<PAGE> 1
Securities and Exchange COMMISSION
Washington D.C. 20549
-----------------------------
FORM 10-K/A1
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the year ended December 31, 1998
Commission File Number 34-0-20400
------------------------------------
UNIVERSAL STANDARD HEALTHCARE, INC.
(Exact name of Registrant as specified in its character)
MICHIGAN 38-2986640
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
29200 NORTHWESTERN HIGHWAY, SUITE 300
SOUTHFIELD, MICHIGAN 48034
(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code: (248) 386-5374
Securities registered pursuant to Section 12(b)
of the Act: None
Securities registered pursuant to Section 12(g)
of the Act: COMMON STOCK
8.25% CONVERTIBLE SUBOR-
DINATED DEBENTURES DUE 2006
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock of the Registrant held by
non-affiliates (2,670,805 shares on March 26, 1999) was $1,169,812. For purposes
of this computation only, all directors, executive officers and owners of more
than 5% of the Registrant's voting stock are assumed to be affiliates.
Indicate the number of shares outstanding of each of the Registrant's classes of
Common stock as of the latest practicable date: 9,164,842 shares of Common Stock
outstanding as of March 26, 1999.
DOCUMENTS INCORPORATED BY REFERENCE: None
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Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following sets forth information with respect to the members of the
Board of Directors regarding the individual's age, principal occupation, other
business experience, directorships in other publicly-held companies and term of
service with the Company.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
ANTHONY A. BONELLI, 48, Mr. Bonelli is currently self-employed. Mr.
Bonelli has been a director of the Company since June 1992. In January 1998, Mr.
Bonelli was appointed Chief Operating Officer of Vita Quest, International, Inc.
("Vita Quest"), a custom developer, manufacturer and marketer of vitamins and
nutritional supplements, and was appointed President of Vita Quest's Garden
State Nutritional Division and President of Windmill Consumer Products Division.
Mr. Bonelli held this position through February 1999 and is presently
self-employed. Previously, he served as President and Chief Operating Officer of
Neuman Distributors, Inc., a wholesale distributor of pharmaceutical products,
from August 1995 until December 1997. Mr. Bonelli served as President and Chief
Operating Officer for Copley Pharmaceutical, Inc., a worldwide developer and
manufacturer of off-patent generic prescription and over the counter
pharmaceuticals, from June 1993 until November 1994. From September 1989 until
June 1993, Mr. Bonelli was Vice President, Institutional Health Care Strategic
Business Unit, for Parke-Davis, a division of the Warner-Lambert Company, a
worldwide pharmaceutical and consumer products corporation, and prior to that
served as Director of Marketing of Parke-Davis from August 1987 until September
1989. From February 1986 to August 1987, Mr. Bonelli held various positions with
Schering-Plough Corporation, a pharmaceutical manufacturer, including Director,
Trade Development. Mr. Bonelli holds a law degree from the University of San
Francisco and an M.B.A. from Rutgers University.
ROBERT P. DECRESCE, M.D., 49, Dr. DeCresce has been a director of the
Company since June 1992. He has been the Director of Clinical Laboratories for
Rush-Presbyterian/St. Luke's Medical Center in Chicago, Illinois since July
1991. From 1987 to 1991, he was the Chief of Pathology of Humana
Hospital-Michael Reese in Chicago, Illinois. From 1983 to 1987, he was Vice
President for MetPath Incorporated, a division of Corning, Inc. Dr. DeCresce
received an M.D. from Columbia University College of Physicians and Surgeons in
1975 and an M.B.A. from Columbia University in 1977.
DIRECTORS WHOSE TERMS EXPIRE IN 2000
THOMAS R. DONAHUE, 37, Mr. Donahue has been a director of the Company
since its organization. He has been a principal of WCA since November 1992 and
was a director of WCA from the time of its organization in 1989 until November
1992. Mr. Donahue has served as Executive Vice President of WestSphere Equity
Investors, L.P., an affiliate of WCA, since January 1996. From July 1988 to May
1989, he was employed by Ehrlich Bober & Co. Inc., an investment banking firm,
as a Senior Associate.
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P. THOMAS HIRSCH, 48, Mr. Hirsch has been a director of the Company
since October 1994. Mr. Hirsch has served as President and Chief Executive
Officer of Path Lab, Inc., a New England hospital-based clinical laboratory
company, since June 1984. From October 1985 until June 1994, Mr. Hirsch was also
the President and Chief Executive Officer of Diagnostic Laboratory Services,
Inc., a clinical laboratory company based in Hawaii. Mr. Hirsch has over 18
years of managerial experience in the health care industry.
EUGENE E. JENNINGS, 45, Mr. Jennings has been Chairman of the Board,
President and Chief Executive Officer since April 1996. From November 1991 to
March 1996, Mr. Jennings served in various managerial capacities for AMSCO
International, Inc., a manufacturer of medical and industrial infection control
and surgical care equipment and provider of biomedical services, and most
recently as Corporate Vice President - International and Bio-Technology and
Pharmaceutical Businesses. Mr. Jennings served as Vice President and General
Manager of Stryker Corporation, a manufacturer of endoscopic medical devices,
during 1990 and 1991 and has more than 16 years of senior executive managerial
experience in the health care industry.
DIRECTORS WHOSE TERMS EXPIRE IN 2001
EDUARDO BOHORQUEZ, PH.D, 52, Dr. Bohorquez has been a director of the
Company since its organization. He has been the President and Chief Executive
Officer of WestSphere Capital, Inc. ("WCI") and the Chief Executive Officer of
WestSphere Capital Associates, L.P. ("WCA") each an investment firm, since their
organization in 1989. From August 1986 to May 1989, he was employed by Ehrlich
Bober and Co., Inc., an investment banking company, as a Managing Director, and
from January 1980 to July 1986 he was employed by The Chase Investment Bank, the
investment banking subsidiary of The Chase Manhattan Bank, N.A., as a Managing
Director of the Corporate Finance Group. Dr. Bohorquez holds a Ph.D in Finance
from the University of Wisconsin.
JOSEPH J. VADAPALAS, 44, Mr. Vadapalas has been a director of the
Company since its organization. He has been an Executive Vice President of WCI
and a Managing Director of WCA since their organization in 1989. From August
1986 to May 1989, he was employed by Ehrlich Bober & Co., Inc. as a director.
From September 1982 to August 1986, he was employed by The Chase Investment
Bank, the investment banking subsidiary of The Chase Manhattan Bank, N.A., as a
director.
EXECUTIVE OFFICERS
The executive officers of the Company as of April 29, 1999 are listed
and described below. Executive officers serve at the discretion of the Board of
Directors.
NAME AGE POSITION
Eugene E. Jennings 45 Chairman of the Board, President, Chief
Executive Officer and Director
Alan S. Ker 47 Vice President, Finance, Chief Financial
Officer, Treasurer and Assistant Secretary
Hallett Hall 50 Vice President and General Manager, Auto
and Labor Groups
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Tim Danaj 43 Vice President of Sales
Michael Weiss 43 Vice President of Operations
Mr. Jennings' business experience is described under "Directors Whose
Terms Expire in 2000."
Mr. Ker has been Vice President, Finance, and Chief Financial
Officer of the Company since July 1991 and was appointed Assistant Secretary in
March 1995. Mr. Ker was appointed Treasurer of the Company in June 1992. Prior
to joining the Company, Mr. Ker had been the Western Regional Controller of
Damon Corporation, a nationally-based clinical laboratory, since January 1985.
Mr. Weiss has been Vice President of Operations of the Company since
joining the Company in July 1998. Mr. Weiss has over 20 years in the healthcare
field. From 1993 to July 1998, Mr. Weiss served as Vice President and General
Manager of Connecticut HealthPlan, a managed care organization. Mr. Weiss
received his JD from New York Law School, BA from The College of Insurance, CLU
from The American College, and CPCU from the Insurance Institute of America.
Mr. Hall joined the Company in August 1998 as Vice President and
General Manager, Auto and Labor Groups. Prior to that he served as Chief
Executive Officer of Associated National Services Corporation, a health care
insurance company, since 1990. He has over 29 years experience in the healthcare
field. Mr. Hall received his MBA from University of Detroit and BA in Accounting
from Walsh College.
Mr. Danaj has been Vice President of Sales of the Company since
September, 1996. From April, 1995 to September 1996, Mr. Danaj was employed at
Health Alliance Plan (HAP) of Michigan, an HMO owned by Henry Ford Health
System, serving as its Vice President of Marketing and Sales. From June,1994 to
April, 1995 Mr. Danaj was with FHP Health Plan, Inc., a managed care
organization which was a forerunner to Foundation Health Systems, as its
Associate Vice President of Southern California operations. From May, 1990 to
April, 1994, he was with Takecare, a managed care organization, as Director of
Sales. Mr. Danaj received his BA from Michigan State University.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and directors, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than 10% shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it since January 1, 1998, or written representations from certain
reporting persons that no Form 5 reports were required for those persons, the
Company believes that all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with during 1998,
except for late filings of Form 3 by Larry Leonard and Stevan Stark.
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ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND CERTAIN TRANSACTIONS
Joseph Vadapalas, Eduardo Bohorquez, Robert DeCresce and Thomas Hirsch
served on the Compensation Committee of the Board of Directors of the Company
during 1998. None of these individuals was an employee of the Company during
1998.
Pursuant to the terms of a management advisory and consulting agreement
between WCA and the Company which terminated in December 1992, the Company has
an outstanding obligation to WCA in the amount of approximately $395,000. In
addition, in March 1998, 219,175 shares of Common Stock beneficially owned by
affiliates of WCA and WCI were pledged to a bank as security for the Company's
bank line of credit in connection with an amendment of the bank line of credit
agreement. WCA is a 5% Owner and is controlled by WCI. Dr. Bohorquez is the
chief executive officer of WCA and Mr. Vadapalas is a managing director of WCA.
EXECUTIVE COMPENSATION
Summary
The following table provides summary information for the periods
indicated concerning compensation paid or accrued by the Company and its
subsidiaries to the Company's Chief Executive Officer and its three other
executive officers serving as such as of December 31, 1998 who earned more than
$100,000 in salary and bonus during 1998 (the "Named Officers").
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
-----------
Annual Compensation Securities
------------------- Underlying All Other
Name and Salary Bonus Options/SARs Compensation
Principal Position Year ($) ($) (#) $(a)
- ------------------ ---- ------ ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
Eugene Jennings 1998 $259,439 - 75,000 4,200
Chairman of the 1997 256,450 - 75,000 88,643
Board, President 1996 174,452 93,750 300,000 17,930
and Chief Executive
Officer (b)
Alan Ker 1998 $151,389 - 100,000 620
Vice President, 1997 141,911 - 20,000 553
Finance, Treasurer, 1996 133,600 - 120,000(c) 548
Chief Financial
Officer
Perry McClung 1998 $157,585 - - 50,987
Former Executive 1997 156,197 - 40,000 75,854
Vice President (d) 1996 145,455 - 85,000(c) 842
Imtiaz Sattaur 1998 $110,072 - 100,000 495
Former Vice 1997 $ 72,911 - 20,000 425
President (e)
</TABLE>
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(a) Amounts in 1998 represent premiums paid by the Company for term life
insurance policies purchased for such officers. In addition, Mr.
McClung received a payment of $50,000 in 1998 in connection with a
covenant not to compete contained in his June 1996 employment agreement
and continued in his June 1997 employment agreement.
(b) Mr. Jennings joined the Company as Chairman of the Board, President and
Chief Executive Officer in April 1996.
(c) Amounts include 85,000 and 80,000 options held by Messrs. McClung and
Ker, respectively, granted prior to 1996 and repriced during 1996.
(d) No longer an executive officer of the Company effective February 26,
1999.
(e) No longer an executive officer of the Company effective March 31, 1998.
The following table sets forth information concerning stock option
grants during 1998 to the Named Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
----------------- Annual Rates of
Number of % of Total Stock Price
Securities Options/SARs Appreciation for
Underlying Granted to Exercise Option Term (a)
Options/SARs Employees in or Base Expiration --------------------
Name Granted (#) Fiscal Year ($/sh) Price Date 5% 10%
----------- ------------------ ------ ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Eugene
Jennings 75,000(b) 10% $2.07 3/12/08 $252,886 $402,679
Perry McClung - - - - - -
Alan Ker 100,000(c) 13% $2.23 3/35/08 $363,244 $578,405
Imtiaz 100,000(c) 13% $2.23 3/25/08 $363,244 $578,405
Sattaur
</TABLE>
(a) Represents the value of such option at the end of its 10 year term
(without discounting to present value), assuming the market price of
the Common Stock appreciates from the exercise price beginning on the
grant date at an annually compounded rate of 5% or 10%. These amounts
represent assumed rates of appreciation only. Actual gains, if any,
will be dependent on overall market conditions and on the future
performance of the Common Stock. There can be no assurance that the
amount reflected in this table will be achieved. On April 1, 1999, the
closing market price of the Common Stock was $.31 which was below the
respective prices of all the options indicated in the table. Hence, if
exercised as of April 1, 1999, none of such options would have any
value.
(b) These options were granted under the 1992 Stock Option Plan and become
exercisable in cumulative annual installments of 25% on each of the
first four anniversaries of the grant date, subject to Mr. Jennings'
continued employment with the Company.
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(c) These options, which were granted March 25, 1998, vest and become
exercisable in three equal annual installments beginning one year from
the grant date, subject to Mr. Ker's and Mr. Sattaur's continued
employment with the Company.
The following table provides information with respect to unexercised
options held as of the end of 1998 by the Named Officers. There were no options
exercised by the Named Officers during 1998.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs
Fiscal Year-End(#) at Fiscal Year-End ($)(a)
------------------ ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Eugene Jennings 168,750 281,250 0 0
Perry McClung 74,000 7,000 0 0
Alan Ker 60,713 120,500 0 0
Imtiaz Sattaur 10,000 130,000 0 0
(a) Represents the total gain which would have been realized if all options
were exercised at December 31, 1998. The closing market price at
December 31, 1998 was $.63.
Employment Agreements
The Company has employment agreements with each of the Named Officers.
These agreements are described below.
The employment agreement of Mr. Jennings expires on March 12, 2000 and
provides for an annual salary (subject to adjustment for inflation) of $250,000.
In connection with the commencement of his employment, the Company also agreed
to reimburse Mr. Jennings for certain costs and expenses relating to his
relocation to the State of Michigan, including temporary housing, travel, moving
expenses, real estate commission and real estate closing costs, and for taxes
imposed on such reimbursements. Mr. Jennings' employment agreement also provides
for a performance bonus plan for the years 1996 through 1998. Under the 1998
performance bonus plan, Mr. Jennings was eligible to earn up to 100% of his base
salary for such year as a bonus upon the achievement of certain performance
objectives for 1998. The potential bonus earned under the bonus plan for 1998 is
a direct function of the percentage of the Company's operating plan achieved
during the plan year. The operating plan for 1998 is the Company's operating
plan for such year as mutually agreed upon by the Board of Directors and Mr.
Jennings. The term of the Employment Agreement will extend automatically for
successive terms of one year unless, at least six months prior to the then
current expiration date, the Company gives notice of its intent not to extend
the term. Upon termination of employment by the Company without cause, Mr.
Jennings generally will be entitled to receive his salary and certain benefits
for a period of twelve months. Upon termination of employment by the Company for
cause or as a result of Mr. Jennings' death, incapacity or violation of the
terms of the agreement, the Company's obligation to pay Mr. Jennings' salary
will cease.
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The employment agreement of Mr. McClung expires no later than December
31, 2000 and provides that during the first year of the employment period, which
began June 28, 1997 and ended December 31, 1997, Mr. McClung would receive a pro
rata portion of an annual salary equal to $159,000; during 1998, Mr. McClung
will receive an annual salary of $159,000; during 1999, Mr. McClung will receive
an annual salary of $134,000; and during 2000, Mr. McClung will receive a
mutually agreed upon annual salary. If the Company and Mr. McClung are unable to
agree on Mr. McClung's salary during 2000, Mr. McClung's employment with the
Company shall terminate, effective January 1, 2000, and Mr. McClung shall
instead serve as a consultant to the Company during 2000 and shall receive a
monthly consulting fee based upon managed care revenue which will not exceed
$6,222. During the employment period (but not the consulting period), Mr.
McClung is eligible to participate in the same benefit plans as other executive
officers. Mr. McClung is eligible to receive a one-time bonus during the
employment period if managed care revenue from certain accounts exceeds stated
thresholds. In addition, as consideration for his covenant not to compete with
the Company for five years after termination of employment, Mr. McClung will
receive $125,000 (part of which was paid in 1997 and the remainder of which was
paid in 1998). Upon termination of employment without cause during the
employment period, Mr. McClung, is entitled to receive his salary (reduced by
earnings from subsequent employment or otherwise) for nine months after
termination of employment or until the end of the employment period, whichever
is less. Except for the bonus and non-compete payment, the Company has no
obligation to make further payments if employment is terminated for cause or due
to death, disability or resignation.
The employment agreement of Mr. Ker expires on December 31, 1999 and
provides for an annual salary (subject to adjustment for inflation) of $153,000.
Mr. Ker is eligible to participate in the same benefit and bonus plans as other
executive officers. Upon termination of employment by the Company without cause,
Mr. Ker generally will be entitled to receive his salary and benefits for a
period of nine months. Upon termination of employment by the Company for cause
or as a result of Mr. Ker's death, incapacity or violation of the terms of the
agreement, the Company's obligation to pay Mr. Ker's salary will cease.
Upon termination of employment by the Company without cause, Mr.
Sattaur would have been entitled to receive his salary for a period of six
months.
In addition, the stock option agreements with Messrs. Jennings,
McClung, Ker and Sattaur provide that such options become immediately
exercisable in full upon a change of control of the Company and, in certain
cases, upon termination without cause.
Director Compensation
During 1998, the non-employee directors were not paid any cash
compensation for their services as members of the Company's Board of Directors
and were only reimbursed for travel and related expenses.
The Directors Stock Option Plan (the "Directors Plan") provides for the
making of stock option grants to directors who are not employees of the Company
or its subsidiaries and who are not 5% Owners or employees, officers or
affiliates of a 5% Owner. Eligible directors who are first elected to the Board
after March 1995 will receive an initial grant of an option to purchase 15,000
shares in addition to annual grants during the term of the Directors Plan at an
exercise price equal to the fair market value per share of the Common Stock on
the grant date (as calculated under the Directors Plan). In addition, on the
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<PAGE> 9
date of each annual meeting during the term of the Directors Plan, each eligible
director will receive an option to purchase 10,000 shares at a price equal to
the fair market value per share of the Common Stock on the grant date (as
calculated under the Directors Plan). Messrs. Bonelli and Hirsch and Dr.
DeCresce each received an option to purchase 10,000 shares at $2.23 per share
during 1998 under the Directors Plan. All options granted under the Directors
Plan become exercisable in equal annual installments on each of the first four
anniversaries of the grant date or immediately upon a "change of control" or
"involuntary removal" from the Board of Directors (as such terms are defined in
Directors Plan).
On March 25, 1998 Messrs. Bonelli, Hirsch and Dr. DeCresce each
received an option grant of 30,000 shares at $2.23 per share under the 1992
Stock Option Plan. These options become exercisable in equal annual installments
on each of the first three anniversaries of the grant date or immediately upon a
"change of control" or "involuntary removal" from the Board of Directors.
ITEM 12. SECURITIES OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table set forth information as of March 31, 1999, unless
otherwise indicated, with respect to the beneficial ownership of Common Stock by
each director and nominee, each executive officer named in the Summary
Compensation Table under "Item 11 - Executive Compensation," all current
directors and executive officers as a group and all other persons known by the
Company to beneficially own more than 5% of the outstanding shares of Common
Stock (each, a "5% Owner").
Number Percent
Name(a) of Shares(b) of Class(c)
------------ -----------
Eduardo Bohorquez 2,480,515 (d) 26.8
Anthony A. Bonelli 92,747 (e) 1.0
Robert P. DeCresce, MD 100,747 (f) 1.1
Thomas R. Donahue 0 0
P. Thomas Hirsch 80,000 (h) 0.9
Joseph J. Vadapalas 2,563,632 (d) 27.7
Eugene E. Jennings 286,250 (i) 3.1
Alan S. Ker 108,291 (j) 1.2
Perry C. McClung 177,863 (k) 1.9
Imtiaz Sattaur 35,000 (p) 0.4
Hathaway Associates, Ltd. 400,000 (h) 4.4
Portfolio Investment Company Ltd. 2,178,223 (n) 0
WestSphere Capital Inc. 2,480,515 (n) 27.1
WestSphere Capital Associates 2,480,515 (n) 27.1
Anixter International Corporation 774,899 (l) 8.5
The Kaufmann Fund, Inc. 2,342,857 (m) 25.6
Laboratory Corporation of America Holdings 1,416,667 (g)
All directors and executive officers as a group
(11 persons) 3,148,550 (o) 31.8
- ------------
*Less than one percent
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(a) The address of each of WestSphere Capital Associates, L.P. ("WCA"), 55
E. 59th Street, 13th Floor, New York, New York 10017, WestSphere
Capital, Inc. ("WCI") and Messrs. Bohorquez, Vadapalas and Donahue is
c/o WCA, 55 E. 59th Street, 13th Floor, New York, New York 10017. The
address of Portfolio Investment Company Limited ("PICL") is P.O. Box
309, 63 SMB, Grand Cayman, Cayman Islands, B.W.I. The address of and
Signal Capital Corporation is 55 Ferncroft Road, Danvers, Massachusetts
01923. The address of Anixter International is Two North Riverside
Plaza, Chicago, Illinois 60606. The address of The Kaufmann Fund, Inc.
is 140 E. 45th Street, 43rd Floor, New York, New York 10017. The
address for Laboratory Corporation of American Holdings is 358 South
Main Street, Burlington, North Carolina 27215. The address for Hathaway
Associates, Ltd. is 119 Rowayton, Rowayton, Connecticut 06853.
(b) The column sets forth shares of Common Stock which are deemed to be
"beneficially owned" by the persons named in the table under Rule l3d-3
of the Securities and Exchange Commission ("SEC"), including shares
issuable under options or warrants exercisable currently or within 60
days of March 31, 1999 or upon conversion of the Company's 8.25%
Convertible Subordinated Debentures Due 2006 ("Debentures"). Each of
the persons named in the table has sole voting and investment power
with respect to all shares beneficially owned by them, except as
described in the following footnotes.
(c) For purposes of calculating the percentage of Common Stock beneficially
owned, the shares issuable to such person under stock options or
warrants exercisable currently or within 60 days of March 31, 1999 or
upon conversion of Debentures owned by such person are considered
outstanding and added to the shares of Common Stock actually
outstanding.
(d) Information is based on a Schedule 13D filed by PICL and certain
related entities on September 30, 1996. Amount includes 2,178,223
shares owned by PICL, as well as 219,175 shares and a currently
exercisable warrant for 83,117 shares which shares and warrants are
owned by certain other affiliates of WCA and WCL. Pursuant to certain
management agreements, WCA has the authority to direct the voting power
of the shares of the Company owned by these entities. WCI is the
general partner of WCA and therefore may also be deemed to be the
beneficial owner of such shares. WCA and WCI disclaim this beneficial
ownership. Messrs. Bohorquez and Vadapalas are principals of WCA and
directors of WCI and therefore may be deemed to be beneficial owners of
such shares. Messrs. Bohorquez, Donahue and Vadapalas disclaim
beneficial ownership of these shares. A pledge of 219,175 of these
shares was made to a bank as security for the Company's line of credit.
(e) Includes 85,000 shares which may be acquired pursuant to stock options.
(f) Includes 90,00 shares which may be acquired pursuant to stock options
and 3,000 shares owned by Dr. DeCresce's minor sons as to which shares
Dr. DeCresce disclaims beneficial ownership.
(g) Information is based on the Company's records.
(h) Information is based upon Schedule 13G filed by Hathaway Associates
Ltd. dated February 4, 1999.
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(i) Includes 281,250 shares which may be acquired pursuant to stock
options.
(j) Includes 85,713 shares which may be acquired pursuant to stock options
and 7,365 shares as to which Mr. Ker shares beneficial ownership with
his spouse.
(k) Includes 74,000 shares which may be acquired pursuant to stock options.
(l) Information regarding Anixter International Corporation is based on the
Schedule 13D filed by Anixter Corporation on or about January 31, 1995.
Amount includes 190,000 shares owned directly and 584,899 shares owned
by its subsidiary, Signal Capital Corporation.
(m) Information regarding The Kaufmann Fund is based on the Schedule 13G
filed by the Fund as of July 9, 1998. Includes 1,142,857 shares which
may be acquired upon conversion of Debentures.
(n) All of such shares are also pledged to secure certain obligations of
PICL.
(o) Includes a total of 621,963 shares which may be acquired pursuant to
options and warrants. See also footnotes (d), (e), (f), (h), (I), (j)
above. None of the directors or executive officers beneficially own any
Debentures.
(p) Includes 35,000 shares which may be acquired pursuant to stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Item 11 Executive Compensation -- Compensation Committee
Interlocks and Certain Transactions".
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 issuance's 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 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, valued at $2.50 per share, as adjusted from time to time for stock
splits, dividends, reverse stock splits and certain issuance's of Common Stock,
or rights to acquire Common Stock, at less than $2.50 per share. The option
expired December 31, 1998.
On August 4, pursuant to that certain Asset Purchase Agreement ("the
Asset Purchase Agreement"), dated as of July 16, 1998, between Laboratory
Corporation of America Holdings, a Delaware corporation (the "Purchaser") and
the Company, the Company sold its clinical laboratory customer list and certain
tangible assets, including equipment and furniture related to its clinical
laboratory business, to the Purchaser for $9,000,000 in cash (the "Asset Sale").
In connection with the Asset Sale, the Company agreed not to engage in the
business of providing commercial laboratory services for a period of 5 years,
except in certain limited circumstances related to the Company's managed care
business.
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On August 4, pursuant to that certain Stock Purchase Agreement ("the
Stock Purchase Agreement"), dated as of July 16, 1998, between the Purchaser and
the Company, the Company sold 1,416,667 shares of its Common Stock (the
"Purchased Shares") to the Purchaser for $4,250,000 cash (the "Stock Sale"). The
Company also granted the Purchaser the right at any time after July 1, 1999 to
request the registration of the Purchased Shares under the Securities Act of
1933, as amended (the "Act"), for resale and, under certain circumstances, to
have the Purchased Shares included in certain registration statements filed by
the the Company on its own behalf or on behalf of its shareholders ("Piggyback
Registration Rights").
Pursuant to the terms of the Stock Purchase Agreement, the Board of
Directors of the Company increased the number of board seats of the Company from
8 members to 9 members. Pursuant to a certain Voting Agreement, dated as of
August 3, 1998, among the Company, the Purchaser, Anixter International, Inc.,
Signal Capital Corporation, Portfolio Investment Company Limited, CLF, Ltd. and
CLF, LP (the "Voting Agreement"), certain shareholders of the Company agreed to
vote their shares of the Company's Common Stock to elect to the Board of
Directors of the Company a nominee designated by the Purchaser.
Until the payment of the Co-Marketing Termination Fee (as defined
below) and the exercise of and payment of amounts due under the Special Call
Right (as defined below), or the expiration of the Co-Marketing Termination Fee,
the Company agreed to certain covenants, including (i) providing tot he
Purchaser certain information and financial reports, (ii) restricting dividends
on, and redemptions and repurchases of, its capital stock, (iii) limiting the
Company's debt, (iv) not granting Piggyback Registration Rights superior to
those granted to the Purchaser, and (v) not issuing additional shares of capital
stock of the Company's subsidiaries.
The Stock Purchase Agreement also provides that the Company has certain
call rights, including, but not limited to, the right at any time from October
1, 2000 to November 30, 2000 to purchase all, and not less than all, the
Purchased Shares then held by the Purchaser at a purchase price of $5.00 per
share (the "Call Right").
The Company also granted preemptive rights to the Purchaser as to
certain shares of capital stock issued by the Company after the date of the
Stock Purchase Agreement but prior to August 31, 2000.
As required under the Stock Purchase Agreement, the Company and the
Purchaser entered into a Co-Marketing Agreement, dated as of August 3, 1998 (the
"Co-Marketing Agreement"), for the purpose of coordinating and complementing
their marketing and sales efforts to new and existing managed care customers and
to utilize each company's expertise and resources in such efforts. No payments
have been made by the Company to the Purchaser under the Co-Marketing Agreement
to date. The Co-Marketing Agreement further provides that in the event of the
termination of the Co-Marketing Agreement, as well as, in certain cases, the
occurrence of other events, the Company will pay to the Purchaser the
Co-Marketing Termination Fee. The Co-Marketing Termination Fee is calculated as
set forth in the Co-Marketing Agreement, but cannot exceed $4,250,000. The
Company's obligation to the Purchaser for the Co-Marketing Termination Fee is
secured by a security interest in all of the Company's assets and the assets of
its wholly-owned subsidiary Universal Standard HealthCare of Delaware, Inc.
("Universal Delaware"), other than the capital stock of certain regulated
companies owned by Universal Delaware. In April 1999, the Company agreed to
extend this security interest to cover all amounts due by the Company to the
Purchaser. The Purchaser has agreed to subordinate the Company's obligation to
the Purchaser for the Co-Marketing Termination Fee
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and the Purchaser's security interest in certain assets of the Company to
certain debt of the Company and the assets securing such debt.
In the event the Co-Marketing Termination Fee is paid, the Company
shall have the right to purchase the Purchased Shares owned by the Purchaser as
provided in the Stock Purchase Agreement (the "Special Call Right").
The Company entered into a Laboratory Services Agreement with the
Purchaser effective as of August 3, 1998. Under the terms of the five-year
services agreement, the Purchaser shall be the preferred provider of clinical
laboratory services for Company's managed care customers. Generally, in those
circumstances where the Purchaser does not wish to provide services or does not
have sufficient facilities or where customers or existing contracts require
other providers, the Company may contract with other laboratory providers. The
Company pays the Purchaser on a fee-for-service basis. The Purchaser provides
clinical laboratory services for the Company under the Laboratory Services
Agreement and, prior to August 3, 1998, under various other arrangements with
the Company. The Purchaser billed the Company approximately $4.8 million for
such services during 1998.
The Company and the Purchaser have also entered into a certain
Shareholders' Agreement, dated as of August 3, 1998, which restricts the
Purchaser's right to resell the Purchased Shares, requires the Purchaser to vote
the shares of Common Stock of the Company held by it in favor of the nominees
for election to the Board of Directors of the Company designated by the Board of
Directors of the Company and requires the Purchaser to vote in favor of certain
business combinations approved by the Board of Directors of the Company.
The Company leased to the Purchaser portions of its clinical laboratory
located in Southfield, Michigan and certain related equipment for a period of
six months ending in February 1999, and sold certain inventory related to its
clinical laboratory business to the Purchaser, for aggregate payments of $1.85
million, where were paid in advance on August 4, 1998 (the "Lease Agreement").
The Company and the Purchaser entered into a certain Transition
Services Agreement dated August 3, 1998 pursuant to which the Company provided
certain of its personnel involved in its clinical laboratory operations to the
Purchaser for a period of up to six months, ending February 1999, with the
Purchaser reimbursing the Registrant for the costs associated with such
personnel. Total reimbursements by the Company to the Purchaser under this
arrangement were $4.0 million.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment to this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
UNIVERSAL STANDARD HEALTHCARE, INC.
By: /s/ ALAN S. KER
-------------------------------------------
Alan S. Ker
Vice President Finance, Treasurer and Chief
Financial Officer
Dated: April 30, 1999
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