Securities and Exchange Commission
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, for Use of the
[ ] Definitive proxy statement Commission Only (as permitted
[ ] Definitive additional materials by Rule 14a-6(e)(2))
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14A-12
UNIVERSAL STANDARD HEALTHCARE, INC.
(Name of Registrant as Specified In Its Charter)
Gail A. Goldfarb, Esq.
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any party of the fee is offset as provided by Exchange
Act Rule 1-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form of Schedule and the date
of filing.
(1) Amount Previously Paid:
(2) Form Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Universal Standard Healthcare, Inc.
, 1998
To Our Shareholders:
You are invited to attend the 1998 Annual Meeting of Shareholders
which will take place at the Holiday Inn Crowne Plaza, 8000 Merriman Road,
Romulus, Michigan on Thursday, June 11, 1998. The meeting will start
promptly at 1:00 p.m., local time.
The attached notice of the meeting and Proxy Statement describe the
items of business to be transacted: (i) the election of two directors, (ii)
the approval of an amendment to the Company's Articles of Incorporation to
increase the number of shares of Common Stock authorized from 20,000,000 to
40,000,000, (iii) the approval of an amendment to the Company's Articles of
Incorporation to authorize for issuance by the Board of Directors up to
10,000,000 shares of Preferred Stock, and (iv) such other business as may
properly come before the meeting or any adjournment thereof. After the
formal business session, there will be a report to the shareholders on the
progress of the Company along with a discussion period.
I look forward to seeing you at the Annual Meeting and hope you will
make plans to attend. Whether or not you plan to attend the meeting, I urge
you to sign, date and return your proxy in the addressed envelope enclosed
for your convenience so that as many shares as possible may be represented
at the meeting. No postage is required if the envelope is mailed in the
United States. Returning the proxy will not affect your right to attend the
meeting or your right to vote in person.
Sincerely,
EUGENE E. JENNINGS
Chairman of the Board,
President and Chief Executive
Officer
Universal Standard Healthcare, Inc.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on June 11, 1998
Southfield, Michigan
, 1998
To the Shareholders of Universal Standard Healthcare, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of
Universal Standard Healthcare, Inc. will be held at the Holiday Inn Crowne
Plaza, 8000 Merriman Road, Romulus, Michigan on Thursday, June 11, 1998, at
1:00 p.m., local time, for the following purposes:
1. To elect two directors of the Company to hold office until
the 2001 Annual Meeting of Shareholders or until their successors are
elected and qualified;
2. To approve an amendment to the Company's Restated Articles
of Incorporation to increase the number of shares of Common Stock authorized
for issuance from 20,000,000 to 40,000,000.
3. To approve an amendment to the Company's Articles of
Incorporation to authorize for issuance, from time to time, up to 10,000,000
shares of Preferred Stock, without par value, in such amounts, in one or
more classes or series, and with such designations, preferences, limitations
and relative rights for each class or series as the Board of Directors of
the Company shall determine and to make certain related changes; and
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Shareholders of record on May 4, 1998, will be eligible to vote at
this meeting. The stock transfer books of the Company will not be closed,
but only shareholders of record at the close of business on such date will
be entitled to notice of and to vote at the meeting.
By order of the Board of Directors,
THOMAS S. VAUGHN
Secretary
YOUR VOTE IS IMPORTANT. PLEASE DATE, SIGN AND MAIL THE ENCLOSED FORM OF
PROXY IN THE ACCOMPANYING ADDRESSED ENVELOPE AT YOUR EARLIEST OPPORTUNITY.
Universal Standard Healthcare, Inc.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Universal Standard
Healthcare, Inc. (the "Company") to be used at the Annual Meeting of
Shareholders, and at any adjournment thereof, to be held on Thursday, June
11, 1998, at the Holiday Inn Crowne Plaza, 8000 Merriman Road, Romulus,
Michigan beginning at 1:00 p.m., local time. The address of the principal
executive offices of the Company is 26500 Northwestern Highway, Southfield,
Michigan 48076. This Proxy Statement and the accompanying form of proxy,
which is being solicited by the Board of Directors, will be first sent or
given to shareholders on or about May 19, 1998.
Only holders of record of the Company's Common Stock at the close of
business on May 4, 1998 (the "Record Date") will be entitled to notice of
and to vote at the Annual Meeting or any adjournment thereof. Shareholders
of record on the Record Date are entitled to one vote per share on any
matter that may properly come before the Annual Meeting. As of the Record
Date, a total of 6,569,513 shares of Common Stock were issued and
outstanding and entitled to vote at the Annual Meeting. The presence,
either in person or by properly executed proxy, of the holders of a majority
of the outstanding shares of Common Stock is necessary to constitute a
quorum at the Annual Meeting.
A proxy may be revoked at any time before it is exercised by
delivering written notice to the Secretary of the Company, executing and
delivering a later dated proxy or voting in person at the Annual Meeting.
Unless revoked, the shares represented by each duly executed, timely
delivered proxy will be voted in accordance with the specifications made.
If no specifications are made, such shares will be voted for the election of
directors and for each of the amendments to the Articles of Incorporation as
proposed in this Proxy Statement. The Board of Directors does not intend to
present any other matters at the Annual Meeting. However, should any other
matters properly come before the Annual Meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the proxy in
accordance with their best judgment. For purposes of determining the number
of votes cast with respect to the election of directors, only those cast
"for" are included. Abstentions and withheld votes are counted only for
purposes of determining whether a quorum is present at the Annual Meeting
and broker non-votes are not counted for any purpose. Abstentions and
broken non-votes will have the effect of a vote against the two proposals to
amend the Company's Articles of Incorporation.
All costs of solicitation of proxies will be borne by the Company.
In addition to solicitation by mail, the officers and employees of the
Company, who will receive no extra compensation therefor, may solicit
proxies personally or by telephone. The Company will reimburse brokerage
houses, custodians, nominees and fiduciaries for their expense in mailing
proxy material to principals.
INFORMATION ON SECURITIES
The following table set forth information as of April 1, 1998,
unless otherwise indicated, with respect to the beneficial ownership of
Common Stock by each director and nominee, each executive officer named in
the Summary Compensation Table under "Proposal 1 - Nominees for Election as
Directors - Executive Compensation," all current directors and 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").
Number Percent
Name(a) of Shares(b) of Class(c)
- ------ ----------- ----------
Eduardo Bohorquez 2,480,515 (d) 37.3
Anthony A. Bonelli 37,747 (e) *
Robert P. DeCresce 45,747 (f) *
Thomas R. Donahue 0 -
Thomas W. Gorman 584,899 (g) 8.9
P. Thomas Hirsch 25,000 (h) *
Eugene E. Jennings 173,750 (i) 2.6
Joseph J. Vadapalas 2,480,515 (d) 37.3
Lou Gorga 30,000 (j) *
Alan S. Ker 55,078 (k) *
Perry C. McClung 139,863 (l) 2.1
Anixter International, Inc. 774,899 (m) 11.8
The Kaufmann Fund, Inc. 1,842,857 (n) 23.9
Portfolio Investment Company Limited 2,178,223 (o) 33.2
WestSphere Capital, Inc. 2,480,515 (d) 37.3
WestSphere Capital Associates, L.P. 2,480,515 (d) 37.3
All current directors and executive
officers as a group (12 persons) 3,547,599 (p) 50.6
- ------------
* Less than one percent
(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 International,
Inc. 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 currently or
within 60 days of April 1, 1998 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 currently or within 60 days of April
1, 1998 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 WCL. 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. A
pledge of 219,175 of these shares was made to a bank as security for
the Company's line of credit.
(e) Includes 37,747 shares which may be acquired pursuant to stock
options.
(f) Includes 42,747 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) 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 (m).
(h) Includes 25,000 shares which may be acquired pursuant to stock
options.
(i) Includes 168,750 shares which may be acquired pursuant to stock
options.
(j) Includes 30,000 shares which may be acquired pursuant to stock
options. All such options have since expired due to Mr. Gorga's
termination of employment.
(k) Includes 47,713 shares which may be acquired pursuant to stock
options and 7,365 shares as to which Mr. Ker shares beneficial
ownership with his spouse.
(l) Includes 37,500 shares which may be acquired pursuant to stock
options.
(m) Information regarding Anixter International, Inc. is based on the
Schedule 13D filed by Anixter International, Inc. on or about
January 31, 1995. Amount includes 190,000 shares owned directly and
584,899 shares owned by its subsidiary, Signal Capital Corporation.
(n) Information regarding The Kaufmann Fund is based on the Schedule 13G
filed by the Fund as of December 31, 1995. Includes 1,142,857
shares which may be acquired upon conversion of Debentures.
(o) Such shares are subject to a management agreement with WCA. See
note (d). All of such shares are also pledged to secure certain
obligations of PICL.
(p) Includes a total of 447,574 shares which may be acquired pursuant
to options and warrants. See also footnotes (d) through (l) above.
None of the directors or executive officers beneficially own any
Debentures.
PROPOSAL 1
NOMINEES FOR ELECTION AS DIRECTORS
The Company's Articles of Incorporation divide the Company's
directors into three classes, the terms of which expire as set forth below.
At each annual meeting, the shareholders of the Company will elect to three-
year terms directors to replace those directors whose terms expire at that
annual meeting. The term of office of directors elected at this year's
Annual Meeting will continue until the 2001 Annual Meeting.
The following sets forth information as to each nominee for election
at the Annual Meeting and each director continuing in office, including his
age, present principal occupation. other business experience during the last
five years, directorships in other publicly held companies, membership on
committees of the Board of Directors and period of service as a director of
the Company. The Board of Directors recommends a vote FOR each of the
nominees for election. The election of directors requires a plurality of
the votes cast.
If any nominee at the time of election is unable to serve, or
otherwise is unavailable for election, and if other nominees are designated,
the persons named in the accompanying form of proxy will have discretionary
authority to vote or refrain from voting in accordance with their judgment
on such other nominees. If any nominees are substituted by the Board of
Directors, the persons named in the accompanying form of proxy intend to
vote for such nominees. Management is not aware of the existence of any
circumstance which would render any nominee named hereunder unavailable for
election. All nominees are currently directors of the Company.
Nominees For Election to the Board of Directors For a Term Expiring in 2001
Eduardo Bohorquez, Ph.D, 51, Dr. Bohorquez has been a director of
the Company since its organization. He has been the President and Chief
Executive Officer of WCI and the Chief Executive Officer of WCA, each 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, the investment banking subsidiary of
The Chase Manhattan Bank, N.A., as a Managing Director of the Corporate
Finance Group. Dr. Bohorquez holds a Ph.D in Finance from the University of
Wisconsin.
Joseph J. Vadapalas, 43, 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 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, the investment banking subsidiary of The Chase Manhattan
Bank, N.A., as a director.
Directors Whose Terms Expire in 1999
Anthony A. Bonelli, 47, Mr. Bonelli has been a director of the
Company since June 1992. In January 1998, Mr. Bonelli was appointed Chief
Operating Officer of Vita Quest, International, Inc. ("Vita Quest"), a
custom developer, manufacturer and marketer of vitamins and nutritional
supplements, and was appointed President of Vita Quest's Garden State
Nutritional Division and President of Windmill Consumer Products Division.
Previously, he served as President and Chief Operating Officer of Neuman
Distributors, Inc., a wholesale distributor of pharmaceutical products,
from August 1995 until December 1997. Mr. Bonelli 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.
Robert P. DeCresce, M.D., 48, 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.
Thomas W. Gorman, 38, 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 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.
WCI and its affiliates and certain of the Company's other
shareholders have agreed to vote their shares for the election of Mr. Gorman
at the request of Signal Capital Corporation pursuant to a certain
Stockholders Agreement dated June 28, 1991. Such right of Signal Capital
Corporation expires upon the earlier to occur of June 27, 2001 and the date
on which Signal Capital Corporation no longer holds at least 5% of the
Common Stock.
Directors Whose terms Expire in 2000
Thomas R. Donahue, 36, 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. Mr. Donahue has served as Executive Vice
President of WestSphere Equity Investors, L.P., an affiliate of WCA, since
January 1996. From July 1988 to May 1989, he was employed by Ehrlich Bober
& Co. Inc., an investment banking firm, as a Senior Associate.
P. Thomas Hirsch, 47, Mr. Hirsch has been a director of the Company
since October 1994. 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 18 years of managerial experience in the health care industry.
Eugene E. Jennings, 44, Mr. Jennings has been Chairman of the Board,
President and Chief Executive Officer since April 1996. From November 1991
to 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 biomedical
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.
Director Compensation
During 1997, the non-employee directors were not paid any cash
compensation for their services as members of the Company's Board of
Directors and were only reimbursed for travel and related expenses.
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 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 $3.61 per share during 1997 under the Directors
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).
Board Committees and Attendance
The Company's Board of Directors has an Audit Committee, a
Compensation Committee and a Stock Option Committee. The Audit Committee,
which met three times during 1997, oversees actions taken by the Company
relating to its financial matters and its independent auditors, recommends
the engagement of auditors and reviews the Company's financial statements.
The members of the Audit Committee are Messrs. Donahue and Bonelli and Dr.
DeCresce. The Compensation Committee, which met two times during 1997,
approves the compensation of executives of the Company and makes
recommendations to the Board of Directors with respect to standards for
setting compensation levels. The members of the Compensation Committee are
Messrs. Vadapalas and Hirsch and Drs. Bohorquez and DeCresce. The Stock
Option Committee, which met three times during 1997, administers the 1992
Stock Option Plan, Employee Stock Purchase Plan and the Directors Stock
Option Plan. The members of the Stock Option Committee are Dr. DeCresce and
Mr. Hirsch. See "Proposal 1 - Nominees for Election as Directors -
Executive Compensation" for the report of the Compensation Committee on
executive compensation practices and policies. In addition to formal
meetings, from time to time the Compensation Committee and the Stock Option
Committee informally discuss issues or matters under consideration and take
formal action by unanimous written consent. The Company's Board of
Directors met six times during 1997. Except for Mr. Bonelli and Dr.
Bohorquez, each director attended 75% or more of the total number of
meetings of the Board and committees of which he was a member in 1997.
Executive Officers
The executive officers of the Company as of the date of this Proxy
Statement are listed and described below. Executive officers serve at the
discretion of the Board of Directors.
Name Age Position
Eugene E. Jennings 44 Chairman of the Board, President, Chief
Executive Officer and Director
Robert J. Helbling 52 Vice President and Chief Operating Officer
of Universal Diagnostics
Alan S. Ker 46 Vice President, Finance, Chief Financial
Officer, Treasurer and Assistant Secretary
Perry C. McClung 61 Executive Vice President and President of
Universal Standard Healthcare of Delaware,
Inc.
Imtiaz H. Sattaur 35 Vice President - Chief Information Officer
Mr. Jennings' business experience is described under "Directors
Whose Terms Expire in 2000."
Mr. Helbling has been Vice President and Chief Operating Officer of
Universal Diagnostics, the Company's laboratory division, since February
1998. Prior to joining the Company, Mr. Helbling served as Vice President,
Distribution, of St. Jude Medical, Inc., a medical device company, from
January 1996 to December 1997 and as President of Cardiac Assist, a
division of St. Jude Medical, Inc., from May 1992 to December 1995. Mr.
Helbling was employed by Surgitek, a division of Bristol-Myers Squibb, as
President from 1986 to 1992 and as Vice President of Operations from 1984 to
1986. Surgitek sells implantable surgical devices to urologists and plastic
surgeons.
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 United States operations of MDS Health Group, Inc., a
worldwide clinical laboratory.
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 MML, Inc., 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. Sattaur has been Vice President - Chief Information Officer of
the Company since joining the Company in May 1997. Prior to joining the
Company, Mr. Sattaur was employed by RiskAlert, Inc., a national
risk/quality software and information consulting company and a subsidiary
of the Aon Corporation, an insurance brokerage company, as President, from
January 1993 to January 1997 and as Vice President/ National Director from
February 1991 through January 1993.
COMPENSATION COMMITTEE INTERLOCKS AND CERTAIN TRANSACTIONS
Joseph Vadapalas, Eduardo Bohorquez, Robert DeCresce and Thomas
Hirsch served on the Compensation Committee of the Board of Directors of the
Company during 1997. None of these individuals was an employee of the
Company during 1997.
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. In addition, in March 1998, 219,175 shares of Common Stock
beneficially owned by affiliates of WCA and WCI were pledged to a bank as
security for the Company's bank line of credit in connection with an
amendment of the bank line of credit agreement. 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.
EXECUTIVE COMPENSATION
Summary
The following table provides summary information for the periods
indicated concerning compensation paid or accrued by the Company and its
subsidiaries to the Company's Chief Executive Officer and its three other
executive officers serving as such as of December 31, 1997 who earned more
than $100,000 in salary and bonus during 1997 (the "Named Officers").
Long Term
Compensation
Awards
Securities
Annual Compensation Underlying All Other
Name and Salary Bonus Options/SARs Compensation
Principal Position Year ($) ($) (#) $(a)
- ------------------ ---- -------- ------ ------------ -----------
Eugene Jennings 1997 $256,450 $ - 75,000 $ 88,643
Chairman of the 1996 174,452 93,750 300,000 17,930
Board, President
and Chief Executive
Officer (b)
Perry McClung 1997 156,197 - 40,000 75,854
Executive 1996 145,455 - 85,000 (c) 842
Vice President 1995 133,890 - 10,000 540
Alan Ker 1997 141,911 - 20,000 553
Vice President, 1996 133,600 - 120,000(c) 548
Finance, Treasurer, 1995 130,703 - 10,000 122
Chief Financial
Officer
Lou Gorga 1997 127,026 - - 489
Former Vice President 1996 123,273 - 80,000(c) 321
and Chief Operating 1995 46,406 - 60,000 13,000
Officer(d)
(a) Amounts in 1997 represent premiums paid by the Company for term life
insurance policies purchased for such officers. Mr. Jennings'
amount also includes $87,948 in reimbursements for temporary
housing, real estate commissions, moving expenses and the loss on
the sale of his former home incurred in connection with his
relocation to Michigan. In addition, Mr. McClung received a payment
of $75,000 in connection with a covenant not to compete contained in
his June 1996 employment agreement and continued in his June 1997
employment agreement.
(b) Mr. Jennings joined the Company as Chairman of the Board, President
and Chief Executive Officer in April 1996.
(c) 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.
(d) No longer an executive officer of the Company effective January 19,
1998.
The following table sets forth information concerning stock option
grants during 1997 to the Named Officers.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Potential Realizable
Individual Grants Value at Assumed
Number of % of Total Annual Rates of
Securities Options/SARs Exercise Stock Price
Underlying Granted to or Base Appreciation for
Options/SARs Employees in Price Expiration Option Term (a)
Name Granted (#) Fiscal Year (S/sh) Date 5% 10%
- ---- ------------ ------------ -------- ---------- ---- ----
Eugene Jennings 75,000(b) 31% 3.94 3/12/07 $481,338 $766,451
Perry McClung 40,000(c) 17% 3.14 5/14/07 $204,589 $325,774
Alan Ker 20,000(d) 8% 3.10 11/11/07 $100,991 $160,812
Lou Gorga - - - - - -
</TABLE>
(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, 1998, the closing market price of the Common Stock was $2.50
which was below the respective prices of all the options indicated
in the table. Hence, if exercised as of April 1, 1998, none of
such 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, subject to Mr.
Jennings' continued employment with the Company.
(c) One half of the options were Turn-Around Incentive Options and one
half were High Growth Incentive Options. The terms of the Turn-
Around Incentive Options were as follows: one-third were to 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 would vest if the optionee did
not achieve his individual goals, unless the Stock Option Committee
otherwise approved of such vesting. The terms of the High Growth
Incentive Options were as follows: The High Growth Incentive Options
would have vested December 31, 1997 if the Company achieved the 1997
operating plan approved by the Board of Directors as follows: the
number of High Growth Incentive Options equal to the number of Turn-
Around Incentive Options which vested June 30, 1997 would vest, or
if no Turn-Around Incentive Options vested because the optionee
failed to achieve his individual goals by June 30, 1997, then one-
half of the High Growth Incentive Options would vest if the optionee
had met his individual goals by December 31, 1997. Vested options
would have become exercisable in four equal annual installments
beginning one year from their vesting date. Six thousand of the
Turn-Around Incentive Options vested June 30, 1997 and are
exercisable in annual increments of 25% beginning June 30, 1998.
The remaining 34,000 options expired in 1997.
(d) These options, which were granted November 11, 1997, vest and become
exercisable in four equal annual installments beginning one year
from the grant date, subject to Mr. Ker's continued employment with
the Company.
The following table provides information with respect to unexercised
options held as of the end of 1997 by the Named Officers. There were no
options exercised by the Named Officers during 1997.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs
Fiscal Year-End(#) at Fiscal Year-End ($)(a)
---------------------- ------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- ------------
Eugene Jennings 75,000 300,000 0 0
Perry McClung 37,500 43,500 0 0
Alan Ker 47,713 63,500 0 0
Lou Gorga 30,000 30,000 0 0
(a) Represents the total gain which would have been realized if all
options were exercised at December 31, 1997. The closing market
price at December 31, 1997 was $2.13.
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
relating to his relocation to the State of Michigan, including temporary
housing, travel, moving expenses, real estate commission and real estate
closing costs, and for taxes imposed on such reimbursements. Mr. Jennings'
employment agreement also provides for a performance bonus plan for the
years 1996 through 1998. For a description of Mr. Jennings' 1997
performance bonus plan, see "Compensation Committee and Stock Option
Committee Report Annual Cash Incentive Opportunities." Under the 1998
performance bonus plan, Mr. Jennings will be eligible to earn up to 100% of
his base salary for each such year as a bonus upon the achievement of
certain performance objectives for 1998. The potential bonus earned under
the bonus plan for 1998 is a direct function of the percentage of the
Company's operating plan achieved during the plan year. The operating plan
for 1998 is the Company's operating plan for such year as mutually agreed
upon by the Board of Directors and Mr. Jennings. The term of the Employment
Agreement 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 certain benefits for a period of twelve
months. 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 employment agreement of Mr. Gorga was to expire on December 31,
1998 and provided for an annual salary (subject to adjustment for inflation)
of $125,000. Upon commencement of his employment in September 1995, Mr.
Gorga also received a payment of $13,000 in connection with his relocation
to the State of Michigan. The contract term was to extend automatically for
successive terms of one year unless, at least six months prior to the then
current expiration date, the Company gave notice of its intent not to extend
the term. Upon termination of employment by the Company without cause, Mr.
Gorga generally would have been entitled to receive his salary and certain
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 would have ceased. Mr. Gorga's employment terminated on
January 19, 1998, and Mr. Gorga will be paid six months of salary and
certain benefits.
The employment agreement of Mr. McClung expires no later than
December 31, 2000 and provides that during the first year of the employment
period, which began June 28, 1997 and ended December 31, 1997, Mr. McClung
would receive a pro rata portion of an annual salary equal to $159,000;
during 1998, Mr. McClung will receive an annual salary of $159,000; during
1999, Mr. McClung will receive an annual salary of $134,000; and during
2000, Mr. McClung will receive a mutually agreed upon annual salary. If
the Company and Mr. McClung are unable to agree on Mr. McClung's salary
during 2000, Mr. McClung's employment with the Company shall terminate,
effective January 1, 2000, and Mr. McClung shall instead serve as a
consultant to the Company during 2000 and shall receive a monthly consulting
fee based upon managed care revenue which will not exceed $6,222. During
the employment period (but not the consulting period), Mr. McClung is
eligible to participate in the same benefit plans as other executive
officers. Mr. McClung participated in the Executive and Key Manager
Compensation Plan for 1997 and is eligible to receive a one-time bonus
during the employment period if managed care revenue from certain accounts
exceeds stated thresholds. In addition, as consideration for his covenant
not to compete with the Company for five years after termination of
employment, Mr. McClung will receive $125,000 (part of which was paid in
January 1997 and the remainder of which was due on or before January 1, 1998
but has not been paid). Upon termination of employment without cause during
the employment period, Mr. McClung, is entitled to receive his salary
(reduced by earnings from subsequent employment or otherwise) for nine
months after termination of employment or until the end of the employment
period, whichever is less. Except for the bonus and non-compete payment, the
Company has no obligation to make further payments if employment is
terminated for cause or due to death, disability or resignation.
The employment agreement of Mr. Ker expires on December 31, 1999 and
provides for an annual salary (subject to adjustment for inflation) of
$153,000. Mr. Ker is eligible to participate in the same benefit and bonus
plans as other executive officers. 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.
In addition, the stock option agreements with Messrs. Jennings,
McClung, Ker and Gorga 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.
Compensation Committee and Stock Option Committee Report
The Compensation Committee of the Board of Directors is responsible
for oversight and administration of the Company's executive compensation
program. The Stock Option Committee of the Board of Directors is
responsible for the administration of the Company's stock option programs.
The Company believes that its long-term success depends on its
ability to attract, retain and motivate top quality executives. The
Compensation Committee and the Stock Option Committee recognize that the
Company's executive compensation program is an essential element in that
process. The Company's executive compensation program reflects the
Company's philosophy that executive compensation should be directly linked
to the Company's performance. The program has been designed to link
executive compensation to Company performance through at-risk compensation
opportunities, both short-term and long-term, in order to adequately reward
executives who contribute to the Company's success.
The Company's executive compensation program consists of base
salary, annual cash incentive opportunities and long-term incentives
represented by stock options. The salary, bonus and other compensation
terms for new executive officers are established by the Compensation
Committee and Stock Option Committee based upon each executive's
qualifications, position and level of responsibility.
Base Salary
The Compensation Committee reviews base salary levels of the
Company's executive officers at least annually and, if appropriate, adjusts
base salary levels consistent with the terms of employment agreements with
the Company's senior executive officers. Similarly, the President and Chief
Executive Officer reviews base salary levels of the Company's other senior
management annually and, if appropriate, adjusts such levels.
During 1997, Eugene Jennings, Chairman of the Board, President and
Chief Executive Officer of the Company received a cost of living increase in
his annual base salary of 2.0%, as required by the terms of his employment
agreement. For a more detailed description of the terms and conditions of
Mr. Jennings' employment with the Company, see "Proposal 1 - Nominees for
Election as Directors - Executive Compensation - Employment Agreements."
Two other executive officers received an increase in their annual
base salaries during 1997 of approximately 6%. These increases in annual
base salaries reflected additional compensation to offset the impact of the
elimination of the Company's practice of providing executives with leased
automobiles, cost of living increases and the efforts of these executives
with respect to the growth of the Company's managed care operations and the
reengineering and cost reduction initiatives implemented during 1996.
The terms of the employment agreements with the Named Officers are
described under "Proposal 1 - Nominees for Election as Directors - Executive
Compensation - Employment Agreements."
Annual Cash Incentive Opportunities
The Compensation Committee endeavors to institute cash incentive
opportunities which will provide significant reward to the Company's senior
executive officers for performance which enhances shareholder value, but
which will result in little or no reward for performance that does not
enhance shareholder value.
Annual cash incentive opportunities have in the past consisted of
two separate components: (i) bonus arrangements based upon the achievement
of individual performance goals, and (ii) bonus arrangements based upon the
achievement of Company and divisional performance goals.
The Compensation Committee established a performance bonus plan for
Mr. Jennings for 1997. Under this plan, Mr. Jennings was eligible to earn
between 25% and 100% of his 1997 annual base salary upon the achievement of
between 90% and 130% of the net income levels set forth in the Company's
Operating Plan for 1997 as approved by the Board of Directors of the Company
(the "1997 Operating Plan"). The Company did not achieve 90% of the 1997
Operating Plan, and so Mr. Jennings did not earn any bonus for 1997 under
this plan.
Under the performance bonus program for 1997 established by the
Compensation Committee for the executive officers, other than Mr. Jennings,
the executive officers could earn between 8.5% and 52.5% of their 1997
annual base salary upon achievement of between 90% and 130% of the 1997
Operating Plan and, in the case of executives principally associated with
one of the Company's divisions (laboratory or managed care), between 90% and
100% of the Company's operating plan for 1997 for that division. The
Company did not achieve 90% of the 1997 Operating Plan or 90% of the 1997
operating plan for either the laboratory or the managed care divisions, and
so the executive officers of the Company did not earn any bonus under this
program during 1997.
Based upon the Company's 1997 financial performance, the
Compensation Committee did not authorize the payment of any other bonuses to
Mr. Jennings or the other executive officers relating to 1997.
Stock Incentive Opportunities
The Company's stock incentive opportunities consist of grants of
stock options under the Company's 1992 Stock Option Plan. The Company's
stock option program permits the executive officers to buy a specific number
of shares of Common Stock, in the future, at or above the fair market value
of such shares on the date an option is granted. Stock options gain value
only to the extent the stock price exceeds the option exercise price. As a
result, options have no value to the Company's executive officers unless the
executive officers are able to improve the Company's operating performance
in a fashion which results in stock price appreciation.
The Stock Option Committee believes that an essential element of the
Company's long-term success is a highly motivated executive team with a
significant financial interest in improving both the Company's short-term
and long-term operating performance. As a result, in the Stock Option
Committee's view, significant stock-based incentive opportunities are a
necessary element of the Company's executive compensation program in order
to encourage the achievement of the Company's long-term operating goals and
to align the interests of the Company's executives with those of its
shareholders.
In connection with the engagement of Mr. Jennings as Chairman of the
Board, President and Chief Executive Officer, the Compensation Committee,
which administered the Company's 1992 Stock Option Plan at the time, agreed
to grant Mr. Jennings options to purchase 75,000 shares of the Common Stock
under the 1992 Stock Option Plan on the first anniversary of his employment
with the Company. These options become exercisable in four equal annual
installments, beginning one year from their date of grant, at an exercise
price equal to the fair market value of the Common Stock, as defined under
the 1992 Stock Option Plan, on the date of grant. These options were
intended to attract Mr. Jennings to the Company, encourage his continued
employment with the Company and provide incentive to improve Company
performance.
In September 1996, the Stock Option Committee adopted an Incentive
Stock Option Award Program ("ISOAP"). The objective of the ISOAP was to
direct and reward behavior consistent with shareholder value creation. The
ISOAP was intended to provide incentives that encourage higher levels of
individual participation, achievement and commitment to both the Company's
short-term and long-term objectives. Under the ISOAP, participants were
given the opportunity to earn options to purchase Common Stock, and so
obtain an equity position in the Company, if they achieve short-term
strategic objectives of the Company. Further, the ISOAP was intended to
encourage participants to remain with the Company for extended periods by
providing that options, once vested, become exercisable over a four year
period.
Under the ISOAP during 1996 and 1997, certain executive officers
(other than Mr. Jennings), officers and managers of the Company were granted
options to purchase shares of Common Stock pursuant to the 1992 Stock Option
Plan. Options to purchase a total of 80,000 and 50,000 shares of Common
Stock were granted to executive officers of the Company under the ISOAP
during 1996 and 1997, respectively, at an exercise price equal to the fair
market value of the Common Stock (as defined under the 1992 Stock Option
Plan) on the date of grant. Generally, one-half of the ISOAP options were
to vest on June 30, 1997 (the "Turn-around Incentive Options") as follows:
one-third of the Turn-around Incentive Options 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 an
optionee's Turn-around Incentive Options would vest if the optionee did not
achieve his or her individual goals, unless the Stock Option Committee
otherwise approved of such vesting. Corporate and divisional goals were
based upon the 1997 Operating Plan. If the Company achieved the 1997
Operating Plan, the other half of the ISOAP options held by an optionee (the
"High Growth Incentive Options") were to 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 or, if no Turn-
around Incentive Options vested because the optionee failed to achieve his
or her individual goals by June 30, 1997, then one-half of the High Growth
Incentive Options if the optionee had met his or her individual goals by
December 31, 1997. Vested options become exercisable in four equal annual
installments beginning one year from their vesting date.
The Company did not achieve the 1997 Operating Plan or the operating
plans for 1997 relating to either the laboratory or managed care divisions
and no participant achieved all of his or her individual goals. As a
result, none of the Turn-around Incentive Options or the High Growth
Incentive Options vested by their terms. However, a number of the
participants in the ISOAP met nearly all of their individual goals and so
the Stock Option Committee approved the vesting of a portion of their Turn-
around Incentive Options, including two executive officers, each of whom
vested in Turn-around Incentive Options to purchase 6,000 shares of Common
Stock.
During 1997, the Stock Option Committee also granted two executive
officers of the Company options to purchase 20,000 shares of Common Stock
each. These options become exercisable in four equal annual installments,
beginning one year from their date of grant, at an exercise price equal to
the fair market value of the Common Stock, as defined under the 1992 Stock
Option Plan, on the date of grant. These options were granted to these
executives in recognition of their efforts in effectively managing the
Company's cash resources during the turn-around of the Company and
implementing improvements to the Company's systems. In addition, these
options, which become exercisable over a four-year period, were intended to
encourage the continued employment of these key executives and to provide
them with incentives to continue to improve Company performance.
Deductibility of Executive Compensation
The Compensation Committee and the Stock Option Committee annually
review the provisions of the Internal Revenue Code and related regulations
of the Internal Revenue Service which restrict deductibility of executive
compensation paid to any of the five most highly compensated executive
officers at the end of any fiscal year to the extent such compensation
exceeds $1,000,000 in any year.
The Company's 1992 Stock Option Plan contains a restriction on the
granting of options so that compensation realized in connection with the
exercise of options would be exempt from the restriction on deductibility
described above. The 1992 Stock Option Plan restricts to 375,000 the number
of shares of Common Stock that may be subject to options granted to any
salaried employee in any two consecutive fiscal years. It is important to
note that while this restriction allows the Stock Option Committee
continuing discretion in establishing executive officer compensation, it
does limit such discretion by restricting the size of option awards which
the Stock Option Committee may grant to any single individual. The
permitted size of the option awards to a single individual is based on the
Board of Directors' determination of the maximum number of option shares
which were required to be granted in a two-year period to attract and retain
a new chief executive officer to the Company.
The Compensation Committee and the Stock Option Committee do not
believe that other components of the Company's compensation program are
likely to result in payments to any executive officer in any year which
would be subject to the restriction on deductibility, and therefore have
concluded that no further action with respect to qualifying such
compensation for deductibility is necessary at this time. The Compensation
Committee and the Stock Option Committee will continue to evaluate the
advisability of qualifying future executive compensation programs for
deductibility under the Internal Revenue Code.
COMPENSATION COMMITTEE: STOCK OPTION COMMITTEE:
EDUARDO BOHORQUEZ, PH.D. ROBERT P. DECRESCE, M.D.
ROBERT P. DECRESCE, M.D. P. THOMAS HIRSCH
P. THOMAS HIRSCH
JOSEPH J. VADAPALAS
Shareholder Return
Set forth below is a graph comparing the cumulative total return on
the Common Stock from December 31, 1992 through December 31, 1997 with the
Standard and Poor's 500 Stock Index (the "S&P 500") and a published industry
index comprised of over 30 companies having an SIC code of 8071 (medical
laboratories). The graph assumes that the value of the investment in the
Common Stock, the S&P 500, and the published industry index was $100 on
December 31, 1992 and that all dividends were reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
Period Since December 31, 1992
FISCAL YEAR ENDING
COMPANY 1992 1993 1994 1995 1996 1997
- ------- ---- ---- ---- ---- ---- ----
UHCI 100 59.70 25.37 25.37 17.16 12.69
INDUSTRY INDEX 100 88.33 81.14 76.56 59.31 49.93
BROAD MARKET 100 110.08 111.54 153.45 188.69 251.64
PROPOSAL 2
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK
AUTHORIZED FOR ISSUANCE
The Board of Directors has approved, and proposes and recommends to
shareholders for their approval, an amendment to the Articles of
Incorporation to authorize the issuance of up to ten million (10,000,000)
shares of preferred stock (the "Preferred Stock").
As of May 4, 1998, there were 6,569,513 shares of the Company's
Common Stock issued and outstanding out of 20,000,000 authorized shares of
Common Stock. As of May 4, 1998, approximately 5,702,273 of the authorized
shares of Common Stock are reserved for issuance pursuant to the Company's
stock option plans, employee stock purchase plan, Debentures and outstanding
warrants and options to purchase Common Stock.
The increase in the number of authorized shares of Common Stock will
provide additional authorized and unissued shares which may be used by the
Company for any proper corporate purpose. Such purposes might include,
without limitation, issuance in public or private sales for cash as a means
of obtaining additional capital for use in the Company's business and
operations, issuance as part or all of the consideration required to be paid
by the Company for acquisition of other business or properties and possible
distributions or dividends to holders of the Common Stock. There are no
transactions under present review by the Board of Directors which would
result in the issuance of the additional shares of Common Stock being
considered for authorization under this proposal, although the Company does
consider from time to time proposals or transactions involving the issuance
of additional shares of Common Stock or instruments convertible into or
exercisable for Common Stock.
Although the Board of Directors would authorize the issuance of
additional shares of Common Stock based on its judgment as to the best
interests of the Company and its shareholders, the issuance of additional
authorized shares would have the effect of diluting the voting power per
share and could have the effect of diluting the book value per share of the
outstanding shares of Common Stock. In addition, increasing the authorized
shares of Common Stock could, in certain instances, render more difficult or
discourage a merger, tender offer, or proxy contest and thus potentially
have an "anti-takeover" effect, especially if additional shares of Common
Stock were issued in response to a potential takeover. Such an effect could
deter certain types of transactions that might be proposed, whether or not
such transactions were favored by the majority of the shareholders, and
could enhance the ability of officers and directors to retain their
positions.
If the amendment to the Articles of Incorporation described in this
Proposal 2 is approved by shareholders, but the amendment to the Articles of
Incorporation described in Proposal 3 is not approved by shareholders, the
text of Article III of the Company's Articles of Incorporation shall be
amended to read in part as follows:
The total number of authorized shares of Common
Stock (hereinafter referred to as "Common Stock") which the
corporation has authority to issue is Forty Million
(40,000,000) shares. A statement of all or any of the
designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the Common
Stock is as follows:
1. The holders of Common Stock are entitled to
receive such dividends as may be declared from time to time
by the Board of Directors.
2. In the event of any liquidation,
dissolution, or winding up of the corporation, the holders
of Common Stock shall be entitled to receive all of the
remaining assets of the corporation available for
distribution.
3. The holders of Common Stock shall have
equal voting and other rights consistent with the MBCA and
each holder of Common Stock is entitled to one (1) vote for
each share so held with respect to all matters voted on by
the holders of the Common Stock of the corporation.
If shareholders approve the amendments to the Articles of
Incorporation described in both Proposal 2 and Proposal 3, Article III and
Article VIIIB of the Company's Articles of Incorporation shall be amended to
read as set forth in Annex A attached to this Proxy Statement.
The affirmative vote of a majority of the votes cast by the holders
of the Common Stock of the Company is required to authorize the proposed
amendment to the Articles of Incorporation described in Proposal 2.
PROPOSAL 3
APPROVAL OF PROPOSAL TO AUTHORIZE PREFERRED STOCK
The Board of Directors has approved, and proposes and recommends to
the shareholders for their approval, an amendment to the Articles of
Incorporation to authorize the issuance of up to ten million (10,000,000)
shares of preferred stock (the "Preferred Stock"). The proposed amendment
would also change provisions of the Articles of Incorporation relating to
confidentiality of shareholder votes, the number of votes required to decide
matters before the shareholders and the shareholder meeting quorum
requirement to reflect the potential issuance of shares of Preferred Stock
having voting rights and to provide the same rights for holders of Preferred
Stock as are provided for holders of Common Stock on these matters. The
number of authorized shares of Common Stock would not be changed by the
amendment. If shareholders approve the amendments to the Articles of
Incorporation described in both Proposal 2 and Proposal 3, Article III and
Article VIIIB of the Company's Articles of Incorporation shall be amended to
read as set forth in Annex A attached to this Proxy Statement. In the event
that the Amendments to the Articles of Incorporation described in Proposal 3
are approved by shareholders, but the amendment to the Articles of
Incorporation described in Proposal 2 is not, Article III and Article VIIIB
of the Company's Articles of Incorporation shall be amended to read as set
forth in Annex A attached to this Proxy Statement, except that the number of
authorized shares of Common Stock set forth in Annex A will remain at the
current number of Twenty Million (20,000,000), rather than the Forty Million
(40,000,000) set forth in Annex A.
If the proposed amendment is approved, the Board of Directors would
be empowered, without further shareholder approval (unless such action or
authorization is required in a specific case by applicable laws or
regulations or stock market rules), to issue the Preferred Stock from time
to time in series having such terms as may then be set by the Board of
Directors by resolution. Such terms will include dividend rates and
liquidation rights and may include sinking fund provisions, call rights,
conversion rights, voting rights, designations, preferences, limitations and
other similar matters for each series of Preferred Stock. The Preferred
Stock will be entitled to a preference over holders of the Common Stock as
to the payment of dividends and distributions upon the liquidation of the
Company. Purchasers of Preferred Stock may require special voting rights
such as the right to approve any merger or sale of, or any repurchase of
Common Stock by, the Company. No preferred stock is presently authorized by
the Company's Articles of Incorporation. After December 31, 2003, the Board
of Directors will not have authority to issue any shares of Preferred Stock
in addition to those outstanding at December 31, 2003, except (i) upon the
exercise of warrants, options or other rights to acquire the same issued or
granted on or prior to December 31, 2003, (ii) pursuant to the terms of
Preferred Stock issued on or prior to December 31, 2003, or (iii) pursuant
to the terms of any resolution authorizing the issuance of Preferred Stock,
and setting forth the rights, qualifications, limitations or restrictions
thereof, approved by the Board of Directors on or prior to December 31,
2003. All shares of Preferred Stock issued and outstanding at December 31,
2003 shall remain issued and outstanding in accordance with the rights,
qualifications, limitations or restrictions of such Preferred Stock approved
by the Board of Directors (as the same may be amended from time to time in
accordance with the terms of such Preferred Stock), provided that the Board
of Directors shall not have the authority to reissue such shares after
December 31, 2003 except as set forth in the prior sentence.
The Preferred Stock will provide authorized and unissued shares
which may be used by the Company for any proper corporate purpose. Such
purposes may include, without limitation, issuance in public or private
sales for cash as a means of obtaining additional capital for use in the
Company's business and operations, and issuance as part or all of the
consideration required to be paid by the Company for the acquisition of
other businesses or properties. The Company is actively seeking a party
willing to acquire capital stock of the Company, which could include
Preferred Stock, in a private placement on negotiated terms and conditions.
However, there are no specific transactions currently under review by the
Board of Directors which would result in the issuance of the additional
shares of Preferred Stock being considered for authorization under this
proposal.
The nature and amount of consideration which would be received by
the Company upon issuance of the authorized shares of Preferred Stock is not
now known, nor is it possible to state the precise effect of the
authorization of the Preferred Stock upon the rights of the holders of the
Company's Common Stock until the Board of Directors determines the
respective preferences, limitations and relative rights of the holders of
each series of the Preferred Stock. Such effects, however, could include:
(a) reduction of the amount otherwise available for payment of dividends on
Common Stock, to the extent dividends are payable on any issued shares of
Preferred Stock; (b) restrictions on dividends on Common Stock; (c) dilution
of the voting power per share of the Common Stock to the extent that the
Preferred Stock has voting rights; (d) conversion into Common Stock at such
prices as the Board determines, which could include issuance at below fair
market value or original issue price of the shares of Common Stock and
dilution of the book value per share of the outstanding shares of Common
Stock; and (e) the holders of Common Stock not being entitled to share in
the Company's assets upon liquidation until satisfaction of any liquidation
preference granted to the Preferred Stock. Holders of Common Stock have no
preemptive rights to participate in any issuance of Preferred Stock.
Although the proposed amendment is not intended to be an anti-
takeover measure, shareholders should note that, under certain
circumstances, the shares of Preferred Stock could be used to make any
attempt to gain control of the Company or the Board of Directors more
difficult or time-consuming. Any of the shares of Preferred Stock could be
privately placed with purchasers who might side with the Board in opposing a
hostile takeover bid. It is possible that such shares could be sold with or
without an option, on the part of the Company, to repurchase such shares, or
on the part of the purchaser, to put such shares to the Company.
The amendment authorizing the issuance of Preferred Stock might be
considered to have the effect of discouraging an attempt by another person
or entity, through the acquisition of a substantial number of shares, to
acquire control of the Company, since the issuance of shares of Preferred
Stock could be used to dilute the stock ownership of a person or entity
seeking to obtain control and to increase the cost to a person or entity
seeking to acquire a majority of the voting power of the Company. If so
used, the effect of the authorized shares of Preferred Stock might be to
deprive shareholders of an opportunity to sell their stock at a temporarily
higher price as a result of a tender offer or the purchase of shares by a
person seeking to obtain control of the Company or to assist incumbent
management in retaining their present positions.
Section B of Article VIII of the Company's Articles of Incorporation
is being amended to provide that shares entitled to cast a majority of the
votes at a meeting of shareholders shall constitute a quorum at such meeting
and the vote of a majority of the shares entitled to vote at the meeting
present in person or represented by proxy and voting shall decide any
question brought before the meeting, except as otherwise provided by the
Articles of Incorporation, Bylaws or by law. Because the Articles of
Incorporation currently only provide for Common Stock, the Articles of
Incorporation provide that a quorum shall be deemed present at a meeting of
the shareholders if a majority of the Common Stock is present at such
meeting and that the vote of holders of a majority of the Common Stock
present in person or by proxy and voting at the meeting shall decide any
question brought before the meeting, except as otherwise provided by the
Articles of Incorporation, Bylaws or by law. The provision is being revised
to reflect the authorization of the Preferred Stock. It is possible that
shares of Preferred Stock could be issued that would have voting rights and
so should be included in determination of the shares required to constitute
a quorum at a meeting of shareholders where such shares are to be voted and
the number of shares required to be voted to decide any question brought
before such meeting.
Section B of Article VIII of the Company's Articles of Incorporation
is also being amended to provide that all proxies, ballots, votes and
tabulations that identify the particular vote of holders of capital stock of
the Company shall be confidential. Because the Articles of Incorporation
currently only provide for Common Stock, the Articles of Incorporation
provide such right of confidentiality only for the Common Stock. The
amendment is being proposed so as to extend such right of confidentiality to
the Preferred Stock.
The affirmative vote of holders of a majority of the outstanding
shares of Common Stock is required for approval of the proposed amendment to
the Articles of Incorporation described in Proposal 3. Consequently,
abstentions and broker non-votes will have the same effect as a vote against
the proposal. The Board of Directors recommends a vote "FOR" the proposal.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 1997, 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 1997, except as previously
reported.
INDEPENDENT ACCOUNTANTS
The accounting firm of BDO Seidman LLP acted as independent
accountants to audit the financial statements of the Company and its
consolidated subsidiaries for 1996 and 1997. The Audit Committee has not
yet completed its evaluation of the 1997 audit process. As a result, the
selection of the independent accountants to audit the financial statements
of the Company for 1998 will be made by the Board of Directors at a later
date. Representatives of BDO Seidman LLP are expected to be present at the
Annual Meeting and to be available to respond to appropriate questions.
Such representatives will have the opportunity to make a statement if they
desire to do so.
On December 31, 1996, the Audit Committee of the Board of Directors
of the Company determined not to retain the firm of Coopers & Lybrand LLP to
audit the Company's financial statements for the year ended December 31,
1996. Coopers & Lybrand LLP had been the Company's principal accountants
for the purpose of auditing its financial statements since the organization
of the Company.
The reports of Coopers & Lybrand LLP on the financial statements for
the years ended December 31, 1995 and 1994 contained no adverse opinion or
disclaimer of opinion, nor were they modified as to uncertainty, audit scope
or accounting principles, except as set forth below. An accountant's report
of Coopers & Lybrand LLP contained in a Form S-2 Registration Statement
filed by the Company with the Securities and Exchange Commission on December
8, 1995 contained a paragraph regarding uncertainty relating to the
Company's tax indemnification obligations to MML, Inc., the business of
which was acquired by the Company in 1991. Coopers & Lybrand LLP reissued
this accountant's report on January 16, 1996, in connection with Amendment
No. 1 to such Registration Statement without inclusion of the foregoing tax
indemnification paragraph due to a change in accounting standards, effective
January 1, 1996, which permitted the removal of this paragraph in Coopers &
Lybrand LLP's accountant's report as long as adequate disclosure regarding
the same was contained in the financial statements to which the accountant's
report related. Since the Company's financial statements relating to such
accountant's report contained such disclosure, Coopers & Lybrand LLP was no
longer required to include the foregoing tax indemnification paragraph in
its accountant's report relating to such financial statements.
The Company has had no disagreements with Coopers & Lybrand LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which disagreements, if not
resolved to the satisfaction of Coopers & Lybrand LLP, would have caused it
to make reference to the subject matter of the disagreements in connection
with its reports relating to the auditing of the Company's financial
statements for the years ended December 31, 1995 and 1994 or during the
period January 1, 1996 to December 31, 1996.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1999
Annual Meeting of Shareholders must be received by the Secretary of the
Company at the Company's principal executive offices on or before January
11, 1999. Shareholders who wish to submit proposals for action or nominees
for election at a meeting of shareholders must comply with certain notice
and informational requirements set forth in the Company's bylaws.
SHAREHOLDERS WHO ARE PHYSICIANS
Pursuant to Federal and State law, physicians are prohibited from
referring, recommending or arranging for a referral of clinical laboratory
services for which payment may be made under Medicare to the Company if such
persons or any member of their immediate family has an investment,
compensation or other financial relationship with the Company, including the
ownership of Common Stock, All owners of Common Stock who are physicians or
have physicians in their immediate family must report the physician's name
and I.D. number to the Company.
By order of the Board of Directors,
Thomas S. Vaughn, Secretary
, 1998
ANNEX A
PROPOSED AMENDMENT TO ARTICLES OF INCORPORATION
RESOLVED, that Article III of the Company's Articles of
Incorporation be amended and restated to read as follows:
ARTICLE III
Capital Stock
The total authorized shares of stock which the corporation shall have
authority to issue is as set forth below. The shares of stock of the
corporation may be issued from time to time for such consideration as may be
fixed from time to time by the Board of Directors.
COMMON STOCK
The total number of authorized shares of Common Stock (hereinafter
referred to as "Common Stock") which the corporation has authority to issue
is Forty Million (40,000,000) shares. A statement of all or any of the
designations and the powers, preferences and rights, and the qualifications,
limitations or restrictions of the Common Stock is as follows:
1. The holders of Common Stock are entitled to receive such
dividends as may be declared from time to time by the Board of Directors,
subject to the prior and superior rights of any outstanding Preferred Stock
of the corporation.
2. In the event of any liquidation, dissolution, or winding up
of the corporation, the holders of Common Stock shall be entitled to receive
all of the remaining assets of the corporation available for distribution,
subject to the prior and superior rights of any outstanding Preferred Stock
of the corporation.
3. The holders of Common Stock shall have equal voting and
other rights consistent with the MBCA and each holder of Common Stock is
entitled to one (1) vote for each share so held with respect to all matters
voted on by the holders of the Common Stock of the corporation.
PREFERRED STOCK
The total number of authorized shares of Preferred Stock
(hereinafter referred to as "Preferred Stock") which the corporation has
authority to issue is Ten Million (10,000,000) shares. The Board of
Directors of the corporation is authorized to issue shares of Preferred
Stock from time to time in one or more series of such number of shares with
such distinctive serial designations and (a) may have such voting powers,
full or limited, or may be without voting powers; (b) may be subject to
redemption at such time or times and at such prices; (c) may be entitled to
receive dividends (which may be cumulative or non-cumulative) at such rate
or rates, on such conditions, and at such times and payable in preference
to, or in such relation to, the dividends payable on any other class or
classes or series of shares; (d) may have such rights upon the dissolution
of, or upon any distribution of the assets of, the corporation; (e) may be
made convertible into, or exchangeable for, shares of the same or any other
class or classes, or of any other series of the same or any other class or
classes, of shares of the corporation, at such price or prices or at such
rates of exchange, and with such adjustments; and (f) may have such other
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, all as shall hereafter be stated and
expressed in the resolution or resolutions providing for the issue of each
such series of Preferred Stock from time to time adopted by the Board of
Directors of the corporation pursuant to authority so to do which is hereby
expressly vested in the Board of Directors. Such resolutions, when filed,
shall constitute an amendment to these Articles of Incorporation.
Notwithstanding the foregoing, no shares of Preferred Stock, may be issued
by the Board of Directors after December 31, 2003, except for share of
Preferred Stock issued (i) upon the exercise of warrants, options or other
rights to acquire Preferred Stock issued or granted on or prior to December
31, 2003, (ii) pursuant to the terms of Prefered Stock issued on or prior to
December 31, 2003, or (iii) pursuant to the terms of any resolution
authorizing the issuance of Preferred Stock, and setting forth the rights,
qualifications, limitations or restrictions thereof, approved by the Board
of Directors on or prior to December 31, 2003. All shares of Preferred
Stock issued and outstanding at December 31, 2003 shall remain issued and
outstanding in accordance with the rights, qualifications, limitations or
restrictions of such Preferred Stock approved by the Board of Directors (as
the same may be amended from time to time in accordance with the terms of
such Preferred Stock), provided that the Board of Directors shall not have
the authority to reissue such shares after December 31, 2003 except as set
forth above in the prior sentence.
FURTHER RESOLVED, that Section B of Article VIII of the Company's
Articles of Incorporation be amended and restated to read as follows:
B. Special meetings of the shareholders of the corporation may
be called by the Board of Directors, such person or persons as may be
authorized to call a special meeting by the corporation's Bylaws, or holders
of a majority of the issued and outstanding shares of the Common Stock.
Shares entitled to cast a majority of the votes at a meeting of shareholders
shall constitute a quorum at such meeting of shareholders. When a quorum is
present or represented by proxy at any meeting, the vote of the holders of a
majority of shares entitled to vote at the meeting present in person or
represented by proxy and voting shall decide any question brought before the
meeting, except as otherwise provided by these Articles of Incorporation,
the Bylaws or by law. All proxies, ballots, votes and tabulations that
identify the particular vote of holders of capital stock of the corporation
shall be confidential and shall not be disclosed except (i) to independent
election inspectors appointed by the corporation, who shall not be
directors, officers, or employees of the corporation, (ii) as required by
law, or (iii) when expressly requested by the voting shareholder.
