<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 September 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 October 31,
1996:
6,542,378.
<PAGE> 2
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
INDEX
Page No.
--------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
September 30, 1996 and December 31, 1995
Condensed Consolidated Statements of 4
Income for the three and nine months ended
September 30, 1996 and 1995
Condensed Consolidated Statements of 5
Cash Flows for the nine months ended
September 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
Item 6. Exhibits and Reports on Form 8-K. 15
2
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PART 1 - FINANCIAL INFORMATION
Item I. Financial Statements
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,359 $ 999
Restricted cash 168 0
Accounts receivable, net of allowance for contractual 8,264 12,405
adjustments and uncollectible accounts of $8,305
and $9,239 at September 30, 1996 and
December 31, 1995, respectively
Inventory 977 1,072
Prepaid expenses and other 3,675 3,660
------------- ------------
Total current assets 15,443 18,136
Property and equipment, net 9,361 9,062
Intangible assets, net 35,227 36,790
Other assets 1,519 578
------------- ------------
Total assets $ 61,550 $ 64,566
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,946 $ 4,412
Accounts payable 4,212 5,739
Accrued liabilities 4,099 4,855
------------- ------------
Total current liabilities 10,257 15,006
Long-term debt, net of current portion 19,047 12,443
Other liabilities 1,438 3,149
------------- ------------
Total liabilities 30,742 30,598
------------- ------------
Common stock, no par; 20,000,000 shares
authorized; 6,542,378 shares issued and outstanding 32,768 32,242
Retained earnings (1,960) 1,726
------------- ------------
Total stockholders' equity 30,808 33,968
------------- ------------
Total liabilities and stockholders' equity $ 61,550 $ 64,566
============= ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net laboratory service revenue:
Fee-for-service $ 9,437 $ 11,902 $ 30,540 $ 37,280
Managed care 4,169 4,813 13,435 13,612
--------- --------- --------- ---------
Total net revenue 13,606 16,715 43,975 50,892
Operating expenses:
Laboratory 9,284 10,617 30,074 32,356
Selling, general and administrative 2,762 3,590 9,331 11,217
Provision for doubtful accounts 1,012 2,479 2,983 3,888
Special Charge 0 0 2,407 0
Depreciation 569 540 1,712 1,585
Amortization 563 523 1,661 1,561
--------- --------- --------- ---------
Total operating expenses 14,190 17,749 48,168 50,607
--------- --------- --------- ---------
Operating income (loss) (584) (1,034) (4,193) 285
Interest expense 448 406 1,341 1,212
Other income, net (41) (5) (115) (51)
--------- --------- --------- ---------
Income (loss) before income taxes (991) (1,435) (5,419) (876)
Income taxes (benefit) (303) (456) (1,733) (193)
--------- --------- --------- ---------
Net income (loss) ($688) ($979) ($3,686) ($683)
========= ========= ========= =========
Net income per share ($0.10) ($0.15) ($0.55) ($0.11)
Average shares outstanding and
common equivalent shares 6,661 6,464 6,660 6,461
</TABLE>
The accompanying notes are an integral
part of the condensed consolidated financial statements.
4
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UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
------- -------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 217 $ 1,607
------- -------
Cash flows from investing activities:
Purchase of property and equipment (1,273) (615)
Restricted cash investment (168) -
Other investing activities (7) (6)
------- -------
Net cash used in investing activities (1,448) (621)
------- -------
Cash flows from financing activities:
Payments on long-term debt (9,359) (2,770)
Long-term/Short-term borrowings 1,000 1,100
Proceeds from issuance of Convertible Debenture 12,000 -
Payments of financing costs (1,021) -
Other financing activities (29) (34)
------- -------
Net cash provided by (used in) financing activities 2,591 (1,704)
------- -------
Net increase (decrease) in cash and cash equivalents 1,360 (718)
Cash and cash equivalents, beginning of period 999 1,290
------- -------
Cash and cash equivalents, end of period $2,359 $ 572
======= =======
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
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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
September 30, 1996 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 30.6% and 32.0% for the three month and nine
months ended September 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 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,
6
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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 September 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 and September 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 fourth quarter of 1996 and periods thereafter. In addition
the Company is required to maintain a $0.2 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 September 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.
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.
7
<PAGE> 8
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.
The Company has received a thirty-day demand letter from the IRS proposing
adjustments to the Company's federal income taxes for the years 1991 - 1994
totaling $3.3 million. The proposed adjustments principally relate to the
timing of certain bad debt deductions and claim expense accruals and the
deductibility of certain sign on bonus and non-compete payments made in
connection with the MML acquisition. The Company has filed a written protest
with the IRS appeals office regarding this matter.
There can be no assurance that the Company will resolve these disputes with the
IRS in a manner favorable to the Company. The failure to resolve the disputes
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 liability relating
to these matters, 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 these disputes 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 or proposed tax adjustments.
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
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Fee-for-service 69.4% 71.2% 69.5% 73.3%
Managed care 30.6% 28.8% 30.5% 26.7%
Total net revenue 100.0% 100.0% 100.0% 100.0%
Laboratory expenses 68.2% 63.5% 68.4% 63.6%
Selling, general and administrative expenses 20.3% 21.5% 21.2% 22.0%
Bad Debt Expense 7.5% 14.8% 6.8% 7.6%
Special charge - - 5.5% -
Restructuring charge - - - -
Depreciation and amortization 8.3% 6.4% 7.6% 6.2%
Operating income (loss) -4.3% -6.2% -9.5% 0.6%
Interest expense 3.3% 2.4% 3.1% 2.4%
Other income, net -0.3% 0.0% -0.3% -0.1%
Income taxes (benefit) -2.2% -2.7% -3.9% -0.4%
Income (loss) before extraordinary item -5.1% -5.9% -8.4% -1.3%
Extraordinary item - - -
Net income -5.1% -5.9% -8.4% -1.3%
EBITDA * 4.0% 0.2% -1.9% 6.8%
Net cash provided by operating activities** 0.7% 5.8% 0.5% 3.2%
</TABLE>
The following table sets forth, for the periods indicated, the percentage of
net revenue represented by items in the statements of income.
* 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
9
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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 $13.6 million in the third quarter of 1996, compared to
$16.7 million in the third quarter of 1995. Total net revenue for the nine
months ended September 30, 1996 was $44.0 million, compared to $50.9 million
for the nine months ended September 30, 1995. These decreases were primarily
due to declines in fee-for-service revenue as described below.
Managed care revenue decreased to $4.2 million for the third quarter of 1996
from $4.8 million for the third quarter of 1995, a decrease of $0.6 million, or
13.4%. Managed care revenue for the nine months ended September 30, 1996
decreased to $13.4 million from $13.6 million for the same period last year,
representing a decrease of $0.2 million, or 1.3% from the comparable period of
1995. Decreases in managed care revenue in 1996 over the same quarter and nine
months periods of 1995 was primarily due to a program that expired during
August, 1996 and was renewed two months later at a reduced level and, to a
lesser extent, decreases in participation levels, fee reductions in a program
and program terminations. This decrease in the nine months ended September 30,
1996 was partially offset by increased revenues from the new home medical
services program that commenced in June 1995. As a percentage of total net
revenue, managed care revenue increased from 28.8% and 26.7% for the three and
nine months ended September 30, 1995, respectively, to 30.6% and 30.5% for the
three and nine months ended September 30, 1996, respectively. These increases
are primarily due to declines in fee-for-service revenue as discussed below.
Fee-for-service revenue was $9.4 million for the third quarter of 1996 compared
to $11.9 million for the third quarter of 1995. Fee-for-service revenue for
the third quarter 1996 was down 20.7% as compared to the same quarter last
year, primarily due to a 15.4% decline in fee-for-service patient visits.
Fee-for-service revenue for the nine months ended September 30, 1996 was $30.5
million, compared to $37.3 million for the nine months ended September 30,
1995. Fee-for-service revenue for the nine months ended September 30, 1996 was
down 18.1% as compared to the same period last year, primarily due to an 11.8%
decline in fee-for-service patient visits. Decreases in fee for service
patient visits was primarily due to the previously announced shift of
laboratory testing to exclusive service health maintenance organizations, the
reduction in testing facilities and lost accounts. Declines in fee-for-service
revenue per patient visit, principally due to changes in payor and test mix,
also contributed to the declines in fee-for-service revenue.
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.
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The Company's fee-for-service net revenue continues to be negatively impacted
in 1996 by a number of factors, including customer attrition, 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.
LABORATORY EXPENSES. Laboratory expenses were $9.3 million for the third
quarter 1996 compared to $10.6 million for the third quarter of 1995.
Laboratory expenses for the nine months ended September 30, 1996 were $30.1
million compared to $32.4 million for the nine months ended September 30, 1995.
Laboratory expenses for the three and nine months ended September 30, 1996
were lower than the comparable periods of 1995 primarily as a result of lower
patient visits and, to a lesser extent, the restructuring initiative. As a
percentage of net revenue, laboratory expenses increased from 63.5% for the
third quarter of 1995 to 68.2% for the third quarter of 1996. Laboratory
expenses as a percentage of net revenue increased from 63.6% for the nine
months ended September 30, 1995 to 68.4% for the nine months ended September
30, 1996. These increases are primarily due to the decrease in fee for service
revenue and patient visits discussed above
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three and nine months ended September 30, 1996
decreased $0.8 million and $1.9 million, respectively, or 23.1% and 16.8%, from
the comparable 1995 periods. As a percentage of net revenue, selling, general
and administrative expenses decreased from 21.5% and 22.0% for the three and
nine months ended September 30, 1995, respectively, to 20.3% and 21.2% for the
three and nine months ended September 30, 1996. These decreases are primarily
due to the cost reduction/reengineering efforts.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts for the
third quarter of 1996 was $1.0 million. The provision for doubtful accounts
for the third quarter of 1995 was $2.5 million which included a $1.6 million
adjustment to accounts receivable. Without the $1.6 million accounts
receivable adjustment, the provision for doubtful accounts would have been $0.9
million for the third quarter 1995, as compared to the provision for doubtful
accounts for the third quarter of 1996 of $1.0 million. The provision for
doubtful accounts decreased from $3.9 million for the nine months ended
September 30, 1995 to $3.0 million for the same period 1996. The decrease is
mainly due to the $1.6 million account receivable adjustment in 1995.
As a percentage of total revenue, the provision for doubtful accounts decreased
from 14.8% and 7.6% for the three and nine months ended September 30, 1995 to
7.4% and 6.8% for the comparable 1996 periods. This decrease is mainly due to
the $1.6 million account receivable reserve adjustment in 1995, partially
offset by the decline in fee for service revenue as discussed above.
SPECIAL CHARGE. The Company recorded a special charge of $2.4 million in the
second quarter 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.
11
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EBITDA. EBITDA was $548,000, or 4.0% of net revenue for the third quarter of
1996, compared to $29,000, or 0.2% of net revenue, including a $1.6 million
accounts receivable charge, for the third quarter of 1995. EBITDA for the
third quarter of 1995, without the accounts receivable adjustment of $1.6
million would have been $1.6 million, or 9.7% of net revenue.
EBITDA for the nine months ended September 30, 1996 was a loss of $0.8 million,
or 1.9% of net revenue, compared to $3.4 million, or 6.7% of net revenue, for
the same period ended 1995. EBITDA for the nine months ended September 30,
1996, without the special charge of $2.4 million, would have been $1.6 million
or 3.6% of net revenue. EBITDA for the nine months ended September 30, 1995,
without the accounts receivable adjustment of $1.6 million, would have been
$5.0 million, or 9.9%, of net revenue.
The Company attributes these decreases principally to the decline in
fee-for-service patient visits discussed above.
INCOME TAXES. The effective income tax rate of 30.6% and 32.0% for the three
and nine months ended September 30, 1996, respectively, is lower than the
statutory rate of 34% principally due to a loss before income taxes and
non-deductible goodwill.
LIQUIDITY AND CAPITAL RESOURCES. The Company's working capital ratio increased
to 1.5 to 1 at September 30, 1996 from 1.2 to 1 at December 31, 1995. Working
capital increased to $5.2 million at September 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 September 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 $0.2 million for the nine months
ended September 30, 1996, compared to $1.6 million for the nine months ended
September 30, 1995. The decrease in net cash flow from operating activities is
principally due to a reduction in accounts payable and accrued liabilities.
Days outstanding in accounts receivable were 75 days at September 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. 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
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The Company realized net proceeds of approximately $11.0 million from 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.
The ratio of debt to capital was 40.5% at September 30, 1996 and 33.2% at
December 31, 1995. This increase is principally due to the issuances of the
Debentures, offset by net losses in the first nine months of 1996.
At September 30, 1996, the Company had $25,000 available to draw upon under the
revolving line of credit. The Company was not in compliance with certain
financial covenants under the revolving line at June 30, 1996 and September 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 fourth quarter of 1996 and periods thereafter. See
Item 1 - Note 4 to Notes to Condensed Consolidated Financial Statements.
The Company expects to incur capital expenditures of approximately $.4 million
during the remainder of 1996 for computer systems and new 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
continue to generate additional operating cash flow in future periods due to
collections 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 additional 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 patient
visits or fee-for-service revenue per patient visit 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. 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 without violating applicable regulatory
requirements. In the event that the Company is not able to generate additional
operating cash flow 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 obtain additional financing to
meet its operating cash needs.
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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 in process by two of its largest third-party payors. The
ultimate effect, if any, of these compliance reviews can not be determined at
this time and no liability has been accrued by the Company.
In connection with the acquisition of the business of MML, Inc. ("MML") in
1991, 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 Internal Revenue Service ("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.
The Company has received a thirty-day demand letter from the IRS proposing
adjustments to the Company's federal income taxes for the years 1991 - 1994
totaling $3.3 million. The proposed adjustments principally relate to the
timing of certain bad debt deductions and claim expense accruals and the
deductibility of certain sign on bonus and non-compete payments made in
connection with the MML acquisition. The Company has filed a written protest
with the IRS appeals office regarding this matter.
There can be no assurance that the Company will resolve these disputes with the
IRS in a manner favorable to the Company. The failure to resolve the disputes
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 liability relating
to these matters, 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 these disputes 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 or proposed tax adjustments.
14
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Waiver of Loan Agreement Covenants between Michigan National Bank
and the Company dated November 6, 1996.
10.1 Executive and Key Manager Compensation Plan
10.2 Incentive Stock Option Award Program
10.3 1992 Stock Option Plan, as Amended and Restated October 24, 1996
10.4 Employee Stock Purchase Plan, as Amended and Restated October 24,
1996.
10.5 Directors Stock Option Plan, as Amended and Restated October 24, 1996
11. Computation of Consolidated Net Income Per Common Share
27. Financial Data Schedule
(b) Reports on Form 8-K. None.
15
<PAGE> 16
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: November 14, 1996 Eugene Jennings
-----------------------
Eugene Jennings
President and
Chief Executive Officer
Date: November 14, 1996 Alan S. Ker
-----------------------
Alan S. Ker
Vice President, Finance,
Chief Financial Officer
16
<PAGE> 17
Exhibit Index
Exhibit
Number Description
------- -----------
4.1 Waiver of Loan Agreement Covenants between Michigan National Bank
and the Company dated November 6, 1996.
10.1 Executive and Key Manager Compensation Plan
10.2 Incentive Stock Option Award Program
10.3 1992 Stock Option Plan, as Amended and Restated October 24, 1996
10.4 Employee Stock Purchase Plan, as Amended and Restated October 24,
1996.
10.5 Directors Stock Option Plan, as Amended and Restated October 24,
1996
11. Computation of Consolidated Net Income Per Common Share
27. Financial Data Schedule
17
<PAGE> 1
EXHIBIT 4.1
November 6, 1996
Universal Standard Medical
Laboratories, Inc.
26500 Northwestern Highway
Southfield, MI 48037
Attn: Alan S. Ker, Chief Financial Officer
RE: Second Waiver of Loan Agreement Covenants
Dear Mr. Ker:
This Second Waiver of Loan Agreement Covenants ("Second Waiver") modifies
and amends the Universal Standard Medical Laboratories, Inc. ("Borrower") Loan
(as said term is defined in a certain letter agreement dated August 6, 1996)
(the "First Waiver"), effective upon Borrower's execution and return to
Michigan National Bank (the "Bank") of this Second Waiver agreement. All
defined terms used in this Second Waiver shall have the meaning provided in the
Loan Agreement, as amended through the August 8, 1996 date of the First Waiver.
I. Waiver Agreement. Until December 31, 1996 only, Bank hereby waives
the Loan Agreement requirement that Borrower maintain a Cash Flow
Coverage Ratio as of September 30, 1996, of 1.25 to 1.
II. Amendment of First Waiver. The Bank also agrees to : (A) extend until
December 15, 1996, the September 30, 1996 deadline date set forth in
Paragraph 3. on Page 2 of the First Waiver agreement for Borrower
to provide Bank with the consolidating management projections therein
described, and (B) delete that "August 15, 1996" date set forth in
Paragraph 6. on Page 2 of the First Waiver agreement, replacing said
deleted date with the sooner to occur of November 30, 1996 or as soon
as operationally possible,".
<PAGE> 2
III. Waiver Fee. In consideration of the Bank's above agreements, Borrower
agrees to pay Bank a $5,000.00 waiver fee upon execution of this
Second Waiver Agreement.
IV. Scope of Second Waiver Agreement. Except as specifically set forth in
this Second Waiver agreement, each and all of the terms, provisions
and agreements made by Borrower in the Loan Agreement, as heretofore
amended, shall remain in full force and effect, unchanged and
unmodified in any way by this Second Waiver agreement.
Sincerely yours,
Eric L. Johnson
Eric L. Johnson
Special Asset Officer
ACCEPTANCE
The terms and provisions of the above Second Waiver agreement are hereby
acknowledged and agreed to.
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
By: Alan S. Ker
-----------------------------
Its: CFO
-----------------------------
Dated: November 7, 1996
<PAGE> 1
EXHIBIT 10.1
EXECUTIVE AND KEY MANAGER COMPENSATION PLAN
OBJECTIVE
The objective of the Compensation Plan is to direct and reward behavior
consistent with shareholder value creation. Certain Executive Officers, Vice
Presidents and other key members of senior management that have direct P&L or
balance sheet impact will be eligible to receive annual merit increases based
upon the achievement of measurable individual performance objectives and annual
performance bonuses based upon the attainment of Corporate and/or Divisional
goals.
BONUS PARTICIPATION LEVEL
The first level of bonus participation is 35% of Base Salary. This is for Vice
Presidential level employees responsible for the running of integrated business
units or the control of multiple departments or functions which have a material
impact on the P & L or balance sheet. The 20% participation level is comprised
of employees whose responsibilities are similar in scope to the first level but
are functionally at a Director or Manager level. The 10% participation level
is for individuals who have direct P & L or balance sheet impact with a scope
limited to one or two departments.
The following chart identifies those eligible,sets forth the percentage of base
salary that will be available in bonus potential (bonus potential = bonus rate
x base salary) and indicates what goals the individual's bonus will be based
on.
<TABLE>
<CAPTION>
NAME POSITION BONUS POTENTIAL GOALS
---- -------- --------------- -----
<S> <C> <C> <C>
Alan Ker C.F.O. 35% of Base Corporate
Ken Castel V.P./H.R. 35% of Base Corporate
Vacant C.I.O. 35% of Base Corporate
Vacant V.P. Marketing 35% of Base Corporate
Lou Gorga C.O.O. 35% of Base Corporate/Division
Paul Knoll V.P. Sales USML 35% of Base Corporate/Division
Marv Wolf V.P. Operations USML 35% of Base Corporate/Division
Jon Baker Lab Mgr Lans/Clare 20% of Base Corporate/Division
Lorraine Goodrich Controller 20% of Base Corporate
Vacant Dir. Logistics USML 20% of Base Corporate/Division
Vacant Dir. Production USML 20% of Base Corporate/Division
Tom Marquard Sr. V.P. USMC 20% of Base Corporate/Division
Brian Preston TQM Manager 20% of Base Corporate/Division
Tlanda McDonald V.P. USMC 10% of Base Corporate/Division
David Gillis Dir. Billing USML 10% of Base Corporate/Division
Sherri Paz Project Mgr. USML 10% of Base Corporate/Division
Mike Risko Corporate Counsel 10% of Base Corporate
Joe Adams General Mgr. TPA 10% of Base Corporate/Division
Sharon Blincow Client Services Mgr. 10% of Base Corporate/Division
Ron Sconyers V.P. Advance Sols. 10% of Base Corporate/Division
</TABLE>
<PAGE> 2
BONUS CRITERIA
Individuals with Corporate responsibilities will receive their total bonus
based solely upon the achievement of the board approved corporate profit plan.
Individuals with responsibilties limited to one of the divisions of the company
will receive 50% of their bonus based upon corporate performance and the other
50% of their bonus on the division's performance.
BONUS COMMENCEMENT CRITERIA
In order for any Corporate bonus to be awarded, the corporation must report a
profit for the fiscal year and must meet at least 90% of the board approved
corporate profit plan. Divisional bonuses will only be paid if the Corporation
is profitable and the division meets at least 90% of its board approved profit
plan.
PARTIAL ACHIEVEMENT AND OVER ACHIEVEMENT
Corporate Bonus
In order for any Corporate Bonus to be paid, results must be at least equal to
90% of the established board approved corporate profit plan. If this level is
achieved, the following formula will be used to determine the percentage of an
individual's corporate bonus potential that will be paid.
<TABLE>
<CAPTION>
Percentage of Corporate Percentage of
Profit Plan Achieved Bonus Earned
-------------------- ------------
<S> <C>
90% 50%
100% 100%
115% 125%
130% 150%
</TABLE>
Actual performance in excess of the threshold percentage level, but between two
percentage levels set forth above, shall be payable at an interpolated
percentage equal to the percentage level associated with the lower of the two
brackets, plus a pro rata portion of the additional percentage which would have
been earned at the next highest bracket amount based upon actual performance
and calculated using simple arithmetic.
Divisional Bonus
In order for any Divisional Bonus to be paid, results must be at least equal to
90% of the established board approved divisional profit plan. If this level is
achieved, the following formula will be used to determine the percentage of an
individual's Divisional Bonus potential that will be paid.
<TABLE>
<CAPTION>
Percentage of Divisional Percentage of
Profit Plan Achieved Bonus Earned
-------------------- ------------
<S> <C>
90% 50%
100% 100%
</TABLE>
Actual performance in excess of the threshold percentage level, but between two
percentage levels set forth above, shall be payable at an interpolated
percentage equal to the percentage level associated with the lower of the two
brackets, plus a pro rata portion of the additional percentage which would have
been earned at the next highest bracket amount based upon actual performance
and calculated using simple arithmetic.
In the event that 100% or more of the Divisional profit plan is achieved and
more than 100% of the Corporate profit plan is achieved, then the Percentage of
the Divisional Bonus earned will be equal to the percentage of the Corporate
Bonus earned by such management member.
<PAGE> 3
Bonuses required to be paid under all bonus plans shall be included in
determining profit plan achievement levels.
BONUS PAYMENT
Payments under this plan shall first become available based upon fiscal 1997
results. In order to be eligible for any earned payment, the participant must
be a full time regular employee on the date of payment. Any bonus earned shall
be payable within five (5) days of the release of USML's earnings for such year
to the public.
ANNUAL MERIT INCREASES
Senior management will establish individual goals tied to quantitative
measurements which have a direct impact on the P & L or balance sheet.
Attainment of these goals will enable the individual to earn an increase in
base salary.
<PAGE> 1
EXHIBIT 10.2
INCENTIVE STOCK OPTION AWARD PROGRAM
OBJECTIVE
The objective of the Stock Option Award Program is to direct and reward
behavior consistent with shareholder value creation. This will be done by
providing certain key officers and managers listed on the attached table with
the opportunity to obtain an equity position in the Company through the
attainment of certain objectives. The USML Stock Option Plan will provide a
reward system that not only encourages higher level of individual participation
and commitment, but through vesting schedules can also provide an additional
incentive for key employees to remain with the company.
AWARD LEVEL I - TURN-AROUND INCENTIVE
The first milestone is to implement changes in strategy, structure, human
resources and processes that will provide a solid foundation to effect much
more rapid earnings growth in the future. The corporate goals for all
participants will be the achievement of corporate break even point by the end
of the second quarter of 1997. Divisional goals will be established for those
participants with responsibilities limited to the lab or to USMC operations.
All participants will also be given individual goals. Vesting of one third of
the available option grant will be tied to the attainment of corporate goals,
one third to both corporate and divisional goals and one third to individual
goals. However, if an individual fails to meet his/her individual goals, they
will forfeit the right to any options that may have been earned through the
attainment of the Corporate and/or Divisional goals unless a pro ration of
their option grant is recommended by the C.E.O and approved by the Compensation
Committee. Corporate, Divisional and Individual goals for these grants will be
established by October 15, 1996 and goals for executive officers will be
ratified by the Stock Option Committee.
AWARD LEVEL II - HIGH GROWTH INCENTIVE
If the Corporation meets the Board approved net income plan for fiscal 1997,
each of the participants will vest in an additional number of option shares
equal to the option shares earned for goals attained in Award Level - I. If an
employee failed to receive a Level I Grant due to failure to meet individual
goals, they will vest in 50% of their Options Available as a High Growth
Incentive Grant provided that they have met their individual goals by December
31, 1997.
OPTION GRANTS
The key officers and managers listed in the attached table will be granted
options to purchase two times the Options Available listed next to their names
on the day preceding the approval of this program. The Turn-around Incentive
options will vest on June 30, 1997 if the required goals are attained by such
date. High Growth Incentive options will vest on December 31, 1997 if required
goals are attained by such date. Vested options will become exercisable in 25%
increments on each anniversary of the date on which the option first vested.
OPTION STRIKE PRICE
The Option Purchase Price will be set at the average closing price for the
twenty days preceding the date this program is announced.
The chart on the following page identifies the participants and sets forth the
available grant amounts.
<PAGE> 2
INCENTIVE STOCK OPTION AWARD PROGRAM PARTICIPANTS
<TABLE>
<CAPTION>
NAME POSITION OPTIONS AVAILABLE
- ----------------- ----------------- -----------------
<S> <C> <C>
Alan Ker C.F.O. 20,000 shares
Ken Castel V.P./H.R. 20,000 shares
Lou Gorga C.O.O. 20,000 shares
Paul Knoll V.P. Sales USML 20,000 shares
Marv Wolf V.P. Operations USML 20,000 shares
Tom Marquard Senior V.P. USMC 3,000 shares
Joe Adams General Manager TPA 3,000 shares
Jon Baker Lab Mgr. Lans/Clare 3,000 shares
Sharon Blincow Client Service Mgr. 3,000 shares
David Gillis Dir. Billing 3,000 shares
Lorraine Goodrich Controller 3,000 shares
Tlanda McDonald V.P. USMC 3,000 shares
Arlene Norman Project Manager USML 3,000 shares
Sherri Paz Project Manager USML 3,000 shares
Mike Risko Corporate Counsel 3,000 shares
Julie Saville V.P. USMC 3,000 shares
Ron Sconyers V.P. Advanced Solutions 3,000 shares
Catherine Greene Communications Manager 3,000 shares
Brian Preston TQM Manager 3,000 shares
</TABLE>
<PAGE> 1
EXHIBIT 10.3
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
1992 STOCK OPTION PLAN, AS
AMENDED AND RESTATED OCTOBER 24, 1996
ARTICLE 1
Identification of the Plan
1.1 Title. The plan described herein (the "Plan") shall be known as the
"Universal Standard Medical Laboratories, Inc. 1992 Stock Option Plan."
1.2 Purpose. The purpose of this Plan is (i) to reward Participants in
the Plan for services to Universal Standard Medical Laboratories, Inc. (the
"Company") and its Subsidiaries rendered by such persons after the date of
adoption of this Plan by the Company's stockholders, (ii) to provide
Participants in the Plan with significant additional incentive to promote the
financial success of the Company, and (iii) to provide an incentive which may
be used to induce able persons to enter into or remain in the employment of, or
to provide services to, the Company or any Subsidiary.
1.3 Defined Terms. Certain capitalized terms used in this Plan shall have
the meanings assigned for such terms in Section 10.1 of this Plan.
ARTICLE 2
Administration of this Plan
2.1 Committee's Powers. This Plan shall be administered by a committee
(the "Committee") composed of persons appointed by the Board of Directors of
the Company in accordance with the provisions of Section 2.2. The Committee
shall have full power and authority to prescribe, amend and rescind rules and
procedures governing administration of this Plan. The Committee shall have
full power and authority to interpret the terms of this Plan and the Options
granted hereunder, and the rules and procedures established by the Committee.
Each action of the Committee which is within the scope of the authority
delegated to the Committee by this Plan or by the Board shall be binding on all
persons.
2.2 Committee Membership. The Committee shall be composed of non-employee
members of the Board. The Board shall have the power to determine the number
of members which the Committee shall have and to change the number of
membership
<PAGE> 2
positions on the Committee from time to time but in no event shall
the Committee consist of less than two members of the Board. The Board shall
appoint all members to the Committee. The Board may from time to time appoint
members to the Committee in substitution for, or in addition to, members
previously appointed and may fill vacancies, however caused, on the Committee.
Any member of the Committee may be removed from the Committee by the Board at
any time without cause. If at any time no special committee has been
constituted by the Board especially for the purposes of this Plan, then the
entire Board shall have all powers and rights delegated to the "Committee"
under this Plan.
ARTICLE 3
Persons Eligible to Receive Options
A person shall be eligible to be granted an Option only if, on the
proposed Granting Date for such Option, such person is an officer or director
of the Company or meets the following standards: (i) such person is employed by
the Company or a Subsidiary and such person has managerial, supervisory or
similar responsibilities or (ii) such person is an independent contractor who
provides key services to the Company or a Subsidiary. A person selected to be
granted an Option is herein called a "Participant."
ARTICLE 4
Options Grant
4.1 Power to Grant Options. The Committee shall have the right and the
power to grant at any time to any Participant an option entitling such person
to purchase Common Stock from the Company in such quantity, at such price, on
such terms and subject to such conditions consistent with the provisions of
this Plan as may be established by the Committee on or prior to the Granting
Date for such option; provided that, effective on and after May 2, 1996, no
Participant who is a salaried employee shall be eligible to receive aggregate
option grants under this Plan, in any two consecutive fiscal years of the
Company, to purchase more than 375,000 shares of the Common Stock.
4.2 Granting Date. An Option shall be deemed to have been granted under
this Plan on the date (the "Granting Date") on which the Committee designates
as the Granting Date at the time it approves such Option, provided that the
Committee may not designate a Granting Date with respect to any Option which is
earlier than the date on which the granting of such Option is approved by the
Committee.
-2-
<PAGE> 3
4.3 Option Terms Which the Committee May Determine. The Committee shall
have the power to determine the Participants to whom Options are granted, the
number of Shares subject to each Option, the number of Options awarded to each
Participant and the time at which each Option is granted. Except as otherwise
expressly provided in this Plan, the Committee shall also have the power to
determine, at the time of the grant of each Option, all terms and conditions
governing the rights and obligations of the holder with respect to such Option,
including but not limited to: (a) the purchase price per Share or the method by
which the purchase price per Share will be determined; (b) the length of the
period during which the Option may be exercised and any limitations on the
number of Shares purchasable with the Option at any given time during such
period; (c) the times at which the Option may be exercised; (d) any conditions
precedent to be satisfied before the Option may be exercised; (e) any
restrictions on resale of any Shares purchased upon exercise of the Option; and
(f) whether the Option will constitute an Incentive Stock Option.
4.4 Option Agreement. No person shall have any rights under any Option
unless and until the Company and the person to whom such Option is granted have
executed and delivered an agreement expressly granting the Option to such
person and containing provisions setting forth the terms of the Option (an
"Option Agreement").
ARTICLE 5
Option Terms
5.1 Plan Provisions Control Option Terms. The terms of this Plan shall
govern all the Options. In the event any provision of any Option Agreement
conflicts with any term in this Plan as constituted on the Granting Date of
such Option, the term in this Plan as constituted on the Granting Date of the
Option shall control. Except as provided in Article 8, the terms of any Option
may not be changed after the Granting Date of such Option without the express
approval of the Option Holder.
5.2 Price Limitation. Subject to Article 8, the price at which each Share
may be purchased upon the exercise of any Option may not be less than the Fair
Market Value on the Granting Date for such Option, provided that if an
Incentive Stock Option is granted to a person who owns, on the Granting Date of
such Incentive Stock Option, stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company (or of any
parent or Subsidiary of the Company in existence on the Granting Date of such
Option), the price at which each Share may be purchased upon exercise of such
Incentive Stock Option may not be less than 110% of the Fair Market Value on
the Granting Date for such Option.
-3-
<PAGE> 4
5.3 Term Limitation. No Incentive Stock Option may be granted under this
Plan which is exercisable more than ten years after its Granting Date. This
Section 5.3 shall not be deemed to limit the term which the Committee may
specify for any Options granted under the Plan which are not intended to be
Incentive Stock Options.
5.4 Transfer Limitations. No Incentive Stock Option or other Option
granted to any Section 16 Holder shall be transferable other than by will or
the laws of descent and distribution or exercisable during the lifetime of the
person to whom the Option is initially granted by anyone other than the initial
grantee. Notwithstanding the terms of the Option Agreement, if any Option
(other than an Incentive Stock Option) is issued to a Holder who is not a
Section 16 Holder on the Granting Date and such Holder becomes a Section 16
Holder before such Holder has fully exercised such Option, then such Option
shall not be transferable other than by will or the laws of descent and
distribution or exercisable during the lifetime of the initial grantee by
anyone other than the initial grantee. Subject to the preceding sentence,
Options (other than Incentive Stock Options) which are granted to anyone other
than a Section 16 Holder may be transferred (i) to any member of the initial
grantee's immediate family or (ii) to any inter vivos trust solely for the
benefit of any members of the initial grantee's immediate family or (iii) as a
result of the death of the initial grantee, testate or intestate. Nothing
contained herein shall be construed as making an Option transferable if the
Option Agreement provides otherwise. It shall be a condition precedent to any
transfer of any Option that the transferee executes and delivers an agreement
acknowledging that such Option has been acquired for investment and not for
distribution and is and shall remain subject to this Plan and the Option
Agreement. The "Holder" of any Option shall mean (i) the initial grantee or
(ii) the person or trust, if any, to whom the Option is transferred.
5.5 No Right to Employment Conferred. Nothing in this Plan or (in the
absence of an express provision to the contrary) in any Option Agreement (i)
confers any right or obligation on any person to continue in the employ of the
Company or any Subsidiary or to continue to provide services to the Company or
any Subsidiary as an independent contractor or (ii) affects or shall affect in
any way any person's right or the right of the Company or any Subsidiary to
terminate such person's employment or services to the Company or any Subsidiary
at any time, for any reason, with or without cause.
ARTICLE 6
Option Exercise
6.1 Normal Option Term. Except as otherwise provided in Section 6.3, 6.5
or in a Participant's Option Agreement, the
-4-
<PAGE> 5
right to exercise any Option shall terminate at the earlier of the
following dates: (i) the Termination Date of the initial grantee of the Option
and (ii) the Expiration Date of the Option.
6.2 Exercise Time. Except as provided in Section 6.5, each Option shall
become exercisable at the time provided in the Option Agreement, provided that
the Committee in its sole discretion shall have the right (but shall not in any
case be obligated) to permit the exercise of such Option prior to such time.
6.3 Extension of Exercise Time. The Committee in its sole discretion
shall have the right (but shall not in any case be obligated) to permit any
Option to be exercised after the Termination Date of the Holder of such Option.
Subject to Section 6.8, the Committee shall not have the right to permit the
exercise of any Option after its Expiration Date.
6.4 Exercise Procedures. Each Option shall be exercised by written notice
to the Company. Any Holder of any Option shall be required, as a condition to
such Holder's right to purchase securities with such Option, to supply the
Committee at such person's expense with such evidence, representations,
agreements or assurances (including but not limited to opinions of counsel
satisfactory to the Committee) as the Committee may deem necessary or desirable
in order to establish to the satisfaction of the Committee the right of such
person to exercise such Option, and of the propriety of the sale of securities
by reason of such exercise under the Securities Act and any other laws or
requirements of any governmental authority specified by the Committee. The
Company shall not be obligated to sell any Shares subject to such Option until
all evidence, representations, agreements and assurances required by the
Committee have been supplied. An Option Holder shall not have any rights as a
stockholder with respect to Shares issuable under any Option until and unless
such Shares are sold and delivered to such Option Holder. The purchase price
of Shares purchased upon the exercise of an Option shall be paid in full in
cash or by check by the Option Holder at the time of the delivery of such
Shares, provided that the Committee may (but need not) permit payment to be
made by (i) delivery to the Company of outstanding Shares, (ii) retention by
the Company of Shares which would otherwise be transferred to the Option Holder
upon exercise of the Option or (iii) any combination of cash, check, the
Holder's delivery of outstanding Shares and retention by the Company of Shares
which would otherwise be transferred to the Option Holder upon exercise of the
Option. In the event any Common Stock is delivered to or retained by the
Company to satisfy all or any part of the purchase price, the part of the
purchase price deemed to have been satisfied by such Common Stock shall be
-5-
<PAGE> 6
equal to the product derived by multiplying the Fair Market Value as of the
date of exercise times the number of Shares delivered to or retained by the
Company. The number of Shares delivered to or retained by the Company in
satisfaction of the purchase price shall not be a number which when multiplied
by the Fair Market Value as of the date of exercise would result in a product
greater than the purchase price. No fractional Shares shall be delivered to or
retained by the Company in satisfaction of the purchase price. Any part of the
purchase price paid in cash or by check upon the exercise of any Option shall
be added to the general funds of the Company and may be used for any proper
corporate purpose.
6.5 Death or Disability of Participant. Except as otherwise provided in
the Option Agreement, if the Holder of an Option dies or becomes permanently
disabled while such Option Holder is still employed by, or is providing
services as an independent contractor to, the Company or any Subsidiary, then
the right to exercise all unexpired installments of such Option shall be
accelerated and shall accrue as of the date of death. Except as otherwise
provided in the Option Agreement and subject to Section 6.8, if the Holder of
an Option dies and such Option is exercisable at the date of death (for any
reason including acceleration pursuant to the preceding sentence), then the
Holder's estate or the person or persons to whom the Holder's rights under the
Option shall pass by reason of the Holder's death shall have the right to
exercise the Option for one year after the date of death and the Option shall
expire at the end of such one year period.
6.6 [RESERVED]
6.7 Taxes. The Company or any Subsidiary shall be entitled, if the
Committee deems it necessary or desirable, to withhold from an Option Holder's
salary or other compensation (or to secure payment from the Option Holder in
lieu of withholding) all or any portion of any withholding or other tax due
from the Company or any Subsidiary with respect to any Shares deliverable under
such Holder's Option or the Committee may (but need not) permit payment of such
withholding by the Company's retention of Shares which would otherwise be
transferred to the Option Holder upon exercise of the Option. In the event any
Common Stock is retained by the Company to satisfy all or any part of the
withholding, the part of the withholding deemed to have been satisfied by such
Common Stock shall be equal to the product derived by multiplying the Fair
Market Value as of the date of exercise by the number of Shares retained by the
Company. The number of Shares retained by the Company in satisfaction of
withholding shall not be a number which when multiplied by the Fair Market
Value as of the date of exercise would result in a product greater than the
withholding amount. No fractional Shares shall be retained by
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<PAGE> 7
the Company in satisfaction of withholding. The Company may defer
delivery under a Holder's Option until indemnified to its satisfaction.
6.8 Securities Law Compliance. Each Option shall be subject to the
condition that such Option may not be exercised if and to the extent the
Committee determines that the sale of securities upon exercise of the Option
may violate the Securities Act or any other law or requirement of any
governmental authority. The Company shall not be deemed by any reason of the
granting of any Option to have any obligation to register the Shares subject to
such Option under the Securities Act or to maintain in effect any registration
of such Shares which may be made at any time under the Securities Act. An
Option shall not be exercisable if the Committee or the Board determines there
is non-public information material to the decision of the Holder to exercise
such Option which the Company cannot for any reason communicate to such Holder.
Notwithstanding Sections 6.1 and 6.3 and the terms of the Option Agreement, if
(i) any Holder makes a bona fide request to exercise any Option which complies
with Section 6.4, (ii) the Committee or the Board determines such Option cannot
be exercised for a period of time pursuant to this Section 6.8 and (iii) such
Option expires during such period, then the term of such Option shall be
extended until the end of such period.
ARTICLE 7
Shares Subject to This Plan
An aggregate of 1,300,000 shares of Common Stock (after giving effect to the
merger of Elan Holdings Corp. with and into Universal Standard Medical
Laboratories, Inc. and the 10.33 for 1 split of the outstanding Common Stock,
effective October 2, 1992) shall be subject to this Plan. The Options shall be
limited so that the sum of the following shall not as of any given time
exceed 1,300,000 Shares: (i) all Shares subject to Options outstanding under
this Plan at the given time and (ii) all Shares which shall have been sold by
the Company by reason of the exercise at or prior to the given time of any of
the Options; provided, that unless the Board shall otherwise determine, for
each Share delivered to or retained by the Company as payment of all or part of
the purchase price upon the exercise of any Option under Section 6.4 or in
satisfaction of all or any part of the withholding amount under Section 6.7,
the aggregate number of Shares subject to this Plan shall be increased by one
Share. In the event any Option shall expire or be terminated or cancelled
before it is fully exercised, then all Shares formerly subject to such Option
as to which such Option was not exercised shall be available for any Option
subsequently granted in accordance with the provisions of this Plan.
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ARTICLE 8
Adjustments to Reflect Organic Changes
The Board shall appropriately and proportionately adjust the number and
kind of Shares subject to outstanding Options, the price for which Shares may
be purchased upon the exercise of outstanding Options, and the number and kind
of Shares available for Options subsequently granted under this Plan to reflect
any stock dividend, stock split, combination or exchange of shares, merger,
consolidation or other change in the capitalization of the Company which the
Board determines to be similar, in its substantive effect upon this Plan or the
Options, to any of the changes expressly indicated in this sentence. The Board
may (but shall not be required to) make any appropriate adjustment to the
number and kind of Shares subject to outstanding Options, the price for which
Shares may be purchased upon the exercise of outstanding Options, and the
number and kind of Shares available for Options subsequently granted under this
Plan to reflect any spin-off, spin-out or other distribution of assets to
stockholders or any acquisition of the Company's stock or assets or other
change which the Board determines to be similar, in its substantive effect upon
this Plan or the Options, to any of the changes expressly indicated in this
sentence. The Committee shall have the power to determine the amount of the
adjustment to be made in each case described in the preceding two sentences,
but no adjustment approved by the Committee shall be effective until and unless
it is approved by the Board. In the event of any reorganization,
reclassification, consolidation, merger or sale of all or substantially all of
the Company's assets which is effected in such a way that holders of Common
Stock are entitled to receive (either directly or upon subsequent liquidation)
stock, securities or assets with respect to or in exchange for Common Stock,
the Board may (but shall not be required to) substitute the per share amount of
such stock, securities or assets for Shares upon any subsequent exercise of any
Option. If any fractional Share becomes subject to any Option as a result of
any change made under this Article 8, then (i) such Option may not be exercised
with respect to such fractional Share until and unless such Option is exercised
as to all other Shares subject to such Option and (ii) if such Option is
exercised with respect to such fractional Share, the Company shall have the
right to deliver to the Holder in lieu of such fractional Share cash in an
amount equal to the product derived by multiplying the
fraction representing the portion of a full Share represented by such
fractional Share times the Fair Market Value on the exercise date of the Option
with respect to such fractional Share established as prescribed in this Plan.
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ARTICLE 9
Amendment and Termination of This Plan
9.1 Amendment. Except as provided in the following two sentences, the
Board shall have complete power and authority to amend this Plan at any time
and no approval by the Company's stockholders or by any other person, committee
or other entity of any kind shall be required to make any amendment approved by
the Board effective. The Board shall not, without the affirmative approval of
the Company's stockholders, amend the Plan in any manner which would cause any
outstanding Incentive Stock Options to no longer qualify as Incentive Stock
Options. If any Section 16 Holder holds any Option granted prior to October
24, 1996, the Board shall not, without the affirmative approval of the
Company's stockholders, make any amendment to this Plan which materially
increases the benefits to such Holder under this Plan with respect to Options
granted prior to October 24, 1996. No termination or amendment of this Plan
may, without the consent of the Holder of any Option prior to termination or
the adoption of such amendment, adversely affect the rights of such Holder
under such Option.
9.2 Termination. The Board shall have the right and the power to
terminate this Plan at any time, provided that no Incentive Stock Options may
be granted after the tenth anniversary of the adoption of this Plan. No Option
shall be granted under this Plan after the termination of this Plan, but the
termination of this Plan shall not have any other effect. Any Option
outstanding at the time of the termination of this Plan may be exercised after
termination of this Plan at any time prior to the Expiration Date of such
Option to the same extent such Option would have been exercisable had this Plan
not terminated.
ARTICLE 10
Interpretation of This Plan
10.1 Definitions. Each term defined in 10.1 has the meaning indicated in
this 10.1 whenever such term is used in this Plan:
"Board of Directors" or "Board" mean the Board of Directors of the Company
as it may be constituted from time to time.
"Cause" shall have the meaning set forth in any employment agreement
between the Company and a Participant or, in the absence of such agreement,
shall mean (i) a Participant's willful and repeated failure to comply with the
lawful directives of the Board or of such Participant's
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<PAGE> 10
supervisory personnel, (ii) gross negligence or willful misconduct by a
Participant in the performance of his duties to the Company or its Subsidiaries
or any act of dishonesty or fraud with respect to the Company and/or its
Subsidiaries, or (iii) the commission by a Participant of an act (including but
not limited to a felony or a crime involving moral turpitude) causing material
harm to the standing and reputation of the Company and/or its Subsidiaries, in
each case as determined in good faith by the Board.
"Code" means the Internal Revenue Code of 1986, as amended or any
successor statute.
"Committee" has the meaning assigned such term in Section 2.1.
"Common Stock" means the Company's Common Stock, no par value.
"Company" means Universal Standard Medical Laboratories, Inc., except that
if at any time any corporation or other entity has acquired all or a
substantial part of the assets of the "Company" (as herein defined) and has
agreed to assume the obligations of the "Company" under this Plan, or is the
survivor in a merger or consolidation to which the "Company" was a party, such
corporation or other entity shall be deemed to be the "Company" at the given
time.
"Disability" shall mean a Participant's inability to substantially perform
normal duties for a continuous period of six months or more.
"Expiration Date" means the date specified in the Option Agreement between
the Company and the Holder as the expiration date of such Option. If no
expiration date is specified in the Option Agreement relating to any Option,
then the Expiration Date of such Option shall be the day prior to the tenth
anniversary of the Granting Date of such Option. Notwithstanding the preceding
sentence, if the person to whom any Incentive Stock Option is granted owns, on
the Granting Date of such Option, stock possessing more than 10 percent of the
total combined voting power of all classes of stock of the Company (or of any
parent of Subsidiary of the Company in existence on the Granting Date of such
Option), and if no earlier expiration date is specified in the Option Agreement
relating to such Option, than the Expiration Date of such Option shall be the
day prior to the fifth anniversary of the Granting Date of such Option.
"Fair Market Value" means:
(i) for a share of Common Stock, the average of the closing prices of the
sales of the Common Stock on all
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<PAGE> 11
securities exchanges on which the Common Stock may at the time be listed or,
if there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day or, if on any day the Common Stock is not so listed, the sales prices of
the Common Stock as of 4:00 p.m., New York time, on such day as reported on the
Nasdaq Stock Market's National Market or SmallCap Market or, if the Common
Stock is not reported on the Nasdaq Stock Market's National Market or SmallCap
Market on such day, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau Incorporated or any similar successor organization, in each
such case averaged over a period of 21 days consisting of the day as of which
Fair Market Value is being determined and the 20 consecutive trading days prior
to such day or, if the Common Stock is not so listed or quoted, as determined
in good faith by the Committee; and
(ii) for a Vested Option, the excess (if any) of the Fair Market Value of
a share of Common Stock (as determined in accordance with clause (i)) over the
Exercise Price.
"Granting Date" has the meaning assigned such term in Section 4.2.
"Holder" has the meaning assigned such term in Section 5.4.
"Incentive Stock Option" means an incentive stock option, as defined in
Section 422 of the Code, which is granted pursuant to this Plan.
"Option" shall mean each option to purchase Common Stock which shall be
granted by the Committee pursuant to the Provisions of this Plan.
"Option Agreement" has the meaning such term is given in Section 4.4.
"Original Cost" shall mean the original purchase and/or exercise price of
the Shares acquired pursuant to the exercise of Options, adjusted as
appropriate pursuant to Article 8.
"Participant" has the meaning assigned such term in Article 3.
"Plan" has the meaning assigned such term in Section 1.1.
"Rule 16b-3" means Rule 16b-3 under the Securities Exchange Act of 1934,
or any successor provision.
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"Section 16 Holder" means any person who, with respect to the Company, is
subject to Section 16 of the Securities Exchange Act of 1934 as amended at any
time or any law or statute which succeeds Section 16.
"Securities Act" means the Securities Act of 1933, as amended and the
rules and regulations promulgated thereunder.
"Share" means a share of Common Stock.
"Subsidiary" means any corporation of which the securities having a
majority of the ordinary voting power in electing the board of directors are,
at the time as of which any
determination is being made, owned by the Company either directly or through
one or more Subsidiaries.
"Termination Date" means the first date on which the initial grantee of an
Option is not employed by, nor providing services as an independent contractor
to, either the Company or any Subsidiary for any reason (including but not
limited to voluntary or involuntary termination of employment, death or
Disability or voluntary or involuntary termination of the relationship with the
Company or any Subsidiary as an independent contractor).
"Unvested Options" shall mean, as to any Participant as of a particular
date, those Options which are not Vested Options.
"Vested Options" shall mean, as to any Participant as of a particular
date, those Options that are presently exercisable by such Participant as of
such date.
10.2 Captions. The captions (i.e., all underlined words) used in this
Plan are for convenience only, do not constitute a part of this Plan, and shall
not be deemed to limit, characterize or affect in any way any provision of this
Plan. All provisions in this Plan shall be construed as if no captions had
been used in this Plan.
10.3 Severability.
(a) General. Whenever possible, each provision in this Plan and in every
Option at any time granted under this Plan shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Plan or any Option at any time granted under this Plan is held to be prohibited
by or invalid under applicable law, then (i) such provision shall be deemed
amended to accomplish the objectives of the provision as originally written to
the fullest extent permitted by law and (ii) all other provisions of this Plan
and every Option at any time granted under this Plan shall remain in full force
and effect.
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<PAGE> 13
(b) Incentive Stock Options. Whenever possible, each provision in this
Plan and in every Option at any time granted under this Plan which is evidenced
by an Option Agreement which expressly states such Option is intended to
constitute an Incentive Stock Option under Section 422 of the Code (an
"intended ISO") shall be interpreted in such manner as to entitle such intended
ISO to the tax treatment afforded by the Code to Incentive Stock Options under
Section 422 of the Code, but if any provision of this Plan or any intended ISO
at any time granted under this Plan is held to be contrary to the requirements
necessary to entitle such intended ISO to the tax treatment afforded by the
Code to Incentive Stock Options under Section 422 of the Code, then (i) such
provision shall be deemed to have contained from the outset such language as
shall be necessary to entitle such intended ISO to the tax treatment afforded
by the Code to Incentive Stock Options under Section 422 of the Code, and (ii)
all other provisions of this Plan and such intended ISO shall remain in full
force and effect. If any Option Agreement covering an intended ISO granted
under this Plan does not explicitly include any terms required to entitle such
intended ISO to the tax treatment afforded by the Code to Incentive Stock
Options
under Section 422 of the Code, then all such terms shall be deemed implicit in
the intention to afford such treatment to such Option and such Option shall be
deemed to have been granted subject to all such terms.
10.4 No Strict Construction. No rule of strict construction shall be
applied against the Company, the Committee, or any other person in the
interpretation of any of the terms of this Plan, any Option or any rule or
procedure established by the Committee.
10.5 Choice of Law. This Plan 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.
* * * *
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EXHIBIT 10.4
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED AND RESTATED OCTOBER 24, 1996)
1. PURPOSE. The purpose of the Universal Standard Medical Laboratories,
Inc. Employee Stock Purchase Plan (the "Plan") is to promote the best interests
of Universal Standard Medical Laboratories, Inc. (the "Company") and its
shareholders by encouraging employees of the Company and its subsidiaries to
acquire a proprietary interest in the Company, thus identifying their interests
with those of shareholders and encouraging the employees to make even greater
efforts on behalf of the Company. The Plan is intended to constitute an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code").
2. CERTAIN DEFINITIONS. As used in this Plan, the term "subsidiary" of
the Company means any "subsidiary corporation" as defined in Section 424(f) of
the Code; the term "employee" means an individual with an "employment
relationship" with the Company or any subsidiary as defined in Regulation
1.421-7(h) of the Income Tax Regulations; the term "employment" means
employment with the Company, or a subsidiary of the Company; the term "Purchase
Period" means an offering period of at least six months beginning and ending on
the dates set by the Stock Option Committee, subject to earlier termination
under Section 12; and the term "compensation" means base salary, plus incentive
bonuses and commissions, but excluding non-compete payments.
3. STOCK. The stock subject to option and purchase under the Plan shall
be the Common Stock of the Company (the "Common Stock"). The total amount of
Common Stock on which options may be granted under the Plan shall not exceed
750,000 shares, subject to adjustment in accordance with Section 11 of the
Plan. Shares of Common Stock subject to any
unexercised portion of a terminated, cancelled or expired option granted under
the Plan may again be used for option grants under the Plan.
4. ADMINISTRATION. The Plan shall be administered by a Committee (the
"Committee") of the Board of Directors ("Board"). The Committee may prescribe
rules and regulations from time to time for the administration of the Plan and
may decide questions which may arise with respect to its interpretation or
application. The decisions of the Committee in interpreting the Plan shall be
final, conclusive and binding on all persons, including the Company, its
subsidiaries, employees and optionees. The Committee, from time to time, shall
grant to eligible employees on a uniform basis, options to purchase Common
Stock pursuant to the terms and conditions
<PAGE> 2
of the Plan. In the event of insufficient shares during a Purchase Period, the
Committee shall allocate the right to purchase shares to each participant in
the same proportion that such participant's total wages (as defined in Section
3401(a) of the Code) paid by the Company for the Purchase Period bears to the
total of such wages paid by the Company to all participants during the same
period.
5. PARTICIPANTS. Except as provided in Section 6 of the Plan, any
employee who is in the employ of the Company or any subsidiary of the Company
on the offering dates (i) whose customary employment with the Company or a
subsidiary is 20 hours or more per week and (ii) who have been employed by the
Company or a subsidiary for at least six months, is eligible to participate in
the Plan in accordance with its terms.
6. OWNERSHIP AND PURCHASE LIMITATIONS. Notwithstanding anything herein to
the contrary, no employee shall be entitled to participate in an offering under
the Plan if such employee, immediately after a grant under this Plan, would, in
the aggregate, own, and/or hold options to purchase, shares of Common Stock
equal to or exceeding five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of its subsidiary
corporations. The rules of Section 424(d) of the Code shall apply for the
purpose of determining such stock ownership. With respect to individual
employees, Section 424(d) of the Code provides that an employee shall be
considered as owning the stock owned directly or indirectly, by or for his
brothers and sisters (whether by the whole or half blood), spouse, ancestors,
and lineal descendants. No employee shall be granted an option under the Plan
which, together with options granted under all employee stock purchase plans
(qualified under Section 423 of the Code) of the Company and its subsidiaries
permits the employee to accrue option rights to purchase shares in any calendar
year in excess of $25,000 of fair market value of such shares (determined at
the time an option is granted). For purposes of this Plan, the "grant date"
shall be the first day of each Purchase Period, as defined in Section 2 of the
Plan.
7. OPTION PRICE. The exercise price of each option granted under the Plan
shall be equal to the "Discount" multiplied by the lesser of (i) the fair
market value per share of the Common Stock on the grant date and (ii) the fair
market per share of the Common Stock on the "Purchase Date" (as defined in
Section 8(d)). The term "Discount" shall mean a percentage not less than 85%.
The Discount shall be 85% unless otherwise determined by the Committee in its
sole discretion on or before the grant date. For purposes of this paragraph,
the fair market value per share shall be determined by the last sale price per
share of the Common Stock on the Nasdaq Stock Market's National Market, as
reported in The Wall Street
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<PAGE> 3
Journal, for the grant date or the Purchase Date, as the case may be, or, if
there are no sales on such date, on the last date immediately preceding such
date on which there were sales.
8. PAYMENT FOR OPTION SHARES.
(a) SHARES UNDER OPTION. An eligible employee may elect to
participate in an offering by delivering to the Company an election to
participate and a payroll deduction form within a certain period of time, which
period shall be designated by the Committee prior to each offering date (the
"Election Period") and which election shall become irrevocable as to the
applicable Purchase Period at the end of the Election Period. An eligible
employee's election to participate and payroll deduction form from the
preceding Election Period automatically shall carry over to the next Election
Period unless affirmatively revoked in writing by the employee. An employee
who elects to participate may not authorize payroll deductions which, in the
aggregate, are less than one percent (1%) of the employee's cash compensation.
Only whole shares of Common Stock may be purchased under the Plan.
(b) A participating employee may not authorize payroll deductions for
less than an entire Purchase Period. An employee may suspend payroll
deductions during a Purchase Period only at the discretion of the Company in
the event of an unforeseen hardship; provided, however, that payroll deductions
made prior to approval of the suspension by the Company shall be used to
purchase Common Stock for the employee at the end of the Purchase Period. A
participating employee shall not be permitted to withdraw payroll deductions
from the Plan in cash, except as provided in Section 8(e).
(c) Payroll deductions shall commence on the first payroll date in the
Purchase Period and shall continue until the last payroll date in the Purchase
Period; provided, however, that unless an election is revoked, such election
shall continue into successive Purchase Periods.
(d) A participating employee's option shall be deemed to have been
exercised at the close of business on the last business day of the Purchase
Period, which shall be the earlier of (i) the day designated by the Committee
as the last day of the Purchase Period or (ii) the date on which the Purchase
Period is terminated pursuant to Section 12.
(e) The Company retains the right to designate an exclusive broker to
handle the Common Stock transactions under the Plan. As soon as practicable
after the end of the Purchase Period, the Company shall deliver to each
employee or a designated brokerage account, through a
3
<PAGE> 4
certificate or electronic transfer, the shares of Common Stock that such
employee has purchased. Any amount that has been deducted and withheld in
excess of the option price automatically shall be applied toward the purchase
of option shares in the next Purchase Period. An employee who elects not to
participate in the following Purchase Period shall receive a check from the
Company for any amount that has been deducted and withheld in excess of the
cost of shares.
(f) No interest shall accrue or be paid on any amounts paid by payroll
deduction by any participating employee.
9. NON-TRANSFERABILITY. No option shall be transferable by an employee
other than by will or the laws of descent and distribution, and an option shall
be exercised during an employee's life time only by an employee.
10. TERMINATION OF EMPLOYMENT, UNPAID LEAVE OF ABSENCE OR LAYOFF. If a
participating employee ceases to be employed by the Company for any reason
(with or without severance pay), including but not limited to, voluntary or
forced resignation, retirement, death, layoff, or if an employee is on an
unpaid leave of absence for more than 60 days, or during any period of
severance, payroll deductions with respect to such employee at the time of such
termination shall cease and the option shall be exercised on the Purchase Date
to the extent payroll deductions were made prior to such termination.
11. ADJUSTMENTS. In the event of changes in the outstanding Common Stock
by reason of stock dividends, stock splits, recapitalizations, reorganizations,
mergers, consolidations, combinations, exchanges or other relevant changes in
the capital structure of the Company, an appropriate adjustment shall be made
by the Committee in the number of shares and kind of stock or other securities
for which options may be or may have been granted under the Plan, and the
exercise price related thereto, to the end that the proportionate interests
shall be maintained as before the occurrence of such an event. Any of the
foregoing adjustments may provide for the elimination of any fractional share
which might otherwise become subject to any option.
12. CHANGE OF CONTROL.
(a) After any merger of one or more corporations into the Company in which
the Company shall be the surviving corporation or any share exchange in which
the Company is a constituent corporation, each participant shall, at no
additional cost, be entitled upon the exercise of an option, to receive
(subject to any required action by shareholders), in lieu of the number of
shares of Common Stock for which such option shall then be exercisable, the
consideration which such participant would have been entitled to receive
pursuant to the
4
<PAGE> 5
terms of the agreement of merger or share exchange if at the time of such
merger or share exchange such participant had been a holder of record of a
number of shares of Common Stock equal to the number of shares then underlying
the option. In addition, if any person or entity becomes the beneficial owner
of 66-2/3% or more of the number of shares then issued and outstanding, whether
in connection with such merger or share exchange or otherwise, or upon any sale
by the Company of all or substantially all of its assets, the Committee shall
have the right to terminate the Purchase Period as of such date, and, if so
terminated, each participant shall be deemed to have exercised, immediately
prior to such merger, share exchange, acquisition or sale of assets, his or her
option to the extent payroll deductions were made prior thereto. Comparable
rights shall accrue to each participant in the event of successive mergers or
consolidations of the character described above.
(b) Notwithstanding anything contained herein to the contrary, upon the
dissolution or liquidation of the Company or upon any merger or share exchange
in which the Company is not the surviving corporation (other than a merger with
a wholly-owned subsidiary of the Company formed for the purpose of changing the
Company's corporate domicile where the
Plan is assumed by the survivor), the Purchase Period for any option granted
under this Plan shall terminate as of the date of the aforementioned event, and
each participant shall be deemed to have exercised, immediately prior to such
dissolution, liquidation, merger or share exchange, his or her option to the
extent payroll deductions were made prior thereto.
(c) The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in its sole
discretion. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to an option.
13. TERMINATION AND AMENDMENT. The Board may terminate the Plan, or the
granting of options under the Plan, at any time. No option shall be granted
under the Plan after May 4, 2005.
The Board may amend or modify the Plan at any time and from time to time,
but no amendment or modification shall disqualify the Plan under Section 423 of
the Code, or Rule 16b-3 of the Securities Exchange Act of 1934, as amended
("Exchange Act"), as amended from time to time (or any successor rule), without
shareholder approval.
No amendment, modification, or termination of the Plan shall in any manner
affect any option granted under the Plan without the consent of the participant
holding the option.
5
<PAGE> 6
14. RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on the exercise of an option as
may be required to satisfy the requirements of Rule 16b-3 of the Exchange Act,
as amended from time to time (or any successor rule).
15. RIGHTS PRIOR TO DELIVERY OF SHARES. No participant shall have any
rights as a shareholder with respect to shares covered by an option until the
issuance of a stock certificate or electronic transfer to the employee or the
employee's brokerage account of such shares. No adjustment shall be made for
dividends or other rights with respect to such shares for which the record date
is prior to the date the certificate is issued or the shares electronically
delivered to a brokerage account.
16. SECURITIES LAWS. Anything to the contrary herein notwithstanding, the
Company's obligation to sell and deliver stock pursuant to the exercise of an
option is subject to such compliance with federal and state laws, rules and
regulations applying to the authorization, issuance or sale of securities as
the Company deems necessary or advisable. The Company shall not be required to
sell and deliver stock unless and until it receives satisfactory assurance that
the issuance or transfer of such shares will not violate any of the provisions
of the Securities Act of 1933 or the Exchange Act, or the rules and regulations
of the Securities and Exchange Commission promulgated thereunder or those of
any stock exchange on which the
stock may be listed, the provisions of any state laws governing the sale of
securities, or that there has been compliance with the provisions of such acts,
rules, regulations and laws.
The Board may impose such restrictions on any shares of Common Stock
acquired pursuant to the exercise of an option under the Plan as it may deem
advisable, including, without limitation, restrictions (a) under applicable
federal securities laws, (b) under the requirements of any stock exchange or
other recognized trading market upon which such shares of Common Stock are then
listed or traded, and (c) under any blue sky or state securities laws
applicable to such shares. No shares shall be issued until counsel for the
Company has determined that the Company has complied with all requirements
under appropriate securities laws.
17. APPROVAL OF PLAN. The Plan shall be subject to the approval of the
holders of at least a majority of the Common Stock of the Company present and
entitled to vote at a meeting of shareholders of the Company held within 12
months after adoption of the Plan by the Board. If not approved by
shareholders within such 12-month period, the Plan and any options granted
hereunder shall become void and of no effect.
6
<PAGE> 7
18. EFFECT ON EMPLOYMENT. Neither the adoption of the Plan nor the
granting of an option pursuant to it shall be deemed to create any right in any
employee to be retained or continued in the employment of the Company, parent
or a subsidiary.
19. USE OF PROCEEDS. The proceeds received from the sale of shares
pursuant to the Plan shall be used for corporate purposes by the Company.
BOARD OF DIRECTORS APPROVAL: 5/5/95; 6/14/95; 10/24/96
SHAREHOLDER APPROVAL: 6/14/95
7
<PAGE> 1
EXHIBIT 10.5
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
DIRECTORS STOCK OPTION PLAN
(AS AMENDED AND RESTATED OCTOBER 24, 1996)
I. GENERAL PROVISIONS
1.1 PURPOSE. The purpose of the Universal Standard Medical Laboratories,
Inc. Directors Stock Option Plan is to promote the best interests of the
Company and its shareholders by attracting and motivating highly qualified
individuals to serve as Directors.
1.2 DEFINITIONS. As used in this Plan, the following terms have the
meaning described below:
(a) "AGREEMENT" means the written agreement that sets forth the terms
of a Participant's Option.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CHANGE OF CONTROL" means (i) the sale of all or substantially all
of the assets of the Company to an unaffiliated third-party, (ii) the merger or
consolidation of the Company with an unaffiliated third-party in which the
Company is not the surviving corporation or (iii) any person or group of
persons (as defined in Section 13(d) of the Exchange Act) (other than
WestSphere Capital Associates, L.P. and its affiliates) shall acquire or
control in excess of 66-2/3% of the Common Stock on a fully-diluted basis.
(d) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "COMMITTEE" means a committee of the Board, which shall be
comprised of two or more "non-employee directors", as defined in Rule 16b-3.
(f) "COMMON STOCK" means shares of the Company's authorized Common
Stock.
(g) "COMPANY" means Universal Standard Medical Laboratories, Inc.
(h) "DIRECTOR" means a member of the Company's Board of Directors.
(i) "DISABILITY" means total and permanent disability, as defined in
Code Section 22(e).
<PAGE> 2
(j) "EFFECTIVE DATE" means March 27, 1995.
(k) "ELIGIBLE DIRECTOR" means a Director who is not an Employee and who is
not a beneficial owner (as such term is used in Section 13(d) of the Exchange
Act and the rules promulgated thereunder) of 5% or more of the outstanding
Common Stock or an employee, officer or affiliate of, or partner in, such a
beneficial owner.
(l) "EMPLOYEE" means an employee of the Company or its Subsidiaries, who
has an "employment relationship" with the Company or its Subsidiaries, as
defined in Treasury Regulation 1.421-7(h), and the term "employment" means
employment with the Company or its subsidiaries.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time and any successor thereto.
(n) "EXPIRATION DATE" means the tenth anniversary of an Option's Grant
Date.
(o) "FAIR MARKET VALUE" means, for purposes of determining the value of
Common Stock, the average of the closing prices of the sales of the Common
Stock on all securities exchanges on which the Common Stock may at the time be
listed or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day or, if on any day the Common Stock is not so listed, the sales
prices of the Common Stock as of 4:00 p.m., New York time, on such day as
reported on the National Market or the SmallCap Market or, if the Common Stock
is not reported on the National Market or the SmallCap Market on such day, the
average of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which Fair Market Value is
being determined and the 20 consecutive trading days prior to such day or, if
the Common Stock is not so listed or quoted, as determined in good faith by the
Committee.
(p) "GRANT DATE" means the date on which the Option was automatically
awarded pursuant to Section 2.1.
(q) "INVOLUNTARY REMOVAL" means (i) the removal of the Participant from
the Board, (ii) the Participant not being nominated to stand for reelection to
the Board, or (iii) the failure of the Participant to be elected to the Board,
if nominated therefor by the Board or a committee thereof.
2
<PAGE> 3
(r) "NONQUALIFIED STOCK OPTION" means an Option that is not intended to
meet the requirements of Section 422 of the Code.
(s) "NATIONAL MARKET" means the Nasdaq Stock Market's National Market.
(t) "OPTION" means a Nonqualified Stock Option to purchase Common Stock
granted under this Plan.
(u) "PARTICIPANT" means each of the Directors of the Company
participating in the Plan from time to time.
(v) "PLAN" means the Universal Standard Medical Laboratories, Inc.
Directors Stock Option Plan, the terms of which are set forth herein, and any
amendments hereto.
(w) "RULE 16B-3" means Rule 16b-3 under the Exchange Act, as in effect
from time to time.
(x) "SMALLCAP MARKET" means the Nasdaq Stock Market's SmallCap Market.
1.3 ADMINISTRATION. To the extent permitted by Rule 16b-3 without
disqualifying the Eligible Directors from status as "disinterested directors"
as that term is used in Rule 16b-3, the Plan shall be administered by the
Committee. The Committee shall interpret the Plan, prescribe, amend, and
rescind rules and regulations relating to the Plan, and make all other
determinations necessary or advisable for its administration. The decision of
the Committee on any question concerning the interpretation of the Plan or its
administration with respect to any Option granted under the Plan shall be final
and binding upon all Participants.
1.4 STOCK. The total number of shares of Common Stock available for
grants under the Plan shall not, in the aggregate, exceed 300,000 shares of
Common Stock, as adjusted from time to time in accordance with Section 4.5.
Shares subject to any unexercised portion of a terminated, forfeited, cancelled
or expired Option granted hereunder shall be available for subsequent grants
under the Plan. In the event that an Option granted under the Plan is
exercised and the exercise price is paid by delivering shares of Common Stock
or through the withholding or retention by the Company of shares subject to the
Option, the shares of Common Stock so delivered to or retained by the Company
shall be available for subsequent grants under this Plan.
3
<PAGE> 4
II. STOCK OPTIONS FOR ELIGIBLE DIRECTORS
2.1 AUTOMATIC GRANTS OF OPTIONS.
(A) INITIAL GRANT. Each Eligible Director who is serving on the
Board on the Effective Date of the Plan shall be granted an Option to purchase
30,000 shares of the Common Stock on the Effective Date. Any Eligible
Director who is first elected or appointed to such position after the Effective
Date shall receive an Option to purchase 15,000 shares of Common Stock on the
date of his or her election or appointment. A person who first becomes an
Eligible Director following service as an Employee or Director of the Company
(other than Directors who become Eligible Directors as of the Effective Date)
shall not be entitled to receive a grant under this Section 2.1(a) upon
becoming an Eligible Director.
(B) SUBSEQUENT GRANTS. During the term of the Plan, an Eligible
Director who has been a Director for at least six months before the date of an
annual meeting of shareholders (not including the annual meeting held in
calendar year 1995), automatically shall be granted, as of the date of such
annual meeting, an additional Option to purchase 10,000 shares of Common Stock.
A Participant may hold more than one Option under the Plan.
2.2 OPTION AGREEMENT. Each Option granted pursuant to this Article II
shall be evidenced by an Agreement that shall specify the exercise price, the
term of the Option, the date or dates on which the Option becomes exercisable,
the number of shares to which the Option relates, and other such provisions as
the Committee shall determine which are consistent with the terms of the Plan.
The terms of the Plan shall govern in the event any provision of any Agreement
conflicts with any term in this Plan as constituted on the Grant Date.
2.3 OPTION PRICE. The purchase price per share of Common Stock for an
Option granted pursuant to this Article II shall be equal to the Fair Market
Value per share of Common Stock on the Grant Date.
2.4 EXERCISE OF SHARES SUBJECT TO OPTION. Options granted pursuant to
this Article II shall become exercisable (i) according to the following
schedule: one-fourth of the Option shall become exercisable on the first,
second, third and fourth anniversaries of the Grant Date of each Option and
(ii) immediately in full upon a Change of Control or an Involuntary Removal.
Once exercisable, such Options may be exercised at any time and from time to
time until the Expiration Date of such Options, unless earlier terminated
pursuant to Article III.
4
<PAGE> 5
2.5 DURATION OF OPTIONS. Options granted pursuant to this Article II
shall expire on the Expiration Date, except as otherwise provided in Article
III.
2.6 PAYMENT FOR OPTION SHARES. The purchase price for shares of Common
Stock to be acquired upon exercise of an Option granted hereunder shall be paid
in full at the time of exercise in any of the following ways: (a) in cash or by
check, (b) by delivery to the Company of outstanding shares of the Common Stock
with a Fair Market Value (determined
as of the date of exercise of the Option) equal to the exercise price; (c)
through the retention by the Company of shares with a Fair Market Value
(determined as of the date of exercise of the Option) equal to the exercise
price which would otherwise be transferred to the option holder upon exercise
of the Option; or (d) by any combination of the foregoing.
2.7 NO DISCRETION. Notwithstanding any provision in the Plan to the
contrary, the Committee shall have no discretion with respect to the terms of
grants made pursuant to this Article II, except to the extent such discretion
would not result in the grant or the Plan failing to satisfy the conditions of
paragraph (c)(2)(ii) of Rule 16b-3.
III. TERMINATION
3.1. PRIOR TO EXERCISABILITY. Except as provided in Section 2.4(ii), if a
Participant's term of office as a Director ceases or is terminated for any
reason, prior to the date that an Option or a portion thereof first becomes
exercisable, such Option or portion thereof which is not then exercisable shall
terminate and all rights thereunder shall cease.
3.2 AFTER EXERCISABILITY. To the extent an Option or any portion thereof
is exercisable and unexercised on the date a Participant's term of office as a
Director ceases or is terminated for any reason, the Option shall terminate on
the earlier of (i) the Expiration Date of the Option, and (ii) three months
after such cessation or termination; provided, however, that the exercise
period in clause (ii) shall be extended to one year after cessation or
termination if the cessation or termination is due to the Participant's death
or Disability;
3.3 POST-TERMINATION EXERCISE. During the period from the Participant's
cessation or termination until the termination or expiration of the Option, the
Participant, or the person or persons to whom the Option shall have been
transferred by will or by the laws of descent and distribution, may exercise
the Option only to the extent that such Option was exercisable on the date of
the Participant's cessation or termination.
5
<PAGE> 6
IV. MISCELLANEOUS
4.1 PARTIAL EXERCISE. The Committee shall permit, and shall establish
procedures for, the partial exercise of Options under the Plan.
4.2 RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on the exercise of an Option as
may be required to satisfy the requirements of Rule 16b-3.
4.3 RIGHTS PRIOR TO ISSUANCE OF SHARES. No Participant shall have any
rights as a shareholder with respect to shares covered by an Option until and
only to the extent that the Option is exercised.
4.4 NON-ASSIGNABILITY. No Option shall be transferable by a Participant
except by will or the laws of descent and distribution. During the lifetime of
a Participant, an Option shall be exercised only by the Participant. No
transfer of an Option by will or the laws of descent and distribution shall be
effective to bind the Company unless the Company shall have been furnished with
written notice thereof and a copy of the will or such evidence as the Company
may deem necessary to establish the validity of the transfer and the acceptance
by the transferee of the terms and conditions of the Option.
4.5 ADJUSTMENTS. In the event of changes in the outstanding Common Stock
by reason of stock dividends, stock splits, recapitalizations, reorganizations,
mergers, consolidations, combinations, exchanges or other relevant changes in
the capital structure of the Company, an appropriate adjustment shall be made
by the Committee in the number of shares and kind of stock or other securities
for which Options may be or may have been granted under the Plan, and the
exercise price related thereto, to the end that the proportionate interests
shall be maintained as before the occurrence of such an event. Any of the
foregoing adjustments may provide for the elimination of any fractional share
which might otherwise become subject to any Option.
4.6. SECURITIES LAWS.
(A) Anything to the contrary herein notwithstanding, the Company's
obligation to sell and deliver Common Stock pursuant to the exercise of an
Option is subject to such compliance with federal and state laws, rules and
regulations applying to the authorization, issuance or sale of securities as
the Company deems necessary or advisable. The Company shall not be
6
<PAGE> 7
required to sell and deliver Common Stock unless and until it receives
satisfactory assurance that the issuance or transfer of such shares shall not
violate any of the provisions of the Securities Act of 1933 or the Exchange
Act, or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder or those of the Nasdaq Stock Market or any stock
exchange on which the Common Stock may be listed, the provisions of any state
laws governing the sale of securities, or that there has been compliance with
the provisions of such acts, rules, regulations and laws.
(B) The Committee may impose such restrictions on any shares of Common
Stock acquired pursuant to the exercise of an Option as it may deem advisable,
including, without limitation, restrictions (i) under applicable federal
securities laws, (ii) required by the Nasdaq Stock Market (including, without
limitation, with respect to securities traded on the National Market or the
SmallCap Market) or any stock exchange or other recognized trading market upon
which such shares of Common Stock are then listed or traded, and (iii) under
any blue sky or state securities laws applicable to such shares. No shares
shall be issued until counsel for the Company has determined that the Company
has complied with all requirements under appropriate securities laws.
4.7 TERMINATION AND AMENDMENT.
(A) The Board may terminate the Plan, or the granting of Options
under the Plan, at any time. No new grants shall be made under the Plan after
June 30, 2000.
(B) The Board may amend or modify the Plan at any time and from time to
time.
(C) No amendment, modification or termination of the Plan shall
adversely affect any Option granted under the Plan without the consent of the
Participant holding the Option.
4.8 EFFECT ON SERVICES. Neither the adoption of the Plan nor the granting
of any Option pursuant to the Plan shall be deemed to create any right in any
individual to be retained as a Director.
7
<PAGE> 8
4.9 USE OF PROCEEDS. The proceeds received from the sale of Common Stock
pursuant to the Plan shall be used for general corporate purposes of the
Company.
4.10 APPROVAL OF PLAN. The Plan shall be subject to the approval of the
holders of at least a majority of the shares of Common Stock present and
entitled to vote at a meeting of shareholders of the Company held within 12
months after adoption of the Plan by the Board. Any Option granted under the
Plan prior to such shareholder approval, shall be conditioned upon receipt of
such approval, and may not be exercised in whole or in part unless the Plan has
been approved by the shareholders as provided herein. If not approved by
shareholders within 12 months after approval by the Board, the Plan shall be
rescinded, and any Options granted under the Plan shall be void retroactive to
the Grant Date.
BOARD APPROVAL: March 27, 1995; October 24, 1996
SHAREHOLDER APPROVAL: June 14, 1995
8
<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
September 30, September 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) (a) ($688) ($979) ($3,686) ($683)
======= ======= ======= =======
PRIMARY
Weighted average common shares outstanding 6,542 6,305 6,542 6,305
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 100 120 99 117
Warrants outstanding 19 39 19 39
------- ------- ------- -------
Average shares outstanding and common equivalent
shares for primary earnings per share 6,661 6,464 6,660 6,461
======= ======= ======= =======
Primary earnings per share (a):
Net Income (loss) ($0.10) ($0.15) ($0.55) ($0.11)
FULLY DILUTED
Weighted average common shares outstanding * * * 6,305
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 * * * 123
Warrants outstanding * * * 39
------- ------- ------- -------
Average shares outstanding and common equivalent
shares, assuming full dilution 6,661 6,464 6,660 6,467
======= ======= ======= =======
Fully diluted earning per share:
Net Income (loss) ($0.10) ($0.15) ($0.55) ($0.11)
======= ======= ======= =======
</TABLE>
(a) These amounts agree with the related amounts in the condensed consolidated
statements of income.
* Not applicable
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,517
<SECURITIES> 0
<RECEIVABLES> 16,533
<ALLOWANCES> 8,305
<INVENTORY> 977
<CURRENT-ASSETS> 15,443
<PP&E> 16,533
<DEPRECIATION> 7,172
<TOTAL-ASSETS> 61,550
<CURRENT-LIABILITIES> 10,227
<BONDS> 11,603
0
0
<COMMON> 32,768
<OTHER-SE> (1,960)
<TOTAL-LIABILITY-AND-EQUITY> 61,550
<SALES> 43,975
<TOTAL-REVENUES> 43,975
<CGS> 30,074
<TOTAL-COSTS> 30,074
<OTHER-EXPENSES> 11,738
<LOSS-PROVISION> 2,983
<INTEREST-EXPENSE> 1,341
<INCOME-PRETAX> (5,419)
<INCOME-TAX> (1,733)
<INCOME-CONTINUING> (3,686)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,686)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> (.55)
</TABLE>
