<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1996 Commission File Number 34-0-20400
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
Michigan 38-2986640
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ATTN: Alan S. Ker, Chief Financial Officer
26500 Northwestern Hwy., Suite 400, Southfield, Michigan 48076
(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (810) 358-0810
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Number of shares of common stock, no par value, outstanding as of July 31,
1996: 6,532,552.
<PAGE> 2
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
at June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of 4
Income for the three and six months ended
June 30, 1996 and 1995
Condensed Consolidated Statements of 5
Cash Flows for the six months ended
June 30, 1996 and 1995
Notes to Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of
Operations
Part II. OTHER INFORMATION 15
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K 16
-2-
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item I. Financial Statements
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,890 $ 999
Restricted Cash 1,013 0
Accounts receivable, net of allowance for contractual
adjustments and uncollectible accounts of $9,087
and $8,580 at June 30, 1996 and
December 31, 1995, respectively 10,114 12,405
Inventory 1,081 1,072
Prepaid expenses and other 3,578 3,660
-------- --------
Total current assets 18,676 18,136
Property and equipment, net 9,670 9,062
Intangible assets, net 35,751 36,790
Other assets 1,452 578
-------- --------
Total assets $ 65,549 $ 64,566
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,847 $ 4,412
Accounts payable 5,063 5,739
Accrued liabilities 4,905 4,855
-------- --------
Total current liabilities 12,815 15,006
Long-term debt, net of current portion 19,274 12,443
Other liabilities 2,007 3,149
-------- --------
Total liabilities 34,096 30,598
-------- --------
Common stock, no par; 20,000,000 shares
authorized; 6,532,552 shares issued and outstanding 32,725 32,242
Retained earnings (1,272) 1,726
-------- --------
Total stockholders' equity 31,453 33,968
-------- --------
Total liabilities and stockholders' equity $ 65,549 $ 64,566
======== ========
</TABLE>
The accompanying notes are an integral
part of the condensed consolidated financial statements.
3
<PAGE> 4
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
--------- -------- ------ --------
<S> <C> <C> <C> <C>
Net laboratory service revenue:
Fee-for-service $ 10,217 $ 12,518 $ 21,103 $ 25,378
Managed care 4,598 4,548 9,266 8,799
-------- -------- -------- --------
Total net revenue 14,815 17,066 30,369 34,177
Operating expenses:
Laboratory 10,493 10,995 20,790 21,739
Selling, general and administrative 3,297 3,798 6,569 7,627
Provision for doubtful accounts 1,057 608 1,971 1,409
Special Charge 2,407 0 2,407
Depreciation 570 527 1,143 1,045
Amortization 560 521 1,098 1,038
-------- -------- -------- --------
Total operating expenses 18,384 16,449 33,978 32,858
-------- -------- -------- --------
Operating income (loss) (3,569) 617 (3,609) 1,319
Interest expense 480 407 893 806
Other income, net (41) (6) (74) (46)
-------- -------- -------- --------
Income (loss) before income taxes (4,008) 216 (4,428) 559
Income taxes (benefit) (1,330) 105 (1,430) 263
-------- -------- -------- --------
Net income (loss) ($2,678) $ 111 ($2,998) $ 296
======== ======== ======== ========
Net income per share ($0.40) $0.02 ($0.45) $0.05
Average shares outstanding and
common equivalent shares 6,716 6,377 6,621 6,372
</TABLE>
The accompanying notes are an integral
part of the condensed consolidated financial statements.
4
<PAGE> 5
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------- --------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 124 $ 635
------- --------
Cash flows from investing activities:
Purchase of property and equipment (1,114) (473)
Restricted cash investment (1,013) -
Other investing activities (7) -
------- -------
Net cash used in investing activities (2,134) (473)
------- -------
Cash flows from financing activities:
Payments on long-term debt (8,167) (2,227)
Long-term/Short-term borrowings 1,000 1,100
Proceeds from issuance of Convertible Debenture 12,000 -
Payments of financing costs (919) -
Other financing activities (13) (57)
------- -------
Net cash provided by (used in) financing 3,901 (1,184)
activities ------- -------
Net increase (decrease) in cash and cash equivalents 1,891 (1,022)
Cash and cash equivalents, beginning of period 999 1,290
------- -------
Cash and cash equivalents, end of period $ 2,890 $ 268
======= =======
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
<PAGE> 6
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
In the opinion of management, the condensed consolidated financial statements
include all adjustments, consisting of normal recurring items, necessary for a
fair presentation of financial position and results of operations. The results
of operations are not necessarily indicative of the results which may be
expected for the full year.
Certain amounts included in the financial statements for the quarter ended June
30, 1995 have been reclassified to conform with the presentation of the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
2. Income Taxes
The effective income tax rate of 33.2% and 32.3% for the three month and six
months ended June 30, 1996, respectively, is less than the statutory rate of
34% principally due to non-deductible goodwill.
3. Earnings Per Share
Earnings per share has been computed using the weighted average number of
shares of common stock and common stock equivalents outstanding. Common stock
equivalents represent the assumed exercise of outstanding stock options and
warrants.
4. Long-term debt
On February 20, 1996, the Company completed an offering of $12,000,000
principal amount of 8.25% Convertible Subordinated Debentures (the
"Debentures") due February 1, 2006. Interest is payable semi-annually on each
February 1 and August 1, commencing August 1, 1996, with interest accruing from
the date of issuance. The Debentures are convertible, at
-6-
<PAGE> 7
any time prior to maturity, unless previously redeemed or repurchased, into
shares of common stock of the Company at a conversion price of $4.375 per
share, subject to adjustment in certain events. The net proceeds received by
the Company from the sale of the Debentures was approximately $11 million after
deducting offering fees and expenses. The Company used $2.5 million of the net
proceeds to repay a $2.5 million note payable to a wholly owned subsidiary,
pursuant to a repayment plan with the State of Michigan Insurance Bureau. The
Company used the remainder of the net proceeds as follows: $2.0 million was
used to reduce the amount outstanding under the term loan, $0.5 million was
used to repay the amounts outstanding under the supplement line of credit and
the remainder was used to reduce the amount outstanding on the revolving line
of credit and for general working capital purposes.
As of December 31, 1995, the Company had a credit facility which included a
$4.1 million term loan, an $8.0 million revolving line of credit and a $1.0
million supplemental revolving line of credit. Following the completion of the
Debenture Offering, the borrowing limit on the revolving line of credit was
reduced to $5.5 million and a $2.5 million acquisition line of credit was
included in the facility. Borrowing levels under the revolving line of credit
are based on accounts receivable balances. At June 30, 1996, all available
borrowings under the revolving line of credit were utilized. The credit
facility requires the maintenance of certain financial ratios. These ratios
were amended in March 1996 to require the Company to maintain certain cash
flow coverage ratios, (revised from 1.25 to 1 to .75 to 1 through March 31,
1996, from 1.25 to 1 to 1.10 to 1 through June 30, 1996 and 1.25 to 1 for
periods thereafter). The Company was not in compliance with these financial
covenants under the revolving line at June 30, 1996, which were waived by the
lender. The Company is currently in discussions with the lender regarding
revising the financial covenants under the revolving line applicable to the
third quarter of 1996 and periods thereafter. In addition the Company is
required to maintain a $1.0 million restricted account with the lender, which
can only be withdrawn by the lender to make payments to the lender or interest
payments on the Debenture. The credit facility bears interest from 0.5% below
to 1.25% above the prime rate, based on the Company's achievement of certain
cash flow ratios. At June 30, 1996, the interest rate under the facility was
8.25%.
5. Special Charge
Special Charge in the amount of $2.4 million was taken in the second quarter
1996. This charge principally reflects the Re-Engineering/Cost Reduction Plan
initiated during the quarter, which includes costs related to the addition of
key personnel, implementation of process engineering and TQM processes and
personnel and facility cost reductions.
-7-
<PAGE> 8
6. Contingencies
The Company has from time to time experienced compliance reviews, including
reviews of its billing practices, by its third-party payors. The Company has
not yet received final determination notices or decision letters relating to
compliance reviews conducted by two of its largest third-party payors. The
ultimate effect, if any, of these compliance revenues cannot be determined at
this time and no liability has been accrued by the Company.
The Internal Revenue Service ("IRS") is currently examining the Company's
federal income tax returns for 1991-1994. This period includes the acquisition
of the business of MML, Inc. ("MML"). Although no deficiencies have been
asserted, the IRS may propose adjustments that could have a material adverse
effect on the consolidated financial position and results of operations of the
Company.
In connection with the acquisition of MML, the Company has agreed to indemnify
MML and its shareholders (including certain officers, directors and
shareholders of the Company) under certain circumstances for income tax
liabilities arising from such acquisition and indemnification. On July 13,
1995, MML and its shareholders received notices of deficiency from the IRS.
The IRS deficiency assessments relating to the acquisition total approximately
$4.9 million, excluding interest and penalties which could be assessed. In
October 1995, the Company (pursuant to its rights under the related acquisition
agreement) filed petitions with the United States Tax Court contesting the
deficiency. The Company believes that the acquisition has been treated
properly for federal income tax purposes and intends to vigorously defend its
position. However, there can be no assurance that the Company will resolve
this dispute with the IRS in a manner favorable to the Company. The failure to
resolve the dispute with the IRS in a manner favorable to the Company would
result in a current period charge to earnings and would have a material adverse
effect on the business, financial condition, including working capital, and
results of operations of the Company. While management believes its
indemnification liability, if any, will not be material to the Company, the
ultimate effect, if any, cannot be determined at this time. The foregoing
statement may be a "forward looking statement" within the meaning of the
Securities Exchange Act of 1934. The outcome of MML's dispute with the IRS
involves a number of uncertainties, including those inherent in interpreting
and applying the Internal Revenue Code and other federal income tax authority
and precedent to actual transactions, those relating to the valuation of
various assets at the time of the acquisition and those inherent in pursuing
any legal action of the type instituted by the Company. The Company has not
accrued a liability relating to the deficiency assessments.
-8-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Results of Operations
The following table sets forth, for the periods indicated, the percentage of
net revenue represented by items in the statements of income.
<TABLE>
<CAPTION>
=========================================================================
Three Months Ended Six Months Ended
- -------------------------------------------------------------------------
June 30, June 30,
1996 1995 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fee-for-service 69.0% 73.4% 69.5% 74.3%
- -------------------------------------------------------------------------
Managed care 31.0% 26.6% 30.5% 25.7%
- -------------------------------------------------------------------------
Total net revenue 100.0% 100.0% 100.0% 100.0%
- -------------------------------------------------------------------------
Laboratory expenses 70.8% 64.4% 68.5% 63.6%
- -------------------------------------------------------------------------
Selling, general and
administrative expenses 22.3% 22.3% 21.6% 22.3%
- -------------------------------------------------------------------------
Provision for doubtful accounts 7.1% 3.5% 6.5% 4.1%
- -------------------------------------------------------------------------
Special charge 16.3% 7.9%
- -------------------------------------------------------------------------
Depreciation and amortization 7.6% 6.2% 7.4% 6.1%
- -------------------------------------------------------------------------
Operating income -24.1% 3.6% -11.9% 3.9%
- -------------------------------------------------------------------------
Interest expense 3.3% 2.3% 2.9% 2.3%
- -------------------------------------------------------------------------
Other income, net -0.3% 0.0% -0.2% -0.1%
- -------------------------------------------------------------------------
Income taxes -9.0% 0.6% -4.7% 0.8%
- -------------------------------------------------------------------------
Net Income -18.1% 0.7% -9.9% 0.9%
- -------------------------------------------------------------------------
EBITDA * -16.5% 9.8% -4.5% 10.0%
- -------------------------------------------------------------------------
Net cash provided by operating
activities** 10.6% 1.5% 0.4% 1.9%
=========================================================================
</TABLE>
-9-
<PAGE> 10
* EBITDA represents earnings before interest, taxes, depreciation, amortization
and other (income) expense. The Company and laboratory industry analysts use
EBITDA as a method of measuring and comparing the financial performance of
clinical laboratory companies, many of which were formed by combining with and
acquiring other clinical laboratory companies, because it eliminates the
effects of goodwill amortization and acquisition expenses on net income.
EBITDA should not be considered as an alternative to net income as an indicator
of the Company's operating performance or to cash flows as a measure of the
Company's liquidity.
** Net cash provided by operating activities is determined in accordance with
generally accepted accounting principles and is included in the Company's
Condensed Consolidated Statements of Cash Flows. The amount for each period is
determined by adjusting net income for the period for non-cash expense items,
including restructuring and special charge, depreciation and amortization,
extraordinary item and deferred income taxes, and for increases and decreases
in asset and liability items other than those relating to financing and
investing activities.
Net Revenue. The Company's net revenue is generated from managed care
laboratory programs with major employers, union and government benefit plans,
and from traditional laboratory fee-for-service business. In the Managed Care
Programs, for a fixed monthly payment, the Company is the designated provider
of substantially all non-hospital clinical laboratory testing which may be
ordered by a Program Member's physician of choice and, in some cases, certain
medical equipment and appliances. In the fee-for-service business, the Company
charges a fee based upon the type of test requested by the patient's
physician.
Total net revenue was $14.8 million in the second quarter of 1996, compared to
$17.1 million in the second quarter of 1995. Total net revenue for the first
half of 1996 was $30.4 million, compared to $34.2 million for the first half of
1995. Increases in managed care revenue over the same quarter and six month
period of 1995 were more than offset by the decline in fee-for service revenue,
principally as a result of the previously reported loss of fee-for-service
business attributable to the implementation in 1995 of a new PPO, Blue Shield
Premier Plus PPO, in which the Company is not a participating provider and the
reduction of testing facilities in Michigan.
Managed care revenue was $4.6 million for the second quarter of 1996, as
compared to $4.5 million for the second quarter of 1995. Managed Care revenue
for the first half of 1996 increased to $9.3 million, representing an increase
of $.5 million, or 5% over the comparable period of 1995. This increase is
principally due to the new home medical services program that commenced in June
1995, partially offset by decreases in program members due to lower
participation levels in existing programs and program terminations and fee
reductions in an existing program upon renewal.
Fee-for-service revenue was $10.2 million for the second quarter of 1996
compared to $12.5 million for the second quarter of 1995. Fee-for-service
revenue was down 18.4% as compared to the same quarter last year, primarily due
to a 10.9% decline in fee-for-service accessions. Fee-for-service revenue for
the first six months of 1996 was $21.1 million, compared to $25.4
-10-
<PAGE> 11
million for the first six months of 1995. Fee-for-service revenue was down
16.9% as compared to the first half of last year, primarily due to a 10.1%
decline in fee-for-service accessions. The decline in accessions is
principally due to the implementation in 1995 of a new PPO, Blue Shield Premier
Plus PPO, in which the Company is not a participating provider and the
reduction of testing facilities in Michigan. Declines in fee-for-service
revenue per accession, principally due to changes in payor and test mix, also
contributed to the declines in fee-for-service revenue.
The Company's fee-for-service net revenue continues to be negatively impacted
in 1996 by a number of factors, including customer attrition resulting from
recent cost reduction efforts as described above, the shift toward managed care
alternatives, reductions in reimbursement levels on certain of its laboratory
tests primarily due to reimbursement changes instituted by the Company's
third-party payors beginning in August 1993 and changes in payor and test mixes
being experienced by the Company and the clinical laboratory industry
generally.
The Company's clinical laboratory testing operations are partially affected by
seasonal trends common to the clinical laboratory industry. Testing volume is
lower during the summer months and the year-end holiday periods. These
seasonal effects are partially offset by the Managed Care revenues which are
not affected by seasonal trends.
Laboratory Expenses. Laboratory expenses were $11.0 million and $10.5 million
in the second quarter of 1995 and 1996, respectively. Laboratory expenses for
the first six months of 1996 were $20.8 million compared to $21.7 million for
the first six months of 1995. Laboratory expenses for the three and six months
ended June 30, 1996 were lower than the comparable periods of 1995 primarily as
a result of the cost reductions, as well as lower accessions discussed above.
As a percentage of net revenue, laboratory expenses increased from 64.4% and
63.6% for the three and six months ended June 30, 1995, respectively, to 70.8%
and 68.5% for the three and six months ended June 30, 1996, respectively. This
increase is principally due to the declines in fee-for-service revenue
discussed above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three and six months ended June 30, 1996
decreased $.5 million and $1.0 million, respectively, or 13.2% and 13.9%, from
the comparable 1995 periods. These decreases are primarily due to the
Company's reengineering/cost reductions programs. As a percentage of net
revenue, selling, general and administrative expenses was 22.3% for the three
and six months ended June 30, 1995, respectively, as compared to 22.3% and
21.6% for the three and six months ended June 30, 1996.
Provision for Doubtful Accounts. The provision for doubtful accounts increased
from $.6 million in the second quarter of 1995 to $1.1 million in the second
quarter of 1996, an increase of $.5 million. The provision increased $.6
million in the first half of 1996 as compared to the first half of 1995, from
$1.4 million to $2.0 million. These increases are principally due increases in
uncollectible direct patient billings.
As a percentage of total revenue, the provision for doubtful accounts increased
from 3.5% and 4.1% for the three and six months ended June 30, 1995 to 6.5% and
7.1% for the comparable 1996 periods. This increase is mainly due to the
declines in fee-for-service revenue as discussed above.
Special Charge. The Company recorded a special charge of $2.4 million in the
second quarter
-11-
<PAGE> 12
of 1996. This charge principally reflects the Reengineering/Cost Reduction
Plan initiated during the quarter, which includes the addition of key
management personnel, the implementation of process engineering and TQM
processes and personnel and facility cost reductions.
EBITDA. EBITDA was a loss of $2.4 million, or 16.5% of net revenue for the
second quarter of 1996, compared to $1.7 million, or 9.8% of net revenue for
the second quarter of 1995. Without the $2.4 million special charge, EBIDTA
for the second quarter 1996 would have been zero. EBITDA for the first six
months of 1996 was a loss of $1.4 million, or 4.5% of net revenue, compared to
$3.4 million, or 10.0% for the year-ago period. EBIDTA for the first six
months of 1996 would have been $1.0 million or 3.4% of net revenue without the
special charge. The Company attributes these decreases principally to the
decline in fee-for-service accessions discussed above.
Income Taxes. The effective income tax rate of 33.2% and 32.3% for the three
and six months ended June 30, 1996, respectively, is less than the statutory
rate of 34% principally due to non-deductible goodwill.
Liquidity and Capital Resources. The Company's working capital ratio increased
to 1.5 to 1 at June 30, 1996 from 1.2 to 1 at December 31, 1995. Working
capital increased to $5.9 million at June 30, 1996 from $3.1 million at
December 31, 1995. These increases resulted primarily from the completion of
the Company's public offering of $12.0 million principal amount of its 8.25%
Convertible Subordinated Debentures due 2006 (the "Debentures"), described
below, principally offset by decreases in accounts receivable and increases in
accrued liabilities due to the special charge. Included in cash and cash
equivalents at June 30, 1996 is $2.5 million in cash deposits of one of the
Company's wholly owned managed care subsidiaries, which is generally permitted
to make distributions to the Company only out of the subsidiary's earned
surplus and to the extent certain other regulatory requirements are satisfied.
Net cash flow from operating activities was $.1 million for the six months
ended June 30, 1996, compared to $.6 million for the year-earlier period. This
decline is principally due to the decrease in net revenue as described above.
Days outstanding in accounts receivable were 86 days at June 30, 1996, compared
to 97 days at December 31, 1995. This decline and the decline in accounts
receivable is principally due to improved collections and, to a lesser extent,
increased accounts receivable reserves. Days outstanding in accounts
receivable remain high primarily as a result of missing patient information,
causing unbilled accounts. The Company is continuing its efforts to reduce
days outstanding, principally by working its aged and unbilled accounts
receivable.
On February 20, 1996, the Company completed the public offering of $12.0
million principal amount of Convertible Subordinated Debentures (the"Debenture
Offering"). The Debentures bear interest at a rate of 8.25% per annum, payable
semi-annually beginning August 1, 1996, and the principal amount of the
Debentures is payable in full on February 1, 2006. The Debentures are
redeemable by the Company during their term, but may be redeemed by the Company
prior to February 1, 1999 only under certain circumstances. In addition, under
certain circumstances (generally involving a change in control of the Company
or a sale of the Company's managed care business), the Company may be required
to redeem the Debentures. The Debentures are convertible into shares of Common
Stock at a price of $4.375 per share.
-12-
<PAGE> 13
The Company realized net proceeds of approximately $11.0 million for the
Debenture Offering, which was used as follows: $2.5 million was used to repay
an intercompany note to one of its wholly owned subsidiaries pursuant to a
repayment plan with the State of Michigan Insurance Bureau, $2.0 million was
used to reduce the amount outstanding under the term loan, $.05 million was
used to repay the amount outstanding under the supplemental line of credit and
the remainder was used to reduce the amount outstanding on the revolving line
of credit and for general working capital purposes.
At June 30, 1996, all available borrowings under the revolving line of credit
were utilized. The Company was not in compliance with certain financial
covenants under the revolving line at June 30, 1996, which were waived by the
lender. The Company is currently in discussions with the lender regarding
revising the financial covenants under the revolving line applicable to the
third quarter of 1996 and periods thereafter. See Item I - Note 4 to Notes to
Condensed Consolidated Financial Statements.
The ratio of debt to capital was 41.3% at June 30, 1996 compared to 33.2% at
December 31, 1995. This increase is principally due to the issuances of the
Debentures, offset by net losses in the first six months of 1996.
The Company expects to incur capital expenditures of approximately $.8 million
during the remainder of 1996 for new data processing and laboratory equipment.
The Company expects to fund its working capital needs, capital expenditures
required for the operation of its business and debt service requirements from
its operating cash flow, including cash flow from its subsidiary conducting
managed care operations in Michigan. The Company believes that it will
generate increased levels of operating cash flow in future periods due to
increased collection of unbilled and billed accounts receivable, primarily as a
result of reengineering efforts implemented to date and in the future,
including incentive pay programs, new computer programs, revised staffing and
revised processing procedures. The foregoing statement may be a "forward
looking statement" within the meaning of the Securities Exchange Act of 1934.
The Company's ability to generate increased levels of operating cash flow
involves a number of uncertainties. For example, any such increases in
operating cash flow generated from improvements in the collection process may
be more than offset by decreases in revenues, particularly if third-party
reimbursement levels continue to decrease or the Company continues to
experience declines in accessions or fee-for-service revenue per accession as
described above under "--Results of Operations - Net Revenue". In addition,
the Company's reengineering efforts may not be effective in improving the
efficiency of the Company's collection process in a timely fashion or at all.
Because of limitations under applicable regulatory requirements, from time to
time the Company's managed care subsidiary in Michigan may not be able to make
cash distributions to the Company at levels required to fully fund the
Company's operating cash flow requirement. In the event that the Company is
not able to generate increased levels of operating cash flow as anticipated or
to receive cash distributions from its managed care subsidiary in Michigan to
the extent required to fund the Company's operating cash flow requirements, the
Company may need to seek additional financing to meet its operating cash needs.
The Company has from time to time experienced compliance reviews, including
reviews of its billing practices, by its third-party payors. The Company has
not yet received final determination notices or decision letters relating to
compliance reviews conducted by two of
-13-
<PAGE> 14
its largest third-party payors. The ultimate affect, if any, of these
compliance reviews can not be determined at this time and no liability has been
accrued by the Company.
The Internal Revenue Service ("IRS") is currently examining the Company's
federal income tax returns for 1991 - 1994. This period includes the
acquisition of the business of MML, Inc., ("MML"). Although no deficiencies
have been asserted, the IRS may propose adjustments that could have a material
adverse effect on the consolidated financial position and results of operations
of the Company.
In connection with the acquisition of MML, the Company has agreed to indemnify
MML and its shareholders (including certain officers, directors and
shareholders of the Company) under certain circumstances for income tax
liabilities arising from such acquisition and indemnification. On July 13,
1995, MML and its shareholders received notices of deficiency from the IRS.
The IRS deficiency assessments relating to the acquisition total approximately
$4.9 million, excluding interest and penalties which could be assessed. In
October 1995, the Company (pursuant to its rights under the related acquisition
agreement) filed petitions with the United States Tax Court contesting the
deficiency. The Company believes that the acquisition has been treated
properly for federal income tax purposes and intends to vigorously defend its
position. However, there can be no assurance that the Company will resolve
this dispute with the IRS in a manner favorable to the Company. The failure to
resolve the dispute with the IRS in a manner favorable to the Company would
result in a current period charge to earnings and would have a material adverse
effect on the business, financial condition, including working capital, and
results of operations of the Company. While management believes its
indemnification liability, if any, will not be material to the Company, the
ultimate effect, if any, cannot be determined at this time. The foregoing
statement may be a "forward looking statement" within the meaning of the
Securities Exchange Act of 1934. The outcome of MML's dispute with the IRS
involves a number of uncertainties, including those inherent in interpreting
and applying the Internal Revenue Code and other federal income tax authority
and precedent to actual transactions, those relating to the valuation of
various assets at the time of the acquisition and those inherent in pursuing
any legal action of the type instituted by the Company. The Company has not
accrued a liability relating to the deficiency assessments.
-14-
<PAGE> 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on June 12, 1996,
at which the shareholders considered and voted on the election of three
directors and the approval and adoption of an amendment to the Company's 1992
Stock Option Plan.
1. Each of the nominees for director at the meeting was an incumbent
and all nominees were elected. The following table sets forth the number of
shares voted for and withheld with respect to each nominee.
Nominee Votes For Votes Withheld
------- --------- --------------
Anthony A. Bonelli 5,282,454 243,918
Thomas W. Gorman 5,282,457 243,915
Robert P. DeCresce, M.D. 5,282,452 243,920
2. The adoption of an amendment to the Company's 1992 Stock Option
Plan was approved. The results of the voting were as follows:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
4,665,755 376,775 13,935 469,907
-15-
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Amendment of Business Loan Agreement between Michigan
National Bank and the Company dated May 14, 1996.
4.2 Addendum to Business Loan Agreement between Michigan
National Bank and the Company dated May 14, 1996.
4.3 Promissory Note between Michigan National Bank and the
Company dated May 14, 1996.
4.4 Waiver Letter between Michigan National Bank and the
Company dated August 8, 1996.
10.1 Employment Agreement, dated June 28, 1996, by and between
the Company and Perry C. McClung.
10.2 First Amendment to 1994 Performance Stock Option -
Executive Officers Agreement by and between Perry C.
McClung and the Company.
10.3 Stock Option Agreements by and between Perry C. McClung and
the Company, dated November 5, 1992, August 2, 1993,
December 6, 1994 and December 5, 1995 and related
amendments thereto.
10.4 First Amendment to 1994 Performance Stock Option -
Executive Officers Agreement by and between Alan S. Ker and
the Company.
10.5 Stock Option Agreements by and between Alan S. Ker and the
Company, dated November 5, 1992, August 2, 1993, December
6, 1994 and December 5, 1995 and related amendments thereto.
10.6 First Amendment to Incentive Stock Option - Executive
Officers Agreement, dated September 11, 1995, by and
between Lou Gorga and the Company.
10.7 Stock Option Agreement, dated December 5, 1995, by and
between Lou Gorga and the Company and related amendments
thereto.
10.8 Lease Agreement dated as of January 1, 1996 between
Mid-Michigan Regional Medical Center-Clare and the Company.
11. Computation of Consolidated Net Income Per Common Share.
27. Financial Data Schedule.
(b) Reports on Form 8-K. None.
-16-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
(Registrant)
Date: August 14, 1996 Eugene Jennings
------------------------
Eugene Jennings
President and
Chief Executive Officer
Date: August 14, 1996 Alan S. Ker
------------------------
Alan S. Ker
Vice President, Finance,
Chief Financial Officer
-17-
<PAGE> 18
Exhibit Index
Exhibit
Number Description
-------- -----------
4.1 Amendment of Business Loan Agreement between Michigan
National Bank and the Company dated May 14, 1996.
4.2 Addendum to Business Loan Agreement between Michigan
National Bank and the Company dated May 14, 1996.
4.3 Promissory Note between Michigan National Bank and the
Company dated May 14, 1996.
4.4 Waiver Letter between Michigan National Bank and the
Company dated August 8, 1996.
10.1 Employment Agreement, dated June 28, 1996, by and between
the Company and Perry C. McClung.
10.2 First Amendment to 1994 Performance Stock Option -
Executive Officers Agreement by and between Perry C.
McClung and the Company.
10.3 Stock Option Agreements by and between Perry C. McClung and
the Company, dated November 5, 1992, August 2, 1993,
December 6, 1994 and December 5, 1995 and related
amendments thereto.
10.4 First Amendment to 1994 Performance Stock Option -
Executive Officers Agreement by and between Alan S. Ker and
the Company.
10.5 Stock Option Agreements by and between Alan S. Ker and the
Company, dated November 5, 1992, August 2, 1993, December
6, 1994 and December 5, 1995 and related amendments thereto.
10.6 First Amendment to Incentive Stock Option - Executive
Officers Agreement, dated September 11, 1995, by and
between Lou Gorga and the Company.
10.7 Stock Option Agreement, dated December 5, 1995, by and
between Lou Gorga and the Company and related amendments
thereto.
10.8 Lease Agreement dated as of January 1, 1996 between
Mid-Michigan Regional Medical Center-Clare and the Company.
11. Computation of Consolidated Net Income Per Common Share.
27. Financial Data Schedule.
<PAGE> 1
EXHIBIT 4.1
AMENDMENT OF BUSINESS LOAN AGREEMENT
THIS AMENDMENT OF BUSINESS LOAN AGREEMENT ("Amendment") made MAY 14, 1996,
by and between UNIVERSAL STANDARD MEDICAL LABORATORIES, INC., a MICHIGAN
CORPORATION, whose address is 26500 NORTHWESTERN HIGHWAY, SOUTHFIELD, MICHIGAN
48037 (the "Borrower"), and MICHIGAN NATIONAL BANK, a NATIONAL BANKING
ASSOCIATION, whose address is 27777 INKSTER ROAD, FARMINGTON HILLS, MICHIGAN
48334 (the "Bank").
RECITALS
WHEREAS the Bank has made or agreed to make one or more loans to Borrower
as described in and subject to the terms and conditions of a certain Amended and
Restated Business Loan Agreement dated JANUARY 17, 1996, (the "Loan Agreement")
and the Related Documents described therein;
WHEREAS Borrower has requested the Bank to modify and amend the terms and
conditions of the Loan Agreement by the addition of $50,000.00 LETTER/LINE OF
CREDIT and the Bank has agreed to do so upon the terms and conditions of the
Loan Agreement, Related Documents and this Amendment; and
NOW THEREFORE in consideration of and in reliance upon the foregoing
recitals of fact (which are a material part of this Amendment) and the
agreements between the parties hereinafter set forth, Borrower and Bank AGREE AS
FOLLOWS:
A. DEFINITIONS:
Capitalized terms not defined in this Amendment shall have the meaning
provided in the Loan Agreement.
B. AMENDMENTS TO LOAN AGREEMENT:
1. SECTION I. of the Loan Agreement is by this Amendment deleted in its
entirety and replaced by the following new SECTION I.:
I. LOANS. The following Loans and any amendments, extensions, renewals
or refinancing thereof are subject to this Agreement:
<TABLE>
<CAPTION>
INTEREST MATURITY LOAN
TYPE OF LOAN RATE NOTE AMOUNT DATE DATE
<S> <C> <C> <C> <C> <C>
A. LINE OF CREDIT * $8,000,000.00 07/26/98 01/17/96
B. TERM LOAN * $4,000,000.00 06/30/98 01/17/96
C. LETTER/LINE ** $ 820,000.00 01/17/97 01/17/96
OF CREDIT
D. LETTER/LINE ** $ 50,000.00 06/30/97 05/14/96
OF CREDIT - B.
</TABLE>
* INTEREST SHALL BE VARIABLE AT MNB PRIME RATE PLUS OR MINUS THE
APPLICABLE MARGIN.
** INTEREST SHALL BE VARIABLE AT MNB PRIME RATE PLUS 2% DRAWN UNDER
LETTERS OF CREDIT ISSUED UNDER THE LETTER/LINE OF CREDIT OR THE
LETTER/LINE OF CREDIT B. WHICH ARE NOT IMMEDIATELY REPAID.
PURPOSE of Loans listed above:
A. Working capital liquidity and to payoff outstanding debt to Fleet Bank.
B. To repay an existing term loan to Fleet Bank.
C. To issue letters of credit to guaranty Borrower's performance to
Ford Motor Company and Chrysler Corporation.
D. To backup letters of credit and to provide a letter of credit to
BCS Life Insurance Company.
<PAGE> 2
2. SECTION III.B.4. is hereby added to the Loan Agreement in its entirety
and incorporated herein by reference:
4. FINANCIAL STATEMENTS. Within FORTY-FIVE (45) days after the end
of each fiscal QUARTER, furnish to Bank, in form acceptable to Bank,
Financial Statements prepared and certified by MANAGEMENT to be true
and accurate for the period indicated.
3. SECTION XI. of the Loan Agreement is by this Amendment deleted in its
entirety and replaced by the following new SECTION XI.:
XI. ADDENDA TO BUSINESS LOAN AGREEMENT.
See Addendum to Business Loan Agreement (Line of Credit) dated January
17, 1996; Business Loan Agreement Addendum (Line of Credit with Letter
of Credit Advances) dated January 17, 1996; and Business Loan
Agreement Addendum (Line of Credit with Letter of Credit Advances -
B.) dated May 14, 1996.
C. SURVIVAL:
In all other respects and except as expressly amended, modified or
restated in this Amendment, the Loan Agreement and all of the terms, covenants
and conditions thereof as originally executed and delivered and heretofore
modified and amended are hereby ratified and confirmed in their entirety and
shall remain in full force and effect until all of the Loans, with all accrued
interest thereon, shall be fully paid and satisfied.
D. EFFECT OF AMENDMENT AND CONSTRUCTION WITH LOAN AGREEMENT AND RELATED
DOCUMENTS:
This Amendment shall not be construed as an agreement to substitute a
new obligation or to extinguish an obligation under the Loan Agreement or
Related Documents and shall not constitute a novation as to the obligations of
the parties. If any express conflict shall exist between the agreements of the
parties herein and as set forth in the Loan Agreement or the Related Documents,
this Amendment shall govern and supersede the agreements set forth in the
previous documents. The Loan Agreement and Related Documents shall continue in
full force and effect, and except as above specifically modified and amended,
shall be unamended, unchanged, and unmodified by this Amendment and shall
continue to secure to Bank the repayment and performance of Borrower's
Indebtedness to Bank.
IN WITNESS WHEREOF Borrower and Bank have executed this Amendment on
the date first above written.
BORROWER
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.,
A MICHIGAN CORPORATION
By: Alan S. Ker
-----------------------------
ALAN S. KER
Its: Chief Financial Officer
Vice President-Finance and Treasurer
BANK
MICHIGAN NATIONAL BANK
a NATIONAL BANKING ASSOCIATION
By: Lisa Davidson McKinnon
-----------------------------
LISA DAVIDSON MCKINNON
Its: Vice President
-2-
<PAGE> 1
EXHIBIT 4.2
BUSINESS LOAN AGREEMENT ADDENDUM
(LINE OF CREDIT WITH LETTER OF CREDIT ADVANCES - B.)
This Addendum Agreement ("Addendum") is an integral part of the
Business Loan Agreement executed by Borrower, and each and all of the terms,
conditions, provisions and agreements set forth in the Business Loan Agreement
are incorporated by this reference into this Addendum.
I. LETTER/LINE OF CREDIT LOAN B.
Under those terms and conditions set forth in the Business Loan
Agreement and in this Addendum, and provided there shall exist no Event of
Default, Bank agrees from time to time, at Borrower's request, to provide
Borrower with Advances or Credit Advances in an aggregate amount up to but not
to exceed the sum of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) (the
"Letter/Line of Credit Loan B.").
II. LETTER/LINE OF CREDIT NOTE
The Letter/Line of Credit Loan B. shall be signified by Borrower's
execution and delivery to Bank of a promissory note to Bank's order in the
amount of the Letter/Line of Credit Loan B. (the "Letter/Line of Credit Note
B."). THIS LETTER/LINE OF CREDIT LOAN B. IS TO BE USED SOLELY TO FUND DRAWS
UNDER THE LETTERS OF CREDIT AND BORROWER SHALL HAVE NO RIGHTS TO HAVE CASH
ADVANCES UNDER THIS NOTE.
III. EXPIRATION OF BANK'S COMMITMENT
Bank's obligation to make any Credit Advance under the Letter/Line of
Credit Loan B. and Letter/Line of Credit Note B. automatically shall (a) cease
and terminate upon the maturity date stated in the Letter/Line of Credit Note
B., and (b) suspend upon the earlier occurrence of any Event of Default unless
and until Bank in writing agrees to waive the benefit of this provision. No
subsequent Credit Advance by Bank shall be so construed, nor shall Bank be
estopped thereby to refuse any subsequent Borrower request for a Credit
Advance. THIS LETTER/LINE OF CREDIT LOAN B. IS TO BE USED SOLELY TO FUND DRAWS
UNDER THE LETTERS OF CREDIT AND BORROWER SHALL HAVE NO RIGHTS TO HAVE CASH
ADVANCES UNDER THIS NOTE.
IV. CREDIT ADVANCE PROCEDURE
Subject to Paragraph III above, Credit Advances will be made to
Borrower by Bank's issuance of a commercial OR standby Letter of Credit, with
such beneficiary and with such Letter of Credit draft instructions as Borrower
shall specify and as are customary in Borrower's business and acceptable to
Bank. Maximum Credit Advances available to Borrower under the Letter/Line of
Credit Loan B. shall be automatically reduced by the amount of Bank's aggregate
obligation under all Letters of Credit issued and outstanding from time to
time, and in no event shall the total of unpaid Advances and open and
outstanding Credit Advances at any time exceed the Letter/Line of Credit Loan
B. Credit Advances shall be made only under the following terms and
conditions:
A. Each Letter of Credit request shall be made by submitting to Bank, on
forms supplied by Bank, a Letter of Credit application (the
"Application"), fully executed and completed to Bank's satisfaction.
Borrower acknowledges and agrees that each Letter of Credit issued by
Bank for the account of Borrower is subject to all terms and
conditions set forth in the Application including, without limitation,
the grant to Bank of a security interest in such collateral as is
identified in the Business Loan Agreement and/or in the Application.
B. Borrower shall pay to Bank, for each Letter of Credit issued by Bank
for the account of Borrower, all fees, charges, and expenses specified
in Bank's International Department standard fee schedule then in
effect including, without limitation, a three percent issuance fees,
payment fees, amendment fees, non-utilization fees, communication and
delivery expenses, and any and all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in defending any suit or
claim brought against the Bank by any Letter of Credit beneficiary.
For each Letter of Credit draft received and paid by Bank, Borrower's
obligation to immediately put Bank in good funds shall be funded by an
Advance under the Letter/Line of Credit Note B. to the extent unpaid
Advances and other open and outstanding Credit Advances do not exceed
the Letter/Line of Credit Loan, otherwise Borrower shall immediately
pay Bank the entire amount of any Letter of Credit draft paid by Bank;
C. Any Letter of Credit issued by Bank shall have an expiry date of not
more than twelve (12) months after the issue date.
<PAGE> 2
V. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an
Event of Default under this Addendum:
A. Any Event of Default under the Business Loan Agreement of which this
Addendum is a part;
B. Any Borrower breach of any provision or agreement in this Addendum;
C. Any representation or warranty made under this Addendum is or becomes
false or misleading in any material respect;
D. The aggregate unpaid principal amount of all Advances and Bank
obligations under all open Credit Advances exceeds the lesser of the
Line of Credit Note or the maximum of Advances and Credit Advances
available under the Advance Formula.
VI. REMEDIES ON DEFAULT
Upon the occurrence of any Event of Default under this Addendum, Bank
shall have all remedies as are provided by law or by the Business Loan
Agreement, the Line of Credit Note, the Application, or any mortgage, security
or other collateral agreement.
VII. DEFINITIONS
The following terms used in this Addendum shall have the following
meanings:
A. "ADVANCE" or "ADVANCES" shall mean a loan or loans of money from Bank
to Borrower.
B. "AFFILIATE" shall mean any Person which directly or indirectly
controls, is controlled by, or is under common control with Borrower,
and all shareholders, directors, and officers of Borrower.
C. "CREDIT ADVANCE" shall mean the Bank's liability, direct or
contingent, for or arising under any Letter of Credit issued by Bank.
D. "LETTER OF CREDIT" shall have the meaning ascribed to such term under
Article 5 of the Michigan Uniform Commercial Code, as amended from
time to time, as supplemented by the Uniform Customs and Practice for
Documentary Credits, ICC Publication 400, as amended from time to
time.
IN WITNESS WHEREOF, the parties have executed this Addendum on this 14
day of MAY, 1996.
BORROWER
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.,
A MICHIGAN CORPORATION
By: Alan S. Ker
-----------------------------
ALAN S. KER
Its: Vice President-Finance and Treasurer
BANK
MICHIGAN NATIONAL BANK
a NATIONAL BANKING ASSOCIATION
By: Lisa Davidson McKinnon
-------------------------------
LISA DAVIDSON MCKINNON
Its: Vice President
-2-
<PAGE> 1
EXHIBIT 4.3
PROMISSORY NOTE
(LETTER/LINE OF CREDIT - B.)
$50,000.00 Note No.: _____________
FARMINGTON HILLS, Michigan
Due Date: JUNE 30, 1997 Dated: MAY 14, 1996
FOR VALUE RECEIVED on the Due Date, the undersigned, jointly and
severally (the "Borrower"), promise to pay to the order of MICHIGAN NATIONAL
BANK, a national banking association (the "Bank"), at its office set forth
below or at such other place as Bank may designate in writing, the principal
sum of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) or such lesser sum as
shall have been advanced by Bank to Borrower under the loan account hereinafter
described, plus interest as hereinafter provided, all in lawful money of the
United States of America. The unpaid principal balance of this promissory note
("Note") shall bear interest computed upon the basis of a year of 360 days for
the actual number of days elapsed in a month, at a rate of interest (the
"Effective Interest Rate") which is equal to:
TWO PERCENT (2.0%) per annum in excess of that rate of interest
established by BANK (the "Bank") as its PRIME rate (the "Index"), as such Index
may vary from time to time. Borrower understands and agrees that the Effective
Interest Rate payable to Bank under this Note shall be determined by reference
to the Index and not by reference to the actual rate of interest charged by the
Bank to any particular borrower(s). If the Index shall be increased or
decreased, the Effective Interest Rate under this Note shall be increased or
decreased by the same amount, effective upon the day of each increase or
decrease in the Index. INTEREST SHALL ONLY BE PAYABLE ON THE AMOUNTS DRAWN
UNDER THE LETTER OF CREDIT AND ISSUED UNDER THE LETTER/LINE OF CREDIT B. WHICH
DRAWS ARE NOT IMMEDIATELY REPAID.
Interest on all principal amounts advanced by Bank from time to time
and unpaid by Borrower shall be paid on the LAST day of MAY, 1996, and on the
LAST day of each MONTH thereafter.
Advances of principal, repayment, and readvances may be made under
this Note from time to time, but Bank, in its sole discretion, may refuse to
make advances or readvances hereunder during any period(s) this Note is in
default. All advances made hereunder shall be charged to a loan account in
Borrower's name on Bank's books, and Bank shall debit to such account the
amount of each advance made to, and credit to such account the amount of each
repayment made by Borrower. From time to time, Bank shall furnish Borrower a
statement of Borrower's loan account, which statement shall be deemed to be
correct, accepted by, and binding upon Borrower, unless Bank receives a written
statement of exceptions from Borrower within ten (10) days after such statement
has been furnished. NOTWITHSTANDING ANY PROVISIONS OF THE NOTE, THIS NOTE IS
TO BE USED SOLELY TO FUND DRAWS UNDER LETTERS OF CREDIT AND BORROWER SHALL HAVE
NO RIGHTS TO HAVE CASH ADVANCES UNDER THIS NOTE.
This Note may be paid in full or in part at any time without payment
of any prepayment fee. All payments received shall, at the option of the Bank,
first be applied against accrued and unpaid interest and the balance against
principal. Borrower expressly assumes all risks of loss or delay in the
delivery of any payments made by mail, and no course of conduct or dealing
shall affect Borrower's assumption of these risks. Borrower shall not be
required to pay interest at a rate greater than the maximum allowed by law and
any interest payment received by Bank which exceeds the maximum legal rate
shall be automatically credited upon the unpaid principal balance of this Note.
If the Bank determines the Effective Interest Rate is, or may be, usurious or
otherwise limited by law, the unpaid balance of this Note shall, at Bank's
option, become immediately due and payable.
Upon the occurrence of any of the Events of Default as described in
the Business Loan Agreement executed contemporaneously herewith, the delivery
of any required notice and the expiration of any applicable cure period, Bank
at its option, and without further notice to Borrower, may declare the entire
unpaid principal balance of this Note and all accrued interest, together with
all other indebtedness of Borrower to Bank, to be immediately due and payable.
Upon the occurrence of any Event of Default, the delivery of any
required notice and the expiration of any applicable cure period, the unpaid
principal balance of this Note shall bear interest at a rate which is two
percent (2%) greater than the Effective Interest Rate otherwise applicable. If
any payment under this Note is not paid within ten (10) days after the date
due, at the option of Bank a late charge of not more than five cents ($.05) for
each dollar of the installment past due may be charged by Bank. In addition to
any other security interest granted, Borrower hereby grants Bank a security
interest in all of Borrower's bank deposits, instruments, negotiable documents,
and chattel paper which at any time are in the possession or control of Bank,
and after the occurrence of any Event of Default, Bank may apply its own
indebtedness or liability to Borrower or any guarantor to any indebtedness due
under this Note. Borrower agrees to pay all of the Bank's costs incurred in the
collection of this Note, including reasonable attorney fees.
Acceptance by Bank of any payment in an amount less than the amount
<PAGE> 2
then due shall be deemed an acceptance on account only, and Bank's acceptance of
any such partial payment shall not constitute a waiver of Bank's right to
receive the entire amount due. Borrower and all guarantors of this Note do
hereby jointly and severally waive presentment for payment, demand, notice of
non-payment, notice of protest of this Note, and Bank diligence in collection or
bringing suit, and do hereby consent to any and all extensions of time,
renewals, waivers or modifications as may be granted by Bank with respect to
payment or any other provisions of this Note, and to the release of any
collateral or any part thereof, with or without substitution. The liability of
the Borrower under this Note shall be absolute and unconditional, without regard
to the liability of any other party. This Note shall be deemed to have been
executed in Michigan, and all rights and obligations hereunder shall be governed
by the laws of the State of Michigan.
This Note is secured by:
SECURITY AGREEMENT DATED MARCH 20, 1995
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT DATED JANUARY 17,
1996, AS AMENDED BY AMENDMENT OF BUSINESS LOAN AGREEMENT DATED
MAY 14, 1996
Reference is hereby made to the document(s) and agreement(s) described
above (the "Related Documents") for additional terms and conditions relating to
this Note.
BORROWER
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.,
a MICHIGAN CORPORATION
BORROWER ADDRESS:
26500 NORTHWESTERN HIGHWAY By: Alan S. Ker
SOUTHFIELD, MI 48037 ----------------------
ALAN S. KER
Its: Vice President-Finance and Treasurer
BANK ADDRESS:
27777 INKSTER ROAD
FARMINGTON HILLS, MI 48334
38-2986640
TAX ID OR SOCIAL SECURITY #
-2-
<PAGE> 1
EXHIBIT 4.4
August 8, 1996
Universal Standard Medical Laboratories, Inc.
26500 Northwestern Highway
Southfield, Michigan 48037
Attention: Michael P. Risko, Esq., General Counsel
Re: Waiver of Loan Agreement Covenants
Dear Mr. Risko:
On January 17, 1996, Michigan National Bank, a national banking
association (the "Bank") and Universal Standard Medical Laboratories, Inc., a
Michigan corporation (the "Borrower") entered into an Amended and Restated
Business Loan Agreement, which was modified pursuant to a letter agreements
dated February 13, 1996, and March 28, 1996 and pursuant to an Amendment of
Business Loan Agreement dated May 14, 1996 (as modified, the "Loan Agreement").
Pursuant to the Loan Agreement, Bank has extended to Borrower the following
loans:
1. Line of Credit in the amount of Eight Million and 00/100 Dollars
($8,000,000.00);
2. Term Loan in the amount of Four Million and 00/100 Dollars
($4,000,000.00);
3. Letter/Line of Credit in the amount of Eight Hundred Twenty
Thousand and 00/100 Dollars ($820,000.00); and
4. Letter/Line of Credit-B in the amount of Fifty Thousand and 00/100
Dollars ($50,000.00).
The loans described in the Loan Agreement shall be referred to in this letter
as the "Loans". The Loans are secured by certain collateral described in
Section V of the Loan Agreement.
Section III.A.1 of the Loan Agreement requires Borrower to maintain a
Cash Flow Coverage Ratio of not less than 1.10 to 1.00. Section III.A.2 of the
Loan Agreement requires Borrower to maintain its ratio of Funded Debt to Cash
Flow to be not more than 3.0 to 1.0. Section III.A.3 of the Loan Agreement
requires Borrower to maintain a Current Ratio of not less than 1.50 to 1.00.
Borrower has notified Bank that it expects to violate each of these financial
covenants for the second quarter of 1996. Borrower has requested that Bank
waive the defaults caused by the violation of these covenants. Bank is willing
to waive these defaults, subject to the terms and conditions of this letter.
<PAGE> 2
1. Capitalized terms not defined herein shall have the meaning given
to them in the Loan Agreement.
2. Subject to the Borrower's consent to the conditions contained in
this letter, Bank waives the defaults which are described in this letter.
Nothing in this letter shall be deemed to constitute a waiver of (i) any future
defaults in the financial covenants contained in Section III.A. of the Loan
Agreement or (ii) of a default in any other provision of the Loan Agreement or
any Related Documents.
3. As a condition to the waiver described in Section 2 of this
letter, Borrower agrees that it will provide updated consolidating management
projections, which projections shall include a balance sheet, income statement,
cash flow statement and covenants. These projections shall be promptly be
provided by Borrower to Bank, but in no event later than September 30, 1996.
4. As a condition to the waiver described in Section 2 of this
letter, Borrower agrees that any it shall provide Bank with all consultants
reports which have been ordered by Borrower. These reports shall be promptly
provided by Borrower to Bank, but in no event later than September 30, 1996.
5. As a condition to the waiver described in Section 2 of this
letter, Borrower agrees that Bank shall, at Borrower's cost, engage an
independent consultant for the purpose of confirming the feasibility of
Borrower's business plan and long term viability. Borrower agrees that it will
provide such independent consultant with the access to Borrower's records as is
needed by such independent consultant to perform the review and shall make
Borrower's senior management available to discuss Borrower's operations and
plans at such times as may be mutually convenient.
6. As a condition to the waiver described in Section 2 of this
letter, Borrower agrees that, no later than August 15, 1996, it shall be placed
upon a dominion of funds and/or lock box system. Bank and Borrower agree that
they shall execute such documentation as may be reasonably required by Bank to
effectuate such system.
7. Except as described in this letter, the Loan Agreement and Related
Documents will remain in full force and effect. All collateral securing the
Loans will continue to secure the Loans.
8. The modifications described in this letter shall not constitute
the establishment of a course of dealing between the parties. Bank reserves,
and Borrower expressly acknowledges that Bank has the right to deny any future
request for modification or waiver of any of the provisions of the Loan
Agreement or the Related Documents.
2
<PAGE> 3
9. The effectiveness of the modifications contained in this letter
are expressly conditioned on the receipt of a waiver fee in the amount of
$5,000. In addition, Borrower agrees to pay all of Bank's costs in waiving
these defaults, and in documenting the establishment of a dominion of funds
and/or lock box system, including reasonable attorneys' fees.
10. This letter agreement shall be governed by and construed in
accordance with the laws of the State of Michigan. This letter may be modified
only by a written instrument signed by both parties to this letter.
If this letter accurately reflects the understanding of the parties,
please execute the letter in the indicated place and return it to me.
Very Truly Yours,
/s/ Lisa Davidson McKinnon
Lisa Davidson McKinnon, Vice
President, Michigan National
Bank
This letter accurately reflects
the understanding of the parties
Universal Standard Medical Laboratories, Inc.
By: Alan S. Ker
------------------------
Its: CFO
-----------------------
Date: 8-12-96
----------------------
3
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made as of June 28, 1996 between
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC., a Michigan corporation (the
"Company"), and PERRY C. McCLUNG ("Employee").
WHEREAS, the Company is engaged in the business of operating clinical
laboratories and marketing and administrating capitated laboratory and other
health care services plans;
WHEREAS, Employee is experienced with the management of entities such
as Company; and
WHEREAS, the Company desires to employ Employee, and Employee desires
to continue as an employee of the Company, pursuant to the terms and conditions
set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Employment. The Company shall employ Employee, and
Employee accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the date hereof and ending
as provided in Section 5 hereof (the "Employment Period").
SECTION 2. Position and Duties.
(a) During the Employment Period, Employee shall initially serve
as the Executive Vice President of the Company, as well as the President of the
Company's wholly owned subsidiary, Universal Standard Managed Care, Inc.
("USMC") and shall, in such capacities: 1) direct the management and
operation of USMC; and 2) perform such other duties and have such other
responsibilities as determined from time to time by the Board of Directors.
Employee shall have the normal duties, responsibilities and authority consistent
with such positions, subject to the power of the Chief Executive Officer of the
Company to expand or limit such duties, responsibilities and authority.
(b) Employee shall report directly to the Chief Executive
Officer of the Company. Employee shall devote his best efforts and his full
business time and attention (except for permitted vacation periods and periods
of illness, and notwithstanding the reduction in business time as discussed in
Section 2(c) hereof) to the business and affairs of the Company and its
affiliates. Employee shall perform hisduties and responsibilities to the best of
his abilities in a diligent, trustworthy, businesslike and efficient manner.
<PAGE> 2
(c) It is hereby acknowledged and agreed by the parties hereto
that the duties and responsibilities of Employee hereunder will be decreased
after the first anniversary of this Agreement such that Employee will be able to
fulfill all such duties and responsibilities while performing on no more than a
part-time basis. "Part-time basis" shall be defined herein to mean that
Employee shall devote no more than 80 hours per month to fulfilling his duties
and obligations hereunder.
SECTION 3. Compensation and Benefits.
(a) During the Employment Period, Employee shall be paid a
salary (the "Salary"), which Salary shall be determined pursuant to Section 3(b)
below, and shall be payable in accordance with Section 3(c) below. In
calculating EBITDA in connection with this Section 3 and Section 4 below, EBITDA
will be calculated in accordance with generally accepted accounting principles
applied consistently with the past practices of USMC.
(b) The amount of Employee's Salary shall be determined as
follows:
(i) Year 1 - During the first twelve months of the
Employment Period, Employee's Salary shall be an amount equal to the total of
(A) 3% of USMC EBITDA for the period July 1, 1996 through June 30, 1997 ("Year 1
EBITDA") and (B) an amount equal to 3% of the aggregate amount by which the Year
1 EBITDA exceed $4,800,000. Notwithstanding any contrary language contained
herein, in no event shall compensation paid to Employee pursuant to this Section
3(b)(i) during Year 1 be less than $150,000.
(ii) Year 2 - During the second year of the Employment
Period, Employee's Salary shall be an amount equal to the total of (A) 3% of the
USMC EBITDA derived from the Base Accounts (which shall be those managed care
programs listed on Schedule A hereto) for the period July 1, 1997 - June 30,
1998 ("Year 2 Base Account EBITDA"; the total EBITDA from all USMC programs and
plans during this period shall hereinafter be refered to as "Year 2 EBITDA") and
(B) 6% of the aggregate amount of the Year 2 EBITDA which is derived directly
from USMC customers during the initial year of any capitated health care
services plans or programs which commenced subsequent to the first anniversary
of this Agreement and of which no less than 95% of the beneficiaries enrolled
under the program or plan were not covered by another USMC program or plan
during the 12-month period immediately preceding the commencement date of the
relevant plan or program (any such plan or program hereinafter a "New Program"),
provided, however, that such New Program was procured solely and directly by
Employee and that no other USMC employee is paid a commission in connection with
the procurement of such New Program (any such earnings hereinafter referred to
as "New Program Earnings"). Notwithstanding any contrary language contained
herein, in no event
-2-
<PAGE> 3
shall compensation paid by Company to Employee pursuant to this Section
3(b)(ii) during Year 2 be less than $125,000 or in excess of $400,000.
(iii) Year 3 - During the third year of the Employment
Period, Employee's Salary shall be an amount equal to the total of (A) 3%
of the USMC EBITDA derived from the Base Accounts for the period July 1,
1998 - June 30, 1999 ("Year 3 Base Account EBITDA"; the total EBITDA from
all USMC programs and plans during this period shall hereinafter be refered
to as "Year 3 EBITDA") and (B) 6% of the aggregate amount of the Year 3
EBITDA which is derived directly from USMC customers during the initial
year of any New Program, provided, however, that such New Program was
procured solely and directly by Employee. Notwithstanding any contrary
language contained herein, in no event shall compensation paid by Company
to Employee pursuant to this Section 3(b)(iii) during Year 3 be less than
$75,000 or in excess of $300,000.
(c) The Company shall pay the Salary Base Amount (as defined
below) to Employee in regular installments in accordance with the Company's
standard payroll practices. The Company shall utilize quarterly EBITDA
determinations to estimate Employee's likely Salary and, provided that the
estimated Salary is greater than the Salary Base Amount, shall "gross up"
Employee's Salary on a quarterly basis by paying to Employee, within 30 days of
the close of each financial quarter of the Company, 25% of the aggregate amount
equal to the difference between the respective year's (estimated) Salary Base
Amount and the estimated total Salary for that year . Any amount of Salary
remaining payable to Employee upon completion of each annum during the
Employment Period will be paid within thirty (30) days of the close of each
calendar year of the Employment Period.
The "Salary Base Amount" shall be determined as follows:
(i) For months one through thirteen of the Employment
Period, Salary Base Amount shall be $150,000 per annum (or $162,500 for the
thirteen month period).
(ii) For months fourteen through twenty-five of the
Employment Period, Salary Base Amount shall be equal to the greater of (A)
3% of the Year 1 EBITDA , or (B) $125,000.
(iii) For months twenty-six through thirty-six of the
Employment Period, Salary Base Amount shall be equal to the greater of (A)
2% of the Year 2 EBITDA or (B) $75,000.
In the event that the amount paid to Employee during any yearly period as
Salary Base Amount or as a "gross up" exceeds the respective year's Salary as
determined pursuant to Section 3(b) above,
-3-
<PAGE> 4
the Company shall withhold any such overpayments from any future amounts being
paid by Company to Employee pursuant to this Section 3 or Section 4 below.
(d) During the Employment Period, Employee shall be entitled to
participate in all of the Company's employee benefit programs for which
executive officer employees of the Company are generally eligible, including
participation in the executive automobile program, medical, dental, life and
disability insurance, paid vacation time and the non-matching 401(k) Retirement
Plan.
(e) During the Employment Period, the Company shall reimburse
Employee for all reasonable expenses incurred by him with respect to travel,
entertainment and other business expenses which are required to perform his
duties under this Agreement to the extent consistent with the Company's
applicable policies in effect from time to time.
(f) Stock Options - Upon the execution of this Agreement, each
of the 85,000 options granted to Employee under pursuant to the 1992 Stock
Option Plan shall be repriced as follows:
(i) Standard Stock Options: 45,000 repriced shares which
shall have a revised exercise price of $4.75 and shall vest as follows:
Vesting Date # Shares Vesting
------------ ----------------
5/6/97 30,000
8/2/97 2,500
12/5/97 2,500
12/6/97 2,500
12/5/98 2,500
12/6/98 2,500
12/5/99 2,500
-----
45,000
(A) All Standard Stock Options shall vest immediately
upon Employee's death or permanent disability, or upon a change in
control of the Company.
(B) Upon a termination by the Company of Employee's
employment with Cause prior to May 6, 1997, all unvested Standard
Stock Options expire immediately upon the effective date of Employee's
termination, and any and all Standard Stock Options which are
currently vested as of the effective date of Employee's termination
shall remain exercisable for a period of three months following the
date of termination.
-4-
<PAGE> 5
(C) Upon voluntary termination of employment, all
options vested upon the effective date of voluntary termination will
remain exercisable for a period of three months following the
effective date of voluntary termination, and all unvested options will
expire upon Employee's voluntary termination of employment.
(ii) Performance Stock Options: 40,000 repriced shares
which shall have a revised exercise price of $4.75 and shall vest/expire as
follows:
Vesting Event:
Stock Price Level
Achievement* # Shares Vesting Expiration Date**
------------------ ---------------- ---------------
$7.00 10,000 12/6/97
$10.00 10,000 8/6/98
$12.00 10,000 4/6/99
$14.00 10,000 12/6/99
*Stock Price must be above this level for 20 of 30 consecutive trading days.
**If the applicable Vesting Event has not occurred as of each Expiration
Date, the respective 10,000 options shall expire.
(A) Upon termination of Employee's employment due to
Employee's death, permanent disability or change of control of the
Company, a pro rata portion of the unvested Performance Stock Options
will vest based upon the time elapsed from December 6, 1994 to the
termination date, as a percentage of the time from December 6, 1994 to
the expiration date of each 10,000 share lot of Performance Stock
Options. At May 6, 1996, 14,687 of such shares would become
immediately exercisable. All remaining options will expire.
(B) Upon termination by the Company of Employee's
employment with Cause, the unvested Performance Stock Options will
expire and vested Performance Stock Options will remain exercisable
for a period of three months following the effective date of
termination.
SECTION 4. Bonus. Provided that the USMC EBITDA derived from the
Base Accounts for each Company fiscal year during the period 1996 - 1999 exceeds
$4,800,000, Company shall pay to Employee an account retention bonus in the
amount of $100,000. Any such bonus shall be paid by Company on or before
February 1, 2000.
-5-
<PAGE> 6
SECTION 5. Term; Termination.
(a) This Agreement shall be effective, and the Employment Period
shall be for an initial period of three (3) years, commencing on the date of
this Agreement and ending on the third anniversary date of the Agreement.
Employee's employment with Company may be terminated by the Company only for
Cause (as defined below), upon Employee's death or upon Employee's physical or
mental disability which prevents him from performing his obligations hereunder
for a period of ninety (90) consecutive days. Any such termination of this
Agreement shall not affect the Company's obligation to pay Salary (as adjusted
from the Base Salary Amount) to Employee until the effective date of
termination.
(b) For purposes of this Agreement, "Cause" shall mean (i) the
Employee's personal dishonesty directly affecting the Company; (ii) gross
incompetence as demonstrated by the Employee's inability to perform and carry
out the functions required of Employee in a manner consistent and equal to the
standards of other employees with similar responsibilities in the industry;
(iii) willful or reckless misconduct of Employee; (iv) breach by Employee of
fiduciary duty to the Company, whether or not involving personal profit; (v)
Employee's indictment for any violation of the Medicare or Medicaid laws or
other similar laws or regulations or Employee's plea of nolo contendere or
conviction under any laws or regulations relating to the Medicare or Medicaid
programs or conviction for violation of any law, rule or regulation (other than
traffic violations or other minor misdemeanor offenses); (vi) the issuance by
any regulatory authority to which the business of the Company is subject of a
final and nonappealable order against Employee imposing sanctions against
Employee which adversely affect the business and operations of the Company;
(vii) repeated and intentional failure of Employee to perform duties required
under this Agreement or a material breach of any provision of this Agreement; or
(viii) Employee's violation of the Company's Code of Ethics; provided, however,
that with respect to clauses (ii), (iii), (iv), (vii) and (viii) above, such
events, occurrences, violations or problems shall constitute "Cause" only if
Employee fails to cure such event, occurrence, violation or problem within five
(5) days following the date on which written notice specifically identifying
such event, occurrence, violation or problem is delivered to Employee.
(c) Employee hereby understands and agrees that, in the event of
the termination of his employment for Cause or due to death or resignation,
other than the amounts payable to Employee pursuant to Section 4 above and
Section 8 below, no severance or other compensation shall be payable to Employee
by the Company or its affiliates, and Employee hereby waives any and all claims
for severance or other compensation in event of any for cause termination or
Employee's death or resignation. Except as expressly set forth in Sections 3(f)
and 4 above, and Section 8 below, all compensation and other benefits shall
cease to accrue upon death, resignation or for Cause termination of the
Employment Period.
-6-
<PAGE> 7
SECTION 6. Suspension. In the event Employee is indicted for any
violation of the Medicare or Medicaid laws or other similar laws or regulations,
the Company may suspend Employee and Employee shall cease all of his duties for
the Company pursuant to this Agreement or otherwise. During any period of
suspension, the Company may cease all payments of all compensation and any other
benefits to which Employee may be entitled, in which case the Company shall have
no obligation to pay such amounts in respect of such period of suspension or to
provide such benefits at any future time.
SECTION 7. Severance. In the event that Employee is terminated by
the Company or any successor of the Company without Cause, severance
compensation shall be payable by Company to Employee as follows:
(a) In the event that Employee is terminated without Cause
during the first year of Employee's employment with Company, the Company shall
pay to Employee, as a severance package (i) his salary until the first
anniversay of this Agreement and (ii) an additional nine (9) months salary
following the first anniversary of this Agreement, reduced by any amount that
Employee earns during the period commencing on the date of his termination until
March 31, 1998 from any subsequent employment or otherwise.
(b) In the event that Employee is terminated without Cause by
the Company or any successor to the Company at any time after Employee's first
year of employment with Company, the Company shall pay to Employee, as a
severance package, his salary for up to nine (9) months from the date of
termination, reduced by any amount that Employee earns during the nine month
period following his termination from any subsequent employment or otherwise.
In the event that Employee is terminated without Cause during the last nine
months of the three year employment term or any subsequent one year term, the
maximum severance pay to which Employee shall be entitled shall be limited to
Employee's salary for the remaining period of such initial or subsequent
employment term.
(c) Any severance compensation paid to Employee pursuant to this
Section shall be paid in the same manner as salary shall be paid to Employee
during the employment term.
SECTION 8. Non-Competition.
(a) As consideration for Employee's covenant not to compete with
the Company or any of its affiliates in accordance with this Section 8 of this
Agreement, Company shall pay to Employee an amount equal to $125,000 pursuant
to the following payment schedule:
(i) $75,000 on or before January 1, 1997; and
(ii) $50,000 on or before January 1, 1998.
-7-
<PAGE> 8
(b) Definitions - The term "affiliates" shall mean, with respect
to any person, partnership, corporation or other entity, any and all persons,
partnerships, corporations or other entities directly or indirectly controlling
(including, without limitation, all directors and officers), controlled by or
under direct or indirect common control with such person, partnership,
corporation or other entity, including, without limitation, any joint venture to
which such person, partnership, corporation or other entity is a party. The
term "Clinical Laboratory Business" shall mean any business, endeavor,
enterprise, activity, arrangement or undertaking engaged in the performance or
provision of any Laboratory Testing, including, without limitation, any entity
that is required to be licensed under the Clinical Laboratory Improvement
Amendments of 1988, codified at 42 U.S.C. Section 263a. The term "Laboratory
Testing" shall mean any and all clinical laboratory analysis or testing
(including, without limitation, any sampling, testing and reporting on medical,
biological or diagnostic specimens or products (including all clinical and
anatomical procedures)) and any activity substantially similar thereto. The
term "Managed Care Business" shall mean any business, endeavor, enterprise,
activity, arrangement or undertaking engaged in the provision of health care
services, including, but not limited to Laboratory Testing, DME, HMS or
diagnostic imaging services, by or through capitated plans. The term
"Participate" shall mean any direct or indirect interest or position in or any
financial or other arrangement or relationship with any business, arrangement or
enterprise whether as an officer, director, employee, partner, shareholder, sole
proprietor, joint venturer, agent, representative, independent contractor,
consultant, franchisor, franchisee, creditor, owner or otherwise; provided that
the term "Participate" shall not include ownership of less than two percent of
the stock of a publicly-held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market.
(c) Employee hereby covenants and agrees that during the
Employment Period and for an additional period of five (5) years after the date
on which Employee's employment with the Company terminates for any reason (the
"Noncompetition Period"), Employee will not, and will not permit any of his
affiliates or his affiliates' officers, directors, employees or agents to,
directly or indirectly, (i) engage or Participate in any Clinical Laboratory
Business (other than the Company) located in or providing any services to or for
any person or entity whatsoever in or otherwise doing business anywhere within
100 miles of any facility of the Company in existence as of the date on which
Employee's employment with the Company terminates, (ii) engage or Participate in
any Managed Care Business (other than the Company) located in or providing
services within the United States of America or (iii) induce or attempt to
influence any person or entity who or which is or was a customer or client of
the Company at any time during the Employment Period to transact business with
any competitor of the Company or to cease to do business, in whole or in part,
with the Company.
(d) Employee hereby acknowledges and agrees that this covenant
is reasonable with respect to its duration, geographic area and scope.
-8-
<PAGE> 9
(e) Enforceability. Notwithstanding the intent of the parties
hereto that all of the provisions contained herein be fully enforceable and the
terms of this paragraph, if at any time a court holds that the restrictions
agreed to by the parties and stated in this Agreement are unreasonable or
otherwise unenforceable under circumstances then existing, the parties hereto
agree that the maximum period, scope or geographic area determined to be
reasonable under such circumstances by such court will be substituted for the
stated period, scope or area. The parties hereto agree that money damages would
be inadequate for any breach of any of the provisions contained in Sections 8,
9, 10, or 13 of this Agreement. In the event of Employee's breach of any of
such provisions, the Company or any of its affiliates or its or their successors
or assigns may, in addition to other available rights and remedies, apply to any
court of competent jurisdiction for specific performance and/or injunctive
relief in order to enforce, or prevent any violation of, any of the provisions
of this Agreement.
(f) Any termination of this Employment Agreement pursuant to
Section 5 above shall not relieve Company of its obligation to pay the
consideration for the noncompete pursuant to Section 8(a) hereof.
SECTION 9. Confidential Information. Employee acknowledges and agrees
that the information, observations and data obtained by him while employed by
the Company concerning the business or affairs of the Company or any of its
affiliates, including, without limitation, all information with respect to the
Company's and its affiliates' managed care business ("Confidential Information")
are the sole property of the Company or its affiliates, respectively. Employee
agrees that he shall not disclose to any unauthorized person or use for his own
account any Confidential Information without the prior written consent of the
Board of the Company unless and to the extent that the Confidential Information
becomes generally known to and available for use by the public by means other
than a breach of this covenant or until the Confidential Information becomes
obsolete, whichever is earlier. Employee shall deliver to the Company at the
termination of the Employment Period, or at any other time the Company may
request, all memoranda, notes, plans, records, reports, computer tapes and
software and other documents and data (and copies thereof) relating to the
Confidential Information, Work Product (as defined below) or the business of the
Company or any subsidiary which he may then possess or have under his control.
SECTION 10. Inventions and Patents. Employee agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports, and all similar or related information which relates to the
Company's or any of its affiliates' actual or anticipated business, research and
development or existing or future products or services and which are conceived,
developed or made by Employee while employed by the Company or its affiliates
("Work Product") shall belong to and be the sole property of the Company and its
affiliates. Employee agrees to promptly disclose such Work Product to the Chief
Executive Officer of the Company and the Board and to perform all actions
reasonably requested by the Chief Executive Officer of the Company or the Board
(whether during or after the Employment
-9-
<PAGE> 10
Period) to establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
SECTION 11. Survival. Sections 8, 9 and 10 hereof shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period or this Agreement for any reason.
SECTION 12. Notices. Any and all notices or other communications or
deliveries required or permitted to be given or made pursuant to any of the
provisions of this Agreement shall be deemed to have been duly given or made for
all purposes if (i) sent by certified or registered mail, return receipt
requested and postage prepaid, (ii) hand delivered, (iii) sent by a nationally
recognized overnight courier or (iv) sent by telephone facsimile transmission
(with a confirming copy by First Class mail) as follows:
If to the Company:
Universal Standard Medical Laboratories, Inc.
26500 Northwestern Hwy., Suite 400
Southfield, MI 48076
Attention: Chief Executive Officer
Facsimile No.: (810) 358-0704
If to Employee:
P.C. McClung
22890 Ennishore
Novi, Michigan 48375
or at such other address as any party may specify by notice given to the other
party in accordance with this paragraph. The date of giving of any such notice
shall be the date of hand delivery, the date three days following the posting
of the mail, the date sent by telephone facsimile, the day after delivery to
the overnight courier service.
SECTION 13. Code of Ethics. Employee hereby acknowledges that he has
received and has signed a copy of the Company's Code of Ethics (a copy of which
is attached hereto) and further agrees to abide by and comply with all of the
provisions contained therein. In the event that any of Employee's required
duties or responsibilities hereunder would conflict with the provisions of the
Company's Code of Ethics, Employee shall so notify the Company in writing, in
which case the Company may either waive such provision of the Code of Ethics or
waive the requirement of Employee to perform such conflicting duty or
responsibility.
-10-
<PAGE> 11
SECTION 14. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Michigan, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Michigan or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Michigan.
(b) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original, but when taken
together shall constitute but one instrument.
(c) Successors and Assigns. Neither this Agreement nor any rights
or obligations hereunder may be assigned by Employee. The Company may freely
assign this Agreement and all of its rights and obligations hereunder to any
affiliate or to any person or entity in connection with a sale of all or
substantially all of the assets of the Company or a sale of 50% or more of the
capital stock of the Company. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns.
(d) Descriptive Headings. The descriptive headings contained in
this Agreement are for convenience only and do not constitute a part of this
Agreement.
(e) Invalidity. In the event that one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement.
(f) Waiver. No failure on the part of either party to exercise, and
no delay in exercising or course of dealing with respect to, any right, power or
privilege under this Agreement (or breach of any obligation under any other
agreement) shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under this Agreement or any other
agreement (or breach of any obligation under any other agreement) preclude any
other or further exercise thereof or hereunder, or the exercise of any other
right, power or privilege. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
* * * * *
-11-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: Eugene Jennings
---------------------------
Name: Eugene Jennings
Its: President
Michael P. Risko
- ------------------------- P.C. McClung
Witness ------------------------------
P.C. McClung
<PAGE> 13
SCHEDULE A
BASE ACCOUNTS
1. All USMC programs or plans in effect as of the execution date of this
Agreement which provide laboratory services to the employees or retirees of
Ford Motor Co.
2. All USMC programs or plans in effect as of the execution date this
Agreement which provide laboratory services to the employees or retirees of
Chrysler Corp.
3. The USMC program in effect as of the execution date of this Agreement
between USMC and the Michigan Conference of Teamsters Welfare Fund which
program provides laboratory services to members of the Teamsters Welfare
Fund health plan
4. Any USMC programs in effect as of the execution date of this Agreement
between USMC and the United Auto Workers ("UAW") which programs provide
laboratory services to members of any UAW health plans.
5. Such other programs or plans which will be mutually agreed to by the
parties prior to the first anniversary of the Employment Agreement
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO
1994 PERFORMANCE STOCK OPTION - EXECUTIVE OFFICERS AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK OPTION AGREEMENT dated December 6, 1994
(the "Agreement") made this 6th day of May, 1996 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and PERRY C. McCLUNG (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in this
First Amendment with their defined meanings unless otherwise defined herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be amended as
follows:
2.1 Section 1 shall hereby be deleted in its entirety and the
following substituted in place thereof:
1. Stock Option. The Option entitles the Grantee to purchase up
to 40,000 shares (the "Option Shares") of the Company's Common Stock,
no par value (the "Common Stock") at an option price per share of
$4.75 (the "Option Price"), subject to the terms and conditions of
this Agreement. The Option is intended to be an Incentive Stock
Option ("ISO") to the extent permitted under the Internal Revenue Code
of 1986, as amended (the "Code"). The determination as to which
Option Shares are ISOs and which are Non-Qualified Stock Options
("NQO") shall be made at the time an Option Share first becomes
exercisable. An Option Share shall be an ISO to the extent that,
during the calendar year in which it first becomes exercisable, the
aggregate fair market value (as determined in accordance with the
Code) of such Option Share and all other ISOs granted to the Grantee
which first become exercisable in such calendar year do not exceed
$100,000 or to the extent such Option Share otherwise qualifies as an
ISO under the Code in effect at that time.
2.2 Section 2(b) shall hereby be deleted in its entirety and the
following substituted in place thereof:
(b) Vesting/Exercisability. The Grantee may only exercise his
Option to purchase Option Shares to the extent that the Option has
vested and become exercisable with respect to such Option Shares.
(i) Time Vesting. Subject to the Grantee's continued
employment with the Company or any Subsidiary in the position
held as of the date of this Agreement or a higher position, the
Option will vest and become exercisable in installments of 25% on
the first date on which the closing prices of sales of the Common
Stock, as reported on the NASDAQ Stock Market (the "Trading
Price"), exceed $7.00 per share for at least twenty (20) of
thirty (30) consecutive trading days (the "Determination
Period"); 25% on the first date on which the
<PAGE> 2
Trading Price exceeds $10.00 per share for at least the
Determination Period; 25% on the first date on which the Trading
Price exceeds $12.00 per share for at least the Determination
Period; and 25% on the first date on which the Trading Price
exceeds $14.00 per share for at least the Determination Period;
provided that if the Trading Price exceeds one or more of the
foregoing threshold levels following the public announcement of a
Change of Control (as defined below) transaction, but before the
consummation of such transaction or the termination of
negotiations regarding the same, then the Option shall become
exercisable only upon the consummation of the Change of Control
transaction as described below or following the termination of
the Change of Control transaction if the Trading Price exceeds
the relevant threshold level for at least twenty (20) of thirty
(30) consecutive trading days occurring after the public
announcement of such termination. More than one threshold level
can be satisfied during the same trading days. For example, if
the price is $6.00 on trading day one, $8.00 on trading day two
to twenty, and $11.00 on trading days twenty to thirty-nine, 25%
of the Performance Options will vest on trading day twenty-one
and 25% on trading day thirty-nine. (The $7.00, $10.00, $12.00
and $14.00 performance targets described above shall be referred
to herein as the "$7.00 Performance Target," "$10.00 Performance
Target," "$12.00 Performance Target," and "$14.00 Performance
Target," respectively. The Option Shares which vest at the
$7.00, $10.00, $12.00 and $14.00 Performance Targets shall be
referred to herein as the "$7.00 Performance Options," "$10.00
Performance Options," "$12.00 Performance Options," and "$14.00
Performance Options," respectively.) In the event the Grantee no
longer continues to be employed by the Company or any Subsidiary
in the position held as of the date of this Agreement or a higher
position, all Options which have not become exercisable at the
date of such event shall immediately terminate. Whether the
Grantee has continued to be employed by the Company or any
Subsidiary in the position held as of the date of this Agreement
or a higher position shall be determined by the Committee in its
sole discretion. To the extent not exercised, installments shall
accumulate and the Grantee may exercise them thereafter in whole
or in part.
(ii) Death, Disability, Change in Control or Termination.
The Option shall vest and become exercisable with respect to a
percentage of each of the $7.00, $10.00, $12.00 and $14.00
Performance Options, determined by the following formula,
automatically upon the occurrence of any of the following: (i)
the death or permanent disability (as determined by the Board or
the Committee) of the Grantee, or (ii) a Change of Control, to
the extent the shareholders of the Company receive consideration
for their shares of Common Stock in connection with the Change of
Control in excess of $10.00 per share:
2
<PAGE> 3
Number of Days Elapsed from Date of Grant of the Option
Divided by
Number of Days From Date of Grant to Expiration Date
(As Described Below) of Such Option
Multiplied by
The Number of Unexercisable Options Included In Such Option.
For example, if Performance Options for 40,000 shares are granted
on December 6, 1994, the Grantee dies on December 31, 1995 and no
Performance Targets have been met at that time, then 11,099
option shares become exercisable upon death, calculated as
follows:
3,567 = 10,000 x (391/1,096)
2,920 = 10,000 x (391/1,339)
2,471 = 10,000 x (391/1,582)
2,141 = 10,000 x (391/1,826)
------ ------
11,099 40,000.
====== ======
Notwithstanding the foregoing, the Option shall not vest and
become automatically exercisable as described in this Section
2(b)(ii) without the written consent of the Committee, to the
extent such acceleration of vesting would result, when taken in
the aggregate with all other payments from the Company, in the
payment by such officer of any excise tax provided for in
Sections 280G and 4999 of Code. For purposes hereof, a "Change
of Control" shall mean the (x) sale of all or substantially all
of the assets of the Company to an unaffiliated third-party, (y)
the merger or consolidation of the Company with an unaffiliated
third-party in which the Company is not the surviving corporation
or (z) any person or group of persons (as defined in Section
13(d) of the Securities Exchange Act of 1934) (other than
WestSphere Capital Associates, L.P. and its affiliates) shall
acquire or control in excess of 51% of the Company's Common Stock
on a fully-diluted basis.
(iii) Termination of Employment. The Grantee shall have
the right to exercise all unexercised Options which have vested
as of the Grantee's Termination Date (as defined in the Plan) for
a period of three (3) months following such Termination Date or
such longer period as may be provided in the Plan or as the
Committee may approve in its sole discretion in connection with
such termination; provided, that the Option shall not be
exercisable after its expiration pursuant to Section 7.
3
<PAGE> 4
2.3 Section 7 shall hereby be deleted in its entirety and the
following substituted in place thereof:
7. Expiration. The $7.00 Performance Options shall expire at
5:00 p.m., New York time, on December 6, 1997, if the $7.00
Performance Target is not met by such date. The $10.00 Performance
Options shall expire at 5:00 p.m., New York time, on August 6, 1998,
if the $10.00 Performance Target is not met by such date. The $12.00
Performance Options shall expire at 5:00 p.m., New York time, on April
6, 1999, if the $12.00 Performance Option is not met by such date.
The $14.00 Performance Options shall expire at 5:00 p.m., New York
time, on December 6, 1999, if the $14.00 Performance Target is not met
by such date. Once a $7.00, $10.00, $12.00 or $14.00 Performance
Option has expired as provided above, it shall be null and void and
will not be earned upon the later achievement of the related
Performance Target or upon the later occurrence of the events provided
in Section 2(b)(ii) of this Agreement. Notwithstanding the foregoing,
if the Company is engaged in negotiations for a Change of Control
transaction at the time of the expiration of any portion of a $7.00,
$10.00, $12.00 or $14.00 Performance Option, such options shall not
expire until the earlier of the termination of such negotiations or
the consummation of the Change of Control transaction. Any portion of
this Option which vests and becomes exercisable shall expire at 5:00
p.m., New York time, on the tenth anniversary of the date hereof.
Such expiration dates shall be referred to herein as the "Expiration
Date". In the event that the Grantee shall cease to be employed by
the Company or its subsidiaries for any reason, all Option Shares
which shall not have vested pursuant to Section 2 shall automatically
terminate.
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby, the
terms and provisions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL LABORATORIES,
INC.
By: /s/ Eugene E. Jennings
---------------------------------------
Eugene E. Jennings, President and Chief
Executive Officer
/s/ Perry C. McClung
---------------------------------------
PERRY C. McCLUNG, Grantee
4
<PAGE> 1
EXHIBIT 10.3
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS
November 5, 1992
Perry C. McClung
21705 Evergreen Road
Southfield, Michigan 48075
Re: Stock Option
The Board of Directors (the "Board") of Universal Standard
Medical Laboratories, Inc. (the "Company"), or the committee (the "Committee")
designated by the Board for the purpose of administering the Universal Standard
Medical Laboratories, Inc. 1992 Stock Option Plan (the "Plan"), hereby grants
to PERRY C. McCLUNG (the "Grantee"), the President of Universal Standard
Managed Care, Inc., a wholly-owned subsidiary of the Company, a stock option
(the "Option"), pursuant to the Plan, a copy of which is attached hereto. The
Option is subject in all respects to the Plan. Certain capitalized terms used
in this agreement (the "Agreement") which are not defined herein have the
meanings indicated for such terms in Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee
to purchase up to 15,000 shares (the "Option Shares") of the Company's Common
Stock, no par value (the "Common Stock"), at an option price per share of
$10.00 (the "Option Price"), subject to the terms and conditions of this
Agreement. The Option is intended to be an Incentive Stock Option.
2. (a) Exercisability. The Option may be exercised
and Option Shares may be purchased at any time and from time to time after the
execution of this Agreement, subject to the vesting limitations imposed by
Section 2(b). The Option Price for Option Shares shall be paid in full in cash
or by check by the Grantee at the time of the delivery of Option Shares, or, at
the written election of the Grantee, payment may be made by (i) delivery to the
Company of outstanding shares of Common Stock, (ii) retention by the Company of
one or more of such Option Shares or (iii) any combination of cash, check, the
Grantee's delivery of outstanding Shares and retention by the Company of one or
more of such Option Shares.
(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that the Option has
vested and become exercisable with respect to such Option Shares.
<PAGE> 2
(i) Time Vesting. The Option will vest
and become exercisable in installments of 25% of the Option Shares on each of
the first, second, third and fourth anniversaries of the date of this Option,
subject to the Grantee's continued employment with the Company or any
Subsidiary in the position held as of the date of this Agreement or a higher
position. In the event the Grantee no longer continues to be employed by the
Company or any Subsidiary in the position held as of the date of this Agreement
or a higher position, all Options which have not become exercisable at the date
of such event shall immediately terminate. Whether the Grantee has continued
to be employed by the Company or any Subsidiary in the position held as of the
date of this Agreement or a higher position shall be determined by the
Committee in its sole discretion. To the extent not exercised, installments
shall accumulate and the Grantee may exercise them thereafter in whole or in
part.
(ii) Death, Disability, Change in Control
or Termination. The Option shall vest and become exercisable with respect to
all of the Option Shares automatically upon (i) the death or permanent
disability (as determined by the Board or the Committee) of the Grantee, (ii) a
Change of Control and (iii), at the sole discretion of the Committee, a
termination of the Grantee's employment. For purposes hereof, a "Change of
Control" shall mean the (x) sale of all or substantially all of the assets of
the Company to an unaffiliated third-party, (y) the merger or consolidation of
the Company with an unaffiliated third-party in which the Company is not the
surviving corporation or (z) any person or group of persons (as defined in
Section 13(d) of the Securities Exchange Act of 1934) (other than WestSphere
Capital Associates, L.P. and its affiliates) shall acquire or control in excess
of 66-2/3% of the Company's Common Stock on a fully-diluted basis.
(iii) Termination of Employment. The
Grantee shall have the right to exercise all unexercised Options which have
vested as of the Grantee's Termination Date (as defined in the Plan) for a
period of three (3) months following such Termination Date or such longer
period as the Committee may approve in its sole discretion in connection with
such termination; provided, that the Option shall not be exercisable after its
expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent
disability of the Grantee, this Option shall not be transferable.
(b) The Company may assign its rights and delegate
its duties under this Agreement.
2
<PAGE> 3
4. Conformity with Plan. The Grantee's Option is intended
to conform in all respects with, and is subject to all applicable provisions
of, the Plan, which is incorporated herein by reference. Inconsistencies
between this Agreement and the Plan shall be resolved in accordance with the
terms of the Plan. By executing and returning the enclosed copy of this
Agreement, the Grantee acknowledges his receipt of the Plan and agrees to be
bound by all of other terms of the Plan.
5. Employment. Notwithstanding any contrary oral
representations or promises made to Grantee prior to or after the date hereof,
Grantee and the Company acknowledge Grantee's employment with the Company and
its subsidiaries is and will continue to be subject to the willingness of each
to continue such employment and nothing herein confers any right or obligation
on Grantee to continue in the employ of the Company or its subsidiaries or
shall affect in any way Grantee's right or the right of the Company or its
subsidiaries to terminate Grantee's employment at any time, for any reason,
with or without cause.
6. Share Legends. At the sole discretion of the
Committee, all certificates representing any Option Shares subject to the
provisions of this Agreement shall have endorsed thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
7. Expiration. The Option shall expire at 5:00 p.m., New
York time, on the tenth anniversary of the date hereof. In the event that the
Grantee shall cease to be employed by the Company or its subsidiaries for any
reason, all Option Shares which shall not have vested pursuant to Section 2
shall automatically terminate.
8. Further Actions. The parties agree to execute such
further instruments and to take such further actions as may reasonably be
required to carry out the intent of this Agreement.
9. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company and, subject to the restrictions on transfer herein set forth, be
binding upon Grantee's heirs, executors, administrators, successors and
assigns.
10. Governing Law. This Agreement and all documents
contemplated hereby, and all remedies in connection therewith and all questions
or transactions relating thereto, shall be construed in accordance with and
governed by the laws of the State of Michigan.
* * * * *
3
<PAGE> 4
Please execute the extra copy of this Agreement in the space
below and return it to the Secretary of the Company to confirm your
understanding and acceptance of the agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Marvin M. Eisner
--------------------------------
Its: President
-------------------------------
The undersigned hereby acknowledges having read this Agreement,
the Plan, and the other enclosures to this Agreement, and hereby agrees to be
bound by all provisions set forth herein and in the Plan.
GRANTEE:
/s/ Perry C. McClung
-------------------------------------
(Signature)
PERRY C. McCLUNG
(Please print name)
4
<PAGE> 5
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK OPTION AGREEMENT dated November 5,
1992 (the "Agreement") made this 6th day of May, 1996 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and PERRY C. McCLUNG (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in
this First Amendment with their defined meanings unless otherwise defined
herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be
amended as follows:
2.1 Section 1 shall hereby be deleted in its entirety and
the following substituted in place thereof:
1. Stock Option. The Option entitles the Grantee
to purchase up to 15,000 shares (the "Option Shares") of the
Company's Common Stock, no par value (the "Common Stock"), at an
option price per share of $4.75 (the Option Price"), subject to
the terms and conditions of this Agreement. The Option is
intended to be an Incentive Stock Option.
2.2 Section 2(b) shall hereby be deleted in its entirety
and the following substituted in place thereof:
"(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that
the Option has vested and become exercisable with respect to
such Option Shares.
(i) Time Vesting. The Option will vest and
become exercisable on May 6, 1997, subject to the
Grantee's continued employment with the Company or any
Subsidiary in the position held as the date of this
Agreement or a higher position. In the event the
Grantee no longer continues to be employed by the
Company or any Subsidiary in the position held as of
the date of this Agreement or a higher position, all
Options which have not become exercisable at the date
of such event shall immediately terminate. Whether the
Grantee has continued to be employed by the Company or
any Subsidiary in the position held as of the date of
this Agreement or a higher position shall be determined
by the Committee in its sole discretion. To the extent
not exercised, installments shall accumulate and the
Grantee may exercise them thereafter in whole or in
part.
<PAGE> 6
(ii) Death, Disability, Change in Control or
Termination. The Option shall vest and become
exercisable with respect to all of the Option Shares
automatically upon (i) the death or permanent
disability (as determined by the Board or the
Committee) of the Grantee or (ii) a Change of Control;
provided that the Option shall not so vest and become
automatically exercisable, without the written consent
of the Committee, to the extent such acceleration of
vesting would result, when taken in the aggregate with
all other payments from the Company, in the payment by
such officer of any excise tax provided for in Sections
280G and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"). In the event of a termination by
the Company of the Grantee's employment, other than due
to death or permanent disability, and other than a
termination by the Company for "cause" or "good cause"
as defined in the Grantee's then current (or if there
is no "then current" such agreement, most recent)
employment agreement with the Company, the Option shall
vest and become exercisable; provided that the Option
shall not so vest and become automatically exercisable,
without the written consent of the Committee, to the
extent such acceleration of vesting would result, when
taken in the aggregate with all other payments from the
Company, in the payment by such officer of any excise
tax provided for in Sections 208G and 4999 of the
Internal Revenue Code of 1986, as amended (the "Code").
For purposes hereof, a "Change of Control" shall mean
the (x) sale of all or substantially all of the assets
of the Company to an unaffiliated third-party, (y) the
merger or consolidation of the Company with an
unaffiliated third-party in which the Company is not
the surviving corporation or (z) any person or group of
persons (as defined in Section 13(d) of the Securities
Exchange Act of 1934) (other than WestSphere Capital
Associates, L.P. and its affiliates) shall acquire or
control in excess of 51% of the Company's Common Stock
on a fully-diluted basis.
(iii) Termination of Employment. The Grantee
shall have the right to exercise all unexercised
Options which have vested as of the Grantee's
Termination Date (as defined in the Plan) for a period
of three (3) months following such Termination Date or
such longer period as
2
<PAGE> 7
may be provided in the Plan or as the Committee may
approve in its sole discretion in connection with such
termination; provided, that the Option shall not be
exercisable after its expiration pursuant to Section 7.
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby,
the terms and provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Eugene E. Jennings
--------------------------------
Eugene E. Jennings, President
and Chief Executive Officer
/s/ Perry C. McClung
-----------------------------------
PERRY C. McCLUNG, Grantee
3
<PAGE> 8
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS
August 2, 1993
Perry C. McClung
21705 Evergreen Road
Southfield, Michigan 48075
Re: Stock Option
The Board of Directors (the "Board") of Universal Standard
Medical Laboratories, Inc. (the "Company"), or the committee (the "Committee")
designated by the Board for the purpose of administering the Universal Standard
Medical Laboratories, Inc. 1992 Stock Option Plan (the "Plan"), hereby grants
to PERRY C. McCLUNG (the "Grantee"), the President of Universal Standard
Managed Care, Inc., a wholly-owned subsidiary of the Company, a stock option
(the "Option"), pursuant to the Plan. The Option is subject in all respects to
the Plan. Certain capitalized terms used in this agreement (the "Agreement")
which are not defined herein have the meanings indicated for such terms in
Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee
to purchase up to 10,000 shares (the "Option Shares") of the Company's Common
Stock, no par value (the "Common Stock"), at an option price per share of
$12.15 (the "Option Price"), subject to the terms and conditions of this
Agreement. The Option is intended to be an Incentive Stock Option.
2. (a) Exercisability. The Option may be exercised
and Option Shares may be purchased at any time and from time to time after the
execution of this Agreement, subject to the vesting limitations imposed by
Section 2(b). The Option Price for Option Shares shall be paid in full in cash
or by check by the Grantee at the time of the delivery of Option Shares, or, at
the written election of the Grantee, payment may be made by (i) delivery to the
Company of outstanding shares of Common Stock, (ii) retention by the Company of
one or more of such Option Shares or (iii) any combination of cash, check, the
Grantee's delivery of outstanding Shares and retention by the Company of one or
more of such Option Shares.
(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that the Option has
vested and become exercisable with respect to such Option Shares.
<PAGE> 9
(i) Time Vesting. The Option will vest
and become exercisable in installments of 25% of the Option Shares on each of
the first, second, third and fourth anniversaries of the date of this Option,
subject to the Grantee's continued employment with the Company or any
Subsidiary in the position held as of the date of this Agreement or a higher
position. In the event the Grantee no longer continues to be employed by the
Company or any Subsidiary in the position held as of the date of this Agreement
or a higher position, all Options which have not become exercisable at the date
of such event shall immediately terminate. Whether the Grantee has continued
to be employed by the Company or any Subsidiary in the position held as of the
date of this Agreement or a higher position shall be determined by the
Committee in its sole discretion. To the extent not exercised, installments
shall accumulate and the Grantee may exercise them thereafter in whole or in
part.
(ii) Death, Disability, Change in Control
or Termination. The Option shall vest and become exercisable with respect to
all of the Option Shares automatically upon (i) the death or permanent
disability (as determined by the Board or the Committee) of the Grantee, (ii) a
Change of Control, and (iii) at the sole discretion of the Committee, a
termination of the Grantee's employment. For purposes hereof, a "Change of
Control" shall mean the (x) sale of all or substantially all of the assets of
the Company to an unaffiliated third-party, (y) the merger or consolidation of
the Company with an unaffiliated third-party in which the Company is not the
surviving corporation or (z) any person or group of persons (as defined in
Section 13(d) of the Securities Exchange Act of 1934) (other than WestSphere
Capital Associates, L.P. and its affiliates) shall acquire or control in excess
of 66-2/3% of the Company's Common Stock on a fully-diluted basis.
(iii) Termination of Employment. The
Grantee shall have the right to exercise all unexercised Options which have
vested as of the Grantee's Termination Date (as defined in the Plan) for a
period of three (3) months following such Termination Date or such longer
period as may be provided in the Plan or as the Committee may approve in its
sole discretion in connection with such termination; provided, that the Option
shall not be exercisable after its expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent
disability of the Grantee, this Option shall not be transferable.
2
<PAGE> 10
(b) The Company may assign its rights and delegate
its duties under this Agreement.
4. Conformity with Plan. The Grantee's Option is intended
to conform in all respects with, and is subject to all applicable provisions
of, the Plan, which is incorporated herein by reference. Inconsistencies
between this Agreement and the Plan shall be resolved in accordance with the
terms of the Plan. By executing and returning the enclosed copy of this
Agreement, the Grantee acknowledges his receipt of the Plan and agrees to be
bound by all of other terms of the Plan.
5. Employment. Notwithstanding any contrary oral
representations or promises made to Grantee prior to or after the date hereof,
Grantee and the Company acknowledge Grantee's employment with the Company and
its subsidiaries is and will continue to be subject to the willingness of each
to continue such employment and nothing herein confers any right or obligation
on Grantee to continue in the employ of the Company or its subsidiaries or
shall affect in any way Grantee's right or the right of the Company or its
subsidiaries to terminate Grantee's employment at any time, for any reason,
with or without cause.
6. Share Legends. At the sole discretion of the
Committee, all certificates representing any Option Shares subject to the
provisions of this Agreement shall have endorsed thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
7. Expiration. The Option shall expire at 5:00 p.m., New
York time, on the tenth anniversary of the date hereof. In the event that the
Grantee shall cease to be employed by the Company or its subsidiaries for any
reason, all Option Shares which shall not have vested pursuant to Section 2
shall automatically terminate.
8. Further Actions. The parties agree to execute such
further instruments and to take such further actions as may reasonably be
required to carry out the intent of this Agreement.
9. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company and, subject to the restrictions on transfer herein set forth, be
binding upon Grantee's heirs, executors, administrators, successors and
assigns.
3
<PAGE> 11
10. Governing Law. This Agreement and all documents
contemplated hereby, and all remedies in connection therewith and all questions
or transactions relating thereto, shall be construed in accordance with and
governed by the laws of the State of Michigan.
* * * * *
Please execute the extra copy of this Agreement in the space
below and return it to the Secretary of the Company to confirm your
understanding and acceptance of the agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ John T. Watkins
--------------------------------
Its: CEO
-------------------------------
The undersigned hereby acknowledges having read this Agreement,
the Plan, and the other enclosures to this Agreement, and hereby agrees to be
bound by all provisions set forth herein and in the Plan.
GRANTEE:
/s/ Perry C. McClung
-------------------------------------
(Signature)
PERRY C. McCLUNG
(Please print name)
4
<PAGE> 12
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK OPTION AGREEMENT dated August 2, 1993
(the "Agreement") made this 6th day of May, 1996 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and PERRY C. McCLUNG (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in
this First Amendment with their defined meanings unless otherwise defined
herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be
amended as follows:
2.1 Section 1 shall hereby be deleted in its entirety and
the following substituted in place thereof.
"1. Stock Option. The Option entitles the Grantee to
purchase up to 10,000 shares (the "Option Shares") of the Company's
Common Stock, no par value (the "Common Stock"), at an option price per
share of $4.75 (the "Option Price"), subject to the terms and conditions
of this Agreement. The Option is intended to be an Incentive Stock
Option, except as otherwise set forth in Section 2(b)(i) below."
2.2 Section 2(b) shall hereby be deleted in its entirety
and the following substituted in place thereof:
"2(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that
the Option has vested and become exercisable with respect to
such Option Shares.
(i) Time Vesting. The Option will vest and become
exercisable in installments as follows: May 6, 1997, 7,500
shares (6,052 of which are Incentive Stock Options and 1,448 of
which are non-qualified stock options) and August 2, 1997, 2,500
shares (all of which are non-qualified stock options), subject
to the Grantee's continued employment with the Company or any
Subsidiary in the position held as of the date of this Agreement
or a higher position. In the event the Grantee no longer
continues to be employed by the Company or any Subsidiary in the
position held as of the date of this Agreement or a higher
position, all Options which have not become exercisable at the
date of such event shall immediately terminate. Whether the
Grantee has continued to be employed by the Company or any
Subsidiary in the position held as of
<PAGE> 13
the date of this Agreement or a higher position shall be
determined by the Committee in its sole discretion. To the
extent not exercised, installments shall accumulate and the
Grantee may exercise them thereafter in whole or in part.
(ii) Death, Disability, Change in Control or
Termination. The Option shall vest and become exercisable with
respect to all of the Option Shares automatically upon (i) death
or permanent disability (as determined by the Board or the
Committee) of the Grantee or (ii) a Change of Control; provided
that the Option shall not so vest and become automatically
exercisable, without the written consent of the Committee, to th
extent such acceleration of vesting would result, when taken in
the aggregate with all other payments from the Company, in the
payment by such officer of any excise tax provided for in
Sections 280G and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"). In the event of a termination by the
Company of the Grantee's employment, other than due to the death
or permanent disability, and other than a termination by the
Company for "cause" or "good cause" as defined in the Grantee's
then current (or if there is no "then current" such agreement,
most recent) employment agreement with the Company, (i)
occurring before August 2, 1996, 3,750 shares, or (ii) occurring
on or after August 2, 1996, but before May 6, 1997, 6,250
shares, that would otherwise have become exercisable on May 6,
1997, coming first from the Incentive Stock Option portion of
this Option to the extent permitted by applicable law, shall
vest and become exercisable; provided that the Option shall not
so vest and become automatically exercisable, without the
written consent of the Committee, to the extent such
acceleration of vesting would result, when taken in the
aggregate with all other payments from the Company, in the
payment by such officer of any excise tax provided for in
Sections 280G and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"). For purposes hereof, a "Change of
Control" shall mean the (x) sale of all or substantially all of
the assets of the Company to an unaffiliated third-party, (y)
the merger or consolidation of the Company with an unaffiliated
third-party in which the Company is not the surviving
corporation or (z) any person or group of persons (as defined in
Section 13(d) of the Securities Exchange Act of 1934) (other
than WestSphere Capital Associates, L.P. and its affiliates)
shall acquire or control in excess of 51% of the Company's
Common Stock on a fully-diluted basis.
2
<PAGE> 14
(iii) Termination of Employment. The Grantee shall
have the right to exercise all unexercised Options which have
vested as of the Grantee's Termination Date (as defined in the
Plan) for a period of three (3) months following such
Termination Date or such longer period as may be provided in the
Plan or as the Committee may approve in its sole discretion in
connection with such termination; provided, that the Option
shall not be exercisable after its expiration pursuant to
Section 7."
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby,
the terms and provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Eugene E. Jennings
--------------------------------
Eugene E. Jennings, President
and Chief Executive Officer
/s/ Perry C. McClung
-----------------------------------
PERRY C. McCLUNG, Grantee
3
<PAGE> 15
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS
December 6, 1994
Perry C. McClung
26500 Northwestern Highway
Southfield, MI 48076
Re: Stock Option
The Board of Directors (the "Board") of Universal Standard
Medical Laboratories, Inc. (the "Company"), or the committee (the "Committee")
designated by the Board for the purpose of administering the Universal Standard
Medical Laboratories, Inc. 1992 Stock Option Plan (the "Plan"), hereby grants
to Perry C. McClung (the "Grantee"), the President of Universal Standard
Managed Care, Inc., a wholly-owned subsidiary of the Company, a stock option
(the "Option"), pursuant to the Plan. The Option is subject in all respects to
the Plan. Certain capitalized terms used in this agreement (the "Agreement")
which are not defined herein have the meanings indicated for such terms in
Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee to
purchase up to 10,000 shares (the "Option Shares") of the Company's Common
Stock, no par value (the "Common Stock"), at an option price per share of $6.20
(the "Option Price"), subject to the terms and conditions of this Agreement.
The Option is intended to be an Incentive Stock Option.
2. (a) Exercisability. Any portion of this Option
which vests and becomes exercisable as provided in Section 2(b) may be
exercised and Option Shares may be purchased pursuant thereto at any time and
from time to time thereafter; provided that the Grantee may not, without the
written consent of the Committee, exercise this Option in a manner which
results in a limitation on the Company's annual tax deduction for compensation
payments to the Grantee pursuant to the $1 million per person limitation on
annual compensation deductions under Section 162(m) of the Code. The Option
Price for Option Shares shall be paid in full in cash or by check by the
Grantee at the time of the delivery of Option Shares, or, at the written
election of the Grantee, payment may be made by (i) delivery to the Company of
outstanding shares of Common Stock, (ii) retention by the Company of one or
more of such Option Shares or (iii) any combination of cash, check, the
Grantee's delivery of outstanding Shares and retention by the Company of one or
more of such Option Shares.
<PAGE> 16
(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that the Option has
vested and become exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest
and become exercisable in installments of 25% of the Option Shares on each of
the first, second, third and fourth anniversaries of the date of this Option,
subject to the Grantee's continued employment with the Company or any
Subsidiary in the position held as of the date of this Agreement or a higher
position. In the event the Grantee no longer continues to be employed by the
Company or any Subsidiary in the position held as of the date of this Agreement
or a higher position, all Options which have not become exercisable at the date
of such event shall immediately terminate. Whether the Grantee has continued
to be employed by the Company or any Subsidiary in the position held as of the
date of this Agreement or a higher position shall be determined by the
Committee in its sole discretion. To the extent not exercised, installments
shall accumulate and the Grantee may exercise them thereafter in whole or in
part.
(ii) Death, Disability, Change in Control
or Termination. The Option shall vest and become exercisable with respect to
all of the Option Shares automatically upon the occurrence of any of the
following: (i) the death or permanent disability (as determined by the Board
or the Committee) of the Grantee, (ii) a Change of Control, or (iii) a
termination by the Company of the Grantee's employment, other than due to death
or permanent disability, and other than a termination by the Company for
"cause" or "good cause" as defined in the Grantee's then current (or if there
is no "then current" such agreement, most recent) employment agreement with the
Company; provided that the Option shall not so vest and become automatically
exercisable, without the written consent of the Committee, to the extent such
acceleration of vesting would result, when taken in the aggregate with all
other payments from the Company, in the payment by such officer of any excise
tax provided for in Sections 280G and 4999 of the Internal Revenue Code of
1986, as amended (the "Code"). For purposes hereof, a "Change of Control"
shall mean the (x) sale of all or substantially all of the assets of the
Company to an unaffiliated third-party, (y) the merger or consolidation of the
Company with an unaffiliated third-party in which the Company is not the
surviving corporation or (z) any person or group of persons (as defined in
Section 13(d) of the Securities Exchange Act of 1934) (other than WestSphere
Capital Associates, L.P. and its affiliates) shall acquire or control in excess
of 51% of the Company's Common Stock on a fully-diluted basis.
(iii) Termination of Employment. The Grantee
2
<PAGE> 17
shall have the right to exercise all unexercised Options which have vested as
of the Grantee's Termination Date (as defined in the Plan) for a period of
three (3) months following such Termination Date or such longer period as may
be provided in the Plan or as the Committee may approve in its sole discretion
in connection with such termination; provided, that the Option shall not be
exercisable after its expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent
disability of the Grantee, this Option shall not be transferable.
(b) The Company may assign its rights and delegate
its duties under this Agreement.
4. Conformity with Plan. The Grantee's Option is intended
to conform in all respects with, and is subject to all applicable provisions
of, the Plan, which is incorporated herein by reference. Inconsistencies
between this Agreement and the Plan shall be resolved in accordance with the
terms of the Plan. By executing and returning the enclosed copy of this
Agreement, the Grantee acknowledges his receipt of the Plan and agrees to be
bound by all of other terms of the Plan.
5. Employment. Notwithstanding any contrary oral
representations or promises made to Grantee prior to or after the date hereof,
Grantee and the Company acknowledge Grantee's employment with the Company and
its subsidiaries is and will continue to be subject to the willingness of each
to continue such employment and nothing herein confers any right or obligation
on Grantee to continue in the employ of the Company or its subsidiaries or
shall affect in any way Grantee's right or the right of the Company or its
subsidiaries to terminate Grantee's employment at any time, for any reason,
with or without cause.
6. Share Legends. At the sole discretion of the
Committee, all certificates representing any Option Shares subject to the
provisions of this Agreement shall have endorsed thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
7. Expiration. The Option shall expire at 5:00 p.m., New
York time, on the tenth anniversary of the date hereof. In the event that the
Grantee shall cease to be employed by the Company or its subsidiaries for any
reason, all
3
<PAGE> 18
Option Shares which shall not have vested pursuant to Section 2 shall
automatically terminate.
8. Further Actions. The parties agree to execute such
further instruments and to take such further actions as may reasonably be
required to carry out the intent of this Agreement.
9. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company and, subject to the restrictions on transfer herein set forth, be
binding upon Grantee's heirs, executors, administrators, successors and
assigns.
10. Governing Law. This Agreement and all documents
contemplated hereby, and all remedies in connection therewith and all questions
or transactions relating thereto, shall be construed in accordance with and
governed by the laws of the State of Michigan.
* * * * *
Please execute the extra copy of this Agreement in the space
below and return it to the Secretary of the Company to confirm your
understanding and acceptance of the agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ John T. Watkins
--------------------------------
Its: CEO
-------------------------------
The undersigned hereby acknowledges having read this Agreement,
the Plan, and the other enclosures to this Agreement, and hereby agrees to be
bound by all provisions set forth herein and in the Plan.
GRANTEE:
/s/ Perry C. McClung
-------------------------------------
(Signature)
PERRY C. McCLUNG
-------------------------------------
(Please print name)
4
<PAGE> 19
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK OPTION AGREEMENT dated December 6,
1994 (the "Agreement") made this 6th day of May, 1996 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and PERRY C. McCLUNG (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in
this First Amendment with their defined meanings unless otherwise defined
herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be
amended as follows:
2.1 Section 1 shall hereby be deleted in its entirety and
the following substituted in place thereof.
1. Stock Option. The Option entitles the Grantee
to purchase up to 10,000 shares (the "Option Shares") of the
Company's Common Stock, no par value (the "Common Stock"), at an
option price per share of $4.75 (the "Option Price"), subject to
the terms and conditions of this Agreement. The Option is
intended to be an Incentive Stock Option, except as otherwise
set forth in Section 2(b)(i) below.
2.2 Section 2(b) shall hereby be deleted in its entirety
and the following substituted in place thereof:
"(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that
the Option has vested and become exercisable with respect to
such Option Shares.
(i) Time Vesting. The Option will vest and
become exercisable in installments as follows: on May
6, 1997, 5,000 shares (all of which are non-qualified
stock options), on December 6, 1997, 2,500 shares (all
of which are non-qualified stock options), and on
December 6, 1998, 2,500 shares, subject to the
Grantee's continued employment with
the Company or any Subsidiary in the position
held as of the date of this Agreement or a higher
position. In the event the Grantee no longer continues
to be employed by the Company or any Subsidiary in the
position held as of the date of this Agreement or a
higher position, all Options which have not become
<PAGE> 20
exercisable at the date of such event shall immediately
terminate. Whether the Grantee has continued to be
employed by the Company or any Subsidiary in the
position held as of the date of this Agreement or a
higher position shall be determined by the Committee in
its sole discretion. To the extent not exercised,
installments shall accumulate and the Grantee may
exercise them thereafter in whole or in part.
(ii) Death, Disability or Change in Control.
The Option shall vest and become exercisable with
respect to all of the Option Shares automatically upon
the occurrence of any of the following: (i) the death
or permanent disability (as determined by the Board or
the Committee) of the Grantee or (ii) a Change of
Control; provided that the Option shall not so vest and
become automatically exercisable, without the written
consent of the Committee, to the extent such
acceleration of vesting would result, when taken in the
aggregate with all other payments from the Company, in
the payment by such officer of any excise tax provided
for in Sections 280G and 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"). For purposes
hereof, a "Change of Control" shall mean the (x) sale
of all or substantially all of the assets of the
Company to an unaffiliated third-party, (y) the merger
or consolidation of the Company with an unaffiliated
third-party in which the Company is not the surviving
corporation or (z) any person or group of persons (as
defined in Section 13(d) of the Securities Exchange Act
of 1934) (other than WestSphere capital Associates,
L.P. and its affiliates) shall acquire or control in
excess of 51% of the Company's Common Stock on a
fully-diluted basis.
(iii) Termination of Employment. The Grantee
shall have the right to exercise all unexercised
Options which have vested as of the Grantee's
Termination Date (as defined in the Plan) for a period
of three (3) months following such Termination Date or
such longer period as may be provided in the Plan or as
the Committee may approve in its sole discretion in
connection with such termination; provided, that the
Option shall not be exercisable after its expiration
pursuant to Section 7.
2
<PAGE> 21
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby,
the terms and provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Eugene E. Jennings
--------------------------------
Eugene E. Jennings, President
and Chief Executive Officer
/s/ Perry C. McClung
-----------------------------------
PERRY C. McCLUNG, Grantee
3
<PAGE> 22
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS
December 5, 1995
Perry C. McClung
26500 Northwestern Highway
Southfield, MI 48076
Re: Stock Option
The Board of Directors (the "Board") of Universal Standard
Medical Laboratories, Inc. (the "Company"), or the committee (the "Committee")
designated by the Board for the purpose of administering the Universal Standard
Medical Laboratories, Inc. 1992 Stock Option Plan (the "Plan"), hereby grants
to Perry C. McClung (the "Grantee"), the President of Universal Standard
Managed Care, Inc., a wholly-owned subsidiary of the Company, a stock option
(the "Option"), pursuant to the Plan. The Option is subject in all respects to
the Plan. Certain capitalized terms used in this agreement (the "Agreement")
which are not defined herein have the meanings indicated for such terms in
Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee to
purchase up to 10,000 shares (the "Option Shares") of the Company's Common
Stock, no par value (the "Common Stock"), at an option price per share of $6.00
(the "Option Price"), subject to the terms and conditions of this Agreement.
The Option is intended to be an Incentive Stock Option.
2. (a) Exercisability. Any portion of this Option
which vests and becomes exercisable as provided in Section 2(b) may be
exercised and Option Shares may be purchased pursuant thereto at any time and
from time to time thereafter; provided that the Grantee may not, without the
written consent of the Committee, exercise this Option in a manner which
results in a limitation on the Company's annual tax deduction for compensation
payments to the Grantee pursuant to the $1 million per person limitation on
annual compensation deductions under Section 162(m) of the Code. The Option
Price for Option Shares shall be paid in full in cash or by check by the
Grantee at the time of the delivery of Option Shares, or, at the written
election of the Grantee, payment may be made by (i) delivery to the Company of
outstanding shares of Common Stock, (ii) retention by the Company of one or
more of such Option Shares or (iii) any combination of cash, check, the
Grantee's delivery of outstanding Shares and retention by the Company of one or
more of such Option Shares.
<PAGE> 23
(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that the Option has
vested and become exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest
and become exercisable in installments of 25% of the Option Shares on each of
the first, second, third and fourth anniversaries of the date of this Option,
subject to the Grantee's continued employment with the Company or any
Subsidiary in the position held as of the date of this Agreement or a higher
position. In the event the Grantee no longer continues to be employed by the
Company or any Subsidiary in the position held as of the date of this Agreement
or a higher position, all Options which have not become exercisable at the date
of such event shall immediately terminate. Whether the Grantee has continued
to be employed by the Company or any Subsidiary in the position held as of the
date of this Agreement or a higher position shall be determined by the
Committee in its sole discretion. To the extent not exercised, installments
shall accumulate and the Grantee may exercise them thereafter in whole or in
part.
(ii) Death, Disability, Change in Control
or Termination. The Option shall vest and become exercisable with respect to
all of the Option Shares automatically upon the occurrence of any of the
following: (i) the death or permanent disability (as determined by the Board
or the Committee) of the Grantee, (ii) a Change of Control, or (iii) a
termination by the Company of the Grantee's employment, other than due to death
or permanent disability, and other than a termination by the Company for
"cause" or "good cause" as defined in the Grantee's then current (or if there
is no "then current" such agreement, most recent) employment agreement with the
Company; provided that the Option shall not so vest and become automatically
exercisable, without the written consent of the Committee, to the extent such
acceleration of vesting would result, when taken in the aggregate with all
other payments from the Company, in the payment by such officer of any excise
tax provided for in Sections 280G and 4999 of the Internal Revenue Code of
1986, as amended (the "Code"). For purposes hereof, a "Change of Control"
shall mean the (x) sale of all or substantially all of the assets of the
Company to an unaffiliated third-party, (y) the merger or consolidation of the
Company with an unaffiliated third-party in which the Company is not the
surviving corporation or (z) any person or group of persons (as defined in
Section 13(d) of the Securities Exchange Act of 1934) (other than WestSphere
Capital Associates, L.P. and its affiliates) shall acquire or control in excess
of 51% of the Company's Common Stock on a fully-diluted basis.
(iii) Termination of Employment. The Grantee
2
<PAGE> 24
shall have the right to exercise all unexercised Options which have vested as
of the Grantee's Termination Date (as defined in the Plan) for a period of
three (3) months following such Termination Date or such longer period as may
be provided in the Plan or as the Committee may approve in its sole discretion
in connection with such termination; provided, that the Option shall not be
exercisable after its expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent
disability of the Grantee, this Option shall not be transferable.
(b) The Company may assign its rights and delegate
its duties under this Agreement.
4. Conformity with Plan. The Grantee's Option is intended
to conform in all respects with, and is subject to all applicable provisions
of, the Plan, which is incorporated herein by reference. Inconsistencies
between this Agreement and the Plan shall be resolved in accordance with the
terms of the Plan. By executing and returning the enclosed copy of this
Agreement, the Grantee acknowledges his receipt of the Plan and agrees to be
bound by all of other terms of the Plan.
5. Employment. Notwithstanding any contrary oral
representations or promises made to Grantee prior to or after the date hereof,
Grantee and the Company acknowledge Grantee's employment with the Company and
its subsidiaries is and will continue to be subject to the willingness of each
to continue such employment and nothing herein confers any right or obligation
on Grantee to continue in the employ of the Company or its subsidiaries or
shall affect in any way Grantee's right or the right of the Company or its
subsidiaries to terminate Grantee's employment at any time, for any reason,
with or without cause.
6. Share Legends. At the sole discretion of the
Committee, all certificates representing any Option Shares subject to the
provisions of this Agreement shall have endorsed thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
7. Expiration. The Option shall expire at 5:00 p.m., New
York time, on the tenth anniversary of the date hereof. In the event that the
Grantee shall cease to be employed by the Company or its subsidiaries for any
reason, all
3
<PAGE> 25
Option Shares which shall not have vested pursuant to Section 2 shall
automatically terminate.
8. Further Actions. The parties agree to execute such
further instruments and to take such further actions as may reasonably be
required to carry out the intent of this Agreement.
9. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company and, subject to the restrictions on transfer herein set forth, be
binding upon Grantee's heirs, executors, administrators, successors and
assigns.
10. Governing Law. This Agreement and all documents
contemplated hereby, and all remedies in connection therewith and all questions
or transactions relating thereto, shall be construed in accordance with and
governed by the laws of the State of Michigan.
* * * * *
Please execute the extra copy of this Agreement in the space
below and return it to the Secretary of the Company to confirm your
understanding and acceptance of the agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ John T. Watkins
--------------------------------
Its: CEO
-------------------------------
The undersigned hereby acknowledges having read this Agreement,
the Plan, and the other enclosures to this Agreement, and hereby agrees to be
bound by all provisions set forth herein and in the Plan.
GRANTEE:
/s/ Perry C. McClung
-------------------------------------
(Signature)
PERRY C. McCLUNG
-------------------------------------
(Please print name)
4
<PAGE> 26
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK OPTION AGREEMENT dated December 5,
1995 (the "Agreement") made this 6th day of May, 1996 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and PERRY C. McCLUNG (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in
this First Amendment with their defined meanings unless otherwise defined
herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be
amended as follows:
2.1. Section 1 shall hereby be deleted in its entirety and
the following substituted in place thereof:
1. Stock Option. The Option entitles the Grantee
to purchase up to 10,000 shares (the "Option Shares") of the
Company's Common Stock, no par value (the "Common Stock"), at an
option price per share of $4.75 (the "Option Price"), subject to
the terms and conditions of this Agreement. The Option is
intended to be an Incentive Stock Option, except as otherwise
set forth in Section 2(b)(i) below.
2.2 Section 2(b) shall hereby be deleted in its entirety
and the following substituted in place thereof:
(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that
the Option has vested and become exercisable with respect to
such Option Shares.
(i) Time Vesting. The Option will vest and
become exercisable in installments as follows: On May
6, 1997, 2,500 shares (all of which shares will be
non-qualified stock options), on December 5, 1997 (all
of which shares will be non-qualified stock options),
2,500 shares, on December 5, 1998, 2,500 shares and on
December 5, 1999, 2,500 shares, subject to the
Grantee's continued employment with the Company or any
Subsidiary in the position held as of the date of this
Agreement or a higher position. In the event the
Grantee no longer continues to be employed by the
Company or any Subsidiary in the position held as of
the date of this Agreement or a higher position, all
Options which have not become exercisable at the
<PAGE> 27
date of such event shall immediately terminate.
Whether the Grantee has continued to be employed by the
Company or any Subsidiary in the position held as of
the date of this Agreement or a higher position shall
be determined by the Committee in its sole discretion.
To the extent not exercised, installments shall
accumulate and the Grantee may exercise them thereafter
in whole or in part.
(ii) Death, Disability, or Change in Control.
The Option shall vest and become exercisable with
respect to all of the Option Shares automatically upon
the occurrence of any of the following: (i) the death
or permanent disability (as determined by the Board or
the Committee) of the Grantee or (ii) a Change of
Control provided that the Option shall not so vest and
become automatically exercisable, without the written
consent of the Committee, to the extent such
acceleration of vesting would result, when taken in the
aggregate with all other payments from the Company, in
the payment by such officer of any excise tax provided
for in Sections 280G and 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"). For purposes
hereof, a "Change of Control" shall mean the (x) sale
of all or substantially all of the assets of the
Company to an unaffiliated third-party, (y) the merger
or consolidation of the Company with an unaffiliated
third-party in which the Company is not the surviving
corporation or (z) any person or group of persons (as
defined in Section 13(d) of the Securities Exchange Act
of 1934) (other than WestSphere Capital Associates,
L.P. and its affiliates) shall acquire or control in
excess of 51% of the Company's Common Stock on a
fully-diluted basis.
(iii) Termination of Employment. The Grantee
shall have the right to exercise all unexercised
Options which have vested as of the Grantee's
Termination Date (as defined in the Plan) for a period
of three (3) months following such Termination Date or
such longer period as may be provided in the Plan or as
the Committee may approve in its sole discretion in
connection with such termination; provided, that the
Option shall not be exercisable after its expiration
pursuant to Section 7.
2
<PAGE> 28
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby,
the terms and provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Eugene E. Jennings
--------------------------------
Eugene E. Jennings, President
Chief Executive Officer
/s/ Perry C. McClung
-----------------------------------
PERRY C. McCLUNG, Grantee
3
<PAGE> 1
EXHIBIT 10.4
FIRST AMENDMENT TO
1994 PERFORMANCE STOCK OPTION - EXECUTIVE OFFICERS AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK OPTION AGREEMENT dated December 6,
1994 (the "Agreement") made this 6th day of May, 1996 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and ALAN S. KER (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in
this First Amendment with their defined meanings unless otherwise defined
herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be amended
as follows:
2.1 Section 1 shall hereby be deleted in its entirety and the
following substituted in place thereof:
1. Stock Option. The Option entitles the Grantee to
purchase up to 40,000 shares (the "Option Shares") of the Company's
Common Stock, no par value (the "Common Stock"), at an option price
per share of $4.75 (the "Option Price"), subject to the terms and
conditions of this Agreement. The Option is intended to be an
Incentive Stock Option ("ISO") to the extent permitted under the
Internal Revenue Code of 1986, as amended (the "Code"). The
determination as to which Option Shares are ISOs and which are
Non-Qualified Stock Options ("NQO") shall be made at the time an
Option Share first becomes exercisable. An Option Share shall be an
ISO to the extent that, during the calendar year in which it first
becomes exercisable, the aggregate fair market value (as determined in
accordance with the Code) of such Option Share and all other ISOs
granted to the Grantee which first become exercisable in such calendar
year do not exceed $100,000 or to the extent such Option Share
otherwise qualifies as an ISO under the Code in effect at that time.
2.2 Section 2(b) shall hereby be deleted in its entirety and the
following substituted in place thereof:
(b) Vesting/Exercisability. The Grantee may only exercise
his Option to purchase Option Shares to the extent that the Option has
vested and become exercisable with respect to such Option Shares.
(i) Time Vesting. Subject to the Grantee's continued
employment with the Company or any Subsidiary in the position held as
of the date of this Agreement or a higher position, the Option will
vest and become exercisable in installments of 25% on the first date
on which the closing prices of sales of the Common Stock, as reported
on the NASDAQ Stock Market (the "Trading Price"), exceed $7.00 per
share for at least twenty (20) of thirty (30) consecutive trading days
(the "Determination Period"); 25% on the first date on which the
Trading Price exceeds $10.00 per share for at least the
<PAGE> 2
Determination Period; 25% on the first date on which the Trading
Price exceeds $12.00 per share for at least the Determination
Period; and 25% on the first date on which the Trading Price
exceeds $14.00 per share for at least the Determination Period;
provided that if the Trading Price exceeds one or more of the
foregoing threshold levels following the public announcement of
a Change of Control (as defined below) transaction, but before
the consummation of such transaction or the termination of
negotiations regarding the same, then the Option shall become
exercisable only upon the consummation of the Change of Control
transaction as described below or following the termination of
the Change of Control transaction if the Trading Price exceeds
the relevant threshold level for at least twenty (20) of thirty
(30) consecutive trading days occurring after the public
announcement of such termination. More than one threshold level
can be satisfied during the same trading days. For example, if
the price is $6.00 on trading day one, $8.00 on trading day two
to twenty, and $11.00 on trading days twenty to thirty-nine, 25%
of the Performance Options will vest on trading day twenty-one
and 25% on trading day thirty-nine. (The $7.00, $10.00, $12.00
and $14.00 performance targets described above shall be referred
to herein as the "$7.00 Performance Target," "$10.00 Performance
Target," "$12.00 Performance Target," and "$14.00 Performance
Target," respectively. The Option Shares which vest at the
$7.00, $10.00, $12.00 and $14.00 Performance Targets shall be
referred to herein as the "$7.00 Performance Options," "$10.00
Performance Options," "$12.00 Performance Options," and "$14.00
Performance Options," respectively.) In the event the Grantee
no longer continues to be employed by the Company or any
Subsidiary in the position held as of the date of this Agreement
or a higher position, all Options which have not become
exercisable at the date of such event shall immediately
terminate. Whether the Grantee has continued to be employed by
the Company or any Subsidiary in the position held as of the
date of this Agreement or a higher position shall be determined
by the Committee in its sole discretion. To the extent not
exercised, installments shall accumulate and the Grantee may
exercise them thereafter in whole or in part.
(ii) Death, Disability or Change in Control. The
Option shall vest and become exercisable with respect to a
percentage of each of the $7.00, $10.00, $12.00 and $14.00
Performance Options, determined by the following formula,
automatically upon the occurrence of any of the following: (i)
the death or permanent disability (as determined by the Board or
the Committee) of the Grantee, or (ii) a Change of Control, to
the extent the shareholders of the Company receive consideration
for their shares of Common Stock in connection with the Change
of Control in excess of $10.00 per share:
2
<PAGE> 3
Number of Days Elapsed from Date of Grant of the Option
Divided by
Number of Days From Date of Grant to Expiration Date
(As Described Below) of Such Option
Multiplied by
The Number of Unexercisable Options Included In Such
Option.
For example, if Performance Options for 40,000 shares are
granted on December 6, 1994, the Grantee dies on December 31,
1995 and no Performance Targets have been met at that time, then
11,099 option shares become exercisable upon death, calculated
as follows:
3,567 = 10,000 x (391/1,096)
2,920 = 10,000 x (391/1,339)
2,471 = 10,000 x (391/1,582)
2,141 = 10,000 x (391/1,826)
----- ------
11,099 40,000.
====== ======
Notwithstanding the foregoing, the Option shall not vest and
become automatically exercisable as described in this Section
2(b)(ii) without the written consent of the Committee, to the
extent such acceleration of vesting would result, when taken in
the aggregate with all other payments from the Company, in the
payment by such officer of any excise tax provided for in
Sections 280G and 4999 of Code. For purposes hereof, a "Change
of Control" shall mean the (x) sale of all or substantially all
of the assets of the Company to an unaffiliated third-party, (y)
the merger or consolidation of the Company with an unaffiliated
third-party in which the Company is not the surviving
corporation or (z) any person or group of persons (as defined in
Section 13(d) of the Securities Exchange Act of 1934) (other
than WestSphere Capital Associates, L.P. and its affiliates)
shall acquire or control in excess of 51% of the Company's
Common Stock on a fully-diluted basis.
(iii) Termination of Employment. The Grantee shall
have the right to exercise all unexercised Options which have
vested as of the Grantee's Termination Date (as defined in the
Plan) for a period of three (3) months following such
Termination Date or such longer period as may be provided in the
Plan or as the Committee may approve in its sole discretion in
connection with such termination; provided, that the Option
shall not be exercisable after its expiration pursuant to
Section 7.
2.3 Section 7 shall hereby be deleted in its entirety and
the following substituted in place thereof:
3
<PAGE> 4
7. Expiration. The $7.00 Performance Options
shall expire at 5:00 p.m., New York time, on December 6, 1997,
if the $7.00 Performance Target is not met by such date. The
$10.00 Performance Options shall expire at 5:00 p.m., New York
time, on August 6, 1998, if the $10.00 Performance Target is not
met by such date. The $12.00 Performance Options shall expire
at 5:00 p.m., New York time, on April 6, 1999, if the $12.00
Performance Option is not met by such date. The $14.00
Performance Options shall expire at 5:00 p.m., New York time, on
December 6, 1999, if the $14.00 Performance Target is not met by
such date. Once a $7.00, $10.00, $12.00 or $14.00 Performance
Option has expired as provided above, it shall be null and void
and will not be earned upon the later achievement of the related
Performance Target or upon the later occurrence of the events
provided in Section 2(b)(ii) of this Agreement. Notwithstanding
the foregoing, if the Company is engaged in negotiations for a
Change of Control transaction at the time of the expiration of
any portion of a $7.00, $10.00, $12.00 or $14.00 Performance
Option, such options shall not expire until the earlier of the
termination of such negotiations or the consummation of the
Change of Control transaction. Any portion of this Option which
vests and becomes exercisable shall expire at 5:00 p.m., New
York time, on the tenth anniversary of the date hereof. Such
expiration dates shall be referred to herein as the "Expiration
Date". In the event that the Grantee shall cease to be employed
by the Company or its subsidiaries for any reason, all Option
Shares which shall not have vested pursuant to Section 2 shall
automatically terminate.
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby,
the terms and provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL LABORATORIES,
INC.
By: /s/ Eugene E. Jennings
--------------------------------------
Eugene E. Jennings, President and Chief
Executive Officer
/s/ Alan S. Ker
---------------------------------------
ALAN S. KER, Grantee
4
<PAGE> 1
EXHIBIT 10.5
INCENTIVE STOCK OPTION - MANAGEMENT
November 5, 1992
Alan S. Ker
21705 Evergreen Road
Southfield, Michigan 48075
Re: Stock Option
The Board of Directors (the "Board") of Universal Standard
Medical Laboratories, Inc. (the "Company"), or the committee (the "Committee")
designated by the Board for the purpose of administering the Universal Standard
Medical Laboratories, Inc. 1992 Stock Option Plan (the "Plan"), hereby grants
to ALAN S. KER (the "Grantee"), the Chief Financial Officer of the Company, a
stock option (the "Option"), pursuant to the Plan, a copy of which is attached
hereto. The Option is subject in all respects to the Plan. Certain
capitalized terms used in this agreement (the "Agreement") which are not
defined herein have the meanings indicated for such terms in Section 10.1 of
the Plan.
1. Stock Option. The Option entitles the Grantee
to purchase up to shares (the "Option Shares") of the Company's Common
Stock, no par value (the "Common Stock"), at an option price per share of
(the "Option Price"), subject to the terms and conditions of this Agreement.
The Option is intended to be an Incentive Stock Option.
2. (a) Exercisability. The Option may be exercised
and Option Shares may be purchased at any time and from time to time after the
execution of this Agreement, subject to the vesting limitations imposed by
Section 2(b). The Option Price for Option Shares shall be paid in full in cash
or by check by the Grantee at the time of the delivery of Option Shares, or, at
the written election of the Grantee, payment may be made by (i) delivery to the
Company of outstanding shares of Common Stock, (ii) retention by the Company of
one or more of such Option Shares or (iii) any combination of cash, check, the
Grantee's delivery of outstanding Shares and retention by the Company of one or
more of such Option Shares.
(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that the Option has
vested and become exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest
and become exercisable in installments of 25% of the Option Shares
<PAGE> 2
on each of the first, second, third and fourth anniversaries of the date of
this Option, subject to the Grantee's continued employment with the Company or
any Subsidiary in the position held as of the date of this Agreement or a
higher position. In the event the Grantee no longer continues to be employed
by the Company or any Subsidiary in the position held as of the date of this
Agreement or a higher position, all Options which have not become exercisable
at the date of such event shall immediately terminate. Whether the Grantee has
continued to be employed by the Company or any Subsidiary in the position held
as of the date of this Agreement or a higher position shall be determined by
the Committee in its sole discretion. To the extent not exercised,
installments shall accumulate and the Grantee may exercise them thereafter in
whole or in part.
(ii) Death or Disability. The Option shall
vest and become exercisable with respect to all of the Option Shares
automatically upon (i) the death or permanent disability (as determined by the
Board or the Committee) of the Grantee and (ii) a Change of Control. For
purposes hereof, a "Change of Control" shall mean the (x) sale of all or
substantially all of the assets of the Company to an unaffiliated third-party,
(y) the merger or consolidation of the Company with an unaffiliated third-party
in which the Company is not the surviving corporation or (z) any person or
group of persons (as defined in Section 13(d) of the Securities Exchange Act of
1934) (other than WestSphere Capital Associates, L.P. and its affiliates) shall
acquire or control in excess of 66-2/3% of the Company's Common Stock on a
fully-diluted basis.
(iii) Termination of Employment. The
Grantee shall have the right to exercise all unexercised Options which have
vested as of the Grantee's Termination Date (as defined in the Plan) for a
period of three (3) months following such Termination Date or such longer
period as the Committee may approve in its sole discretion in connection with
such termination; provided, that the Option shall not be exercisable after its
expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent
disability of the Grantee, this Option shall not be transferable.
(b) The Company may assign its rights and delegate
its duties under this Agreement.
4. Conformity with Plan. The Grantee's Option is intended
to conform in all respects with, and is subject to all applicable provisions
of, the Plan, which is incorporated herein by reference. Inconsistencies
between this Agreement
2
<PAGE> 3
and the Plan shall be resolved in accordance with the terms of the Plan. By
executing and returning the enclosed copy of this Agreement, the Grantee
acknowledges his receipt of the Plan and agrees to be bound by all of other
terms of the Plan.
5. Employment. Notwithstanding any contrary oral
representations or promises made to Grantee prior to or after the date hereof,
Grantee and the Company acknowledge Grantee's employment with the Company and
its subsidiaries is and will continue to be subject to the willingness of each
to continue such employment and nothing herein confers any right or obligation
on Grantee to continue in the employ of the Company or its subsidiaries or
shall affect in any way Grantee's right or the right of the Company or its
subsidiaries to terminate Grantee's employment at any time, for any reason,
with or without cause.
6. Share Legends. At the sole discretion of the
Committee, all certificates representing any Option Shares subject to the
provisions of this Agreement shall have endorsed thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
7. Expiration. The Option shall expire at 5:00 p.m., New
York time, on the tenth anniversary of the date hereof. In the event that the
Grantee shall cease to be employed by the Company or its subsidiaries for any
reason, all Option Shares which shall not have vested pursuant to Section 2
shall automatically terminate.
8. Further Actions. The parties agree to execute such
further instruments and to take such further actions as may reasonably be
required to carry out the intent of this Agreement.
9. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company and, subject to the restrictions on transfer herein set forth, be
binding upon Grantee's heirs, executors, administrators, successors and
assigns.
10. Governing Law. This Agreement and all documents
contemplated hereby, and all remedies in connection therewith and all questions
or transactions relating thereto, shall be construed in accordance with and
governed by the laws of the State of Michigan.
* * * * *
3
<PAGE> 4
Please execute the extra copy of this Agreement in the space below and
return it to the Secretary of the Company to confirm your understanding and
acceptance of the agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Marvin M. Eisner
-----------------------------
Its: President
-----------------------------
The undersigned hereby acknowledges having read this Agreement,
the Plan, and the other enclosures to this Agreement, and hereby agrees to be
bound by all provisions set forth herein and in the Plan.
GRANTEE:
/s/ Alan S. Ker
----------------------------------
(Signature)
ALAN S. KER
(Please print name)
4
<PAGE> 5
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION - MANAGEMENT AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK OPTION AGREEMENT dated November 5,
1992 (the "Agreement") made this 29th day of July, 1994 by and between
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC. (the "Company") and ALAN S. KER
(the "Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in
this First Amendment with their defined meanings unless otherwise defined
herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be
amended as follows:
2.1 Section 2(b) shall hereby be deleted in its entirety
(including amendments purported to be made thereto by Section 2(f) of a
Second Amendment to Employment Agreement effective as of July 29, 1994
by and between the Company and the Grantee) and the following
substituted in place thereof:
"(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that
the Option has vested and become exercisable with respect to
such Option Shares.
(i) Time Vesting. The Option will vest and
become exercisable in installments of 25% of the Option
Shares on each of the first, second, third and fourth
anniversaries of the date of this Option. To the
extent not exercised, installments shall accumulate and
the Grantee may exercise them thereafter in whole or in
part.
(ii) Death or Disability. The Option shall
vest and become exercisable with respect to all of the
Option Shares automatically upon (i) the death or
permanent disability (as determined by the Board or the
Committee) of the Grantee and (ii) a Change of Control.
For purposes hereof, a "Change of Control" shall mean
the (x) sale of all or substantially all of the assets
of the Company to an unaffiliated third-party, (y) the
merger or consolidation of the Company with an
unaffiliated third-party in which the Company is not
the surviving corporation or (z) any person or group of
persons (as defined in Section 13(d) of the Securities
Exchange Act of 1934) (other than WestSphere Capital
Associates, L. P. and its
<PAGE> 6
affiliates) shall acquire or control in excess of
66-2/3% of the Company's Common Stock on a fully-
diluted basis.
(iii) Termination of Employment. In the event
that the Grantee no longer continues to be employed by
the Company or any Subsidiary, the Option shall vest
and become exercisable with respect to all of the
Option Shares. The Grantee shall have the right to
exercise all unexercised Options which have vested as
of the Grantee's Termination Date (as defined in the
Plan) for a period of three (3) months following such
Termination Date or such longer period as may be
provided in the Plan or as the Committee may approve in
its sole discretion in connection with such
termination; provided, that the Option shall not be
exercisable after its expiration pursuant to Section
7."
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby,
the terms and provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ John T. Watkins
---------------------------------
John T. Watkins, President and
Chief Executive Officer
/s/ Alan S. Ker
----------------------------------
ALAN S. KER, Grantee
2
<PAGE> 7
SECOND AMENDMENT TO
INCENTIVE STOCK OPTION - MANAGEMENT AGREEMENT
THIS SECOND AMENDMENT TO THE STOCK OPTION AGREEMENT dated November 5,
1992 (the "Agreement") made this 6th day of May, 1996 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and ALAN S. KER (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in
this Second Amendment with their defined meanings unless otherwise defined
herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be
amended as follows:
2.1 Section 1 shall hereby be deleted in its entirety and
the following substituted in place thereof:
1. Stock Option. The Option entitles the Grantee
to purchase up to 10,000 shares (the "Option Shares") of the
Company's Common Stock, no par value (the "Common Stock"), at an
option price per share of $4.75 (the "Option Price"), subject to
the terms and conditions of this Agreement. The Option is
intended to be an Incentive Stock Option.
2.2 Section 2(b) shall hereby be deleted in its entirety
and the following substituted in place thereof:
"(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that
the Option has vested and become exercisable with respect to
such Option Shares.
(i) Time Vesting. The Option will vest and
become exercisable on May 6, 1997, subject to the
Grantee's continued employment with the Company or any
Subsidiary in the position held as of the date of this
Agreement or a higher position. In the event the
Grantee no longer continues to be employed by the
Company or any Subsidiary in the position held as of
the date of this Agreement or a higher position, all
Options which have not become exercisable at the date
of such event shall immediately terminate. Whether the
Grantee has continued to be employed by the Company or
any Subsidiary in the position held as of the date of
this Agreement or a higher position shall be determined
by the Committee in its sole discretion. To the extent
not exercised,
3
<PAGE> 8
installments shall accumulate and the Grantee may
exercise them thereafter in whole or in part. To the
extent not exercised, installments shall accumulate and
the Grantee may exercise them thereafter in whole or in
part.
(ii) Death or Disability. The Option shall
vest and become exercisable with respect to all of the
Option Shares automatically upon (i) the death or
permanent disability (as determined by the Board or the
Committee) of the Grantee and (ii) a Change of Control;
provided that the Option shall not so vest and become
automatically exercisable, without the written consent
of the Committee, to the extent such acceleration of
vesting would result, when taken in the aggregate with
all other payments from the Company, in the payment by
such officer of any excise tax provided for in Sections
280G and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"). For purposes hereof, a "Change
of Control" shall mean the (x) sale of all or
substantially all of the assets of the Company to an
unaffiliated third-party, (y) the merger or
consolidation of the Company with an unaffiliated
third-party in which the Company is not the surviving
corporation or (z) any person or group of persons (as
defined in Section 13(d) of the Securities Exchange Act
of 1934) (other than WestSphere Capital Associates, L.
P. and its affiliates) shall acquire or control in
excess of 51% of the Company's Common Stock on a
fully-diluted basis.
(iii) Termination of Employment. In the event
of a termination of Grantee's employment "without
cause" as defined in Grantee's employment agreement
with the Company, the Option shall vest and become
exercisable; provided that the Option shall not so vest
and become automatically exercisable, without the
written consent of the Committee, to the extent such
acceleration of vesting would result, when taken in the
aggregate with all other payments from the Company, in
the payment by such officer of any excise tax provided
for in Sections 280G and 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"). The Grantee
shall have the right to exercise all unexercised
Options which have vested as of the Grantee's
Termination Date (as defined in the Plan) for a period
of three (3) months following such Termination Date or
such
4
<PAGE> 9
longer period as may be provided in the Plan or as the
Committee may approve in its sole discretion in
connection with such termination; provided, that the
Option shall not be exercisable after its expiration
pursuant to Section 7."
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby,
the terms and provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Eugene E. Jennings
------------------------------
Eugene E. Jennings, President
and Chief Executive Officer
/s/ Alan S. Ker
----------------------------------
ALAN S. KER, Grantee
5
<PAGE> 10
INCENTIVE STOCK OPTION - MANAGEMENT
August 2, 1993
Alan S. Ker
21705 Evergreen Road
Southfield, Michigan 48075
Re: Stock Option
The Board of Directors (the "Board") of Universal Standard
Medical Laboratories, Inc. (the "Company"), or the committee (the "Committee")
designated by the Board for the purpose of administering the Universal Standard
Medical Laboratories, Inc. 1992 Stock Option Plan (the "Plan"), hereby grants
to ALAN S. KER (the "Grantee"), the Vice President-Finance, Chief
Financial Officer and Treasurer of the Company, a stock option (the "Option"),
pursuant to the Plan, a copy of which is attached hereto. The Option is
subject in all respects to the Plan. Certain capitalized terms used in this
agreement (the "Agreement") which are not defined herein have the meanings
indicated for such terms in Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee to
purchase up to 10,000 shares (the "Option Shares") of the Company's Common
Stock, no par value (the "Common Stock"), at an option price per share of
$12.15 (the "Option Price"), subject to the terms and conditions of this
Agreement. The Option is intended to be an Incentive Stock Option.
2. (a) Exercisability. The Option may be exercised
and Option Shares may be purchased at any time and from time to time after the
execution of this Agreement, subject to the vesting limitations imposed by
Section 2(b). The Option Price for Option Shares shall be paid in full in cash
or by check by the Grantee at the time of the delivery of Option Shares, or, at
the written election of the Grantee, payment may be made by (i) delivery to the
Company of outstanding shares of Common Stock, (ii) retention by the Company of
one or more of such Option Shares or (iii) any combination of cash, check, the
Grantee's delivery of outstanding Shares and retention by the Company of one or
more of such Option Shares.
(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that the Option has
vested and become exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest and become exercisable in
installments of 25% of the Option Shares
<PAGE> 11
on each of the first, second, third and fourth anniversaries of the date of
this Option, subject to the Grantee's continued employment with the Company or
any Subsidiary in the position held as of the date of this Agreement or a
higher position. In the event the Grantee no longer continues to be employed
by the Company or any Subsidiary in the position held as of the date of this
Agreement or a higher position, all Options which have not become exercisable
at the date of such event shall immediately terminate. Whether the Grantee has
continued to be employed by the Company or any Subsidiary in the position held
as of the date of this Agreement or a higher position shall be determined by
the Committee in its sole discretion. To the extent not exercised,
installments shall accumulate and the Grantee may exercise them thereafter in
whole or in part.
(ii) Death or Disability. The Option shall vest and
become exercisable with respect to all of the Option Shares automatically upon
(i) the death or permanent disability (as determined by the Board or the
Committee) of the Grantee and (ii) a Change of Control. For purposes hereof, a
"Change of Control" shall mean the (x) sale of all or substantially all of the
assets of the Company to an unaffiliated third-party, (y) the merger or
consolidation of the Company with an unaffiliated third-party in which the
Company is not the surviving corporation or (z) any person or group of persons
(as defined in Section 13(d) of the Securities Exchange Act of 1934) (other
than WestSphere Capital Associates, L.P. and its affiliates) shall acquire or
control in excess of 66-2/3% of the Company's Common Stock on a fully-diluted
basis.
(iii) Termination of Employment. The Grantee shall
have the right to exercise all unexercised Options which have vested as of the
Grantee's Termination Date (as defined in the Plan) for a period of three (3)
months following such Termination Date or such longer period as may be provided
in the Plan or as the Committee may approve in its sole discretion in
connection with such termination; provided, that the Option shall not be
exercisable after its expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent
disability of the Grantee, this Option shall not be transferable.
(b) The Company may assign its rights and delegate its
duties under this Agreement.
4. Conformity with Plan. The Grantee's Option is intended
to conform in all respects with, and is subject to all applicable provisions
of, the Plan, which is incorporated herein by reference. Inconsistencies
between this Agreement
2
<PAGE> 12
and the Plan shall be resolved in accordance with the terms of the Plan. By
executing and returning the enclosed copy of this Agreement, the Grantee
acknowledges his receipt of the Plan and agrees to be bound by all of other
terms of the Plan.
5. Employment. Notwithstanding any contrary oral
representations or promises made to Grantee prior to or after the date hereof,
Grantee and the Company acknowledge Grantee's employment with the Company and
its subsidiaries is and will continue to be subject to the willingness of each
to continue such employment and nothing herein confers any right or obligation
on Grantee to continue in the employ of the Company or its subsidiaries or
shall affect in any way Grantee's right or the right of the Company or its
subsidiaries to terminate Grantee's employment at any time, for any reason,
with or without cause.
6. Share Legends. At the sole discretion of the
Committee, all certificates representing any Option Shares subject to the
provisions of this Agreement shall have endorsed thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
7. Expiration. The Option shall expire at 5:00 p.m., New
York time, on the tenth anniversary of the date hereof. In the event that the
Grantee shall cease to be employed by the Company or its subsidiaries for any
reason, all Option Shares which shall not have vested pursuant to Section 2
shall automatically terminate.
8. Further Actions. The parties agree to execute such
further instruments and to take such further actions as may reasonably be
required to carry out the intent of this Agreement.
9. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company and, subject to the restrictions on transfer herein set forth, be
binding upon Grantee's heirs, executors, administrators, successors and
assigns.
10. Governing Law. This Agreement and all documents
contemplated hereby, and all remedies in connection therewith and all questions
or transactions relating thereto, shall be construed in accordance with and
governed by the laws of the State of Michigan.
* * * * *
3
<PAGE> 13
Please execute the extra copy of this Agreement in the space
below and return it to the Secretary of the Company to confirm your
understanding and acceptance of the agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ John T. Watkins
-------------------------------
Its: CEO
------------------------------
The undersigned hereby acknowledges having read this Agreement,
the Plan, and the other enclosures to this Agreement, and hereby agrees to be
bound by all provisions set forth herein and in the Plan.
GRANTEE:
/s/ Alan S. Ker
----------------------------------
(Signature)
ALAN S. KER
(Please print name)
4
<PAGE> 14
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION - MANAGEMENT AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK OPTION AGREEMENT dated August 2, 1993
(the "Agreement") made this 29th day of July, 1994 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and ALAN S. KER (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in
this First Amendment with their defined meanings unless otherwise defined
herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be
amended as follows:
2.1 Section 2(b) shall hereby be deleted in its entirety
(including amendments purported to be made thereto by Section 2(f) of a
Second Amendment to Employment Agreement effective as of July 29, 1994
by and between the Company and the Grantee) and the following
substituted in place thereof:
"(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that
the Option has vested and become exercisable with respect to
such Option Shares.
(i) Time Vesting. The Option will vest and
become exercisable in installments of 25% of the Option
Shares on each of the first, second, third and fourth
anniversaries of the date of this Option. To the
extent not exercised, installments shall accumulate and
the Grantee may exercise them thereafter in whole or in
part.
(ii) Death or Disability. The Option shall
vest and become exercisable with respect to all of the
Option Shares automatically upon (i) the death or
permanent disability (as determined by the Board or the
Committee) of the Grantee and (ii) a Change of Control.
For purposes hereof, a "Change of Control" shall mean
the (x) sale of all or substantially all of the assets
of the Company to an unaffiliated third-party, (y) the
merger or consolidation of the Company with an
unaffiliated third-party in which the Company is not
the surviving corporation or (z) any person or group of
persons (as defined in Section 13(d) of the Securities
Exchange Act of 1934) (other than WestSphere Capital
Associates, L. P. and its
<PAGE> 15
affiliates) shall acquire or control in excess of
66-2/3% of the Company's Common Stock on a fully-
diluted basis.
(iii) Termination of Employment. In the event
that the Grantee no longer continues to be employed by
the Company or any Subsidiary, the Option shall vest
and become exercisable with respect to all of the
Option Shares. The Grantee shall have the right to
exercise all unexercised Options which have vested as
of the Grantee's Termination Date (as defined in the
Plan) for a period of three (3) months following such
Termination Date or such longer period as may be
provided in the Plan or as the Committee may approve in
its sole discretion in connection with such
termination; provided, that the Option shall not be
exercisable after its expiration pursuant to Section
7."
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby,
the terms and provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ John T. Watkins
-------------------------------
John T. Watkins, President and
Chief Executive Officer
/s/ Alan S. Ker
---------------------------------
ALAN S. KER, Grantee
2
<PAGE> 16
SECOND AMENDMENT TO
INCENTIVE STOCK OPTION - MANAGEMENT AGREEMENT
THIS SECOND AMENDMENT TO THE STOCK OPTION AGREEMENT dated August 2, 1993
(the "Agreement") made this 6th day of May, 1996 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and ALAN S. KER (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in
this Second Amendment with their defined meanings unless otherwise defined
herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be
amended as follows:
2.1 Section 1 shall hereby be deleted in its entirety and
the following substituted in place thereof:
1. Stock Option. The Option entitles the Grantee
to purchase up to 10,000 shares (the "Option Shares") of the
Company's Common Stock, no par value (the "Common Stock"), at an
option price per share of $4.75 (the "Option Price"), subject to
the terms and conditions of this Agreement. The Option is
intended to be an Incentive Stock Option, except as otherwise
set forth in Section 2(b)(i) below.
2.2 Section 2(b) shall hereby be deleted in its entirety
and the following substituted in place thereof:
"(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that
the Option has vested and become exercisable with respect to
such Option Shares.
(i) Time Vesting. The Option will vest and
become exercisable in installments as follows: May 6,
1997, 7,500 shares and August 2, 1997, 2,500 shares
(all of which shall be non-qualified stock options),
subject to the Grantee's continued employment with the
Company or any Subsidiary in the position held as of
the date of this Agreement or a higher position. In
the event the Grantee no longer continues to be
employed by the Company or any Subsidiary in the
position held as of the date of this Agreement or a
higher position, all Options which have not become
exercisable at the date of such event shall immediately
terminate. Whether the Grantee has continued to be
employed by the Company or any Subsidiary in the
position held as of the
3
<PAGE> 17
date of this Agreement or a higher position shall be
determined by the Committee in its sole discretion. To
the extent not exercised, installments shall accumulate
and the Grantee may exercise them thereafter in whole
or in part.
(ii) Death or Disability. The Option shall
vest and become exercisable with respect to all of the
Option Shares automatically upon (i) the death or
permanent disability (as determined by the Board or the
Committee) of the Grantee and (ii) a Change of Control;
provided that the Option shall not so vest and become
automatically exercisable, without the written consent
of the Committee, to the extent such acceleration of
vesting would result, when taken in the aggregate with
all other payments from the Company, in the payment by
such officer of any excise tax provided for in Sections
280G and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"). For purposes hereof, a "Change
of Control" shall mean the (x) sale of all or
substantially all of the assets of the Company to an
unaffiliated third-party, (y) the merger or
consolidation of the Company with an unaffiliated
third-party in which the Company is not the surviving
corporation or (z) any person or group of persons (as
defined in Section 13(d) of the Securities Exchange Act
of 1934) (other than WestSphere Capital Associates, L.
P. and its affiliates) shall acquire or control in
excess of 51% of the Company's Common Stock on a
fully-diluted basis.
(iii) Termination of Employment. In the event
of a termination of Grantee's employment by the Company
"without cause", as defined in Grantee's employment
agreement with the Company, (i) occurring before August
2, 1996, 5,000 Option shares, or (ii) occurring on or
after August 2, 1996, but before May 6, 1997, 7,500
Option Shares, that would otherwise become exercisable
on May 6, 1997, shall vest and become exercisable;
provided that the Option shall not so vest and become
automatically exercisable, without the written consent
of the Committee, to the extent such acceleration of
vesting would result, when taken in the aggregate with
all other payments from the Company, in the payment by
such officer of any excise tax provided for in Sections
280G and 4999 of the Internal Revenue
4
<PAGE> 18
Code of 1986, as amended (the "Code"). The Grantee
shall have the right to exercise all unexercised
Options which have vested as of the Grantee's
Termination Date (as defined in the Plan) for a period
of three (3) months following such Termination Date or
such longer period as may be provided in the Plan or as
the Committee may approve in its sole discretion in
connection with such termination; provided, that the
Option shall not be exercisable after its expiration
pursuant to Section 7."
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby,
the terms and provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Eugene E. Jennings
-------------------------------
Eugene E. Jennings, President
and Chief Executive Officer
/s/ Alan S. Ker
---------------------------------
ALAN S. KER, Grantee
5
<PAGE> 19
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS
December 6, 1994
Alan S. Ker
26500 Northwestern Highway
Southfield, MI 48076
Re: Stock Option
The Board of Directors (the "Board") of Universal Standard
Medical Laboratories, Inc. (the "Company"), or the committee (the "Committee")
designated by the Board for the purpose of administering the Universal Standard
Medical Laboratories, Inc. 1992 Stock Option Plan (the "Plan"), hereby grants
to Alan S. Ker (the "Grantee"), the Vice President-Finance, Chief Financial
Officer and Treasurer of the Company, a stock option (the "Option"), pursuant
to the Plan. The Option is subject in all respects to the Plan. Certain
capitalized terms used in this agreement (the "Agreement") which are not
defined herein have the meanings indicated for such terms in Section 10.1 of
the Plan.
1. Stock Option. The Option entitles the Grantee to
purchase up to 10,000 shares (the "Option Shares") of the Company's Common
Stock, no par value (the "Common Stock"), at an option price per share of $6.20
(the "Option Price"), subject to the terms and conditions of this Agreement.
The Option is intended to be an Incentive Stock Option.
2. (a) Exercisability. Any portion of this Option
which vests and becomes exercisable as provided in Section 2(b) may be
exercised and Option Shares may be purchased pursuant thereto at any time and
from time to time thereafter; provided that the Grantee may not, without the
written consent of the Committee, exercise this Option in a manner which
results in a limitation on the Company's annual tax deduction for compensation
payments to the Grantee pursuant to the $1 million per person limitation on
annual compensation deductions under Section 162(m) of the Code. The Option
Price for Option Shares shall be paid in full in cash or by check by the
Grantee at the time of the delivery of Option Shares, or, at the written
election of the Grantee, payment may be made by (i) delivery to the Company of
outstanding shares of Common Stock, (ii) retention by the Company of one or
more of such Option Shares or (iii) any combination of cash, check, the
Grantee's delivery of outstanding Shares and retention by the Company of one or
more of such Option Shares.
<PAGE> 20
(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that the Option has
vested and become exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest
and become exercisable in installments of 25% of the Option Shares on each of
the first, second, third and fourth anniversaries of the date of this Option,
subject to the Grantee's continued employment with the Company or any
Subsidiary in the position held as of the date of this Agreement or a higher
position. In the event the Grantee no longer continues to be employed by the
Company or any Subsidiary in the position held as of the date of this Agreement
or a higher position, all Options which have not become exercisable at the date
of such event shall immediately terminate. Whether the Grantee has continued
to be employed by the Company or any Subsidiary in the position held as of the
date of this Agreement or a higher position shall be determined by the
Committee in its sole discretion. To the extent not exercised, installments
shall accumulate and the Grantee may exercise them thereafter in whole or in
part.
(ii) Death, Disability, Change in Control
or Termination. The Option shall vest and become exercisable with respect to
all of the Option Shares automatically upon the occurrence of any of the
following: (i) the death or permanent disability (as determined by the Board
or the Committee) of the Grantee, (ii) a Change of Control, or (iii) a
termination by the Company of the Grantee's employment, other than due to death
or permanent disability, and other than a termination by the Company for
"cause" as defined in the Grantee's then current (or if there is no "then
current" such agreement, most recent) employment agreement with the Company;
provided that the Option shall not so vest and become automatically
exercisable, without the written consent of the Committee, to the extent such
acceleration of vesting would result, when taken in the aggregate with all
other payments from the Company, in the payment by such officer of any excise
tax provided for in Sections 280G and 4999 of the Internal Revenue Code of
1986, as amended (the "Code"). For purposes hereof, a "Change of Control"
shall mean the (x) sale of all or substantially all of the assets of the
Company to an unaffiliated third-party, (y) the merger or consolidation of the
Company with an unaffiliated third-party in which the Company is not the
surviving corporation or (z) any person or group of persons (as defined in
Section 13(d) of the Securities Exchange Act of 1934) (other than WestSphere
Capital Associates, L.P. and its affiliates) shall acquire or control in excess
of 51% of the Company's Common Stock on a fully-diluted basis.
(iii) Termination of Employment. The Grantee
2
<PAGE> 21
shall have the right to exercise all unexercised Options which have vested as
of the Grantee's Termination Date (as defined in the Plan) for a period of
three (3) months following such Termination Date or such longer period as may
be provided in the Plan or as the Committee may approve in its sole discretion
in connection with such termination; provided, that the Option shall not be
exercisable after its expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent
disability of the Grantee, this Option shall not be transferable.
(b) The Company may assign its rights and delegate
its duties under this Agreement.
4. Conformity with Plan. The Grantee's Option is intended
to conform in all respects with, and is subject to all applicable provisions
of, the Plan, which is incorporated herein by reference. Inconsistencies
between this Agreement and the Plan shall be resolved in accordance with the
terms of the Plan. By executing and returning the enclosed copy of this
Agreement, the Grantee acknowledges his receipt of the Plan and agrees to be
bound by all of other terms of the Plan.
5. Employment. Notwithstanding any contrary oral
representations or promises made to Grantee prior to or after the date hereof,
Grantee and the Company acknowledge Grantee's employment with the Company and
its subsidiaries is and will continue to be subject to the willingness of each
to continue such employment and nothing herein confers any right or obligation
on Grantee to continue in the employ of the Company or its subsidiaries or
shall affect in any way Grantee's right or the right of the Company or its
subsidiaries to terminate Grantee's employment at any time, for any reason,
with or without cause.
6. Share Legends. At the sole discretion of the
Committee, all certificates representing any Option Shares subject to the
provisions of this Agreement shall have endorsed thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
7. Expiration. The Option shall expire at 5:00 p.m., New
York time, on the tenth anniversary of the date hereof. In the event that the
Grantee shall cease to be employed by the Company or its subsidiaries for any
reason, all
3
<PAGE> 22
Option Shares which shall not have vested pursuant to Section 2 shall
automatically terminate.
8. Further Actions. The parties agree to execute such
further instruments and to take such further actions as may reasonably be
required to carry out the intent of this Agreement.
9. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company and, subject to the restrictions on transfer herein set forth, be
binding upon Grantee's heirs, executors, administrators, successors and
assigns.
10. Governing Law. This Agreement and all documents
contemplated hereby, and all remedies in connection therewith and all questions
or transactions relating thereto, shall be construed in accordance with and
governed by the laws of the State of Michigan.
* * * * *
Please execute the extra copy of this Agreement in the space
below and return it to the Secretary of the Company to confirm your
understanding and acceptance of the agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ John T. Watkins
-------------------------------
Its: CEO
--------------------------------
The undersigned hereby acknowledges having read this Agreement,
the Plan, and the other enclosures to this Agreement, and hereby agrees to be
bound by all provisions set forth herein and in the Plan.
GRANTEE:
/s/ Alan S. Ker
-----------------------------------
ALAN S. KER
-----------------------------------
(Please print name)
4
<PAGE> 23
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK OPTION AGREEMENT dated December 6,
1994 (the "Agreement") made this 6th day of May, 1996 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and ALAN S. KER (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in
this First Amendment with their defined meanings unless otherwise defined
herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be
amended as follows:
2.1 Section 1 shall hereby be deleted in its entirety and
the following substituted in place thereof:
1. Stock Option. The Option entitles the Grantee
to purchase up to 10,000 shares (the "Option Shares") of the
Company's Common Stock, no par value (the "Common Stock"), at an
option price per share of $4.75 (the "Option Price"), subject to
the terms and conditions of this Agreement. The Option is
intended to be an Incentive Stock Option, except as otherwise
set forth in Section 2(b)(i) below.
2.2 Section 2(b) shall hereby be deleted in its entirety
and the following substituted in place thereof:
(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that
the Option has vested and become exercisable with respect to
such Option Shares.
(i) Time Vesting. The Option will vest and
become exercisable in installments as follows: On May
6, 1997, 5,000 shares (1,052 of which shares will be
Incentive Stock Options and 3,948 of which shares will
be non-qualified stock options), on December 6, 1997,
2,500 shares (all of which will be non-qualified stock
options), and on December 6, 1998, 2,500 shares,
subject to the Grantee's continued employment with the
Company or any Subsidiary in the position held as of
the date of this Agreement or a higher position. In
the event the Grantee no longer continues to be
employed by the Company or any Subsidiary in the
position held as of the date of this Agreement or a
higher position, all Options which have not become
exercisable at the date of
<PAGE> 24
such event shall immediately terminate. Whether the
Grantee has continued to be employed by the Company or
any Subsidiary in the position held as of the date of
this Agreement or a higher position shall be determined
by the Committee in its sole discretion. To the extent
not exercised, installments shall accumulate and the
Grantee may exercise them thereafter in whole or in
part.
(ii) Death, Disability, or Change in Control.
The Option shall vest and become exercisable with
respect to all of the Option Shares automatically upon
the occurrence of any of the following: (i) the death
or permanent disability (as determined by the Board or
the Committee) of the Grantee or (ii) a Change of
Control; provided that the Option shall not so vest and
become automatically exercisable, without the written
consent of the Committee, to the extent such
acceleration of vesting would result, when taken in the
aggregate with all other payments from the Company, in
the payment by such officer of any excise tax provided
for in Sections 280G and 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"). For purposes
hereof, a "Change of Control" shall mean the (x) sale
of all or substantially all of the assets of the
Company to an unaffiliated third-party, (y) the merger
or consolidation of the Company with an unaffiliated
third-party in which the Company is not the surviving
corporation or (z) any person or group of persons (as
defined in Section 13(d) of the Securities Exchange Act
of 1934) (other than WestSphere Capital Associates,
L.P. and its affiliates) shall acquire or control in
excess of 51% of the Company's Common Stock on a
fully-diluted basis.
(iii) Termination of Employment. The Grantee
shall have the right to exercise all unexercised
Options which have vested as of the Grantee's
Termination Date (as defined in the Plan) for a period
of three (3) months following such Termination Date or
such longer period as may be provided in the Plan or as
the Committee may approve in its sole discretion in
connection with such termination; provided, that the
Option shall not be exercisable after its expiration
pursuant to Section 7.
2
<PAGE> 25
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby,
the terms and provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Eugene E. Jennings
-------------------------------
Eugene E. Jennings, President
and Chief Executive Officer
/s/ Alan S. Ker
----------------------------------
ALAN S. KER, Grantee
3
<PAGE> 26
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS
December 5, 1995
Alan S. Ker
26500 Northwestern Highway
Southfield, MI 48076
Re: Stock Option
The Board of Directors (the "Board") of Universal Standard
Medical Laboratories, Inc. (the "Company"), or the committee (the "Committee")
designated by the Board for the purpose of administering the Universal Standard
Medical Laboratories, Inc. 1992 Stock Option Plan (the "Plan"), hereby grants
to Alan S. Ker (the "Grantee"), the Vice President-Finance, Chief Financial
Officer and Treasurer of the Company, a stock option (the "Option"), pursuant
to the Plan. The Option is subject in all respects to the Plan. Certain
capitalized terms used in this agreement (the "Agreement") which are not
defined herein have the meanings indicated for such terms in Section 10.1 of
the Plan.
1. Stock Option. The Option entitles the Grantee to
purchase up to 10,000 shares (the "Option Shares") of the Company's Common
Stock, no par value (the "Common Stock"), at an option price per share of $6.00
(the "Option Price"), subject to the terms and conditions of this Agreement.
The Option is intended to be an Incentive Stock Option.
2. (a) Exercisability. Any portion of this Option
which vests and becomes exercisable as provided in Section 2(b) may be
exercised and Option Shares may be purchased pursuant thereto at any time and
from time to time thereafter; provided that the Grantee may not, without the
written consent of the Committee, exercise this Option in a manner which
results in a limitation on the Company's annual tax deduction for compensation
payments to the Grantee pursuant to the $1 million per person limitation on
annual compensation deductions under Section 162(m) of the Code. The Option
Price for Option Shares shall be paid in full in cash or by check by the
Grantee at the time of the delivery of Option Shares, or, at the written
election of the Grantee, payment may be made by (i) delivery to the Company of
outstanding shares of Common Stock, (ii) retention by the Company of one or
more of such Option Shares or (iii) any combination of cash, check, the
Grantee's delivery of outstanding Shares and retention by the Company of one or
more of such Option Shares.
<PAGE> 27
(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that the Option has
vested and become exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest
and become exercisable in installments of 25% of the Option Shares on each of
the first, second, third and fourth anniversaries of the date of this Option,
subject to the Grantee's continued employment with the Company or any
Subsidiary in the position held as of the date of this Agreement or a higher
position. In the event the Grantee no longer continues to be employed by the
Company or any Subsidiary in the position held as of the date of this Agreement
or a higher position, all Options which have not become exercisable at the date
of such event shall immediately terminate. Whether the Grantee has continued
to be employed by the Company or any Subsidiary in the position held as of the
date of this Agreement or a higher position shall be determined by the
Committee in its sole discretion. To the extent not exercised, installments
shall accumulate and the Grantee may exercise them thereafter in whole or in
part.
(ii) Death, Disability, Change in Control
or Termination. The Option shall vest and become exercisable with respect to
all of the Option Shares automatically upon the occurrence of any of the
following: (i) the death or permanent disability (as determined by the Board
or the Committee) of the Grantee, (ii) a Change of Control, or (iii) a
termination by the Company of the Grantee's employment, other than due to death
or permanent disability, and other than a termination by the Company for
"cause" as defined in the Grantee's then current (or if there is no "then
current" such agreement, most recent) employment agreement with the Company;
provided that the Option shall not so vest and become automatically
exercisable, without the written consent of the Committee, to the extent such
acceleration of vesting would result, when taken in the aggregate with all
other payments from the Company, in the payment by such officer of any excise
tax provided for in Sections 280G and 4999 of the Internal Revenue Code of
1986, as amended (the "Code"). For purposes hereof, a "Change of Control"
shall mean the (x) sale of all or substantially all of the assets of the
Company to an unaffiliated third-party, (y) the merger or consolidation of the
Company with an unaffiliated third-party in which the Company is not the
surviving corporation or (z) any person or group of persons (as defined in
Section 13(d) of the Securities Exchange Act of 1934) (other than WestSphere
Capital Associates, L.P. and its affiliates) shall acquire or control in excess
of 51% of the Company's Common Stock on a fully-diluted basis.
(iii) Termination of Employment. The Grantee
2
<PAGE> 28
shall have the right to exercise all unexercised Options which have vested as
of the Grantee's Termination Date (as defined in the Plan) for a period of
three (3) months following such Termination Date or such longer period as may
be provided in the Plan or as the Committee may approve in its sole discretion
in connection with such termination; provided, that the Option shall not be
exercisable after its expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent
disability of the Grantee, this Option shall not be transferable.
(b) The Company may assign its rights and delegate
its duties under this Agreement.
4. Conformity with Plan. The Grantee's Option is intended
to conform in all respects with, and is subject to all applicable provisions
of, the Plan, which is incorporated herein by reference. Inconsistencies
between this Agreement and the Plan shall be resolved in accordance with the
terms of the Plan. By executing and returning the enclosed copy of this
Agreement, the Grantee acknowledges his receipt of the Plan and agrees to be
bound by all of other terms of the Plan.
5. Employment. Notwithstanding any contrary oral
representations or promises made to Grantee prior to or after the date hereof,
Grantee and the Company acknowledge Grantee's employment with the Company and
its subsidiaries is and will continue to be subject to the willingness of each
to continue such employment and nothing herein confers any right or obligation
on Grantee to continue in the employ of the Company or its subsidiaries or
shall affect in any way Grantee's right or the right of the Company or its
subsidiaries to terminate Grantee's employment at any time, for any reason,
with or without cause.
6. Share Legends. At the sole discretion of the
Committee, all certificates representing any Option Shares subject to the
provisions of this Agreement shall have endorsed thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
7. Expiration. The Option shall expire at 5:00 p.m., New
York time, on the tenth anniversary of the date hereof. In the event that the
Grantee shall cease to be employed by the Company or its subsidiaries for any
reason, all
3
<PAGE> 29
Option Shares which shall not have vested pursuant to Section 2 shall
automatically terminate.
8. Further Actions. The parties agree to execute such
further instruments and to take such further actions as may reasonably be
required to carry out the intent of this Agreement.
9. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company and, subject to the restrictions on transfer herein set forth, be
binding upon Grantee's heirs, executors, administrators, successors and
assigns.
10. Governing Law. This Agreement and all documents
contemplated hereby, and all remedies in connection therewith and all questions
or transactions relating thereto, shall be construed in accordance with and
governed by the laws of the State of Michigan.
* * * * *
Please execute the extra copy of this Agreement in the space
below and return it to the Secretary of the Company to confirm your
understanding and acceptance of the agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ John T. Watkins
---------------------
Its: CEO
--------------------
The undersigned hereby acknowledges having read this Agreement,
the Plan, and the other enclosures to this Agreement, and hereby agrees to be
bound by all provisions set forth herein and in the Plan.
GRANTEE:
/s/ Alan S. Ker
----------------------------------
(Signature)
ALAN S. KER
-----------------------------------
(Please print name)
4
<PAGE> 30
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK OPTION AGREEMENT dated December 5,
1995 (the "Agreement") made this 6th day of May, 1996 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and ALAN S. KER (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in
this First Amendment with their defined meanings unless otherwise defined
herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be
amended as follows:
2.1 Section 1 shall hereby be deleted in its entirety and
the following substituted in place thereof:
1. Stock Option. The Option entitles the Grantee
to purchase up to 10,000 shares (the "Option Shares") of the
Company's Common Stock, no par value (the "Common Stock"), at an
option price per share of $4.75 (the "Option Price"), subject to
the terms and conditions of this Agreement. The Option is
intended to be an Incentive Stock Option, except as otherwise
set forth in Section 2(b)(i) below.
2.2 Section 2(b) shall hereby be deleted in its entirety
and the following substituted in place thereof:
(b) Vesting/Exercisability. The Grantee may only
exercise his Option to purchase Option Shares to the extent that
the Option has vested and become exercisable with respect to
such Option Shares.
(i) Time Vesting. The Option will vest and
become exercisable in installments as follows: On May
6, 1997, 2,500 shares, on December 5, 1997, 2,500
shares (all of which shall be non-qualified stock
options), on December 5, 1998, 2,500 shares and on
December 5, 1999, 2,500 shares, subject to the
Grantee's continued employment with the Company or any
Subsidiary in the position held as of the date of this
Agreement or a higher position. In the event the
Grantee no longer continues to be employed by the
Company or any Subsidiary in the position held as of
the date of this Agreement or a higher position, all
Options which have not become exercisable at the date
of such event shall
<PAGE> 31
immediately terminate. Whether the Grantee has
continued to be employed by the Company or any
Subsidiary in the position held as of the date of this
Agreement or a higher position shall be determined by
the Committee in its sole discretion. To the extent
not exercised, installments shall accumulate and the
Grantee may exercise them thereafter in whole or in
part.
(ii) Death, Disability, or Change in Control.
The Option shall vest and become exercisable with
respect to all of the Option Shares automatically upon
the occurrence of any of the following: (i) the death
or permanent disability (as determined by the Board or
the Committee) of the Grantee, or (ii) a Change of
Control; provided that the Option shall not so vest and
become automatically exercisable, without the written
consent of the Committee, to the extent such
acceleration of vesting would result, when taken in the
aggregate with all other payments from the Company, in
the payment by such officer of any excise tax provided
for in Sections 280G and 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"). For purposes
hereof, a "Change of Control" shall mean the (x) sale
of all or substantially all of the assets of the
Company to an unaffiliated third-party, (y) the merger
or consolidation of the Company with an unaffiliated
third-party in which the Company is not the surviving
corporation or (z) any person or group of persons (as
defined in Section 13(d) of the Securities Exchange Act
of 1934) (other than WestSphere Capital Associates,
L.P. and its affiliates) shall acquire or control in
excess of 51% of the Company's Common Stock on a
fully-diluted basis.
(iii) Termination of Employment. The Grantee
shall have the right to exercise all unexercised
Options which have vested as of the Grantee's
Termination Date (as defined in the Plan) for a period
of three (3) months following such Termination Date or
such longer period as may be provided in the Plan or as
the Committee may approve in its sole discretion in
connection with such termination; provided, that the
Option shall not be exercisable after its expiration
pursuant to Section 7.
2
<PAGE> 32
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby,
the terms and provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Eugene E. Jennings
-------------------------------
Eugene E. Jennings, President
and Chief Executive Officer
/s/ Alan S. Ker
----------------------------------
ALAN S. KER, Grantee
3
<PAGE> 1
EXHIBIT 10.6
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK OPTION AGREEMENT dated September 11,
1995 (the "Agreement") made this 6th day of May, 1996 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and LOU GORGA (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in this
First Amendment with their defined meanings unless otherwise defined herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be amended as
follows:
2.1 Section 1 shall hereby be deleted in its entirety and the following
substituted in place thereof:
1. Stock Option. The Option entitles the Grantee to purchase up
to 50,000 shares (the "Option Shares") of the Company's Common Stock,
no par value (the "Common Stock"), at an option price per share of
$5.99 for 15,000 shares and $4.75 for 35,000 shares (the "Option
Price"), subject to the terms and conditions of this Agreement. The
Option is intended to be an Incentive Stock Option, except as otherwise
set forth in Section 2(b)(i) below.
2.2 Section 2(b) shall hereby be deleted in its entirety and the
following substituted in place thereof:
(b) Vesting/Exercisability. The Grantee may only exercise his
Option to purchase Option Shares to the extent that the Option has
vested and become exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest and become exercisable in
installments as follows: On May 6, 1997, 12,500 shares with an Option
Price of $4.75 (the "First Option Tranche"), on September 11, 1997,
12,500 shares with an Option Price of $4.75 (6,052 of which shares will
be Incentive Stock Options and 6,448 of which shares will be
non-qualified stock options), on September 11, 1998, 10,000 shares with
an Option Price of $4.75, on September 11, 1998, 2,500 shares with an
Option Price of $5.99, on September 11, 1999, 12,500 shares with an
Option Price of $5.99, subject to the Grantee's continued employment
with the Company or any Subsidiary in the position held as of the date
of this Agreement or a higher position. In the event
<PAGE> 2
the Grantee no longer continues to be employed by the Company or
any Subsidiary in the position held as of the date of this Agreement or
a higher position, all Options which have not become exercisable at the
date of such event shall immediately terminate. Whether the Grantee
has continued to be employed by the Company or any Subsidiary in the
position held as of the date of this Agreement or a higher position
shall be determined by the Committee in its sole discretion. To the
extent not exercised, installments shall accumulate and the Grantee may
exercise them thereafter in whole or in part.
(ii) Death, Disability, Change in Control or Termination. The
Option shall vest and become exercisable with respect to all of the
Option Shares automatically upon (i) the death or permanent disability
(as determined by the Board or the Committee) of the Grantee and (ii) a
Change of Control. The Option shall vest and become exercisable with
respect to the First Option Tranche automatically upon a termination of
the Grantee's employment "without Cause" (as defined in Grantee's
employment agreement with the Company) on or after September 11, 1996,
but before May 6, 1997. The Option shall not so vest and become
automatically exercisable as provided in this Section 2(b)(ii), without
the written consent of the Committee, to the extent such acceleration
of vesting would result, when taken in the aggregate with all other
payments from the Company, in the payment by such officer of any excise
tax provided for in Sections 280G and 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"). For purposes hereof, a "Change of
Control" shall mean the (x) sale of all or substantially all of the
assets of the Company to an unaffiliated third-party, (y) the merger or
consolidation of the Company with an unaffiliated third-party in which
the Company is not the surviving corporation or (z) any person or group
of persons (as defined in Section 13(d) of the Securities Exchange Act
of 1934) (other than WestSphere Capital Associates, L.P. and its
affiliates) shall acquire or control in excess of 51% of the Company's
Common Stock on a fully-diluted basis.
(iii) Termination of Employment. The Grantee shall have the right
to exercise all unexercised Options which have vested as of the
Grantee's Termination Date (as defined in the Plan) for a period of
three (3) months following such Termination Date or such longer period
as may be provided in the Plan or as the Committee may approve in its
sole discretion in
-2-
<PAGE> 3
connection with such termination; provided, that the Option shall
not be exercisable after its expiration pursuant to Section 7.
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby, the
terms and provisions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Eugene E. Jennings
--------------------------
Eugene E. Jennings, President
and Chief Executive Officer
/s/ Lou Gorga
--------------------------
LOU GORGA, Grantee
-3-
<PAGE> 1
EXHIBIT 10.7
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS
December 5, 1995
Lou Gorga
26500 Northwestern Highway
Southfield, MI 48076
Re: Stock Option
The Board of Directors (the "Board") of Universal Standard Medical
Laboratories, Inc. (the "Company"), or the committee (the "Committee")
designated by the Board for the purpose of administering the Universal Standard
Medical Laboratories, Inc. 1992 Stock Option Plan (the "Plan"), hereby grants
to Lou Gorga (the "Grantee"), the Vice President and Chief Operating Officer of
the Company, a stock option (the "Option"), pursuant to the Plan. The Option
is subject in all respects to the Plan. Certain capitalized terms used in this
agreement (the "Agreement") which are not defined herein have the meanings
indicated for such terms in Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee to purchase up to 10,000
shares (the "Option Shares") of the Company's Common Stock, no par value (the
"Common Stock"), at an option price per share of $6.00 (the "Option Price"),
subject to the terms and conditions of this Agreement. The Option is intended
to be an Incentive Stock Option.
2. (a) Exercisability. Any portion of this Option which vests and becomes
exercisable as provided in Section 2(b) may be exercised and Option Shares may
be purchased pursuant thereto at any time and from time to time thereafter;
provided that the Grantee may not, without the written consent of the
Committee, exercise this Option in a manner which results in a limitation on
the Company's annual tax deduction for compensation payments to the Grantee
pursuant to the $1 million per person limitation on annual compensation
deductions under Section 162(m) of the Code. The Option Price for Option
Shares shall be paid in full in cash or by check by the Grantee at the time of
the delivery of Option Shares, or, at the written election of the Grantee,
payment may be made by (i) delivery to the Company of outstanding shares of
Common Stock, (ii) retention by the Company of one or more of such Option
Shares or (iii) any combination of cash, check, the Grantee's delivery of
outstanding Shares and retention by the Company of one or more of such Option
Shares.
<PAGE> 2
(b) Vesting/Exercisability. The Grantee may only exercise his Option to
purchase Option Shares to the extent that the Option has vested and become
exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest and become exercisable in
installments of 25% of the Option Shares on each of the first, second, third and
fourth anniversaries of the date of this Option, subject to the Grantee's
continued employment with the Company or any Subsidiary in the position held as
of the date of this Agreement or a higher position. In the event the Grantee no
longer continues to be employed by the Company or any Subsidiary in the position
held as of the date of this Agreement or a higher position, all Options which
have not become exercisable at the date of such event shall immediately
terminate. Whether the Grantee has continued to be employed by the Company or
any Subsidiary in the position held as of the date of this Agreement or a higher
position shall be determined by the Committee in its sole discretion. To the
extent not exercised, installments shall accumulate and the Grantee may exercise
them thereafter in whole or in part.
(ii) Death, Disability, Change in Control or Termination. The Option
shall vest and become exercisable with respect to all of the Option Shares
automatically upon the occurrence of any of the following: (i) the death or
permanent disability (as determined by the Board or the Committee) of the
Grantee, (ii) a Change of Control, or (iii) a termination by the Company of the
Grantee's employment, other than due to death or permanent disability, and other
than a termination by the Company for "cause" as defined in the Grantee's then
current (or if there is no "then current" such agreement, most recent)
employment agreement with the Company; provided that the Option shall not so
vest and become automatically exercisable, without the written consent of the
Committee, to the extent such acceleration of vesting would result, when taken
in the aggregate with all other payments from the Company, in the payment by
such officer of any excise tax provided for in Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"). For purposes hereof, a
"Change of Control" shall mean the (x) sale of all or substantially all of the
assets of the Company to an unaffiliated third-party, (y) the merger or
consolidation of the Company with an unaffiliated third-party in which the
Company is not the surviving corporation or (z) any person or group of persons
(as defined in Section 13(d) of the Securities Exchange Act of 1934) (other than
WestSphere Capital Associates, L.P. and its affiliates) shall acquire or control
in excess of 51% of the Company's Common Stock on a fully-diluted basis.
(iii) Termination of Employment. The Grantee
2
<PAGE> 3
shall have the right to exercise all unexercised Options which have vested as
of the Grantee's Termination Date (as defined in the Plan) for a period of
three (3) months following such Termination Date or such longer period as may
be provided in the Plan or as the Committee may approve in its sole discretion
in connection with such termination; provided, that the Option shall not be
exercisable after its expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent disability of the Grantee,
this Option shall not be transferable.
(b) The Company may assign its rights and delegate its duties under this
Agreement.
4. Conformity with Plan. The Grantee's Option is intended to conform in
all respects with, and is subject to all applicable provisions of, the Plan,
which is incorporated herein by reference. Inconsistencies between this
Agreement and the Plan shall be resolved in accordance with the terms of the
Plan. By executing and returning the enclosed copy of this Agreement, the
Grantee acknowledges his receipt of the Plan and agrees to be bound by all of
other terms of the Plan.
5. Employment. Notwithstanding any contrary oral representations or
promises made to Grantee prior to or after the date hereof, Grantee and the
Company acknowledge Grantee's employment with the Company and its subsidiaries
is and will continue to be subject to the willingness of each to continue such
employment and nothing herein confers any right or obligation on Grantee to
continue in the employ of the Company or its subsidiaries or shall affect in
any way Grantee's right or the right of the Company or its subsidiaries to
terminate Grantee's employment at any time, for any reason, with or without
cause.
6. Share Legends. At the sole discretion of the Committee, all
certificates representing any Option Shares subject to the provisions of this
Agreement shall have endorsed thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
7. Expiration. The Option shall expire at 5:00 p.m., New York time, on
the tenth anniversary of the date hereof. In the event that the Grantee shall
cease to be employed by the Company or its subsidiaries for any reason, all
3
<PAGE> 4
Option Shares which shall not have vested pursuant to Section 2 shall
automatically terminate.
8. Further Actions. The parties agree to execute such further instruments
and to take such further actions as may reasonably be required to carry out the
intent of this Agreement.
9. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company and, subject to the
restrictions on transfer herein set forth, be binding upon Grantee's heirs,
executors, administrators, successors and assigns.
10. Governing Law. This Agreement and all documents contemplated hereby,
and all remedies in connection therewith and all questions or transactions
relating thereto, shall be construed in accordance with and governed by the
laws of the State of Michigan.
* * * * *
Please execute the extra copy of this Agreement in the space below and
return it to the Secretary of the Company to confirm your understanding and
acceptance of the agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ John T. Watkins
-----------------------------
Its: CEO
----------------------------
The undersigned hereby acknowledges having read this Agreement, the Plan,
and the other enclosures to this Agreement, and hereby agrees to be bound by
all provisions set forth herein and in the Plan.
GRANTEE:
/s/ Lou Gorga
-------------------------
(Signature)
LOU GORGA
-------------------------
(Please print name)
4
<PAGE> 5
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK OPTION AGREEMENT dated December 5, 1995
(the "Agreement") made this 6th day of May, 1996 by and between UNIVERSAL
STANDARD MEDICAL LABORATORIES, INC. (the "Company") and LOU GORGA (the
"Grantee").
1. DEFINED TERMS. Terms defined in the Agreement shall be used in this
First Amendment with their defined meanings unless otherwise defined herein.
2. AMENDMENT OF THE OPTION AGREEMENT. The Agreement shall be amended as
follows:
2.1 Section 1 shall hereby be deleted in its entirety and the following
substituted in place thereof:
1. Stock Option. The Option entitles the Grantee to purchase up
to 10,000 shares (the "Option Shares") of the Company's Common Stock,
no par value (the "Common Stock"), at an option price per share of
$4.75 for 5,000 shares and $6.00 for 5,000 shares (the "Option Price"),
subject to the terms and conditions of this Agreement. The Option is
intended to be an Incentive Stock Option, except as otherwise set forth
in Section 2(b)(i) below.
2.2 Section 2(b) shall hereby be deleted in its entirety and the
following substituted in place thereof:
(b) Vesting/Exercisability. The Grantee may only exercise his
Option to purchase Option Shares to the extent that the Option has
vested and become exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest and become
exercisable in installments as follows: On May 6, 1997, 2,500
shares with an Option Price of $4.75 (the "First Option Tranche"),
on December 5, 1997, 2,500 shares with an Option Price of $4.75
(all of which shares will be non-qualified stock options), on
December 5, 1998, 2,500 shares with an Option Price of $6.00, and
on December 5, 1999, 2,500 shares with an Option Price of $6.00,
subject to the Grantee's continued employment with the Company or
any Subsidiary in the position held as of the date of this
Agreement or a higher position. In the event the Grantee no
longer continues to be employed by the Company or any Subsidiary
in the position held as of the date of this Agreement or
<PAGE> 6
a higher position, all Options which have not become
exercisable at the date of such event shall immediately terminate.
Whether the Grantee has continued to be employed by the Company
or any Subsidiary in the position held as of the date of this
Agreement or a higher position shall be determined by the
Committee in its sole discretion. To the extent not exercised,
installments shall accumulate and the Grantee may exercise them
thereafter in whole or in part.
(ii) Death, Disability, Change in Control or Termination.
The Option shall vest and become exercisable with respect to all
of the Option Shares automatically upon the occurrence of any of
the following: (i) the death or permanent disability (as
determined by the Board or the Committee) of the Grantee or (ii) a
Change of Control; provided that the Option shall not so vest and
become automatically exercisable, without the written consent of
the Committee, to the extent such acceleration of vesting would
result, when taken in the aggregate with all other payments from
the Company, in the payment by such officer of any excise tax
provided for in Sections 280G and 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"). For purposes hereof, a
"Change of Control" shall mean the (x) sale of all or
substantially all of the assets of the Company to an unaffiliated
third-party, (y) the merger or consolidation of the Company with
an unaffiliated third-party in which the Company is not the
surviving corporation or (z) any person or group of persons (as
defined in Section 13(d) of the Securities Exchange Act of 1934)
(other than WestSphere Capital Associates, L.P. and its
affiliates) shall acquire or control in excess of 51% of the
Company's Common Stock on a fully-diluted basis.
(iii) Termination of Employment. The Grantee shall have the
right to exercise all unexercised Options which have vested as of
the Grantee's Termination Date (as defined in the Plan) for a
period of three (3) months following such Termination Date or such
longer period as may be provided in the Plan or as the Committee
may approve in its sole discretion in connection with such
termination; provided, that the Option shall not be exercisable
after its expiration pursuant to Section 7.
2
<PAGE> 7
3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby, the
terms and provisions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the day and year first above written.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /s/ Eugene E. Jennings
-------------------------------
Eugene E. Jennings, President
and Chief Executive Officer
/s/ Lou Gorga
----------------------------------
LOU GORGA, Grantee
3
<PAGE> 1
EXHIBIT 10.8
LEASE AGREEMENT
This LEASE AGREEMENT by and between MID-MICHIGAN REGIONAL MEDICAL
CENTER-CLARE, a non-profit corporation formed under the laws of the State of
Michigan (hereinafter "Lessor"), and UNIVERSAL STANDARD MEDICAL LABORATORIES,
INC, a Michigan Corporation, of 101 West Seventh Street, Clare, Michigan
(hereinafter "Lessee").
1. DESCRIPTION
The Lessor, in consideration of the rent to be paid and the covenants to
be performed by Lessee, does hereby lease to the Lessee the following
described property:
The entire lower level and part of the first floor (approximately 6,071
total square feet), of the building located on Lot 6 and the North
One-half of Lot 7, Block 9, PLAT OF THE VILLAGE OF CLARE, Clare County,
Michigan, as recorded in Liber 1 of Plats on Page 2, Clare County,
Michigan Public Records, more commonly known as Clare Medical Building,
Seventh Street, Clare, Michigan 48617.
The premises referred to above shall be hereinafter referred to as the
"leased premises" or the "demised premises".
2. TERM
The term of this Lease shall be for thirty-six (36) months, commencing on
the first (1st) day of January, 1996 and continuing until the
thirty-first (31st) day of December, 1998, which term shall be identified
as the "primary lease term".
In the event that either party defaults in the performance of any of the
covenants, terms, conditions or provisions of this Lease, and the
defaulting party shall fail to substantially cure any such default within
thirty (30) days after receipt of written notice of particular default,
the non-defaulting party shall have the right to terminate this Lease
upon one hundred eight (180) days written notice to the defaulting party
of intent to terminate due to uncured default.
In the event that the Laboratory Services Agreement in effect between the
parties (effective date January 1, 1996) is terminated for any reason,
this Lease shall terminate immediately upon the effective date of
termination of the Laboratory Services Agreement.
3. RENT
The Lessee shall pay as rental for the leased premises the sum of Five
Thousand Nine Hundred ($5,900) Dollars per month, during the first year
of the lease term. The rent provided for in this Lease shall be reviewed
annually and shall be subject to adjustment as of each anniversary of the
lease term. To the extent that the costs of required operating expenses
and real estate taxes actually incurred by Lessor solely with respect
1
<PAGE> 2
to the building in which the leased premises is located increase over the
amount of such costs for the previous twelve-month period, the rent
provided for in this Lease shall be increased by the amount of the
Lessee's pro rata portion of such increased costs based upon the
proportion of the square footage of the leased premises in relation to
the total square footage of the building. Payment shall be made monthly,
same being due and payable on the first (1st) day of each month. Rent
payment includes pro rata components for general utilities, taxes,
maintenance and housekeeping.
4. USE OF PREMISES
The premises shall be used for the following purposes: Medical Analytical
Laboratory. Other lawful purposes will only be permitted by prior written
consent of Lessor.
5. SUBLEASING
Lessee shall be allowed to sublease the leased premises only with the
prior written consent of the Lessor, which approval shall not be
unreasonably withheld. Lessee shall continue to remain liable for payment
of rental and performance of the covenants contained in this Lease,
notwithstanding such subleasing.
6. COVENANTS OF LESSEE
The Lessee covenants and agrees with the Lessor that the Lessee will:
a. PAY RENT AND SECURITY DEPOSIT - Pay said rent and security
deposit amounts at the times and place and in the manner aforesaid.
b. DUE CARE - Use and occupy said premises in a careful and
proper manner and not to permit any activity considered extra
hazardous on account of fire.
c. WASTE - Not to commit any waste therein.
d. LAWFUL PURPOSE - Not to use or occupy said premises for any
unlawful purposes.
e. CONFORM TO LAW - Conform to and obey all present and future
laws and ordinances, all rules, regulations, requirements and orders
of all governmental authorities or agencies.
f. SURRENDER - Leave the premises at the expiration or prior to
termination of this Lease or any renewal or extension hereof in as
good condition as received, excepting negligence or default of the
Lessor or Lessor's agents or employees and excepting reasonable use
and wear thereof and damage by the elements.
g. INSPECTION - Permit the Lessor and Health Department to enter
upon the premises during normal business hours to examine the
condition of the same.
h. INDEMNITY FOR LESSEE NEGLIGENCE - Indemnify and save Lessor
harmless from and against any loss, damage and liability occasioned
by, growing out of, or arising or resulting from any default
hereunder, or any tortious or negligent act on the part of the
Lessee, Lessee's agents or employees.
i. PAY UTILITIES - Pay all and any telephone charges for
installation, hook-up, access, monthly service and long distance
charges utilized by Lessee.
j. PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE - Indemnify
and save the Lessor harmless from and against all liability or
alleged liability for personal
2
<PAGE> 3
injury or property damage arising in any way out of Lessee's use or
occupancy of the premises. Lessee shall provide a policy of
comprehensive public liability insurance with injury limits
of not less than one million dollars ($1,000,000) aggregate and
property damage coverage of not less than one hundred thousand
dollars ($100,000) aggregate. Lessor shall be a named insured under
such policies and proof of such insurance shall be furnished to the
Lessor upon request, but in any event on an annual basis with each
renewal.
k. CONTENTS INSURANCE - Lessee acknowledges that its furnishings,
fixtures and equipment on the leased premises are there at the
right of the Lessee and are not covered by Lessor's insurance. To
that end, Lessee is advised to obtain contents insurance to insure
against loss or damage of Lessee's personal property.
l. MAINTENANCE - Repair at its own expense any damage to the leased
premises caused by the negligent or willful acts of Lessee, its
agents, employees or invitees.
m. INDEMNITY FOR TAXES AND CONTRACTUAL OBLIGATIONS - Indemnify and
save Lessor harmless from and against any loss, damage and liability
occasioned by, growing out of, or arising or resulting from any
failure on the part of Lessee to pay when and as due any taxes
assessed to Lessee by any governmental authority, any permit or
license fees required to be paid when due, or any contractual
obligations entered into by Lessee.
n. LATE FEE - Pay a twenty dollar ($20) late fee for any rental
payment which is received by the Lessor after the tenth (10th) day
of the month.
7. COVENANTS OF LESSOR
Lessor on its part, covenants and agrees:
a. CONDITION AND MAINTENANCE OF PREMISES - That the following
are in good condition, operating properly and will be maintained and
repaired as necessary and in compliance with all state and local
laws: roof, electrical service, smoke detectors, fire extinguishers,
plumbing, heating, water service, septic system, outdoor lighting,
foundations and outside walls.
b. MAINTENANCE OF PREMISES - To perform repairs and maintenance
on the portions of the leased premise which are the responsibility
of the Lessor within a reasonable time after receipt of notice from
Lessee.
c. INDEMNIFY FOR LESSOR NEGLIGENCE - To indemnify and save
harmless the Lessee from and against any loss, damage and liability
occasioned by, growing out of, or arising or resulting from any
default of Lessor hereunder, or any tortious or negligent act on the
part of the Lessor's agents or employees.
d. PEACEFUL ENJOYMENT - That the Lessee, on payment of all the
aforesaid installments and performing all the covenants aforesaid
shall and may peacefully and quietly have, hold and enjoy the said
demised premises for the term aforesaid.
3
<PAGE> 4
e. INSURANCE - Lessor will maintain insurance coverage against
fire and other standard perils for the building and those contents
not covered by Universal Standard Medical Laboratories in Item 6(k)
above.
8. ALTERATIONS
Upon prior approval of the Lessor, the Lessee, at its own expense, may
make from time to time any nonstructural changes, alterations, additions
and improvements, in, on, to and about the premises which it may deem
necessary or suitable for the conduct of its business therein, and it
shall pay all costs for permits, fees and inspections levied by public
authorities during its occupancy for said changes, alterations, additions
or improvements. All such work shall be done in a good and
workmanlike manner, without impairing the structural soundness or
lessening the value of the building which is part of the demised
premises. All such work shall be done in accordance with all applicable
laws, ordinances, rules, regulations and requirements of all governmental
bodies and officers having jurisdiction over such work, and before such
work is commenced, all required permits and authorizations will be
obtained by the Lessee. The Lessor, without expense to itself, shall
cooperate with the Lessee in securing such required permits and
authorizations.
9. SIGNS
Lessee may not install a sign on the premises to advise the public of its
business without the prior written consent of the Lessor. Any such sign,
which is approved by the Lessor, shall be consistent with local City
ordinances and shall be attractive and compatible with the premises.
10. UNTENABILITY
If during the term hereof, the leased premises or any part thereof shall
be rendered untenable by public authority, or by fire or the elements, or
other casualty (except if such damage by fire or other casualty is the
result of negligence on the part of Lessee or Lessee's employees or
agents), a proportionate part of the rent herein reserved, according to
the extent of such untenability, shall be abated and suspended until the
premises are made tenable and restored to their former condition by the
Lessor; and if the premises or a substantial part thereof are thereby
rendered untenable and so remain for a period of ninety (90) days, the
Lessee may at its option, terminate this Lease by written notice to the
Lessor. If the premises are rendered untenable by a public authority and
damages are awarded, the Lessor shall not be entitled to any portion of
the award made to the Lessee.
11. REMOVAL OF LESSEE'S FIXTURES
Fixtures and/or equipment installed in the demised premises by the Lessee
may be removed by Lessee at the expiration of the Lease, provided the
premises are reasonably restored by Lessee and all damages caused by such
removal are repaired at no expense to the Lessor.
4
<PAGE> 5
12. LESSEE DEFAULT
If the Lessee shall at any time be in default in the payment of the rent
herein reserved, or in the performance of any of the covenants, terms,
conditions, or provisions of this Lease, and the Lessee shall fail to
remedy such defaults within thirty (30) days after receipt of
written notice from the Lessor, or if the Lessee shall be adjudged
bankrupt or shall make an assignment for the benefit of creditors or if a
receiver of any property of the Lessee in or upon said premises shall be
sold under execution or other legal process, it shall be lawful for the
Lessor to enter upon the said premises and again have, repossess and
enjoy the same without prejudice to the right of Lessor to recover from
Lessee all damages, unpaid rental and costs of entry and reletting
occasioned by Lessee's default, including reasonable attorney fees. In
case of any such default and entry by Lessor, said Lessor may relet said
premises or any part thereof for the account of Lessee, for such term and
at such rental and upon such other terms and conditions as Lessor in its
own discretion may deem advisable. Rentals received from such reletting
shall be applied; first, to the payment of any indebtedness, other than
rent, owing by Lessee; second, to the payment of rent due and unpaid
hereunder; and third, to the payment of such cost of such reletting.
Should such rentals received from such reletting be less than that agreed
to be paid by Lessee hereunder, the Lessee shall pay such deficiency to
Lessor.
13. LESSOR DEFAULT
If the Lessor fails to cure any default in the observance or performance
of any term or covenant required to be performed by it under this Lease
or if the Lessor fails to cure any default in any payment of any bona
fide and noncontested mortgage, property assessment, or mechanic's lien,
which default would adversely affect the Lessor's good title to the said
premises, the Lessee (after not less than thirty days written notice to
the Lessor of such default), may, but shall not be obligated to, remedy
such default and in connection therewith may pay such mortgage, property
assessment or mechanic's lien and employ counsel, provided however, that
the Lessee shall have the right to remedy such default without notice in
the event of an emergency. All sums expended or obligations incurred by
the Lessee in connection therewith shall be immediately reimbursed by the
Lessor to the Lessee upon written demand, and if the Lessor fails to
reimburse the Lessee within ten (10) days of the sending of such demand
to the Lessor, the Lessee may, in addition to any other right or remedy
that the Lessee may have and without further notice to the Lessor deduct
such amount from subsequent installments of basic rent or additional rent
which may from time to time thereafter become due to the Lessor.
14. LESSOR/LESSEE INDEMNITY EXPENSES
Lessee will pay to the Lessor on demand all reasonable costs and expenses
incurred by the Lessor in enforcing any of the covenants herein
contained, in remedying any breach by the lessee, or in connection with
any litigation by or against the Lessor (other than condemnation
proceedings) to which the Lessee, without any fault on its part, shall be
made a party.
5
<PAGE> 6
15. SUCCESSORS
This Lease and all the covenants, provisions, and conditions herein
contained shall inure to the benefit of and be binding upon the
respective heirs, successors, representatives and assigns of the parties
hereto.
16. NOTICES
Any notices required or permitted to be given under this agreement shall
be in writing and may be personally delivered or sent by certified mail
to the address of the Lessor or the Lessee set forth above as the case
may be.
17. ENTIRE AGREEMENT
This instrument contains the entire agreement of the parties hereto and
may not be changed orally but only by an agreement in writing, signed by
the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
18. MARGINAL TITLES
The marginal titles herein are inserted only as a matter of convenience
and for reference and in no way define, limit or describe the scope or
intent, or in any way affect this Lease.
19. SEVERABILITY
The provisions of this Lease are severable. In the event that any
provisions contained herein are declared invalid by a court of competent
jurisdiction, the remaining provisions shall be held in full force and
effect.
20. AUTHORITY OF PARTIES
Each party to this Lease hereby represents and warrants that if it is
executing this Lease as a corporation, this Lease is executed with full
and proper corporate authority and that the corporate officers whose
names appear hereon are duly authorized and empowered to make and execute
this Lease in the name of the corporation by appropriate and legal
resolution of the board of directors of said corporation.
21. WAIVER OF SUBROGATION
Lessor and Lessee agree that, in the event of loss due to any of the
perils for which they have agreed to provide insurance, each party shall
look solely to is insurance for recovery. Lessor and Lessee hereby grant
to each other, on behalf of any insurer providing insurance to either of
them with respect to the demised premises, a waiver of any right of
subrogation which any insurer of one party may acquire against the other
by virtue of payment of any loss under such insurance. It is understood
and agreed
6
<PAGE> 7
that insurance coverage furnished by either Lessor or Lessee shall
not be diminished by the terms of this paragraph.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals this
[ ] day of March, 1996.
------
WITNESS: LESSOR:
MidMichigan Regional Medical Center-Clare
- -------------------------------
[ NONE ] By /s/ Lawrence F. Barco
- ------------------------------- ---------------------------------
Lawrence F. Barco, President
Universal Standard Medical Laboratories
- -------------------------------
By Lou Gorga
- ------------------------------- ---------------------------------
Vice President of Operations, USML
By Michael P. Risko
---------------------------------
Secretary, USML
7
<PAGE> 1
EXHIBIT 11
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- ------- --------- -------
<S> <C> <C> <C> <C>
Net income (loss) (a) ($2,678) $111 ($2,998) $296
======== ====== ======== ======
PRIMARY
Weighted average common shares outstanding 6,504 6,218 6,504 6,218
Effect of assumed exercise of stock options at prices
which are lower than the average market price of
common shares during the period using the
treasury stock method 181 120 86 115
Warrants outstanding 31 39 31 39
-------- ------ -------- ------
Average shares outstanding and common equivalent
shares for primary earnings per share 6,716 6,377 6,621 6,372
======== ====== ======== ======
Primary earnings per share (a):
Net Income (loss) ($0.40) $0.02 ($0.45) $0.05
FULLY DILUTED
Weighted average common shares outstanding 6,504 6,218 6,504 6,218
Effect of assumed exercise of stock options at
prices which are lower than the market price of
common shares at the end of the period, when the
ending price is higher than the average market price 181 123 86 123
Warrants outstanding 31 40 31 40
-------- ------ -------- ------
Average shares outstanding and common equivalent
shares, assuming full dilution 6,716 6,381 6,621 6,381
======== ====== ======== ======
Fully diluted earning per share:
Net Income (loss) ($0.40) $0.02 ($0.45) $0.05
======== ====== ======== ======
</TABLE>
(a) These amounts agree with the related amounts in the condensed consolidated
statements of income.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000889187
<NAME> UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,890
<SECURITIES> 0
<RECEIVABLES> 19,201
<ALLOWANCES> 9,087
<INVENTORY> 1,081
<CURRENT-ASSETS> 18,676
<PP&E> 16,273
<DEPRECIATION> 6,603
<TOTAL-ASSETS> 65,549
<CURRENT-LIABILITIES> 12,815
<BONDS> 11,646
0
0
<COMMON> 32,725
<OTHER-SE> (1,272)
<TOTAL-LIABILITY-AND-EQUITY> 65,549
<SALES> 30,369
<TOTAL-REVENUES> 30,369
<CGS> 20,790
<TOTAL-COSTS> 20,790
<OTHER-EXPENSES> 8,976
<LOSS-PROVISION> 1,971
<INTEREST-EXPENSE> 893
<INCOME-PRETAX> (4,428)
<INCOME-TAX> (1,430)
<INCOME-CONTINUING> (2,998)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,998)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> 0
</TABLE>
