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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 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 Hwy., 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 July 31, 1998:
7,069,513.
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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 June 30, 1998 and December 31, 1997
Condensed Consolidated Statements of 4
Income for the three and six months ended
June 30, 1998 and 1997
Condensed Consolidated Statements of 5
Cash Flows for the six months ended
June 30, 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
Item 3. Quantitative and Qualitative Disclosures about Market Risks 13
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
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PART 1 - FINANCIAL INFORMATION
------------------------------
Item I. Financial Statements
UNIVERSAL STANDARD HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 584 $ 1,252
Accounts receivable, net of allowance for contractual
adjustments and uncollectible accounts of $10,204
and $11,974 at June 30, 1998 and
December 31, 1997, respectively 11,538 8,488
Inventory 982 894
Prepaid expenses and other 1,059 526
-------- --------
Total current assets 14,163 11,160
Property and equipment, net 8,585 8,780
Intangible assets, net 18,341 18,713
Other assets 1,526 1,522
-------- --------
Total assets $ 42,615 $ 40,175
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,270 $ 1,039
Accounts payable 5,820 6,360
Accrued liabilities 5,758 6,480
-------- --------
Total current liabilities 15,848 13,879
Long-term debt, net of current portion 19,769 20,108
Other liabilities 0 0
-------- --------
Total liabilities 35,617 33,987
-------- --------
Common stock, no par; 20,000,000 shares
authorized; 6,602,950 and 7,104,002 shares issued and outstanding
at June 30, 1998 and December 31, 1997, respectively 34,139 32,889
Retained earnings (deficit) (27,141) (26,701)
-------- --------
Total stockholders' equity 6,998 6,188
-------- --------
Total liabilities and stockholders' equity $ 42,615 $ 40,175
======== ========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3
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UNIVERSAL STANDARD HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net laboratory service revenue:
Fee-for-service $ 8,435 $ 9,298 $ 17,227 $ 18,720
Managed care 6,560 4,769 13,500 8,849
-------- -------- -------- --------
Total net revenue 14,995 14,066 30,727 27,569
Operating expenses:
Laboratory 10,327 9,563 21,097 18,647
Selling, general and administrative 3,008 2,721 6,234 5,442
Provision for doubtful accounts 401 627 889 1,440
Depreciation 708 618 1,387 1,234
Amortization 265 352 523 693
-------- -------- -------- --------
Total operating expenses 14,708 13,881 30,131 27,455
-------- -------- -------- --------
Operating income (loss) 287 185 597 113
Interest expense 565 455 1,086 871
Other income, net (37) (19) (50) (36)
-------- -------- -------- --------
Income (loss) before income taxes (241) (250) (440) (721)
Income taxes (benefit) 0 (38) 0 0
-------- -------- -------- --------
Net income (loss) ($ 241) ($ 212) ($ 440) ($ 721)
======== ======== ======== ========
Net income per share ($ 0.03) ($ 0.03) ($ 0.06) ($ 0.11)
Average shares outstanding and
common equivalent shares 7,104 6,578 7,117 6,578
EBITDA $ 1,259 $ 1,156 $ 2,506 $ 2,040
</TABLE>
The accompanying notes are an integral part of
the condensed consolidated financial statements.
4
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UNIVERSAL STANDARD HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
------- -------
<S> <C> <C>
Net cash provided by (used in) operating activities ($3,467) $ 327
------- -------
Cash flows from investing activities:
Purchase of property and equipment (444) (453)
Restricted cash investment 0 (75)
Other investing activities (30) 0
------- -------
Net cash used in investing activities (474) (529)
------- -------
Cash flows from financing activities:
Payments on long-term debt (1,034) (6,422)
Long-term/Short-term borrowings 3,053 7,016
Payments of financing costs 4 (138)
Other financing activities 1,250 (6)
------- -------
Net cash provided by (used in) financing activities 3,273 451
------- -------
Net increase (decrease) in cash and cash equivalents (668) 250
Cash and cash equivalents, beginning of period 1,252 2,227
------- -------
Cash and cash equivalents, end of period $ 584 $ 2,477
======= =======
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
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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 six months ended June 30, 1998
is less than the statutory rate of 34% principally due to the Company's
operating loss. Under applicable accounting rules, $149,446 of tax benefits
relating to the first six months of 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.
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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
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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.
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Fee-for-service 56.3% 66.1% 56.0% 67.9%
Managed care 43.7% 33.9% 44.0% 32.1%
--------------------------------------
Total net revenue 100.0% 100.0% 100.0% 100.0%
Laboratory expenses 68.9% 68.0% 68.7% 67.6%
Selling, general and 20.0% 19.3% 20.2% 19.7%
administrative expenses
Provision for doubtful accounts 2.7% 4.5% 2.9% 5.2%
Depreciation and amortization 6.5% 6.9% 6.2% 7.0%
--------------------------------------
Operating income (loss) 1.9% 1.3% 2.0% 0.5%
Interest expense 3.8% 3.2% 3.5% 3.2%
Other income, net (0.3%) (0.1%) (0.1%) (0.1%)
Income taxes 0.0% (0.3%) 0.0% 0.0%
--------------------------------------
Net income (loss) (1.6%) (1.5%) (1.4%) (2.6%)
======================================
EBITDA* 8.4% 8.2% 8.2% 7.4%
======================================
Net cash provided by (14.0%) 2.3% (7.3%) 1.2%
operating activities** ======================================
* 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
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ASSET SALE. Effective August 4, 1998, the Company sold certain assets associated
with its clinical laboratory testing operations, including its customer list
(the "Asset Sale"). The Company has agreed to make its principal clinical
laboratory facility and related personnel ("Related Personnel") available to the
purchaser for a period of up to six months with the purchaser subleasing
portions of the Company's Southfield clinical laboratory facility and
reimbursing the Company for the costs of the Related Personnel (the
"Transition Period").
The Company will record a current liability in the third quarter of 1998 of
$1.85 million to reflect advances of rent payments by the purchaser. As a
result of the Asset Sale, the Company expects net revenue from its laboratory
fee-for-service business to be substantially reduced during the next six
months and to be eliminated altogether for periods thereafter.
In addition, the Company expects its laboratory expenses to be substantially
reduced, and its selling, general and administrative expenses to be reduced,
over the next six months as the purchaser no longer requires the
services of, or hires, the Related Personnel.
The Company intends to dispose of the equipment used in its clinical laboratory
business. It is currently considering alternative methods of disposition and
is evaluating the value of this equipment. In the event that the Company
determines that it will not be able to dispose of the equipment at its current
net book value, the Company will be required to record a charge to earnings to
reflect any anticipated loss on the sale of the equipment.
NET REVENUE. The Company's net revenue is generated from managed care laboratory
programs with major employers, union and government benefit plans, and from
traditional laboratory fee-for-service business. In the Managed Care Programs,
for a fixed monthly payment, the Company is the designated provider of
substantially all non-hospital clinical laboratory testing which may be ordered
by a Program Member's physician of choice and, in some cases, certain medical
equipment and appliances. In the fee-for-service business, the Company charges a
fee based upon the type of test requested by the patient's physician.
Total net revenue was $15.0 million in the second quarter of 1998, compared to
$14.1 million in the second quarter of 1997. Total net revenue for the first
half of 1998 was $30.7 million, compared to $27.6 million for the first half of
1997. The increase in total net revenue was principally due to the increase in
managed care revenue from the General Motors Corporation contract offset by a
decline in fee-for-service revenue resulting from fewer fee-for-service patient
visits due to reduction of unprofitable accounts, industry wide reductions in
patient testing orders, the sale of the Company's veterinary business, which did
not meet the Company's strategic plan because of its lower revenue per patient
visit, and attrition.
Managed care revenue increased 37.6% to $6.6 million for the second quarter of
1998, as compared to $4.8 million for the second quarter of 1997. This increase
in the second quarter of 1998 is principally due to the new nationwide contract
with General Motors Corporation which started on January 1, 1998 and, to a
lesser extent, national implementation of Ford Motor Company and Chrysler
Corporation laboratory programs beginning January 1, 1998. Managed care revenue
for the first half of 1998 increased 52.6% to $13.5 million, from $8.8 million
in the comparable period of 1997. The increase in managed care revenue for the
first six months of 1998 was primarily due to the new nationwide contract with
General Motors which started on January 1, 1998.
Fee-for-service revenue was $8.4 million for the second quarter of 1998 compared
to $9.3 million for the second quarter of 1997. Fee-for-service revenue was down
9.0% as compared to the same quarter last year, primarily due to a 17.8% decline
in fee-for-service patient visits. Fee-for-service revenue for
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the first six months of 1998 was $17.2 million, compared to $18.7 million for
the first six months of 1997. Fee-for-service revenue was down 8.0% as compared
to the first half of last year, primarily due to a 15.8% decline in
fee-for-service patient visits. The decline in fee-for-service patient visits
was principally due to the reduction in unprofitable accounts, industry wide
reductions in patient testing orders, the sale of the Company's veterinary
business, which did not meet the Company's strategic plan because of its lower
revenue per patient visit, and attrition. Increases in fee-for-service revenue
per patient visit, principally due to changes in payor and test mix, partially
offset these declines.
The Company's fee-for-service net revenue continues to be negatively impacted in
1998 by a number of factors, including customer attrition resulting from recent
cost reduction efforts as described above, the shift toward managed care
alternatives, reductions in reimbursement levels on certain of its laboratory
tests 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.
The Company's clinical laboratory testing operations are partially affected by
seasonal trends common to the clinical laboratory industry. Testing volume is
lower during the summer months and the year-end holiday periods. These seasonal
effects are partially offset by the Managed Care revenues which are not affected
by seasonal trends.
LABORATORY EXPENSES. Laboratory expenses were $10.3 million and $9.6 million in
the second quarter of 1998 and 1997, respectively. Laboratory expenses for the
first six months of 1998 were $21.1 million compared to $18.6 million for the
first six months of 1997. Laboratory expenses for the three and six months ended
June 30, 1998 were higher than the comparable periods of 1997 primarily as a
result of the increased managed care related laboratory testing and claims
expense associated with the new General Motors Corporation contract. As a
percentage of net revenue, laboratory expenses increased from 68.0% and 67.6%
for the three and six months ended June 30, 1997, respectively, to 68.9% and
68.7% for the three and six months ended June 30, 1998, respectively. 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 for the three and six months ended June 30, 1998
increased $.3 million and $.8 million, respectively, or 10.6% and 14.6%, from
the comparable 1997 periods. These increases are primarily due to the increase
in sales and marketing associated with the increased managed care business and
additional sales personnel for the fee-for-service business. As a percentage of
net revenue, selling, general and administrative expenses was 19.2% and 19.7%
for the three and six months ended June 30, 1997, respectively, as compared to
20.1% and 20.3% for the three and six months ended June 30, 1998.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts decreased
from $.6 million in the second quarter of 1997 to $.4 million in the second
quarter of 1998, a decrease of $.2 million. The provision decreased to $.9
million in the first half of 1998 from $1.4 million in the first half of 1997.
These decreases are principally due to improved patient collection and a
reduction in direct patient billing.
As a percentage of total revenue, the provision for doubtful accounts decreased
from 4.5% and 5.2% for the three and six months ended June 30, 1997 to 2.7% and
2.9% for the comparable 1998 periods. This decrease is mainly due to improved
patient collection and a reduction in direct patient billing.
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EBITDA. EBITDA was $1.3 million, or 8.4% of net revenue for the second quarter
of 1998, compared to a loss of $1.2 million, or 8.2% of net revenue for the
second quarter of 1997. EBITDA for the first six months of 1998 was $2.5
million, or 8.2% of net revenue, compared to $2.0 million, or 7.4% for the
year-ago period. The Company attributes these increases principally to the
increase in its managed care revenues and improved test and payor mix in the
Company's fee-for-service revenue.
INCOME TAXES. The effective income tax rate of 0% and 0% for the three and six
months ended June 30, 1998, respectively, is less than the statutory rate of 34%
principally due to the net loss, non-deductible goodwill and other permanent
nondeductible expenses. Under applicable accounting rules, no tax benefit
relating to the 1998 loss are recorded. This loss is treated as a net operating
loss carry forward and may be used to offset future profits of the Company.
LIQUIDITY AND CAPITAL RESOURCES. The Company's working capital ratio increased
to .9 to 1.0 at June 30, 1998 from .8 to 1 at December 31, 1997. Working capital
increased by $1.2 million at June 30, 1998 from a deficit of $2.9 million at
December 31, 1997. Included in cash and cash equivalents at June 30, 1998 is
$500,000 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 decreased $3.8 million for the six
months ended June 30, 1998, compared to the year-earlier period. This
decrease is principally due to the increase in accounts receivable on the
fee-for-service revenue and reduction in accounts payable. Days outstanding in
accounts receivable were 94 days at June 30, 1998, compared to 74 days at
December 31, 1997.
Days outstanding in accounts receivable are higher than normal primarily as a
result of unbilled edits due to missing patient information caused principally
by the complexity of the documentation required to bill fee-for-service
laboratory services. The Company is continuing its efforts to reduce days
outstanding, principally by working its aged and unbilled accounts receivable.
The ratio of debt to capital was 77.5% at June 30, 1998 compared to 77.4% at
December 31, 1997.
On August 4, 1998, the Company received proceeds from the Asset Sale of $9.0
million and $4.25 million in proceeds from the sale of common stock to the
purchaser in the Asset Sale (the "Stock Sale"). These proceeds were used to pay
the bank debt, as described below, closing costs and accounts payable.
At June 30, 1998, the Company had a credit facility consisting of a $9.5 million
revolving line of credit, a $2.5 million letter of credit facility, a $2.8
million short term loan, due in July, 1998, a $1.1 million litigation letter of
credit, and a $750,000 capital lease. Borrowing levels under the revolving line
of credit were based on accounts receivable, inventory and fixed asset balances.
As of June 30, 1998, permitted borrowings under the new revolving line of credit
were $7,076,000, all of which was outstanding under the line. The short term
loan bore interest at 12%. The line of credit bore interest from .5% below to
1.00% above the prime rate or from 2% to 3.75% above the LIBOR rate. The
interest rate on the line of credit at June 30, 1998 was 9.5%. Borrowings under
the credit facility are collateralized by substantially all of the assets of the
Company and its subsidiaries (including the stock of the Company's managed care
subsidiaries), except for the assets of the Company's managed care subsidiaries.
The revolving line of credit originally expired on August 31, 1999. The letter
of credit facility expired on June 30, 1998, although outstanding letters of
credit will
11
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continue for the remainder of their terms. Net proceeds of $11.4 million from
the Asset Sale and Stock Sale were used to pay the revolving line of credit, the
short term loan and $1.6 million in additional borrowings under the credit
facility incurred during July 1998. The Company agreed to terminate the
revolving line of credit on August 4, 1998 and is currently re-negotiating the
credit facility to reestablish the revolving line of credit. Following the Asset
Sale, the letters of credit and capital lease, referred to above, remain in
place under the credit facility.
Under the credit facility, the Company is required to maintain consolidated
tangible capital funds (tangible net worth plus subordinated debt) of at least
$12,500,000 and is required to negotiate additional financial covenants by
October 3, 1998. The Company is required to deposit the proceeds from all future
sales of assets in a cash collateral account with the bank, up to the amount due
to the bank under the credit facility.
The Company expects to incur capital expenditures of approximately $200,000
during the remainder of 1998 for new data processing equipment for the managed
care division.
During the Transition Period, the Company will use payments from the purchaser
in the Asset Sale to fund expenses associated with the Related Personnel. The
Company expects to fund expenses associated with the winding down of its
clinical laboratory operations and its ongoing working capital needs, capital
expenditures required for the operation of its business and debt service
requirements, including interest on the 8.25% Convertible Subordinated
Debentures, due February 1, 2006 (the "Debenture"), from it's operating cash
flow, including distributions from its managed care subsidiaries, the
collection of its accounts receivable, proceeds from the sale of its clinical
laboratory equipment, and capitalized leases. The Company is also considering
the sale of additional equity as a means of generating additional cash to
support the Company's operations, satisfy its debt service requirements and
fund expansion of its managed care operations. 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 limited
demand for clinical laboratory equipment, and the price interested parties may
be willing to offer for such equipment, 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.
The Company expects its managed care subsidiaries, including its subsidiary
conducting managed care operations in Michigan (the "Michigan Managed Care
Subsidiary"), to generate sufficient operating cash to fund their current
operations and planned expansion and make limited distributions to the Company.
From time to time the Company's regulated 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 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 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 cash transfers made in the past.
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In the event that the Company is not able to generate cash to the extent
required to fund the Company's operations from the sources described above,
the Company will have to consider disposition of other assets.
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 from compliance
reviews conducted by one of its largest third-party payors. The ultimate effect,
if any, of these compliance reviews can not be determined at this time and no
liability has been accrued by the Company.
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 assurances 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 conditions, 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.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and use of Proceeds
On June 8, 1998, the Company sold 500,000 shares of Common Stock to the Kaufmann
Fund, Inc. ("Kaufmann") at a price per share of $2.50 for a total purchase price
of $1,250,000, payable in cash. In addition, in the event of certain issuances
by the Company of Common Stock, or the rights to acquire Common Stock, at less
than $2.50 per share (the "Below Purchase Price") prior to December 31, 1998,
the Company has agreed to issue Kaufmann additional shares of Common Stock so
that the average price paid by Kaufmann for the Common Stock equals the
Below Purchase Price. The Company also gave Kaufmann the option to sell to the
Company up to $2,500,000 in 8.25% Convertible Subordinated Debentures due
February 1, 2006 (the "Debentures") in exchange for shares of Common Stock of
the Company, valued at $2.50 per share, as adjusted from time to time, for
stock splits, dividends, reverse stock splits and certain issuances of Common
Stock, or rights to acquire Common Stock, at less than $2.50 per share. The
option generally expires December 31, 1998.
The Company did not register the shares of Common Stock issued to Kaufmann under
the Securities Act of 1933, as amended, (the "Act"), and does not plan to
register the shares of Common Stock, if any, issued to Kaufmann in the future
under the Act, based upon exemptions from registration set forth in Section 4(2)
of the Act and Regulation D. The Company relied upon these exemptions based on
Kaufmann's representations set forth in a Stock Purchase Agreement and the
negotiated nature of the transaction. The Company has agreed to register under
the Act for resale all shares of Common Stock issued to Kaufmann and has so
registered the 500,000 shares of Common Stock issued to Kaufmann to date.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on June 29, 1998 at which
the shareholders considered and voted on the election of two directors, the
approval of an amendment to the Company's Articles of Incorporation to increase
the number of shares of Common Stock authorized from 20 million to 40 million,
and the approval of an amendment to the Company's Articles of Incorporation to
authorize 10 million shares of Preferred Stock.
1. Each of the nominees for director at the meeting was an
incumbent and all nominees were elected for a term ending at the Annual Meeting
of Shareholders held in 2001. The following table sets forth the number of
shares voted for and withheld with respect to each nominee.
Nominee Votes For Votes Withheld
- ------- --------- --------------
Eduardo Bohorquez 5,144,259 98,323
Joseph J. Vadapalas 5,202,492 40,090
The term of office of the following additional members of the Board of
Directors continued after the 1998 Annual Meeting of Shareholders:
Anthony A. Bonelli
Robert P. DeCresce, M.D.
Thomas W. Gorman
Thomas R. Donahue
P. Thomas Hirsch
Eugene E. Jennings
14
<PAGE> 15
2. The adoption of an amendment to the Company's Articles of
Incorporation was approved to increase the number of shares of Common Stock
authorized from 20 million to 40 million.
For Against Abstain Broker Non-Votes
- --- ------- ------- ----------------
5,113,684 101,748 27,150 0
3. The adoption of an amendment to the Company's Articles of
Incorporation was approved to authorize 10 million shares of Preferred Stock.
For Against Abstain Broker Non-Votes
- --- ------- ------- ----------------
3,724,524 163,234 25,850 1,328,974
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Fifth Amendment to Revolving Credit and Loan
Agreement dated June 5, 1998 between NBD Bank and the
Company and its subsidiaries.
4.2 Letter Agreement dated July 21, 1998 between NBD Bank
and the Company and its subsidiaries.
4.3 Sixth Amendment to Revolving Credit and Loan
Agreement dated August 3, 1998 between NBD Bank and
the Company and its subsidiaries. The Company agrees
to furnish supplementally a copy of any omitted
schedule to the Securities and Exchange Commission
upon request.
10.1 Stock Purchase Agreement dated June 8, 1998 between
The Kaufmann Fund, Inc. and the Company.
10.2 Warrant to Purchase 100,000 shares of Common Stock
issued August 3, 1998 to NBD by the Company.
10.3 Letter Agreement dated March 25, 1998, terminating
1994 Performance Stock Option - Executive Officers
Agreement dated December 6, 1994, between the Company
and Alan S. Ker.
10.4 Incentive Stock Option - Executive Officers and
Non-Qualified Stock Option - Executive Officers,
dated March 25, 1998 between the Company and Alan S.
Ker.
10.5 Incentive Stock Option - Executive Officers and
Non-Qualified Stock Option - Executive Officers, dated
March 25, 1998 between the Company and Imtiaz
Sattaur.
27. Financial Data Schedule
(b) Reports on Form 8-K.
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL STANDARD HEALTHCARE, INC.
-----------------------------------
(Registrant)
Date: August 14, 1998 Eugene Jennings
----------------------------
Eugene Jennings
President and
Chief Executive Officer
Date: August 14, 1998 Alan S. Ker
----------------------------
Alan S. Ker
Vice President, Finance,
Chief Financial Officer
Treasurer, and
Assistant Secretary
16
<PAGE> 17
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
4.1 Fifth Amendment to Revolving Credit and Loan
Agreement dated June 5, 1998 between NBD Bank
and the Company and its subsidiaries.
4.2 Letter Agreement dated July 21, 1998 between
NBD Bank and the Company and its subsidiaries.
4.3 Sixth Amendment to Revolving Credit and Loan
Agreement dated August 3, 1998 between NBD Bank
and the Company and its subsidiaries.
10.1 Stock Purchase Agreement dated June 8, 1998
between The Kaufmann Fund, Inc. and the
Company.
10.2 Warrant to Purchase 100,000 shares of Common
Stock issued August 3, 1998 to NBD by the
Company.
10.3 Letter Agreement dated March 25, 1998,
terminating 1994 Performance Stock Option -
Executive Officers Agreement dated December 6,
1994, between the Company and Alan S. Ker.
10.4 Incentive Stock Option - Executive Officers and
Non-Qualified Stock Option - Executive Officers,
dated March 25, 1998 between the Company and
Alan S. Ker.
10.5 Incentive Stock Option - Executive Officers and
Non-Qualified Stock Option - Executive
Officers, dated March 25, 1998 between the
Company and Imtiaz Sattaur.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.1
FIFTH AMENDMENT TO REVOLVING CREDIT AND LOAN AGREEMENT
THIS FIFTH AMENDMENT TO REVOLVING CREDIT AND LOAN AGREEMENT (this
"Fifth Amendment to Loan Agreement" or this "Fifth Amendment") is entered into
on June 5, 1998 between NBD Bank ("NBD" or "Bank"), as lender, with
offices at 611 Woodward Avenue, Detroit, Michigan 48226; Universal Standard
Healthcare, Inc., formerly known as Universal Standard Medical Laboratories,
Inc., a Michigan corporation ("USML"); Universal Standard Healthcare of
Michigan, Inc., formerly known as Universal Standard Managed Care of Michigan,
Inc., a Michigan corporation ("Michigan Managed Care"); Universal Standard
Healthcare of Ohio, Inc., formerly known as Universal Standard Managed Care of
Ohio, Inc., an Ohio corporation ("Ohio Managed Care"); Universal Standard
Healthcare of Delaware, Inc., formerly known as Universal Standard Managed Care,
Inc., a Delaware corporation ("Delaware Managed Care"); T.P.A., Inc., a Michigan
corporation ("Processing"); and A/R Credit, Inc., a Michigan corporation ("AR
Credit"), all of whose addresses are 26500 Northwestern Highway, Southfield,
Michigan 48076.
RECITALS
This Fifth Amendment to Loan Agreement is based on the following recitals
("Recitals"), which are incorporated into and made a part of this Fifth
Amendment:
1. USML, Delaware Managed Care, Ohio Managed Care, Michigan Managed
Care, Processing, AR Credit (each, an "Obligor" and collectively, the
"Obligors"), and NBD are parties to a Revolving Credit and Loan Agreement
dated April 30, 1997, as amended by a First Amendment to Revolving Credit
and Loan Agreement dated September 26, 1997, by a Second Amendment to
Revolving Credit and Loan Agreement dated November 30, 1997, by a Third
Amendment to Revolving Credit and Loan Agreement dated February 2, 1998, and
by a Fourth Amendment to Revolving Credit and Loan Agreement dated March 12,
1998 (as amended, and as may be further amended or restated from time to
time, the "Loan Agreement"). In addition to the Loan Agreement, Bank and
Obligors are parties to various other loan and security documents and
guaranties more particularly described in or executed in connection with the
Loan Agreement (which are defined as the "Loan Documents" in the Loan
Agreement). Capitalized terms used but not defined in this Fifth Amendment
have the same meanings given to those terms in the Loan Documents.
2. USML has advised NBD that it wants to enter into a transaction (the
"Kaufmann Transaction") with Kaufmann Fund, Inc. ("Kaufmann") as follows:
(i) the issuance by USML to Kaufmann of 500,000 shares of common stock, at a
purchase price of $2.50 per share (the "Kaufmann Stock Purchase"); (ii) the
grant by USML to Kaufmann of an option to exchange, prior to December 31,
1998, up to $2,500,000 in principal amount of debentures for common stock,
valued at $2.50 per share or such lower price at which USML hereafter issues
<PAGE> 2
common stock or rights to acquire the same; (iii) the grant by USML to
Kaufmann of preemptive rights expiring on December 31, 1998 and (iv) the
agreement by USML to issue additional shares of common stock to Kaufmann in
the event that USML, prior to December 31, 1998, issues any additional
shares of common stock, or rights to acquire the same, at a price less than
$2.50 per share. The Kaufmann Stock Purchase is a Capital Transaction, and
under the terms of the Loan Documents the $1,250,000 in proceeds from the
Kaufmann Stock Purchase must be used by USML to prepay the Term Loan. The
Obligors have requested that, notwithstanding the terms of the Loan
Documents, they be allowed to use the proceeds from the Kaufmann Stock
Purchase to pay managed care claims.
3. Obligors have requested and, subject to the terms hereof, Bank has
agreed to amend the Loan Agreement as set forth in this Fifth Amendment.
AGREEMENT
Based on the foregoing Recitals (which are incorporated herein as
representations, warranties, acknowledgments and agreements of the parties, as
the case may be) and for other good and valuable consideration, the receipt and
adequacy of which is mutually acknowledged by the parties hereto, Obligors and
Bank agree as follows:
A. Notwithstanding anything to the contrary contained in the Loan
Documents, the Obligors may use the net proceeds from the Kaufmann Stock
Purchase to pay managed care claims if no Event of Default or Default exists
on the date of the closing of the Kaufmann Stock Purchase and if the closing
of the Kaufmann Stock Purchase occurs on or before June 10, 1998. The fact
that NBD has consented to the $1,250,000 in proceeds from the Kaufmann Stock
Purchase not paying down the Term Loan and being used to pay managed care
claims does not in any way create any obligation on NBD's part, or right or
expectation of any of the Obligors, that NBD will make any similar
agreements in the future.
B. The Additional Facility Fee is amended to provide that it is due and
payable in full on the date of this Fifth Amendment and must be paid in full
on the date of the Fifth Amendment. The Additional Facility Fee is fully
earned by NBD on the date of the Fifth Amendment and need not be refunded
regardless of whether or not the Term Loan is paid in full on or before July
15, 1998.
C. To the extent required under the Loan Documents, NBD consents to the
Kaufmann Transaction.
-2-
<PAGE> 3
D. In addition to the Defaults and Events of Default set forth in the
Loan Documents, it is an Event of Default under the Loan Documents (for
which there is no cure period) if on or before June 18, 1998 USML has not
executed and delivered to NBD warrant agreements and other related documents
satisfactory in form and substance to NBD in its sole and absolute
discretion (collectively, the "Warrant Documents"). The Warrant Documents
will contain customary provisions with respect to matters such as
anti-dilution and cashless exercise and will provide for, among other
things, the right of NBD to purchase 35,000 shares (the "35,000 Share
Warrant") and an additional 65,000 shares (the "65,000 Share Warrant") of
the common stock of USML at a purchase price of $2.50 per share for a period
expiring on the third anniversary of the date of this Fifth Amendment, with
obligations on the part of USML to register NBD's sale of such shares or, at
NBD's option, for NBD to have the right to put the Warrants to USML as
follows: with respect to 35,000 Share Warrant, for a price equal to 35,000
multiplied by the then current trading price of the common stock of USML
(determined by calculating the average closing price for the five trading
days immediately preceding the exercise of the put), less the $87,500
aggregate exercise price with respect to the 35,000 Share Warrant, and with
respect to the 65,000 Share Warrant, for a price equal to 65,000 multiplied
by the then current trading price of the common stock of USML (determined by
calculating the average closing price for the five trading days immediately
preceding the exercise of the put), less the $162,500 aggregate exercise
price with respect to the 65,000 Share Warrant. Notwithstanding the
foregoing, NBD may not exercise its rights with respect to the 65,000 Share
Warrant until after December 4, 1998 and, if USML sells all of its
laboratory operations on terms and conditions reasonably satisfactory to NBD
on or before December 4, 1998, then the 65,000 Share Warrant shall be null
and void and of no further force or effect.
E. Within 30 days after the earlier of (1) any Obligor's receipt of any
proceeds of any Capital Transaction (other than Kaufmann Stock Purchase) or
(2) July 15, 1998, NBD and the Obligors agree to meet to discuss and attempt
to agree on amending and resetting the financial covenants through the
latest maturity date of any of the Loans. If for any reason NBD and the
Obligors are unable to agree on the amended and reset financial covenants
within the 30 day period referred to in the immediately preceding sentence,
then such event constitutes an Event of Default under all of the Loan
Documents for which there is no cure period.
F. From and after the date of this Fifth Amendment, references in the
Loan Documents (i) to the "Loan Agreement" are to be treated as referring to
the Loan Agreement as amended by this Fifth Amendment; (ii) to "obligations"
and "Obligations" are to be treated as referring to all indebtedness and
obligations referred to in this Fifth Amendment; and (iii) to "Loan
Documents" includes, without limitation, the Warrant Documents.
G. Prior to or simultaneously with execution and delivery of this Fifth
-3-
<PAGE> 4
Amendment, Obligors must cause to be executed and delivered to Bank such
financing statements, resolutions and other agreements that Bank may require
to effectuate the transactions contemplated by this Fifth Amendment.
Obligors must pay all costs and expenses (including attorneys' fees)
incurred by Bank in connection with this Fifth Amendment.
H. Obligors expressly acknowledge and agree that all collateral
security and security interests, liens, pledges, guaranties, and mortgages
heretofore or hereafter granted Bank including, without limitation, such
collateral, security interests, liens, pledges, and mortgages granted under
the Loan Documents, extend to and cover all of each Obligor's Obligations to
Bank, now existing or hereafter arising including, without limitation, those
arising in connection with this Fifth Amendment and under all guaranty
agreements now or in the future given by one or more of the Obligors in
Bank's favor, upon the terms set forth in such agreements, all of which
security interests, liens, pledges, and mortgages are ratified, reaffirmed,
confirmed and approved.
I. Obligors represent and warrant to NBD that:
(1) (a) The execution, delivery and performance of this
Fifth Amendment by the Obligors and all agreements and documents delivered
by Obligors in connection with this Fifth Amendment have been duly
authorized by all necessary corporate or other organizational action
and does not and will not require any consent or approval of its
stockholders or members, violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to it or of its articles of
incorporation, articles of organization, or bylaws, or result in a breach
of or constitute a default under any indenture or loan or credit agreement
or any other agreement, lease or instrument to which any Obligor is a party
or by which it or its properties may be bound or affected.
(b) No authorization, consent, approval, license,
exemption of or1 filing a registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic
or foreign, is or will be necessary to the valid execution, delivery or
performance by Obligors of this Fifth Amendment and all agreements and
documents delivered in connection with this Fifth Amendment.
(c) This Fifth Amendment and all agreements and
documents delivered by Obligors in connection with this Fifth Amendment are
the legal, valid and binding obligations of Obligors enforceable against
each of them in accordance with the terms thereof.
(2) After giving effect to the amendments contained in this
Fifth Amendment, all of the representations and warranties contained in the
Loan Documents are true
-4-
<PAGE> 5
and correct on and as of the date hereof with the same force and effect as
if made on and as of the date hereof.
(3) Obligors's financial statements furnished to NBD, fairly
present Obligors's financial condition as at such dates and the results of
Obligors's operations for the periods indicated, all in accordance with
generally accepted accounting principles applied on a consistent basis, and
since the date of the last such financial statement there has been no
material adverse change in such financial condition.
(4) After giving effect to this Fifth Amendment no Default or
Event of Default has occurred and is continuing or will exist on the date of
this Fifth Amendment under the Loan Agreement or any of the other Loan
Documents.
J. The terms and provisions of this Fifth Amendment amend, add to and
constitute a part of the Loan Agreement. Except as expressly modified and
amended by the terms of this Fifth Amendment, all of the other terms and
conditions of the Loan Agreement and the other Loan Documents (including all
guaranties, which, without limitation, extend to and cover the Obligations
arising in connection with the Lease Transactions and the Lease Documents)
remain in full force and effect and are hereby ratified, reaffirmed,
confirmed, and approved.
K. If there is an express conflict between the terms of this Fifth
Amendment to Loan Agreement and the terms of the Loan Agreement or the other
Loan Documents, the terms of this Fifth Amendment govern and control.
L. This Fifth Amendment may be executed in any number of counterparts
with the same effect as if all signatories had signed the same document. All
counterparts must be construed together to constitute one instrument.
M. If customers, buyers, investors, potential alternative financing
sources or other parties make inquiry of NBD as to the current lending
relationship among NBD and any one or more of the Obligors, the Obligors
agree that NBD may refer such inquiries to the Obligors.
N. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
O. There are no promises or inducements which have been made to any
-5-
<PAGE> 6
signatory hereto to cause such signatory to enter into this Fifth Amendment
other than those which are set forth in this Fifth Amendment.
P. RELEASE. AS OF THE DATE HEREOF EACH OBLIGOR REPRESENTS AND WARRANTS
THAT IT IS UNAWARE OF, AND POSSESSES, NO CLAIMS OR CAUSES OF ACTION AGAINST
NBD. NOTWITHSTANDING THIS REPRESENTATION AND AS FURTHER CONSIDERATION FOR
THE AGREEMENTS AND UNDERSTANDINGS HEREIN, EACH OBLIGOR INDIVIDUALLY,
JOINTLY, SEVERALLY, AND JOINTLY AND SEVERALLY, EACH OF THEIR EMPLOYEES,
AGENTS, EXECUTORS (TO THE EXTENT PERMITTED BY APPLICABLE LAW WITH RESPECT TO
EMPLOYEES, AGENTS, AND EXECUTORS), SUCCESSORS AND ASSIGNS HEREBY RELEASE
NBD, ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, AFFILIATES,
SUBSIDIARIES, SUCCESSORS AND ASSIGNS FROM ANY LIABILITY, CLAIM, RIGHT OR
CAUSE OF ACTION WHICH NOW EXISTS, OR HEREAFTER ARISES, WHETHER KNOWN OR
UNKNOWN, ARISING FROM OR IN ANY WAY RELATED TO FACTS IN EXISTENCE AS OF THE
DATE HEREOF. BY WAY OF EXAMPLE AND NOT LIMITATION, THE FORGOING INCLUDES ANY
CLAIMS IN ANY WAY RELATED TO ACTIONS TAKEN OR OMITTED TO BE TAKEN BY NBD
UNDER THE LOAN DOCUMENTS, AND THE BUSINESS RELATIONSHIP WITH NBD.
Q. WAIVER OF JURY TRIAL AND ACKNOWLEDGMENT. THE PARTIES HERETO
ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT
THAT THIS RIGHT MAY BE WAIVED. NBD AND OBLIGORS EACH HEREBY KNOWINGLY,
VOLUNTARILY AND WITHOUT COERCION, WAIVE ALL RIGHTS TO A TRIAL BY JURY OF ALL
DISPUTES ARISING OUT OF OR IN RELATION TO THIS AGREEMENT, THE LOAN DOCUMENTS
OR ANY OTHER AGREEMENTS BETWEEN ANY OF THE PARTIES.
NO PARTY SHALL BE DEEMED TO HAVE RELINQUISHED THE BENEFIT OF
THIS WAIVER OF JURY TRIAL UNLESS SUCH
-6-
<PAGE> 7
RELINQUISHMENT IS IN A WRITTEN INSTRUMENT SIGNED BY THE PARTY
TO WHICH SUCH RELINQUISHMENT WILL BE CHARGED.
NBD BANK
By: /s/ Robert B. Greene
----------------------------------------
Robert B. Greene
First Vice President
UNIVERSAL STANDARD
HEALTHCARE, INC.
By: /s/ Alan S. Ker
----------------------------------------
Alan S. Ker
Vice President Finance and Treasurer
UNIVERSAL STANDARD HEALTHCARE
OF MICHIGAN, INC.
By: /s/ Alan S. Ker
----------------------------------------
Alan S. Ker, Treasurer
UNIVERSAL STANDARD HEALTHCARE
OF OHIO, INC.
By: /s/ Alan S. Ker
----------------------------------------
Alan S. Ker, Treasurer
[Signatures continued on following page]
-7-
<PAGE> 8
[Signature continued from preceding page]
UNIVERSAL STANDARD HEALTHCARE
OF DELAWARE, INC.
By: /s/ Alan S. Ker
----------------------------------------
Alan S. Ker, Treasurer
A/R CREDIT, INC.
By: /s/ Alan S. Ker
----------------------------------------
Alan S. Ker, Treasurer
T.P.A., INC.
By: /s/ Alan S. Ker
----------------------------------------
Alan S. Ker, Treasurer
-8-
<PAGE> 1
EXHIBIT 4.2
[NBD BANK LETTERHEAD]
July 21, 1998
Mr. Alan S. Ker
Vice President Finance
Universal Standard Healthcare, Inc.
26500 Northwestern Highway
Southfield, Michigan 48076
Re: Revolving Credit and Loan Agreement dated April 30, 1997
between NBD Bank (the "Bank") and Universal Standard
Healthcare, Inc., Universal Standard Healthcare of Michigan,
Inc., Universal Standard Healthcare of Ohio, Inc., Universal
Standard Healthcare of Delaware, Inc., T.P.A., Inc. and A/R
Credit, Inc. (each, an "Obligor" and collectively, the
"Obligors"), as amended. (as amended and as may be further
amended from time to time, the "Agreement"). Capitalized
terms used but not defined in this letter shall have the same
meanings as in the Agreement.
Dear Al:
You have advised us that the Obligors face an ongoing cash shortfall which, as
of July 20, 1998, totaled an approximate $210,333 overdraft and is expected to
continue at various levels until closing of the sale of the Laboratory Division
to LabCorp scheduled for August 3, 1998. As we discussed over the phone today,
this ongoing overdraft is in conflict with Section N. of the Fourth Amendment to
the Revolving Credit and Loan Agreement dated March 12, 1998 which indicates the
Bank's unwillingness to allow continuing overdrafts and/or overadvances. The
Bank agrees to temporarily allow an overadvance (but not overdrafts) under the
Revolving Credit within the following parameters: 1) The aggregate overadvance
amount may not exceed $1,300,000 from the date of this letter to August 3, 1998
when, 2) the entire overadvance, if any, must be corrected and paid in full
regardless of whether or not the sale of the division occurs. Overadvances will
be made at the Bank's sole and absolute discretion and the decision for each
funding under an overadvance will be scrutinized daily by the Bank. The Obligors
will use their best efforts to manage their cash position in order to minimize
any overadvance occurring during this period.
<PAGE> 2
Mr. Alan S. Ker
July 21, 1998
Page 2
This accommodation is being allowed in an effort to assist in the Obligors in
continuing lab operations in an orderly manner during the short upcoming period
preceding the closing of the sale of this division on August 3, 1998 and should
not be construed as the Bank's agreement to waive this or any other provision
contained in the Loan Documents in the future.
If the foregoing is acceptable, please sign, date and return the original copy
of this letter as indicated below to my attention. Signatures follow on the next
page.
By: /s/ Robert B. Greene
---------------------------
Its: First Vice President
--------------------------
Accepted and Agreed to this 23rd day of July, 1998.
The Obligors
By: /s/ Alan S. Ker
----------------------------
Its: Vice President Finance and/or Treasurer as applicable for each Obligor
----------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 4.3
SIXTH AMENDMENT TO REVOLVING CREDIT AND LOAN AGREEMENT
THIS SIXTH AMENDMENT TO REVOLVING CREDIT AND LOAN AGREEMENT (this
"Sixth Amendment to Loan Agreement" or this "Sixth Amendment") is entered
into on August 3, 1998 between NBD Bank ("NBD" or "Bank"), as lender, with
offices at 611 Woodward Avenue, Detroit, Michigan 48226; Universal Standard
Healthcare, Inc., formerly known as Universal Standard Medical
Laboratories, Inc., a Michigan corporation ("USML"); Universal Standard
Healthcare of Michigan, Inc., formerly known as Universal Standard Managed
Care of Michigan, Inc., a Michigan corporation ("Michigan Managed Care");
Universal Standard Healthcare of Ohio, Inc., formerly known as Universal
Standard Managed Care of Ohio, Inc., an Ohio corporation ("Ohio Managed
Care"); Universal Standard Healthcare of Delaware, Inc., formerly known as
Universal Standard Managed Care, Inc., a Delaware corporation ("Delaware
Managed Care"); T.P.A., Inc., a Michigan corporation ("Processing"); and A/R
Credit, Inc., a Michigan corporation ("AR Credit"), all of whose addresses are
26500 Northwestern Highway, Southfield, Michigan 48076.
RECITALS
This Sixth Amendment to Loan Agreement is based on the following
recitals ("Recitals"), which are incorporated into and made a part of this
Sixth Amendment:
1. USML, Delaware Managed Care, Ohio Managed Care,
Michigan Managed Care, Processing, AR Credit (each, an "Obligor" and
collectively, the "Obligors"), and NBD are parties to a Revolving
Credit and Loan Agreement dated April 30, 1997, as amended by a First
Amendment to Revolving Credit and Loan Agreement dated September 26,
1997, by a Second Amendment to Revolving Credit and Loan Agreement
dated November 30, 1997, by a Third Amendment to Revolving Credit and
Loan Agreement dated February 2, 1998, by a Fourth Amendment to
Revolving Credit and Loan Agreement dated March 12, 1998, by a Fifth
Amendment to Revolving Credit and Loan Agreement dated June 5, 1998,
and by a letter agreement dated July 21, 1998 (as amended, and as may
be further amended or restated from time to time, the " Loan
Agreement"). In addition to the Loan Agreement, Bank and Obligors are
parties to various other loan and security documents and guaranties
more particularly described in or executed in connection with the Loan
Agreement (which are defined as the "Loan Documents" in the Loan
Agreement). Capitalized terms used but not defined in this Sixth
Amendment have the same meanings given to those terms in the Loan
Documents.
2. USML has advised NBD that simultaneously with the
execution of this Sixth Amendment it will enter into the following
agreements with Laboratory Corporation of America Holdings, a
Delaware corporation ("Labcorp"): (1) Co-Marketing Agreement,
Purchase Agreement, Universal Standard Healthcare, Inc. Stock Purchase
Agreement, and a Security Agreement (to which Delaware Managed Care is
<PAGE> 2
also a party) [for convenience, the foregoing agreements, together
with all other documents, instruments, and agreements enter into in
connection with these agreements are referred to collectively as the
"Labcorp Documents" and individually as a "Labcorp Document"].
Obligors represent and warrant that true, correct, and complete
copies of all of the Labcorp Documents have been provided to NBD.
Among other provisions, the Labcorp Documents provide that Labcorp
will purchase USML's laboratory customer list and certain equipment
located at the so-called "off site patient servicing centers" for
$9,000,000, Labcorp will purchase $4,250,000 of common stock of USML,
and that Labcorp will lease certain premises and certain machinery and
equipment until December 31, 1998 for a lease payment of $1,850,000.
In addition, under the Co-Marketing Agreement, USML may be required to
pay the termination fee described in paragraph 10 of that agreement
(the "Co-Marketing Termination Fee"). The transactions described in
the Labcorp Documents are referred to as the "Labcorp Transaction".
3. Obligors have requested and, subject to the terms
hereof, Bank has agreed to amend the Loan Agreement as set forth in
this Sixth Amendment.
AGREEMENT
Based on the foregoing Recitals (which are incorporated herein as
representations, warranties, acknowledgments and agreements of the parties,
as the case may be) and for other good and valuable consideration, the
receipt and adequacy of which is mutually acknowledged by the parties hereto,
Obligors and Bank agree as follows:
A. The Line of Credit contained in the Loan Agreement
is terminated and no further Advances will be made thereunder.
Simultaneously with the execution of this Sixth Amendment, except for
the Remaining Obligations, all of each Obligor's Obligations to NBD
must be paid in full including, without limitation, all obligations
outstanding under the Line of Credit, all Obligations outstanding with
respect to the Term Loan, and all interest, fees, and costs due NBD.
"Remaining Obligations" means Standby Letters of Credit issued under
Section 2.3 of the Loan Agreement, the Litigation Letter of Credit, and
the Lease Transactions.
B. Section 6.1 of the Loan Agreement is amended in its
entirety to read as follows:
"6.1 Financial Status. Maintain at all times Consolidated
Tangible Capital Funds of not less than $12,500,000 minus the
Laboratory Special Charge. "Laboratory Special Charge" means
up to the first $5,000,000 of any special charge taken by
Obligors due to the sale of USML's laboratory division, but
excluding, without limitation, a charge or
-2-
<PAGE> 3
reduction to net worth in connection with the Co-Marketing
Termination Fee. "Consolidated Tangible Capital Funds" means
the sum of Consolidated Tangible Net Worth plus that
portion of Obligors' Consolidated Indebtedness (but
excluding the Co- Marketing Termination Fee) that is
subordinated to the Obligations in a written agreement on
terms and conditions satisfactory to NBD in its sole
discretion. A calculation of the Obligors' Consolidated
Tangible Capital Funds is attached to the Sixth Amendment as
Exhibit A."
C. Article VII of the Loan Agreement is amended to
provide that in addition to the Events of Default listed therein, the
occurrence of any of the following events or conditions constitute
Events of Default under the Loan Documents for which there is no cure
period:
(1) If any Obligor becomes obligated to pay all
or any portion of the Co-Marketing Termination Fee and within
30 days of its due date does not provide to NBD evidence
satisfactory to NBD in its sole discretion that the
Obligors will be able to pay the Co-Marketing Termination Fee
without causing an Event of Default under the Loan Agreement.
(2) If Labcorp or any Obligor breaches any term,
condition, or provision of the Subordination Agreement (the
"Labcorp Subordination Agreement") entered into between
NBD and Labcorp on or about the same date as this Sixth
Amendment.
D. All proceeds from the sale of the equipment related
to USML's discontinued laboratory operations and all proceeds from the
sale of any other Collateral must be immediately delivered to NBD in
the form received and deposited into a cash collateral account (the
"Cash Collateral Account") at NBD until such time as the amount in the
Cash Collateral Account equals 105% of the sum of (a) the face amount
of all letters of credit (including, without limitation, Standby
Letters of Credit issued under Section 2.3 of the Loan Agreement and
the Litigation Letter of Credit) issued by NBD for the account of any
Obligor, plus (b) any outstanding loans or advances, plus (c) the
maximum amount due under the Lease Transactions, plus (d) the amount
of the other Obligations. For convenience, the sum of subparagraphs
(a), (b), (c) and (d) is referred to collectively as the " Cash
Collateral Amount". All funds in the Cash Collateral Account are
additional collateral security for all of each Obligor's Obligations
to NBD.
E. In addition to any other of NBD's rights and remedies
provided in the Loan Documents, immediately upon the occurrence of an
Event of Default the Obligors must deposit the Letter of Credit Amount
into a cash collateral account (the " Letter of
-3-
<PAGE> 4
Credit Cash Collateral Account") at NBD. All funds in the Letter of
Credit Cash Collateral Account are additional collateral security for
all of each Obligor's Obligations to NBD. "Letter of Credit Amount"
means an amount equal to 105% of the Cash Collateral Amount, less
amounts in the Cash Collateral Account.
F. The warrant agreement (the "Old Warrant Agreement")
constituting part of the Warrant Documents is amended and restated in
its entirety by the warrant agreement attached to this Sixth Amendment
as Exhibit B (the "New Warrant Agreement"), which New Warrant
Agreement now constitutes a part of the Warrant Documents. Within five
business days of NBD's receipt of the New Warrant Agreement, NBD must
deliver the original Old Warrant Agreement to USML for cancellation.
G. NBD waives through August 14, 1998 the default under
the Loan Documents due to the Obligors' failure to deliver to NBD the
Managed Care Reports.
H. To the extent required under the Loan Documents,
NBD consents to the Labcorp Transaction provided that NBD receives
the payments required to be paid to NBD under this Sixth Amendment,
which are $11,377,335.22 as of August 4, 1998. Notwithstanding the
immediately preceding sentence, NBD's consent does not waive any
rights or privileges that NBD has or may have under the Labcorp
Subordination Agreement.
I. Prior to the date of this Sixth Amendment and while
the Obligors were negotiating the Labcorp Transaction, NBD honored
certain overdrafts. On and after the date of the Sixth Amendment, no
further overdrafts will be allowed and NBD may return any checks or
other items presented against any Obligor's account at NBD in which
there are insufficient available and collected funds to cover such
checks or items.
J. Within 60 days after the date of this Agreement, NBD
and the Obligors agree to meet to discuss and attempt to agree on
amending and setting financial covenants through the latest maturity
date of any of the Loans. If for any reason NBD and the Obligors are
unable to agree on the amended and reset financial covenants within
the 60 day period referred to in the immediately preceding sentence,
then such event constitutes an Event of Default under all of the Loan
Documents for which there is no cure period.
K. The Labcorp documents may not be amended without
NBD's prior written consent.
L. Obligors must give simultaneous notice to NBD at the
address in the Loan Agreement of any notices, correspondence, or other
communication regarding the
-4-
<PAGE> 5
Co-Marketing Agreement (other than usual and customary business
communications) or the Co-Marketing Termination Fee including, without
limitation, any of the foregoing relating to facts and circumstances
under which the Co-Marketing Termination Fee may become payable.
M. Obligors must pay the Collateral Monitoring Fee
through the period ended September 30, 1998, but thereafter the
Collateral Monitoring Fee is no longer payable.
N. From and after the date of this Sixth Amendment,
references in the Loan Documents (i) to the "Loan Agreement" are to be
treated as referring to the Loan Agreement as amended by this Sixth
Amendment; (ii) to "obligations" and "Obligations" are to be treated
as referring to all indebtedness and obligations referred to in this
Sixth Amendment; and (iii) to "Loan Documents" includes, without
limitation, the Warrant Documents.
O. Prior to or simultaneously with execution and
delivery of this Sixth Amendment, Obligors must cause to be executed
and delivered to Bank such financing statements, resolutions and other
agreements that Bank may require to effectuate the transactions
contemplated by this Sixth Amendment. Obligors must pay all costs and
expenses (including attorneys' fees) incurred by Bank in connection
with this Sixth Amendment.
P. Obligors expressly acknowledge and agree that all
collateral security and security interests, liens, pledges,
guaranties, and mortgages heretofore or hereafter granted Bank
including, without limitation, such collateral, security interests,
liens, pledges, and mortgages granted under the Loan Documents, extend
to and cover all of each Obligor's Obligations to Bank, now existing
or hereafter arising including, without limitation, those arising in
connection with this Sixth Amendment and under all guaranty agreements
now or in the future given by one or more of the Obligors in Bank's
favor, upon the terms set forth in such agreements, all of which
security interests, liens, pledges, and mortgages are ratified,
reaffirmed, confirmed and approved.
Q. Obligors represent and warrant to NBD that:
(1) (a) The execution, delivery and
performance of this Sixth Amendment by the Obligors and all
agreements and documents delivered by Obligors in connection
with this Sixth Amendment have been duly authorized by all
necessary corporate or other organizational action and does
not and will not require any consent or approval of its
stockholders or members, violate any provision of any law,
rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having
applicability to it or of its
-5-
<PAGE> 6
articles of incorporation, articles of organization, or
bylaws, or result in a breach of or constitute a default under
any indenture or loan or credit agreement or any other
agreement, lease or instrument to which any Obligor is a party
or by which it or its properties may be bound or affected.
(b) No authorization, consent, approval,
license, exemption of or filing a registration with any court
or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, is or will be
necessary to the valid execution, delivery or performance by
Obligors of this Sixth Amendment and all agreements and
documents delivered in connection with this Sixth Amendment.
(c) This Sixth Amendment and all
agreements and documents delivered by Obligors in connection
with this Sixth Amendment are the legal, valid and binding
obligations of Obligors enforceable against each of them in
accordance with the terms thereof.
(2) After giving effect to the amendments
contained in this Sixth Amendment, except as set forth on
Exhibit C, all of the representations and warranties contained
in the Loan Documents (other than in Section 4.16 of the Loan
Agreement) are true and correct on and as of the date hereof
with the same force and effect as if made on and as of the
date hereof.
(3) Obligors's financial statements furnished to
NBD, fairly present Obligors's financial condition as at such
dates and the results of Obligors's operations for the periods
indicated, all in accordance with generally accepted
accounting principles applied on a consistent basis, and since
the date of the last such financial statement there has been
no material adverse change in such financial condition.
(4) After giving effect to this Sixth Amendment
no Default or Event of Default has occurred and is continuing
or will exist on the date of this Sixth Amendment under the
Loan Agreement or any of the other Loan Documents.
R. The terms and provisions of this Sixth Amendment
amend, add to and constitute a part of the Loan Agreement. Except as
expressly modified and amended by the terms of this Sixth Amendment,
all of the other terms and conditions of the Loan Agreement and the
other Loan Documents (including all guaranties, which, without
limitation, extend to and cover the Obligations arising in connection
with the Lease Transactions and the Lease Documents) remain in full
force and effect and are hereby ratified, reaffirmed, confirmed, and
approved.
-6-
<PAGE> 7
S. If there is an express conflict between the terms of
this Sixth Amendment to Loan Agreement and the terms of the Loan
Agreement or the other Loan Documents, the terms of this Sixth
Amendment govern and control.
T. This Sixth Amendment may be executed in any number of
counterparts with the same effect as if all signatories had signed the
same document. All counterparts must be construed together to
constitute one instrument.
U. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
V. There are no promises or inducements which have been
made to any signatory hereto to cause such signatory to enter into
this Sixth Amendment other than those which are set forth in this
Sixth Amendment.
W . RELEASE. AS OF THE DATE HEREOF EACH OBLIGOR
REPRESENTS AND WARRANTS THAT IT IS UNAWARE OF, AND POSSESSES, NO
CLAIMS OR CAUSES OF ACTION AGAINST NBD. NOTWITHSTANDING THIS
REPRESENTATION AND AS FURTHER CONSIDERATION FOR THE AGREEMENTS AND
UNDERSTANDINGS HEREIN, EACH OBLIGOR INDIVIDUALLY, JOINTLY, SEVERALLY,
AND JOINTLY AND SEVERALLY, EACH OF THEIR EMPLOYEES, AGENTS, EXECUTORS
(TO THE EXTENT PERMITTED BY APPLICABLE LAW WITH RESPECT TO EMPLOYEES,
AGENTS, AND EXECUTORS), SUCCESSORS AND ASSIGNS HEREBY RELEASE NBD, ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, AFFILIATES,
SUBSIDIARIES, SUCCESSORS AND ASSIGNS FROM ANY LIABILITY, CLAIM, RIGHT
OR CAUSE OF ACTION WHICH NOW EXISTS, OR HEREAFTER ARISES, WHETHER
KNOWN OR UNKNOWN, ARISING FROM OR IN ANY WAY RELATED TO FACTS IN
EXISTENCE AS OF THE DATE HEREOF. BY WAY OF EXAMPLE AND NOT
LIMITATION, THE FORGOING INCLUDES ANY CLAIMS IN ANY WAY RELATED TO
ACTIONS TAKEN OR OMITTED TO BE TAKEN BY NBD UNDER THE LOAN DOCUMENTS,
AND THE BUSINESS RELATIONSHIP WITH NBD.
X. WAIVER OF JURY TRIAL AND ACKNOWLEDGMENT. THE PARTIES
HERETO ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL
RIGHT, BUT THAT THIS RIGHT MAY BE WAIVED. NBD AND OBLIGORS EACH
-7-
<PAGE> 8
HEREBY KNOWINGLY, VOLUNTARILY AND WITHOUT COERCION, WAIVE ALL RIGHTS
TO A TRIAL BY JURY OF ALL DISPUTES ARISING OUT OF OR IN RELATION TO
THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER AGREEMENTS BETWEEN ANY
OF THE PARTIES. NO PARTY SHALL BE DEEMED TO HAVE RELINQUISHED THE
BENEFIT OF THIS WAIVER OF JURY TRIAL UNLESS SUCH RELINQUISHMENT IS IN
A WRITTEN INSTRUMENT SIGNED BY THE PARTY TO WHICH SUCH RELINQUISHMENT
WILL BE CHARGED.
NBD BANK
By: /s/ Patrick P. Skiles
---------------------------------------------
Patrick P. Skiles
First Vice President
UNIVERSAL STANDARD
HEALTHCARE, INC.
By: /s/ Alan S. Ker
---------------------------------------------
Alan S. Ker
Vice President Finance and Treasurer
UNIVERSAL STANDARD HEALTHCARE
OF MICHIGAN, INC.
By: /s/ Alan S. Ker
---------------------------------------------
Alan S. Ker, Treasurer
UNIVERSAL STANDARD HEALTHCARE
OF OHIO, INC.
By: /s/ Alan S. Ker
---------------------------------------------
Alan S. Ker, Treasurer
[Signatures continued
on the following page]
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<PAGE> 9
[Signatures continued
from preceding page]
UNIVERSAL STANDARD HEALTHCARE
OF DELAWARE, INC.
By: /s/ Alan S. Ker
-------------------------------------
Alan S. Ker, Treasurer
A/R CREDIT, INC.
By: /s/ Alan S. Ker
-------------------------------------
Alan S. Ker, Treasurer
T.P.A., INC.
By: /s/ Alan S. Ker
-------------------------------------
Alan S. Ker, Treasurer
Exhibit A Calculation of Consolidated Tangible Capital Funds
B Amended and Restated Warrant Agreement
C Disclosure re certain Representations and Warranties
-9-
<PAGE> 1
EXHIBIT 10.1
UNIVERSAL STANDARD HEALTHCARE, INC.
STOCK PURCHASE AGREEMENT
June 8, 1998
The Kaufmann Fund, Inc.
140 E. 45th Street
43rd Floor
New York, New York 10017
Gentlemen:
The undersigned, Universal Standard Healthcare, Inc., a Michigan
corporation (the "Company"), agrees with you (the "Purchaser") as follows:
1. Sale and Purchase of Purchased Shares; Closing.
1.1 Agreement to Sell and Purchase Purchased Shares; Option to
Sell and Purchase Debentures.
(a) The Company agrees to sell to the Purchaser and the
Purchaser agrees to purchase from the Company, subject to the terms and
conditions hereof and in reliance upon the representations and warranties
contained herein, on the Closing Date hereinafter referred to, the number of
shares of the Company's common stock, no par value, (the "Common Stock") set
forth opposite the Purchaser's name in Exhibit 1.1 hereto. The purchase price
of such shares shall be $2.50 per share or, if greater, the average of the
closing bid prices for the Common Stock as reported in the principal
consolidated transaction reporting system with respect to securities listed on
The Nasdaq Stock Market National Market for the three trading days (being days
on which The Nasdaq Stock Market reports transactions in securities listed
therewith) ending immediately prior to the Closing Date (the "Purchase
Price"). The Purchase Price for the Common Stock purchased pursuant to this
Section 1.1(a) shall be payable in immediately available funds on the Closing
Date.
(b) The Company shall have the option to purchase from
the Purchaser, and the Purchaser agrees to sell to the Company, subject to the
terms and conditions hereof, on the Debenture Closing Dates hereinafter
referred to, up to $2,500,000 in principal amount of 8.25% Convertible
Subordinated Debentures issued by the Company Due February 1, 2006 (the
"Debentures"), less the principal amount of Debentures purchased prior thereto
pursuant to Section 1.1(c). The purchase price for the Debentures shall be
paid with shares of Common Stock with a value equal to the principal amount of
Debentures to be purchased, with each share of Common Stock being deemed for
purposes of this Agreement to have a value equal to the Purchase Price (the
"Option Exercise Price"). The Company may exercise the foregoing option (the
"Company's Call Option"), from time to time, by written notice delivered to the
Purchaser prior to December 31, 1998,
<PAGE> 2
stating the principal amount of Debentures to be purchased by the Company,
provided that, if, immediately prior to such exercise, the Purchaser
beneficially owns (as defined in Rule 13d-3 of the General Rules and
Regulations Under the Securities Exchange Act of 1934, as amended) less than
twenty-five (25%) percent of the outstanding shares of Common Stock, the
Company's Call Option shall not be exercisable to the extent it would cause the
Purchaser, immediately following such exercise, to beneficially own more than
twenty-five (25%) percent of the outstanding shares of Common Stock. Each
Closing of the purchase of Debentures from the Purchaser shall occur on the
fifth day following the day the Company's exercise notice is delivered to the
Purchaser, in the case of Section 1.1(b), and the fifth day following the day
the Purchaser's exercise notice is delivered to the Company, in the case of
Section 1.1(c) or, if such day is not a business day, the first business day
thereafter (the "Debenture Closing Date"). On the Debenture Closing Date, the
Company shall automatically, without further action, become the owner of the
Debentures to be exchanged on such date, and the Purchaser shall become owner
of the Common Stock to be issued in exchange therefor. In the event the
Company exercises the Company's Call Option pursuant to this Section 1.1(b),
then the Purchaser will accrue interest on the Debentures, at a rate of 8.25%,
from the last Interest Payment Date up to and including the Debenture Closing
Date, to be paid by the Company to the Purchaser on the Debenture Closing Date,
but in the event the Purchaser exercises the Purchaser's Put Option pursuant to
Section 1.1(c), then no interest shall be deemed to have accrued from the most
recent Interest Payment Date to the Debenture Closing Date, and no interest
shall be payable by the Company to the Purchaser on the Debenture Closing Date.
(c) The Purchaser shall have the option to sell to the
Company, and the Company shall purchase from the Purchaser, subject to the
terms and conditions hereof, on the Debenture Closing Dates hereinafter
referred to, up to $2,500,000 in principal amount of Debentures, less the
principal amount of Debentures purchased prior thereto pursuant to Section
1.1(b). The purchase price for the Debentures shall be paid with shares of
Common Stock with a value equal to the principal amount of Debentures to be
purchased, with each share of Common Stock being deemed for purposes of this
Agreement to have a value equal to the Purchase Price (the "Option Exercise
Price"). The Purchaser may exercise the foregoing option (the "Purchaser's Put
Option"), from time to time, by written notice delivered to the Company prior
to December 31, 1998, stating the principal amount of Debentures to be
purchased by the Company, provided that, unless shareholder approval is
obtained, the Company shall not be required to issue any shares of Common Stock
to the Purchaser pursuant to this Section 1.1(c) to the extent provided in
Section 1.4, including to the extent that such issuance would result in the
total number of shares of Stock or Common Stock issued pursuant to this Section
1 equaling or exceeding 20% of the Common Stock outstanding as of the date of
this Agreement or exceeding 1,313,901 shares of Common Stock. If shareholder
approval of the issuance of Common Stock upon exercise of the Purchaser's Put
Option is required under Section 1.4, the Company agrees to seek such approval
at the next meeting of the shareholders of the Company, provided that if the
Purchaser exercises the Purchaser's Put Option prior to December 31, 1998, and
the next meeting of the shareholders of the Company is after December 31, 1998,
then the Debenture Closing Date shall be deferred until after such meeting of
the shareholders. If the shareholders do not approve of any such issuance,
then the Purchaser's exercise of the Purchaser's Put Option shall be null and
void. Each closing of the purchase of Debentures shall occur on the Debenture
Closing Date. In the event that the Company is seeking shareholder approval of
a
2
<PAGE> 3
transaction described in Section 1.1(d), it will use its best efforts to obtain
shareholder approval of the issuance of Common Stock upon exercise of the
Purchaser's Put Option, even if such Put Option has not yet been exercised.
(d) Unless the Purchaser shall exercise the Purchaser's
Put Option prior thereto, which exercise may be conditioned upon the closing of
a transaction described in this Section 11(d), the options set forth in
Sections 1.1(b) and (c) shall terminate effective upon (i) the merger of the
Company with any other company, if the Company is not the survivor of such
merger, (ii) a merger or statutory share exchange in which the holders of the
Common Stock of the Company immediately prior to such transaction do not own
more than fifty (50%) percent of the Common Stock of the Company immediately
following the transaction or (iii) upon the dissolution or liquidation of the
Company.
(e) Upon the occurrence of an Extraordinary Common Stock
Event, the Option Exercise Price shall, simultaneously with the occurrence of
such Extraordinary Common Stock Event, be adjusted by dividing the Option
Exercise Price in effect immediately before such Extraordinary Common Stock
Event by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately before such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such Extraordinary Common Stock Event and
the product so obtained shall thereafter be the Option Exercise Price. The
Option Exercise Price, as so adjusted, shall be readjusted in the same manner
upon the occurrence of any subsequent successive Extraordinary Common Stock
Event or Events. "Extraordinary Common Stock Event" shall mean (i) the issue
of additional shares of Common Stock as a dividend or other distribution on
outstanding Common Stock, (ii) the subdivision of outstanding shares of Common
Stock into a greater number of shares of Common Stock, (iii) the combination of
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, or (iv) a change in the Common Stock's par value, or from par value to a
no par value, or from no par value to par value.
(f) The shares of Common Stock issued pursuant to Section
1.1 and Section 1.3 shall be referred to in this Agreement as the Purchased
Shares.
1.2 CLOSING.
(a) The closing of the delivery of and payment for the
Purchased Shares purchased pursuant to Section 1.1 shall be held simultaneously
with the execution and delivery of this Agreement made on June 8, 1998, or
such other date and at such place as is mutually agreed upon by the Company and
the Purchaser (the "Closing Date"). On the Closing Date, the Company will
deliver to the Purchaser, against payment of the Purchase Price therefor, a
certificate dated such Closing Date and registered in the Purchaser's name for
the number of shares of Common Stock set forth opposite the Purchaser's name in
Exhibit 1.1 hereto.
(b) On each Debenture Closing Date, (i) the Purchaser
will deliver to the Company Debentures in the principal amount to be sold, free
and clear of all liens, pledges or
3
<PAGE> 4
encumbrances of any kind, nature or description, duly endorsed in blank, in
proper form for transfer, with all signatures properly guaranteed by a member
firm of the New York Stock Exchange or a commercial bank or trust company bank
or trust company that is a member of a signature guarantee medallion program,
(ii) the Company will deliver to the Purchaser a certificate dated such
Debenture Closing Date and registered in the Purchaser's name for the number of
shares of Common Stock to be issued to the Purchaser pursuant to Section 1.1,
(iii), in the case of a purchase under Section 1.1(c), a written certificate
from the Purchaser, dated the Debenture Closing Date, representing and
warranting that the Purchaser's representations and warranties to the Company
set forth in Section 4 are true and correct in all material respects as though
made on the Debenture Closing Date, and (iv), in the case of a purchase under
Section 1.1(b), a written certificate from the Company, dated the Debenture
Closing Date, representing and warranting that the Company's representations
and warranties to the Purchaser set forth in Section 3 (other than those set
forth in the first sentence of Section 3(iv)) are true and correct in all
material respects as though made on the Debenture Closing Date. The Company
may waive the delivery of the certificate set forth in (iii) above and the
Purchaser may waive the delivery of the certificate set forth in (iv) above at
their sole discretion and the Purchaser shall not be liable to the Company, and
the Company shall not be liable to the Purchaser, if they are unable to deliver
the foregoing certificates solely because of changes in facts which have made
the parties prior representations and warranties no longer accurate. The
obligation of each party to go forward on a Debenture Closing Date with the
transactions contemplated herein is subject to the delivery by the other party
of all documents and payments required hereunder to be delivered by such party,
and, in the case of Section 1.1(c), the receipt of any Required Shareholder
Approvals.
1.3 SUBSEQUENT STOCK ISSUANCES.
(a) Except for shares of the Company's voting capital
stock (the "Stock") issued in a public offering of shares registered under the
Securities Act, shares of Stock issued as compensation or in conjunction with
any employee benefit plan or program, shares of Stock issued in connection with
the conversion of the Debentures or exercise of options or warrants, or shares
of Stock issued for consideration other than money, in the event that the
Company after the date of this Agreement, but prior to December 31, 1998,
issues any shares of Stock as a new issue or from treasury (the "New Issue"),
the Purchaser shall have the pre-emptive right to purchase a percentage of such
New Issue equal to the Purchaser's percentage holding of the issued and
outstanding Stock of the Company at the date of such issuance. The Purchaser
may exercise this pre-emptive right at any time within ten days after it
receives written notice from the Company of the contemplated offer, sale or
issuance of the New Issue, by delivery of a written notice stating the number
of shares of the New Issue it elects to so purchase and representing and
warranting that the Purchaser's representations and warranties to the Company
set forth in Section 4 are true and correct in all material respects as though
made on the date of such notice.
(b) Except for shares of the Company's Common Stock
issued as compensation or in conjunction with any employee benefit plan or
program, including any employee or director stock option plan, shares of the
Company's Common Stock issued in connection with the exercise of presently
outstanding options or shares of the Company's Common Stock issued for
consideration
4
<PAGE> 5
other than money or Debentures, in the event that the Company, after the date
of this Agreement, but prior to December 31, 1998, issues any shares of Common
Stock, or rights to acquire shares of Common Stock, as a new issue or from
treasury, at a price per share less than the Purchase Price (the "Below
Purchase Price"), then (i) the Company shall issue to the Purchaser an
additional number of shares of Common Stock calculated as follows: (the sum of
the total Purchase Price paid for the Common Stock purchased pursuant to
Section 1.1(a) and the total principal amount of Debentures exchanged for
Common Stock pursuant to Section 1.1(b) and (c) prior to such issuance, divided
by the Below Purchase Price) less the number of shares of Common Stock
purchased under Section 1.1 or 1.3(b) of this Agreement prior to such issuance
and (ii) the Option Exercise Price set forth in Section 1.1(b) and 1.1(c) shall
thereafter be the Below Purchase Price.
1.4 NASDAQ LIMITATION. Notwithstanding the foregoing provisions
of this Section 1, the Company shall not be required to issue any shares of
Stock or Common Stock to the Purchaser pursuant to this Section 1 to the extent
that (i) such issuance would result in the total number of shares of Stock or
Common Stock issued pursuant to this Section 1 equaling or exceeding 20% of the
Common Stock outstanding as of the date of this Agreement or exceeding
1,313,901 shares of Common Stock or (ii) such issuance requires approval of the
shareholders of the Company under applicable law or the rules of The Nasdaq
Stock Market, until shareholder approval of such issuance is received and, in
that case, the Debenture Closing Date shall be the fifth day after such
shareholder approval is received or, if such day is not a business day, the
first business day thereafter. If such approval is required, the Company
agrees to use its best efforts to obtain approval of the shareholders of the
Company (i), in the case of issuances under Section 1.3, at the meeting of the
shareholders of the Company held to approve the event triggering the
Purchaser's rights under Section 1.3, or, if no such meeting is held, at the
next meeting of the shareholders of the Company following the event triggering
the Purchaser's rights under Section 1.3 and (ii), in all other cases, at the
next meeting of the shareholders of the Company following the event triggering
the Purchaser's rights under Section 1. The Company shall not be required to
call a special meeting of the shareholders of the Company to vote on any such
issuance and shall only be required to present each such proposed issuance to
shareholders for approval one time.
2. Registration Rights.
2.1 Filing and Effectiveness. The Company hereby agrees to file
with the Securities and Exchange Commission (the "SEC"), as soon as
practicable, but in no event later than thirty (30) days following the Closing
Date, a registration statement on Form S-3 and, no later than January 31, 1999,
a second registration statement on Form S-3 (the "Registration Statements"), in
each case, registering the Purchased Shares purchased prior to each such filing
date not previously so registered for resale by the Purchaser. The Company
will furnish the Purchaser with copies of the Registration Statements prior to
the filing of the same. The Company will use its best efforts to have such
Registration Statements declared effective by the SEC as soon as is
practicable. The Company shall keep such Registration Statements effective for
the period necessary for the Purchaser, in its sole discretion, to complete the
public resale or other disposition of the Purchased Shares or, if earlier, the
date when the Purchased Shares are eligible for sale pursuant to Rule 144(k)
(or any similar provision in force) under the Securities Act of 1933, as
amended (the "Securities Act"). If in the
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good faith judgment of the Board of Directors of the Company, the filing,
effectiveness or continued use of the Registration Statements would be
materially detrimental to the Company, then the Company shall have the right to
defer such filing or effectiveness, and may suspend the Purchaser's right to
sell Common Stock under the Registration Statements, for the period during
which such filing, effectiveness or use would be materially detrimental to the
Company, provided that such deferral or suspension shall not be for a period of
more than thirty (30) days and the Company shall not make such a deferral or
suspension more than once in any twelve month period.
2.2 Blue Sky. The Company shall use its best efforts to register
or qualify the Purchased Shares under such securities acts or laws of such
states of the United States as the Purchaser shall reasonably request;
provided, however, that in no event shall the Company be obligated, in
connection therewith, to qualify to do business in any jurisdiction where it
shall not then be qualified or grant a general consent to service of process in
any jurisdiction in which such consent to service has not been previously
given.
2.3 Additional Obligations. The Company hereby agrees to:
(a) Supply to the Purchaser one true copy of each
Registration Statement (and any supplement or amendment thereto) and such
number of the preliminary, final and any other prospectus and amendments
thereto, prepared in conformity with the requirements of the Securities Act and
the rules and regulations thereunder, as each such Purchaser may reasonably
request in order to facilitate the public sale of shares owned by the
Purchaser.
(b) Remove all "stop transfer orders" relating to the
Purchased Shares once registered with the SEC under Section 5 of the Securities
Act and, thereafter, remove all legends from stock certificates representing
such Purchased Shares restricting the transferability of such stock under
applicable securities laws;
(c) Notify the Purchaser immediately, and confirm the
notice in writing, (i) of the effectiveness of the Registration Statements and
any amendment thereto (including any post-effective amendment), (ii) of the
receipt of any comments from the SEC, (iii) of any request by the SEC for any
amendment to the Registration Statements or any amendment or supplement to any
prospectus relating thereto or for additional information, (iv) of the issuance
by the SEC of any stop order suspending the effectiveness of the Registration
Statements or the initiation of any proceedings for that purpose and (v)
immediately notify the Purchaser at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such Registration
Statements, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or incomplete in the light of the
circumstances then existing. The Company will use its best efforts to prevent
the issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
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(d) Give the Purchaser notice of its intention to file or
prepare any amendment to the Registration Statements (including any
post-effective amendment) or any amendment or supplement to the final
prospectus (including any revised prospectus which the Company proposes for use
by the Purchaser in connection with the offering of the Purchased Shares which
differs from the prospectus on file at the SEC at the time the Registration
Statements become effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Securities Act Regulations), and
furnish the Purchaser with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be. The term "Prospectus" shall refer to the final prospectus and any revised
prospectus provided to the Purchaser from time to time thereafter and all
material incorporated by reference therein.
(e) If any event shall occur as a result of which it is
necessary to amend or supplement the Prospectus in order to make the Prospectus
not misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, forthwith amend or supplement the Prospectus so that,
as so amended or supplemented, the Prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to a purchaser, not misleading, and
furnish to the Purchaser such copies of such amendment or supplement as
Purchaser shall request.
(f) In the event that the Company files a Registration
Statement on a form, other than Form S-3, or any substitute therefor, furnish
to Purchaser at the effective date of such Registration Statement upon request
a signed counterpart, addressed to Purchaser, of
(i) an opinion of counsel for the Company,
covering such matters as are typically addressed in opinions rendered by
Company counsel to underwriters of public securities of the Company, dated the
effective date of the Registration Statement and in form reasonably acceptable
to the Company and Purchaser, and
(ii) "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the extent
permitted by the standards of the American Institute of Certified Public
Accountants,
in the case of (i) and (ii) covering substantially the same matters with
respect to such Registration Statement (and the prospectus included therein)
and (in the case of the accountants' "comfort" letter) with respect to events
subsequent to the date of the financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' "comfort" letters delivered
to the underwriters in underwritten public offerings of securities;
(g) Make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at least
twelve months, but not more than eighteen months, beginning with the first
month after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
and
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(h) In connection with the preparation and filing of each
Registration Statement give the underwriters, if any, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such Registration Statement, each prospectus included therein or filed with the
SEC, and each amendment thereof or supplement thereto, and will give such
persons such access to the Company's books and records and such opportunities
to discuss the business of the Company with its officers, its counsel and the
independent public accountants who have certified the Company financial
statements, as shall be necessary, in the opinion of Purchaser or such
underwriters or their respective counsel, in order to conduct a reasonable and
diligent investigation within the meaning of the Securities Act. Without
limiting the foregoing, each Registration Statement, prospectus, amendment,
supplement or any other document filed with respect to a registration shall be
subject to review and reasonable approval by the Purchaser and its counsel;
provided that if there is any disagreement between the Purchaser and the
Company with respect to the content of any such document, then the Company may
delay the filing of the same and may suspend the Purchaser's right to sell
Common Stock under the Registration Statement until such disagreement is
resolved.
2.4 Expenses of Registration. All expenses, other than
underwriting discounts and selling commissions, incurred in effecting any
registration pursuant to this Section 2, including, without limitation, all
costs of preparation and registration, filing fees, printing expenses, expenses
of compliance with Blue Sky laws, fees and disbursements of counsel for the
Company and fees and disbursements of counsel for the Purchaser, up to a
maximum of $5,000.00 for such Purchaser's counsel, shall be borne by the
Company.
2.5 Conditions to Company's Obligations. The Company's
obligations under this Section 2 shall be conditioned upon a timely receipt by
the Company in writing of:
(i) Information as to the terms of such public offering
furnished by or on behalf of the Purchaser; and
(ii) Such other information as the Company may reasonably
require from the Purchaser, or any underwriter for it, for inclusion in such
Registration Statement.
2.6 Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Purchaser and each person, if any, who controls the Purchaser within the
meaning of Section 15 of the Securities Act, against any and all loss,
liability, claim, damage and expense whatsoever arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statements (or any amendment thereto), including the information
deemed to be part of the Registration Statements pursuant to Rule 430A(b) of
the rules and regulations of the SEC under the Securities Act (the "Securities
Act Regulations"), if applicable, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission therefrom
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<PAGE> 9
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent (i) arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Purchaser expressly for use in the Registration Statements (or any amendment or
Supplement thereto) or any Prospectus (or any amendment or supplement thereto)
or (ii) arising from the fact that a copy of the Prospectus was not timely
delivered by the Purchaser to a purchaser who became a plaintiff in a lawsuit.
(b) The Purchaser agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statements, and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statements (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with
written information to the Company by the Purchaser for use in the Registration
Statements (or any amendment thereto) or such final Prospectus (or any
amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying party
from any liability which it may have otherwise than on account of this
indemnity agreement. In case such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party and, after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof and so long as
the indemnifying party continues to defend the matter, the indemnifying party
shall not be liable under this indemnity for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof,
provided however, that the indemnified party shall have the right to employ
separate counsel at its expense in any such action and participate in the
defense thereof. No indemnifying party shall be liable for any settlement
entered into without its consent. An indemnifying party who elects not to
assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by the
indemnifying party with respect to the claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between the
indemnified party and any other indemnified party with respect to the claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of no more than one additional counsel for the indemnified parties per
venue.
2.7 Contribution. If the indemnification provided for in Section
2.6 is unavailable to an indemnified party in respect of any losses,
liabilities, claims, damages, or expenses referred to therein, then each
indemnifying party thereunder shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, liabilities, claims, damages
or expenses in such
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<PAGE> 10
proportion as is appropriate to reflect the relative fault of the Company and
the Purchaser in connection with the statements or omissions that resulted in
such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations. The relative fault of the Company and the
Purchaser shall be determined by reference to, among other things, whether the
untrue or alleged statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or by the Purchaser and the parties' relative intent and knowledge.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 2.7 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section, each director of the
Purchaser, each officer of the Purchaser and each person, if any, who controls
the Purchaser within the meaning of Section 15 of the Securities Act shall have
the same rights to contributions as such Purchaser, and each director of the
Company, each officer of the Company who signed the Registration Statements,
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act shall have the same rights to contribution as the
Company.
3. Representations and Warranties. The Company represents and
warrants to the Purchaser as of the date hereof, and after giving effect to the
transactions contemplated by this Agreement, as follows:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Michigan with corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under this Agreement; and the Company is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify would not have a material adverse effect
on the condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise.
(ii) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus and is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify
would not have a material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise; all of the issued
and outstanding capital stock of each such subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and, is owned by the
Company,
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directly or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity, except for pledges to NBD
Bank.
(iii) Since March 31, 1998, except as otherwise stated to
the Purchaser in writing, (A) there has been no material adverse change in the
condition, financial or otherwise, or in the earnings or business affairs of
the Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than those in the
ordinary course of business, which are material with respect to the Company and
its subsidiaries considered as one enterprise, and (C) there has been no
dividend or distribution of any kind declared, paid or made by the Company on
any class of its capital stock. This Agreement and any other agreement,
document, certificate or written statement furnished to the Purchaser by or on
behalf of the Company in connection with the transactions contemplated hereby,
when read together, do not contain any untrue statement of a material fact and
do not omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
(iv) As of June 8, 1998, the authorized capital of the
Company consisted of 20,000,000 shares of Common Stock of which 6,569,513
shares were authorized and outstanding prior to the issuance of Common Stock
pursuant to the terms of this Agreement and 4,370,054 shares of Common Stock
are reserved for issuance upon the conversion or exchange of outstanding
securities or rights to acquire capital stock of the Company, other than rights
created by this Agreement, and not including not more than 10,000 shares of
Common Stock reserved for issuance upon exercise of outstanding elections to
purchase Common Stock under the Company's Employee Stock Purchase Plan;
provided that the Company plans to seek shareholder approval to increase the
authorized capital of the Company to 40,000,000 shares of Common Stock and
10,000,000 shares of Preferred Stock. The Purchased Shares have been duly
authorized for issuance and sale to the Purchaser pursuant to this Agreement
and, when issued and delivered by the Company pursuant to this Agreement
against payment therefor in the manner herein described, will be validly issued
and fully paid and non-assessable; and the issuance of the Purchased Shares is
not subject to preemptive or other similar rights. No further approval or
authority of any shareholder or the Board of Directors of the Company is
required for the issuance and sale of the Purchased Shares, except as may be
required under Sections 1.1(c) and 1.3 of this Agreement.
(v) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein and
compliance by the Company with its obligations hereunder have been duly
authorized by all necessary corporate action and will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any of its subsidiaries pursuant to, any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the Company
or any of its subsidiaries is a party or by which it or any of them may be
bound, or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of the
provisions of the articles of incorporation or by-laws of the Company or any
applicable law, administrative regulation or administrative or court decree,
except as may be required under Sections 1.1(c) and 1.3 of this Agreement.
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(vi) No authorization, approval or consent of any court or
governmental authority or agency is necessary in connection with the offering,
issuance or sale of the Purchased Shares hereunder.
(vii) The financial statements of the Company, together
with related notes and schedules, included in the SEC Filings (as defined
below) present fairly the financial position of the Company and its
consolidated subsidiaries as at the dates indicated and the results of their
operations for the periods specified and such financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis, except as stated therein and all adjustments necessary for
a fair presentation of results for such periods have been made. Each of the
SEC Filings, as of its date, did not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances in which made, not misleading. All filings required to be filed
by the Company with the SEC during the last twelve months have been filed in a
timely manner.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company, and constitutes the legal, valid and binding
obligation of the Company, enforceable against it in accordance with its
respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting enforcement,
creditors' rights generally and by general principles of equity whether
considered in a proceeding at law or in equity.
(ix) Neither the Company nor any of its officers,
directors or affiliates (as defined in the Securities Act and the Securities
Act Regulations thereunder) has taken or will take, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result, under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or otherwise in stabilization or manipulation of
the price of any security of the Company, to facilitate the sale or resale of
the Purchased Shares.
(x) The Company is not, and does not intend to conduct
its business in a manner in which it would become, an "investment company" as
defined in Section 3(a) of the Investment Company Act of 1940, as amended.
(xi) The Company satisfies the registrant and transaction
requirements contained in the instructions for use of the Form S- 3 in effect
as of the date hereof in order to use the Form S-3 to register the Purchased
Shares.
(xii) The net proceeds to the Company of the transactions
contemplated hereby will be used for general corporate purposes, including
additional working capital.
4. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company as follows:
4.1 Investment Representations. The Purchaser is purchasing the
Purchased Shares for its own account for investment and not with a view to or
for sale in connection with any unregistered
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distribution (as that term is defined under the Securities Act, or the
Securities Act Regulations) thereof.
4.2 Status of Investor.
(a) The Purchaser is an Accredited Investor as that term
is defined in Regulation D (17 C.F.R. 230.501 - 230.506).
(b) The Purchaser was not organized for the specific
purpose of acquiring the Purchased Shares.
(c) The address set forth on the first page of this
letter is the Purchaser's principal place of business, unless otherwise
disclosed to the Company in writing.
4.3 Restrictions. The Purchaser is aware that the Purchased
Shares delivered hereunder have not been registered under the Securities Act,
or under applicable state securities laws, and that the Company in issuing the
Purchased Shares will be relying upon, among other things, the Purchaser's
representations and warranties contained in Section 4 of this Agreement, in
concluding that such issuance is a "private offering" and does not require
compliance with the registration provisions of the Securities Act and
applicable state securities laws. The Purchaser will not sell, transfer or
otherwise dispose of the Purchased Shares except in compliance with Section 4.7
of this Agreement. In addition, the Purchaser is aware that the Purchased
Shares shall contain the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY OTHER
SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THESE SECURITIES
UNDER SAID ACT AND ANY OTHER APPLICABLE SECURITIES LAW, AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED OR A WRITTEN ADVICE FROM THE SECURITIES AND EXCHANGE
COMMISSION AND APPLICABLE STATE SECURITIES AGENCIES, OR A MEMBER OF
THE STAFF THEREOF, THAT "NO-ACTION" WOULD BE RECOMMENDED IF THE
PROPOSED TRANSFER WERE TO BE MADE WITHOUT THE FILING OF A REGISTRATION
STATEMENT (OR ANY COMBINATION OF THE FOREGOING).
The Purchaser agrees that the Company may issue instructions to its transfer
agent to place, or may itself place, a "stop transfer order" with respect to
the Purchased Shares, provided, however, that such "stop transfer orders" shall
not be enforced if the Purchased Shares are sold or transferred in a
transaction which complies with Section 4.7 hereof.
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4.4 Access. The Purchaser has received and reviewed a
copy of the following documents: (a) the Company's Annual Report on Form 10-K,
and the amendment thereto on Form 10-K-A, for the fiscal year ended
December 31, 1997, (b) the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 1998, and (c) all filings by the Company with the SEC
under Section 13(a), 14(a), 14(c) and 15(d) of the Securities Exchange Act of
1934, as amended, filed by the Company after the date of this Agreement, but
prior to each Closing Date or Debenture Closing Date (the "SEC Filings"). The
Purchaser has been given access to the Company's facilities, records and books;
the Purchaser has had an opportunity to ask questions of and receive answers
from the Company and its officers and directors concerning the Company, its
subsidiaries and the terms and conditions of the sale of the Purchased Shares
and to obtain any additional information which the Company possesses or can
acquire without unreasonable effort or expense that is necessary to verify the
accuracy of the information furnished to the Purchaser; and the Purchaser has
made such investigation and examination of the affairs of the Company and its
subsidiaries and has obtained such information relating thereto as the
Purchaser deems necessary. The Purchaser understands that the Purchased Shares
issuable pursuant to this Agreement are "restricted securities" within the
meaning of Rule 144 (17 C.F.R. 230.144) promulgated under the Securities Act,
and that they must be held indefinitely, unless they are subsequently
registered under the Securities Act, and under applicable securities laws, or
exemptions from such registrations are available.
By virtue of the Purchaser's investment acumen, knowledge and business
experience and independent advice, the Purchaser is capable of understanding
and evaluating the risks, hazards and merits of participating in the purchase
of Purchased Shares to be made by the Purchaser. The Purchaser has substantial
financial means and is able to bear the economic risk of participating in the
purchase of the Purchased Shares.
4.5 Due Execution of Agreement. This Agreement constitutes the
Purchaser's valid and legally binding obligation enforceable in accordance
with its terms, except insofar as enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting the rights of creditors
generally, and the remedy of specific performance may not be available with
respect to any particular provisions of this Agreement.
4.6 Transferability. The Purchaser hereby agrees that it will not
transfer any of its Purchased Shares without an effective registration
statement relating thereto, an opinion of counsel satisfactory to the Company
that such registration is not required under the Securities Act and applicable
state law, or a written advice from the SEC and applicable state securities
agencies, or a member of the staff thereof, that "no-action" would be
recommended if the proposed transfer were to be made without the filing of a
registration statement (or any combination of the foregoing).
4.7 Incorporation. The Purchaser has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
State of Maryland with corporate power and authority to own, lease and operate
its properties and to conduct its business as now conducted and to enter into
and perform its obligations under this Agreement.
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4.8 Due Authorization. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein and
compliance by the Purchaser with its obligations hereunder have been duly
authorized by all necessary corporate action and will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Purchaser or any of its subsidiaries pursuant to, any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the
Purchaser or any of its subsidiaries is a party or by which it or any of them
may be bound, or to which any of the property or assets of the Purchaser or any
of its subsidiaries is subject, nor will such action result in any violation of
the provisions of the charter or by-laws of the Purchaser or any applicable
law, administrative regulation or administrative or court decree.
4.9 Consents. No authorization, approval or consent of any court
or governmental authority or agency is necessary in connection with the
execution, delivery and performance of this Agreement by the Purchaser and the
consummation of the transactions contemplated herein and compliance by the
Purchaser with its obligations hereunder.
4.10 Ownership of Debentures. The Purchaser owns of record and
beneficially all of the Debentures and has good and valid title to all of the
Debentures, free and clear of all liens (including tax liens), forfeitures,
covenants, conditions, pledges, penalties, charges, encumbrances, buy-sell
agreements, rights of first refusal, equities or claims or rights of others
whatsoever. The delivery to the Company of the Debentures pursuant to this
Agreement will transfer to the Company valid title thereto, free and clear of
all liens, encumbrances, restrictions and claims of any kind. With respect to
the Debentures, the Purchaser hereby confirms to the Company the warranties set
forth in Mich Comp Laws Ann. Section 440.8306(2)(a).
5. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company or the
Purchaser submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
Purchaser or controlling person, or by or on behalf of the Company or any
controlling person, and shall survive delivery of the Purchased Shares to the
Purchaser and the Debentures to the Company.
6. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Purchaser shall be directed to The Kaufmann Fund, Inc. at 140 E. 45th Street,
43rd Floor, New York, New York 10017, Inc. attention of Larry Auriana; and
notices to the Company shall be directed to it at Universal Standard
Healthcare, Inc., 26500 Northwestern Highway, Southfield, Michigan 48076,
attention: President and Chief Executive Officer.
7. Parties. This Agreement shall inure to the benefit of and be
binding upon the Purchaser and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Purchaser and
the Company and their respective successors and the controlling persons and
officers and directors and their heirs and legal representatives, any legal or
equitable right, remedy or claim
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under or in respect of this Agreement or any provision herein or therein
contained. This Agreement and all conditions and provisions hereof and thereof
are intended to be for the sole and exclusive benefit of the Purchaser and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of the Purchased
Shares from the Purchaser shall be deemed to be a successor by reason merely of
such purchase.
8. Governing Law and Time; Amendments. This Agreement shall be
governed by and construed in accordance with the laws of the State of Michigan
applicable to agreements made and to be performed in said State. No amendment
to this Agreement shall be enforceable unless in writing and signed by the
Company and the Purchaser.
9. Severability. The provisions of this Agreement are severable
and if any provision hereof shall be held null, void, invalid, unenforceable or
contrary to law, no other provisions of this Agreement shall be thereby
affected but on the contrary shall remain in full force and effect, and all
parties hereto shall remain bound under all such other provisions hereof.
10. Headings. The section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Purchaser and the Company in accordance with its terms.
Very truly yours,
UNIVERSAL STANDARD HEALTHCARE, INC.
By: /s/ Alan S. Ker
------------------------------
Alan S. Ker
Vice President
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written:
THE KAUFMANN FUND, INC.
16
<PAGE> 17
By: /s/ Lawrence Auriana
------------------------------
Title: Chairman and Portfolio Company Manager
17
<PAGE> 18
Exhibit 1.1
to Universal Standard Healthcare, Inc.
Stock Purchase Agreement
Number of
Name Purchased Shares
- ---- ----------------
The Kaufmann Fund, Inc. 500,000
18
<PAGE> 1
EXHIBIT 10.2
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT. THE EXERCISE OF THIS WARRANT IS SUBJECT TO COMPLIANCE WITH
APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
UNIVERSAL STANDARD HEALTHCARE, INC.
WARRANT TO PURCHASE 100,000 SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received, NBD Bank is entitled to
subscribe for and purchase 100,000 shares of the fully paid and nonassessable
Common Stock (as adjusted pursuant to Section 2 hereof, the "Shares") of
Universal Standard Healthcare, Inc., a Michigan corporation (the "Company"), at
the price of Two and 50/100 Dollars ($2.50) per Share (such price and such
other price as shall result, from time to time, from the adjustments specified
in Section 2 hereof is herein referred to as the "Warrant Price"), subject to
the provisions and upon the terms and conditions hereinafter set forth. Any
assignee of this Warrant, by acceptance hereof assumes and agrees to the rights
and restrictions set forth herein. This Warrant shall expire sixty (60) days
after the Holder receives written notice that a merger or consolidation has
been consummated in which the Company is a constituent party and the holders of
its Common Stock receive cash in exchange for their shares of Common Stock.
1. Term. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from August
3, 1998 (the "Effective Date") through the date three (3) years after the
Effective Date. In the event that a merger or consolidation is consummated in
which the Company is a constituent party and the holders of its Common Stock
receive exclusively cash in exchange for their shares of Common Stock, this
Warrant shall be converted into the right to receive an amount equal to the
product of (x) the number of Shares as to which this Warrant is then
exercisable, multiplied by (y) the positive difference, if any, between (i)
the per Share merger consideration and (ii) the Warrant Price.
2. Adjustment of Warrant Price and Number of Shares. The Warrant
Price and the number of Shares issuable upon the exercise of this Warrant shall
be subject to adjustment from time to time, and the Company agrees to provide
notice upon the happening of certain events as follows:
(a) Reclassification, etc. If the Company at any time
shall, by subdivision,
<PAGE> 2
combination or reclassification of securities, by merger, by share exchange or
otherwise, change or permit to be changed any of the securities to which
purchase rights under this Warrant exist into the same or a different number of
securities of any class or classes, this Warrant shall thereafter permit the
holder hereof (the "Holder") to acquire such number and kind of securities
and/or other consideration as would have been issuable as the result of such
change with respect to the securities which were subject to the purchase rights
under this Warrant immediately prior to such subdivision, combination,
reclassification, merger or other change. If shares of the class of the
Company's stock for which this Warrant is being exercised are subdivided or
combined into a greater or smaller number of shares of stock, the Warrant Price
shall be proportionately reduced in case of subdivision of shares or
proportionately increased in the case of combination of shares, in both cases
by the ratio which the total number of shares of such class of stock to be
outstanding immediately after such event bears to the total number of shares of
such class of stock outstanding immediately prior to such event.
(b) Adjustment for Dividends in Stock. In case at any
time or from time to time on or after the Effective Date the holders of the
Common Stock of the Company (or any shares of stock or other securities at the
time receivable upon the exercise of this Warrant) shall have received, or, on
or after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefor, other or
additional stock of the Company by way of dividend, then and in each case, the
Holder shall, upon the exercise hereof, be entitled to receive, in addition to
the number of Shares receivable thereupon, and without payment of any
additional consideration therefor, the amount of such other or additional stock
of the Company which such Holder would be entitled to receive had it been the
holder of record of such Shares on the Effective Date and had thereafter,
during the period from the Effective Date to and including the date of such
exercise, retained such shares and/or all other additional stock receivable by
it as aforesaid during such period, giving effect to all adjustments called for
during such period by paragraphs (a), (b) and (c) of this Section 2.
(c) Adjustment for Certain Issuances. If the Company (or
in the case of (ii) below, any other corporation) shall, at any time or from
time to time prior to the expiration date of this Warrant, (i) issue any shares
of Common Stock and the consideration per share of Common Stock received by the
Company shall be less than the Warrant Price (as adjusted from time to time),
or (ii) issue any securities which by their terms are convertible into or
exchangeable for shares of Common Stock of the Company (herein "Convertible
Securities") or represent the right to purchase Common Stock or Convertible
Securities and the sum of the consideration per share of Common Stock
receivable upon conversion or exchange of such Convertible Securities or upon
exercise of such purchase rights, plus the consideration per share received by
the Company upon the issuance of such Convertible Securities or purchase
rights, shall be less than the Warrant Price at the date of issuance, the
aggregate exercise price of this Warrant shall remain unchanged but the number
of Shares receivable upon the exercise of this Warrant shall be increased as
follows: the number of shares receivable upon the exercise of this Warrant
immediately prior to the issue of such shares of Common Stock (or such
Convertible Securities or purchase rights, as the case may be) shall be
multiplied by a fraction, of which (x) the numerator shall be the number of
shares of Common Stock (on a fully diluted basis assuming the exercise of all
warrants or options to purchase Common Stock and the conversion of all
Convertible Securities) outstanding immediately prior to such issue plus the
number of shares of Common Stock issued (or the maximum number of shares of
Common Stock issuable upon conversion or exchange of such Convertible
Securities or exercise of such purchase rights at their initial conversion,
exchange or exercise price or rate, as the case may be), and of which (y) the
denominator shall be the number of shares of Common Stock outstanding
immediately prior to such issue (on a fully diluted basis assuming the exercise
of all warrants or options to purchase Common Stock and the conversion
2
<PAGE> 3
of all Convertible Securities) plus the number of shares of Common Stock which
the aggregate consideration received by the Company upon the issuance of such
shares of Common Stock (or the aggregate consideration received by the Company
upon the issuance of such Convertible Securities or purchase rights plus the
aggregate consideration receivable upon exercise of all such Convertible
Securities or purchase rights, as the case may be) would purchase at the
Warrant Price.
(d) Certificate of Adjustment. Whenever the Warrant
Price or number or type of securities issuable upon exercise of this Warrant is
adjusted, as herein provided, the Company shall promptly deliver to the record
holder of this Warrant a certificate of an officer of the Company setting forth
the nature of such adjustment and a brief statement of the facts requiring such
adjustment.
3. No Stockholder Rights. This Warrant, by itself as
distinguished from the Shares purchasable hereunder, shall not entitle the
Holder to any of the rights of a stockholder of the Company. Notwithstanding
the foregoing, as long as this Warrant is exercisable the Company shall furnish
the Holder with all mailings, notices and other information provided to the
Company's shareholders as and when such are provided to the Company's
shareholders.
4. Authorization and Reservation of Stock. The Company will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Shares upon the exercise of this
Warrant. Issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Shares
upon the exercise of this Warrant.
5. Exercise of Warrant; Net Exercise.
(a) Exercise of Warrant. Subject to compliance with
applicable federal and state securities laws, this Warrant may be exercised in
whole or in part by the Holder at any time by surrender of this Warrant for
cancellation and delivery to the Company of an investment representation letter
in the form attached as Exhibit A and the Notice of Exercise attached hereto as
Exhibit B duly completed and executed, at the principal office of the Company,
accompanied by payment in full of the Warrant Price in cash or by check with
respect to the Shares being purchased. This Warrant shall be deemed to have
been exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive
the Shares issuable upon such exercise shall be treated for all purposes as the
holder of such Shares of record as of the close of business on such date. As
promptly as practicable after
3
<PAGE> 4
such date, the Company shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
full shares of Common Stock issuable upon such exercise. Upon any partial
exercise of this Warrant, the Company will issue to the Holder a new warrant
for the number of the Shares as to which this Warrant was not exercised. Each
certificate evidencing the Shares shall bear the legend set forth below:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
(b) Net Exercise. In lieu of exercising this Warrant or
any portion thereof and paying the exercise price by cash or check, the Holder
shall have the right to convert this Warrant or any portion thereof into the
number of Shares to be computed using the following formula:
X = (P) (Y) (A-B)
-------------
A
where X = the number of Shares to be issued to the Holder for the
portion of this Warrant being converted,
P = the portion of this Warrant being converted (expressed as a
decimal),
Y = the total number of Shares issuable upon exercise of this
Warrant in full,
A = the Average Price, and
B = the Warrant Price of the Shares on the date of receipt by the
Company of the notice of conversion.
Upon such conversion, the portion of this Warrant represented by the variable
"P" above shall be cancelled. As used herein, "Average Price" means (i) the
average closing price per share on all securities exchanges on which the Shares
may at the time be listed or, if there have been no sales on any such exchange
on any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day or (ii) if on any day the Shares are not so
listed but are listed on the Nasdaq Stock Market's National Market or SmallCap
Market, the sales price per share of the Shares as of 4:00 p.m., New York time,
on such day as reported on the Nasdaq Stock Market's National Market or
SmallCap Market or, if no sales are reported on the Nasdaq Stock Market on such
day, the average of the highest
4
<PAGE> 5
reported bid and lowest reported asked prices on such day or (iii) if the
Shares are not listed on a securities exchange or on the Nasdaq Stock Market's
National Market or SmallCap Market on such day, the average of the highest
reported bid and lowest reported asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated or any similar successor organization, in each such case averaged
over the period of five consecutive trading days immediately preceding the date
of receipt by the Company of the Notice of Exercise or, if the Shares are not
so listed or quoted, as determined in good faith by the Company's Board of
Directors.
(c) Fractional Shares. No fractional shares of any class
of stock will be issued in connection with any exercise hereunder, but in lieu
of such fractional shares the Company shall make a cash payment therefor based
on the fair market value of the Common Stock on the date of exercise as
reasonably determined in good faith by the Company's Board of Directors.
(d) Put Right. In lieu of exercising this Warrant or any
portion thereof and paying the exercise price by cash or check, the Holder
shall have the right to require the Company to purchase any exercisable portion
of this Warrant at a price equal to the product of the number of Shares as to
which the Company is purchasing the Holder's rights hereunder multiplied by the
difference between the Average Price and the exercise price per share on the
date of the Holder's notice under this Section 5(d). The amount payable by the
Company hereunder shall be paid to the Holder as follows: the lesser of
$100,000 or the amount payable to the Holder shall be paid within 5 business
days, and the balance, if any, shall be paid within 30 business days. All such
amounts shall be secured obligations of the Company, subject to any and all
security agreements between the Company and the Holder, but only to the extent
that the Company and the Holder are then parties to any such security
agreements.
6. Transfer of Warrant. This Warrant and the rights provided for
herein may be transferred or assigned by the Holder hereof in whole or in part,
provided that prior written notice is given to the Company and the transferor
shall provide an opinion of counsel reasonably satisfactory to the Company that
such transfer does not require registration under the Securities Act of 1933,
as amended.
7. Registration Rights.
(a) Registration Obligations. The securities entitled to
the benefit of this Section 7 are the Shares acquired by the Holder upon
exercise of this Warrant and owned by the Holder (the "Registrable Shares").
Upon any request of the Holder, the Company shall file a "shelf" registration
statement under the Securities Act to register any or all of the Holder's
Registrable Shares under the Securities Act of 1933, as amended (the
"Securities Act"). The Company will pay all registration expenses in
connection with the first such requested registration of Registrable Shares
under this Section 7 and the Holder shall pay all registration expenses in
connection with any subsequent requested registration. The registration
expenses referred to in the preceding sentence include, without limitation, the
fees and expenses of counsel to the Company and of the Company's accountants,
the fees and expenses of one law firm representing the Holder (up to a maximum
of $5,000), the costs and expenses incident to
5
<PAGE> 6
the preparation, printing and filing by the Company of the registration
statement (including the financial statements included in, and all amendments
and exhibits to, the registration statement), the preliminary prospectus and
the final prospectus and any amendment or supplement to any of the foregoing,
the filing fees of the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc., and of any state securities or blue
sky authorities, the fees and expenses of counsel in connection with the
qualification of the securities under state securities or blue sky laws, any
fees relating to the listing of the securities on the National Association of
Securities Dealers, Inc. Automated Quotation System or in any other market in
which the Company's securities are traded, the cost of printing certificates
representing the securities being offered, and any fees of the transfer agent.
The Holder shall be solely responsible for any underwriting discounts or
commissions applicable to the Holder's securities sold in the offering.
(b) Registration Procedures. If and whenever the Company
is requested to effect the registration of any Registrable Shares under the
Securities Act as provided in Section 7(a), the Company will promptly:
(i) prepare and file with the Securities and
Exchange Commission (the "Commission") a registration
statement with respect to such Registrable Securities and use
its reasonable efforts to cause such registration statement to
become effective; provided, that the Company shall not be
obligated pursuant to this Section 7 to effect any
registration on a date when the inclusion in such registration
statement of financial statements of the Company, other than
financial statements required to be contained in the most
recently required annual and quarterly reports on Forms 10-K
and 10-Q, respectively, and the required reports on Form 8-K
since the end of the fiscal year covered by the most recently
required report on Form 10-K, would be required under the
rules and regulations of the U. S. Securities and Exchange
Commission;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such
registration statement until the earlier of such time as all
of such securities have been disposed of in accordance with
the intended methods of disposition by the Holder as set forth
in such registration statement or such time as the Registrable
Shares may be sold without registration;
(iii) furnish to the Holder such number of
conformed copies of such registration statement and of each
such amendment and supplement thereto (in each case including
all exhibits), such number of copies of the prospectus
contained in such registration statement (including each
preliminary prospectus and any summary prospectus), in
conformity with the requirements of the
6
<PAGE> 7
Securities Act, and such other documents, as the Holder may
reasonably request in order to facilitate the disposition of
the Registrable Shares owned by the Holder;
(iv) use its reasonable efforts to register or
qualify such securities covered by such registration statement
under such other securities or blue sky laws of such
jurisdictions in which an exemption from qualification or
registration is not available as the Holder shall reasonably
request, and do any and all other acts and things which may be
necessary or advisable to enable the Holder to consummate the
disposition in such jurisdictions of the Registrable Shares
owned by the Holder, except that the Company shall not for any
such purpose be required to qualify generally to do business
as a foreign corporation in any jurisdiction wherein it is not
so qualified, or to consent to general service of process in
any such jurisdiction;
(v) notify the Holder of Registrable Shares
covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under
the Securities Act, of the happening or any event as a result
of which the prospectus included in such registration
statement, as then in effect, is known by the Company to
include an untrue statement of material fact or to omit to
state any material fact required to be stated therein or
necessary to make statements therein not misleading in the
light of the circumstances then existing (provided that the
period during which such a condition may occur shall not be
permitted by the Company to persist for longer than 45 days
nor shall two or more such periods be permitted by the Company
to persist for an aggregate of longer than 90 days during any
year of the term of such registration), and prepare and
furnish to the Holder a reasonable number of copies of a
supplement to, or an amendment of, such prospectus as may be
necessary so that, as delivered to the purchasers of such
securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading in the light of the
circumstances then existing;
(vi) advise the Holder as to the time when such
registration statement becomes effective and as to the
issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or the
institution of any proceedings for that purpose, and use its
best efforts to prevent the issuance of any such stop order
and to obtain as soon as possible the lifting thereof, if
issued; and
(vii) indemnify and hold harmless the Holder, and
any underwriter or broker in respect thereto, or any
controlling person of the Holder or any such underwriter or
broker, against any losses, claims, damages or liabilities,
joint or several, to which the Holder or such underwriter,
broker or controlling person
7
<PAGE> 8
may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any
untrue statement of any material fact contained in the
registration statement, the prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or
arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading and will reimburse
the Holder and each such underwriter, broker or controlling
person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such
loss, claim, damage, liability or action (provided, however,
that the Company will not be liable to the Holder, underwriter
or broker (or to a controlling person of the Holder,
underwriter or broker) in any case to the extent that any such
loss, claim, damage, liability or action arises out of or is
based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in any such document or
amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company
by, or on behalf of, the Holder specifically for use therein
or to the extent the loss, claim, damage or liability arose
from the fact that a copy of the final prospectus was not
timely delivered by the Holder to a purchaser who became a
plaintiff in a lawsuit), and provide the Holder with customary
contribution in the event that such indemnification shall be
unavailable for any reason.
(c) The Company may require the Holder to furnish to the
Company information regarding the Holder and the distribution of the
Registrable Securities as the Company may from time to time reasonably request.
The Holder will indemnify and hold harmless the Company, its officers,
directors and controlling persons for any losses, claims, damages or
liabilities, joint or several to which the Company or such persons may become
subject insofar as such claims, losses, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement,
the prospectus, or any amendment or supplement thereto made in reliance upon
and in conformity with written information furnished by Holder to Company
expressly for use therein.
(d) Each indemnified party shall give notice as promptly
as reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying party
from any liability which it may have otherwise than on account of this
indemnity agreement except to the extent it is actually prejudiced thereby. In
case such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party and, after
notice from the indemnifying party to such indemnified party of its election to
assume the
8
<PAGE> 9
defense thereof and so long as the indemnifying party continues to defend the
matter, the indemnifying party shall not be liable under this indemnity for any
legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof, provided however, that the indemnified party shall
have the right to employ separate counsel at its expense in any such action and
participate in the defense thereof. No indemnifying party shall be liable for
any settlement entered into without its consent. An indemnifying party who
elects not to assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by the
indemnifying party with respect to the claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between the
indemnified party and any other indemnified party with respect to the claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of no more than one additional counsel for the indemnified parties per
venue.
8. Miscellaneous. This Warrant shall be governed by the internal
laws of the State of Michigan. The headings in this Warrant are for purposes
of convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the Company and the Holder. All notices and other communications from the
Company to the holder of this Warrant shall be delivered personally or mailed
by first class mail, postage prepaid, to the address furnished to the Company
in writing by the last holder of this Warrant who shall have furnished an
address to the Company in writing, and if mailed shall be deemed given three
days after deposit in the United States mail.
9. Amendment and Restatement. This Warrant amends and restates
in its entirety that certain Universal Standard Healthcare, Inc. Warrant to
Purchase 100,000 shares of Common Stock dated July 8, 1998, issued by Universal
Standard Healthcare, Inc. in favor of NBD Bank.
ISSUED this 3rd day of August, 1998.
UNIVERSAL STANDARD HEALTHCARE, INC.
By: /s/ Eugene E. Jennings
---------------------------------
Its: President
--------------------------------
Accepted and agreed to:
NBD BANK
By: /s/ Patrick P. Skiles
-----------------------------------
Its: First Vice President
---------------------------
9
<PAGE> 10
Exhibit A
Universal Standard Healthcare, Inc.
26500 Northwestern Highway, Suite 400
Southfield, Michigan 48076
Gentlemen:
In connection with the issuance to us by Universal Standard Healthcare,
Inc. ("USHI") of shares of common stock of USHI pursuant to the Warrant dated
________________, 1998 (the "Warrant Stock"), we hereby represent and agree
that we are receiving such Warrant Stock for our own account and not on behalf
of others, and that we are not taking any such shares of stock with a view to
the "distribution" thereof (as that term is defined in the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations of the
Securities and Exchange Commission thereunder). We understand that the Warrant
Stock has not been registered under the Securities Act and is therefore
"restricted stock" under the Securities Act.
We understand and agree that the Warrant Stock may be transferred or
resold only (a) upon receipt of a "no action" letter from the Securities and
Exchange Commission, (b) upon the furnishing by us to you of an opinion of
counsel reasonably acceptable to you covering the proposed transfer or sale of
such shares and the proposed transferee of such shares furnishing to you in
writing an appropriate letter to the effect that such shares are being taken
for investment and not with a view to distribution, (c) upon the registration
of such shares with the Securities and Exchange Commission pursuant to the
Securities Act or (d) if, in the opinion of our counsel, the proposed sale or
transfer otherwise complies fully with the applicable rules and regulations of
the Securities and Exchange Commission promulgated under the Securities Act
(including, but not limited to, Rule 144 thereunder). In the event of a
transfer or resale of any such shares by us, we agree to indemnify USHI and its
directors, officers, and each person who might be deemed to control USHI with
respect to any liabilities or expenses of any of them in connection with such
transfer or resale that are claimed to be derived solely from our acts or
omissions to act. We further agree to the placing of an appropriate legend
upon the certificates evidencing the Warrant Stock, and to the giving of
instructions to the transfer agent or agents for such shares designed to
prevent transfer of the Warrant Stock unless in compliance with the terms of
this letter.
We hereby acknowledge that we have received no general solicitation or
general advertising (including communications published in any newspaper,
magazine, or similar medial or broadcast), have attended no seminar or meeting,
and have received no written communications from USHI except as expressly
described hereinafter. We acknowledge that we have received no public
solicitation or advertisement with respect to such shares of USHI common stock,
nor are we aware of any such solicitation or advertisements that may have been
received by others.
We acknowledge that USHI has furnished to us a copy of its most recent
Annual Report on Form 10-K and a copy of each subsequent filing made by USHI
with the Securities and Exchange Commission under the Securities Exchange Act
of 1934, as amended, at a reasonable time prior to the exercise of the Warrant.
The foregoing information constitutes all of the information concerning USHI
that we desire in connection with our acquisition of the Warrant Stock. We
further acknowledge that sufficient opportunity has been made available to us
and to our representatives to ask questions of and to receive answers from USHI
concerning the terms and conditions of the Warrant and the activities and
operations of USHI and to obtain other additional information that we consider
necessary to verify the accuracy of the information contained in the
aforementioned documents.
Very truly yours,
------------------------------------
------------------------------------
Print Name and Title (if applicable)
<PAGE> 11
Exhibit B
NOTICE OF EXERCISE
TO: UNIVERSAL STANDARD HEALTHCARE, INC.
1. The undersigned hereby:
[ ] elects to purchase ________________ shares of Common
Stock, of Universal Standard Healthcare, Inc.
pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in
full, or
[ ] elects to exercise its net issuance rights pursuant
to Section 5(b) of the attached Warrant with respect
to ______________ shares of Common Stock, or
[ ] elects to exercise its put rights pursuant to Section
5(d) of the attached Warrant with respect to
_____________ shares of Common Stock.
2. Please issue a certificate or certificates (or a check, as
applicable) representing said shares of Common Stock in the name of the
undersigned or in such other name as is specified below:
____________________________________
(Name)
____________________________________
(Address)
_____________________________ ________________________________________
(Date) (Name of Warrant Holder)
By: ____________________________________
Title:
(name of purchaser, and title and
signature of authorized person)
<PAGE> 1
EXHIBIT 10.3
March 25, 1998
Mr. Alan S. Ker
26500 Northwestern Highway
Southfield, MI 48076
Dear Mr. Ker:
It is hereby agreed that your 1994 Performance Stock Option - Executive
Officers Agreement dated December 6, 1994, as amended, is terminated effective
March 25, 1998, and all options granted thereunder expire unexercised on March
25, 1998.
Very truly yours,
UNIVERSAL STANDARD HEALTHCARE, INC.
By: /s/ Eugene E. Jennings
------------------------------------------
Eugene E. Jennings, Chairman of the Board,
President and Chief Executive Officer
Acknoweledged and Agreement to:
/s/ Alan S. Ker CFO Dated: 5/4/98
- --------------------------- -----------------
ALAN S. KER
<PAGE> 1
EXHIBIT 10.4
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS
March 25, 1998
Alan S. Ker
26500 Northwestern Highway
Southfield, MI 48076
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 Alan S. Ker (the
"Grantee"), the Vice President, Finance, and Chief Financial Officer of the
Company, a stock option (the "Option"), pursuant to the Plan. The Option is
subject in all respects to the Plan. Certain capitalized terms used in this
agreement (the "Agreement") which are not defined herein have the meanings
indicated for such terms in Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee to purchase up
to 96,590 shares (the "Option Shares") of the Company's Common Stock, no par
value (the "Common Stock"), at an option price per share of $2.23 (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 as follows: 29,923 of the Option Shares on
the first anniversary of the date of this Option, 33,333 of the Option Shares
on the second anniversary of the date of this Option and 33,334 of the Option
Shares on the third anniversary 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
<PAGE> 2
date of this Agreement or a higher position, all Options which have not become
exercisable at the date of such event shall immediately terminate. Whether the
Grantee has continued to be employed by the Company or any Subsidiary in the
position held as of the date of this Agreement or a higher position shall be
determined by the Committee in its sole discretion. To the extent not
exercised, installments shall accumulate and the Grantee may exercise them
thereafter in whole or in part.
(ii) Death, Disability, Change in Control or
Termination. The Option shall vest and become exercisable with respect to all
of the Option Shares automatically upon (i) the death or permanent disability
(as determined by the Board or the Committee) of the Grantee, (ii) a Change of
Control, 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.
2
<PAGE> 3
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 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: /s/ Eugene E. Jennings
-----------------------------------
Eugene E. Jennings
Chairman of the Board,
President and Chief Executive
Officer
The undersigned hereby acknowledges having read this Agreement, the
Plan, and the other enclosures to this Agreement, and hereby agrees to be bound
by all provisions set forth herein and in the Plan.
GRANTEE:
/s/ Alan S. Ker
---------------------------------------
Alan S. Ker (Signature)
(Please print name)
4
<PAGE> 5
NON-QUALIFIED STOCK OPTION - EXECUTIVE OFFICERS
March 25, 1998
Alan S. Ker
26500 Northwestern Highway
Southfield, MI 48076
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 Alan S. Ker (the
"Grantee"), the Vice President, Finance, and Chief Financial Officer of the
Company, a stock option (the "Option"), pursuant to the Plan. The Option is
subject in all respects to the Plan. Certain capitalized terms used in this
agreement (the "Agreement") which are not defined herein have the meanings
indicated for such terms in Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee to purchase up
to 3,410 shares (the "Option Shares") of the Company's Common Stock, no par
value (the "Common Stock"), at an option price per share of $2.23 (the "Option
Price"), subject to the terms and conditions of this Agreement. The Option is
not intended to be an Incentive Stock Option and shall be treated as a
Non-Qualified 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 on the first anniversary 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,
<PAGE> 6
all Options which have not become exercisable at the date of such event shall
immediately terminate. Whether the Grantee has continued to be employed by the
Company or any Subsidiary in the position held as of the date of this Agreement
or a higher position shall be determined by the Committee in its sole
discretion. To the extent not exercised, installments shall accumulate and the
Grantee may exercise them thereafter in whole or in part.
(ii) Death, Disability, Change in Control or
Termination. The Option shall vest and become exercisable with respect to all
of the Option Shares automatically upon (i) the death or permanent disability
(as determined by the Board or the Committee) of the Grantee, (ii) a Change of
Control, 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.
2
<PAGE> 7
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 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.
11. Withholding. The Grantee hereby authorizes the Company to
withhold from his compensation or agrees to tender the applicable amount to the
Company to satisfy any requirements for withholding of income and employment
taxes in connection with the exercise of the option granted hereby.
3
<PAGE> 8
11. 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/ Eugene E. Jennings
------------------------------------
Eugene E. Jennings Chairman
of the Board, President and
Chief Executive Officer
The undersigned hereby acknowledges having read this Agreement, the
Plan, and the other enclosures to this Agreement, and hereby agrees to be bound
by all provisions set forth herein and in the Plan.
GRANTEE:
/s/ Alan S. Ker
---------------------------------------
Alan S. Ker (Signature)
(Please print name)
4
<PAGE> 1
INCENTIVE STOCK OPTION - EXECUTIVE OFFICERS
March 25, 1998
Imtiaz Sattaur
26500 Northwestern Highway
Southfield, MI 48076
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 Imtiaz Sattaur (the
"Grantee"), the Vice President, Chief Information Officer, of the Company, a
stock option (the "Option"), pursuant to the Plan. The Option is subject in
all respects to the Plan. Certain capitalized terms used in this agreement
(the "Agreement") which are not defined herein have the meanings indicated for
such terms in Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee to purchase up
to 92,556 shares (the "Option Shares") of the Company's Common Stock, no par
value (the "Common Stock"), at an option price per share of $2.23 (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 33 1/3% 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 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: /s/ Eugene E. Jennings
------------------------------------
Eugene E. Jennings Chairman
of the Board, President and
Chief Executive Officer
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/ Imtiaz Sattaur
---------------------------------------
Imtiaz Sattaur (Signature)
(Please print name)
4
<PAGE> 5
NON-QUALIFIED STOCK OPTION - EXECUTIVE OFFICERS
March 25, 1998
Imtiaz Sattaur
26500 Northwestern Highway
Southfield, MI 48076
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 Imtiaz Sattaur (the
"Grantee"), the Vice President, Chief Information Officer, of the Company, a
stock option (the "Option"), pursuant to the Plan. The Option is subject in
all respects to the Plan. Certain capitalized terms used in this agreement
(the "Agreement") which are not defined herein have the meanings indicated for
such terms in Section 10.1 of the Plan.
1. Stock Option. The Option entitles the Grantee to purchase up
to 7,444 shares (the "Option Shares") of the Company's Common Stock, no par
value (the "Common Stock"), at an option price per share of $2.23 (the "Option
Price"), subject to the terms and conditions of this Agreement. The Option is
not intended to be an Incentive Stock Option and shall be treated as a
Non-Qualified 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: 2,481 of the Option Shares on each of the first
and second anniversaries of the date of this Option and 2,482 of the Option
Shares on the third anniversary 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
<PAGE> 6
the Grantee no longer continues to be employed by the Company or any Subsidiary
in the position held as of the date of this Agreement or a higher position, all
Options which have not become exercisable at the date of such event shall
immediately terminate. Whether the Grantee has continued to be employed by the
Company or any Subsidiary in the position held as of the date of this Agreement
or a higher position shall be determined by the Committee in its sole
discretion. To the extent not exercised, installments shall accumulate and the
Grantee may exercise them thereafter in whole or in part.
(ii) Death, Disability, Change in Control or
Termination. The Option shall vest and become exercisable with respect to all
of the Option Shares automatically upon (i) the death or permanent disability
(as determined by the Board or the Committee) of the Grantee, (ii) a Change of
Control, 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.
2
<PAGE> 7
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 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. Withholding. The Grantee hereby authorizes the Company to
withhold from his compensation or agrees to tender the applicable amount to the
Company to satisfy any requirements for withholding of income and employment
taxes in connection with the exercise of the option granted hereby.
3
<PAGE> 8
11 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/ Eugene E. Jennings
------------------------------------
Eugene E. Jennings Chairman
of the Board, President and
Chief Executive Officer
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/ Imtiaz Sattaur
---------------------------------------
Imtiaz Sattaur (Signature)
(Please print name)
4
<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.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1,000
<CASH> 584
<SECURITIES> 0
<RECEIVABLES> 21,742
<ALLOWANCES> 10,204
<INVENTORY> 982
<CURRENT-ASSETS> 14,163
<PP&E> 20,272
<DEPRECIATION> 11,687
<TOTAL-ASSETS> 42,615
<CURRENT-LIABILITIES> 15,848
<BONDS> 19,769
0
0
<COMMON> 34,139
<OTHER-SE> (27,141)
<TOTAL-LIABILITY-AND-EQUITY> 42,615
<SALES> 30,727
<TOTAL-REVENUES> 30,727
<CGS> 21,097
<TOTAL-COSTS> 21,097
<OTHER-EXPENSES> 9,033<F1>
<LOSS-PROVISION> 889
<INTEREST-EXPENSE> 1,086
<INCOME-PRETAX> (440)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (440)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
<FN>
<F1>INCLUDES PROVISION FOR DOUBTFUL ACCOUNTS
</FN>
</TABLE>
