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EXHIBIT 99.2
RIGHTS OF HOLDER TO RECEIVE PAYMENT OF THE CO-MARKETING
TERMINATION FEE ARE SUBJECT AND SUBORDINATE TO THE PRIOR
PAYMENT OF ALL OBLIGATIONS OF MAKER TO NBD BANK PURSUANT TO
THE TERMS OF A SUBORDINATION AGREEMENT DATED AS OF AUGUST 3,
1998.
CO-MARKETING AGREEMENT
This Co-Marketing Agreement (hereinafter the "Agreement") is made and
entered into as of the 3rd day of August, 1998, by and between Laboratory
Corporation of America Holdings, a Delaware corporation ("LabCorp") and
Universal Standard Healthcare, Inc., a Michigan corporation, on behalf of itself
and its subsidiaries ("Universal").
WITNESSETH:
WHEREAS, Universal operates a licensed Alternative Healthcare Financing
Delivery System which offers managed care programs to employers, employer groups
and health plans for the delivery of clinical laboratory, home medical and
diagnostic imaging services ("Universal's Managed Care Business");
WHEREAS, LabCorp owns and operates a clinical laboratory business with
operations and facilities across the United States;
WHEREAS, as part of LabCorp's marketing effort, LabCorp has marketed
laboratory services directly to employers through programs such as its "Lab
Direct" program ("Lab Direct");
WHEREAS, Universal and Lab Corp are entering into a Laboratory Services
Agreement on the date hereof, to provide clinical laboratory services to
individuals covered by Universal's Managed Care Business throughout the United
States; and
WHEREAS, LabCorp and Universal wish to coordinate and complement their
marketing and sales efforts to new and existing customers throughout the United
States to maximize utilization of each company's expertise and resources and
enhance the success of both LabCorp and Universal.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Customers. The parties agree that, for purposes of this Agreement,
the customers of Universal and LabCorp shall be divided into four categories as
follows:
a. Existing customers of Universal's Managed Care
Business ("Existing Universal Customers");
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b. New customers of Universal's Managed Care Business
("New Universal Customers");
c. Existing customers of LabCorp's Lab Direct program
("Existing LabCorp Customers"); and
d. Potential new customers of LabCorp's employer direct
sales program and other customers as deemed
appropriate by LabCorp ("New LabCorp Customers").
2. Objectives of Co-Marketing Program. With respect to each
category of customer, the parties agree that the objective of this co-marketing
program shall be as set forth below:
a. All current and future business with respect to Existing
Universal Customers shall not be subject to this Agreement; provided, however,
that Universal agrees to use its best efforts to utilize LabCorp as a provider
for these Customers pursuant to the Laboratory Services Agreement.
b. Universal agrees to share information relating to New
Universal Customer prospects as described more fully in Section 3 hereof.
c. Where there is interest on the part of Existing LabCorp
Customers and where consistent with the best interests of both LabCorp and
Universal, LabCorp agrees to work in cooperation with Universal and use
reasonable efforts to (i) generate interest in such Existing LabCorp Customers
to purchase a capitated product from Universal for clinical laboratory services,
and (ii) expand its contract with the Customer to include home medical services,
diagnostic imaging and other services offered by Universal and to purchase such
services from Universal.
d. LabCorp agrees to share information relating to New LabCorp
Customer prospects as described more fully in Section 3 hereof.
3. Sharing Information. Each party agrees that it will
maintain a list of its New Customer prospects and, to the extent permitted by
law and not prohibited by that party's customers, to exchange the list with the
other party on a monthly basis. The purpose of this exchange shall be to avoid
duplication of effort and maximize penetration for the marketing and sale of
each party's products to employers, employer groups, unions, insurance
carriers, self-funded payors and other groups and associations.
4. LabCorp Responsibilities. LabCorp agrees, to the extent
consistent with LabCorp's policies, to perform the following:
a. Commit a sufficient number, in its sole discretion, of
salespersons, who are trained to sell Universal's Managed Care Business, and
provide compensation packages to such
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individuals in a form that provides an incentive tied directly to the sale of
Universal's Managed Care Business and is determined solely in LabCorp's
discretion. LabCorp agrees to cooperate with Universal and use its reasonable
efforts to take into effect Universal's policies when structuring the incentive.
Universal acknowledges that such salespersons need not be dedicated exclusively
to the sale of Universal's Managed Care Business. LabCorp agrees not to move the
sales effort for UHCI products from its managed care (employer direct) sales
force to another sales group without the prior consent of UHCI;
b. Require such salespersons and other relevant personnel to
attend training sessions conducted by Universal on the sale of the Universal
Managed Care Business to the extent reasonable and necessary;
c. Participate in quarterly sales meetings or teleconference
calls between Universal and LabCorp sales management personnel to the extent
reasonable and necessary;
d. In consultation with Universal, establish sales
compensation programs for the sale of Universal's Managed Care Business and
track sales performance on a monthly basis;
e. During the term of this Agreement, not sell managed care
business directly to employers, except for the following: (i) LabCorp's
LabDirect business, (ii) situations where LabCorp is a provider of clinical
laboratory services under a contract with a managed care organization which has
the direct contract with the Employer, or (iii) managed care programs that do
not include those elements of managed care that make Universal's Managed Care
Business unique. These elements are: (a) assumption of risk by Universal for
both in-network and out of network providers, and (b) agreement by Universal to
hold the beneficiary of the Employer plan harmless. For a period of twenty-four
(24) months after termination of the Agreement, each party agrees not to solicit
the "Current Customers" of the other party. For purposes of this
non-solicitation provision, the term "Current Customers" shall mean the
customers of a respective party at the time of termination except for any
customer which became a customer as a result of a joint effort by both parties.
This Section 4(e) shall not apply in the event of a Change in Control (as
defined in Section 9(d)) involving a clinical laboratory competitor of LabCorp
or involving a surviving entity that wants to materially change the position of
LabCorp as the primary provider of Universal.
f. Require salespersons to be reasonably available to make
sales calls to potential customers jointly with Universal.
5. Universal Responsibilities. Universal agrees to perform the
following:
a. Provide personnel to conduct training for LabCorp
salespersons on topics including, without limitation, information about the
Universal Managed Care Business and, effective techniques for selling
Universal's managed care product;
b. Provide technical sales support to LabCorp salespersons;
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c. Make available to LabCorp salespersons copies of existing
relevant marketing information and sales literature and coordinate with LabCorp
to jointly develop additional marketing materials; and
d. Require salespersons to be available to make sales calls to
potential customers jointly with LabCorp.
6. Marketing Fee. In the event that LabCorp brings
additional products (not clinical laboratory) to Universal, Universal agrees to
pay LabCorp a fee which shall be mutually agreed upon by the parties on a
customer by customer basis. The fee shall be calculated based on a percentage
of net revenues based on the total revenues for products sold other than
clinical laboratory products. With respect to additional clinical laboratory
products, the parties agree that they will adjust the fee schedule for
laboratory services (set forth in the Laboratory Services Agreement) in order
to achieve mutual benefit for both parties.
7. TPA Business. Where services, price and other
considerations warrant and with mutual agreement of both LabCorp and Universal,
LabCorp agrees to transfer its third party administrator and administrative
services business to Universal's TPA subsidiary.
8. Term. The term of this Agreement is August 3, 1998
through August 31, 2000.
9. Termination. This Agreement may be terminated:
a. At any time by mutual agreement of the parties;
b. Without cause upon ninety (90) days's prior written notice
and with cause upon thirty (30) days' prior written notice; or
c. Upon thirty (30) days' written notice by Universal in the
event of a Change in Control of Universal (which notice may be given prior to
the effective date of such Change in Control of Universal and which notice may
be withdrawn if such Change of Control of Universal is not consummated). A
"Change in Control of Universal" shall mean (i) the sale of all or
substantially all of the assets of the Company, (ii) the merger of the Company
in which the Company is not the surviving corporation, or (iii) any person or
group of persons (as defined in Section 13(d) of the Securities Exchange Act of
1934) acquiring beneficial ownership (calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended) of more than 50% of
Universal's voting securities.
10. Termination Fee.
a. If LabCorp terminates this Agreement as provided in Section
9(b) above, and Universal has not satisfied the Covenant (as defined below) by
July 31, 2000, Universal will pay LabCorp $4,250,000 (the "Co-Marketing
Termination Fee"). However, if LabCorp has sold or
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otherwise transferred any of the Purchased Shares prior to the date of payment
of the Co-Marketing Termination Fee, the Co-Marketing Termination Fee shall be
reduced by the greater of (i) Net Proceeds in excess of $708,350 received by
LabCorp from the sale of the Purchased Shares, or (ii) $3.00 per share of
Purchased Shares sold or transferred by LabCorp ("Transfer Proceeds"). If
LabCorp has not sold or transferred any of the Purchased Shares prior to the
payment of the Co-Marketing Termination Fee, then there shall be no Transfer
Proceeds or reduction in the Co-Marketing Termination Fee. "Net Proceeds" shall
mean the proceeds from the sale of the Purchased Shares, net of selling
commissions and discounts and expenses incurred in connection with the sale or
transfer. "Purchased Shares" shall be as defined in a certain Stock Purchase
Agreement dated July 16, 1998 between Universal and LabCorp (the "Stock Purchase
Agreement"). In the event of a termination by LabCorp pursuant to Section 9(b),
the Co-Marketing Termination Fee, less Transfer Proceeds, shall become due and
payable in full by Universal within one hundred twenty (120) days following
Universal's receipt of LabCorp's written notice of termination, but in no event
earlier than August 1, 2000. Notwithstanding the foregoing, after the
termination of this Agreement as provided in Section 9(b), LabCorp may, by
written notice to Universal, terminate Universal's obligation to pay the
Co-Marketing Termination Fee at any time before August 1, 2000, if, together
with such notice, LabCorp agrees to pay one half of Financing Costs incurred by
Universal in arranging financing to pay the Co-Marketing Termination Fee if
Universal does not complete such financing as a result of LabCorp's notice.
"Financing Costs" are reasonable and customary fees and expenses of a lending
institution or up to $30,000 in reasonable and customary fees and expenses of an
investment banker.
b. In the event that Universal terminates this Agreement as
provided in Section 9(b) or Section 9(c) above prior to August 31, 2000 (a
"Universal Termination"), Universal will pay LabCorp the Co-Marketing
Termination Fee, less Transfer Proceeds, if any. Notwithstanding the foregoing,
LabCorp may, by written notice to Universal within fifteen (15) days after its
receipt of Universal's notice of termination, terminate Universal's obligation
to pay the Co-Marketing Termination Fee. In the event of a Universal
Termination, the Co-Marketing Termination Fee is due and payable in full as of
the effective date of the termination of this Agreement.
c. In the event of a termination of this Agreement by LabCorp
and Universal by mutual consent pursuant to Section 9(a), the Co-Marketing
Termination Fee, less Transfer Proceeds, if any, shall be due and payable in
full by Universal at such time as is mutually agreed upon by Universal and
LabCorp.
d. Universal's obligation to pay the Co-Marketing Termination
Fee shall terminate effective July 31, 2000 if Universal satisfies the Covenant
(as defined below) and thereafter Universal shall not be required to pay the
Co-Marketing Termination Fee upon the termination of this Agreement by Universal
or LabCorp, subject to Section 10(e). The "Covenant" shall mean Universal's
average closing stock price, as reported on the Nasdaq Stock Market, Inc.
("Nasdaq") or any stock exchange on which the Common Stock of Universal is then
traded, for the last five business days of July 2000 is greater than $3.50.
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e. If, after Universal has satisfied the Covenant, LabCorp
sells the Purchased Shares between August 1, 2000 and October 31, 2000,
Universal will pay LabCorp the amount by which $3.50 per share of Purchased
Shares sold exceeds the Net Proceeds received by LabCorp for such shares, with
such payment being due within thirty (30) days after receipt by Universal of
LabCorp's written notice of such sale. If, after Universal has satisfied the
Covenant, LabCorp seeks to, but is unable to, sell all the Purchased Shares
between August 1, 2000, and October 31, 2000, then the Co-Marketing Termination
Fee shall be reinstated effective November 1, 2000. LabCorp shall have the right
to elect to be paid the Co-Marketing Termination Fee, less Transfer Proceeds, if
any, by written notice to Universal at any time from November 1, 2000 to
November 30, 2000 and Universal shall pay the same within thirty (30) days of
its receipt of LabCorp's notice.
f. The Co-Marketing Termination Fee shall bear interest at the
rate of twelve (12%) percent per annum from its due date to the date paid, with
such interest due upon demand by LabCorp, but in no event later than the date
the Co-Marketing Termination Fee is actually paid.
g. Universal's obligation to pay the Co-Marketing Termination
Fee shall survive any termination of this Agreement pursuant to Section 9 and
shall terminate only upon the expiration of this Agreement in accordance with
its terms, as provided in Section 10(a) and as provided in Section 10(d)
(subject to Section 10(f)).
11. Confidentiality.
a. "Confidential Information" shall mean that information
exchanged by the parties in connection with this Agreement which the parties do
not wish to become public. Confidential Information shall include, but not be
limited to, information concerning or relating to a party's business, financial
condition, operations, customers, or managed care products. Confidential
Information shall not include: (1) information rightfully in the receiving
party's possession or rightfully received by such party unless the party is
subject to a written confidentiality agreement which covers such information;
(2) developed independently by the receiving party or a third party; (3)
publicly available when received or thereafter becomes publicly available
through no fault of the receiving party; or (iv) disclosed by the disclosing
party without an intent of confidentiality. Each party further agrees that it
will limit disclosure of Confidential Information within its own company to only
those employees who require such information to perform under this Agreement.
b. For the five (5) years after the date of disclosure or such
greater period required by law, the party receiving Confidential Information
will use the same care and discretion to avoid disclosure of such information as
the receiving party uses with its own similar Confidential Information which it
does not wish to disclose.
c. This section 11 shall survive termination or expiration of
this Agreement.
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12. Damages. No party shall be entitled to any damages with respect
to lost profits or other consequential damages or punitive damages with respect
to the performance by any other Party under this Agreement.
13. Miscellaneous.
13.1 Entire Agreement. This Agreement and any exhibits and
attachments hereto constitute the entire agreement between the parties regarding
the subject matter of this Agreement and supersede any prior agreements between
the parties, whether written or oral.
13.2 Assignment. This Agreement may not be assigned by
either party without prior written consent of the other party.
13.3 Amendment and Waiver. This Agreement may be amended
only upon written consent of both parties. Failure by either party to
enforce any provision of this Agreement shall not be considered a waiver of any
other provision or any subsequent breach.
13.4 Governing Law. This Agreement shall be governed by
the laws of the State of Michigan, without regard to its rules of conflicts of
laws.
13.5 Notice. To be considered notice, written
communication must be made to:
LabCorp: Laboratory Corporation of America Holdings
000 Xxxxx Xxxx Xxxxxx
Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Universal: Xxxxxx Xxxxxxxx
Universal Standard Healthcare of Michigan,
Inc.
00000 Xxxxxxxxxxxx Xxxxxxx
X.X. Xxx 0000
Xxxxxxxxxx, XX 00000-0000
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date stated above.
UNIVERSAL STANDARD HEALTHCARE LABORATORY CORPORATION OF
OF MICHIGAN, INC. AMERICA HOLDINGS
By: /s/ Xxxxxx X. Xxxxxxxx By: /s/ Xxxxxxxx X. Xxxxx
--------------------------- -----------------------------
Name: Xxxxxx X. Xxxxxxxx Name: Xxxxxxxx X. Xxxxx
Title: President Title: Executive Vice President
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