EXECUTION COPY
================================================================================
UNILAB CORPORATION
and
UC ACQUISITION SUB, INC.
------------------------------
AGREEMENT AND PLAN OF MERGER
------------------------------
-------------------------------
Dated as of May 24, 1999
-------------------------------
================================================================================
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 24, 1999 (the "Agreement"),
between UNILAB CORPORATION, a Delaware corporation (the "Company"), and UC
ACQUISITION SUB, INC. ("Merger Sub"), a Delaware corporation and a direct wholly
owned subsidiary of Xxxxx Investment Associates VI L.P., a Delaware limited
partnership, and KEP VI LLC, a Delaware limited liability company (collectively,
"Parent").
W I T N E S S E T H:
--------------------
WHEREAS, the Board of Directors of the Company (the "Board of Directors")
and the Board of Directors of Merger Sub have each determined that it is in the
best interests of their respective stockholders for Merger Sub to merge with and
into the Company (the "Merger") in accordance with the General Corporation Law
of the State of Delaware ("Delaware Law") and upon the terms and subject to the
conditions set forth herein;
WHEREAS, the Board of Directors and the Board of Directors of Merger Sub
have approved the Merger;
WHEREAS, Merger Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and Merger Sub hereby agree as follows:
Article I.
THE MERGER
SECTION 1.1. The Merger. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement and Delaware
Law, Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease, and the Company shall continue as
the surviving corporation. The Company as the surviving corporation after the
Merger hereinafter sometimes is referred to as the "Surviving Corporation."
SECTION 1.2. Effective Time. As promptly as practicable, and in any event
within five business days after the satisfaction or waiver of the conditions set
forth in Article VI, the parties hereto shall cause the Merger to be consummated
by filing a Certificate of Merger with the Secretary of State of the State of
Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, Delaware Law (the time of such
filing being the "Effective Time").
SECTION 1.3. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
SECTION 1.4. Subsequent Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of the Company or Merger Sub acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of either the Company or Merger Sub, all such deeds, bills of
sale, assignments and assurances and to take and do, in the name and on behalf
of each of such corporations or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Agreement.
SECTION 1.5. Certificate of Incorporation; By-Laws; Directors and Officers.
(a) Unless otherwise determined by Merger Sub before the Effective
Time, at the Effective Time the Amended and Restated Certificate of
Incorporation of the Company, as amended (the "Restated Certificate"), as
in effect immediately before the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Certificate of Incorporation.
(b) The By-Laws of Merger Sub, as in effect immediately before the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of
the Surviving Corporation and such By-Laws.
(c) The directors of Merger Sub immediately before the Effective Time
will be the initial directors of the Surviving Corporation, and, except as
Merger Sub may
-2-
otherwise notify the Company in writing prior to the Effective Time, the
officers of the Company immediately before the Effective Time will be the
initial officers of the Surviving Corporation, in each case until their
successors are elected or appointed and qualified. If, at the Effective
Time, a vacancy shall exist on the Board of Directors or in any office of
the Surviving Corporation, such vacancy may thereafter be filled in the
manner provided by law.
SECTION 1.6. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or the
holder of any of the following securities:
(a) Common Stock of Merger Sub. Each share of common stock, par value
$.01 per share, of Merger Sub (the "Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into
the number of fully paid and nonassessable shares of common stock, par
value $.01 per share, of the Surviving Corporation as equals (i) 23,846,154
plus 170,940 for each $1,000,000 of cash equity financing to be received by
Merger Sub prior to the Effective Time in excess of $139.5 million, the
exact number to be determined by Merger Sub and provided in writing to the
Company no less than three business days prior to the mailing of the Proxy
Statement/Prospectus (such number, the "Parent Equity Number") divided by
(ii) the aggregate number of shares of Merger Sub Common Stock issued and
outstanding immediately prior to the Effective Time.
(b) Cancellation of Treasury Stock and Merger Sub-Owned Company Common
Stock. Each share of common stock, par value $.01 per share, of the Company
(the "Company Common Stock") that is owned by Parent, Merger Sub or any
subsidiary of Parent or Merger Sub or held in the treasury of the Company
(collectively, the "Excluded Shares") shall automatically be canceled and
retired and shall cease to exist, and no cash, Company Common Stock or
other consideration shall be delivered or deliverable in exchange therefor.
(c) Conversion or Retention of Company Common Stock. Except as
otherwise provided herein and subject to Sections 1.7 and 1.8, each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time other than Excluded Shares or Dissenting Shares (as defined
in Section 1.6(e)) shall be converted into the following (the "Common Stock
Merger Consideration"):
(i) for each such share of Company Common Stock with respect to
which an election to retain such share has been effectively made and
not revoked or lost pursuant to Sections 1.7 and 1.8 (the "Electing
-3-
Shares"), the right to retain one fully paid and nonassessable share
of Common Stock of the Surviving Corporation (a "Retained Share"); and
(ii) for each such share of Company Common Stock (other than
Retained Shares), the right to receive in cash following the Merger an
amount equal to $5.85 (the "Cash Election Price").
(d) Each share of convertible preferred stock, par value $.01 per
share, of the Company (the "Company Convertible Preferred Stock" and,
together with the Company Common Stock, the "Company Stock") shall be
converted into the right to receive in cash following the Merger an amount
equal to $5.75, plus all dividends accrued but unpaid thereon through the
Effective Time (the "Preferred Stock Merger Consideration" and, together
with the Common Stock Merger Consideration, the "Merger Consideration").
(e) Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of Company Common Stock or Company Convertible
Preferred Stock that are issued and outstanding immediately prior to the
Effective Time and that are held by a holder who has validly demanded
payment of the fair value for such holder's shares as determined in
accordance with Section 262 of Delaware Law ("Dissenting Shares") shall not
be converted into or be exchangeable for the right to receive the Common
Stock Merger Consideration or the Preferred Stock Merger Consideration, as
the case may be (but instead shall be converted into the right to receive
payment from the Surviving Corporation with respect to such Dissenting
Shares in accordance with Delaware Law), unless and until such holder shall
have failed to perfect or shall have effectively withdrawn or lost such
holder's right under Delaware Law. If any such holder of Company Common
Stock shall have failed to perfect or shall have effectively withdrawn or
lost such right, each share of such holder shall be treated, at the
Company's sole discretion, as either (i) a share of Company Common Stock
(other than an Electing Share) that had been converted as of the Effective
Time into the right to receive the Common Stock Merger Consideration in
accordance with Section 1.6(c)(ii) or (ii) an Electing Share. If any such
holder of Company Convertible Preferred Stock shall have failed to perfect
or shall have effectively withdrawn or lost such right, each share of such
holder shall be treated as a share of Company Convertible Preferred Stock
that had been converted as of the Effective Time into the right to receive
the Preferred Stock Merger Consideration in accordance with Section 1.6(d).
The Company shall give prompt notice to Merger Sub of any demands received
by the Company for appraisal of shares of Company Common Stock or Company
Convertible Preferred Stock, and Merger Sub shall have the right to
participate in all negotiations and proceedings with respect
-4-
to such demands. The Company shall not, except with the prior written
consent of Merger Sub, make any payment with respect to, or settle or offer
to settle, any such demands.
(f) Cancellation and Retirement of Company Stock. As of the Effective
Time, all shares of Company Stock (other than Electing Shares and
Dissenting Shares) issued and outstanding immediately prior to the
Effective Time, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Stock shall, to the
extent such certificate represents such shares, cease to have any rights
with respect thereto, except, in all cases other than Excluded Shares, the
right to receive cash, including cash in lieu of fractional shares of
Company Common Stock to be issued or paid in consideration therefor upon
surrender of such certificate in accordance with Section 1.9(e).
(g) Unless the context indicates otherwise, all references herein to
shares of Company Common Stock shall be deemed to include any accompanying
Rights.
SECTION 1.7. Company Common Stock Elections.
(a) Each holder who, on or prior to the Election Date referred to in
Section 1.7(c) below, is a record holder of shares of Company Common Stock
will be entitled, with respect to all or any portion of its shares, to make
an unconditional election (a "Retention Election") on or prior to the
Election Date (as defined in Section 1.7(c)) to retain Retained Shares
(subject to Section 1.8), on the basis hereinafter set forth, provided
that, within 45 days after the date hereof, Merger Sub shall use its
reasonable best efforts to convert the Merger into an all cash merger
pursuant to which all shares of Company Common Stock will be converted only
into the right to receive the Cash Election Price in cash following the
Merger (a "Conversion Decision"); provided that the foregoing shall not
require Merger Sub or Parent or any of their affiliated entities to agree
to any terms or provisions in connection therewith which it or they find
unacceptable. Upon making a Conversion Decision, Merger Sub shall provide
written notice thereof to the Company. In connection with such Conversion
Decision, Parent and Persons affiliated or related to Parent shall continue
to hold in the aggregate at least 75% of the capital stock of Merger Sub.
In the event that Merger Sub makes a Conversion Decision, Sections
1.6(c)(i), 1.7(c), 1.7(d), 1.7(e), 1.8, 1.9(c) and 1.9(e) hereof and all
references herein to the Form S-4 (as defined in Section 2.8) and any
obligations in connection therewith shall be deemed eliminated and have no
effect, and there shall be no Form of Election and no Retained Shares.
-5-
(b) Prior to the mailing of the Proxy Statement/Prospectus (as defined
in Section 2.8), Merger Sub shall appoint a bank or trust company to act as
exchange agent (the "Exchange Agent") for the payment of the Merger
Consideration.
(c) The Company shall prepare and mail a form of election, which form
shall be subject to the reasonable approval of Merger Sub (the "Form of
Election"), with the Proxy Statement/Prospectus to the record holders of
Company Common Stock as of the record date for the Company Stockholders'
Meeting (as defined below), which Form of Election shall be used by each
record holder of shares of Company Common Stock who wishes to make a
Retention Election for any or all shares of Company Common Stock held,
subject to the provisions of Section 1.8 hereof, by such holder. The
Company will use commercially reasonable efforts to make the Form of
Election and the Proxy Statement/Prospectus available to all Persons (as
defined in Section 8.4) who become holders of record of shares of Company
Common Stock during the period between such record date and the Election
Date referred to below. Any such holder's election to retain Retained
Shares shall have been properly made only if the Exchange Agent shall have
received at its designated office, by 5:00 p.m., New York City time on the
business day immediately preceding the date of the Company Stockholders'
Meeting (the "Election Date"), a Form of Election properly completed and
signed and accompanied by certificates for the shares of Company Common
Stock to which such Form of Election relates, duly endorsed in blank or
otherwise in form acceptable for transfer on the books of the Company (or
by an appropriate guarantee of delivery of such certificates as set forth
in such Form of Election from a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, provided such certificates are in fact
delivered to the Exchange Agent within three American Stock Exchange
trading days after the date of execution of such guarantee of delivery).
(d) Any Form of Election may be revoked by the stockholder submitting
its revocation to the Exchange Agent only by written notice received by the
Exchange Agent prior to 5:00 p.m., New York City time on the Election Date.
In addition, all Forms of Election shall automatically be revoked if the
Exchange Agent is notified in writing by Merger Sub and the Company that
the Merger has been abandoned or that this Agreement has been terminated in
accordance with its terms. If a Form of Election is revoked, the
certificate or certificates (or guarantees of delivery, as appropriate) for
the shares of Company Common Stock to which such Form of Election relates
shall be
-6-
promptly returned by the Exchange Agent to the stockholder submitting the
same.
(e) The determination of the Exchange Agent of whether Retention
Elections have been properly made or revoked pursuant to this Section 1.7
with respect to shares of Company Common Stock and when Retention Elections
and revocations were received by it shall be binding. If the Exchange Agent
determines that any Retention Election was not properly made with respect
to shares of Company Common Stock, such shares shall be treated by the
Exchange Agent as shares which were not Electing Shares at the Effective
Time, and such shares shall be exchanged in the Merger for cash pursuant to
Section 1.6(c)(ii). The Exchange Agent shall also make all computations as
to the allocation and the proration contemplated by Section 1.8, and any
such computation shall be conclusive and binding on the holders of shares
of Company Common Stock. The Exchange Agent may, with the mutual agreement
of Merger Sub and the Company, make such rules as are consistent with this
Section 1.7 for the implementation of the elections provided for herein as
shall be necessary or desirable fully to effect such elections.
SECTION 1.8. Proration.
(a) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of shares of Company Common Stock to be retained as
Retained Shares at the Effective Time (the "Retention Election Number")
shall be equal to the Parent Equity Number, multiplied by 0.07, and divided
by 0.93.
(b) If the number of Electing Shares exceeds the Retention Election
Number, then each Electing Share shall remain outstanding as a Retained
Share or be converted into the right to receive cash in accordance with the
terms of Section 1.6(c) in the following manner:
(i) a proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing the Retention Election Number by the total
number of Electing Shares;
(ii) subject to Section 1.9(e), the number of Electing Shares
covered by each Retention Election to be retained as Retained Shares
shall be determined by multiplying the Non-Cash Proration Factor by
the total number of Electing Shares covered by such Retention
Election; and
(iii) all Electing Shares, other than those shares to remain
outstanding as Retained Shares in accordance with Section 1.8(b)(ii),
shall be converted
-7-
into cash as if such shares were not Electing Shares in accordance
with the terms of Section 1.6(c)(ii).
(c) If the number of Electing Shares is less than the Retention
Election Number, then:
(i) all Electing Shares shall remain outstanding as Retained
Shares in accordance with the terms of Section 1.6(c)(i);
(ii) additional shares of Company Common Stock other than
Electing Shares shall remain outstanding as Retained Shares in
accordance with the terms of Section 1.6(c)(i) in the following
manner:
(1) a proration factor (the "Cash Proration Factor") shall
be determined by dividing (x) the difference between the
Retention Election Number and the number of Electing Shares by
(y) the total number of outstanding shares of Company Common
Stock other than Electing Shares; and
(2) the number of shares of Company Common Stock in addition
to Electing Shares to be retained as Retained Shares shall be
determined by multiplying the Cash Proration Factor by the total
number of shares of Company Common Stock other than Electing
Shares; and
(iii) subject to Sections 1.6(e) and 1.9(e), shares of Company
Common Stock subject to clause (ii) of this Section 1.8(c) shall
remain outstanding as Retained Shares in accordance with Section
1.6(c)(i) (on a consistent basis among stockholders who held shares of
Company Common Stock as to which they did not make the election
referred to in Section 1.6(c)(i), pro rata to the number of shares as
to which they did not make such election).
SECTION 1.9. Exchange of Certificates.
(a) Exchange Agent. Immediately after the Effective Time, the
Surviving Corporation shall deposit with the Exchange Agent, for the
benefit of the holders of shares of Company Common Stock, for exchange in
accordance with this Article I, the cash portion (or in the case of a
Conversion Decision, all) of the Merger Consideration (such cash
consideration being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions of the Surviving
Corporation, make payments of the Cash Election Price and the Preferred
Stock Merger Consideration out of the Exchange Fund. The Exchange Fund
shall not be used for any other purpose.
-8-
(b) Exchange Procedures. As soon as practicable after the Effective
Time, each holder of an outstanding certificate or certificates which prior
thereto represented shares of Company Stock (the "Certificates") shall,
upon surrender to the Exchange Agent of such Certificate or Certificates
and acceptance thereof by the Exchange Agent, be entitled to the amount of
cash, if any, into which the number of shares of Company Stock previously
represented by such Certificate or Certificates surrendered shall have been
converted pursuant to this Agreement and, in the event a Conversion
Decision was not made, a certificate or certificates representing the
number of full shares of common stock of the Surviving Corporation, if any,
to be retained by the holder thereof as Retained Shares pursuant to this
Agreement. The Exchange Agent shall accept such Certificates upon
compliance with the terms and conditions of Section 1.7 and such other
reasonable terms and conditions as the Exchange Agent may impose to effect
an orderly exchange thereof in accordance with normal exchange practices.
After the Effective Time, there shall be no further transfer on the records
of the Company or its transfer agent of Certificates which have been
converted, in whole or in part, pursuant to this Agreement into the right
to receive the Cash Election Price or the Preferred Stock Merger
Consideration, as the case may be, and if such Certificates are presented
to the Company for transfer, they shall be canceled against delivery of the
Cash Election Price or the Preferred Stock Merger Consideration, as the
case may be, and, if appropriate, certificates for Retained Shares. If any
certificate for such Retained Shares is to be issued in, or if cash is to
be remitted to, a name other than that in which the Certificate surrendered
for exchange is registered, it shall be a condition of such exchange that
the Certificate so surrendered shall be properly endorsed, with signature
guaranteed, or otherwise in proper form for transfer and that the Person
requesting such exchange shall pay to the Company, its transfer agent, or
Exchange Agent any transfer or other taxes required by reason of the
issuance of certificates for such Retained Shares in a name other than that
of the registered holder of the Certificate surrendered, or establish to
the satisfaction of the Company or its transfer agent that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 1.9(b), each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender
the Merger Consideration as contemplated by Section 1.6. No interest will
be paid or will accrue on any cash payable as Merger Consideration or in
lieu of any fractional Retained Shares.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Retained Shares with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with
-9-
respect to the Retained Shares represented thereby and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
Section 1.9(e) until the surrender of such Certificate in accordance with
this Article I. Subject to the effect of applicable law, following
surrender of any such Certificate, there shall be paid to the holder of the
Certificate representing whole Retained Shares, without interest, (i) at
the time of such surrender or as promptly after the sale of the Excess
Shares (as defined in Section 1.9(e)) as practicable, the amount of any
cash payable in lieu of a fractional Retained Share to which such holder is
entitled pursuant to Section 1.9(e) and the proportionate amount of
dividends or other distributions with a record date after the Effective
Time theretofore paid with respect to such Retained Shares, and (ii) at the
appropriate payment date, the proportionate amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and payment date subsequent to such surrender payable with
respect to such whole Retained Shares.
(d) No Further Ownership Rights in Company Stock Exchanged For Cash.
All cash paid upon the surrender for exchange of Certificates representing
shares of Company Stock in accordance with the terms of this Article I
(including any cash paid pursuant to Section 1.9(e)) shall be deemed to
have been paid in full satisfaction of all rights pertaining to the shares
of Company Stock exchanged for cash theretofore represented by such
Certificates.
(e) No Fractional Shares.
(i) No certificates or scrip representing fractional Retained
Shares shall be issued in connection with the Merger, and such
fractional share interests will not entitle the owner thereof to vote
or to any rights of a stockholder of the Surviving Corporation after
the Merger.
(ii) Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of
a Retained Share (after taking into account all shares of Company
Common Stock delivered by such holder) shall receive, in lieu thereof,
a cash payment (without interest), rounded to the nearest cent,
representing such holder's proportionate interest in the net proceeds
from the sale by the Exchange Agent (following the deduction of
applicable transaction costs), on behalf of all such holders, of the
Retained Shares (the "Excess Shares") representing such fractions.
Such sale shall be made as soon as practicable after the Effective
Time.
-10-
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for one year
after the Effective Time shall be delivered to the Surviving Corporation
and any holders of shares of Company Stock prior to the Merger who have not
theretofore complied with this Article I shall thereafter look only to the
Surviving Corporation and only as general creditors thereof for payment of
the Merger Consideration.
(g) No Liability. None of Merger Sub, the Surviving Corporation or the
Exchange Agent, or any employee, officer, director, agent or affiliate
thereof, shall be liable to any Person in respect of any Retained Shares
(or dividends or distributions with respect thereto), if applicable, or
cash from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by the Surviving
Corporation, on a daily basis. Any interest and other income resulting from
such investments shall be paid to the Surviving Corporation. To the extent
that there are losses with respect to such investments, or the Exchange
Fund diminishes for other reasons below the level required to make prompt
payments of the Merger Consideration as contemplated hereby, the Surviving
Corporation shall promptly replace or restore the portion of the Exchange
Fund lost through investments or other events so as to ensure that the
Exchange Fund is, at all times, maintained at a level sufficient to make
such payments.
(i) Withholding Rights. The Surviving Corporation shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to
this Agreement to any holder of shares of Company Stock such amounts as the
Surviving Corporation is required to deduct and withhold with respect to
the making of such payment under the Internal Revenue Code of 1986, as
amended (the "Code"), or any provision of state, local or foreign tax law.
To the extent that amounts are so deducted and withheld by the Surviving
Corporation, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the shares of Company
Stock in respect of which such deduction and withholding was made by the
Surviving Corporation.
(j) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving
-11-
Corporation may require as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration payable, and unpaid dividends and distributions on Retained
Shares (if applicable) deliverable in respect thereof, pursuant to this
Agreement.
SECTION 1.10. Stock Plans.
(a) The Company shall use its reasonable best efforts to take all
actions necessary to provide that, at the Effective Time, (i) each then
outstanding option to purchase shares of Company Common Stock (the
"Options") granted under any of the Company's stock option plans referred
to in Section 3.2, each as amended (collectively, the "Option Plans") or
granted otherwise, whether or not then exercisable or vested, shall be
canceled and (ii) in consideration of such cancellation, Merger Sub shall
(or shall cause the Surviving Corporation to) pay to such holders of
Options an amount in cash in respect thereof equal to the product of (A)
the excess, if any, of the Cash Election Price over the exercise price
thereof and (B) the number of shares of Company Common Stock subject
thereto (such payment to be net of applicable withholding taxes).
(b) Prior to the Effective Time, the Company shall cause any
restrictions imposed pursuant to any stock plan on any outstanding shares
of Company Common Stock (such shares, "Company Restricted Stock") to lapse
and each share of Company Restricted Stock shall be subject to the same
terms and conditions of this Agreement as other shares of Company Common
Stock, including, but not limited to, Section 1.6(c) herein.
(c) Except as provided herein or as otherwise agreed to by the parties
and to the extent permitted by the Option Plans, (i) the Company shall use
its reasonable best efforts to cause the Option Plans to terminate as of
the Effective Time and the provisions in any other plan, program or
arrangement, providing for the issuance or grant by the Company of any
interest in respect of the capital stock of the Company shall be terminated
and have no further force or effect as of the Effective Time and (ii) the
Company shall use all reasonable best efforts to ensure that following the
Effective Time no holder of Options or any participant in the Option Plans
or anyone otherwise shall have any right to acquire any equity securities
of the Company, the Surviving Corporation or any subsidiary thereof.
SECTION 1.11. Indebtedness
(a) At closing, the Company shall cause the satisfactory repayment,
repurchase and discharge of all
-12-
indebtedness outstanding (including accrued interest, premiums, if any, and
expense reimbursement, if required) under the Healthcare Receivables
Purchase Agreement, dated as of July 31, 1996, between the Company and
Daiwa Healthco-2 LLC (the "Receivables Facility") and the 7.50% promissory
note of the Company in the aggregate principal amount of $25,000,000,
payable to Physicians Clinical Laboratories, Inc., in accordance with their
terms.
(b) Provided that this Agreement shall not have been earlier
terminated in accordance with Section 7.1, the Company shall, as soon as
reasonably practicable after receiving a written request (the "Debt Offer
Request") by Merger Sub to do so, commence an offer to purchase all of the
Company's outstanding 11% Senior Notes due 2006 (the "Senior Notes") and
related consent solicitation on the terms set forth on Schedule 1.11 hereto
and such other customary terms and conditions specified by Merger Sub, as
may be reasonably requested, provided that the Company's obligations to
accept for payment Senior Notes shall be conditioned on the closing of the
Merger occurring substantially concurrently (the "Debt Offer"). The
consents being solicited pursuant the Debt Offer (the "Consents") shall be
to effect such amendments to the Indenture dated as of March 14, 1996 with
respect to the Senior Notes (the "Indenture Amendments") as are determined
by Merger Sub; provided that the amendments shall not require the consent
of the holders of more than a majority of the outstanding principal amount
of the Senior Notes in the aggregate. The tendering of Senior Notes
pursuant to the Debt Offer shall constitute the grant of a Consent. To the
extent permitted by law, the Company shall waive any of the conditions to
the Debt Offer and make any other changes to the terms and conditions of
the Debt Offer as may be reasonably requested by Merger Sub, and the
Company shall not, without Merger Sub's prior consent (which consent will
not be unreasonably withheld), waive any condition to the Debt Offer, make
any changes to the terms and conditions of the Debt Offer set forth on
Schedule 1.11 or make any other changes to the terms and conditions of the
Debt Offer.
(c) Promptly following the date of this Agreement, the Company shall
prepare, subject to advice and comments of Merger Sub, an offer to purchase
the Senior Notes and forms of the related letter of transmittal (the
"Letter of Transmittal") (collectively, the "Offer to Purchase"), as well
as all other information and exhibits required in connection therewith
(collectively, the "Offer Documents"). All mailings to the holders of the
Senior Notes in connection with the Debt Offer shall be subject to the
prior review, comment and approval of Merger Sub, which review, comment and
approval shall not be unreasonably withheld or delayed. The Company will
use its reasonable best efforts to cause the Offer Documents to be mailed
to the holders of
-13-
the Senior Notes as promptly as practicable following commencement of the
Debt Offer in accordance with Section 1.11(b). The Company agrees to
promptly correct any information in the Offer Documents that shall be or
have become false or misleading in any material respect.
(d) Subject to the terms and conditions of this Agreement, including
but not limited to the conditions to the Debt Offer, at the closing of the
Merger the Company will accept for payment the Senior Notes.
(e) As soon after the date of this Agreement as it is permissible to
do so under the terms of the Note dated as of November 5, 1998 issued to
Meris Laboratories, Inc. (the "Original Meris Note", and including any note
or notes issued following a permitted transfer or assignment of such Note
and any secondary notes with respect thereto, the "Meris Note"), the
Company shall convert the Meris Note into shares of Company Common Stock
pursuant to Section 5.l(a) of the Original Meris Note. If required to do
so, the Company shall use reasonable best efforts to (i) obtain any
consents necessary to convert the Meris Note into shares of Company Common
Stock and (ii) accordingly convert the Meris Note into shares of Company
Common Stock prior to the Effective Time.
Article II.
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Merger Sub represents and warrants to the Company as follows:
SECTION 2.1. Corporate Organization. Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority and any necessary
governmental authority to own, operate or lease the properties that it purports
to own, operate or lease and to carry on its business as it is now being
conducted.
SECTION 2.2. Capitalization. The authorized capital stock of Merger Sub
consists of 10,000,000 shares of Merger Sub Stock. As of the date hereof, 100 of
such shares are issued and outstanding, duly authorized, validly issued, fully
paid and nonassessable and owned beneficially and of record by Parent free and
clear of any liens, security interests, pledges, agreements, claims, charges or
encumbrances of any nature whatsoever ("Liens"). Except in connection with the
Equity Financing, there are no other options, warrants or other rights,
agreements, arrangements or commitments of any character obligating Merger Sub
to issue or sell any shares of capital stock of or other equity interests in
Merger Sub.
-14-
SECTION 2.3. Authority Relative to this Agreement. The execution and
delivery of this Agreement by Merger Sub and the consummation by Merger Sub of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Merger Sub and no other corporate proceeding is
necessary for the execution and delivery of this Agreement by Merger Sub, the
performance by Merger Sub of its obligations hereunder and the consummation by
Merger Sub of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Merger Sub and constitutes a legal, valid and binding
obligation of Merger Sub, enforceable against it in accordance with its terms.
SECTION 2.4. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Merger Sub do not,
and the performance of this Agreement by Merger Sub will not, (i) conflict
with or violate any law, regulation, court order, judgment or decree
applicable to Merger Sub or by which its property is bound or subject, (ii)
violate or conflict with the Certificate of Incorporation or By-Laws of
Merger Sub, or (iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination or cancellation of, or
result in the creation of a Lien on any of the property or assets of Merger
Sub pursuant to, any contract, instrument, permit, license or franchise to
which Merger Sub is a party or by which Merger Sub or any of its property
is bound or subject.
(b) Except for applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act
of 1933, as amended (the "Securities Act"), the pre-merger notification
requirements of the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and the filing and recordation of an
appropriate Certificate of Merger as required by Delaware Law, Merger Sub
is not required to submit any notice, report or other filing with any
governmental or regulatory authority or accreditation or certification
agency, board or other organization, domestic or foreign, in connection
with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby, except for such of
the foregoing as are required by reason of the legal or regulatory status
or the activities of the Company or by reason of facts specifically
pertaining to it. No waiver, consent, approval or authorization of any
governmental or regulatory authority or accreditation or certification
agency, board or other organization, domestic or foreign, is required to be
obtained or made by Merger Sub in connection with its execution, delivery
or performance of this Agreement, except
-15-
for such of the foregoing as are required by reason of the legal or
regulatory status or the activities of the Company or by reason of facts
specifically pertaining to it.
SECTION 2.5. Financing Arrangements. Merger Sub has received and delivered
to the Company commitment letters with respect to equity financing of
$139,500,000 (the "Equity Financing") and debt financing (other than
subordinated debt financing) of $180,000,000 (collectively, the "Commitment
Letters") and a commitment letter (the "Bridge Financing Letter") with respect
to bridge financing of $150,000,000 ("Bridge Financing") in subordinated debt
financing, in an aggregate amount sufficient (a) to pay (or provide the funds
for the Surviving Corporation to pay) the aggregate cash portion of the Merger
Consideration, (b) to pay (or provide the funds for the Surviving Corporation to
pay) all amounts contemplated by Section 1.10 when due, (c) to refinance any
indebtedness or other obligation of the Company which may become due as a result
of this Agreement or any of the transactions contemplated hereby (including
pursuant to the Debt Offer), and (d) to pay all related fees, expenses and
premiums. As of the date of this Agreement, Merger Sub believes that total debt
financing shall consist of (i) $160,000,000 in term loans and anticipated
initial revolving credit borrowings provided by banks and (ii) $150,000,000 of
subordinated debt financing (together, the "Debt Financing"). Except as provided
in Section 5.11, as of the date hereof, Merger Sub does not intend to utilize
the Bridge Financing described in the Bridge Financing Letter but intends,
rather, to obtain the subordinated debt financing from the Rule 144A market.
SECTION 2.6. No Prior Activities. Except for obligations or liabilities
incurred in connection with its incorporation or organization or the negotiation
and consummation of this Agreement and the transactions contemplated hereby
(including any financing), Merger Sub has not incurred any obligations or
liabilities, and has not engaged in any business or activities of any type or
kind whatsoever or entered into any agreements or arrangements with any Person.
SECTION 2.7. Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of Merger Sub.
SECTION 2.8. Information Supplied. None of the information supplied by
Merger Sub or its officers, directors, representatives, agents or employees (the
"Purchaser Information") specifically for inclusion in (i) the Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
(the "SEC") by the Company in connection with the shares of Company Common Stock
to be retained in the Merger (including the proxy statement and prospectus (the
"Proxy
-16-
Statement/Prospectus") constituting a part thereof) (the "Form S-4"), at the
time it becomes effective under the Securities Act, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading and (ii) the Proxy Statement/Prospectus will, on the date it is first
mailed to the holders of Company Common Stock or at the time of the meeting of
the Company's stockholders to consider the Merger Agreement (the "Company
Stockholders' Meeting"), contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. If at any time prior to the Company Stockholders'
Meeting, any event with respect to Merger Sub, or with respect to information
supplied by Merger Sub specifically for inclusion in the Proxy
Statement/Prospectus, shall occur which is required to be described in an
amendment of, or supplement to, the Proxy Statement/Prospectus, such event shall
be so described by Merger Sub and provided to the Company. All documents that
Merger Sub is responsible for filing with the SEC in connection with the
transactions contemplated herein will comply as to form, in all material
respects, with the provisions of the Securities Act, the Exchange Act and the
respective rules and regulations thereunder, and each such document required to
be filed with any government entity or agency ("Governmental Entity") other than
the SEC will comply in all material respects with the provisions of applicable
law as to the information required to be contained therein. Notwithstanding the
foregoing, Merger Sub makes no representation or warranty with respect to the
information supplied or to be supplied by the Company for inclusion in the Form
S-4 or the Proxy Statement/Prospectus. In the event of a Conversion Decision,
all references herein to "Proxy Statement/Prospectus" shall mean a proxy
statement prepared in accordance with the Exchange Act and the rules promulgated
thereunder, used to solicit proxies in connection with the Company Stockholders'
Meeting.
Article III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Merger Sub as follows:
SECTION 3.1. Organization and Qualification; Subsidiaries. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority and
any necessary governmental authority to own, operate or lease the properties
that it purports to own, operate or lease and to carry on its business as it is
now being conducted, and is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its
-17-
properties owned, operated or leased or the nature of its activities makes such
qualification necessary, except for such failure which, when taken together with
all other such failures, would not have a Material Adverse Effect (as defined
below in this Section 3.1). For purposes of this Agreement, "Material Adverse
Effect" means any change in or effect on the business of the Company that is or
will be materially adverse to the business, operations, properties (including
intangible properties), condition (financial or otherwise), prospects, assets or
liabilities of the Company; provided that any change or effect relating to, or
that can reasonably be expected to result in, or results in, (i) the exclusion
or suspension of the Company or any director, officer or key employee of the
Company from participation in any federal or state healthcare or health benefit
program such as Medicare, Medicaid or MediCal or (ii) the loss or suspension or
materially adverse modification of a material laboratory license or
certification shall automatically be deemed to be a Material Adverse Effect.
SECTION 3.2. Capitalization. (a) The authorized capital stock of the
Company consists of: (i) 100,000,000 shares of Company Common Stock; (ii)
5,000,000 shares of non-voting common stock, par value $.01 per share ("Company
Non-Voting Common Stock"); and (iii) 20,000,000 shares of Preferred Stock, par
value $.01 per share ("Company Preferred Stock"), of which 400,000 shares have
been designated as Company Convertible Preferred Stock and 1,000,000 shares have
been designated as Series A Junior Participating Preferred Stock ("Series A
Preferred Stock"). As of April 1, 1999: (A) 40,824,563 shares of Company Common
Stock were issued and outstanding, all of which were validly issued, fully paid
and nonassessable; (B) no shares of Company Non-Voting Common Stock were issued
and outstanding; (C) 364,000 shares of Company Convertible Preferred Stock were
issued and outstanding and no other shares of Company Preferred Stock were
issued and outstanding; (D) 457,195 outstanding units of Company phantom stock
granted under the Company's Executive Retirement Plan, as amended (whether
vested or unvested), (E) 5,932,083 shares of Company Common Stock were reserved
for issuance upon exercise of outstanding options under the Company's employee
stock option plans listed in Schedule 3.2(a); (F) 364,000 shares of Company
Common Stock were reserved for issuance upon conversion of outstanding Company
Convertible Preferred Stock; (G) 8,106,406 shares of Company Common Stock were
reserved for issuance upon the conversion of the Company's outstanding
convertible notes; and (H) 1,000,000 shares of Series A Preferred Stock were
reserved for issuance upon the exercise of outstanding rights to purchase Series
A Preferred Stock (the "Rights") issued under the Company's Amended and Restated
Rights Agreement, dated as of March 15, 1996 (the "Rights Agreement"). Except as
disclosed in the SEC Reports (as defined in Section 3.5) filed prior to the date
of this Agreement or in Schedule 3.2(a), there are (i) no other options,
warrants or other rights, agreements, arrangements or commitments of any
character obligating the Company to issue or sell any shares of capital stock of
or other
-18-
equity interests in the Company or any Voting Debt (as defined below) and (ii)
no bonds, debentures, notes or other indebtedness having the right to vote on
any matters on which stockholders of the Company may vote ("Voting Debt"). Since
April 1, 1999, except as set forth in Schedule 3.2(a), there have been no shares
of capital stock issued or sold, except upon the exercise of options outstanding
on April 1, 1999.
(b) There are no Subsidiaries of the Company. Except as set forth in
Schedule 3.2(b) or in the SEC Reports, the Company does not directly or
indirectly own a greater than 5% equity interest in any other corporation,
partnership, joint venture or other business association or entity. For purposes
of this Agreement, "Subsidiary" means any corporation or other legal entity of
which the Company (either alone or through or together with any other
Subsidiary) owns, directly or indirectly, more than 50% of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
SECTION 3.3. Authority Relative to this Agreement.
The Company has the necessary corporate power and authority to enter into
this Agreement and, subject to obtaining any necessary stockholder approval of
the Merger, to carry out its obligations hereunder. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to the approval of the
Merger by the Company's stockholders in accordance with Delaware Law. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company, enforceable against it in
accordance with its terms.
SECTION 3.4. No Conflict; Required Filings and Consents.
(a) Except as set forth in Schedule 3.4(a), the execution and delivery
of this Agreement by the Company do not, and the performance of this
Agreement by the Company will not, (i) conflict with or violate any law,
regulation, court order, judgment or decree applicable to the Company or by
which its property is bound or subject, (ii) violate or conflict with the
Restated Certificate or By-Laws or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or terminate or cancel or give to
others any rights of termination or cancellation of (with or without notice
or lapse of time or both), or result in the creation of a Lien on any of
the properties or assets of the Company pursuant to, any contract,
instrument, permit, license, certificate or franchise to which the Company
is a party, of
-19-
which the Company is the beneficiary or by which the Company or its
property is bound or subject, except for conflicts, violations, breaches or
defaults, terminations, cancellations or rights of termination or
cancellation which, in the aggregate, and assuming the exercise of any
rights of termination or cancellation, would not have a Material Adverse
Effect.
(b) Except for applicable requirements of the Exchange Act, the filing
of the Form S-4 under the Securities Act, the pre-merger notification
requirements of the HSR Act, and filing and recordation of an appropriate
merger or other documents as required by Delaware Law, "takeover" or "blue
sky" laws of various states, and except as set forth in Schedule 3.4(b),
the Company is not required to submit any application, notice, report or
other filing with any governmental or regulatory authority or accreditation
or certification agency, board or other organization, domestic or foreign,
in connection with the execution, delivery or performance of this
Agreement, except where the failure the submit such application, notice,
report or other filing would not, individually or in the aggregate, be
reasonably likely to (x) have a Material Adverse Effect or (y) impair, in
any material respect, the ability of the Company to perform its obligations
under this Agreement. No waiver, consent, approval or authorization of any
governmental or regulatory authority or accreditation or certification
agency, board or other organization, domestic or foreign, is required to be
obtained or made by the Company in connection with its execution, delivery
or performance of this Agreement, except where the failure to obtain such
waivers, consents, approvals or authorizations would not, individually or
in the aggregate, be reasonably likely to (x) have a Material Adverse
Effect or (y) impair, in any material respect, the ability of the Company
to perform its obligations under this Agreement.
SECTION 3.5. SEC Filings; Financial Statements.
(a) Except as set forth in Schedule 3.5, the Company has filed all
forms, reports and documents required to be filed with the SEC since
January 1, 1997 (collectively, the "SEC Reports"). The SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, as in effect at the time they were filed
and (ii) did not at the time they were filed contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(b) The financial statements contained in the SEC Reports were
prepared in accordance with generally accepted
-20-
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and fairly
presented the financial position of the Company as at the respective dates
thereof and the statements of operations and cash flows of the Company for
the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end
adjustments.
(c) Except as reflected or reserved against in the financial
statements contained in the SEC Reports filed prior to the date of this
Agreement or as otherwise disclosed in such SEC Reports, the Company has no
liabilities of any nature (whether accrued, absolute, contingent or
otherwise) which in the aggregate would have, or are reasonably likely to
have, a Material Adverse Effect.
SECTION 3.6. Absence of Certain Changes or Events. Since December 31, 1998,
except as contemplated by this Agreement or as set forth in Schedule 3.6 or in
the SEC Reports filed prior to the date of this Agreement, there has not been:
(a) any event or state of fact that, individually or in the aggregate,
has had or is reasonably likely to have a Material Adverse Effect;
(b) any strike, picketing, work slowdown or other labor disturbance
having a Material Adverse Effect;
(c) any damage, destruction or loss (whether or not covered by
insurance) with respect to any of the assets of the Company having a
Material Adverse Effect;
(d) any (A) grant of any severance or termination pay to (1) any
director or officer of the Company or (2) any other employee of the
Company, except in the case of clause (2) in an aggregate cost not to
exceed $1,000,000, (B) employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any
director, officer or employee of the Company entered into, (C) increase in
benefits payable under any existing severance or termination pay policies
or employment agreements or (D) increase in compensation, bonus or other
benefits payable to directors, officers or employees of the Company other
than, in the case of employees (other than directors and officers), in the
ordinary course of business consistent with past practice.
(e) any redemption or other acquisition of, Company Common Stock or
capital stock of the Company or options or rights to acquire shares of
capital stock of the Company by the Company or any declaration or payment
of any dividend or other distribution in cash, stock or property with
respect to Company Stock, except for purchases heretofore made
-21-
pursuant to the terms of the Company's employee benefit plans and ordinary
course cash dividends paid before the date hereof; or
(f) any change by the Company in accounting principles except insofar
as may have been required by a change in generally accepted accounting
principles and disclosed in the SEC Reports filed prior to the date of this
Agreement.
SECTION 3.7. Litigation. Except as disclosed in the SEC Reports filed prior
to the date of this Agreement or in Schedule 3.7, there are no claims, actions,
suits, arbitrations, grievances, proceedings or investigations pending or, to
the knowledge of the Company, threatened against the Company or any properties
or rights of the Company or any officers or directors of the Company in their
capacity as such, before any court, administrative, governmental or regulatory
authority, domestic or foreign, nor any internal investigations (other than
investigations in the ordinary course of the Company's compliance program) being
conducted by the Company or have any acts of alleged misconduct by the Company
been reported to the Company, which are, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect. Neither the Company nor any
of its properties is subject to any order, judgment, injunction or decree,
having or which is reasonably likely to have a Material Adverse Effect.
SECTION 3.8. Employee Benefit Plans. Schedule 3.8(a) sets forth a list of
all material employee welfare benefit plans (as defined in Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), employee
pension benefit plans (as defined in Section 3(2) of ERISA) and all other bonus,
stock option, stock purchase, benefit, profit sharing, savings, retirement,
disability, insurance, incentive, deferred compensation and other similar fringe
or employee benefit plans, programs or arrangements for the benefit of, or
relating to, any employee of, or independent contractor or consultant to, the
Company (together, the "Employee Plans"). The Company has delivered or made
available to Merger Sub true and complete copies of all Employee Plans, as in
effect, and will, without limiting the other provisions of this Agreement, make
available all other employee plans, together with all amendments thereto which
will become effective at a later date, as well as the latest Internal Revenue
Service determination letters obtained with respect to any Employee Plan
intended to be qualified under Section 401(a) or 501(a) of the Code. With
respect to each Employee Plan, true and complete copies of the (i) most recent
annual actuarial valuation report, if any, (ii) last filed Form 5500 together
with Schedule A and/or B thereto, if any, (iii) summary plan description (as
defined in ERISA), if any, and all modifications thereto communicated to
employees, and (iv) most recent annual and periodic accounting of related plan
assets, if any, have been, or will be, delivered to Merger Sub and are correct
in all material respects. Neither the Company nor, to
-22-
the knowledge of the Company, any of its directors, officers, employees or
agents has, with respect to any Employee Plan, engaged in or been a party to any
"prohibited transaction", as such term is defined in Section 4975 of the Code or
Section 406 of ERISA, which could result in the imposition of either a penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Code, in each case applicable to the Company or any Employee Plan. All
Employee Plans are in compliance in all material respects with the currently
applicable requirements prescribed by all statutes, orders, or governmental
rules or regulations currently in effect with respect to such Employee Plans,
including, but not limited to, ERISA and the Code and, to the knowledge of the
Company, there are no pending or threatened claims, lawsuits or arbitrations
(other than routine claims for benefits), relating to any of the Employee Plans,
which have been asserted or instituted against the Company, any Employee Plan or
the assets of any trust for any Employee Plan. Each Employee Plan intended to
qualify under Section 401(a) of the Code, and the trusts created thereunder
intended to be exempt from tax under the provisions of Section 501(a) of the
Code, either (i) has received a favorable determination letter from the Internal
Revenue Service to such effect or (ii) is still within the "remedial amendment
period," as described in Section 401(b) of the Code and the regulations
thereunder. All contributions or payments required to be made or accrued before
the Effective Time under the terms of any Employee Plan will have been made or
accrued by the Company by the Effective Time. No Employee Plan subject to
Section 412 of the Code has incurred any "accumulated funding deficiency" (as
defined in ERISA), whether or not waived. The Company has not incurred nor
reasonably expects to incur any liability to the Pension Benefit Guaranty
Corporation with respect to any Employee Plan other than with respect to
insurance premiums. The Company does not contribute nor has within the six-year
period ending on the date hereof contributed or been obligated to contribute, to
any pension or retirement plan which is a "multiemployer plan" (as defined in
Section 3(37) of ERISA). Except as disclosed on Schedule 3.8(b), neither the
execution and delivery of this Agreement or the consummation of the transactions
contemplated thereby will cause the vesting of any material benefit or the
payment of any material benefit to be accelerated. The consummation of the
transactions contemplated by this Agreement will not, either alone or in
combination with another event, result in payment of greater than $12 million of
"excess parachute payments" to all "disqualified individuals" (as each such term
is defined in Section 280G of the Code) in the aggregate with respect to the
Company.
SECTION 3.9. Information Supplied. None of the information to be supplied
by the Company specifically for inclusion or incorporation by reference in (i)
the Form S-4 will, at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) the Proxy
-23-
Statement/Prospectus will, on the date it is first mailed to the holders of the
Company Common Stock or on the date of the Company Stockholders' Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the date of the Company Stockholders'
Meeting, any event with respect to the Company, or with respect to information
supplied by the Company specifically for inclusion in the Proxy
Statement/Prospectus, shall occur which is required to be described in an
amendment of, or supplement to, the Proxy Statement/Prospectus, such event shall
be so described by the Company. All documents that the Company is responsible
for filing with the SEC in connection with the transactions contemplated herein,
to the extent relating to the Company or other information supplied by the
Company for inclusion therein, will comply as to form, in all material respects,
with the provisions of the Securities Act, the Exchange Act and the respective
rules and regulations thereunder, and each such document required to be filed
with any Governmental Entity other than the SEC will comply in all material
respects with the provisions of applicable law as to the information required to
be contained therein. Notwithstanding the foregoing, but subject to the
definition of "Material Adverse Effect", the Company makes no representation or
warranty with respect to (i) the information supplied or to be supplied by
Merger Sub for inclusion in the Form S-4 or the Proxy Statement/Prospectus or
(ii) any projections, forward-looking statements or similar information provided
to Merger Sub that are not of an historical nature.
SECTION 3.10. (a) Conduct of Business; Permits. (a) Except as disclosed in
the SEC Reports filed prior to the date of this Agreement or in Schedule
3.10(a), the business of the Company is not being (and since January 1, 1997 has
not been) conducted in default or violation of any term, condition or provision
of (i) the Restated Certificate or By-Laws, (ii) any note, bond, mortgage,
indenture, contract, agreement, lease or other instrument or agreement of any
kind to which the Company is now a party or by which the Company or any of its
properties or assets may be bound, or (iii) any Federal, state, local or foreign
statute, law, ordinance, rule, regulation, judgment, decree, order, concession,
grant, franchise, permit or license or other governmental authorization or
approval applicable to the Company or its business, including, without
limitation, laboratory licenses issued for participation in the Medicare,
Medicaid and MediCal programs, all licenses required in respect of the Company's
laboratories under the Clinical Laboratory Improvements Act of 1988 and all
state laboratory licenses required to be issued in those states in which the
Company does business, including under the California Clinical Laboratory
Improvements Act, except, with respect to the foregoing clauses (ii) and (iii),
defaults or violations that would not, individually or in the aggregate, have a
Material Adverse Effect. The material permits, licenses, approvals,
certifications and
-24-
authorizations from federal, state, local and foreign governmental and
regulatory authorities and accreditation and certification agencies, bodies or
other organizations (collectively, "Permits") held by the Company are valid and
sufficient in all material respects for all business presently conducted by the
Company. The Company has not received any written claim or notice nor has any
knowledge indicating that the Company is not in compliance with the terms of any
such Permits and with all requirements, standards and procedures of the federal,
state, local and foreign governmental or regulatory authorities which issued
them, or any limitation or proposed limitation on any Permit, except where the
failure to be in compliance would not, individually or in the aggregate, have a
Material Adverse Effect. Billing by the Company, under the Medicare and Medicaid
programs and otherwise, has been true and correct and in compliance with all
applicable laws, regulations and policies, including the Federal Physician
Self-Referral Act, the Federal False Claims Act, and other federal and state
physician self-referral, fraudulent billing, and false claims laws, except where
the failure to be in such compliance would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) Except as set forth in Schedule 3.10(b), since December 31, 1996,
neither the Company nor, to the best knowledge of the Company, any individual
who is an officer, director or employee of the Company (in his or her capacity
as such) has been (i) convicted of, charged with or (to the best knowledge of
the Company) investigated for a Medicare, Medicaid or state health program
related offense, (ii) convicted of, charged with or (to the best knowledge of
the Company) investigated for a violation of federal or state law related to
fraud, financial misconduct, obstruction of an investigation, theft or
embezzlement specifically related to and that adversely affects or is reasonably
likely to adversely affect the Company's participation in Medicare, Medicaid or
any federal or state healthcare or health benefit program, or (iii) excluded or
suspended from participation in Medicare, Medicaid or any such program.
Notwithstanding anything in this Agreement to the contrary, in determining, for
the purposes of Section 6.3(b) hereof, whether the representation in clause (ii)
of the preceding sentence is true and correct on and as of the Effective Time as
if made on and as of such time, such representation shall be deemed to be true
and correct as of such time unless the failure to be so has or is reasonably
likely to have a Material Adverse Effect. Except as set forth in Schedule
3.10(b), since December 31, 1996, (i) neither the Company nor any individual who
is an officer or director of the Company has been or became subject to any order
or consent decree of, or criminal or civil fine or penalty imposed by, any court
or governmental agency which has had, or might reasonably be believed may have a
Material Adverse Effect and (ii) except as set forth on Schedule 3.10(b), no
claim, complaint, suit, action, proceeding or investigation is pending, or to
the best of the knowledge of the Company, threatened
-25-
against any individual who is, or during such period was, an officer, director
or employee of the Company which has had, or is reasonably likely to have, a
Material Adverse Effect.
(c) There is no action for recoupment against the Company, or to the best
knowledge of the Company, threatened or pending actions for recoupment against
the Company, nor, except for amounts which are customary for the Company and the
clinical laboratory industry, is there any request for payments or reimbursement
of the Company by Medicare, nor by any other agency affiliated with Medicare,
nor by or from any third-party reimburser, agency affiliated with Medicare, nor
by or from any third-party reimburser, including, without limitation, any
insurance carrier, pre-paid plan, or any other similar entity, nor is the
Company aware of any basis for any such recoupment by any party against the
Company.
(d) To the best knowledge of the Company, since December 31, 1996, neither
the Company nor any director, officer, employee, agent or representative of the
Company (acting in his or her capacity as such) has directly or indirectly (i)
knowingly and willfully offered or paid any remuneration, in cash or in kind,
to, or made any financial arrangements with, any past or present customers, past
or present suppliers, contractors, or third party payors in order to obtain
business or payments from such persons, other than entertainment or other
activities in the ordinary and lawful course of business, (ii) knowingly and
willfully given or agreed to give, any gift or gratuitous payment of any kind,
nature or description (whether in money, property, or services) to any customer
or potential customer, supplier or potential supplier, contractor, third party
payor, or any other person other than in connection with promotional or
entertainment or other expenses in the ordinary and lawful course of business,
(iii) knowingly and willfully made or agreed to make, any contribution, payment,
or gift of funds or property to, or for the private use of, any governmental
official, employee, or agent where either the contribution, payment, or gift is
or was illegal under the laws of the United States or under the laws of any
state thereof or any other jurisdiction (foreign or domestic) under which such
payment, contribution, or gift was made, or (iv) knowingly and willfully paid or
offered to pay any illegal remuneration for any referral to the Company in
violation of any applicable anti-kickback law, including the Federal
Anti-Kickback Statute, 42 U.S.C. ss. 1320a-7b(b), or any applicable state or
local anti-kickback law.
SECTION 3.11. Taxes.
(a) Except as set forth in Schedule 3.11, and except as would not,
individually or in the aggregate, have a Material Adverse Effect, (i) the
Company has timely filed with the appropriate governmental authorities all Tax
Returns (as hereinafter defined) required to be filed by or with respect to the
Company or its operations or assets, and such Tax Returns are
-26-
true, correct and complete in all material respects, (ii) all Taxes (as
hereinafter defined) due with respect to taxable years for which the Company's
Tax Returns were filed, all Taxes required to be paid on an estimated or
installment basis, and all Taxes required to be withheld with respect to the
Company or its employees, operations or assets have been timely paid or, if
applicable, withheld and paid to the appropriate taxing authority in the manner
provided by law, (iii) the reserve for Taxes set forth on the balance sheet of
the Company as of December 31, 1998 is adequate for the payment of all Taxes
through the date thereof and no Taxes have been incurred after December 31, 1998
which were not incurred in the ordinary course of business, (iv) there are no
Liens for Taxes upon the assets of the Company, (v) no Federal, state, local or
foreign audits, administrative proceedings or court proceedings are pending with
regard to any Taxes or Tax Returns of the Company and there are no outstanding
deficiencies or assessments asserted or proposed, and any such proceedings,
deficiencies or assessments shown in Schedule 3.11 are being contested in good
faith through appropriate proceedings and the Company has made available to
Merger Sub copies of all revenue agent reports (or similar reports) and related
schedules relating to pending income tax audits of the Company, (vi) there are
no outstanding agreements, consents or waivers extending the statutory period of
limitations applicable to the assessment of any Taxes or deficiencies against
the Company, or with respect to its operations or assets, no power of attorney
granted by the Company with respect to any matter relating to Taxes is currently
in force, and the Company is not a party to any agreement providing for the
allocation or sharing of Taxes (vii) the federal income Tax Returns of the
Company have been examined by the IRS (or the applicable statutes of limitation
for the assessment of federal income Taxes for such periods have expired) for
all periods through and including December 31, 1995, (viii) the Company will not
be required to include any item of income in, or exclude any item of deduction
from, taxable income for any taxable period (or portion thereof) ending after
the Closing Date as a result of any (x) change in method of accounting for a
taxable period ending on or prior to the Closing Date, or (y) "closing
agreement," as described in Section 7121 of the Code (or any corresponding
provision of state, local or foreign income Tax law), entered into on or prior
to the Closing Date, or (z) any ruling received from the IRS.
(b) The Company has not filed a consent to the application of Section
341(f) of the Code.
(c) The Company is not and has not been a United States real property
holding company (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(ii) of the Code.
(d) Except as set forth in Schedule 3.11, the Company is not a party to any
agreement, contract or arrangement that could result, separately or in the
aggregate, in the payment of any
-27-
"excess parachute payments" within the meaning of section 280G of the Code.
(e) The Company's net operating loss carryover, as of December 31, 1998,
for federal income tax purposes is not materially less than $60 million.
(f) For purposes of this Agreement, "Taxes" means all taxes, charges, fees,
levies or other assessments imposed by any United States Federal, state, or
local taxing authority or by any non-U.S. taxing authority, including but not
limited to, income, gross receipts, excise, property, sales, use, transfer,
payroll, license, ad valorem, value added, withholding, social security,
national insurance (or other similar contributions or payments), franchise,
estimated, severance, stamp, and other taxes (including any interest, fines,
penalties or additions attributable to or imposed on or with respect to any such
taxes, charges, fees, levies or other assessments).
(g) For purposes of this Agreement, "Tax Return" means any return, report,
information return or other document (including any related or supporting
information and, where applicable, profit and loss accounts and balance sheets)
with respect to Taxes.
SECTION 3.12. Environmental.
(a) Except as set forth in Schedule 3.12, the Company is in compliance with
all applicable Environmental Laws (which compliance includes, but is not limited
to, the possession by the Company of all permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof), except where failure to be in compliance
would not have a Material Adverse Effect. The Company has not received any
written communication, whether from a governmental authority, citizens group,
employee or otherwise, alleging that the Company is not in such compliance, and
there are no past or present actions, activities, circumstances, conditions,
events or incidents that are reasonably likely to prevent or interfere with such
compliance in the future.
(b) Except as set forth in Schedule 3.12, there is no Environmental Claim
pending or, to the best knowledge of the Company, threatened, against the
Company or, to the best knowledge of the Company, against any Person whose
liability for any Environmental Claim the Company has or may have retained or
assumed either contractually or by operation of law, in each case which would
have a Material Adverse Effect.
(c) Except as set forth in Schedule 3.12, there are no past or present
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the Release or presence of any Hazardous Material which
could form the basis of any Environmental Claim against the Company, or to the
best
-28-
knowledge of the Company, against any Person whose liability for any
Environmental Claim the Company has or may have retained or assumed either
contractually or by operation of law, in each case which would have a Material
Adverse Effect.
(d) The Company has delivered or otherwise made available for inspection to
Merger Sub true, complete and correct copies and results of any reports,
studies, analyses, tests or monitoring possessed by the Company which have been
prepared since December 31, 1995 pertaining to Hazardous Materials in, on,
beneath or adjacent to any property currently or formerly owned, operated or
leased by the Company, or regarding the Company's compliance with applicable
Environmental Laws.
(e) Definitions
(i) "Cleanup" means all actions required to: (1) cleanup, remove,
treat or remediate Hazardous Materials in the indoor or outdoor
environment; (2) prevent the Release of Hazardous Materials so that
they do not migrate, endanger or threaten to endanger public health or
welfare or the indoor or outdoor environment; (3) perform pre-remedial
studies and investigations and post-remedial monitoring and care; or
(4) respond to any government requests for information or documents in
any way relating to cleanup, removal, treatment or remediation or
potential cleanup, removal, treatment or remediation of Hazardous
Materials in the indoor or outdoor environment.
(ii) "Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any Person
alleging potential liability (including, without limitation, potential
liability for investigatory costs, Cleanup costs, governmental
response costs, natural resources damages, property damages, personal
injuries, or penalties) arising out of, based on or resulting from (a)
the presence, or Release of any Hazardous Materials at any location,
whether or not owned or operated by the Company, or (b) circumstances
forming the basis of any violation, or alleged violation, of any
Environmental Law.
(iii) "Environmental Laws" means all federal, state, local and
foreign laws and regulations relating to pollution or protection of
the environment, including without limitation, laws relating to
Releases or threatened Releases of Hazardous Materials or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, Release, disposal, transport or handling of Hazardous
Materials and all laws and regulations with regard to record
-29-
keeping, notification, disclosure and reporting requirements
respecting Hazardous Materials.
(iv) "Hazardous Materials" means all substances defined as
Hazardous Substances, Oils, Pollutants or Contaminants in the National
Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ss.
300.5, or defined as such by, or regulated as such under, any
Environmental Law.
(v) "Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, dispersal, leaching or
migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater and surface or
subsurface strata) or into or out of any property, including the
movement of Hazardous Materials through or in the air, soil, surface
water, groundwater or property.
Section 3.13. Properties
(a) The Company has good and marketable title to, or a valid leasehold
interest in, all its properties and assets, free and clear of all Liens,
except as set forth in Schedule 3.13(a) and for Liens that do not,
individually or in the aggregate, have a Material Adverse Effect.
(b) Except as set forth in Schedule 3.13.(b), the Company does not own
real property. Schedule 3.13(b) also sets forth a true and complete list of
each lease or sublease relating to real property or interests in real
property leased by the Company that involves annual expenditures by the
Company of $500,000 or more (collectively, the "Company Material Leases").
(c) With respect to each of the Company Material Leases, (i) such
lease or sublease is legal, valid, binding, enforceable and in full force
and effect, (ii) except as otherwise set forth in Schedule 3.13(c), such
lease or sublease will not cease to be legal, valid, binding, enforceable
and in full force and effect as a result of the consummation of the
transactions contemplated by this Agreement, nor will the consummation of
such transactions constitute (or with notice or lapse of time or both), a
breach or default under such lease or sublease or otherwise give the
landlord a right to terminate such lease or sublease and (iii) the Company
does not know of, nor has it given or received notice of, any violation or
default thereunder (nor, to the knowledge of the Company, does there exist
any condition which with the passage of time or the giving of notice or
both would result in such a violation or default thereunder), except for,
in the case of clause
-30-
(iii), violations or defaults that would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.14. Intellectual Property. Except as set forth in Schedule 3.14,
to the knowledge of the Company, the Company owns, or is licensed or otherwise
possesses rights to use all patents, trademarks and service marks (registered or
unregistered), trade names, domain names, computer software and copyrights and
applications and registrations therefor, in each case, which are material to the
conduct of the business of the Company, (collectively, the "Intellectual
Property Rights"). Except as set forth in Schedule 3.14, there are neither any
outstanding nor, to the Company's knowledge, threatened disputes or
disagreements with respect to any of the Intellectual Property Rights nor to the
Company's knowledge is there any basis therefor.
SECTION 3.15. Material Contracts.
(a) Except as set forth in the SEC Reports filed prior to the date of
this Agreement or Schedule 3.13(b) or 3.15, the Company is not a party to
or bound by:
(i) any "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC);
(ii) any contract or agreement for the purchase of materials or
personal property from any supplier or for the furnishing of services
to the Company that involves future aggregate annual payments by the
Company of $250,000 or more;
(iii) any contract or agreement for the sale, license or lease
(as lessor) by the Company of services, materials, products, supplies
or other assets, owned or leased by the Company, that involves future
aggregate annual payments to the Company of $250,000 or more;
(iv) any contract, agreement or instrument relating to or
evidencing indebtedness for borrowed money of the Company in the
amount of $250,000 or more;
(v) any non-competition agreement or any other agreement or
obligation which purports to limit in any material respect the manner
in which, or the localities in which, the business of the Company may
be conducted;
(vi) any voting or other agreement governing how any shares of
Company Common Stock shall be voted;
(vii) any contract, agreement or arrangement to allocate, share
or otherwise indemnify for Taxes; or
-31-
(viii) any contract with a managed care organization involving
capitated payments in 1998 of $300,000 to the Company; or
(ix) any contract with a physician, group of physicians or other
physician organization that made referrals to the Company in 1998 of
more than $300,000 to the Company.
The foregoing contracts and agreements to which the Company is a party or
are bound are collectively referred to herein as "Company Material
Contracts."
(b) Each Company Material Contract is valid and binding on the Company
and is in full force and effect, and the Company has performed all
obligations required to be performed by it to date under each Company
Material Contract, except where such noncompliance, individually or in the
aggregate, would not have a Material Adverse Effect. The Company does not
know, nor has given or received notice of, any violation or default under
(nor, to the knowledge of the Company, does there exist any condition which
with the passage of time or the giving of notice or both would result in
such a violation or default under) any Company Material Contract, except
where such violations or defaults, individually or in the aggregate, would
not have a Material Adverse Effect.
SECTION 3.16. Brokers. No broker, finder or investment banker (other than
BT Alex. Xxxxx Incorporated ("BT Alex. Xxxxx")) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
the Company. The Company has heretofore furnished to Merger Sub true and
complete information concerning the financial arrangements between the Company
and BT Alex. Xxxxx pursuant to which such firm would be entitled to any payment
as a result of the transactions contemplated hereunder.
SECTION 3.17. Board Action. The Board of Directors, at a meeting duly
called and held, at which all of the Directors were present, duly and
unanimously: (i) approved and adopted this Agreement and the transactions
contemplated hereby, including the Merger; (ii) recommended that the
stockholders of the Company approve this Agreement and the transactions
contemplated hereby, including the Merger; and (iii) determined that this
Agreement and the transactions contemplated hereby, including the Merger, are
fair to and in the best interests of the stockholders of the Company.
SECTION 3.18. Opinion of Financial Advisor. BT Alex. Xxxxx has rendered to
the Board of Directors a written opinion, dated as of the date of this
Agreement, to the effect that, subject to the assumptions and limitations set
forth therein, the
-32-
Common Stock Merger Consideration to be received by the holders of the Company
Common Stock pursuant to the Merger is fair to such holders from a financial
point of view. A true and correct copy of such opinion has been delivered to
Merger Sub.
SECTION 3.19. Control Share Acquisition. No state takeover statute or
similar statute or regulation or comparable takeover provision of the Restated
Certificate or By-Laws of the Company applies or purports to apply to the Merger
or this Agreement.
SECTION 3.20. Rights Agreement Amendment. The Company and the Rights Agent
under the Rights Agreement have duly executed and delivered an amendment to the
Rights Agreement, and as a result of such amendment (which amendment is valid
and enforceable), among other things, (a) neither this Agreement nor any of the
transactions contemplated hereby, including the Merger, will result in the
occurrence of a "Distribution Date" or otherwise cause the Rights to become
exercisable by the holders thereof and (b) the Rights shall automatically
terminate on and as of the Effective Time be void and of no further force or
effect.
SECTION 3.21. Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock is the only vote of
the holders of any class or series of the Company's capital stock necessary
(under applicable law or otherwise) to adopt this Agreement.
SECTION 3.22. Y2K Compliance. The Company has established and is
implementing a program to provide (x) that the change of the year from 1999 to
the year 2000 would not, nor be reasonably likely to, have a Material Adverse
Effect and (y) that the impacts of such change on the vendors and customers of
the Company would not have a Material Adverse Effect.
SECTION 3.23. Insurance. The Company currently has in effect insurance
policies covering itself, its assets and the conduct of its business of an
insurable nature, which insurance has been written by unaffiliated insurers in
such amounts and against such losses or casualties as is consistent with sound
business practice, and all such policies are valid and enforceable for the
benefit of the Company and are, and through the Effective Time will be
continued, in full force and effect.
SECTION 3.24. Labor. Except as set forth on Schedule 3.24, (i) since the
enactment of the Worker Adjustment and Retraining Notification Act (the "WARN
Act"), the Company has not effectuated a "plant closing" or a "mass layoff" (as
such terms are defined in the WARN Act); (ii) the Company has not been affected
by any transaction or engaged in layoffs or employment terminations sufficient
in number to trigger application of any similar state, local or foreign law or
regulation; and (iii) none of the Company's employees has suffered an
"employment loss" (as
-33-
defined in the WARN Act) during the 90 day period prior to the date of this
Agreement.
ARTICLE IV.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1. Acquisition Proposals. The Company will notify Merger Sub
promptly if any proposals are received by, any information is requested from, or
any negotiations or discussions are sought to be initiated or continued with the
Company, in each case in connection with any acquisition, business combination
or purchase of all or any significant portion of the assets of, or any equity
interest in, the Company.
SECTION 4.2. Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, between the date of this Agreement and the
Effective Time, unless Merger Sub shall otherwise consent in writing, the
businesses of the Company shall be conducted only in, and the Company shall not
take any action except in, the ordinary course of business and in a manner
consistent with past practice; and the Company will use its reasonable best
efforts to preserve substantially intact the business organization of the
Company, to keep available the services of the present officers, employees and
consultants of the Company and to preserve the present relationships of the
Company with customers, suppliers and other Persons with which the Company has
significant business relations and to use reasonable best efforts to resolve in
all material respects all deficiences and issues, and comply in all material
respects with the recommendations made, in the Company's 1998 compliance program
audit reports. Without limiting the generality of the foregoing, except as (x)
expressly contemplated by this Agreement or (y) set forth in Schedule 4.2, the
Company shall not, without the prior written consent of Merger Sub:
(a) amend (i) the Restated Certificate or its By-Laws or (ii) any
material term of any outstanding security issued by the Company or any
Subsidiary thereof;
(b) (i) declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to its capital stock, (ii)
redeem, purchase or otherwise acquire, directly or indirectly, any of its
capital stock or other securities; (iii) issue, sell, pledge, dispose of or
encumber any (A) shares of its capital stock, (B) securities convertible
into or exchangeable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of its capital stock, or (C)
other securities of the Company, other than shares of Company Common Stock
issued upon the exercise of Options outstanding on the date hereof in
accordance with the Option Plans as in effect on the date hereof or upon
conversion of
-34-
any convertible securities outstanding on the date hereof; or (iv) split,
combine or reclassify any of its outstanding capital stock;
(c) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (B) any
assets, including real estate, except, with respect to clause (B) above,
(x) purchases of inventory, equipment and supplies in the ordinary course
of business consistent with past practice and (y) other purchases of assets
in the ordinary course of business consistent with past practice;
(d) except in the ordinary course of business consistent with past
practice, amend, enter into or terminate any Company Material Contract, or
waive, release or assign any material rights or claims thereunder;
(e) transfer, lease, license, sell, mortgage, pledge, dispose of, or
encumber any property or assets or cease to operate any assets, including
but not limited to any laboratories, other than (i) excess or obsolete
assets or (ii) in the ordinary course of business and consistent with past
practice;
(f) (i) enter into any employment or severance agreement with or,
except in accordance with the existing obligations of the Company, grant
any severance or termination pay to any officer or director of the Company;
or (ii) hire or agree to hire any new or additional officers;
(g) except as required to comply with applicable law, (A) adopt, enter
into, terminate, amend or increase the amount or accelerate the payment or
vesting of any benefit or award or amount payable under any Employee Plan
or other arrangement for the current or future benefit or welfare of any
director, officer or employee, other than in the case of employees who are
not officers or directors in the ordinary course of business consistent
with past practice, (B) increase in any manner the compensation or fringe
benefits of, or pay any bonus to, any director, officer or, other than in
the ordinary course of business consistent with past practice, other
employee, (C) other than benefits accrued through the date hereof and other
than in the ordinary course of business for employees other than officers
or directors of the Company, pay any benefit not provided for under any
Employee Plan, (D) other than bonuses earned through the date hereof and
other than in the ordinary course of business consistent with past practice
for employees other than officers and directors, grant any awards under any
bonus, incentive, performance or other
-35-
compensation plan or arrangement or Employee Plan; provided that there
shall be no grant or award to any director, officer or employee of stock
options, stock appreciation rights, stock based or stock related awards,
performance units, units of phantom stock or restricted stock, or any
removal of existing restrictions in any Company Employee Benefit Plans or
agreements or awards made thereunder other than consistent with past
practice under the Company's Non-Employee Director Stock Plan or (E) take
any action to fund or in any other way secure the payment of compensation
or benefits under any employee plan, agreement, contract or arrangement or
Employee Plan;
(h) (i) incur or assume any indebtedness for money borrowed other than
in accordance with the current terms of the Receivables Facility and in an
amount not to exceed $5,000,000 at any one time outstanding; (ii) incur or
modify any material indebtedness or other liability; (iii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other
Person, except in the ordinary course of business and consistent with past
practice; or (iv) except for advances or prepayments in the ordinary course
of business in amounts consistent with past practice, make any loans,
advances or capital contributions to, or investments in, any other Person
(other than customary loans or advances to employees in accordance with
past practice);
(i) change of the accounting methods used by it unless required by
generally accepted accounting principles;
(j) other than in the ordinary course of business consistent with past
practice, make any Tax election or settle or compromise any Tax liability;
(k) settle or compromise any claim, litigation or other legal
proceeding, except for any settlement or compromise involving less than
$100,000;
(l) enter into any agreement, arrangement or contract to allocate,
share or otherwise indemnify for Taxes;
(m) (1) redeem the rights outstanding under the Rights Agreement, or
amend or modify or terminate the Rights Agreement or render it inapplicable
to (or otherwise exempt from the application of the Rights Agreement) any
Person or action, other than to delay the Distribution Date (as defined
therein) or to render the Rights inapplicable to the execution, delivery
and performance of this Agreement and the Merger or (2) permit the Rights
to become non-redeemable at the redemption price currently in effect;
provided that the foregoing shall not apply to any such actions that are
taken immediately prior to the termination of this Agreement pursuant to
Section 7.1(f)(ii) or the entering into of an
-36-
agreement in respect of an Acquisition Proposal to the extent permitted by
Section 4.3(B)(Notwithstanding the foregoing, immediately prior to the
Effective Time, the Company shall, if so requested by Merger Sub, redeem
the Rights);
(n) terminate or suspend participation in Medicare, Medicaid or any
other federal or state funded healthcare or health benefits program;
(o) terminate or fail to renew any Permit the failure of which to
possess would be reasonably likely to have a Material Adverse Effect; or
(p) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing (a)-(o) of this Section 4.2; or
(q) take any action that would make any of its representations and
warranties contained herein false in any material respect at or prior to
the Effective Time.
SECTION 4.3. Alternative Acquisition Transactions. The Company will not,
directly or indirectly, through any officer, director, agent, financial advisor
or otherwise, solicit, (a) initiate or encourage submission of proposals or
offers from any Person relating to any acquisition or purchase of all or a
portion of the assets of (other than immaterial or insubstantial assets or
inventory in the ordinary course of business or assets held for sale), or any
equity interest in, the Company or any business combination with the Company (an
"Acquisition Transaction"), (b) participate in any negotiations regarding, or
furnish to any other Person any information (except for information which has
been previously publicly disseminated by the Company in the ordinary course of
business) with respect to, or otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
Person to do or seek any of the foregoing or (c) enter into any agreement or
agreement in principle providing for or relating to an Acquisition Transaction;
provided, that (i) nothing contained in this Section 4.3 or any other provision
of this Agreement shall prohibit the Company or the Board of Directors from (A)
taking and disclosing to the Company stockholders, pursuant to Rules 14d-9 and
14e-2 promulgated under the Exchange Act, a position with respect to a tender or
exchange offer by a third party or (B) making such disclosure to the Company
stockholders as, in the good faith judgment of the Board of Directors, after
receiving advice from outside counsel, is required under applicable law and (ii)
the Company may, in response to an unsolicited written proposal with respect to
an Acquisition Transaction from a third party, furnish information to, and
negotiate, explore or otherwise engage in substantive discussions with such
third party, and enter into any agreement,
-37-
arrangement or understanding with such third party, in each case only if (A) the
Board of Directors determines in good faith, after consultation with its
financial advisors and outside legal counsel, that (x) such proposal would, if
consummated, result in a transaction that provides a higher price to its
stockholders, from a financial point of view, than the transactions contemplated
by this Agreement and (y) failing to take such action would create a reasonable
possibility of a breach of the fiduciary duties of the Board of Directors and
(B) in the case of entering into any agreement in respect of an Acquisition
Transaction, the Company shall, concurrently with the execution of such
agreement, terminate this Agreement pursuant to Section 7.1(f)(ii).
Article V.
ADDITIONAL AGREEMENTS
SECTION 5.1. Proxy Statement. As promptly as practicable after the date of
this Agreement, the Company shall prepare the Proxy Statement/Prospectus, and
the Company shall prepare and file with the SEC the Form S-4, in which the Proxy
Statement/Prospectus will be included. Merger Sub will cooperate with the
Company in connection with the preparation of the Proxy Statement/Prospectus
including, but not limited to, furnishing to the Company any and all information
regarding Merger Sub and its affiliates as may be required to be disclosed
therein. The Proxy Statement/Prospectus shall contain the recommendation of the
Board of Directors that the Company's stockholders approve this Agreement and
the transaction contemplated hereby. The Company shall use its reasonable best
efforts to have the Form S-4 declared effective under the Securities Act as
promptly as practicable after such filing. The Company will use all reasonable
efforts to cause the Proxy Statement/Prospectus to be mailed to its stockholders
as promptly as practicable after the Form S-4 is declared effective under the
Securities Act. The Company shall also take any action required to be taken
under any applicable state securities laws in connection with the registration
and qualification of Company Common Stock following the Merger.
SECTION 5.2. Meeting of Stockholders of the Company. The Company shall
promptly take all action necessary in accordance with Delaware Law, the Restated
Certificate and the Company's By-Laws to convene the Company Stockholders'
Meeting. The stockholder vote or consent required for approval of the Merger
will be no greater than that set forth in Delaware Law. The Company shall use
all reasonable efforts to solicit from stockholders of the Company proxies in
favor of the Merger and shall take all other action necessary or, in the
reasonable opinion of Merger Sub, advisable to secure any vote or consent of
stockholders required by Delaware Law to effect the Merger. Merger Sub shall
vote, or cause to be voted, in favor of the
-38-
Merger all shares of Company Common Stock directly or indirectly beneficially
owned by it, provided that the Board of Directors may withdraw, modify or change
its recommendation of the Merger and this Agreement if and only if, after
receipt of an unsolicited written proposal with respect to an alternative
Acquisition Proposal and in consultation with its financial advisors and outside
legal counsel, it believes in good faith that (i) such proposal would, if
consummated, result in a transaction that provides a higher price to its
stockholders, from a financial point of view, than the transactions contemplated
by this Agreement and (ii) failing to take such action would create a reasonable
possibility of a breach of its fiduciary duties.
SECTION 5.3. Additional Agreements. The Company and Merger Sub will each
comply in all material respects with all applicable laws and with all applicable
rules and regulations of any governmental authority in connection with its
execution, delivery and performance of this Agreement and the transactions
contemplated hereby.
SECTION 5.4. Notification of Certain Matters. The Company shall give prompt
notice to Merger Sub and Merger Sub shall give prompt notice to the Company, of
(i) the occurrence, or non-occurrence of any event whose occurrence, or
non-occurrence would be likely to cause any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Effective Time and (ii) any material failure of the
Company or Merger Sub, as the case may be, or any officer, director, employee or
agent thereof, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.4 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
SECTION 5.5. Access to Information.
(a) From the date hereof to the Effective Time, the Company shall, and
shall cause its officers, directors, employees, auditors and agents to, afford
the officers, employees, environmental consultants, attorneys, accountants and
agents of Merger Sub and the potential sources of the Debt Financing and Equity
Financing (the "Financing Sources"), reasonable access at all reasonable times
to its officers, employees, agents, properties, offices and other facilities and
to all books and records, and shall furnish Merger Sub and the Financing Sources
with all financial, operating and other data and information Merger Sub and the
Financing Sources through their officers, employees, environmental consultants
or agents, may reasonably request.
-39-
(b) Merger Sub agrees that it shall, and shall cause its affiliates and
each of their respective officers, directors, employees, financial advisors,
environmental consultants and agents (the "Merger Sub Representatives"), to hold
in strict confidence all data and information obtained by them from the Company
(unless such information is or becomes publicly available without the fault of
any Merger Sub Representative or public disclosure of such information is
required by law in the opinion of counsel to Merger Sub) and shall insure that
Merger Sub Representatives do not disclose such information to others without
the prior written consent of the Company. Notwithstanding anything herein to the
contrary, the terms of the Confidentiality Agreement, dated February 24, 1999
(the "Confidentiality Agreement"), executed by Xxxxx & Company and BT Alex.
Xxxxx as agent for the Company shall remain in full force and effect, provided
that the foregoing shall not apply to disclosures of information reasonably
necessary in connection with any Debt Financing or the Equity Financing.
(c) In the event of the termination of this Agreement, Merger Sub shall,
and shall cause its affiliates to, return promptly every document furnished to
them by the Company or any division, associate or affiliate of the Company in
connection with the transactions contemplated hereby and any copies thereof
which may have been made, and shall cause Merger Sub Representatives to whom
such documents were furnished promptly to return such documents and any copies
thereof any of them may have made, other than documents filed with the SEC or
otherwise publicly available.
SECTION 5.6. Public Announcements. Merger Sub and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue any such press release
or make any such public statement before such consultation, except as may be
required by law.
SECTION 5.7. Reasonable Efforts; Cooperation. Upon the terms and subject to
the conditions hereof, each of the parties hereto shall use all reasonable best
efforts to obtain and furnish in a timely manner all necessary waivers, consents
and approvals and notices and to effect all necessary notifications,
registrations and filings (including, without limitation, all necessary
applications and notifications to the Health Care Financing Administration,
including but not limited to Medicare, the California Department of Health
Services, MediCal, Medicaid and Medicare or Medicaid intermediary, the United
States Drug Enforcement Administration, the College of American Pathologists and
all other applicable local, state and Federal accreditation, certification and
licensing agencies, boards or other bodies or payors with oversight or payment
responsibility for or in respect of the industry in which the Company operates),
and to use all reasonable efforts to take, or cause to be taken, all other
actions and to do, or cause to be
-40-
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement. The parties shall cooperate in responding to inquiries from, and
making presentations to, regulatory authorities.
SECTION 5.8. Agreement to Defend and Indemnify.
(a) If any action, suit, proceeding or investigation relating hereto or to
the transactions contemplated hereby is commenced, whether before or after the
Effective Time, the parties hereto agree to cooperate and use their best efforts
to defend against and respond thereto. It is understood and agreed that, subject
to the limitations on indemnification contained in Delaware Law, the Company
shall, to the fullest extent permitted under applicable law and regardless of
whether the Merger becomes effective, indemnify and hold harmless, and after the
Effective Time, the Surviving Corporation shall, to the fullest extent permitted
under applicable law, indemnify and hold harmless, each director, officer,
employee, fiduciary and agent of the Company including, without limitation,
officers and directors serving as such on the date hereof (collectively, the
"Indemnified Parties") against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages, liabilities and
amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to any of the
transactions contemplated hereby, including without limitation liabilities
arising under the Securities Act or the Exchange Act in connection with the
Merger or any financing, and in the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) the Company or the Surviving Corporation shall pay the reasonable
fees and expenses of counsel selected by the Indemnified Parties, which counsel
shall be reasonably satisfactory to the Company or the Surviving Corporation,
promptly as statements therefor are received, and (ii) the Company and the
Surviving Corporation will cooperate in the defense of any such matter;
provided, however, that neither the Company nor the Surviving Corporation shall
be liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld); and further, provided, that neither the
Company nor the Surviving Corporation shall be obliged pursuant to this Section
5.8 to pay the fees and disbursements of more than one counsel for all
Indemnified Parties in any single action except to the extent that, in the
opinion of counsel for the Indemnified Parties, two or more of such Indemnified
Parties have conflicting interests in the outcome of such action. For six years
after the Effective Time, the Surviving Corporation shall be required to
maintain or obtain officers' and directors' liability insurance covering the
Indemnified Parties who are currently covered by the Company's officers and
directors liability insurance policy on terms not less favorable than those in
effect on the date hereof in terms of coverage and amounts; provided however
that in no event shall
-41-
the Surviving Corporation be required to expend more than an amount per year
equal to 200% of current annual premiums paid by the Company for such insurance
to maintain or procure insurance coverage pursuant hereto, in which case the
Surviving Corporation shall provide the maximum coverage that is then available
for 200% of such annual premiums. Merger Sub shall cause the Surviving
Corporation to continue in effect the indemnification provisions currently
provided by the Restated Certificate and By-Laws of the Company for a period of
not less than six years following the Effective Time. This Section 5.8 shall
survive the consummation of the Merger. This covenant shall survive any
termination of this Agreement pursuant to Section 7.1 hereof. Notwithstanding
Section 8.7 hereof, this Section 5.8 is intended to be for the benefit of and to
grant third-party rights to Indemnified Parties whether or not parties to this
Agreement, and each of the Indemnified Parties shall be entitled to enforce the
covenants contained herein.
(b) If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
Person, then and in each such case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation assume the obligations set
forth in this Section 5.8.
SECTION 5.9. Continuation of Employee Benefits.
(a) From and after the Effective Time, the Surviving Corporation and its
Subsidiaries will honor in accordance with their terms all existing employment,
severance, consulting and salary continuation agreements between the Company and
any current or former officer, director, employee or consultant of the Company
or group of such officers, directors, employees or consultants described on
Schedule 5.9. This Section 5.9(a), which shall survive the consummation of the
Merger at the Effective Time and shall continue without limit, is intended to
benefit and bind the Company, the Surviving Corporation and any Person
referenced in this Section 5.9(a), each of whom may enforce the provisions of
this Section 5.9(a) whether or not parties to this Agreement.
(b) In addition to honoring the agreements referred to in Schedule 5.9,
until the first anniversary of the Effective Time, the Surviving Corporation
will provide or will cause to be provided to each current or former employee
(presently entitled to benefits) of the Company (i) employee compensation,
benefit plans, programs, policies and arrangements, that are no less favorable
in the aggregate than those currently provided by the Company to its employees
and former employees; and (ii) severance benefits that are in the aggregate no
less favorable to any employee of the Company than those currently provided to
each such employee. Nothing in this Section 5.9(b) shall be deemed to
-42-
prevent the Surviving Corporation or any of its Subsidiaries from making any
change required by law or which is consented to by any employee.
(c) To the extent permitted under any applicable law, each employee of the
Company shall be given credit for all service with the Company (or service
credited by the Company) under all employee benefit plans, programs, policies
and arrangements maintained by the Surviving Corporation in which they
participate or in which they become participants for purposes of eligibility,
vesting and benefit accrual including, without limitation, for purposes of
determining (i) short-term and long-term disability benefits, (ii) severance
benefits, (iii) vacation benefits and (iv) benefits under any retirement plan;
provided that credit need not be given for service with the Company to the
extent such credit would result in a duplication of benefits.
(d) Except as provided in clause (a) above, nothing contained in this
Section 5.9 shall create any beneficiary rights in any employee or former
employee (including any dependent thereof) of the Company or the Surviving
Corporation in respect of continued employment for any specified period of any
nature or kind whatsoever.
SECTION 5.10. Solvency Letter.
(a) Merger Sub shall use all reasonable efforts to deliver to the Board of
Directors, prior to the consummation of the Merger, a copy of any letter
relating to the solvency of the Surviving Corporation delivered to the banks or
financial institutions providing the Debt Financing. If no such letter is
obtained in connection with the Debt Financing, Merger Sub shall use reasonable
best efforts to obtain from an independent third party selected by Merger Sub
(the "Appraiser") a letter attesting that, immediately after the Effective Time,
the Surviving Corporation (i) will be solvent (in that both the fair value of
its assets is not less than the sum of its debts and that the present fair
saleable value of its assets will not be less than the amount required to pay
its probable liability on its debts as they become absolute and matured), (ii)
will have adequate capital with which to engage in its business, and (iii) will
not have incurred and does not plan to incur debts beyond its ability to pay as
they become absolute and matured, based upon the proposed financing structure
for the Merger and certain other financial information to be provided to the
Appraiser by Merger Sub and the Company and after giving effect to any changes
in the Surviving Corporation's assets and liabilities as a result of the Merger
and the financing relating thereto, provided that such obligation of Merger Sub
shall not require it to agree to any terms with respect to the Equity Financing
or the Debt Financing which it is not otherwise obligated to agree to pursuant
to this Agreement.
-43-
(b) Merger Sub shall deliver a copy of the Solvency Letter (if obtained) to
the Company and use its reasonable best efforts to have it addressed to the
Board of Directors and such other parties as Merger Sub shall determine. The
parties hereto shall cooperate in connection with the preparation of the
Solvency Letter, including, without limitation, providing any information
reasonably available to them necessary for the preparation of such letter,
including any preparation thereof by the Appraiser. As used herein, "Solvency
Letter" shall refer to the letter described in the first sentence of Section
5.10(a) or, if no such letter is obtained, the letter described in the second
sentence of Section 5.10(a).
SECTION 5.11. Recapitalization of Merger Sub, Financing.
(a) Merger Sub shall use its reasonable best efforts to obtain the Debt
Financing and the Equity Financing consistent with the terms specified and
described in the Commitment Letters delivered to the Company by Merger Sub and
otherwise on and subject to terms reasonably acceptable to Merger Sub. Unless
the Merger has theretofore been consummated or this Agreement terminated, if
Merger Sub has not otherwise received proceeds from subordinated debt financing
in an amount as great as that set forth in the Bridge Financing Letter (or such
lesser amount as necessary to provide, when taken together with the debt
financing under the Commitment Letters, all necessary Debt Financing) no later
than the Draw Down Date, Merger Sub shall use its reasonable best efforts to
cause the Bridge Financing to be made available on the Draw Down Date so as to
result in the satisfaction of the condition set forth in Section 6.3(c);
provided that, except as set forth in this Section 5.11(a), Merger Sub shall
have no obligation to draw on or obtain for it or the Company the proceeds of
the Bridge Financing. For purposes hereof, the term "Draw Down Date" shall mean
the later to occur of (i) 45 days after the date on which all conditions to
closing set forth in Sections 6.1 or 6.3 shall have been satisfied or waived (or
upon receipt of such the Bridge Financing, will have been satisfied or waived)
and (ii) October 15, 1999, but in no event shall such date be later than ten
business days prior to the Termination Date (as defined in Section 7.1(d)).
(b) The Company agrees to provide, and will use its reasonable best efforts
to cause its officers and employees to provide, all necessary cooperation
reasonably requested by Merger Sub in connection with the arrangement of the
Debt Financing and the Equity Financing, including, in the case of the Debt
Financing, using its reasonable best efforts to cause appropriate officers and
employees to be available on a reasonable basis for "road show" appearances and
the preparation of disclosure documents in connection therewith.
-44-
SECTION 5.12. Recapitalization. Each of the Company and Merger Sub shall
use all reasonable best efforts to cause the transactions contemplated by this
Agreement, including the Merger, to be accounted for as a recapitalization and
such accounting treatment to be accepted by their respective accountants and by
the SEC, and each of the Company and Merger Sub agrees that it shall take no
action that would reasonably be likely to cause such accounting treatment not to
be obtained.
ARTICLE VI.
CONDITIONS OF MERGER
SECTION 6.1. Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the following conditions:
(a) Stockholder Approval. The Merger and this Agreement shall have
been approved and adopted by the requisite vote of the stockholders of the
Company.
(b) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) No Challenge. No statute, rule, regulation, judgment, writ,
decree, order or injunction shall have been promulgated, enacted, entered
or enforced, and no other action shall have been taken, by any government
or governmental, administrative or regulatory authority or by any court of
competent jurisdiction, that in any of the foregoing cases has the effect
of making illegal or directly or indirectly restraining, prohibiting or
restricting the consummation of the Merger.
(d) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and any material "blue-sky" and other
state securities laws applicable to the registration and qualification of
the Company Common Stock following the Merger shall have been complied with
in all material respects.
SECTION 6.2. Additional Conditions to Obligation of the Company to Effect
the Merger. The obligation of the Company to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by the Company:
(a) Performance of Obligations of Merger Sub. Merger Sub shall have
performed in all material respects its agreements contained in this
Agreement required to be
-45-
performed on or prior to the Effective Time and the Company shall have
received a certificate of the President or Chief Executive Officer or a
Vice President of Merger Sub to that effect.
(b) Representations and Warranties of Merger Sub. The representations
and warranties of Merger Sub contained in this Agreement that are qualified
by a reference to materiality shall be true and correct when made and on
and as of the Effective Time as if made on and as of such time (except for
those representations and warranties of Merger Sub that are so qualified
and relate to a particular date which representations and warranties shall
be true and correct in all respects as of such date), and the
representations and warranties of Merger Sub contained in this Agreement
that are not so qualified shall be true and correct in all material
respects when made and on and as of the Effective Time as if made on and as
of such time (except for those representations and warranties of Merger Sub
that are not so qualified and relate to a particular date which
representations and warranties shall be true and correct in all material
respects as of such date). The Company shall have received a certificate of
the President or Chief Executive Officer or a Vice President of Merger Sub
to the foregoing effects.
(c) Solvency Letter. The Solvency Letter shall have been delivered to
the Company.
SECTION 6.3. Additional Conditions to Obligations of Merger Sub to Effect
the Merger. The obligations of Merger Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by Merger Sub:
(a) Performance of Obligations of the Company. The Company shall have
performed in all material respects its agreements contained in this
Agreement required to be performed on or prior to the Effective Time, and
Merger Sub shall have received a certificate of the President or Chief
Executive Officer or a Vice President of the Company to that effect.
(b) Representations and Warranties of the Company. The representations
and warranties of the Company contained in this Agreement that are
qualified by a reference to materiality or Material Adverse Effect shall be
true and correct when made and on and as of the Effective Time as if made
on and as of such time (except for those representations and warranties of
the Company that are so qualified and relate to a particular date which
representations and warranties shall be true and correct in all respects as
of such date), and the representations and warranties of the Company
contained in this Agreement that
-46-
are not so qualified shall be true and correct in all material respects
when made and on and as of the Effective Time as if made on and as of such
time (except for those representations and warranties of the Company that
are not so qualified and relate to a particular date which representations
and warranties shall be true and correct in all material respects as of
such date). Merger Sub shall have received a certificate of the President
or Chief Executive Officer or a Vice President of the Company to the
foregoing effects.
(c) The Company shall have received aggregate proceeds of $310,000,000
in Debt Financing as follows: (i) proceeds of Debt Financing other than
subordinated debt financing on terms consistent with the terms specified
and described in the Commitment Letters delivered to the Company and
otherwise reasonably satisfactory to Merger Sub and (ii) proceeds of
subordinated debt financing on terms satisfactory to Merger Sub (it being
agreed that the terms specified and described in the Bridge Financing
Letter are satisfactory to Merger Sub); provided that the foregoing shall
be subject to the second sentence of Section 5.11, including the proviso
thereto.
(d) The Company shall have obtained and provided to Merger Sub copies
of evidence with respect thereto the consents of third parties listed on
Schedule 6.3(d), the terms of which consents shall be reasonably
satisfactory to Merger Sub.
(e) No suit, action or proceeding by any governmental or regulatory
authority shall have been commenced or threatened in writing that is
reasonably likely to have a Material Adverse Effect.
(f) From and after the Effective Time, after giving effect to the
Merger, there shall be no options outstanding to acquire shares of Company
Common Stock or any equity securities of the Company under the Option Plans
or otherwise.
(g) Merger Sub shall have received a copy of the Solvency Letter.
(h) From and after the Effective Time, after giving effect to the
Merger (i) the Meris Note shall not be convertible into shares of Company
Common Stock and (ii) there shall be no shares of Company Common Stock
outstanding in respect of which the Meris Note shall have been converted
(other than any Retained Shares with respect thereto).
(i) All notices, applications, approvals, consents, and waivers
("Approvals") required to be furnished to or obtained from any governmental
or regulatory authority or
-47-
accreditation or certification agency, including any Approvals in respect
of Permits, provider numbers, and program participation rights possessed by
the Company, necessary in order for the Company to conduct its business
following the consummation of the transactions contemplated by this
Agreement in all material respects in the manner as such business, taken as
a whole, was conducted prior to the Effective Time shall have been obtained
or furnished and any applicable waiting period or periods shall have
expired (or, if there be no time limit for waiver or objection, a notice of
no-objection or equivalent with respect thereto shall have been received by
the Company).
(j) No suit, action, claim, proceeding or investigation shall have
been commenced or be pending by or before any court, arbitration panel or
governmental, administrative or regulatory authority, or shall have been,
to the Company's knowledge, threatened by any governmental, administrative
or regulatory authority, nor shall any qui tam action have been filed or,
to the Company's knowledge, threatened, relating to any billing or claims
made or submitted by the Company of or to any governmental, regulatory or
administrative authority (including any federal or state healthcare or
health benefit program) or any insurance carrier, health maintenance or
other managed care organization, independent physician association or any
other third party payor which, in the case of any of the foregoing taken
separately or together, in the reasonable judgment of Merger Sub either (i)
materially adversely affects the value of the equity of the Company to
Parent, or the controlling stockholder of Merger Sub or (ii) presents a
risk reasonably unacceptable to Merger Sub of subjecting the Company to a
material liability or a material amount of damages or, on a going-forward
basis, imposing material limitations on the Company's business and/or
methods of operation (including any limitations on the Company's ability to
be reimbursed by any governmental, regulatory or administrative authority,
including any federal or state healthcare or health benefit program).
(j) A majority in principal amount of the Senior Notes shall have been
accepted for payment pursuant to the Debt Offer and the Indenture
Amendments shall have become effective and be in full force and effect.
Article VII.
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. This Agreement may be terminated at any time
before the Effective Time:
-48-
(a) By mutual written consent of the Boards of Directors of Merger Sub
and the Company; or
(b) By either Merger Sub or the Company, if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action (which order, decree or ruling the parties hereto shall use their
best efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement; or
(c) By either Merger Sub or the Company, if the stockholders of the
Company fail to approve the Merger upon the taking of a vote at a duly held
meeting of the stockholders or at any adjournment thereof; or
(d) By Merger Sub if, without any material breach by Merger Sub of its
obligations under this Agreement, the Merger shall not have been
consummated on or before November 30, 1999 (the "Termination Date"); or
(e) By the Company if, without any material breach by the Company of
its obligations under this Agreement, the Merger shall not have been
consummated on or before the Termination Date; or
(f) By the Company (i) if there shall be a material breach of any of
Merger Sub's representations, warranties or covenants hereunder, which
breach shall not be cured within ten days of written notice thereof to
Merger Sub or (ii) at any time prior to the approval of this Agreement by
the stockholders of the Company and upon five business days notice to
Merger Sub, for the purpose of entering into an agreement with respect to
an unsolicited written proposal for an alternative Acquisition Transaction,
provided that (1) prior to any such termination, the Company shall disclose
to Merger Sub the terms of such unsolicited written proposal and, if
requested by Merger Sub, negotiate in good faith with Merger Sub for such
five business day period with a view to determining whether Merger Sub
would be willing to propose a revised transaction to the Company, (2) after
consultation with its financial advisors and outside legal counsel, the
Board of Directors believes in good faith that (A) such third party
proposal would, if consummated, result in a transaction that provides a
higher price to its shareholders, from a financial point of view, than the
transactions contemplated by this Agreement and any revised proposal by
Merger Sub and (B) failing to take such action would create a reasonable
possibility of a breach of its fiduciary duties, (3) such agreement is
entered into concurrently with the exercise of this termination right, and
(4) the Company shall have paid to Merger Sub the fee described in Section
7.2(b) hereto;
-49-
(g) By Merger Sub, if there shall be a material breach of any of the
Company's representations, warranties or covenants hereunder, which breach
shall not be cured within ten days of written notice thereof to the
Company; or
(h) By Merger Sub, if (i) the Board of Directors shall withdraw,
modify, or change its recommendation or approval in respect of this
Agreement in a manner adverse to Merger Sub, (ii) the Board of Directors
shall have recommended any proposal other than by Merger Sub in respect of
an Acquisition Transaction or failed to reject and, if applicable,
recommend against any such proposal, (iii) a Stock Acquisition Date shall
have occurred pursuant to the Rights Agreement of the Company (as in effect
on the date of this Agreement) or (iv) any of the actions or events
described in Section 4.2(m) hereof shall occur without the prior written
consent of Merger Sub, whether or not such consent is required.
SECTION 7.2. Effect of Termination.
(a) In the event of termination of this Agreement as provided in
Section 7.1 hereof, this Agreement shall forthwith become void and there
shall be no liability on the part of Merger Sub or the Company, except (i)
as set forth in Sections 5.5, 7.2(b) and 8.3 hereof and (ii) nothing herein
shall relieve any party from liability for any breach of this Agreement
other than as provided in Section 7.2(b).
(b) (i) If (a) Merger Sub shall have terminated this Agreement
pursuant to Section 7.1(h)(i), (ii) or (iv) or (ii) the Company shall have
terminated this Agreement pursuant to Section 7.1(f)(ii), then in any such
case the Company shall promptly, but in no event later than two business
days after the date of such termination, pay Xxxxx (as defined in Section
8.8) (x) a termination fee of $10,000,000 (the "Fee") plus (y) an amount,
not in excess of $1,500,000, equal to Xxxxx'x actual and reasonably
documented out-of-pocket expenses directly attributable to the negotiation
and execution of this Agreement and the consummation of the transactions
contemplated hereby including the financing thereof ("Transaction
Expenses"), which amounts shall be payable by wire transfer to such account
as Xxxxx may designate in writing to the Company (the "Fee Account").
(ii) If (a) this Agreement is terminated pursuant to Section
7.1(c), 7.1(d)(provided that the condition in Section 6.1(a) shall not
have been satisfied at the time of such termination), 7.1(e) or
7.1(g)(as a result of a breach of Section 4.3) and (b) at any time
after the date of this Agreement and at or before the date of such
termination a proposal with respect to an alternative Acquisition
Transaction shall have been publicly announced or disclosed,
-50-
or disclosed to the Board of Directors or any committee thereof, then
in any such case the Company shall promptly, but in no event later
than two business days after such termination, pay Xxxxx a termination
fee of $4 million plus the Transaction Expenses, which amounts shall
be payable by wire transfer to the Fee Account. If, within twelve
months after the date the Company first becomes obligated to make the
payment referred to in the immediately preceding sentence, the Company
enters into an agreement with respect to an alternative Acquisition
Transaction that provides a higher price to the Company's
stockholders, from a financial point of view, than the transactions
contemplated by this Agreement, then, in any such case, the Company
shall promptly, but in no event later than two business days after the
execution of such agreement with respect to such Alternative
Transaction, pay Xxxxx an additional termination fee of $6 million,
which amount shall be payable by wire transfer to the Fee Account.
(iii) If (a) this Agreement is terminated pursuant to Section
7.1(d)(but the condition in Section 6.1(a) shall have been satisfied
at the time of such termination) or 7.1(h)(iii), (b) at any time after
the date of this Agreement and at or before the date of such
termination a proposal with respect to an alternative Acquisition
Transaction shall have been publicly announced or disclosed, or
disclosed to the Board of Directors or any committee thereof, and (c)
within twelve months after the date of such termination the Company
shall have entered into an agreement with respect to an alternative
Acquisition Transaction that provides a higher price to the Company's
stockholders, from a financial point of view, than the transactions
contemplated by this Agreement, then in any such case the Company
shall promptly, but in no event later than two business days after the
execution of such agreement with respect to such Alternative
Transaction, pay Xxxxx the Fee plus the Transaction Expenses, which
amounts shall be payable by wire transfer to the Fee Account.
(iv) If this Agreement is terminated pursuant to Section
7.1(g)(with respect to breaches of covenants other than in Section
4.3), then in such case the Company shall promptly, but in no event
later than two business days after such termination, pay Xxxxx the
Transaction Expenses, which amount shall be payable by wire transfer
to the Fee Account.
(v) No fees or Transaction Expenses shall be paid pursuant to
this Section 7.2(b) if Merger Sub shall be in material breach of its
obligations hereunder. If this Agreement is terminated by Merger Sub
pursuant to Section 7.1(g) as a result of a breach by the Company of
Section 4.3 and the Company becomes obligated to pay Parent a
termination fee under this Section 7.2(b) with respect to
-51-
such termination, Merger Sub's sole and exclusive remedy for such
breach shall be the amounts payable by the Company under this Section
7.2(b) with respect thereto.
Article VIII.
GENERAL PROVISIONS
SECTION 8.1. Non-Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or the termination of this Agreement pursuant to Section
7.1, as the case may be, except that the agreements set forth in Article I and
Sections 5.8, 5.9 and 8.8 shall survive the Effective Time indefinitely and
those set forth in Sections 5.5(b), 5.5(c), 7.2(b) and 8.3 shall survive
termination indefinitely.
SECTION 8.2. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made (i) as of the date delivered or sent by facsimile if delivered
personally or by facsimile, and (ii) on the third business day after deposit in
the U.S. mail, if mailed by registered or certified mail (postage prepaid,
return receipt requested), in each case to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice, except that notices of changes of address shall be effective upon
receipt):
(a) if to Merger Sub:
UC Acquisition Sub, Inc.
c/o Kelso & Company
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxx XX
Facsimile: (000) 000-0000
With a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
(b) if to the Company:
Unilab Corporation
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxx X. Xxxx, Esq.
Facsimile: (000) 000-0000
-52-
With a copy to:
Xxxxxxx Xxxx & Xxxxxxxxx
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
SECTION 8.3. Expenses. Except as expressly set forth in Section 7.2(b), all
fees, costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees,
costs and expenses.
SECTION 8.4. Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" of a Person means a Person that directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the first mentioned
Person;
(b) "control" (including the terms "controlled by" and "under
common control with") means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise; and
(c) "Person" means an individual, corporation, partnership,
association, trust or any unincorporated organization.
SECTION 8.5. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the maximum extent possible.
SECTION 8.7. Entire Agreement; No Third-Party Beneficiaries. This Agreement
and the Confidentiality Agreement constitute the entire agreement and supersede
any and all other
-53-
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein (including without limitation Section 5.8), this
Agreement is not intended to confer upon any other Person any rights or remedies
hereunder, except that Xxxxx shall be a beneficiary of Sections 7.2(b) and 8.8
hereof and shall be entitled to enforce such provisions.
SECTION 8.8. Fees, etc. At the Closing, the Surviving Corporation shall
enter into (or shall succeed by operation of law to, if Merger Sub had
theretofore entered into), the Xxxxx Agreements (as hereafter defined). As used
herein, the "Xxxxx Agreements" shall mean one or more agreements, copies of
which shall be provided to the Company by Merger Sub prior to the Effective
Time, which provide for (i) a fee (the amount of which shall be determined by
Xxxxx) not to exceed $6 million to be paid by the Surviving Corporation to Xxxxx
& Co., L.P. ("Xxxxx") at the Effective Time, (ii) financial advising fees (the
amount of which shall be determined by Xxxxx) not to exceed $600,000 per annum,
to be paid annually to Xxxxx by the Surviving Corporation and (iii)
indemnification by the Surviving Corporation of Xxxxx and certain related
parties with respect to the transactions contemplated hereby, including the
financing of the Merger and any services to be provided by Xxxxx or any related
party to the Surviving Corporation on a going forward basis.
SECTION 8.9. Assignment. This Agreement shall not be assigned by operation
of law or otherwise, except that Merger Sub may assign all or any of its rights
hereunder to any affiliate of Merger Sub provided that no such assignment shall
relieve the assigning party of its obligations hereunder.
SECTION 8.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed entirely within that State.
SECTION 8.11. Amendment. This Agreement may be amended by the parties
hereto by action taken by Merger Sub, and by action taken by or on behalf of the
Board of Directors at any time before the Effective Time; provided, however,
that, after approval of the Merger by the stockholders of the Company, no
amendment may be made which would reduce the amount or change the type of
consideration into which each Share will be converted upon consummation of the
Merger. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 8.12. Waiver. At any time before the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
-54-
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only as against such party and only if
set forth in an instrument in writing signed by such party.
SECTION 8.13. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which shall
constitute one and the same agreement.
-55-
IN WITNESS WHEREOF, Merger Sub and the Company have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
UNILAB CORPORATION
By: /s/ Xxxxx X. Xxxxxx
-----------------------
Name: Xxxxx X. Xxxxxx
Title: Chief Executive Officer
UC ACQUISITION SUB, INC.
By: /s/ Xxxxx X. Xxxxxxx
-----------------------
Name: Xxxxx X. Xxxxxxx
Title: Vice President
-56-
