for the years ended
December 31, 1999, 1998, and 1997, respectively.
LabOne has a profit sharing (401(k)) plan for all employees who have completed
six months of service and a minimum of five hundred hours of service and have
attained the age of twenty and one-half years. LabOne contributes on behalf of
each participant an amount equal to 50% of the participant's annual
contributions, but not in excess of 5% of the participant's annual
compensation. LabOne's contributions are invested in LabOne common stock.
LabOne's contributions to the plan for the years ended December 31, 1999,
1998, and 1997 were $830,000, $663,000, and $558,000, respectively.
(6) Stock Options and Warrants
- -------------------------------
LabOne has a long-term incentive plan which provides for granting awards,
including stock options, for not more than 2,215,252 shares of LabOne common
stock. LabOne has granted certain stock options which entitle the grantee to
purchase shares for a price equal to the fair market value at date of grant
with option periods up to ten years.
The Company accounts for stock options in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. On December 31, 1995, the
Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which
allows entities to continue to apply the provisions of APB No. 25 and provide
pro forma net earnings and pro forma earnings per share disclosures for
employee stock option grants as if the fair value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123.
PAGE 42
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
In connection with the merger transaction, stock options held by pre-merger
LabOne employees were converted on a one for one basis to options on the
Company's common shares. All eligible Company employees are now covered by
this plan. A summary of the status of this stock option plan as of December
31, 1999, 1998, and 1997 and changes during the years then ended is presented
below:
<TABLE>
1999 1998 1997
------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Number average Number average Number average
of exercise of exercise of exercise
Fixed options shares price shares price shares price
- --------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at begin-
ing of year 1,837,927 $ 14.30 1,614,068 $ 14.30 1,459,559 $ 13.63
Granted 315,060 11.48 330,859 15.02 253,316 17.36
Exercised (27,000) 10.31 (40,300) 10.64 (71,907) 10.84
Forfeited (172,688) 15.71 (66,700) 17.87 (26,900) 15.95
--------- --------- ---------
Outstanding at
end of year 1,953,299 13.85 1,837,927 14.38 1,614,068 14.30
========= ========= ========= ========= ========= =========
Options exercisable
at year-end 1,138,489 $ 13.87 968,683 $ 13.44 820,609 $ 12.94
========= ========= ========= ========= ========= =========
</TABLE>
The following table summarizes information about stock options at
December 31, 1999.
<TABLE>
Options outstanding Options exercisable
------------------------------------- -----------------------
Weighted-
average Weighted- Weighted-
remaining average average
Range of Number contractual exercise Number exercise
exercise prices outstanding life (years) price exercisable price
---------------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 9.38 - 9.97 323,185 7.76 $ 9.78 169,685 $ 9.88
11.13 - 11.63 390,411 4.08 11.44 341,911 11.41
12.17 - 14.13 279,897 7.19 13.10 113,777 13.94
14.38 - 15.00 332,171 7.21 14.68 166,171 14.61
15.22 - 16.63 286,885 7.37 16.09 140,854 16.25
16.69 - 20.88 302,942 6.89 17.73 168,283 17.88
23.88 - 23.88 37,808 4.36 23.88 37,808 23.88
---------- ----------
9.38 - 23.88 1,953,299 6.10 13.85 1,138,489 13.87
================ ========== ========== ========== ========== ==========
</TABLE>
PAGE 43
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The weighted average per share fair value of stock options granted during
1999, 1998, and 1997 was $2.46, $3.54, and $5.08, respectively, on the date of
grant using the Black Scholes option-pricing model with the following weighted
average assumptions:
1999 1998 1997
---- ---- ----
Expected dividend yield 7.0 % 4.8 4.2
Risk-free interest rate 5.8 % 5.0 6.3
Expected volatility factor 43.0 % 33.9 35.4
Expected life (years) 6 6 6
==== ==== ====
Since the Company applies APB No. 25 in accounting for its plans, no
compensation cost has been recognized for its stock options in the
consolidated financial statements. Had the Company recorded compensation cost
based on the fair value of options at the grant date, the Company's net
earnings and earnings per share would have been reduced by approximately the
following: $633,000, or $0.05 per share, in 1999; $515,000, or $.04 per
share, in 1998; and $416,000, or $.03 per share, in 1997.
Pro forma net earnings reflect only options granted in 1999, 1998, and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net earnings amounts
presented above because compensation costs are reflected over the options'
vesting periods. Compensation cost for prior option grants is not considered.
At December 31, 1998, the directors of Lab Holdings had 60,000 stock options
at a weighted average price of $26.50 per share, of which 20,000 were
exercisable. As a result of the merger, the exercisable options were adjusted
to reflect the 3-for-2 stock split. The resulting 30,000 LabOne stock options
have an exercise price of $17.66 per share.
LabOne entered marketing agreements with two companies during 1998. In
conjunction with these agreements, LabOne granted warrants for the purchase of
1,000,000 shares of common stock at an exercise price equal to the fair value
of the stock at the grant date (500,000 shares at $17.00 and 500,000 shares at
$15.44). During the first quarter of 1999, the marketing agreement with
shares valued at $17.00 was terminated. The remaining warrants become
exercisable each quarter for five years provided certain conditions are met,
including achievement of certain levels of revenues. During 1999 and 1998,
warrants to purchase 125,000 shares were forfeited.
(7) Business Segment Information
- ---------------------------------
The Company operates principally in three lines of business: insurance,
healthcare, and substance abuse testing. The insurance line of business
involves risk-appraisal laboratory testing, paramed physical evaluations, and
information and billing services to the insurance industry. The tests and
evaluations performed and information provided by the Company are specifically
designed to assist an insurance company in objectively evaluating the risks
PAGE 44
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
posed by policy applicants. The billing services provide insurance companies
with a centralized billing structure for services performed by parameds.
Healthcare services are provided to the health care industry to aid in
the diagnosis and treatment of patients. Substance abuse testing services are
provided to both regulated and nonregulated employers who employ drug
screening guidelines.
Operating income (loss) of each line of business is computed as sales less
directly identifiable and allocated expenses. In computing operating income
(loss) of lines of business, none of the following items have been allocated:
general corporate expenses, investment income, goodwill or other income
(expenses). Identifiable assets by line of business are those assets that are
used in the Company's operations in each line of business. General corporate
assets are principally cash, investment securities and merger goodwill.
PAGE 45
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Following is a summary of line of business information as of and for the years
ended December 31, 1999, 1998, and 1997 (in thousands):
1999 1998 1997
------------ ----------- -----------
Sales:
Insurance services $ 77,687 69,149 61,998
Healthcare services 24,793 18,600 7,512
Substance abuse testing 17,187 14,478 9,416
------------ ----------- -----------
Total sales $ 119,667 102,227 78,926
============ =========== ===========
Operating income (loss):
Insurance services $ 15,465 18,607 16,530
Healtcare services (4,472) (6,188) (8,304)
Substance abuse testing (771) 204 (934)
General corporate expenses (2,178) (1,217) (5,774)
Investment income 370 861 4,671
Other expense, net (1,433) (112) (6,366)
------------ ----------- -----------
Earnings (Loss)before
income taxes 6,981 12,155 (177)
Income tax expense (3,356) (5,620) (7,577)
Minority Interests (766) (1,658) (349)
Discontinued operations -- -- (2,343)
------------ ----------- -----------
Net earnings $ 2,859 4,877 (10,446)
============ =========== ===========
Identifiable assets:
Insurance services $ 57,434 34,597 32,343
Healthcare services 12,001 5,493 3,513
Substance abuse testing 11,588 6,449 4,994
General corporate assets 37,420 51,468 33,632
------------ ----------- -----------
Total assets $ 118,443 98,007 74,482
============ =========== ===========
Capital expenditures:
Insurance services $ 7,334 2,090 3,308
Healthcare services 927 501 469
Substance abuse testing 1,389 424 946
General corporate 5,016 22,474 2,553
============ =========== ===========
Depreciation and amortization:
Insurance services $ 3,948 3,112 3,690
Healthcare services 1,019 797 940
Substance abuse testing 1,146 810 645
General corporate 2,406 1,473 1,507
============ =========== ===========
PAGE 46
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(8) Quarterly Financial Data (Unaudited)
A summary of unaudited quarterly results of operations for 1999 and 1998 is as
follows (in thousands except per share data):
Three months ended
---------------------------------------------------
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
1999:
Sales $ 27,328 28,572 28,814 34,952
Gross profit 11,677 11,568 11,712 13,166
Earnings before income
Taxes 2,340 2,022 1,345 1,273
Net earnings 999 794 523 543
Basic and diluted earnings
per share 0.10 0.08 0.05 0.05
Dividends per share 0.20 0.20 0.18 0.18
============ ============ ============ ============
1998:
Sales $ 23,333 25,763 25,834 27,297
Gross profit 10,374 11,981 11,305 11,897
Earnings before
income taxes 2,743 3,634 2,379 3,399
Net earnings 1,140 1,632 909 1,196
Basic and diluted
earnings per share 0.12 0.16 0.10 0.12
Dividends per share 0.20 0.20 0.20 0.20
============ ============ ============= ===========
Share and per share data have been adjusted for the 3-for-2 stock split in
connection with the merger transaction (see note 2). Quarterly earnings per
share amounts do not add to annual earnings per share for 1999 because of
rounding of quarterly computations.
(9) Commitments and Contingencies
- -----------------------------------
Tax Assessment
The Comptroller of the State of Texas has conducted an audit of LabOne for
sales and use tax compliance for the years 1991 through 1997, and contends
that LabOne's insurance laboratory services are taxable under the Texas tax
code. The Texas Comptroller has issued a tax audit assessment, including
interest and penalties, of approximately $622,000. The Company has appealed
this assessment arguing that its services do not fit within the definition of
insurance services under the Texas code. The assessment is under review by
the Texas Comptroller's administrative law judge's office. At this time, the
Company is unable to predict the ultimate outcome of this appeal.
Leases
LabOne has several noncancelable operating leases, primarily for land and
buildings, and other commitments that expire through 2004, including a lease
PAGE 47
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
for office space from an entity owned by an employee. Rental expense for
these operating leases during 1999, 1998, and 1997 amounted to $513,000,
$539,000, and $529,000, respectively.
Future minimum lease payments and other commitments under these agreements as
of December 31, 1999 are:
Year Amount
------ --------
2000 $ 621,000
2001 478,000
2002 370,000
2003 317,000
2004 254,000
(10) Dispositions
- ------------------
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, on the basis of one share of common stock of SLH Corporation for
each four shares of Lab Holdings common stock held. In connection with this
distribution and pursuant to a Distribution Agreement between Lab Holdings and
SLH Corporation, 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 Corporation. The net assets distributed to SLH Corporation totaled
approximately $47,963,199 on the date of distribution. The spin-off was
accounted for as a 1997 dividend.
In July 1997, Lab Holdings' Board of Directors declared a dividend to Lab
Holdings' shareholders of all 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 on July
25, 1997 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 or SLH Corporation stock received in the
distributions.
PAGE 48
LABONE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Schedule II
-----------
<TABLE>
Additions-
charged to
Balance Selling,
At general, and Deductions- Balance
Beginning administrative uncollectible at
Description of year expenses accounts of year
- ------------------------------ --------- -------------- ------------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1999 $ 2,326,716 2,877,949 3,223,380 1,981,285
========= ========= ========= =========
Year ended December 31, 1998 $ 968,295 1,502,572 144,151 2,326,716
========= ========= ========= =========
Year ended December 31, 1997 $ 657,558 521,193 210,456 968,295
========= ========= ========= =========
</TABLE>
See accompanying independent auditors' report
PAGE 49
Exhibit 3.2
LABONE, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
QUALIFICATIONS AND RIGHTS
OF
SERIES A PREFERRED STOCK
I, W. Thomas Grant II, the duly elected Chairman of the Board of
Directors, President and Chief Executive Officer of LabOne, Inc., a
corporation organized and existing under the laws of the State of Missouri
(the "Corporation"), do hereby certify that:
1. The name of the Corporation is LabOne, Inc. The Corporation was
formerly named Lab Holdings, Inc.
2. The following resolutions were duly adopted by the Board of
Directors of the Corporation at a meeting held on February 11, 2000:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation by the provisions of Articles of
Incorporation of the Corporation, there is hereby created a series of
Preferred Stock designated as Series A Preferred Stock, consisting of
Three Hundred Thousand (300,000) shares of the authorized but
unissued shares of preferred stock, $.01 par value per share, of the
Corporation; and
FURTHER RESOLVED, that the Series A Preferred Stock shall have the
powers, designations, preferences and relative, participating, optional
or other rights and the qualifications, limitations or restrictions set
forth in Appendix I attached hereto.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and attested by its Secretary on this 11th day of
February, 2000.
LABONE, INC.
By: /s/ W. Thomas Grant II
W. Thomas Grant II
Chairman of the Board of Directors,
President and Chief Executive Officer
ATTEST:
/s/ Gregg R. Sadler
Gregg R. Sadler
Secretary
PAGE 50
State of Missouri
County of Jackson
I, Lisa L. Meland, a Notary Public, do hereby certify that on the 28th
day of February, 2000, personally appeared before me W. Thomas Grant II, who
being by me first duly sworn declared that he is the Chairman of the Board of
Directors, President and Chief Executive Officer of LabOne, Inc, that he
signed the foregoing document as Chairman of the Board of Directors,
President and Chief Executive Officer of the corporation, and that the
statements therein contained are true.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
notarial seal, the day and year last above mentioned.
/s/ Lisa L. Meland
Notary Public
My Commission Expires:
Lisa L. Meland
Notary Public - Notary Seal
STATE OF MISSOURI - Jackson County
My Commission Expires AUGUST 25, 2000
PAGE 51
APPENDIX I
RELATIVE RIGHTS AND PREFERENCES OF
SERIES A PREFERRED STOCK
1. Designation. Three Hundred Thousand (300,000) authorized and
unissued shares of preferred stock, $.01 par value per share, of the
Corporation are hereby designated as "Series A Preferred Stock" ("Series A").
2. Dividends.
(a) Each holder of a share of Series A shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for that purpose, subject to adjustment as hereinafter set forth,
100 times the aggregate per share amount of all cash dividends, and 100 times
the aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions (except any Excluded Dividend), declared (but not
withdrawn) on the Common Stock, $.01 par value per share, of the Corporation
(the "Common Stock"), at any time after February 11, 2000 (the "Rights
Dividend Declaration Date"). As used herein, an "Excluded Dividend" shall
mean a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise).
(b) Except with respect to an Excluded Dividend, the Corporation
shall declare a dividend or distribution on the Series A as provided in
paragraph (a) above concurrently with or immediately after it declares a
dividend or distribution on the Common Stock, and such dividend or
distribution shall be payable concurrently with the dividend or distribution
on the Common Stock. Except with respect to an Excluded Dividend, the
Corporation shall not pay a dividend or make a distribution to holders of
Common Stock unless the Corporation concurrently pays a dividend or makes a
distribution to holders of the Series A in accordance with paragraph (a)
above.
(c) In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount to which holders of shares of Series A were
entitled immediately prior to such event under paragraph (a) above shall be
adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
3. Voting Rights. In addition to any other voting rights required by
law, the holders of shares of Series A shall have the following voting
rights:
(a) The holders of shares of Series A shall be entitled to 100 votes
for each share of Series A held on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at any
time after the Rights Dividend Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into
a smaller number of shares, then in each such case the number of votes per
share to which holders of shares of the Series A were entitled immediately
PAGE 52
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(b) Except as otherwise provided herein or required by law, the
holders of shares of Series A and the holders of shares of Common Stock shall
vote together as one class on all matters submitted to a vote of shareholders
of the Corporation.
(c) Except as otherwise provided herein or required by law, the
holders of shares of Series A shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of shares of Common Stock as set forth herein or as otherwise
required by law) for the taking of any corporate action.
4. Reacquired Shares. Any shares of Series A purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock,
and may be reissued as part of a new series of Preferred Stock to be created
by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein, in the Articles of
Incorporation, in any other Certificate of Designations establishing a series
of Preferred Stock or any similar stock or as otherwise required by law.
5. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the shares of
the Series A shall be entitled to receive the greater of (i) $100.00 per
share ($1.00 per one one-hundredth of a share), or (ii) an amount per share,
subject to adjustment as hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of Common Stock. No
distribution upon liquidation, dissolution or winding up shall be made to
holders of shares of Common Stock or holders of any other shares of stock
ranking junior to the Series A with respect to the distribution of assets
upon liquidation, dissolution or winding up until all holders of shares of
Series A shall have received the amounts to which such holders are entitled
under this Section.
(b) In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount to which holders of shares of Series A were
entitled immediately prior to such event pursuant to clause (ii) of paragraph
(a) above shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
PAGE 53
6. Consolidation, Merger, etc.
(a) In the event the Corporation shall enter into any consolidation,
merger, combination or other transaction in which the shares of Common Stock
are exchanged for or changed into other stock or securities, cash and/or any
other property, then in any such event shares of Series A shall at the same
time be similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged.
(b) In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount set forth in paragraph (a) above with
respect to the exchange or change of shares of the Series A shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
7. Ranking. Nothing herein shall preclude the Board of Directors of the
Corporation from creating any series of Preferred Stock or any similar stock
ranking on a parity with or prior to Series A shares as to the payment of
dividends or the distribution of assets upon liquidation, dissolution or
winding up.
8. Redemption. Shares of Series A shall not be redeemable at the option
of the Corporation or any holder thereof. Notwithstanding the foregoing
sentence of this Section, the Corporation may acquire shares of Series A in
any other manner permitted by law and the Articles of Incorporation and By-
laws of the Corporation.
9. Amendment. The Articles of Incorporation of the Corporation,
including without limitation the provisions hereof, shall not hereafter be
amended, either directly or indirectly, or through merger, consolidation or
share exchange with another corporation or entity, in any manner which would
alter or change the powers, preferences or special rights of the Series A so
as to affect the holders thereof adversely, without the affirmative vote of
the holders of a majority of the shares of Series A, voting separately as a
class.
10. Fractional Shares. The Series A may be issued in fractions of a
share which shall entitle the holder, in proportion to such holder's
fractional shares, to exercise voting rights, receive dividends, participate
in distributions and to have the benefit of all other rights of holders of
shares of the Series A.
PAGE 54
Exhibit 4.8
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND CANNOT BE OFFERED, SOLD, HYPOTHECATED, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR THE AVAILABILITY OF
AN EXEMPTION FROM REGISTRATION UNDER SUCH LAWS AS PROVIDED IN THIS WARRANT
No. of Shares: 250,000 Warrant No.
----
Original Issue Date: November 5, 1999
WARRANT
To Purchase Shares of Common Stock of
LABONE, INC.
This certifies that, for value received, Larry Glenn ("Glenn") is
entitled to purchase from LABONE, INC., a Missouri corporation, from time to
time prior to the Expiration Date in accordance with the terms and conditions
hereof, up to 250,000 shares of Common Stock of the Company at a Purchase
Price per share set forth below. The number of shares of Common Stock
purchasable hereunder and the Purchase Price therefor are subject to
adjustment as hereinafter set forth in Section 6.
1. Certain Definitions. For all purposes of this Warrant the following
terms shall have the meanings indicated:
(a) "Common Stock" shall mean the Company's presently authorized
shares of Common Stock, par value $.01 per share, and any other securities
into which or for which the Common Stock may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of
assets or otherwise.
(b) "Company" shall mean LABONE, INC., a Missouri corporation, and
any company that shall succeed to, or assume, the obligations of said
corporation hereunder.
(c) "Expiration Date" shall mean 12:01 o'clock a.m. Central Time on
November 5, 2004, which is the fifth anniversary of the Original Issue Date.
(d) "Qualified Revenues" shall mean (i) sales revenues (sales net
of discount) of World Wide Health Services, Inc. ("World Wide"), a wholly-
owned subsidiary of the Company, plus (ii) sales revenues on attending
physician statement accounts served by World Wide on the Original Issue Date
and earned by Systematic Business Services, Inc., a wholly-owned subsidiary
of the Company, by any other affiliate of the Company and by the Company,
plus (iii) all revenues from any physician and/or paramedical examination
business serving the insurance industry and conducted by the Company and/or
its affiliates except revenues attributable to any other physician and/or
paramedical examination business serving the insurance industry acquired by
the Company or its affiliates.
(e) "Purchase Price" or "Purchase Price per share" shall mean the
purchase price per Warrant Share (as defined below), which shall equal $9.97,
being the closing sale price of the Common Stock, as reported by the NASDAQ
Stock Market, on September 27, 1999, as such purchase price may thereafter be
PAGE 55
adjusted from time to time pursuant to the provisions of Section 6 hereof
(rounded to the nearest whole cent).
(f) "Warrantholder" or "Registered Holder" shall mean Glenn, or his
registered transferee.
(g) "Warrant" shall mean this Warrant and all Warrants issued in
exchange therefor or replacement thereof.
(h) "Warrant Shares" shall mean the shares of Common Stock
purchasable by the Registered Holder upon the exercise of this Warrant
pursuant to Section 2 hereof, as adjusted from time to time pursuant to
Section 6 hereof.
All terms used in this Warrant which are not defined in Section 1 have the
meanings respectively set forth therefor elsewhere in this Warrant.
2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, from and after the
Original Issue Date and prior to the Expiration Date, this Warrant may be
exercised in whole or in part in respect of vested shares. Shares of Common
Stock shall become vested under this Warrant as follows:
(i) with respect to 83,333 shares of Common Stock if the
Company earns Qualified Revenues of three million seven hundred fifty
thousand dollars ($3,750,000) or more in any calendar quarter within three
years after the Original Issue Date ("Threshold #1"),
(ii) with respect to an additional 83,333 shares of Common
Stock if the Company earns Qualified Revenues of five million dollars
($5,000,000) or more in any calendar quarter within three years after the
Original Issue Date ("Threshold #2") and
(iii) with respect to the remaining 83,334 shares of Common
Stock subject to this Warrant if the Company earns Qualified Revenues of six
million two hundred fifty thousand ($6,250,000) or more in any calendar
quarter within three years after the Original Issue Date ("Threshold #3").
The rights to exercise shall not be cumulative. Once a Threshold is achieved
in a calendar quarter, this Warrant will not become exercisable with respect
to additional shares solely by reason of the same Threshold being achieved in
a subsequent calendar quarter.
(b) In order to exercise this Warrant in whole or in part, the
Registered Holder shall complete the "Notice of Intention to Exercise
Warrant" attached hereto (the "Notice Form"), and deliver this Warrant, the
completed Notice Form and either cash, a cashier's check payable to the order
of the Company or a wire transfer of funds in an amount equal to the then
aggregate Purchase Price of the Warrant Shares being purchased, to the
Corporate Secretary of the Company at the Company's office located at 10101
Renner Road, Lenexa, Kansas 66219 (or such other office or agency of the
Company as the Company may designate by notice in writing to the Registered
Holder). In no event may the Warrantholder exercise the Warrant with respect
to more than 250,000 shares of Common Stock in the aggregate, subject to
adjustment as provided in this Warrant.
PAGE 56
3. Delivery of Stock Certificate, Etc. Upon Exercise. As soon as
practicable after exercise of this Warrant, the Company shall cause to be
issued and delivered to the Registered Holder (a) a certificate or
certificates representing the aggregate number of shares of Common Stock
specified in said Notice Form, all of which shares shall be duly authorized
and validly issued, fully paid and nonassessable, (b) cash in lieu of any
fractional share based upon the fair market value of a share of Common Stock,
as determined by the Company and (c) any other securities or property
(including cash) to which such Registered Holder is entitled upon such
exercise pursuant to the terms of this Warrant. Each stock certificate
representing shares of Common Stock so issued and delivered shall be
registered in the name of the Registered Holder or, subject to the provisions
of Sections 4 and 5 hereof, such other name as shall be designated by the
Registered Holder. Such certificate or certificates shall be deemed to have
been issued and the Warrantholder or any other person so designated to be
named therein shall be deemed to have become a holder of record of such
shares of Common Stock only as of the date the certificate representing such
shares is issued by the Company.
4. Ownership and Transfer of Warrant and Warrant Shares.
(a) Registered Holder. The Company may deem and treat the
Registered Holder of this Warrant as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes, notwithstanding any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in this Section 4.
(b) Transfer. This Warrant may not be sold, transferred, or
assigned by the Registered Holder in whole or in part at any time, except
pursuant to (i) registration of the Warrant under the Securities Act of 1933
and any applicable state securities laws (collectively, the "Securities
Laws") or (ii) receipt by LabOne and the Company of an opinion, in the form
and substance acceptable to LabOne and the Company, from counsel of the
transferee reasonably satisfactory to LabOne and the Company, to the effect
that registration under the Securities Laws is not required.
5. Compliance with Securities Laws.
(a) Accredited Investor. By acceptance of this Warrant, the
Registered Holder represents and warrants that he is an "accredited investor"
within the meaning of Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), the Registered
Holder being a natural person that either (i) has an individual net worth, or
joint net worth with his spouse, in excess of $1,000,000 or (ii) had an
individual net income in excess of $200,000 in each of the two most recent
years or joint income with his spouse of $300,000 in each of those years and
has a reasonable expectation of reaching the same income level in the current
year.
(b) Investment Intent. By acceptance of this Warrant, the
Registered Holder represents and warrants that he is acquiring this Warrant
and any Warrant Shares for his own account and for the purpose of investment
and not with a view to the sale or distribution thereof. The Registered
Holder understands that this Warrant and the Warrant Shares that may be
issued upon exercise of this Warrant will not have been registered under the
PAGE 57
Securities Act of 1933, as amended (the "Securities Act") or any state
securities laws (the Company being under no obligation to effect such
registration) and that this Warrant and the Warrant Shares must be held
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act and applicable state securities laws or is exempt from
registration as provided herein.
(c) Limitation on Transfer. By acceptance of this Warrant, the
Registered Holder represents, covenants, and agrees that he will not sell or
otherwise dispose of this Warrant or of the Warrant Shares in the absence of
(i) registration under the Securities Act and applicable state securities
laws or (ii) an opinion acceptable in form and substance to the Company from
counsel reasonably satisfactory to the Company, or an opinion of counsel to
the Company, to the effect that no registration is required for such
disposition.
(d) Restrictive Legend. Each Warrant shall bear on the face thereof
a legend substantially in the form of the notice set forth on the first page
of this Warrant. Upon exercise of any part of the Warrant and the issuance
of any Warrant Shares, the Company shall instruct its transfer agent to enter
stop transfer orders with respect to such Warrant Shares, and the
certificates representing such Warrant Shares shall have stamped or imprinted
thereon or affixed thereto a legend to the following effect:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 or any state securities laws
(collectively, the "Securities Laws") and may not be sold, transferred or
otherwise disposed of in the absence of registration under the Securities
Laws or receipt by LabOne and the Company of an opinion, in the form and
substance acceptable to LabOne and the Company, from counsel of the
transferee reasonably satisfactory to LabOne and the Company, to the
effect that registration under the Securities Laws is not required.
(e) State Securities Laws. This Warrant has been offered to and
accepted by the Registered Holder at his principal residence in the State of
New Jersey and has not been offered to the Registered Holder in any other
State.
6. Adjustments to the Purchase Price and Number of Warrant Shares.
(a) Subdivision of Stock, etc. In the event of a stock dividend or
other distribution payable in Common Stock, or any stock split or subdivision
of Common Stock into a greater number of shares, the number of Warrant Shares
subject to the Warrant immediately prior to such event shall be
proportionately increased and the Purchase Price in effect immediately prior
to such event shall be proportionately reduced, and in the event that the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the number of Warrant Shares subject to the Warrant
immediately prior to such combination shall be proportionately reduced and
the Purchase Price in effect immediately prior to such combination shall be
proportionately increased.
(b) Reorganization, Consolidation, Merger, etc. In the event that
the Company shall (i) effect a reorganization or recapitalization pursuant to
which all of the outstanding shares of Common Stock are converted into or
exchanged for other securities or property (including cash), (ii) consolidate
with or merge into any other person, or (iii) transfer all or substantially
PAGE 58
all of its properties or assets to any other person in such a way that
holders of Common Stock shall be entitled to receive securities or property
(including cash) with respect to or in exchange for Common Stock; then, in
each such case, the Warrantholder, upon the exercise hereof as provided in
Section 2 at any time after the consummation of such reorganization or
recapitalization, consolidation, merger or sale of assets, as the case may
be, shall be entitled to receive (and the Company shall be required to
deliver), in lieu of the Warrant Shares issuable upon such exercise, such
other securities and property (including cash) into which such Warrant Shares
shall have been converted or exchanged pursuant to such transaction. The
above provision shall apply to successive reorganizations, recapitalizations,
consolidations, mergers or transfers described therein.
7. Notice of Record Date, Etc. In the event of any of the following
occurring prior to the Expiration Date and while this Warrant is exercisable
in respect of vested shares:
(a) any taking by the Company of a record of the holders of Common
Stock for the purpose of determining the holders thereof who are entitled to
receive any dividend (excluding any cash dividend payable out of earnings or
earned surplus of the Company), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any transfer of all or substantially all of the assets of the
Company to or consolidation or merger of the Company with or into any other
person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each event the Company shall cause to be mailed to the
Warrantholder a notice containing a brief description of the proposed action
and stating the date on which either a record is to be taken for the purpose
of such dividend, distribution or rights, or the date upon which such
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place and the time, if any is to be fixed, as of which the holders of
Common Stock or other securities shall receive cash or other property
deliverable upon such transfer, consolidation, merger, dissolution,
liquidation or winding-up. Such notice shall also state that the action in
question or the record date is subject to the effectiveness of a registration
statement under the Securities Act or a favorable vote of stockholders, if
either is required. Such notice shall be mailed to the Warrantholder at
least ten (10) days prior to the date specified in such notice on which any
such action is to be taken or the record date, whichever is earlier.
8. Required Payments. If this Warrant becomes exercisable with respect
to Threshold #1, and does not become exercisable with respect to Thresholds
#2 and #3 within three (3) years after the Original Issue Date, the Company
agrees to pay to Warrantholder promptly after the fifth anniversary of the
Original Issue Date an amount in cash equal to the amount, if any, by which
$120,000 exceeds the Threshold #1 Spread. The Threshold #1 Spread shall
equal 83,333 multiplied by the amount by which the Highest Closing Price for
Threshold #1 (as defined below) exceeds the exercise price per share. If
this Warrant becomes exercisable with respect to Threshold #2 and does not
become exercisable with respect to Threshold #3 within three (3) years after
PAGE 59
the Original Issue Date, the Company agrees to pay to Warrantholder promptly
after the fifth anniversary of the Original Issue Date an amount in cash
equal to the amount, if any, by which $400,000 exceeds the sum of the
Threshold #1 Spread and the Threshold #2 Spread. The Threshold #2 Spread
shall equal 83,333 multiplied by the amount by which the Highest Closing
Price for Threshold #2 exceeds the exercise price per share. If this Warrant
becomes exercisable with respect to Threshold #3 within three (3) years after
the Original Issue Date, the Company agrees to pay to Warrantholder promptly
after the fifth anniversary of the Original Issue Date an amount equal to the
amount, if any, by which $1,000,000 exceeds the sum of the Threshold #1
Spread, the Threshold #2 Spread and the Threshold #3 Spread. The Threshold
#3 Spread shall equal 83,334 multiplied by the Highest Closing Price for
Threshold #3 over the exercise price per share. The Highest Closing Price
for a Threshold shall equal the highest closing price per share of the Common
Stock during the period beginning on the first day that the shares subject to
that Threshold become exercisable and ending on the fifth anniversary of the
Original Issue Date. The foregoing notwithstanding, if the Highest Closing
Price per share of the Common Stock of the Company does not exceed the
exercise price per share during such period, the Threshold Spread for that
Threshold shall equal zero.
9. Reservation of Warrant Shares; Authority; Validity. During the term
of this Warrant, the Company shall at all times reserve and keep available
from its authorized but unissued or treasury shares such number of shares of
its Common Stock as shall be issuable upon exercise of the Warrant. The
Company has all requisite corporate power and authority to execute, deliver,
and perform its obligations under this Warrant. Upon the Company's execution
of this Warrant, this Warrant shall have been duly authorized, executed, and
delivered, and shall constitute legal, valid, and binding obligations of the
Company, enforceable in accordance with its terms.
10. Listing or Qualification for Trading. The Company shall use its best
efforts to cause the Warrant Shares, immediately upon official notice of
issuance upon exercise of this Warrant, to be listed or admitted for trading
on such principal securities exchange, interdealer quotation system or market
within the United States of America, if any, on which other shares of Common
Stock are then listed or quoted, and to maintain such listing or
qualification for trading for so long as other shares of Common Stock are
listed or quoted thereon. The Company is under no obligation to register or
qualify this Warrant or the Warrant Shares under the Securities Act or any
state securities laws.
11. Notices. Any notice or other document required or permitted to be
given or delivered to the Registered Holder shall be delivered at, or sent by
certified or registered mail to the Registered Holder at the last address
shown on the books of the Company maintained for the registry and transfer of
the Warrants.
12. No Rights as Stockholder. This Warrant shall not entitle the
Registered Holder to any voting or other rights as a stockholder of the
Company.
13. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
PAGE 60
this Warrant and, in the case of such loss, theft or destruction, upon
delivery of an indemnity bond reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
14. Law Governing. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Missouri (excluding the
choice of law provisions thereof).
15. Miscellaneous. This Warrant and any provision hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party (or any predecessor in interest thereof) against which enforcement
of the same is sought. The headings in this Warrant are for purposes of
reference only and shall not affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, this Warrant is executed effective as of the day
and year first above written.
LABONE, INC.
By:
----------------------------------
Its:
---------------------------------
Accepted and agreed to:
-------------------------------------
Larry Glenn
PAGE 61
NOTICE OF INTENTION TO EXERCISE WARRANT
The undersigned hereby notifies LabOne, Inc. that he has elected to exercise
his right under the within Warrant to purchase shares of Common
Stock, and has effected a wire transfer to LabOne, Inc. or enclosed herewith
cash or a cashier's check payable to LabOne, Inc. in the total amount of
$ in payment of the Purchase Price for such shares. The
certificate(s) representing the shares of Common Stock being purchased should
be delivered in the denominations and to the persons described below:
No. of
Name Address Shares
---- ------- ------
Date:
-------------------- -------------------------------
Larry Glenn
PAGE 62
Exhibit 10.9
------------
LabOne Annual Incentive Plan
----------------------------
The Annual Incentive Plan is designed to motivate and reward the
accomplishment of targeted operating results. Prior to the beginning of
the fiscal year, the Compensation Committee establishes an operating earnings
goal under the Plan based upon the Committee's judgment of reasonable
operating earnings growth over the previous fiscal year. The size of the
incentive pool increases pursuant to a formula established by the Committee
as operating earnings increase over the minimum threshold. The incentive pool
is distributed in cash ratably to designated officers and managers at year end
according to a pre-established weighting. The weighting is based upon
senior management's subjective evaluations of each individual's potential
contribution to the Company's financial and strategic goals for the year,
and is reviewed and approved by the Committee.
PAGE 63
Exhibit 10.10
-------------
AMENDED AND RESTATED
INDEMNIFICATION AGREEMENT
THIS AMENDED AND RESTATED INDEMNIFICATION AGREEMENT ("Agreement") is made as
of the 12th day of November 1999, by and between LabOne, Inc., a Missouri
Corporation (the "Company"), and ("Indemnitee"), a
Director or Officer of the Company.
WHEREAS, the shareholders of the Company approved the form of this Agreement
on May 10, 1989, and the Board of Directors approved the amendment of certain
provisions of this Agreement on November 12, 1999; and
WHEREAS, it is essential to the Company to retain and attract as Directors
and Officers the most capable persons available; and
WHEREAS, the substantial increase in corporate litigation subjects Directors
and Officers to expensive litigation risks at the same time that the
availability and coverages of Directors' and Officers' liability insurance
have been severely limited; and
WHEREAS, it is now and has always been the express policy of the Company to
indemnify its Directors and Offices so as to provide them with the maximum
possible protection permitted by law; and
WHEREAS, Indemnitee does not regard the protection available under the
Company's Article of Incorporation, Bylaws and Directors' and Officers'
liability insurance, if any, as adequate in the present circumstances, and
may not be willing to serve or to continue to serve as a Director or Officer
without adequate protection, and the Company desires Indemnitee to serve in
such capacity.
NOW THEREFORE, the Company and Indemnitee do hereby agree as follows:
1. Agreement to Serve. Indemnitee agrees to serve or continue to serve
as Director or Officer of the Company and/or at the request of the Company as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in each case so long as Indemnitee
is duly elected or appointed, or until such time as Indemnitee resigns or is
removed. The provisions of this Paragraph relating to service by the
Indemnitee shall not be deemed to affect the terms of any employment or other
agreement now or hereafter in effect between the Company and the Indemnitee
governing such service.
2 Definitions. As used in this Agreement:
(a). The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, whether brought by or in the right of
the Company or otherwise, and whether of a civil, criminal, administrative or
investigative nature, in which Indemnitee may be or may have been involved as
a party or otherwise, by reason of the fact that Indemnitee is or was a
Director or Officer of the Company, or by reason of the fact that Indemnitee
is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action taken by Indemnitee, or of any
PAGE 64
inaction on Indemnitee's part, while acting as a Director of Officer of the
Company or as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise; in each case whether or
not Indemnitee is acting or serving in any such capacity at the time any
liability or Expense is incurred for which indemnification or reimbursement
can be provided under this Agreement. Except for actions brought to establish
rights of indemnification or advancement of expenses hereunder, a "Proceeding"
shall not include any action, suit or proceeding brought or claim made by
Indemnitee against the Company.
(b) The term "Expense" shall include, without limitation, expenses of
investigation, judicial or administrative proceedings or appeals, amounts paid
in settlement by or on behalf of Indemnitee, attorneys' fees and
disbursements, and any expenses of establishing a right to indemnification or
advancement of expenses under Paragraph 5 or 6 of this Agreement.
(c) References to "other enterprise" shall include employee benefit
plans; references to "fines" shall include any excise tax assessed with
respect to any employee benefit plan; and references to "serving at the
request of the Company" shall include any service as a Director, Officer,
employee or agent of the Company which imposes duties on, or involves service
by, such Director, Officer, employee, or agent with respect to an employee
benefit plan, its participants or beneficiaries.
3. Indemnification. The Company shall indemnify Indemnitee if
Indemnitee was or is a party to or threatened to be made a party to or
otherwise involved in any Proceeding by reason of the fact that Indemnitee is
or was a Director or Officer of the Company or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
all Expenses, judgments and fines actually and reasonably incurred by
Indemnitee in connection with the defense or settlement of such Proceeding,
but only if the Indemnitee's conduct was not finally adjudged to have been
knowingly fraudulent, deliberately dishonest or willful misconduct.
The Company shall not be liable under this agreement to make any payment in
connection with any claim made against Indemnitee (i) for an accounting of
profits made from the purchase or sale by Indemnitee of securities of the
Company in violation of Section 16(b) of the Securities Exchange Act of 1934
and amendments thereto, or (ii) for amounts paid in settlement of any
Proceeding without the consent of the Company, which consent shall not be
unreasonably withheld.
4. Notice and Defense of Proceeding. Within a reasonable time after
receipt by the Indemnitee of actual and not constructive notice of the
commencement of any Proceeding, the Indemnitee shall provide written notice to
the Company of the commencement thereof by delivery of a notice substantially
in the form attached hereto as Exhibit A or in such other form as the Company
may reasonably accept. The omission to so notify the Company will relieve it
from any liability which it may have to the Indemnitee in connection with such
Proceeding under this Agreement, but shall not relieve the Company from any
liability which it may have to Indemnitee otherwise than under this Agreement.
With respect to any such Proceeding:
(a) The Company shall be entitled to participate in the Proceeding at
its own expense.
PAGE 65
(b) Except as otherwise provided below, the Company may, at its option
and jointly with any other indemnifying party similarly notified and electing
to assume such defense, assume the defense of the Proceeding, with legal
counsel reasonably satisfactory to the Indemnitee. After notice from the
Company to the Indemnitee of its election to assume the defense of a
Proceeding, the Company will not be liable to the Indemnitee for Expenses
incurred by the Indemnitee in connection with such Proceeding under this
Agreement, including Paragraph 5 hereof, other than Indemnitee's reasonable
costs of investigation or participation in such Proceeding (including, without
limitation, travel expenses) and except as provided below. The Indemnitee
shall have the right to employ Indemnitee's own counsel in any Proceeding, but
the fees and expenses of such counsel incurred after notice from the Company
of its assumption of the defense of the Proceeding shall be at the expense of
the Indemnitee, unless (i) the employment of counsel by the Indemnitee has
been authorized by the Company, (ii) the Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and the
Indemnitee in the conduct of the defense of a Proceeding, or (iii) the Company
shall not in fact have employed counsel to assume the defense of a Proceeding,
in each of which cases the fees and expenses of the Indemnitee's counsel shall
be advanced by the Company as provided in Paragraph 5 hereof. The Company
shall not be entitled to assume the defense of any Proceeding brought by or on
behalf of the Company.
(c) If two or more persons, including the Indemnitee, may be entitled
to indemnification from the Company as parties to any Proceeding, the Company
may require the Indemnitee to use the same legal counsel as the other parties.
The Indemnitee shall have the right to use separate legal counsel in the
Proceeding, but the Company shall not be liable to the Indemnitee under this
Agreement, including Paragraph 5 hereof, for the fees and expenses of separate
legal counsel incurred after notice from the Company of the requirement to use
the same legal counsel as the other parties, unless the Indemnitee reasonably
concludes that there may be a conflict of interest between the Indemnitee and
any of the other parties required by the Company to be represented by the same
legal counsel.
(d) The Company shall not be liable to indemnify the Indemnitee under
this Agreement for any amounts paid in settlement of any Proceeding effected
without its written consent, which shall not be unreasonably withheld. The
Indemnitee shall permit the Company to settle any Proceeding that the Company
assumes the defense of, except that the Company shall not, without the
Indemnitee's written consent, settle any action or claim unless such
settlement includes a provision whereby the parties to the settlement
unconditionally release Indemnitee from all liabilities, damages, costs and
expenses in respect of claims by reason of the settlement or release of the
parties in such Proceeding.
5. Advances of Expenses.
(a) Except as provided in Paragraph 4 hereof, expenses incurred by the
Indemnitee pursuant to Paragraph 3 in any Proceeding shall be paid by the
Company in advance of the final disposition of the Proceeding upon the written
request of the Indemnitee, if Indemnitee shall undertake to repay such amount
to the extent that it shall ultimately be determined that Indemnitee is not
entitled to indemnification. Except as expressly provided in Paragraph 4(b)
hereof, no security shall be required by the Company in making Expense
advances, and such advances shall be made without regard to the Indemnitee's
PAGE 66
ability to repay the amount advanced and without regard to the Indemnitee's
ultimate entitlement to indemnification under this Agreement or otherwise.
(b) Indemnitee shall make an Expense advance request by delivery to
Company of a signed request substantially in the form attached hereto as
Exhibit B or in such other form as the Company may reasonably accept.
Advances requested by Indemnitee hereunder shall be paid by the Company no
later than ten days after receipt by the Company of the written request. In
the event the Company does not honor Indemnitee's request for an Expense
advance, Indemnitee may bring an action in any court of competent jurisdiction
to enforce the right to the advance, and the Company shall have the burden of
proof in such action to demonstrate that Indemnitee is not entitled to such
advance.
(c) Expenses submitted to the Company for reimbursement must be
reasonable and comply with the then existing billing procedures of the Company
so that the Company can reasonably monitor and audit such Expenses.
6. Right of Indemnitee to Indemnification Upon Application.
(a) In the event that Indemnitee becomes liable for any judgment,
penalty or fine, or pursuant to any settlement agreement, for which
indemnification may be provided under this Agreement, Indemnitee shall deliver
to the Company within a reasonable time a signed request substantially in the
form attached hereto as Exhibit C or in such other form as the Company may
reasonably approve. Any indemnification under Paragraph 3 shall be made no
later than forty-five (45) days after receipt by the Company of the written
request of Indemnitee. The determination of Indemnitee's right to
indemnification shall be made: (i) by a majority vote of directors who were
not parties to the Proceeding, even though less than a quorum, (ii) if there
are no such directors, or if such directors so direct, or if Indemnitee so
requests in writing at the time the Indemnitee submits the claim for
indemnification, by independent legal counsel in a written opinion, or (iii)
by the stockholders of the Company. Such independent legal counsel shall be
selected by the persons specified in (i), or if there are none or if a
majority vote thereof is not obtainable, by a majority vote of the entire
Board of Directors, which independent legal counsel shall be approved by the
Indemnitee in writing (which approval shall not be unreasonably withheld).
The Indemnitee shall be conclusively presumed to have met the applicable
standards of conduct for indemnification pursuant to this Agreement, unless
Indemnitee receives written notice of a determination that the Indemnitee has
not met such applicable standards of conduct within such 45 day period. If a
determination denying Indemnitee's claim is made by the persons specified in
(i) or (iii) above, such notice shall disclose with particularity the reasons
for such determination. If a determination denying Indemnitee's claim is made
by independent legal counsel, the notice shall include a copy of the related
legal opinion of such counsel.
(b) The right to indemnification or advances, as provided by this
Agreement, shall be enforceable by Indemnitee in any court of competent
jurisdiction. The burden of proving that indemnification is not appropriate
shall be on the Company. An actual determination by the directors or
stockholders of the Company or independent legal counsel that the Indemnitee
has not met the applicable standard of conduct shall not be admissible in such
action as evidence that the Indemnitee has not met the applicable standard of
conduct.
PAGE 67
7. Indemnification Hereunder Not Exclusive. The indemnification provided
by this Agreement shall not be deemed exclusive of any rights to which
Indemnitee may be entitled under the Articles of Incorporation, the Bylaws,
any agreement, any vote of shareholders or disinterested Directors, The
General and Business Corporation Law of Missouri, or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office. To the extent that a change in the Missouri General and
Business Corporation Law (whether by statute or judicial decision) permits
greater rights to indemnification and advancement of expenses by agreement
than would be afforded currently under this Agreement, it is the intent of the
parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change.
The Indemnification under this Agreement shall continue as to Indemnitee, even
though Indemnitee may have ceased to be a Director or Officer, and shall inure
to the benefit of the heirs and personal representatives of Indemnitee.
8. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments or fines actually and reasonably incurred
by him in the investigation, defense, appeal or settlement of any Proceeding
but not, however, for the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion of such Expenses, judgments or fines to
which Indemnitee is entitled.
9 Payments Excess to Other Indemnification; Subrogation. Notwithstanding
anything herein to the contrary, the Company shall not be obligated under this
Agreement in connection with any Expense, judgment or fine for which payment
is actually made to the Indemnitee under an insurance policy or any other
indemnification provision or agreement, except in respect of any excess beyond
the amount of such payment. The protection afforded to Indemnitee by this
Agreement is intended to be excess to any and all other rights of
indemnification to which Indemnitee is entitled. In this regard, the Company
shall, to the extent of any payments made hereunder, be subrogated to all
rights of Indemnitee to indemnification for Expenses, judgments or fines
resulting from or arising out of the Proceedings for which an indemnification
payment is made hereunder, pursuant to any other agreement to which Indemnitee
is a party or pursuant to which Indemnitee has rights or otherwise.
10. Maintenance of Liability Insurance.
(a) The Company represents that it currently has in effect the
following policy or policies of directors' and officers' liability insurance
("D&O Insurance Policies") which cover Indemnitee as an insured:
INSURER AMOUNT
------- ------
The Federal Insurance Company (Chubb) $15,000,000
Royal Surplus Lines Insurance Company $10,000,000
(b) The Company hereby covenants and agrees that, as long as the
Indemnitee continues to serve as a Director and/or Officer of the Company
and/or at the request of the Company as a director, officer, employee or agent
PAGE 68
of another corporation, partnership, joint venture, trust or other enterprise,
and thereafter as long as the Indemnitee may be subject to any possible
Proceeding, or is a party or is threatened to be made a party to any
Proceeding, the Company shall promptly obtain and maintain the D&O Insurance
Policies (or directors' and officers' liability insurance policies containing
coverage in amounts and on terms and conditions no less favorable than the D&O
Insurance Policies) in full force and effect, to the extent that such policies
are obtainable at an annual cost of not greater than twice the annual premium
on the date hereof, provided that if such coverage is not available for such
amount, the Company shall obtain and maintain as much coverage as possible for
such amount.
(c) In all such directors' and officers' liability insurance policies,
the Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's Directors.
(d) In addition to the other obligations of the Company under this
Agreement, and not in limitation thereof, if the Company, acting under
subparagraph (b) of this Paragraph 10, is unable to maintain in effect the D&O
Insurance policies, the Company shall indemnify and hold harmless Indemnitee
to the full extent of the coverage which would otherwise have been provided
for the benefit of Indemnitee pursuant to the D&O Insurance policies.
11. Change in Control. In the event that the Company shall be a
constituent corporation in a consolidation or merger, whether the Company is
the resulting or surviving corporation or is absorbed, or if there is a change
in control of the Company as defined in this Paragraph, Indemnitee shall stand
in the same position under this Agreement with respect to the resulting,
surviving or changed corporation as he would have with respect to the Company
if its separate existence had continued or if there had been no change in
control of the Company. "Change in control" shall include without limitation
any change in the ownership of a majority of the capital stock of the Company
or in the composition of a majority of the members of the Board of Directors
of the Company.
12. Deposit of Funds in Trust. In the event that the Company decides to
voluntarily dissolve or to file a voluntary petition for relief under
applicable bankruptcy, moratorium or similar laws, then not later than 10 days
prior to such dissolution or filing, the Company shall deposit in trust for
the exclusive benefit of Indemnitee a cash amount equal to all amounts
previously authorized to be paid to Indemnitee hereunder, such amounts to be
used to discharge the Company's obligations to Indemnitee hereunder. Any
amount in such trust not required for such purpose shall be returned to the
Company. This Paragraph 12 shall not apply to any dissolution of the Company
in connection with a transaction as to which Paragraph 11 hereof applies.
13. Change in Other Rights. The Company will not adopt any amendment to
the Articles of Incorporation or By-Laws of the Company the effect of which
would be to deny, diminish or encumber the Indemnitee's rights to
indemnification, advancement of expenses, exculpation or maintenance of the
D&O Insurance hereunder, under such other documents or under applicable law,
as applied to any act or failure to act occurring in whole in or part prior to
the date upon which any such amendment was approved by the Board of Directors
or the stockholders, as the case may be. Notwithstanding the foregoing, if
PAGE 69
the Company adopts any amendment to the Articles of Incorporation or By-Laws
the effect of which is to so deny, diminish or encumber such rights, such
amendment will apply only to acts or failures to act occurring entirely after
the effective date thereof.
14. Separability. Each provision of this Agreement is a separate and
distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof. To the extent required, any provision of this
Agreement may be modified by a court of competent jurisdiction to preserve its
validity and to provide the Indemnitee with the broadest possible
indemnification permitted under Missouri law.
15. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the Company
shall nevertheless indemnify Indemnitee as to Expenses, judgments and fines
with respect to any Proceeding to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated or by any other
applicable law.
16. Amendments. No amendment, waiver, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
the party against whom enforcement is sought. The rights to indemnification
and advancement of expenses afforded to the Indemnitee hereby are contract
rights and may not be diminished, eliminated or otherwise affected by
amendments to the Articles of Incorporation, Bylaws or by other agreements,
including D&O Insurance policies.
17. Notice. All notices, requests and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given (a)
upon delivery by hand to the party to whom the notice, request or other
communication shall have been directed or (b) on the third business day after
the date on which it is mailed by certified or registered mail with postage
prepaid, addressed as follows:
(i) if to the Indemnitee, to the address indicated on the signature
page, below said Indemnitee's signature, and
(ii) if to the Company, to:
LabOne, Inc.
10101 Renner Blvd.
Lenexa, Kansas 66219
Attention: Secretary
or to such other address as either shall designate in writing.
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
19. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri.
PAGE 70
20. Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be duly
executed and signed as of the day and year first above written.
LABONE, INC.
By:
-----------------------------
W. Thomas Grant II, President
INDEMNITEE:
--------------------------------
Address of Indemnitee:
PAGE 71
Exhibit 10.10
-------------
Exhibit A
LABONE, INC.
NOTICE OF
COMMENCEMENT OF PROCEEDING
1. This notification is provided pursuant to the Amended and Restated
Indemnification Agreement, dated as of November 12, 1999 (the "Indemnification
Agreement"), between LabOne, Inc., a Missouri corporation (the "Company"), and
the undersigned.
2. I have received actual notice of a Proceeding with respect to which I
may have certain rights under the Indemnification Agreement. The following is
a description of the Proceeding and my involvement in the Proceeding (as a
party, witness or otherwise
--------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
3. I have attached such documents relating to the matter described above
as are reasonably available to me and are reasonably necessary to determine
whether the Proceeding is subject to the terms of the Indemnification
Agreement.
-------------------------------------
Name:
--------------------------------
Date:
------------------
PAGE 72
Exhibit 10.10
-------------
Exhibit B
LABONE, INC.
REQUEST FOR
ADVANCEMENT OF EXPENSES
1. This Request is submitted pursuant to the Amended and Restated
Indemnification Agreement, dated as of November 12, 1999 (the "Indemnification
Agreement"), between LabOne, Inc., a Missouri corporation (the "Company"), and
the undersigned.
2. I am requesting advancement of Expenses (as defined in the
Indemnification Agreement) which I have incurred or will incur in connection
with a Proceeding (as defined in the Indemnification Agreement) for which I
may be entitled to indemnification pursuant to the Indemnification Agreement.
3. I hereby undertake to repay this advancement of Expenses if it is
ultimately determined that I am not entitled to be indemnified by the Company
under the Indemnification Agreement.
4. The Expenses for which advancement is requested are, in general, all
Expenses related to
----------------------------------------------------------
- -----------------------------------------------------------------------------
5. I have attached such documents relating to the matter described above as
are reasonably available to me and are reasonably necessary to determine
whether and to what extent I am entitled to advances of Expenses under the
Indemnification Agreement.
-------------------------------------
Name:
--------------------------------
Date:
-------------------
PAGE 73
Exhibit 10.10
-------------
Exhibit C
LABONE, INC.
INDEMNIFICATION CLAIM
1. This Indemnification Claim is submitted pursuant to the Amended and
Restated Indemnification Agreement, dated as of November 12, 1999 (the
"Indemnification Agreement"), between LabOne, Inc., a Missouri corporation
(the "Company"), and the undersigned.
2. I am requesting indemnification in connection with a Proceeding (as
defined in the Indemnification Agreement) in which I was or am involved or am
threatened to be made involved.
3. With respect to all matters related to any such Proceeding or claim, I
believe that I am entitled to be indemnified pursuant to the provisions of the
Indemnification Agreement.
4. Without limiting any other rights which I have or may have, I am
requesting indemnification against liabilities which have or may arise out of
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
5. To the extent known to me, the amount requested for indemnification is
as follows
-------------------------------------------------------------------
- -----------------------------------------------------------------------------
6. I have attached such documents supporting this request as are reasonably
available to me and are reasonably necessary to determine whether and to what
extent I am entitled to indemnification under the Indemnification Agreement.
-------------------------------------
Name:
--------------------------------
Date:
-------------------
PAGE 74
Exhibit 24
----------
Power of Attorney
The undersigned hereby appoint Gregg R. Sadler as attorney-in-fact, to execute
in name and on behalf of the undersigned the Form 10-K Annual Report of
LabOne, Inc., to be filed with the Securities and Exchange Commission for its
fiscal year ended December 31, 1999.
Dated: February 11, 2000
/s/ Joseph H. Brewer MD
------------------------------
Joseph H. Brewer, MD, Director
/s/ Peter C. Brown
------------------------------
Peter C. Brown Director
/s/ William D. Grant
------------------------------
William D. Grant, Director
/s/ Richard A. Rifkind
------------------------------
Richard A. Rifkind, MD, Director
/s/ Richard S. Schweiker
------------------------------
Richard S. Schweiker, Director
/s/ James R. Seward
------------------------------
James R. Seward, Director
/s/ Janet M. Stallmeyer
------------------------------
Janet M. Stallmeyer, Director
/s/ Chester B. Vanatta
------------------------------
Chester B. Vanatta, Director
/s/ John E. Walker
------------------------------
John E. Walker, Director
/s/ R. Dennis Wright
------------------------------
R. Dennis Wright, Director
PAGE 75
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
1999 Annual Report on Form 10-K for LabOne, Inc. and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000830158
<NAME> LABONE, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,983,644
<SECURITIES> 0
<RECEIVABLES> 28,313,245
<ALLOWANCES> 1,981,285
<INVENTORY> 3,186,853
<CURRENT-ASSETS> 37,246,888
<PP&E> 80,910,886
<DEPRECIATION> 38,106,948
<TOTAL-ASSETS> 118,442,724
<CURRENT-LIABILITIES> 17,798,088
<BONDS> 28,255,139
0
0
<COMMON> 130,500
<OTHER-SE> 70,898,997
<TOTAL-LIABILITY-AND-EQUITY> 118,442,724
<SALES> 0
<TOTAL-REVENUES> 119,666,534
<CGS> 0
<TOTAL-COSTS> 71,543,532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,877,949
<INTEREST-EXPENSE> 1,410,009
<INCOME-PRETAX> 6,980,849
<INCOME-TAX> 3,355,698
<INCOME-CONTINUING> 2,858,776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,858,776
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.27
</TABLE>
Exhibit 99
----------
Cautionary Statement Regarding Forward-Looking Statements
LabOne has made forward-looking statements in the accompanying Form 10-K, and
in the other documents that we refer to in the 10-K. Forward-looking
statements are statements that are not historical in nature and can often be
identified by the use of forward-looking terminology, such as "believes",
"expects," "may," "should," "could," "intends," "plans," 'estimates" or
"anticipates," variations of these words or similar expressions. Examples of
forward-looking statements include:
pro forma financial statements and projections relating to revenues,
income or loss, earnings or loss per share, financial condition, capital
expenditures, the payment or non-payment of dividends, and other
financial items;
statements of plans and objectives;
statements of future economic performance; and
statements of the assumptions underlying these statements.
Forward-looking statements are not guarantees of future performance or
results. They involve risks, uncertainties and assumptions. Future results
of operations, financial condition, business and stock values of LabOne may
be materially different from those described in these forward-looking
statements. Shareholders of LabOne are cautioned not to put undue reliance
on any forward-looking statement.
Among the factors that could cause actual results to be materially different
from those described in the forward-looking statements are the following:
Amortization of Goodwill. Amortization of goodwill at the annual rate of
approximately $4.1 million in 2000 and 2001, $3.4 million in 2002, $2.1
million in 2003 and thereafter at the rate of approximately $1.6 million
until 2019 will not decrease cash generated from operations but could
depress the market price of LabOne's stock if the stock price is influenced
by investors that focus primarily on net earnings rather than on earnings
before interest, taxes, depreciation and amortization.
Growth Strategy. LabOne' growth strategy includes acquiring ongoing
businesses and entering into strategic alliances. We cannot guarantee that
we will continue growing, through this growth strategy or otherwise. We may
not be able to acquire attractive businesses on reasonable terms. We may
have difficulty integrating an acquired business with our existing operations
or in retaining key personnel of the acquired business to work for us.
Issuance of equity securities in acquisitions could be dilutive to our
existing shareholders. These risks, together with the inability to use
pooling of interests accounting for future acquisitions, could result in
negative rather than positive results.
Possible Elimination of Pooling. The Financial Accounting Standards Board
has announced that it plans to eliminate pooling of interests accounting for
acquisitions initiated after it issues a final standard on this subject,
which it expects to do in late 2000. If this proposal is adopted, future
acquisitions would have to be accounted for using the purchase method of
PAGE 76
accounting. Purchase accounting creates an intangible goodwill asset to the
extent that the cost of the acquisition exceeds the fair value of the assets
acquired. This goodwill must then be amortized over periods up to 40 years,
thereby reducing earnings by the amount of the periodic charge. The FASB has
indicated that it may shorten the period of such amortization, and this would
increase the periodic charge against earnings. Purchase accounting and
shortened amortization periods may make fewer acquisition opportunities
feasible for us due to their possible dilutive effect on future earnings.
Debt Service Obligations. Our debt service obligations are subject to the
normal risks of debt financing and could impair our ability to pursue
acquisition and growth strategies that would otherwise be available and could
impact our future operating results if we borrow funds to complete
acquisitions in the future.
Need for Growth in Clinical Testing. LabOne's clinical testing business may
not become profitable unless we increase the number of clinical tests we
perform. LabOne is incurring substantial costs in expanding its business to
provide clinical testing services to the healthcare industry. The expenses
associated with this business, particularly labor costs for our testing work
force, are relatively fixed over the short term. The primary means of
increasing our profit margin is to increase the volume of tests we perform.
Although we have been successful to date in marketing our clinical testing
services, we cannot guarantee that the revenues in this business will
continue to grow at historical rates. If revenues do not continue to grow,
our clinical testing business will not become profitable.
Changes in Testing Ordered by Life Insurance Companies. Our only currently
profitable business is providing risk-appraisal laboratory testing services
to the life insurance industry. The level of demand for such services is
influenced by a number of factors, including
the number of life insurance applications written,
the policy amount thresholds at which insurance companies order testing,
the type and costs of tests requested,
testing innovations approved by the Food and Drug Administration,
the extent to which insurance companies may create in-house testing
facilities, and
the development in the future of suitable on-site rapid assay testing
products that eliminate the need for centralized testing.
Many of these factors are beyond our control. Any adverse changes in life
insurance industry demand for testing services could significantly reduce our
profits.
Increased Competition in Life Insurance Testing Business. We have competed
in the life insurance testing business by offering more complete and higher
quality services than our competitors at competitive prices. Many of our
competitors are attempting to charge lower prices than we are. If they
continue to lower prices and our customers refuse to pay higher prices for
better service, our profits will be reduced.
Cost Reduction Efforts in the Healthcare Industry. Managed-care
organizations, third-party payers, Medicate, Medicaid and insurance companies
PAGE 77
have increased efforts to control the cost and utilization of health care
services, including laboratory testing. Continued cost-cutting efforts may
further erode the volume of testing and profit margins in the industry and
adversely affect our clinical laboratory operations.
Our Testing Services Create a Risk of Legal Liability. Our clients rely on
the accuracy of our testing to make significant insurance, treatment and
hiring and firing decisions. We could be required to pay substantial damages
if the number of reports containing false positive or false negative results
increased. In addition, federal and state laws regulate the disclosure of
specimen testing results. If we do not adequately protect the
confidentiality of test subjects, we could incur significant liability. We
have insurance to cover these types of claims, but we cannot guarantee that
this coverage is adequate. Uninsured claims could adversely affect our
profits and financial condition.
Disruption in Express Delivery Service Could Harm our Business. We generally
rely on express couriers to transport specimens to our laboratory quickly and
safely. A disruption in these couriers' business resulting from a labor
dispute or other event could harm our business.
Competitive On-Site Rapid Assay Tests Could Hinder our Growth. We serve
customers through laboratory-based testing facilities. Although there are
some on-site rapid assay testing products in the marketplace, rapid assays
have not achieved broad market acceptance due to the high cost of such
assays, difficulties in maintaining the confidentiality of tests, liability
concerns, less accurate testing results and the absence of a broad testing
menu. If more competitive assays become available, such products could be
substituted for laboratory based testing and have an adverse impact on our
financial condition and results of operations.
Other factors that could cause actual results to be materially different from
those described in the forward-looking statements include the following:
materially adverse changes in general economic conditions or in the
markets served by us;
our ability to successfully market our services to new customers in new
markets;
the volume, pricing and mix of laboratory tests that we perform;
our ability to complete and integrate appropriate acquisitions,
strategic alliances and joint ventures;
acquisition costs, restructuring and other charges associated with
acquisitions;
changes in our management personnel;
our ability to obtain and maintain certifications required by our
customers;
future changes in laws and regulations, including regulations affecting
government reimbursement for clinical laboratory testing, and
regulations governing anti-fraud and abuse, drug testing, and
environmental and occupational safety;
PAGE 78
supply interruptions or cost increases for the insurance testing kits,
testing agents and other laboratory supplies that we need; and
damage or interruption of telecommunications or other critical services
at our single testing facility owing to natural disasters or other
causes that are not covered by our business interruption insurance.
Other factors not identified in this document could also cause actual results
to vary materially from those described in the forward-looking statements.
All forward-looking statements made in the accompanying Form 10-K are made as
of the date of the document. We may not publicly update or correct any of
these forward-looking statements in the future.
PAGE 79
