<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998 Commission File Number 34-0-20400
UNIVERSAL STANDARD HEALTHCARE, INC.
Michigan 38-2986640
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Attn: Alan S. Ker, Chief Financial Officer
26500 Northwestern Highway, Suite 400, Southfield, Michigan 48076
(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (248) 358-0810
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Number of shares of common stock, no par value, outstanding as of May 4, 1998:
6,569,513.
<PAGE> 2
UNIVERSAL STANDARD HEALTHCARE, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
at March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of 4
Income for the three months ended
March 31, 1998 and 1997
Condensed Consolidated Statements of 5
Cash Flows for the three months ended
March 31, 1998 and 1997
Notes to Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of
Operations
Part II. OTHER INFORMATION 13
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item I. Financial Statements
UNIVERSAL STANDARD HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $939 $1,252
Accounts receivable, net of allowance for contractual
adjustments and uncollectible accounts of $9,504
and $11,974 at March 31, 1998 and
December 31, 1997, respectively 9,506 8,488
Inventory 924 894
Prepaid expenses and other 801 526
------- -------
Total current assets 12,171 11,160
Property and equipment, net 9,062 8,780
Intangible assets, net 18,514 18,713
Other assets 1,578 1,522
------- -------
Total assets $41,324 $40,175
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $4,210 $1,039
Accounts payable 6,257 6,360
Accrued liabilities 5,073 6,480
------- -------
Total current liabilities 15,540 13,879
Long-term debt, net of current portion 19,792 20,108
Other liabilities 3 0
------- -------
Total liabilities 35,335 33,987
------- -------
Common stock, no par; 20,000,000 shares
authorized; 6,602,950 shares issued and outstanding 32,888 32,889
Retained earnings (deficit) (26,899) (26,701)
------- -------
Total stockholders' equity 5,989 6,188
------- -------
Total liabilities and stockholders' equity $41,324 $40,175
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 4
UNIVERSAL STANDARD HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------- -------
<S> <C> <C>
Net laboratory service revenue:
Fee-for-service $8,791 $9,422
Managed care 6,941 4,080
------- -------
Total net revenue 15,732 13,502
Operating expenses:
Laboratory 10,767 9,081
Selling, general and administrative 3,230 2,724
Provision for doubtful accounts 488 813
Depreciation 680 616
Amortization 256 340
------- -------
Total operating expenses 15,421 13,574
------- -------
Operating income (loss) 310 (72)
Interest expense 522 416
Other income, net (13) (17)
------- -------
Income (loss) before income taxes (198) (471)
Income taxes (benefit) 0 38
------- -------
Net income (loss) ($198) ($509)
======= =======
Net income per share ($0.03) ($0.08)
Average shares outstanding and
common equivalent shares 6,529 6,599
EBITDA $1,247 $883
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 5
UNIVERSAL STANDARD HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------- -------
<S> <C> <C>
Net cash provided by (used in) operating activities ($2,099) $8
------- -------
Cash flows from investing activities:
Purchase of property and equipment (213) (238)
Restricted cash investment 0 (75)
Other investing activities 0 0
------- -------
Net cash used in investing activities (213) (314)
------- -------
Cash flows from financing activities:
Payments on long-term debt (294) (429)
Long-term/Short-term borrowings 2,401 0
Payments of financing costs (115) (19)
Other financing activities 7 (3)
------- -------
Net cash provided by (used in) financing activities 1,999 (452)
------- -------
Net increase (decrease) in cash and cash equivalents (313) (757)
Cash and cash equivalents, beginning of period 1,252 2,227
------- -------
Cash and cash equivalents, end of period $939 $1,470
======= =======
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
<PAGE> 6
UNIVERSAL STANDARD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
In the opinion of management, the condensed consolidated financial statements
include all adjustments, consisting of normal recurring items, necessary for a
fair presentation of financial position and results of operations. The results
of operations are not necessarily indicative of the results which may be
expected for the full year.
2. Income Taxes
The effective income tax rate of (0.0%) for the three months ended March 31,
1998 is less than the statutory rate of 34% principally due to the Company's
operating loss. Under applicable accounting rules, $67,320 of tax benefits
relating to the first quarter 1998 loss could not be recorded in 1998. This loss
is treated as a net operating loss carry forward for accounting purposes and may
be used to offset future profits of the Company.
3. Loss Per Share
Loss per share has been computed by dividing net loss by the weighted average
number of shares of common stock outstanding. The per share amounts reflected in
the consolidated statements of operations are presented in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share";
the amounts of the Company's "basic" and "diluted" earnings per share (as
defined in SFAS No. 128) are the same.
4. Contingencies
The Company has from time to time experienced compliance reviews, including
reviews of its billing practices, by its third-party payors. The Company has not
yet received final determination notices or decision letters relating to
compliance reviews conducted by one of its largest third-party payors. The
ultimate effect, if any, of these compliance revenues cannot be determined at
this time and no liability has been accrued by the Company.
During 1996, the Company received notification from the Internal Revenue Service
(IRS) proposing adjustments to the company's federal income taxes totaling
approximately $3.3 million for the years 1991-1994. The proposed adjustments
related to the timing of certain bad debt deductions, claim expense accruals and
the deductibility of certain "sign-on" bonuses and non-compete payments made in
connection with an acquisition. The Company has filed a written protest with the
IRS appeals office regarding this matter.
6
<PAGE> 7
There can be no assurance that the Company will resolve this dispute with the
IRS in a manner favorable to the Company. The failure to resolve this dispute
with the IRS in a manner favorable to the Company would result in a current
period charge to earnings and would have a material adverse effect on the
business, financial condition, including working capital, and results of
operations of the Company. While management believes its liability relating to
these matters, if any, will not be material to the Company, the ultimate effect,
if any, cannot be determined at this time. The foregoing statement may be a
"forward looking statement" within the meaning of the Securities Exchange Act of
1934. The outcome of this dispute with the IRS involves a number of
uncertainties, including those inherent in interpreting and applying Internal
Revenue Code and other federal income tax authority and precedent to actual
transactions, those relating to the valuation of various assets at the time of
the acquisition and those inherent in pursuing any legal action of the type
instituted by the Company. The Company has not accrued a liability relating to
the deficiency assessments or proposed tax adjustments.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
Results of Operations
The following table sets forth, for the periods indicated, the percentage of net
revenue represented by items in the statements of income.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Fee-for-service 56.0% 70.0%
Managed care 44.0% 30.0%
----- -----
Total net revenue 100.0% 100.0%
Laboratory expenses 68.4% 67.2%
Selling, general and administrative expenses 20.5% 20.2%
Provision for doubtful accounts 3.1% 6.0%
Depreciation and amortization 6.0% 7.1%
----- -----
Operating income (loss) 98.0% (0.5%)
Interest expense 3.3% 3.1%
Other income, net (0.1%) (0.1%)
Income taxes 0.0% 0.3%
----- -----
Net income (loss) (1.2%) (3.8%)
===== =====
EBITDA* 7.9% 6.6%
===== =====
Net cash provided by operating activities** (1.3%) .1%
===== =====
</TABLE>
* EBITDA represents earnings before interest, taxes, depreciation, amortization
and other (income) expense. The Company and laboratory industry analysts use
EBITDA as a method of measuring and comparing the financial performance of
clinical laboratory companies, many of which were formed by combining with and
acquiring other clinical laboratory companies, because it eliminates the effects
of goodwill amortization and acquisition expenses on net income. EBITDA should
not be considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flows as a measure of the Company's
liquidity.
* * Net cash provided by operating activities is determined in accordance with
generally accepted accounting principles and is included in the Company's
Condensed Consolidated Statements of Cash Flows. The amount for each period is
determined by adjusting net income for the period for non-cash expense items,
including restructuring and special charge, depreciation and amortization,
extraordinary item and deferred income taxes, and for increases and decreases in
asset and liability items other than those relating to financing and investing
activities.
8
<PAGE> 9
Net Revenue. The Company's net revenue is generated from managed care programs,
with major employers, union and government benefit plans, and from traditional
laboratory fee-for-service business. In the Managed Care Programs, for a fixed
monthly payment, the Company is the designated provider of substantially all
non-hospital clinical laboratory testing which may be ordered by a covered
person's physician of choice and, in some cases, medical equipment and
appliances. In the fee-for-service business, the Company charges a fee based
upon the type of test requested by the patient's physician.
Total net revenue was $15.7 million in the first quarter of 1998, compared to
$13.5 million in the first quarter of 1997. The increase in total net revenue
was principally due to increases in the managed care revenues from the General
Motor Company contract which started January 1, 1998.
Managed care revenue increased to $6.9 million for the first quarter of 1998
from $4.1 million for the first quarter of 1997, an increase of $2.9 million, or
70.1%. The increase in managed care revenue for the first quarter of 1998 was
primarily due to the General Motors Corporation contract and, to a lesser
extent, national implementation of Ford Motor Company and Chrysler Corporation
laboratory programs beginning January 1, 1998. As a percentage of total net
revenue, managed care revenue represented 44% for the first quarter of 1998 and
30% for the first quarter of 1997.
Fee-for-service revenue was $8.8 million for the first quarter of 1998 compared
to $9.4 million for the first quarter of 1997. Fee-for-service revenue for the
first quarter of 1998 was down 6.7% as compared to the same quarter last year,
primarily due to a 13.7% decline in fee-for-service patient visits. The decline
in patient visits is principally due to the impact of the Company's previously
announced reductions in unprofitable accounts, industry-wide reductions in
patient testing orders, the sale of the Company's veterinary laboratory testing
business, which did not meet the Company's strategic plan because of its lower
revenue per patient visit, and attrition, including retired physicians and
physician practices sold to hospitals. The revenue decline was partially offset
by an increase in fee-for-service revenue per patient visit, principally due to
changes in payor and test mix and reduction of unprofitable accounts.
The Company's clinical laboratory testing operations are partially affected by
seasonal trends common to the clinical laboratory industry. Testing volume is
lower during the summer months and the year-end holiday periods. These seasonal
effects are partially offset by Managed Care revenues which are not affected by
seasonal trends.
The Company's fee-for-service net revenue continues to be effected by a number
of factors, including the shift toward managed care alternatives, reductions in
reimbursement levels on certain of its laboratory tests and medical necessity
requirement by the Company's third party payors, and changes in payor and test
mixes being experienced by the Company and the clinical laboratory industry
generally.
Laboratory Expenses. Laboratory expenses increased from $9.1 million for the
first quarter of 1997 to $10.8 million for the first quarter of 1998, an
increase of $1.7 million, or 18.6%. This increase is principally due to higher
claims expense related to the managed care revenue increase offset by lower
laboratory expenses from the Company's reengineering and cost reduction efforts.
As a percentage of net revenue, laboratory expenses increased from approximately
67.3% for the first quarter of 1997 to 68.4% for the first quarter of 1998. The
Company attributes this increase to higher claims expense related to the
increase in managed care revenue, primarily relating to the General Motors
Corporation contract.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $2.7 million for the first quarter of
1997 to $3.2 million for the first quarter of 1998, an increase of $.5 million,
or 18.6%. As a percentage of net revenue, selling, general and administrative
expenses increased from 20.2% for the first quarter of 1997 to 20.5% for the
first quarter of 1998. These increases are primarily due to increased sales and
marketing expenses related to hiring of additional sales personnel for both the
Company's managed care and fee-for-service divisions.
9
<PAGE> 10
Provision for Doubtful Accounts. The provision for doubtful accounts decreased
from $.8 million in the first quarter of 1997 to $.5 million in the first
quarter of 1998. The decrease of $.3 million, or 40%, was principally due to the
decline in fee-for-service revenue and more current accounts receivable aging.
As a percentage of net revenue, the provision for doubtful accounts decreased
from 6.0% in the year earlier quarter to 3.1% for the current quarter, mainly
due to a more current accounts receivable aging.
EBITDA. EBITDA was $1.2 million or 7.9% of net revenue for the first quarter of
1998, compared to $.9 million, or 6.6% of net revenue for the first quarter of
1997. The Company attributes this increase principally to the increase in
managed care revenue and the improvement in fee-for-service revenue per patient
visit.
Income Taxes. The effective income tax rate of (0.0%) for the three months ended
March 31, 1998 is less than the statutory rate of 34% principally due to the
Company's operating loss. Under applicable accounting rules, $67,320 of tax
benefits relating to the first quarter 1998 loss could not be recorded in 1998.
This loss is treated as a net operating loss carry forward for accounting
purposes and may be used to offset future profits of the Company.
Liquidity and Capital Resources
The Company's working capital ratio was .8 to 1.0 at March 31, 1998 and .8 to
1.0 on December 31, 1997. Working capital was ($.4) million at March 31, 1998
and ($2.9) million at December 31, 1997 The 1998 increase in working capital is
principally due to an increase in accounts receivable and a reduction in accrued
liabilities. Included in cash and cash equivalents at March 31, 1998 is $587,000
in cash deposits of one of the Company's wholly owned managed care subsidiaries,
which is generally permitted to make distributions to the Company only out of
the subsidiary's earned surplus and to the extent certain other regulatory
requirements are satisfied.
Net cash flow from operating activities was ($2,099,000) for the first quarter
of 1998 compared to $8,000 for the year-earlier quarter, principally due to
payments made on current liabilities and an increase in accounts receivable.
Days outstanding in accounts receivable were 82 days at March 31, 1998,
compared to 68 days at March 31, 1997. The days outstanding have increased due
to slower cash collection of the Company's fee-for-service accounts receivable
and, to a lesser extent, increased managed care customer accounts receivable
due to the timing of periodic customer payments. The Company is continuing its
efforts to reduce days outstanding, principally by working its aged and
unbilled accounts receivable. The decline in accrued liabilities during the
quarter was principally due to reductions in restructuring and reengineering
liabilities and accrued compensation liability.
The ratio of debt to capital was 79.3% at March 31, 1998 and 76.3% at December
31, 1997. This increase is principally due to increased borrowings during the
first quarter of 1998.
As of March 31, 1998, the Company had a credit facility with a bank, which
included a revolving line of credit of $9.5 million, expiring on September 30,
1999, a $2.5 million letter of credit facility expiring on September 30, 1998,
and a $3 million term loan incurred in March 1998 payable on July 15, 1998. All
available borrowings under the revolving line of credit were outstanding at
March 31, 1998. The available borrowings under the revolving line of credit are
reduced by a $1 million letter of credit issued by the bank as an appeal bond in
connection with a $500,000 judgment, plus interest, in a suit pending against
the Company. The credit facility requires the maintenance of certain financial
ratios as follows: current ratio of at least .65 to 1, consolidated funded debt
ratio of not more than 1.15 to 1, consolidated debt service coverage ratio of at
least .70 to 1 at December 31, 1997 through June 29, 1998 and .78 to 1 at June
30, 1998 and thereafter and a consolidated leverage ratio of not greater than 6
to 1 for December 31, 1997 through June 29, 1998 and 5.5 to 1 on June 30, 1998
and thereafter. The Company was in compliance with these financial covenants at
March 31, 1998. Within 30 days after the earlier of July 15, 1998 or the
Company's receipt of the proceeds from a sale of securities or assets in excess
of $5 million, the financial covenants will be revised to levels mutually
agreeable to the Company and the bank.
10
<PAGE> 11
All future line of credit borrowings are at the discretion of the bank lender
and are subject to a borrowing base formula which is based upon accounts
receivable, inventory and equipment balances. Borrowings under the Company's
credit facility are collateralized by substantially all of the Company's assets,
except for assets of the Company's managed care subsidiaries.
The Company expects to incur capital expenditures of approximately $1.0 million
during the remainder of 1998 for new data processing and laboratory equipment.
The Company expects to fund its working capital needs, capital expenditures
required for the operation of its business and debt service requirements from
its operating cash flow, including cash flow from its subsidiary conducting
managed care operations in Michigan, capitalized leases, the sale of
certain assets and/or the proceeds from additional equity financings.
From time to time the Company's managed care subsidiaries may not be able to
make cash distributions to the Company at levels required to fully fund the
Company's operating cash flow needs without violating applicable regulatory
requirements. The Company's managed care subsidiary operating in the State of
Michigan (the "Michigan Managed Care Subsidiary") proposes to enter into an
agreement with the Michigan Insurance Bureau ("MIB") agreeing not to engage in
certain transactions which result in the transfer of cash to affiliates without
30 days prior notice to the MIB and provided that the MIB does not disapprove
such transactions within such 30 day period. As a result, future cash transfers
from the Michigan Managed Care Subsidiary to the Company are likely to be
limited to payments for services rendered and dividends payable from the
Michigan Managed Care Subsidiary's earned surplus, which is more limited than
cash transfers made in the past. Accordingly, the cash needs of the Company's
laboratory operations will have to be funded from their own operations and the
operation of the Company's unregulated managed care subsidiaries. As a result
of the Company's revenue enhancement initiatives and the reengineering and cost
reduction efforts implemented to date and in the future by the Company, the
Company believes its laboratory operations will generate increased levels of
operating cash flow. The Company expects its managed care subsidiaries,
including the Michigan Managed Care Subsidiary, to generate sufficient
operating cash to fund their current operations and planned expansion. The
foregoing statements may be "forward looking statements" within the meaning of
the Securities Exchange Act of 1934. The Company's ability to generate
additional operating cash flow involves a number of uncertainties. For example,
the Company's revenue enhancement initiatives may not be at the level required
to offset decreases in revenues, particularly if third party reimbursement
levels continue to decrease or the Company continues to experience declines in
patient visits or fee-for-service revenue per patient visit as described above
under "Results of Operations - Net Revenue". In addition, the Company's
operating cash flow could be negatively affected by a number of other factors,
including the impact of reengineering/cost reduction efforts on revenues,
potential offsetting increases in operating expenses, variations in cost
savings from, and timing of, the Company's reengineering/cost reduction efforts
from those anticipated, the impact on revenues and expenses of governmental and
third-party payor requirements and reimbursement levels, the impact on the
Company of recent and continuing changes in the health care industry, and the
competitive nature of the laboratory industry.
The Company is also considering the sale of certain assets and to raise
additional equity financing as a means of generating additional cash to support
the Company's operations and satisfy its debt service requirements, in
particular, payments due under the term loan due July 15, 1998. The foregoing
statement may be a "forward looking statement" within the meaning of the
Securities Exchange Act of 1934. The Company's ability to sell certain assets
and to raise additional equity financing is subject to a number of
uncertainties, including the impact that reimbursement and regulatory
requirements associated with the health care industry will have on the parties
potentially interested in purchasing assets or stock of the Company and the
prices they may be willing to offer, the Company's current financial position
and recent operating results, the financial condition of other parties in the
industry and the current economic condition of the healthcare industry in
general.
In the event that the Company's laboratory operations and unregulated managed
care subsidiaries do not generate cash levels to the extent required to fund
their operations and the Company is unable to obtain additional financing to
meet its operating cash needs from possible asset sales or equity financings,
the Company will have to consider disposition of other assets or curtailment of
operations.
11
<PAGE> 12
The Company has from time to time experienced audits, including reviews of its
billing practices, by its third-party payors. The Company has not yet received
final determination notices or decision letters relating to audits conducted by
one of its largest third-party payors. The ultimate effect, if any, of these
audits can not be determined at this time and no liability has been accrued by
the Company.
The Company had received a thirty-day demand letter from the IRS proposing
adjustments to the Company's federal income taxes for the years 1991-1994
totaling $3.3 million. The proposed adjustments principally relate to the
timing of certain bad debt deductions and claim expense accruals and the
deductibility of certain sign on bonus and non-compete payments made in
connection with the MML acquisition. The Company has filed a written protest
with the IRS appeals office regarding this matter. There can be no assurance
that the Company will resolve this dispute with the IRS in a manner favorable
to the Company. The failure to resolve the dispute with the IRS in a manner
favorable to the Company would result in a current period charge to earnings
and would have a material adverse effect on the business, financial condition,
including working capital, and results of operations of the Company. While
management believes its liability relating to these matters, if any, will not
be material to the Company, the ultimate effect, if any, cannot be determined
at this time. The foregoing statement may be a "forward looking statement"
within the meaning of the Securities Exchange Act of 1934. The outcome of the
disputes with the IRS involves a number of uncertainties, including those
inherent in interpreting and applying the Internal Revenue Code and other
federal income tax authority and precedent to actual transactions, those
relating to the valuation of various assets at the time of the acquisition and
those inherent in pursuing any legal action of the type instituted by the
Company. The Company has not accrued a liability relating to the deficiency
assessments or proposed tax adjustments.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
12
<PAGE> 13
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment Letter dated February 10, 1998 between Robert Helbling and the
Company
10.2 Incentive Stock Option Agreement dated February 25, 1998 between Robert Helbling
and the Company
10.3 Form of Incentive Stock Option Agreement - Executive Officer, as amended
10.4 Form of Incentive Stock Option Agreement - Management
10.5 Form of Non-Qualified Stock Option Agreements - Directors
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
</TABLE>
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL STANDARD HEALTHCARE, INC.
(Registrant)
Date: May 14, 1998 By: /s/Eugene E. Jennings
----------------------
Eugene E. Jennings
President and
Chief Executive Officer
Date: May 14, 1998 By: /s/ Alan S. Ker
----------------------
Alan S. Ker
Vice President, Finance,
Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.1 Employment Letter dated February 10, 1998 between Robert Helbing and the Company
10.2 Incentive Stock Option Agreement dated February 25, 1998 between Robert Helbing and the Company
10.3 Form of Incentive Stock Option Agreement - Executive Officer, as amended
10.4 Form of Incentive Stock Option Agreement - Management
10.5 Form of Non-Qualified Stock Option Agreements - Directors
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
February 10, 1998
Mr. Bob Helbling
11 Canterbury Road
Windham, NH 03087
Dear Bob:
We are pleased to offer you employment with Universal Standard Healthcare, Inc.
(UHCI) as Vice President of UHCI and Chief Operating Officer of Universal
Diagnostics, reporting directly to the Chief Executive Officer, Chip Jennings.
The following are the terms of our employment offer:
- BASE SALARY: $135,000.00 per annum paid bi-weekly, with an
increase to $145,000.00 per annum paid bi-weekly at the
completion of your relocation to Michigan.
- BONUS: 1998 bonus potential will be 40% of 1998 Base Salary,
payable after the release of the 1998 fiscal earnings and upon
achievement of goals as approved by the Board of Directors.
Payment is predicated on the Company being profitable. The
payout will be based upon 50% attainment of 1998 Division Net
Income Goals and 50% attainment of Individual Goals which are
to be determined within the first quarter of employment. In
future years, you will be eligible to participate in bonus
plans or executive management approved by the Board of
Directors.
- MEDICAL BENEFITS: The Company will make available to you its
standard medical benefits program. Coverage will be effective
on your date of employment, except as otherwise provided under
the terms of such program.
- 401(K) PLAN: You will be eligible to participate in the
Company's 401(k) plan subject to established terms and waiting
periods.
- STOCK OPTION: You will be granted an option to purchase
160,000 shares of UHCI common stock on the terms set forth in
Exhibit A, attached.
- VACATION: You will be eligible for vacation as provided under
the terms of UHCI's vacation policy.
- RELOCATION: The Company will reimburse you for reasonable
expenses incurred by you in connection with your relocation to
Michigan, up to an aggregate amount and for an aggregate
period determined by the President of the Company in his sole
discretion. Expenses must be pre-approved and competitive
bids, where applicable, attached. The Company will not pay
mortgage points, prorated taxes or utilities or any loss on
the sale of your home. If you terminate employment with the
Company
<PAGE> 2
OFFER LETTER
FEBRUARY 10, 1998
PAGE 2
before the expiration of 12 months following the sale of your
existing home and relocation to a new home in Michigan, you
are required to reimburse the Company for any relocation
expenses paid by the Company on your behalf.
- OTHER BENEFITS: You will also be eligible to participate in
our standard benefit package under the normal terms and
conditions as set forth in our employee handbook and
appropriate Summary Plan Descriptions.
- SEVERANCE: Severance will be paid in accordance with Exhibit
B, attached.
- EMPLOYMENT FORMS: As a condition to your employment, you are
required to execute standard employment forms, Non-Competition
and Restrictive Covenant Agreement, and Confidentiality and
Proprietary Inventions Agreement.
This Offer Letter sets forth certain terms of your employment with the Company,
but does not contractually obligate either you or the Company to continue your
employment with the Company. The employment relationship between the Employee
and the Company is understood to be at-will.
If you agree to the terms of this letter, please sign and date one copy of this
letter and return it to me.
Sincerely,
/s/ Chip Jennings
- -----------------------------------
Chip Jennings
CEO
I accept the terms of your employment offer.
/s/ Bob Helbling
- -----------------------------------
Bob Helbling
February 15, 1998
- -----------------------------------
Date
<PAGE> 3
EXHIBIT A
STOCK OPTIONS: Starting with your first day of employment
with the Company, you will be granted options to
purchase 160,000 shares of Company common stock under
the 1992 Stock Option Plan, on the following terms
and conditions:
(i) The options will become exercisable as
follows:
20,000............. 1 Year after date of
employment
20,000............. 2 Years after date of
employment
20,000............. 3 Years after date of
employment
20,000............. 4 Years after date of
employment
10,000............. Upon Release of 1998
Earnings
20,000............. Upon Release of Each
of 1999, 2000 and 2001
Earnings
10,000............. Upon Release of 2002
Earnings,
subject to your continued employment with
the Company;
(ii) The options will be incentive stock options
to the extent permitted;
(iii) The exercise price of the options will be
set at the average of the closing price for
the date of grant and the 20 trading days
preceding the date of grant;
(iv) All exercisable options will terminate three
months after your termination of employment
with the Company and all unexercisable
options will terminate upon your termination
of employment;
(v) Following the grant of your options, and
subject to the limitations under Sections
2806 and 4999 of the Internal Revenue Code,
if there should be a Change of Control of
the Company while you are employed by the
Company, or your employment is terminated by
the Company, other than for Cause (as
defined in Exhibit B) ("Without Cause
Termination") and you execute a full release
of the Company of any claims you may have
against the Company, (a) if the Change of
Control or Without Cause Termination occurs
prior to the release of the Company's 1998
annual earnings, options to purchase 80,000
shares of Company common stock shall become
immediately exercisable; (b) if the Change
of Control or Without Cause Termination
occurs after the release of the Company's
1998 annual earnings but before the release
of its 1999 annual earnings, Options to
purchase 120,000 shares (less the number of
option shares which
1
<PAGE> 4
are then exercisable, so that a total of
120,000 option shares will then be
exercisable) of Company common stock shall
become immediately exercisable; and (c) if
the Change in Control or Without Cause
Termination occurs after the release of the
Company's 1999 annual earnings, Options to
purchase 160,000 shares (less the number of
option shares which are then exercisable,
so that a total of 160,000 option shares
will then be exercisable) of Company
common stock shall become immediately
exercisable. A "Change in Control" of the
Company shall mean: (a) the sale of all the
assets of the Company to one or more
unaffiliated third parties, (b) the merger
of the Company with an unaffiliated third
party in which the Company is not the
surviving corporation or (c) any person or
group of persons (as defined in Section
13(d) of the Securities Exchange Act of
1934) (other than WestSphere Capital
Associates, L.P. and its affiliates) shall
acquire or control in excess of 51% of the
Company's common stock on a fully-diluted
basis;
(vi) The options shall expire ten years from the
date of grant, except as described in (iv)
above;
(vii) The options will be issued on the Company's
standard form of option agreement for
management.
2
<PAGE> 5
EXHIBIT B
SEVERANCE: If you are terminated by the Company for any reason,
other than for Cause, upon your execution of a full
release of the Company of any claims you may have
against the Company, you shall be entitled to
receive your Base Salary and existing medical
benefits for a period of six months following the
date of termination, less any employment or
self-employment income or compensation earned by you
during such six-month period and provided that the
Company is not required to continue medical benefits
once you are covered by medical benefits in
connection with subsequent employment. For purposes
of COBRA, your employment shall be deemed to have
terminated as of the date of actual termination of
employment irrespective of the continuation of
salary and medical benefits for periods thereafter.
"For Cause" shall mean (i) your (hereinafter
"Employee's") personal dishonesty or willful
misconduct which directly and materially adversely
affects the Company or its affiliates or repeated
acts of personal dishonesty or willful misconduct by
Employee which directly affects the Company; (ii)
Employee's performance of the specific and lawful
resolutions of the Board of Directors in a grossly
incompetent manner inconsistent with the standards
of other employees with similar responsibilities in
the industry or Employee's willful failure to follow
the specific and lawful resolutions of the Board of
Directors and his failure to initiate actions to
cure such performance or failure to perform within
ten (10) days after his receipt of written notice
from the Company specifically identifying the manner
in which Employee has not performed such lawful
directives and to cure such performance or failure
to perform within a reasonable period thereafter;
(iii) breach of fiduciary duty by Employee to the
Company resulting in Employee's personal profit in
any material respect; (iv) criminal conviction of
Employee for violation of any law, rule or
regulation (other than traffic violations or other
misdemeanor offenses); or (v) the issuance against
Employee by any regulatory authority to which the
business of the Company or one of its subsidiaries
is subject, of a final and non-appealable order
against Employee imposing sanctions against Employee
for actions or failures to take action occurring
after the start of the Employee's employment which
Employee knew or should have known violated
applicable law and which materially and adversely
affect the business and operations of the Company.
3
<PAGE> 1
EXHIBIT 10.2
UNIVERSAL STANDARD HEALTHCARE, INC.
AGREEMENT FOR INCENTIVE STOCK OPTION AWARD PROGRAM
February 25, 1998
The Board of Directors (the "Board") of Universal Standard Healthcare,
Inc. (the "Company"), or the committee (the "Committee") designated by the Board
for the purpose of administering the Universal Standard Healthcare, Inc. 1992
Stock Option Plan (the "Plan"), hereby grants to Robert Helbling (the
"Grantee"), the Vice President of the Company, a stock option (the "Option"),
pursuant to the Plan. The Option is subject in all respects to the Plan. Certain
capitalized terms used in this agreement (the "Agreement") which are not defined
herein have the meanings indicated for such terms in Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee to purchase up to
160,000 shares (the "Option Shares") of the Company's Common Stock, no par value
(the "Common Stock"), at an option price per share of $1.91 (the "Option
Price"), subject to the terms and conditions of this Agreement. The Option is
intended to be an Incentive Stock Option.
2. (a) Exercisability. The Option may be exercised and Option Shares
may be purchased at any time and from time to time after the execution of this
Agreement, subject to the vesting limitations imposed by Section 2(b). The
Option Price for Option Shares shall be paid in full in cash or by check by the
Grantee at the time of the delivery of Option Shares, or, at the written
election of the Grantee, payment may be made by (i), to the extent permitted by
the Committee, delivery to the Company of outstanding shares of Common Stock,
(ii), to the extent permitted by the Committee, retention by the Company of one
or more of such Option Shares or (iii) any combination of cash, check, and, to
the extent permitted by the Committee, the Grantee's delivery of outstanding
Shares and retention by the Company of one or more of such Option Shares.
(b) Vesting/Exercisability. The Grantee may only exercise his
Option to purchase Option Shares to the extent that the Option has vested and
become exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest and become
exercisable as follows:
<TABLE>
<S> <C>
20,000 . .. . . . . . . . . . . . . . . . 1 Year after date of this Option
20,000 . . . . . . . . . . . . . . . . . 2 Years after date of this Option
20,000 . . . . . . . . . . . . . . . . . .3 Years after date of this Option
20,000 . . . . . . . . . . . . . . . . . .4 Years after date of this Option
10,000 . . . . . . . . . . . . . . . . . .Upon Release of 1998 Earnings
20,000 . . . . . . . . . . . . . . . . . .Upon Release of Each of 1999, 2000, and 2001 Earnings
10,000 . . . . . . . . . . . . . . . . . .Upon Release of 2002 Earnings
</TABLE>
<PAGE> 2
subject to the Grantee's continued employment with the Company or any Subsidiary
in the position held as of the date of this Agreement or a higher position. In
the event the Grantee no longer continues to be employed by the Company or any
Subsidiary in the position held as of the date of this Agreement or a higher
position, all Options which have not become exercisable at the date of such
event shall immediately terminate. Whether the Grantee has continued to be
employed by the Company or any Subsidiary in the position held as of the date of
this Agreement or a higher position shall be determined by the Committee in its
sole discretion. To the extent not exercised, installments shall accumulate and
the Grantee may exercise them thereafter in whole or in part.
(ii) Death, Disability, Change in Control or Termination. The
Option shall vest and become exercisable with respect to all of the Option
Shares automatically upon the death or permanent disability (as determined by
the Board or the Committee) of the Grantee. Subject to the limitations under
Sections 2806 and 4999 of the Internal Revenue Code, if there should be a Change
of Control of the Company while the Grantee is employed by the Company, or the
Grantee's employment is terminated by the Company, other than for Cause
("Without Cause Termination")("For Cause" shall mean (i) the Grantee's
(hereinafter "Employee's") personal dishonesty or willful misconduct which
directly and materially adversely affects the Company or its affiliates or
repeated acts of personal dishonesty or willful misconduct by Employee which
directly affects the Company; (ii) Employee's performance of the specific and
lawful resolutions of the Board of Directors in a grossly incompetent manner
inconsistent with the standards of other employees with similar responsibilities
in the industry or Employee's willful failure to follow the specific and lawful
resolutions of the Board of Directors and his failure to initiate actions to
cure such performance or failure to perform within ten (10) days after his
receipt of written notice from the Company specifically identifying the manner
in which Employee has not performed such lawful directives and to cure such
performance or failure to perform within a reasonable period thereafter; (iii)
breach of fiduciary duty by Employee to the Company resulting in Employee's
personal profit in any material respect; (iv) criminal conviction of Employee
for violation of any law, rule or regulation (other than traffic violations or
other misdemeanor offenses); or (v) the issuance against Employee by any
regulatory authority to which the business of the Company or one of its
subsidiaries is subject, of a final and non-appealable order against Employee
imposing sanctions against Employee for actions or failures to take action
occurring after the start of the Employee's employment which Employee knew or
should have known violated applicable law and which materially and adversely
affect the business and operations of the Company) and the Grantee executes a
full release of the Company of any claims the Grantee may have against the
Company, (a) if the Change of Control or Without Cause Termination occurs prior
to the release of the Company's 1998 annual earnings, options to purchase 80,000
shares of Company common stock shall become immediately exercisable; (b) if the
Change of Control or Without Cause Termination occurs after the release of the
Company's 1998 annual earnings but before the release of its 1999 annual
earnings, options to purchase 120,000 shares (less the number of option shares
which are then exercisable, so that a total of 120,000 option shares will then
be exercisable) of Company common stock shall become immediately exercisable;
and (c) if the Change in Control or
2
<PAGE> 3
Without Cause Termination occurs after the release of the Company's 1999 annual
earnings, options to purchase 160,000 shares (less the number of option shares
which are then exercisable, so that a total of 160,000 option shares will then
be exercisable) of Company common stock shall become immediately exercisable.
For purposes hereof, a "Change of Control" shall mean the (x) sale of all of the
assets of the Company to an unaffiliated third-party, (y) the merger or
consolidation of the Company with an unaffiliated third-party in which the
Company is not the surviving corporation or (z) any person or group of persons
(as defined in Section 13(d) of the Securities Exchange Act of 1934) (other than
WestSphere Capital Associates, L.P. and its affiliates) shall acquire or control
in excess of 51% of the Company's Common Stock on a fully-diluted basis.
(iii) Termination of Employment. The Grantee shall have the
right to exercise all unexercised Options which have vested as of the Grantee's
Termination Date (as defined in the Plan) for a period of three (3) months
following such Termination Date or such longer period as may be provided in the
Plan or as the Committee may approve in its sole discretion in connection with
such termination; provided, that the Option shall not be exercisable after its
expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent disability of the
Grantee, this Option shall not be transferable.
(b) The Company may assign its rights and delegate its duties
under this Agreement.
4. Conformity with Plan. The Grantee's Option is intended to conform in
all respects with, and is subject to all applicable provisions of, the Plan,
which is incorporated herein by reference. Inconsistencies between this
Agreement and the Plan shall be resolved in accordance with the terms of the
Plan. By executing and returning the enclosed copy of this Agreement, the
Grantee acknowledges his receipt of the Plan and agrees to be bound by all of
other terms of the Plan.
5. Employment. Notwithstanding any contrary oral representations or
promises made to Grantee prior to or after the date hereof, Grantee and the
Company acknowledge Grantee's employment with the Company and its subsidiaries
is and will continue to be subject to the willingness of each to continue such
employment and nothing herein confers any right or obligation on Grantee to
continue in the employ of the Company or its subsidiaries or shall affect in any
way Grantee's right or the right of the Company or its subsidiaries to terminate
Grantee's employment at any time, for any reason, with or without cause.
6. Share Legends. At the sole discretion of the Committee, all
certificates representing any Option Shares subject to the provisions of this
Agreement shall have endorsed
3
<PAGE> 4
thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
7. Expiration. The Option shall expire at 5:00 p.m., New York time, on
the tenth anniversary of the date hereof. In the event that the Grantee shall
cease to be employed by the Company or its subsidiaries for any reason, all
Option Shares which shall not have vested pursuant to Section 2 shall
automatically terminate.
8. Further Actions. The parties agree to execute such further
instruments and to take such further actions as may reasonably be required to
carry out the intent of this Agreement.
9. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company and, subject
to the restrictions on transfer herein set forth, be binding upon Grantee's
heirs, executors, administrators, successors and assigns.
10. Governing Law. This Agreement and all documents contemplated
hereby, and all remedies in connection therewith and all questions or
transactions relating thereto, shall be construed in accordance with and
governed by the laws of the State of Michigan.
* * * * *
Please execute the extra copy of this Agreement in the space below and
return it to the Secretary of the Company to confirm your understanding and
acceptance of the agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD HEALTHCARE, INC.
By: /s/ Alan S. Ker
--------------------------
Its: Chief Financial Officer
4
<PAGE> 5
The undersigned hereby acknowledges having read this Agreement, the
Plan, and the other enclosures to this Agreement, and hereby agrees to be bound
by all provisions set forth herein and in the Plan.
GRANTEE:
/s/ Robert Helbling
-------------------------------------------
(Signature)
Robert Helbling
-------------------------------------------
(Please print name)
<PAGE> 1
EXHIBIT 10.3
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS
[DATE]
_______________________
_______________________
_______________________
Re: Stock Option
The Board of Directors (the "Board") of Universal Standard Healthcare,
Inc. (the "Company"), or the committee (the "Committee") designated by the
Board for the purpose of administering the Universal Standard Healthcare, Inc.
1992 Stock Option Plan (the "Plan"), hereby grants ______to (the "Grantee"),
the _____ of the Company, a stock option (the "Option"), pursuant to the
Plan. The Option is subject in all respects to the Plan. Certain capitalized
terms used in this agreement (the "Agreement") which are not defined herein
have the meanings indicated for such terms in Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee to purchase up to
______ shares (the "Option Shares") of the Company's Common Stock, no par value
(the "Common Stock"), at an option price per share of $______ (the "Option
Price"), subject to the terms and conditions of this Agreement. The Option is
intended to be an Incentive Stock Option.
2. (a) Exercisability. The Option may be exercised and Option Shares
may be purchased at any time and from time to time after the execution of this
Agreement, subject to the vesting limitations imposed by Section 2(b). The
Option Price for Option Shares shall be paid in full in cash or by check by the
Grantee at the time of the delivery of Option Shares, or, at the written
election of the Grantee, payment may be made by (i), to the extent permitted by
the Committee, delivery to the Company of outstanding shares of Common Stock,
(ii), to the extent permitted by the Committee, retention by the Company of one
or more of such Option Shares or (iii) any combination of cash, check, and, to
the extent permitted by the Committee, the Grantee's delivery of outstanding
Shares and retention by the Company of one or more of such Option Shares.
(b) Vesting/Exercisability. The Grantee may only exercise his
Option to purchase Option Shares to the extent that the Option has vested and
become exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest and become exercisable in
installments of 25% of the Option Shares on each of the first, second, third and
fourth anniversaries of the date of this Option, subject to the Grantee's
continued employment with the Company or any subsidiary of the Company
("Subsidiary") in the position held as of the date of this Agreement or a higher
position. In the event the Grantee no longer continues to be employed by the
Company or any Subsidiary in the position held as of the date of this Agreement
or a higher position, all Options which have not become exercisable at the date
of such event shall immediately terminate. Whether
<PAGE> 2
the Grantee has continued to be employed by the Company or any Subsidiary in the
position held as of the date of this Agreement or a higher position shall be
determined by the Committee in its sole discretion. To the extent not exercised,
installments shall accumulate and the Grantee may exercise them thereafter in
whole or in part.
(ii) Death, Disability, Change in Control or Termination. The
Option shall vest and become exercisable with respect to all of the Option
Shares automatically upon (i) the death or permanent disability (as determined
by the Board or the Committee) of the Grantee, (ii) a Change of Control, or
(iii), at the sole discretion of the Committee, a termination of the Grantee's
employment. For purposes hereof, a "Change of Control" shall mean the (x) sale
of all of the assets of the Company to an unaffiliated third-party, (y) the
merger or consolidation of the Company with an unaffiliated third-party in which
the Company is not the surviving corporation or (z) any person or group of
persons (as defined in Section 13(d) of the Securities Exchange Act of 1934)
(other than WestSphere Capital Associates, L.P. and its affiliates) shall
acquire or control in excess of 51% of the Company's Common Stock on a
fully-diluted basis. Notwithstanding the foregoing, the Option shall not vest
and become automatically exercisable as described in Section 2(b)(ii) without
the written consent of the Committee, to the extent such acceleration of vesting
would result, when taken in the aggregate with all other payments from the
Company, in the payment by such Grantee of any excise tax provided for in
Sections 280G and 4999 of the Code.
(iii) Termination of Employment. The Grantee shall have the
right to exercise all unexercised Options which have vested as of the Grantee's
Termination Date (as defined in the Plan) for a period of three (3) months
following such Termination Date or such longer period as may be provided in the
Plan or as the Committee may approve in its sole discretion in connection with
such termination; provided, that the Option shall not be exercisable after its
expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent disability of the
Grantee, this Option shall not be transferable.
(b) The Company may assign its rights and delegate its duties
under this Agreement.
4. Conformity with Plan. The Grantee's Option is intended to conform in
all respects with, and is subject to all applicable provisions of, the Plan,
which is incorporated herein by reference. Inconsistencies between this
Agreement and the Plan shall be resolved in accordance with the terms of the
Plan. By executing and returning the enclosed copy of this Agreement, the
Grantee acknowledges his receipt of the Plan and agrees to be bound by all of
other terms of the Plan.
5. Employment. Notwithstanding any contrary oral representations or
promises made to Grantee prior to or after the date hereof, Grantee and the
Company acknowledge Grantee's
2
<PAGE> 3
employment with the Company and its subsidiaries is and will continue to be
subject to the willingness of each to continue such employment and nothing
herein confers any right or obligation on Grantee to continue in the employ of
the Company or its subsidiaries or shall affect in any way Grantee's right or
the right of the Company or its subsidiaries to terminate Grantee's employment
at any time, for any reason, with or without cause.
6. Share Legends. At the sole discretion of the Committee, all
certificates representing any Option Shares subject to the provisions of this
Agreement shall have endorsed thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
7. Expiration. The Option shall expire at 5:00 p.m., New York time, on
the tenth anniversary of the date hereof. In the event that the Grantee shall
cease to be employed by the Company or Subsidiaries for any reason, all Option
Shares which shall not have vested pursuant to Section 2 shall automatically
terminate.
8. Further Actions. The parties agree to execute such further
instruments and to take such further actions as may reasonably be required to
carry out the intent of this Agreement.
9. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company and, subject
to the restrictions on transfer herein set forth, be binding upon Grantee's
heirs, executors, administrators, successors and assigns.
3
<PAGE> 4
10. Governing Law. This Agreement and all documents contemplated
hereby, and all remedies in connection therewith and all questions or
transactions relating thereto, shall be construed in accordance with and
governed by the laws of the State of Michigan.
* * * * *
Please execute the extra copy of this Agreement in the space below and
return it to the Secretary of the Company to confirm your understanding and
acceptance of the agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD HEALTHCARE, INC.
By:
---------------------------------------
Its:
--------------------------------------
The undersigned hereby acknowledges having read this Agreement, the
Plan, and the other enclosures to this Agreement, and hereby agrees to be bound
by all provisions set forth herein and in the Plan.
GRANTEE:
--------------------------------------------
(Signature)
--------------------------------------------
(Please print name)
4
<PAGE> 1
EXHIBIT 10.4
INCENTIVE STOCK OPTION - MANAGEMENT
[date]
_________________________
_________________________
_________________________
Re: Stock Option
The Board of Directors (the "Board") of Universal Standard Healthcare,
Inc. (the "Company"), or the committee (the "Committee") designated by the
Board for the purpose of administering the Universal Standard Healthcare, Inc.
1992 Stock Option Plan (the "Plan"), hereby grant _______ to the "Grantee"),
the ____ of the Company a stock option (the "Option"), pursuant to the Plan.
The Option is subject in all respects to the Plan. Certain capitalized terms
used in this agreement (the "Agreement") which are not defined herein have the
meanings indicated for such terms in Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee to purchase up to
_____ shares (the "Option Shares") of the Company's Common Stock, no par value
(the "Common Stock"), at an option price per share of $ ______ (the "Option
Price"), subject to the terms and conditions of this Agreement. The Option is
intended to be an Incentive Stock Option.
2. (a) Exercisability. The Option may be exercised and Option Shares
may be purchased at any time and from time to time after the execution of this
Agreement, subject to the vesting limitations imposed by Section 2(b). The
Option Price for Option Shares shall be paid in full in cash or by check by the
Grantee at the time of the delivery of Option Shares, or, at the written
election of the Grantee, payment may be made by (i), to the extent permitted by
the Committee, delivery to the Company of outstanding shares of Common Stock,
(ii), to the extent permitted by the Committee, retention by the Company of one
or more of such Option Shares or (iii) any combination of cash, check, and, to
the extent permitted by the Committee, the Grantee's delivery of outstanding
Shares and retention by the Company of one or more of such Option Shares.
(b) Vesting/Exercisability. The Grantee may only exercise his
Option to purchase Option Shares to the extent that the Option has vested and
become exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest and become exercisable in
installments of 25% of the Option Shares on each of the first, second, third and
fourth anniversaries
1
<PAGE> 2
of the date of this Option, subject to the Grantee's continued employment with
the Company or any Subsidiary in the position held as of the date of this
Agreement or a higher position. In the event the Grantee no longer continues to
be employed by the Company or any Subsidiary in the position held as of the date
of this Agreement or a higher position, all Options which have not become
exercisable at the date of such event shall immediately terminate. Whether the
Grantee has continued to be employed by the Company or any Subsidiary in the
position held as of the date of this Agreement or a higher position shall be
determined by the Committee in its sole discretion. To the extent not exercised,
installments shall accumulate and the Grantee may exercise them thereafter in
whole or in part.
(ii) Death, Disability or Change of Control. The Option shall
vest and become exercisable with respect to all of the Option Shares
automatically upon (i) the death or permanent disability (as determined by the
Board or the Committee) of the Grantee or (ii) a Change of Control. For purposes
hereof, a "Change of Control" shall mean the (x) sale of all of the assets of
the Company to an unaffiliated third-party, (y) the merger or consolidation of
the Company with an unaffiliated third-party in which the Company is not the
surviving corporation or (z) any person or group of persons (as defined in
Section 13(d) of the Securities Exchange Act of 1934) (other than WestSphere
Capital Associates, L.P. and its affiliates) shall acquire or control in excess
of 51% of the Company's Common Stock on a fully-diluted basis. Notwithstanding
the foregoing, the Option shall not vest and become automatically exercisable as
described in Section 2(b)(ii) without the written consent of the Committee, to
the extent such acceleration of vesting would result, when taken in the
aggregate with all other payments from the Company, in the payment by such
Grantee of any excise tax provided for in Sections 280G and 4999 of the Code.
(iii) Termination of Employment. The Grantee shall have the
right to exercise all unexercised Options which have vested as of the Grantee=s
Termination Date (as defined in the Plan) for a period of three (3) months
following such Termination Date or such longer period as may be provided in the
Plan or as the Committee may approve in its sole discretion in connection with
such termination; provided, that the Option shall not be exercisable after its
expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent disability of the
Grantee, this Option shall not be transferable.
(b) The Company may assign its rights and delegate its duties under
this Agreement.
4. Conformity with Plan. The Grantee's Option is intended to
conform in all respects with, and is subject to all applicable provisions of,
the Plan, which is incorporated herein by reference. Inconsistencies between
this Agreement and the Plan shall be resolved in accordance with the terms of
the Plan. By executing and returning the enclosed copy of this Agreement, the
Grantee
2
<PAGE> 3
acknowledges his receipt of the Plan and agrees to be bound by all of other
terms of the Plan.
5. Employment. Notwithstanding any contrary oral representations or
promises made to Grantee prior to or after the date hereof, Grantee and the
Company acknowledge Grantee's employment with the Company and its subsidiaries
is and will continue to be subject to the willingness of each to continue such
employment and nothing herein confers any right or obligation on Grantee to
continue in the employ of the Company or its subsidiaries or shall affect in any
way Grantee's right or the right of the Company or its subsidiaries to terminate
Grantee's employment at any time, for any reason, with or without cause.
6. Share Legends. At the sole discretion of the Committee, all
certificates representing any Option Shares subject to the provisions of this
Agreement shall have endorsed thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
7. Expiration. The Option shall expire at 5:00 p.m., New York time,
on the tenth anniversary of the date hereof. In the event that the Grantee shall
cease to be employed by the Company or its subsidiaries for any reason, all
Option Shares which shall not have vested pursuant to Section 2 shall
automatically terminate.
8. Further Actions. The parties agree to execute such further
instruments and to take such further actions as may reasonably be required to
carry out the intent of this Agreement.
9. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company and, subject
to the restrictions on transfer herein set forth, be binding upon Grantee's
heirs, executors, administrators, successors and assigns.
10. Governing Law. This Agreement and all documents contemplated
hereby, and all remedies in connection therewith and all questions or
transactions relating thereto, shall be construed in accordance with and
governed by the laws of the State of Michigan.
* * * * *
Please execute the extra copy of this Agreement in the space below and
return it to the
3
<PAGE> 4
Secretary of the Company to confirm your understanding and acceptance of the
agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD HEALTHCARE, INC.
By:
---------------------------------------
Its:
--------------------------------------
The undersigned hereby acknowledges having read this Agreement, the
Plan, and the other enclosures to this Agreement, and hereby agrees to be bound
by all provisions set forth herein and in the Plan.
GRANTEE:
------------------------------------------
(Signature)
------------------------------------------
(Please print name)
4
<PAGE> 1
EXHIBIT 10.5
NON-QUALIFIED STOCK OPTION - DIRECTORS
[DATE]
_______________________
_______________________
_______________________
_______________________
Re: Stock Option
The Board of Directors (the "Board") of Universal Standard Healthcare,
Inc. (the "Company"), or the committee (the "Committee") designated by the Board
for the purpose of administering the Universal Standard Healthcare, Inc. 1992
Stock Option Plan (the "Plan"), hereby grants to _________ (the "Grantee"), a
director of the Company, a stock option (the "Option"), pursuant to the Plan.
The Option is subject in all respects to the Plan. Certain capitalized terms
used in this agreement ("the Agreement") which are not defined herein have the
meanings indicated for such terms in Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee to purchase up to
______ shares ("the Option Shares") of the Company's Common Stock, no par value
(the "Common Stock"), at an option price per share of $____ (the "Option
Price"), subject to the terms and conditions of this Agreement. The Option is
intended to be a Non-Qualified Stock.
2. (a) Exercisability. The Option may be exercised and Option Shares
may be purchased at any time and from time to time after the execution of this
Agreement, subject to the vesting limitations imposed by Section 2(b). The
Option Price for Option Shares shall be paid in full in cash or by check by the
Grantee at the time of the delivery of Option Shares, or, at the written
election of the Grantee, payment may be made, to the extent permitted by the
Board or the Committee, by (i) delivery to the Company of outstanding shares of
Common Stock, (ii) retention by the Company of one or more of such Option Shares
or (iii) any combination of cash, check, the Grantee's delivery of outstanding
Shares and retention by the Company of one or more of such Option Shares.
(b) Vesting/Exercisability. The Grantee may only exercise his
Option to purchase Option Shares to the extent that the Option has vested and
become exercisable with respect to such Option Shares.
(i) Time Vesting. The Option will vest and become exercisable in
installments of 33a% of the Option Shares on each of the first, second and third
anniversaries of the date of this Option, subject to the Grantee's continued
service as a director of the Company. In the event the Grantee resigns from, or
declines to stand for reelection to, the Board (other than at the request or
with the prior written approval of the Board), all Options which have not become
exercisable at the date of such event shall immediately terminate. Whether the
Grantee has resigned from, or declined to stand for reelection to, the Board
shall be determined by the Board or the Committee in its sole discretion. To the
extent not exercised, installments shall accumulate and the Grantee may exercise
them thereafter in whole or in part.
<PAGE> 2
(ii) Death, Disability, Change in Control or Termination. The
Option shall vest and become exercisable with respect to all of the Option
Shares automatically upon (i) the death or permanent disability (as determined
by the Board or the Committee) of the Grantee, (ii) a Change of Control, or
(iii) an Involuntary Removal. For purposes hereof, a "Change of Control" shall
mean the (x) sale of all of the assets of the Company to an unaffiliated
third-party, (y) the merger or consolidation of the Company with an unaffiliated
third-party in which the Company is not the surviving corporation or (z) any
person or group of persons (as defined in Section 13(d) of the Securities
Exchange Act of 1934) (other than WestSphere Capital Associates, L.P. and its
affiliates) shall acquire or control in excess of 51% of the Company's Common
Stock on a fully-diluted basis. For purposes hereof, an "Involuntary Removal"
shall mean (x) the removal of the Grantee from the Board, (y) the Grantee not
being nominated to stand for reelection to the Board, or (z) the failure of the
Grantee to be elected to the Board, if nominated therefor by the Board or a
committee thereof.
(iii) Termination of Employment. The Grantee shall have the
right to exercise all unexercised Options which have vested as of the date on
which the Grantee no longer serves as director of the Company (the "Termination
Date") for a period of three (3) months following such Termination Date or such
longer period as may be provided in the Plan, including Section 6.5 thereof,
treating the Grantee as an independent contractor for purposes of that Section,
or as the Committee may approve in its sole discretion in connection with such
termination; provided, that the Option shall not be exercisable after its
expiration pursuant to Section 7.
3. Transferability of this Option.
(a) Except in the case of death or permanent disability of the
Grantee, this Option shall not be transferable.
(b) The Company may assign its rights and delegate its duties
under this Agreement.
4. Conformity with Plan. The Grantee's Option is intended to conform in
all respects with, and is subject to all applicable provisions of, the Plan,
which is incorporated herein by reference. Inconsistencies between this
Agreement and the Plan shall be resolved in accordance with the terms of the
Plan. By executing and returning the enclosed copy of this Agreement, the
Grantee acknowledges his receipt of the Plan and agrees to be bound by all of
the other terms of the Plan.
5. Share Legends. At the sole discretion of the Committee, all
certificates representing any Option Shares subject to the provisions of this
Agreement shall have endorsed thereon the following legend:
"THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAW."
6. Expiration. The Option shall expire at 5:00 p.m., New York time, on
the tenth anniversary of the date hereof. In the event that the Grantee shall
cease to be a director of the Company or Subsidiaries for any reason, all Option
Shares which shall not have vested pursuant to Section 2 shall automatically
terminate.
2
<PAGE> 3
7. Further Actions. The parties agree to execute such further
instruments and to take such further actions as may reasonably be required to
carry out the intent of this Agreement.
8. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company and, subject
to the restrictions on transfer herein set forth, be binding upon Grantee's
heirs, executors, administrators, successors and assigns.
9. Governing Law. This Agreement and all documents contemplated hereby,
and all remedies in connection therewith and all questions or transactions
relating thereto, shall be construed in accordance with and governed by the laws
of the State of Michigan.
* * * * *
Please execute the extra copy of this Agreement in the space below and
return it to the Secretary of the Company to confirm your understanding and
acceptance of the agreements contained in this letter.
Very truly yours,
UNIVERSAL STANDARD HEALTHCARE, INC.
By:
--------------------------------------
The undersigned hereby acknowledges having read this Agreement, the
Plan, and the other enclosures to this Agreement, and hereby agrees to be bound
by all provisions set forth herein and in the Plan.
GRANTEE:
-----------------------------------------
-----------------------------------------
(Please print name)
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 939
<SECURITIES> 0
<RECEIVABLES> 19,010
<ALLOWANCES> 9,504
<INVENTORY> 924
<CURRENT-ASSETS> 12,171
<PP&E> 20,047
<DEPRECIATION> 10,985
<TOTAL-ASSETS> 41,324
<CURRENT-LIABILITIES> 15,540
<BONDS> 19,795
0
0
<COMMON> 32,888
<OTHER-SE> (26,899)
<TOTAL-LIABILITY-AND-EQUITY> 41,324
<SALES> 15,732
<TOTAL-REVENUES> 15,732
<CGS> 10,767
<TOTAL-COSTS> 10,767
<OTHER-EXPENSES> 4,654<F1>
<LOSS-PROVISION> 488
<INTEREST-EXPENSE> 522
<INCOME-PRETAX> (198)
<INCOME-TAX> (198)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (198)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
<FN>
<F1>Includes Provision for Doubtful Accounts
</FN>
</TABLE>
