<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------------------------------
FORM 10-K/A1
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the year ended December 31, 1996
Commission File Number: 34-0-20400
----------------------------------------
UNIVERSAL STANDARD MEDICAL LABORATORIES, INC.
(Exact name of Registrant as specified in its charter)
MICHIGAN 38-2986640
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
26500 NORTHWESTERN HIGHWAY, SOUTHFIELD, MICHIGAN 48076
(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code: (810) 353-1450
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to
Section 12(g) of the Act: COMMON STOCK
8.25% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2006
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.[ ]
The aggregate market value of the voting stock of the Registrant held by
non-affiliates 2,392,857 shares on March 10, 1997 was $9,122,767. For
purposes of this computation only, all directors, executive officers and owners
of more than 5% of the Registrant's voting stock are assumed to be affiliates.
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock as of the latest practicable date: 6,552,768 shares of Common
Stock outstanding as of March 10, 1997.
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE> 2
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the members of the Board of Directors and the
executive officers of the Company and includes information regarding the
individual's age, principal occupation, other business experience,
directorships in other publicly-held companies and term of service with the
Company. The Board of Directors is divided into three classes by the Articles
of Incorporation. At each annual meeting, the shareholders of the Company
elect to three-year terms directors to replace those directors whose terms
expire at that annual meeting. Officers serve at the discretion of the Board
of Directors.
The directors and executive officers of the Company are as follows.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Eugene E. Jennings 43 Chairman of the Board, President, Chief Executive Officer and Director
(term expires in 1997)
Lou Gorga 44 Vice President and Chief Operating Officer
Perry C. McClung 60 Executive Vice President and President of Universal Standard Managed Care, Inc.
Alan S. Ker 45 Vice President, Finance, Chief Financial Officer, Treasurer and Assistant Secretary
John T. Watkins 49 Vice Chairman of the Board of Directors and Director
(term expires in 1997)
Eduardo Bohorquez, Ph.D 50 Director (term expires in 1998)
Anthony A. Bonelli 46 Director (term expires in 1999)
Robert P. DeCresce, M.D. 47 Director (term expires in 1999)
Thomas R. Donahue 35 Director (term expires in 1997)
Thomas W. Gorman 37 Director (term expires in 1999)
P. Thomas Hirsch 46 Director (term expires in 1997)
Joseph J. Vadapalas 42 Director (term expires in 1998)
</TABLE>
2
<PAGE> 3
Mr. Jennings has served as the Chairman of the Board of Directors,
President and Chief Executive Officer of the Company since April 1996. From
November 1991 until March 1996, Mr. Jennings served in various managerial
capacities for AMSCO International, Inc., a manufacturer of medical and
industrial infection control and surgical care equipment and provider of
bio-medical services, and most recently as Corporate Vice President -
International and Bio/Technology and Pharmaceutical Businesses. Mr. Jennings
served as Vice President and General Manager of Stryker Corporation, a
manufacturer of endoscopic medical devices, during 1990 and 1991 and has more
than 16 years of senior executive managerial experience in the health care
industry.
Mr. Gorga has been Vice President and Chief Operating Officer of the
Company since September 1995. Prior to joining the Company, Mr. Gorga was a
clinical laboratory consultant. He was Vice President-General Manager of
Meditrend Consultants, Inc., a clinical laboratory, from 1992 to 1994, was Vice
President, Operations, for the Institute for Laboratory Medicine, a clinical
laboratory, from 1991 to 1992 and served in the same capacity for EnzoLabs,
Inc., a clinical laboratory, from 1989 to 1991. He has also served in a
managerial capacity at MDS Health Group, Inc., Damon Corporation and MetPath,
Inc. Mr. Gorga was involved in a personal bankruptcy which was discharged in
September 1995.
Mr. McClung has been Executive Vice President of the Company and President
of the Company's principal managed care subsidiary since June 1991. Prior to
joining the Company, Mr. McClung served as Vice President of Marketing of the
Company's predecessor from 1984 to May 1991. From 1968 to 1983, Mr. McClung
served in various positions, including Vice President of Auto National
Marketing, with Michigan Blue Cross/Blue Shield.
Mr. Ker has served as Vice President, Finance, and Chief Financial Officer
of the Company since July 1991 and was appointed Assistant Secretary in March
1995. Mr. Ker was appointed Treasurer of the Company in June 1992. Prior to
joining the Company, Mr. Ker had been the Western Regional Controller of Damon
Corporation, a nationally-based clinical laboratory, since January 1985. From
1980 through December 1984, Mr. Ker was the Controller for the U.S. operations
of MDS Health Group, Inc., a worldwide clinical laboratory.
Mr. Watkins has been the Vice Chairman of the Board of Directors since
April 1996. Mr. Watkins was President, Chief Executive Officer and a director
of the Company from February 1993 to April 1996. Mr. Watkins also served as
Chairman of the Board from April 1993 to April 1996. Mr. Watkins was Executive
Vice President, Operations, of the Company from June 1991 to February 1993 and
its Secretary from August 1992 to February 1993. Prior to joining the Company,
he served as Vice President of Operations and a director of the Company's
predecessor from 1984 to May 1991, and of Leeco Diagnostics, Inc., a
manufacturer of medical diagnostic devices, from 1978 to 1988.
Dr. Bohorquez has been a director of the Company since its organization.
He has been the President and Chief Executive Officer of WestSphere Capital
Inc. ("WCI") and the Chief Executive Officer of WestSphere Capital Associates,
L.P. ("WCA"), an investment firm, since their organization in 1989. From
August 1986 to May 1989, he was employed by Ehrlich Bober and Co., Inc., an
investment banking company, as a Managing Director, and from January 1980 to
July 1986 he was employed by The Chase Investment Bank as a Managing Director
of the Corporate Finance Group. Dr. Bohorquez holds a Ph.D in Finance from
3
<PAGE> 4
the University of Wisconsin. From 1983 to 1987, he served as Adjunct Professor
of International Finance at Columbia University School of International Affairs.
Mr. Bonelli has been a director of the Company since June 1992. Mr.
Bonelli has been President and Chief Operating Officer of Neuman Distributors,
Inc., a wholesale distributor of pharmaceutical products, since August 1995.
Previously, he served as President and Chief Operating Officer for Copley
Pharmaceutical, Inc., a worldwide developer and manufacturer of off-patent
generic prescription and over the counter pharmaceuticals, from June 1993 until
November 1994. From September 1989 until June 1993, Mr. Bonelli was Vice
President, Institutional Health Care Strategic Business Unit, for Parke-Davis,
a division of the Warner-Lambert Company, a worldwide pharmaceutical and
consumer products corporation, and prior to that served as Director of
Marketing of Parke-Davis from August 1987 until September 1989. From February
1986 to August 1987, Mr. Bonelli held various positions with Schering-Plough
Corporation, a pharmaceutical manufacturer, including Director, Trade
Development. Mr. Bonelli holds a law degree from the University of San
Francisco and an M.B.A. from Rutgers University.
Dr. DeCresce has been a director of the Company since June 1992. He has
been the Director of Clinical Laboratories for Rush-Presbyterian/St. Luke's
Medical Center in Chicago, Illinois since July 1991. From 1987 to 1991, he was
the Chief of Pathology of Humana Hospital-Michael Reese in Chicago, Illinois.
From 1983 to 1987, he was Vice President for MetPath Incorporated, a division
of Corning, Inc. Dr. DeCresce received an M.D. from Columbia University
College of Physicians and Surgeons in 1975 and an M.B.A. from Columbia
University in 1977.
Mr. Donahue has been a director of the Company since its organization. He
has been a principal of WCA since November 1992 and was a director of WCA from
the time of its organization in 1989 until November 1992. From July 1988 to
May 1989, he was employed by Ehrlich Bober & Co. Inc., an investment banking
firm, as a Senior Associate. From September 1986 through June 1988, Mr.
Donahue was enrolled in the M.B.A. Program at the Wharton School of the
University of Pennsylvania from which he graduated in June 1988. From July
1984 to August 1986, Mr. Donahue was employed by The Chase Investment Bank, the
investment banking subsidiary of The Chase Manhattan Bank, N.A., as an
Associate.
Mr. Gorman has been a director of the Company since November 1992. He has
been a senior investment manager at Signal Capital Corporation, a
Massachusetts-based investment firm ("Signal"), since April 1991. Mr. Gorman
also served as an investment manager at Signal from January 1990 to April 1991
and as Assistant Treasurer at Signal from May 1988 to January 1990. From June
1987 to May 1988, Mr. Gorman served as Manager, Corporate Finance, at General
Motors Corporation.
Mr. Hirsch has served as President and Chief Executive Officer of Path
Lab, Inc., a New England hospital-based clinical laboratory company, since June
1984. From October 1985 until June 1994, Mr. Hirsch was also the President and
Chief Executive Officer of Diagnostic Laboratory Services, Inc., a clinical
laboratory company based in Hawaii. Mr. Hirsch has over 17 years of managerial
experience in the health care industry.
Mr. Vadapalas has been a director of the Company since its organization.
He has been an Executive Vice President of WCI and a Managing Director of WCA
since their organization in 1989. From August 1986
4
<PAGE> 5
to May 1989, he was employed by Ehrlich Bober & Co., Inc. as a director. From
September 1982 to August 1986, he was employed by The Chase Investment Bank as
a director.
WCI and its affiliates beneficially own approximately 37.4% of the
Company's outstanding Common Stock. Certain of the Company's shareholders, who
control a majority of the outstanding shares of Common Stock, have agreed to
vote their shares for the election of Mr. Gorman at the request of Signal
pursuant to a certain Stockholders Agreement dated June 28, 1991. Such right
of Signal expires upon the earlier to occur of June 27, 2001 and the date on
which Signal no longer holds at least 5% of the Common Stock.
SECURITIES REPORTING
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than
10% of a registered class of the Company's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than 10% shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it since January 1, 1996, or written representations from certain
reporting persons that no Form 5 reports were required for those persons, the
Company believes that all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with during
1996, except that Alan Ker, the Treasurer, Vice President Finance and Chief
Financial Officer, filed one late Form 4 report with respect to four options
that were repriced during 1996 and one late Form 5 report with respect to one
option grant; Lou Gorga, the Vice President and Chief Operating Officer, filed
one late Form 4 report with respect to two options that were repriced during
1996 and one late Form 5 report with respect to one option grant; and Perry
McClung, the Executive Vice President, filed one late Form 4 report with
respect to four options that were repriced during 1996.
5
<PAGE> 6
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY
The following table provides summary information concerning compensation
paid or accrued by the Company and its subsidiaries to the Company's Chief
Executive Officer, its three other executive officers, serving as such as of
December 31, 1996, the former Chief Executive Officer and one other former
executive officer (such current and former officers are referred to as the
"Named Officers") for the periods indicated.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND SALARY BONUS OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (#) ($)(a)
- ------------------ ---- ------- -------- ------------ ------
<S> <C> <C> <C> <C> <C>
Eugene Jennings 1996 $174,452 $93,750 300,000 $ 290
Chief Executive Officer,
Chairman and President
Lou Gorga 1996 123,273 --- 80,000(b) 321
Vice President and 1995 46,406 --- 60,000 13,000
Chief Operating Officer
Perry McClung 1996 145,455 --- 85,000(b) 842
Executive Vice President 1995 133,890 --- 10,000 540
1994 113,783 62,500 (c) 50,000 540
Alan Ker 1996 133,600 --- 120,000(b) 548
Vice President, Finance, 1995 130,703 --- 10,000 122
Treasurer and Chief 1994 128,006 --- 50,000 122
Financial Officer
John Watkins 1996 107,955 --- --- 72,000
Vice Chairman (Former Chief
Executive Officer, 1995 149,921 --- 10,000 209
Chairman and President)(d) 1994 188,441 62,500 (c) 50,000 209
Thomas Marquard 1996 124,502 --- 6,000 ---
Vice President, Sales 1995 120,238 --- --- 209
and Marketing Universal 1994 120,619 --- --- 209
Standard Managed Care (e)
</TABLE>
- ------------
(a) Amounts in 1996 represent premiums paid by the Company for term life
insurance policies purchased for such officers and, with respect to Mr.
Watkins, payments in consideration for a covenant not to compete.
(b) Amounts include 40,000, 85,000 and 80,000 options held by Messrs. Gorga,
McClung and Ker, respectively, granted prior to 1996 and repriced during
1996.
(c) Represents a discounted advanced payment made to the executive in
connection with the renegotiation of an employment agreement entered into
in 1991 as part of the acquisition of a business in which the executive
had an ownership interest. The executive's employment agreement was
renegotiated as part of the Company's restructuring program in an effort
to reduce the Company's operating costs. This payment represented a 22%
discount on payments that would otherwise have been due to the executive
through June 1996.
(d) No longer an executive officer of the Company effective April 4, 1996.
(e) No longer an executive officer of the Company effective March 27, 1996.
6
<PAGE> 7
OPTIONS
The following table sets forth information concerning stock option grants
and repricings during 1996 to the Named Officers. Options repricings are
indicated with an asterisk.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
-------------------------------------------------------------
Potential Realizable
Individual Grants Value at Assumed
-------------------------- Annual Rates of
Number of % of Total Stock Price
Securities Options/SARs Appreciation for
Underlying Granted to Exercise or Option Term(a)
Options/SARs Employees in Base Price Expiration ------------------------
Name Granted (#) Fiscal Year ($/sh) Date 5% 10%
- ---- ------------- ----------- ------------ ------------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Eugene Jennings 181,832(b) 23.10% $3.63 3/12/06 $1,075,152 $1,712,000
118,168(b) 14.95% $3.39 4/3/06 $ 652,518 $1,039,026
Lou Gorga 12,500(c)* 1.58% $4.75 9/11/05 $ 89,182 $ 142,007
2,500(c)* 0.32% $4.75 12/5/05 $ 17,836 $ 28,401
22,500(d)* 2.85% $4.75 9/11/05 $ 160,528 $ 255,613
2,500(e)* 0.32% $4.75 12/5/05 $ 17,836 $ 28,401
40,000(f) 5.06% $3.93 9/22/06 $ 256,062 $ 407,736
Perry McClung 15,000(c)* 1.90% $4.75 11/5/02 $ 107,018 $ 170,409
7,500(c)* 0.95% $4.75 8/2/03 $ 53,509 $ 85,204
5,000(c)* 0.63% $4.75 12/6/04 $ 35,673 $ 56,803
2,500(c)* 0.32% $4.75 12/5/05 $ 17,836 $ 28,401
2,500(g)* 0.32% $4.75 8/2/03 $ 17,836 $ 28,401
5,000(h)* 0.63% $4.75 12/6/04 $ 35,673 $ 56,803
7,500(i)* 0.95% $4.75 12/5/05 $ 53,509 $ 85,204
10,000(j)(k)* 1.27% $4.75 (k) $ 71,346 $ 113,606
10,000(j)(l)* 1.27% $4.75 (l) $ 71,346 $ 113,606
10,000(j)(m)* 1.27% $4.75 (m) $ 71,346 $ 113,606
10,000(j)(n)* 1.27% $4.75 (n) $ 71,346 $ 113,606
Alan Ker 10,000(c)* 1.27% $4.75 11/5/02 $ 71,346 $ 113,606
7,500(c)* 0.95% $4.75 8/2/03 $ 53,509 $ 85,204
5,000(c)* 0.63% $4.75 12/6/04 $ 35,673 $ 56,803
2,500(c)* 0.32% $4.75 12/5/05 $ 17,836 $ 28,401
2,500(g)* 0.32% $4.75 8/2/03 $ 17,836 $ 28,401
5,000(h)* 0.63% $4.75 12/6/04 $ 35,673 $ 56,803
7,500(i)* 0.95% $4.75 12/5/05 $ 53,509 $ 85,204
10,000(j)(k)* 1.27% $4.75 (k) $ 71,346 $ 113,606
10,000(j)(l)* 1.27% $4.75 (l) $ 71,346 $ 113,606
10,000(j)(m)* 1.27% $4.75 (m) $ 71,346 $ 113,606
10,000(j)(n)* 1.27% $4.75 (n) $ 71,346 $ 113,606
40,000(f) 5.06% $3.93 9/27/06 $ 256,062 $ 407,736
Thomas Marquard 6,000(f) 0.76% $3.93 9/27/06 $ 38,409 $ 61,160
John Watkins -- -- -- -- -- --
</TABLE>
7
<PAGE> 8
- ----------------
(a) Represents the value of such option at the end of its 10 year term
(without discounting to present value), assuming the market price of
the Common Stock appreciates from the exercise price beginning on the
grant date at an annually compounded rate of 5% or 10%. These
amounts represent assumed rates of appreciation only. Actual gains,
if any, will be dependent on overall market conditions and on the
future performance of the Common Stock. There can be no assurance
that the amount reflected in this table will be achieved. On April
1, 1997, the closing market price of the Common Stock was $3.50,
which was below the respective prices of all the options indicated in
the table, except for certain of Mr. Jennings' options. Hence, if
exercised as of April 1, 1997, none of such options, with the
exception of certain of Mr. Jennings' options, would have any value.
(b) These options were granted under the 1992 Stock Option Plan and
become exercisable in cumulative annual installments of 25% on each
of the first four anniversaries of the grant date or immediately upon
death, disability, change of control or termination of employment
without cause.
(c) These options were repriced on May 6, 1996 and their exercisability
was postponed until May 6, 1997. These options will also become
exercisable immediately upon Employee's death or permanent
disability, or upon a change of control of the Company.
(d) These options were repriced on May 6, 1996. On September 11, 1997,
12,500 of these options become exercisable, and the remainder become
exercisable on September 11, 1998. These options will also become
exercisable immediately upon Employee's death or permanent
disability, or upon a change of control of the Company.
(e) These options were repriced on May 6, 1996 and become exercisable on
December 5, 1997. These options will also become exercisable
immediately upon Employee's death or permanent disability, or upon a
change of control of the Company.
(f) One-half of the options will vest on June 30, 1997 (the "Turn-around
Incentive Options") as follows: one-third of the Turn-around
Incentive Options will vest based upon the achievement of corporate
goals, one-third upon achievement of divisional goals and one- third
upon achievement of individual goals, provided that none of the
Turn-around Incentive Options will vest if the optionee does not
achieve his individual goals, unless the Stock Option Committee
otherwise approves of such vesting. If the Company achieves the 1997
operating plan approved by the Board of Directors, the other half of
the options (the "High Growth Incentive Options") will vest on
December 31, 1997 as follows: a number of High Growth Incentive
Options equal to the number of Turn-around Incentive Options which
vested on June 30, 1997 will vest if the 1997 operating plan is
achieved or, if no Turn-around Incentive Options vested because the
optionee failed to achieve his individual goals by June 30, 1977,
then one-half of the High Growth Incentive Options will vest if the
optionee has met his individual goals by December 31, 1997. Vested
options become exercisable in four equal annual installments
beginning one year from their vesting date.
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<PAGE> 9
(g) These options were repriced on May 6, 1996 and become exercisable on
August 2, 1997. These options will also become exercisable
immediately upon Employee's death or permanent disability, or upon a
change of control of the Company.
(h) These options were repriced on May 6, 1996. On December 6, 1997,
2,500 of these options become exercisable and the remainder become
exercisable on December 6, 1998. These options will also become
exercisable immediately upon Employee's death or permanent
disability, or upon a change of control of the Company.
(i) These options were repriced on May 6, 1996. On December 5, 1997,
2,500 of these options become exercisable, on December 5, 1998 an
additional 2,500 of these options become exercisable and on December
5, 1999, the remainder become exercisable. These options will also
become exercisable upon Employee's death, permanent disability or
change of control of the Company.
(j) These options become exercisable in full if the optionee dies or
becomes permanently disabled, or upon certain changes of control of
the Company.
(k) These options also become exercisable in full if, prior to December
6, 1997, the closing price of the Common Stock exceeds $7.00 per
share (previously, $12.00 per share) for at least 20 of 30
consecutive trading days; otherwise, the options will generally
expire on such date. If the options become exercisable as a result
of an event described in note (j) or in the preceding sentence, the
options expire on December 5, 2004 or three months following
termination of employment, whichever is earlier. A portion of the
options become exercisable if the optionee's employment is terminated
due to death, disability or a change of control prior to December 6,
1997, based upon the time elapsed from the grant date to the
termination date as a percentage of the time from the grant date to
December 6, 1997. In such event, the options expire three months
after termination. Upon termination of employment by the Company for
any other reason, the unvested portion of the options will expire and
the vested portion of the options will remain exercisable for a
period of three months following the effective date of termination.
(l) These options also become exercisable in full if, prior to August 6,
1998, the closing price of the Common Stock exceeds $10.00 per share
(previously, $14.00 per share) for at least 20 of 30 consecutive
trading days; otherwise, the options will generally expire on such
date. If the options become exercisable as a result of an event
described in note (j) or in the preceding sentence, the options
expire on December 5, 2004 or three months following termination of
employment, whichever is earlier. A portion of the options become
exercisable if the optionee's employment is terminated due to death,
disability or a change of control prior to August 6, 1998, based upon
the time elapsed from the grant date to the termination date as a
percentage of the time from the grant date to August 6, 1998. In
such event, the options expire three months after termination. Upon
termination of employment by the Company for any other reason, the
unvested portion of the options will expire and the vested portion of
the options will remain exercisable for a period of three months
following the effective date of termination.
9
<PAGE> 10
(m) These options also become exercisable in full if, prior to April 6,
1999, the closing price of the Common Stock exceeds $12.00 per share
(previously, $16.00 per share) for at least 20 of 30 consecutive
trading days; otherwise, the options will generally expire on such
date. If the options become exercisable as a result of an event
described in note (j) or in the preceding sentence, the options
expire on December 5, 2004 or three months following the termination
of employment, whichever is earlier. A portion of the options become
exercisable if the optionee's employment is terminated due to death,
disability or a change of control prior to April 6, 1999, based upon
the time elapsed from the grant date to the termination date as a
percentage of the time from the grant date to April 6, 1999. In such
event, the options expire three months after termination. Upon
termination of employment by the Company for any other reason, the
unvested portion of the options will expire and the vested portion of
the options will remain exercisable for a period of three months
following the effective date of termination.
(n) These options also become exercisable in full if, prior to December
6, 1999, the closing price of the Common Stock exceeds $14.00 per
share (previously $18.00 per share) for at least 20 of 30 consecutive
trading days; otherwise, the options will generally expire on such
date. If the options become exercisable as a result of an event
described in note (j) or in the preceding sentence, the options
expire on December 5, 2004 or three months following termination of
employment, whichever is earlier. A portion of the options become
exercisable if the optionee's employment is terminated due to death,
disability or a change of control prior to December 6, 1999, based
upon the time elapsed from the grant date to the termination date as
a percentage of the time from the grant date to December 6, 1999. In
such event, the options expire three months after termination. Upon
termination of employment by the Company for any other reason, the
unvested portion of the options will expire and the vested portion of
the options will remain exercisable for a period of three months
following the effective date of termination.
10
<PAGE> 11
The following table provides information with respect to unexercised options
held as of the end of 1996 by the Named Officers. There were no options
exercised by the Named Officers during 1996.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
Fiscal Year-End (#) at Fiscal Year-End ($)(a)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Eugene Jennings 0 300,000 0 0
Lou Gorga 0 100,000 0 0
Perry McClung 0 85,000 0 0
Alan Ker 15,213 80,000 0 0
Thomas Marquard 20,213 6,000 0 0
John Watkins 44,332 70,668 0 0
</TABLE>
- ------------
(a) Represents the total gain which would have been realized if all options
were exercised at December 31, 1996. The closing market price at December 31,
1996 was $2.87.
11
<PAGE> 12
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of the Named Officers.
These agreements are described below.
The employment agreement of Mr. Jennings expires on March 12, 1999 and
provides for an annual salary (subject to adjustment for inflation) of
$250,000. In connection with the commencement of his employment, the Company
also agreed to reimburse Mr. Jennings for certain costs and expenses up to
$60,000 relating to his relocation to the State of Michigan and for taxes
imposed on such reimbursements. The contract term will extend automatically
for successive terms of one year unless, at least six months prior to the then
current expiration date, the Company gives notice of its intent not to extend
the term. Upon termination of employment by the Company without cause, Mr.
Jennings generally will be entitled to receive his salary and benefits for a
period of eighteen months if such termination occurs prior to March 12, 1998 or
for twelve months if such termination occurs on or after March 12, 1998. Upon
termination of employment by the Company for cause or as a result of Mr.
Jennings' death, incapacity or violation of the terms of the agreement, the
Company's obligation to pay Mr. Jennings' salary will cease. The agreement
also provides that Mr. Jennings is entitled to participate in the 1994-1996
Executive Compensation Plan.
The employment agreement of Mr. Gorga expires on December 31, 1998 and
provides for an annual salary (subject to adjustment for inflation) of
$125,000. Upon commencement of his employment, Mr. Gorga also received a
payment of $13,000 in connection with his relocation to the State of Michigan.
The contract term will extend automatically for successive terms of one year
unless, at least six months prior to the then current expiration date, the
Company gives notice of its intent not to extend the term. Upon termination of
employment by the Company without cause, Mr. Gorga generally will be entitled
to receive his salary and benefits for a period of the lesser of six months
following the date of his termination or the remaining term of the employment
agreement at the rate in effect as of the date of termination. Upon
termination of employment by the Company for cause or as a result of Mr.
Gorga's death, incapacity or violation of the terms of the agreement, the
Company's obligation to pay Mr. Gorga's salary will cease. The agreement also
provides that Mr. Gorga is entitled to participate in the 1994-1996 Executive
Compensation Plan.
The employment agreement of Mr. McClung expires on June 28, 1999 and
provides for an annual salary based on the level of earnings before interest,
taxes, depreciation and amortization ("EBITDA") for the Company's managed care
operation ("USMC") for each year during the term. The agreement provides that
Mr. McClung will receive a minimum salary of $150,000 during the first year,
which began June 28, 1996, $125,000 (and no more than $400,000) during the
second year and $75,000 (and no more than $300,000) during the third year of
the term. Mr. McClung is entitled to a bonus of $100,000 if USMC's EBITDA from
certain accounts exceeds $4.8 million during each of the years 1996 through
1999. Upon termination of employment without cause by the Company during the
first year of the term, Mr. McClung will receive his salary (reduced by
earnings from subsequent employment) for the remainder of the first year of the
term and for an additional nine months thereafter. Mr. McClung is also
entitled to $125,000, of which $75,000 was payable on or before January 1, 1997
and $50,000 is payable on or before January 1, 1998, in connection with a
covenant not to compete with the Company and its subsidiaries. Upon
termination of employment without cause by the Company
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<PAGE> 13
after the first year of the term, Mr. McClung, is entitled to receive his salary
(reduced by earnings from subsequent employment) until nine months after
termination of employment or until June 28, 1999, whichever occurs first.
Except for the bonus and the covenant not to compete payments, the Company has
no obligation to make further payments if employment is terminated for cause or
due to death, disability or resignation. The agreement also provides that Mr.
McClung is entitled to participate in the Company's other executive compensation
plans.
The employment agreement of Mr. Ker expires on June 30, 1998 and provides
for an annual salary (subject to adjustment for inflation) of $145,000. The
agreement provides that the contract term will extend automatically for
successive terms of one year unless, at least nine months prior to the then
current expiration date, the Company gives notice of its intent not to extend
the term. Upon termination of employment by the Company without cause, Mr.
Ker generally will be entitled to receive his salary and benefits for a period
of nine months. Upon termination of employment by the Company for cause or as
a result of Mr. Ker's death, incapacity or violation of the terms of the
agreement, the Company's obligation to pay Mr. Ker's salary will cease. The
agreement also provides that Mr. Ker is entitled to participate in the
1994-1996 Executive Compensation Plan.
The employment agreement of Mr. Marquard provides for a minimum annual
salary of $125,947, subject to increase by the Company's chief executive
officer (and adjustment for inflation), until the agreement expires on January
1, 1999. Upon termination of Mr. Marquard's employment by the Company for
cause or as a result of his death, disability or violation of the terms of the
agreement, the Company's obligation to pay Mr. Marquard's salary will cease.
If Mr. Marquard's employment is terminated without cause, Mr. Marquard
generally is entitled to be paid his salary for nine months and certain
outplacement expenses. The agreement also provides for an annual bonus of up
to $50,000 based upon the level of net revenues generated by the Company from
certain new or expanded managed care contracts.
The employment agreement with Mr. Watkins provides for an annual salary of
$75,000 and expires on June 30, 1997. Upon termination of Mr. Watkins'
employment by the Company for cause or as a result of his death, disability or
violation of the terms of the agreement, the Company's obligation to pay Mr.
Watkins' salary will cease. If Mr. Watkins' employment is otherwise terminated
by the Company, the Company is obligated to pay his salary for the remainder of
the term. Mr. Watkins will also receive payments totaling $120,000, payable in
15 equal monthly installments, which payments began in April 1996, in
connection with his covenant not to compete with the Company during the term of
his employment and for five years thereafter.
In addition, the stock option agreements with Messrs. Jennings, Gorga,
McClung, Ker, Watkins and Marquard provide that such options become
immediately exercisable in full upon a change of control of the Company and, in
certain cases, upon termination without cause. The Company's unwillingness to
extend the term of Mr. Watkins' employment agreement for additional one-year
periods (except where his employment has been terminated as a result of his
death, disability, violation of the terms of the agreement or termination of
his employment for cause) will constitute a termination of Mr. Watkins'
employment without cause for purposes of his stock option agreements, other
than the perfomance-based options granted in 1994, which will remain
outstanding and continue to become exercisable in accordance with the terms of
such options.
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<PAGE> 14
Under the 1994-1996 Executive Compensation Plan, a quarterly bonus pool is
established in an amount equal to 7% of the Company's EBITDA (earnings before
interest, taxes, depreciation and amortization) for such quarter, less base
salary payments to the senior executive officers for such quarter. The bonus
pool, if any, is distributed quarterly to senior executive officers. The plan
provides for a cap on annual bonus payments made under the plan and requires
any negative quarterly bonus amount to be accumulated and offset by positive
quarterly bonus amounts before bonuses for future periods may be paid.
DIRECTORS COMPENSATION
During 1996, the non-employee directors were not paid any cash
compensation for services as members of the Company's Board of Directors and
were only reimbursed for travel and related expenses. In 1997, the Board may
elect to reinstate payment of directors and committee fees.
The Directors Stock Option Plan (the "Directors Plan") provides for the
making of stock option grants to directors who are not employees of the Company
or its subsidiaries and who are not beneficial owners of more than 5% of the
shares of Common Stock outstanding ("5% Owners") or employees, officers or
affiliates of a 5% Owner. Eligible directors who are first elected to the
Board after March 1995 will receive an initial grant of an option to purchase
15,000 shares in addition to annual grants during the term of the Directors
Plan at an exercise price equal to the fair market value per share of the
Common Stock on the grant date (as calculated under the Directors Plan). In
addition, on the date of each annual meeting during the term of the Directors
Plan, each eligible director will receive an option to purchase 10,000 shares
at a price equal to the fair market value per share of the Common Stock on the
grant date (as calculated under the Directors Plan). Messrs. Bonelli and
Hirsch and Dr. DeCresce each received an option to purchase 10,000 shares at
$5.47 per share during 1996 under the Director's Plan. All options granted
under the Directors Plan become exercisable in equal annual installments on
each of the first four anniversaries of the grant date or immediately upon a
"change of control" or "involuntary removal" from the Board of Directors (as
such terms are defined in Directors Plan).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Joseph Vadapalas, Eduardo Bohorquez and Robert DeCresce served on the
Compensation Committee of the Board of Directors of the Company during 1996.
None of these individuals was an employee of the Company during 1996.
Pursuant to the terms of a management advisory and consulting agreement
between WCA and the Company which terminated in December 1992. The Company has
an outstanding obligation to WCA in the amount of approximately $395,000. WCA
is a 5% Owner and is controlled by WCI. Dr. Bohorquez is the chief executive
officer of WCA and Mr. Vadapalas is a managing director of WCA.
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<PAGE> 15
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table set forth information as of April 1, 1997, unless
otherwise indicated, with respect to the beneficial ownership of Common Stock
by each director and nominee, each of the Named Officers, all current directors
and current executive officers as a group and all other persons known by the
Company to beneficially own more than 5% of the outstanding shares of Common
Stock (each, a "5% Owner").
<TABLE>
<CAPTION>
Number Percent
Name (a) Of Shares (b) of Class (c)
- -------- ------------- ------------
<S> <C> <C>
Eduardo Bohorquez 2,480,517 (d) 37.4
Anthony A. Bonelli 27,747 (e) *
Robert P. DeCresce 35,747 (f) *
Thomas R. Donahue 0 -
Lou Gorga 15,000 (g) *
Thomas W. Gorman 584,899 (h) 8.9
P. Thomas Hirsch 15,000 (i) *
Eugene E. Jennings 80,000 (j) 1.2
Joseph J. Vadapalas 2,480,517 (d) 37.4
John T. Watkins 214,218 (k) 3.3
Perry C. McClung 132,363 (l) 2.0
Alan S. Ker 47,578 (m) *
Thomas Marquard 22,383 (n) *
Portfolio Investment Company Limited 2,178,223 (o) 33.2
WestSphere Capital, Inc. 2,480,517 (d) 37.4
WestSphere Capital Associates, L.P. 2,480,517 (d) 37.4
Anixter Corporation 774,899 (p) 11.8
The Kaufmann Fund, Inc. 1,842,857 (q) 24.0
All current directors and executive
officers as a group (12 persons) 3,633,069 (r) 47.3
</TABLE>
- ------------
*Less than one percent
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(a) The address of each of WestSphere Capital Associates, L.P. ("WCA"),
55 E. 59th Street, 13th Floor, New York, New York 10017, WestSphere
Capital, Inc. ("WCI") and Messrs. Bohorquez, Vadapalas and Donahue is
c/o WCA, 55 E. 59th Street, 13th Floor, New York, New York 10017.
The address of Portfolio Investment Company Limited ("PICL") is P.O.
Box 309, 63 SMB, Grand Cayman, Cayman Islands, B.W.I. The address
of Mr. Gorman and Signal Capital Corporation is 55 Ferncroft Road,
Danvers, Massachusetts 01923. The address of Anixter Corporation is
Two North Riverside Plaza, Chicago, Illinois 60606. The address of
The Kaufmann Fund Inc. is 140 E. 45th Street, 43rd Floor, New York,
New York 10017.
(b) The column sets forth shares of Common Stock which are deemed to be
"beneficially owned" by the persons named in the table under Rule
13d-3 of the Securities and Exchange Commission ("SEC"), including
shares issuable under options or warrants exercisable within 60 days
of April 1, 1997 or upon conversion of the Company's 8.25%
Convertible Subordinated Debentures Due 2006 ("Debentures"). Each of
the persons named in the table has sole voting and investment power
with respect to all shares beneficially owned by them, except as
described in the following footnotes.
(c) For purposes of calculating the percentage of Common Stock
beneficially owned, the shares issuable to such person under stock
options or warrants exercisable within 60 days of April 1, 1997 or
upon conversion of Debentures owned by such person are considered
outstanding and added to the shares of Common Stock actually
outstanding.
(d) Information is based on a Schedule 13D filed by PICL and certain
related entities on September 30, 1996. Amount includes 2,178,223
shares owned by PICL, as well as 219,175 shares and a currently
exercisable warrant for 83,117 shares which shares and warrants are
owned by certain other affiliates of WCA and WCI. Pursuant to
certain management agreements, WCA has the authority to direct the
voting power of the shares of the Company owned by these entities.
WCI is the general partner of WCA and therefore may also be deemed to
be the beneficial owner of such shares. WCA and WCI disclaim this
beneficial ownership. Messrs. Bohorquez and Vadapalas are principals
of WCA and directors of WCI and therefore may be deemed to be
beneficial owners of such shares. Messrs. Bohorquez, Donahue and
Vadapalas disclaim beneficial ownership of these shares.
(e) Includes 27,747 shares which may be acquired pursuant to stock
options.
(f) Includes 32,747 shares which may be acquired pursuant to stock
options and 3,000 shares owned by Dr. DeCresce's minor sons as to
which shares Dr. DeCresce disclaims beneficial ownership.
(g) Included 15,000 shares which may be acquired pursuant to stock
options.
(h) Includes 584,899 shares owned by Signal Capital Corporation for which
Mr. Gorman is a senior investment manager. Excludes 190,000 shares
owned by Anixter International Inc., the parent corporation of Signal
Capital Corporation. Mr. Gorman disclaims beneficial ownership of
all such shares. See note (p).
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<PAGE> 17
(i) Includes 15,000 shares which may be acquired pursuant to stock
options.
(j) Includes 75,000 shares which may be acquired pursuant to stock
options.
(k) Includes 44,332 shares which may be acquired pursuant to stock
options.
(l) Includes 30,000 shares which may be acquired pursuant to stock
options.
(m) Includes 40,213 shares which may be acquired pursuant to stock
options and 1,500 shares as to which Mr. Ker shares beneficial
ownership with his spouse.
(n) Includes 20,213 shares which may be acquired pursuant to stock
options and 100 shares as to which Mr. Marquard shares beneficial
ownership with his spouse.
(o) Such shares are subject to a management agreement with WCA. See note
(d). Such shares are also pledged to secure certain obligations of
PICL.
(p) Information regarding Anixter Corporation is based on the Schedule
13D filed by Anixter Corporation on or about January 31, 1995.
Amount includes 190,000 shares owned directly and 584,899 shares
owned by its subsidiary, Signal Capital Corporation.
(q) Information regarding The Kaufmann Fund is based on the Schedule 13G
filed by the Fund as of December 31, 1995 and information obtained
verbally from The Kaufman Fund. Includes 1,142,857 shares which may
be acquired upon conversion of Debentures.
(r) Includes a total of 363,156 shares which may be acquired pursuant to
options and warrants. See also footnotes (d) through (m) above.
None of the directors or executive officers beneficially own any
Debentures.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's former laboratory and headquarters in Southfield, Michigan
was leased from Brace Place Associates, of which Mr. Watkins, a director and
former executive officer, is a general partner. This lease expired in
September 1996. The aggregate rental payment under this lease was
approximately $362,000 in 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment to this report to be
signed on its behalf by the undersigned, thereto duly authorized.
UNIVERSAL STANDARD MEDICAL
LABORATORIES, INC.
By: /S/ALAN S. KER
Alan S. Ker
Vice President Finance, Treasurer
and Chief Financial Officer
Dated: April 29, 1997
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